Federal Register / Vol. 85, No. 234 / Friday, December 4, 2020 / Notices 78381 

59 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

(B) Clearing Agency’s Statement on 

Burden on Competition 

Once the proposed rule change is 

fully implemented as described above, 

DTC does not believe that the proposed 

rule change would have any impact, or 

impose any burden, on competition 

because the proposed rule change 

provides for an additional method 

under which Participants may request 

eligibility of, process, and Deliver CDs 

on a voluntary basis. The new method 

would be available to all Participants 

through UWC, on a date to be 

announced by Important Notice. 

The existing method for Deposit of 

CDs at DTC, that includes the use of a 

physical master certificate, would 

continue to remain available to all 

Participants even after the new E–CD 

process was implemented. 

DTC does not believe that the aspect 

of the proposed rule change to initially 

make the proposed E–CD process 

available to a subset of Participants 

prior to full implementation, as 

described above, would have any 

impact, or impose any burden on 

competition. Participants not 

participating in the initial phase 

described above would be able to 

continue to Deposit eligible CDs in 

physical form. However, to the extent 

the proposed rule change could cause a 

burden because certain Participants 

would continue to be able to Deliver 

electronic certificates during an 

interruption of Participants’ ability to 

make physical delivery of securities to 

DTC, and/or DTC’s ability to accept 

physical deliveries of securities, DTC 

does not believe the burden have a 

significant impact on competition 

because Participants could utilize the 

LOP process, mentioned above, to effect 

Delivery of a security represented in 

physical form to DTC despite any such 

interruption of physical delivery 

services. 

DTC does not believe that the 

proposed rule change to make technical 

changes with respect to spelling, 

punctuation and spacing of text within 

the Procedures, as described above, 

would have any impact, or impose any 

burden, on competition because the 

technical changes would merely provide 

enhanced clarity with respect to the 

Procedures and not have an effect on the 

rights or obligations of Participants and/ 

or Issuers with respect to eligibility 

processing and Deposit of Eligible 

Securities at DTC. 

(C) Clearing Agency’s Statement on 

Comments on the Proposed Rule 

Change Received From Members, 

Participants, or Others 

DTC has not solicited or received any 

written comments relating to this 

proposal. DTC will notify the 

Commission of any written comments 

received by the DTC. 

III. Date of Effectiveness of the 

Proposed Rule Change, and Timing for 

Commission Action 

Within 45 days of the date of 

publication of this notice in the Federal 

Register or within such longer period 

up to 90 days (i) as the Commission may 

designate if it finds such longer period 

to be appropriate and publishes its 

reasons for so finding or (ii) as to which 

the self-regulatory organization 

consents, the Commission will: 

(A) By order approve or disapprove 

such proposed rule change, or 

(B) institute proceedings to determine 

whether the proposed rule change 

should be disapproved. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s internet 

comment form (http://www.sec.gov/ 

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File Number SR– 

DTC–2020–017 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street NE, 

Washington, DC 20549. 

All submissions should refer to File 

Number SR–DTC–2020–017. This file 

number should be included on the 

subject line if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

internet website (http://www.sec.gov/ 

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for website viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE, 

Washington, DC 20549 on official 

business days between the hours of 

10:00 a.m. and 3:00 p.m. Copies of the 

filing also will be available for 

inspection and copying at the principal 

office of DTC and on DTCC’s website 

(http://dtcc.com/legal/sec-rulefilings.aspx). All comments received 

will be posted without change. Persons 

submitting comments are cautioned that 

we do not redact or edit personal 

identifying information from comment 

submissions. You should submit only 

information that you wish to make 

available publicly. All submissions 

should refer to File Number SR–DTC– 

2020–017 and should be submitted on 

or before December 28, 2020. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.59

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2020–26676 Filed 12–3–20; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–90536; File No. SR–CBOE– 

2020–106] 

Self-Regulatory Organizations; Cboe 

Exchange, Inc.; Notice of Filing of a 

Proposed Rule Change, as Modified by 

Amendment No. 1, To Amend Its Rules 

Regarding the Minimum Increments for 

Electronic Bids and Offers and 

Exercise Prices of Certain FLEX 

Options and Clarify in the Rules How 

the System Ranks FLEX Option Bids 

and Offers for Allocation Purposes 

November 30, 2020. 

Pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 

(‘‘Act’’),1 and Rule 19b-4 thereunder,2

notice is hereby given that on November 

16, Cboe Exchange, Inc. (‘‘Exchange’’ or 

‘‘Cboe Options’’) filed with the 

Securities and Exchange Commission 

(‘‘Commission’’) the proposed rule 

change, and on November 30, 2020, the 

Exchange filed Amendment No. 1 to the 

proposed rule change, which amended 

and replaced the proposed rule change 

in its entirety. The proposed rule 

change, as modified by Amendment No. 

1, as described in Items I, II, and III 

78382 Federal Register / Vol. 85, No. 234 / Friday, December 4, 2020 / Notices 

3The term ‘‘FLEX Option’’ means a flexible 

exchange option. See Rule 1.1. 

4A ‘‘FLEX Option’’ is a flexible exchange option. 

See Rule 1.1. 

5A ‘‘FLEX Order’’ is an order submitted in a 

FLEX Option. See Rule 5.70. 6See Rules 4.21(a) and 5.72(b). 7Rules 5.72 through 5.74 describe the various 

auction mechanisms available for the trading of 

FLEX Options. A FLEX Order may be submitted for 

execution into an electronic or open outcry FLEX 

auction pursuant to Rule 5.72, or into a FLEX 

Automated Improvement Mechanism auction 

(‘‘FLEX AIM Auction’’) pursuant to Rule 5.73, or 

FLEX Solicitation Auction Mechanism auction 

(‘‘FLEX SAM Auction’’) pursuant to Rule 5.74. 

8See Rule 4.21(b) for a description of the terms 

of a FLEX Option series that a Submitting FLEX 

Trader must include in a FLEX Order. 

9See Rule 4.21(b)(6). While the specific 

minimums for the exercise price are not currently 

included in Rule 4.21(b)(6), that rule indicates that 

the System rounds the exercise price to the nearest 

minimum increment as set forth in Rule 5.4, and 

the Exchange has interpreted the rule to mean that 

the minimum increment for the exercise price of 

FLEX Options is the same as the minimum 

increment for bids and offers of FLEX Options. The 

term ‘‘trade date’’ as used in Rule 4.21(b)(6), as well 

as in the sentence for this footnote and throughout 

this rule filing, refers to the date on which the FLEX 

Option was bought or sold (i.e., the date on which 

the FLEX Option trade occurs). Note that the 

capped monthly return of a FLEX Index Option that 

is Cliquet-settled must be expressed in dollars and 

cents. See Rule 4.21(b)(5)(B)(iv) for a description of 

Cliquet-settled FLEX Index Options. 

10The Exchange determines the minimum 

increment for bids and offers on FLEX Options on 

a class-by-class basis. See Rule 5.4(c)(4). 

11The proposed rule change will have no impact 

on the minimum increment for bids and offers for 

open outcry FLEX Orders and auction responses, 

which minimum increment for bids and offers will 

continue to be $0.01 (if the exercise price for the 

FLEX Option series is a fixed price) or 0.01% (if the 

exercise price for the FLEX Option series is a 

percentage of the closing value of the underlying 

equity security or index on the trade date). The 

proposed rule change adds language to clarify that 

these minimum increments for bids and offers will 

continue to apply to FLEX Orders and auction 

responses submitted to an open outcry auction. See 

proposed Rule 5.4(c)(4)(B). 

12The proposed rule change will have no impact 

on the smallest increment for exercise prices for 

open outcry FLEX Orders and auction responses, 

which may be no smaller than $0.01 (if the exercise 

price for the FLEX Option series is a fixed price) 

or 0.01% (if the exercise price for the FLEX Option 

series is a percentage of the closing value of the 

underlying equity security or index on the trade 

date). The proposed rule change adds language to 

clarify that these minimum increments for bids and 

offers will continue to apply to FLEX Orders and 

auction responses submitted to an open outcry 

auction. See proposed Rule 4.21(b)(6)(A). 

below, which Items have been prepared 

by the Exchange. The Commission is 

publishing this notice to solicit 

comments on the proposed rule change, 

as modified by Amendment No. 1, from 

interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

Cboe Exchange, Inc. (the ‘‘Exchange’’ 

or ‘‘Cboe Options’’) proposes to amend 

its Rules regarding the minimum 

increment for electronic bids and offers, 

as well as the minimum increment for 

exercise prices, of certain FLEX 

Options 3 and clarify in the Rules how 

the System ranks FLEX Option bids and 

offers for allocation purposes (and make 

various other nonsubstantive, clarifying 

changes). This Amendment No. 1 

replaces the initial rule filing in its 

entirety. The text of the proposed rule 

change is provided in Exhibit 5. 

The text of the proposed rule change 

is available on the Exchange’s website 

(http://www.cboe.com/AboutCBOE/ 

CBOELegalRegulatoryHome.aspx), at 

the Exchange’s Office of the Secretary, 

and at the Commission’s Public 

Reference Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

Exchange included statements 

concerning the purpose of and basis for 

the proposed rule change and discussed 

any comments it received on the 

proposed rule change. The text of these 

statements may be examined at the 

places specified in Item IV below. The 

Exchange has prepared summaries, set 

forth in sections A, B, and C below, of 

the most significant aspects of such 

statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

The Exchange proposes to amend the 

minimum increment for bids and offers, 

as well as the minimum increment for 

exercise prices, of FLEX options 

submitted to an electronic FLEX auction 

and make conforming changes in other 

Rules. The Exchange also proposes to 

make various clarifying and 

nonsubstantive changes, including how 

the System ranks FLEX Option bids and 

offers for allocation purposes. 

A FLEX Option 4 series is eligible for 

trading on the Exchange upon 

submission to the system of a FLEX 

Order 5 by a FLEX Trader (the 

‘‘Submitting FLEX Trader’’) 6 for that 

series pursuant to Rules 5.72 through 

5.74.7 When submitting a FLEX Order 

into the system, the Submitting FLEX 

Trader must include the applicable 

terms of a FLEX Option series, 

including an exercise (or strike) price.8

The exercise price of a FLEX Option 

may currently be expressed as either (1) 

a fixed price expressed in terms of 

dollars and decimals or a specific index 

value, as applicable (which may not be 

smaller than $0.01), or (2) a percentage 

of the closing value of the underlying 

equity security or index, as applicable, 

on the trade date (which may not be 

smaller than 0.01%).9

Pursuant to current Rule 5.4(c)(4)(B), 

the minimum increment for bids and 

offers on FLEX Options with (1) an 

exercise price expressed as a fixed price 

may not be smaller than $0.01 and (2) 

an exercise price expressed as a 

percentage of the closing value of the 

underlying equity security or index on 

the trade date may not be smaller than 

0.01%.10 The proposed rule change 

amends Rule 5.4(c)(4) to provide that: 

(1) The minimum increment for bids 

and offers on a FLEX Options series if 

the exercise price is expressed as a fixed 

price may not be smaller than $0.001 

(for FLEX Orders and auction responses 

submitted to an electronic FLEX 

Auction); and 

(2) the minimum increment for bids 

and offers on a FLEX Options series if 

the exercise price is expressed as a 

percentage of the closing value of the 

underlying equity security or index on 

the trade date may not be smaller than 

0.0001% (for FLEX Orders and auction 

responses submitted to an electronic 

FLEX Auction).11

Similarly, the proposed rule change 

amends Rule 4.21(b)(6)(A) to provide 

that: 

(1) An exercise price expressed as a 

fixed price may not be in increments 

smaller than $0.001 (for FLEX Orders 

submitted to an electronic FLEX 

Auction); and 

(2) an exercise price expressed as a 

percentage of the closing value of the 

underlying equity security or index, as 

applicable, on the trade date may not be 

in increments smaller than 0.0001% (for 

FLEX Orders submitted to an electronic 

FLEX Auction).12

The Exchange believes there is a 

demand from customers for this 

additional precision regarding the 

exercise prices and premiums for FLEX 

Options series that are submitted into 

electronic FLEX Auctions. This 

additional level of precision will 

provide investors with additional 

flexibility regarding the prices at which 

they may execute and exercise their 

FLEX Options on the Exchange, as 

investors may execute and exercise 

over-the-counter options with similar 

precisions. 

Current Rule 4.21(b)(6) defines the 

permissible exercise prices for FLEX 

Options by referencing the minimum 

increments for bids and offers set forth 

in Rule 5.4. Specifically, the current 

rule states the exercise price (which the 

Federal Register / Vol. 85, No. 234 / Friday, December 4, 2020 / Notices 78383 

13The Exchange believes this flexibility is 

appropriate to permit the Exchange to make 

determinations based on the market characteristics 

of different classes. The Exchange notes the rules 

of another options exchange similarly permit that 

exchange to determine on a class-by-class basis both 

minimum increments for exercise prices and 

premiums (i.e., bids and offers) stated using a 

percentage-based methodology. See, e.g., NYSE 

Arca, Inc. (‘‘Arca’’) Rule 5.32–O(e)(2)(C). 

14Amendment No. 1 replaces the phrase ‘‘bids 

and offers’’ in this sentence with ‘‘transaction 

prices’’ to reflect the updated term in the rule text. 

System rounds to the nearest minimum 

increment for bids and offers, as set 

forth in Rule 5.4) may be a fixed price 

expressed in terms of dollars and 

decimals or a specific index value, as 

applicable, or a percentage of the 

closing value of the underlying equity 

security or index, as applicable, on the 

trade date. As noted above, current Rule 

5.4(c)(4) states that the Exchange may 

determine the minimum increment for 

bids and offers on a class-by-class basis, 

which may not be smaller than $0.01 or 

0.01%, as applicable. The Exchange has 

historically interpreted that current Rule 

4.21(b)(6), by reference to current Rule 

5.4(c)(4), provides that exercise prices 

may similarly be in increments no 

smaller than $0.01 or 0.01%, as 

applicable, which smallest increment 

for exercise prices the Exchange may 

determine on a class-by-class basis. The 

proposed rule change amends Rule 

4.21(b)(6) to codify this longstanding 

interpretation by expressly stating the 

actual permissible smallest increments 

for exercise prices and that the 

Exchange may determine the smallest 

increment for exercise prices on a classby-class basis. 

In connection with this proposed 

change to add precision to exercise 

prices and pricing of FLEX Options, the 

proposed rule change makes the 

following nonsubstantive changes to 

Rules 4.21(b)(6) and Rule 5.4(c)(4), 

which nonsubstantive changes further 

clarify differences between FLEX 

Option series with exercise prices 

expressed as fixed increments and 

percentages, as well as add current rule 

interpretations and general transparency 

to the Rules: 

• The proposed rule change specifies 

the actual permissible minimum 

amounts for exercise prices for FLEX 

Equity Options or FLEX Index Options 

that are not Cliquet-settled rather than 

identifying them by reference to Rule 

5.4, which defines permissible 

minimum increments for bids and 

offers. As noted above, current Rule 

4.21(b)(6) states the exercise price 

(which the System rounds to the nearest 

minimum increment as set forth in Rule 

5.4), which may be for a FLEX Equity 

Option or FLEX Index Option that is not 

Cliquet-settled, a fixed price expressed 

in terms of dollars and decimals or a 

specific index value, as applicable, or a 

percentage of the closing value of the 

underlying equity security or index, as 

applicable, on the trade date. As 

discussed above, the Exchange has 

historically interpreted this rule to mean 

that the smallest permissible increments 

for exercise prices of FLEX Options are 

the same as the minimum increments 

for bids and offers of FLEX Options, 

which smallest increments the 

Exchange may determine on a class-byclass basis (as the Exchange may do for 

minimum increments for bids and 

offers). Rather than identify the 

minimum increments for exercise prices 

by reference to the rule describing the 

minimum increments for bids and 

offers, the proposed rule change adds 

the language specifying the actual 

minimum increments for exercise prices 

for FLEX Equity Options and FLEX 

Index Options that are not Cliquetsettled, which minimum increments are 

the same as minimum increments for 

bids and offers. Specifically, the 

proposed rule change states that the 

exercise price may be in increments no 

smaller than (which language is taken 

from Rule 5.4(c)(4)) (1) for a FLEX 

Equity Option or FLEX Index Option 

that is not Cliquet-settled, (a) $0.001 (for 

FLEX Orders submitted to an electronic 

FLEX Auction) or $0.01 (for FLEX 

Orders and auction responses submitted 

to an open outcry auction), if the 

exercise price for the FLEX Option 

series is a fixed price, or (b) 0.0001% 

(for FLEX Orders and auction responses 

submitted to an electronic auction) or 

0.01% (for FLEX Orders and auction 

responses submitted to an open outcry 

auction), if the exercise price for the 

FLEX Option series is a percentage of 

the closing value of the underlying 

equity security or index on the trade 

date. As discussed above, the proposed 

rule change amends the permissible 

minimum amounts for exercise prices 

for FLEX Orders submitted to an 

electronic FLEX Auction. However, the 

minimum permissible amounts of $0.01 

and 0.01% for FLEX Options with fixed 

exercise prices and percentage exercise 

prices, respectively, submitted into 

open outcry FLEX Auctions added to 

Rule 4.21(b)(6) are the current minimum 

increments permissible for these FLEX 

Options. Therefore, the proposed rule 

change makes no substantive changes to 

the minimum increments of exercise 

prices for FLEX Orders submitted into 

open outcry FLEX Auctions. The 

Exchange believes this will make the 

rule regarding permissible exercise 

prices for FLEX Options more 

transparent and thus may eliminate 

potential confusion regarding 

permissible exercise prices. 

• The proposed rule change adds to 

the end of Rule 4.21(b)(6) that the 

Exchange may determine the smallest 

increment for exercise prices of FLEX 

Options on a class-by-class basis. As 

discussed above, this is consistent with 

the Exchange’s longstanding 

interpretation of the current Rule, which 

refers to the minimum increment for 

bids and offers as set forth in Rule 5.4 

when identifying the minimum 

increments for exercise prices of FLEX 

Options. Rule 5.4(c)(4) states that the 

Exchange may determine the minimum 

increment for bids and offers on FLEX 

Options on a class-by-class basis, which 

may be no smaller than the amounts 

specified in that rule. Therefore, the 

Exchange has interpreted Rule 4.21(b)(6) 

to mean that those same provisions 

apply to the minimum increments for 

exercise prices for FLEX Options. The 

proposed rule change codifies this 

longstanding interpretation in the Rules, 

which the Exchange believes will make 

the rule regarding permissible exercise 

prices for FLEX Options more 

transparent and thus may eliminate 

potential confusion regarding 

permissible exercise prices.13

• The proposed rule change moves 

the parenthetical regarding the System 

rounding the exercise price to the 

nearest minimum increment for bids 

and offers in the class (as set forth in 

Rule 5.4) from the introductory clause 

in Rule 4.21(b)(6) to the end of 

subclause (A)(ii), and makes 

corresponding changes to Rules 5.3(e)(3) 

and 5.4(c)(4) by enclosing that language 

in a parenthetical so that it applies only 

to subclause (B) of each subparagraph. 

While not specified in the Rules, such 

rounding would only occur for exercise 

prices and bids and offers (as discussed 

below, the proposed rule change 

replaces ‘‘bids and offers’’ with 

‘‘transaction prices’’), respectively, 

expressed as a percentage, so the 

proposed rule clarifies that it applies 

only for exercise prices and bids and 

offers, respectively, expressed as a 

percentage and specifies that the System 

rounds the actual exercise prices and 

final transaction prices,14 respectively, 

to the nearest fixed price minimum 

increment for bids and offers in the 

class. 

The proposed rule change also adds to 

the parenthetical in Rule 

4.21(b)(6)(A)(ii) that the System rounds 

the ‘‘actual’’ exercise price to the nearest 

fixed price minimum increment to 

provide additional clarity to the 

provision, as the dollar value of an 

exercise price expressed as a percentage 

78384 Federal Register / Vol. 85, No. 234 / Friday, December 4, 2020 / Notices 

15As discussed above, the dollar value minimum 

increment for bids and offers is either $0.001 (for 

FLEX Orders submitted into electronic FLEX 

Auctions) (as proposed) or $0.01 (for FLEX Orders 

submitted into open outcry FLEX Auctions). 

16This Amendment No. 1 corrects a typo in the 

parenthetical in this sentence by updating ‘‘23.939’’ 

to ‘‘23.929’’ to reflect the actual calculated exercise 

price, which rounds to $23.93. Additionally, 

Amendment No. 1 adds the following sentence in 

this footnote to describe how the actual exercise 

price is calculated. Specifically, as set forth in Rule 

4.21(b)(6), a FLEX Option series with a percentage 

exercise price reflects a percentage of the closing 

value of the underlying equity security or index, as 

applicable, on the trade date. Therefore, in this 

example, the actual exercise price is the percentage 

(50.24%) of the closing value of underlying ABC on 

the trade date ($47.63), which is 23.929, which the 

System rounds to $23.93. Contract multipliers are 

applied after any rounding occurs. 

17This Amendment No. 1 adds this footnote to 

describe how the actual transaction price is 

calculated. Specifically, as set forth in Rule 

5.4(c)(4), a FLEX Option series with a percentage 

bid or offer reflects a percentage of the closing value 

of the underlying equity security or index, as 

applicable, on the trade date. Therefore, in this 

example, the actual transaction price is the 

percentage (7.01%) of the closing value of 

underlying ABC on the trade date ($47.63), which 

is 3.338, which the System rounds to $3.34. 

18The proposed rule change also clarifies this in 

Rule 5.72(d)(2) by adding a cross-reference to Rule 

5.85(a)(1), which states that, with respect to open 

outcry trading on the Exchange’s trading floor, bids 

and offers with the highest bid and lowest offer 

have priority. This is a nonsubstantive change that 

is currently true for open outcry FLEX Auctions, 

and the proposed rule change merely makes this 

explicit in Rule 5.72(d)(2), which cross-reference 

was previously inadvertently omitted from the 

Rules. 

determined after the closing value is 

available would be rounded to the 

nearest minimum dollar value 

increment, which dollar value would 

represent the ultimate, ‘‘actual’’ exercise 

price.15 Similarly, the proposed rule 

change adds to the proposed 

parentheticals in Rules 5.3(e)(3)(B) and 

5.4(c)(4)(B) that the System rounds the 

‘‘final transaction prices’’ to the fixed 

price minimum increment to the class, 

as the dollar value of the transaction 

price of a FLEX Option for which the 

bids and offers were expressed as a 

percentage (the ‘‘final’’) determined 

after the closing value is available 

would be rounded to the nearest fixed 

price minimum increment for the class 

(e.g., the nearest $0.01, if that is the 

minimum determined for the class). 

This is the same rounding process that 

applies today for these options. The 

Exchange notes current Rules 

5.3(e)(3)(B) and 5.4(c)(4)(B) indicate the 

System rounds bids and offers to the 

nearest minimum increment. However, 

because bids and offers during a FLEX 

Auction are ranked based on the 

percentage amounts of bids and offers 

(as discussed below), and thus the 

transaction price(s) at the conclusion of 

the auction will be a percentage amount, 

there will no longer be bids and offers 

to round once the closing value of the 

underlying on the trade date is 

available. Rather, the transaction price 

is rounded. The proposed rule change 

corrects this term in these parentheticals 

to more accurately reflect how the 

System currently works. 

Currently, as clarified by these 

proposed rule changes (and the 

additional description regarding 

rankings of bids and offers in FLEX 

Auction, as discussed below), bids and 

offers expressed as a percentage of the 

closing value of the underlying on the 

trade date are ranked by the percentage 

amount for FLEX Option series for 

which the exercise price is expressed as 

such a percentage. As a result, the 

transaction ‘‘price(s)’’ at the conclusion 

of a FLEX Auction will be a percentage 

amount(s). Once the closing value of the 

underlying on the trade date is 

available, the System determines the 

exercise price and transaction price in a 

dollar amount using that closing value, 

and rounds each to the minimum dollar 

amount increment at that time. For 

example, suppose a FLEX Trader 

submits an order to buy 100 contracts of 

FLEX Option series ABC Mar 50.24% 

into a FLEX Auction. There are two 

responses, each to sell 100, with 

response 1 offering to sell at 7.01% and 

response 2 to sell at 7.03%. Response 1 

is a better price for the buy order (i.e. 

is ranked higher than response 2), so 

response 1 executes against the buy 

order at the conclusion of the auction 

for a transaction price of 7.01% of the 

closing value of the underlying on that 

date. Following the close of trading, the 

closing price of ABC on the day of that 

trade is $47.63. At that time, the System 

determines the actual exercise price in 

dollars to be $23.93 (rounded from 

23.929).16 At that time, the System also 

determines the final transaction price in 

dollars to be $3.34 (rounded from 

3.338).17 The System currently works 

this way and will continue to work in 

this way upon implementation of the 

proposed rule change (if approved), 

except rounding will occur to three 

decimals instead of two for electronic 

FLEX Orders. 

• In addition, the proposed rule 

change makes a clarifying, 

nonsubstantive change to Rule 5.3(e)(3). 

Rule 5.3(e)(3) currently states that bids 

and offers for FLEX Options must be 

expressed in (a) U.S. dollars and 

decimals, if the exercise price for the 

FLEX Option series is a fixed price, or 

(b) a percentage, if the exercise price for 

the FLEX Option series is a percentage 

of the closing value of the underlying 

equity security or index on the trade 

date, per unit of the underlying security 

or index, as applicable. The System 

rounds bids and offers to the nearest 

minimum increment. The proposed rule 

change clarifies in the proposed 

parenthetical in Rule 5.3(e)(3)(B) 

(described in the preceding bulleted 

paragraphs) that bids and offers would 

be in the applicable minimum 

increment as set forth in Rule 5.4. This 

is true today and merely incorporates a 

cross-reference to Rule 5.4, which 

describes permissible minimum 

increments for bids and offers. The 

Exchange believes the addition of this 

cross-reference will provide additional 

transparency and clarity to this Rule. 

The proposed rule change also 

codifies in Rules 5.72(c)(3)(A) and 

(d)(2), 5.73(e), and 5.74(e) how FLEX 

Auction response bids and offers (as 

well as Initiating Orders and 

Solicitation Orders with respect to FLEX 

AIM Auctions and FLEX SAM Auctions, 

respectively) are ranked during the 

allocation process following each type 

of FLEX Auction (i.e., electronic FLEX 

Auction, open outcry FLEX Auction, 

FLEX AIM Auction, and FLEX SAM 

Auction, respectively). FLEX Orders 

will always first be allocated to 

responses at the best price, as 

applicable.18 With respect to responses 

to all types of FLEX Auctions for a FLEX 

Option series with an exercise price 

expressed as a dollar and decimal, the 

‘‘prices’’ at which FLEX Traders 

submitting responses are competing are 

the dollar and decimal amounts of the 

response bids and offers entered as fixed 

amounts (as is the case with all nonFLEX Options), and the proposed rule 

change codifies this in the Rules. With 

respect to responses to all types of FLEX 

Auctions for a FLEX Option series with 

an exercise price expressed as a 

percentage, the ‘‘prices’’ at which FLEX 

Traders submitting responses are 

competing are the percentage values of 

the response bids and offers entered as 

percentages (which ultimately become a 

dollar value after the closing value for 

the underlying security or index, as 

applicable, is available), and the 

proposed rule change codifies this in 

the Rules. These are nonsubstantive 

changes, as they reflect how ranking 

following FLEX Auctions occurs today, 

and the Exchange believes these 

changes will provide additional 

transparency in the Rules. 

The Exchange notes that responses to 

the Exchange’s electronic FLEX 

Auctions are not visible to other FLEX 

Traders, and therefore FLEX Traders 

will not be able to compete by 

increasing or decreasing bids and offers, 

respectively, of other FLEX Traders by 

Federal Register / Vol. 85, No. 234 / Friday, December 4, 2020 / Notices 78385 

19See Rules 5.72(c)(2)(D)(iv), 5.73(c)(5)(E), and 

5.74(c)(5)(E). 

20 15 U.S.C. 78f(b). 

21 15 U.S.C. 78f(b)(5). 

22 Id. 

23As described in the prior example above, any 

rounding of the final transaction price to the 

minimum fixed increment occurs following the 

close of trading on the trade date once the closing 

value of the underlying on that date is available, 

after the percentage of the underlying closing value 

is calculated. 

24 Id. 

25The ‘‘Sub-Penny Rule’’ in Rule 612 of 

Regulation NMS states that no national securities 

exchange, national securities association, 

alternative trading system, vendor, or broker or 

dealer may display, rank, or accept from any person 

a bid or offer, an order, or an indication of interest 

in any NMS stock priced in an increment smaller 

than $0.01 if that bid or offer, order, or indication 

of interest is priced equal to or greater than $1.00 

per share. The minimum increment for a bid or 

offer, an order, or an indication of interest in any 

NMS stock priced less than $1.00 per share is 

$0.0001. See 17 CFR 242.612. While Rule 612 

applies only to NMS stocks and not options, no 

options exchange permits bids or offers on options 

to be less than $0.01. 

26See Securities Exchange Act Release No. 50870, 

69 FR 77423, 77484 (December 27, 2004) (proposed 

rules and amendments to joint industry plans). 

27 Id. at 77429 (emphasis added). 

a minute increment.19 The Exchange 

does not currently propose to add more 

precision for bids and offers and 

exercise prices for open outcry FLEX 

Auctions to avoid the risk of such 

competition because FLEX Traders in 

the trading crowd can hear the 

responses of others in the crowd. The 

Exchange understands that demand for 

the additional precision is primarily for 

electronic trading. 

2. Statutory Basis 

The Exchange believes the proposed 

rule change is consistent with the 

Securities Exchange Act of 1934 (the 

‘‘Act’’) and the rules and regulations 

thereunder applicable to the Exchange 

and, in particular, the requirements of 

Section 6(b) of the Act.20 Specifically, 

the Exchange believes the proposed rule 

change is consistent with the Section 

6(b)(5) 21 requirements that the rules of 

an exchange be designed to prevent 

fraudulent and manipulative acts and 

practices, to promote just and equitable 

principles of trade, to foster cooperation 

and coordination with persons engaged 

in regulating, clearing, settling, 

processing information with respect to, 

and facilitating transactions in 

securities, to remove impediments to 

and perfect the mechanism of a free and 

open market and a national market 

system, and, in general, to protect 

investors and the public interest. 

Additionally, the Exchange believes the 

proposed rule change is consistent with 

the Section 6(b)(5) 22 requirement that 

the rules of an exchange not be designed 

to permit unfair discrimination between 

customers, issuers, brokers, or dealers. 

In particular, the Exchange believes 

the proposed rule change will protect 

investors and the public interest by 

providing investors with the ability to 

obtain more precise premiums and 

exercise prices for FLEX Options in 

electronic FLEX trading. Given the 

various trading and hedging strategies 

employed by investors and the 

importance of every penny, particularly 

with larger orders and orders in classes 

with significant notional values, this 

additional precision may provide them 

with more control over the prices at 

which their FLEX Orders trade and are 

exercised. The total price of an order for 

10,000 contracts of a series will be much 

greater than (i.e., 100 times) the total 

price of an order for 100 contracts of the 

same series, and therefore additional 

precision may impact that price. For 

example, suppose a FLEX Trader buys 

1 ABC Mar 20 at 1.05%, and the closing 

price of ABC on the day of that trade is 

$50, making the final purchase price 

$0.53 (rounded from 0.525),23 for a total 

of $53 after applying the 100 contract 

multiplier. Suppose another FLEX 

Trader buys 10,000 of the same series at 

the same price, making the total 

purchase price $530,000. With the 

proposed rule change, suppose each 

FLEX Trader instead paid 1.0455% 

(which decimal is currently not 

permissible and would have needed to 

be input as 1.05%), for a purchase price 

of $0.523 (rounded from 0.52275).24 The 

total purchase price of the first trade 

would be $52.30 (down from $53), and 

the total purchase price of the second 

trade would be $523,000 (down from 

$530,000). The additional precision for 

the smaller order permitted the FLEX 

Trader to pay $0.70 less, while the 

additional precision for the larger order 

permitted the FLEX Trader to pay 

$7,000 less. This example demonstrates 

how the impact on larger-sized orders 

may be particularly significant given the 

larger total purchase price. The larger 

impact is similar for options with larger 

notional values. While additional 

decimals may be available for bids and 

offers and exercise prices for FLEX 

Options submitted into electronic 

auctions pursuant to the proposed rule 

change, FLEX options will otherwise 

continue to trade in the same manner as 

they do today. 

By permitting FLEX Options to trade 

with similar precision currently 

available to customized options in the 

OTC market, the Exchange believes the 

proposed rule change will remove 

impediments to and perfect the 

mechanism of a free and open market 

and a national market system by further 

improving a comparable alternative to 

the OTC market in customized options. 

By enhancing our FLEX trading 

platform to provide additional terms 

available in the OTC market but not 

currently available in the listed options 

market, the Exchange believes it may be 

a more attractive alternative to the OTC 

market. The Exchange believes market 

participants benefit from being able to 

trade customized options in an 

exchange environment in several ways, 

including but not limited to the 

following: (1) Enhanced efficiency in 

initiating and closing out positions; (2) 

increased market transparency; and (3) 

heightened contra-party 

creditworthiness due to the role of The 

Options Clearing Corporation (‘‘OCC’’) 

as issuer and guarantor of FLEX 

Options. 

The Exchange does not believe that 

the proposed rule change to permit 

FLEX Traders to submit bids and offers 

in a ‘‘sub-increment’’ as small as $0.001 

or 0.0001% (which bids and offers 

would be ranked for allocation purposes 

based on that four-decimal percentage 

value) as opposed to the current 

minimum of $0.01 or 0.01% for 

electronic FLEX auctions raises any of 

the risks the Securities and Exchange 

Commission (the ‘‘Commission’’) has 

previously raised with respect to ‘‘subincrement’’ pricing. In its reproposal of 

the ‘‘Sub-Penny Rule,’’ 25 the 

Commission stated that ‘‘sub-penny 

quoting impedes transparency by 

reducing market depth at the national 

best bid or offer (‘‘NBBO’’) and 

increasing quote flickering.’’ 26 The 

Commission stated in its overview of 

the proposed Sub-Penny Rule that the 

rule ‘‘would address the practice of 

‘stepping ahead’ of displayed limited 

orders by trivial amounts’’ and therefore 

‘‘further encourage the display of limit 

orders and improve the depth and 

liquidity of trading in NMS stocks.’’ 27

Specifically, the Commission identified 

the following problems caused by subpennies that the Sub-Penny Rule was 

designed to address when approving the 

Sub-Penny Rule: 

• If investors’ limit orders lose 

execution priority for a nominal 

amount, investors may over time 

decline to use them, thus depriving the 

markets of liquidity. 

• When market participants can gain 

execution priority for a nominal 

amount, important customer protection 

rules such as exchange priority rules 

and the Manning Rule could be 

undermined. 

• Flickering quotations that can result 

from widespread sub-penny pricing 

78386 Federal Register / Vol. 85, No. 234 / Friday, December 4, 2020 / Notices 

28See Securities Exchange Act Release No. 51808 

(June 9, 2005), 70 FR 37496, 37551—52 (June 29, 

2005) (‘‘Sub-Penny Approval’’). 

29 Id. at 37553. 

30See Options Disclosure Document (‘‘ODD’’) at 

pages 77—78. 

31See Securities Exchange Act Release No. 50870, 

69 FR 77423, 77457 (December 27, 2004) (proposed 

rules and amendments to joint industry plans) 

(emphasis added). 

32The Exchange does not disseminate the auction 

prices for any FLEX Auctions (except the FLEX 

SAM Auction). See Rules 5.72(c)(2)(A) and 

5.73(c)(2); see also 5.74(c)(2). 

33See supra note 24 [sic] at 77457. 

34See Options Disclosure Document (‘‘ODD’’) at 

pages 77—78. 

35FLEX Traders are permitted to submit multiple 

responses at multiple prices). 36BOX was permitting penny increments in this 

price improvement auction despite the standard 

increments for options being $0.05 and $0.10. See 

Securities Exchange Act Release No. 49068 (January 

13, 2004), 69 FR 2775 (January 13, 2004) (SR–BSE– 

2002–15) (order approving PIP auctions that permit 

orders and responses be submitted into the auctions 

in penny increments). 

37See supra note 24 [sic] at 77459. The Exchange 

acknowledges that it submitted the comment 

arguing for prohibition of the use of sub-increment 

pricing in BOX’s PIP auction. However, the 

Commission approved it as being consistent with 

the Exchange Act (and the Exchange itself has 

similar price improvement auctions that permit 

penny pricing in options with minimum increments 

of $0.05 and $0.10), and the Commission disagreed 

with the Exchange’s argument. 

38As set forth in Rule 5.4, some options classes 

may trade in increments of $0.01 or $0.05 (several 

classes may trade in increments of $0.01 for all 

strikes), while other classes may trade in 

increments of $0.05 or $0.10. Complex orders may 

generally trade in increments of $0.01, and FLEX 

class may trade in increments of $0.01 or 0.01%. 

could make it more difficult for brokerdealers to satisfy their best execution 

obligations and other regulatory 

responsibilities. 

• Widespread sub-penny quoting 

could decrease market depth and lead to 

higher transaction costs. 

• Decreasing depth at the inside 

could cause institutions to rely more on 

execution alternatives away from the 

exchanges, potentially increasing 

fragmentation in the securities 

markets.28

The Commission, however, 

‘‘acknowledge[d] the possibility that the 

balance of costs and benefits could shift 

in a limited number of cases or as the 

markets continue to evolve.29 While the 

Sub-Penny Rule is inapplicable to 

options trading, the Exchange 

understands the same concerns 

described above may exist in the 

options markets with respect to 

subincrement prices. 

In the context of FLEX Option trading, 

there is no NBBO, as execution prices of 

FLEX Options are not required to 

consider the prices of options on other 

exchanges (thus there is no NBBO for 

FLEX Options). Additionally, there is no 

book for FLEX Options on the Exchange. 

As a result, there is no displayed 

liquidity (or market depth) in front of 

which interest may ‘‘step ahead,’’ and 

the concept of quote flickering would 

not arise in the Exchange’s FLEX 

Options market. Additionally, the FLEX 

market is generally less liquid than the 

non-FLEX market. Trading in FLEX 

Options may be spread over a larger 

number of series than non-FLEX 

Options (due to FLEX options not being 

pre-established). As a result, trading 

interest in a particular series of FLEX 

Options may be limited, making markets 

in FLEX Options potentially less deep 

and liquid than in non-FLEX Options 

with the same underlying interest.30 As 

a result, the Exchange does not believe 

the risk that sub-increment trading will 

lead to reduced market depth and 

liquidity in the FLEX market, as those 

may occur due to the nature of the FLEX 

market in general regardless of the 

pricing precision available. In fact, as 

discussed, the Exchange believes the 

proposed rule change to permit 

additional pricing precision for FLEX 

Options may provide market 

participants with additional flexibility 

to achieve their investment objectives 

on a listed exchange. These increased 

investment opportunities may 

ultimately add liquidity to the FLEX 

Options market. 

Additionally, the Commission made 

clear that the prohibition of sub-penny 

quoting would ‘‘deter the practice of 

stepping ahead of exposed trading 

interest by an economically 

insignificant amount.’’ 31 No such 

practice is possible given that trading 

interest in FLEX Auctions is not 

exposed. FLEX Options submitted for 

electronic execution may only execute 

pursuant to an electronic auction in 

which the trading interest of competing 

FLEX Traders is not exposed as set forth 

in Rules 5.72, 5.73, and 5.74. As noted 

above, responses to the Exchange’s 

electronic FLEX Auctions are not visible 

to other FLEX Traders.32 Therefore, 

there will generally be no displayed 

liquidity to which other FLEX Traders 

may respond by purposefully increasing 

or decreasing their bids and offers, 

respectively, of other FLEX Traders by 

a trivial amount. Unlike limit orders, 

auction responses are not intended to 

serve a price-setting function. Therefore, 

the Exchange does not believe that the 

proposed ‘‘sub-increment’’ for electronic 

FLEX Auctions will diminish liquidity 

in these auctions as the Commission 

believes sub-penny quoting may cause 

with respect to displayed limit orders 

that do serve a price-setting function in 

the displayed market.33 As discussed 

above, the purpose of FLEX Options is 

to add transparency to the market by 

encouraging the trading of customized 

options on the Exchange rather than in 

OTC. As noted above, trading in FLEX 

Options may be spread over a larger 

number of series than non-FLEX 

Options (due to FLEX options not being 

pre-established). As a result, trading 

interest in a particular series of FLEX 

Options may be limited, making markets 

in FLEX Options potentially less deep 

and liquid than in non-FLEX Options 

with the same underlying interest.34 The 

Exchange believes the proposed 

enhancement to FLEX trading in this 

rule filing may encourage additional 

Exchange trading and liquidity in these 

options, which benefits all investors. 

While it is possible that the ultimate 

result is that a FLEX Trader’s response 

in an electronic FLEX Auction may lose 

execution priority if the response of 

another FLEX Trader is better by a small 

amount, it is just as possible the FLEX 

Trader may gain execution priority by a 

small amount. Because a FLEX Trader 

would not know the prices of other 

responses, the FLEX Trader could not 

submit a response with the purpose of 

increasing the prices of other responses 

by an economically insignificant 

amount. The purpose of not displaying 

auction responses of other auction 

participants is to encourage all FLEX 

Traders to submit their best-priced 

responses.35 As demonstrated above, 

even small price changes can create a 

significant price difference. The 

Exchange does not believe the proposed 

rule change will discourage FLEX 

Traders from providing liquidity to 

electronic FLEX Auctions, because the 

prices of their responses are not 

available to other FLEX Traders to use 

to step ahead by a small amount (and 

thus ‘‘piggyback’’ off of pricing done by 

other investors) in order to gain 

execution priority. The Commission 

itself acknowledged the difference 

between use of a sub-increment in the 

context of an auction and in the context 

of displayed liquidity in the book. 

Specifically, in response to a commenter 

arguing that the Commission should 

prohibit the Boston Options Exchange 

(‘‘BOX’’) from using ‘‘sub-increment’’ 

pricing in its price improvement period 

(‘‘PIP’’) auction,36 the Commission 

states that it did ‘‘not believe that the 

PIP raise[d] the same problems caused 

by sub-penny quotations of non-option 

securities . . .’’ because the use of the 

sub-increment was in an auction rather 

than public quotations.37

While equities and options may 

generally not trade in increments 

smaller than $0.01,38 there are 

exceptions to this restriction for 

Federal Register / Vol. 85, No. 234 / Friday, December 4, 2020 / Notices 78387 

39See 17 CFR 242.612. 

40See Rule 5.85(h). 

41See, e.g., Cboe BYX Exchange, Inc. (‘‘BYX’’) 

Rule 11.24. The Exchange notes that multiple retail 

orders will be ranked for priority purposes based on 

their prices (including any subpenny prices). 

42 It is common for markets to generally 

distinguish between retail investors and other 

traders; however, it is also common for markets to 

generally distinguish between FLEX trading and 

non-FLEX trading. For example, as otherwise 

discussed in this filing, the manner in which FLEX 

Options trades (via auction only) differs from the 

manner in which non-FLEX options trade (a 

combination of a book into which orders may be 

submitted as well as auctions). Additionally, as 

noted above, all FLEX Options may trade in 

pennies, while only certain non-FLEX Options 

(with certain strikes) may trade in pennies. 

43See Securities Exchange Act Release No. 68303 

(November 27, 2012), 77 FR 71652, 71655 

(December 3, 2012) (SR–BYX–2012–019) (‘‘BYX 

Approval Order’’). The BYX retail price 

improvement program was initially approved as a 

pilot program; however, the Commission later 

approved it to become a permanent program. See 

Securities Exchange Act Release No. 87154 

(September 30, 2019), 84 FR 53183 (October 4, 

2019) (SR–CboeBYX–2019–014). 

44 Id. at 71656. 

45 Id. 

46 Id. at 71657. 

specific, limited purposes. As noted 

above, the minimum increment for a bid 

or offer, an order, or an indication of 

interest in any NMS stock priced less 

than $1.00 per share is $0.0001.39 Subpenny cabinet orders may execute on 

the Exchange to accommodate closing 

transactions in options.40 In both cases, 

sub-increment pricing permits more 

appropriate prices to apply to lowervalued stocks and options. 

In addition, various equity exchanges 

offer retail price improvement programs, 

pursuant to which retail orders may be 

entered in increments of $0.001 if the 

prices of those retail orders increase the 

NBBO at the time of entry (the prices of 

the orders would be nondisplayed), 

despite the $0.01 minimum increment 

for all other orders.41 While the purpose 

of these retail price improvement 

programs was to create additional price 

improvement opportunities for retail 

investors,42 the impetus for the 

programs was similar to the purpose of 

the proposed rule change. Specifically, 

the Commission recognized that most 

marketable retail order flow executed in 

OTC markets without reaching a public 

exchange, therefore limiting market 

participants that had the opportunity to 

interact with that order flow.43 The 

Commission indicated it believed 

creating additional price improvement 

opportunities for retail investors by 

permitting those orders to be submitted 

at subpenny prices (as was typical in the 

OTC market), the program was 

‘‘reasonably designed to attract retail 

order flow to the exchange 

environment.’’ 44 The Commission also 

noted the benefits to institutional 

investors that may result from 

opportunities to interact with that order 

flow that such investors were not then 

able to reach in the OTC market.45

Ultimately, the Commission found the 

Program would benefit the marketplace 

by bringing more information about 

retail orders to the marketplace and 

would enhance competition among 

market participants and encourage 

competition amongst exchange 

venues.46

Like the BYX retail price 

improvement program (and other 

similar programs), the proposed rule 

change is intended to attract order flow 

that currently executes in the OTC 

market to an exchange by permitting 

competition on the exchange for that 

order flow to occur with the same terms 

available in the OTC market. FLEX 

Traders on the Exchange are not 

currently able to interact with order 

flow for many options that could 

otherwise trade as FLEX Options 

because it is routinely executed in the 

OTC market where sub-increment 

executions are available so they can 

obtain the benefits of pricing precision 

as described above. The Exchange 

believes the proposed rule change is 

reasonably designed, limited to FLEX 

Options (which represents a small 

percentage of Exchange volume), to 

attract FLEX Option order flow to the 

Exchange, which would add 

transparency to the market for these 

options, as well as provide those 

options with the benefits of trading on 

an exchange (which benefits are 

described above). 

Like the retail price improvement 

programs, the Exchange believes the 

proposed rule change is a case in which 

the benefits of subincrement pricing due 

to evolving markets outweigh any 

potential costs. The benefits of attracting 

FLEX Option order flow to an exchange 

are outlined above. Exchanges are 

unable to currently compete to equal 

footing with the OTC market for a 

variety of factors, including due to the 

current lack of availability of 

subincrement pricing. The proposed 

rule change is a limited exception to the 

current minimum of penny increment 

pricing on the Exchange, which is 

reasonably designed to minimize the 

concerns the Commission has 

previously raised with respect to 

subincrement pricing. Because there is 

no book, and thus no quotes or resting 

limit orders, in the FLEX Options 

market, the Exchange believes there is 

de minimis, if any, risk of reducing 

incentives for investors to display limit 

orders or for quote-flickering and 

reduced market depth. In fact, by 

attracting more FLEX Option order flow 

to the Exchange, the Exchange believes 

the proposed rule change could result in 

greater order interaction and liquidity in 

the FLEX Options market. As noted 

above, because all FLEX Options may 

only execute in auctions in which 

responses are not disseminated, the 

Exchange believes the proposed rule 

change does not encourage market 

participants to step ahead of competing 

responses to gain an insignificant price 

improvement because those prices are 

not displayed. The proposed rule 

change is designed to attract order flow 

away from the alternative of OTC 

execution, and, therefore, the Exchange 

does not believe the proposed rule 

change will cause increased 

fragmentation (and in fact it may reduce 

this fragmentation). Because the 

proposed rule change is limited to FLEX 

Options and given the structure of the 

FLEX market on the Exchange, the 

Exchange believes the benefits of 

increasing the potential to compete with 

OTC markets for FLEX orders in order 

to bring additional transparency to 

executions occurring off-exchange today 

and to provide those orders with the 

benefits of trading on an exchange far 

outweigh any risks related to 

subincrement pricing that may exist in 

the FLEX Options market (which, as 

described above, the Exchange believes 

are minimal). As a result, the Exchange 

believes the proposed rule change will 

benefit investors and remove 

impediments to and perfect the 

mechanism of a free and open market 

and a national market system, as well as 

promote just and equitable principles of 

trade and promote competition by 

permitting the Exchange to compete on 

similar terms with the OTC market. 

The Exchange believes the proposed 

rule change to describe how bids and 

offers in FLEX Auctions for FLEX 

Option series are ranked and allocated 

will remove impediments to and perfect 

the mechanism of a free and open 

market and a national market system 

and protect investors and the public 

interest by increasing the transparency 

in the Rules regarding the allocation of 

FLEX Orders at the conclusion of FLEX 

Auctions. The proposed rule change 

codifies that the term ‘‘price’’ in the 

rules regarding allocations following 

FLEX Auctions refers to the dollar and 

decimal amount of bids and offers 

submitted as a fixed amount (as is the 

case for all non-FLEX Options and 

which as proposed may be as small as 

$0.001 for FLEX Options), and the 

percentage value (which as proposed 

may be as small as 0.0001%) of bids and 

78388 Federal Register / Vol. 85, No. 234 / Friday, December 4, 2020 / Notices 

47Options generally have different minimum 

increments in the same class. See Rule 5.4. 

offers submitted as percentages. As 

percentages ultimately reflect a price in 

dollars and cents, and thus allocation of 

a FLEX Order to the highest percentage 

bids and lowest percentage offers still 

results in allocation of that order to the 

best prices in the same manner as bids 

and offers in dollars and cents. For 

example, a bid of 1.05% will be for a 

higher dollar value than a bid of 1.04%, 

because a higher percentage of a number 

will have a higher value than a lower 

percentage of that same number. This is 

a reasonable allocation that ensures 

highest priced bids and offers receive 

first priority (and is the same as how 

dollar-priced bids and offers are 

ranked), which protects investors. 

The Exchange believes the proposed 

nonsubstantive changes, codification of 

a longstanding interpretation, and 

correction of terms described above 

enhance the readability of and provide 

clarity to the applicable provisions, 

which increases the transparency of the 

Rules and ultimately benefits investors. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

The Exchange does not believe that 

the proposed rule change will impose 

any burden on competition that is not 

necessary or appropriate in furtherance 

of the purposes of the Act. The 

Exchange does not believe that the 

proposed rule change to increase 

precision for bids and offers and 

exercise prices for electronic FLEX 

Auctions will impose any burden on 

intramarket competition that is not 

necessary or appropriate in furtherance 

of the purposes of the Act, because the 

same bid and offer and exercise price 

increments will be available to all FLEX 

Traders. While the same precision will 

not be available in open outcry FLEX 

Auctions, all FLEX Traders have the 

ability to submit FLEX Orders for 

electronic execution if they desire to 

trade with additional precision.47 The 

Exchange does not believe that the 

proposed rule change to increase the 

precision for bids and offers and 

exercise prices for FLEX Options 

submitted for electronic execution will 

impose any burden on intermarket 

competition that is not necessary or 

appropriate in furtherance of the 

purposes of the Act, because while 

additional decimals may be available for 

bids and offers and exercise prices for 

electronic auctions, FLEX options will 

continue to trade in the same manner as 

they do today. While FLEX markets may 

be less liquid than non-FLEX markets 

for options with the same underlying, 

the Exchange believes the proposed rule 

change may increase liquidity in the 

FLEX markets. To the extent the 

proposed rule change makes the 

Exchange a more attractive trading 

venue for market participants on other 

exchanges, those market participants 

may elect to become Exchange market 

participants. 

The Exchange believes that the 

proposed rule change may relieve any 

burden on, or otherwise promote, 

competition. The Exchange believes this 

is an enhancement to a comparable 

alternative to the OTC market in 

customized options. By enhancing our 

FLEX trading platform to provide 

additional pricing terms that are 

available in the OTC market but not 

currently available in the listed options 

market, the Exchange believes it may be 

a more attractive alternative to the OTC 

market. The Exchange believes market 

participants benefit from being able to 

trade customized options in an 

exchange environment in several ways, 

including but not limited to the 

following: (1) Enhanced efficiency in 

initiating and closing out position; (2) 

increased market transparency; and (3) 

heightened contra-party 

creditworthiness due to the role of OCC 

as issuer and guarantor of FLEX 

Options. The Exchange believes these 

benefits in addition to the benefits of 

precision pricing described above far 

outweigh the minimal (if any) risks of 

sub-increment pricing in the FLEX 

market. 

The nonsubstantive proposed rule 

changes, as well as the codification of 

an interpretation and term correction, 

are not intended for competitive 

purposes, but rather to increase 

transparency in the Rules by codifying 

current System functionality and 

practice with respect to FLEX Option 

bids and offers. These changes do not 

modify how FLEX Options trade on the 

Exchange and merely provide enhanced 

clarity and readability to the Rules. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

The Exchange neither solicited nor 

received comments on the proposed 

rule change. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Within 45 days of the date of 

publication of this notice in the Federal 

Register or within such longer period 

up to 90 days (i) as the Commission may 

designate if it finds such longer period 

to be appropriate and publishes its 

reasons for so finding or (ii) as to which 

the Exchange consents, the Commission 

will: 

A. By order approve or disapprove 

such proposed rule change, or 

B. institute proceedings to determine 

whether the proposed rule change 

should be disapproved. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 

including whether the proposed rule 

change, as modified by Amendment No. 

1, is consistent with the Act. Comments 

may be submitted by any of the 

following methods: 

Electronic Comments 

• Use the Commission’s internet 

comment form (http://www.sec.gov/ 

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File Number SR– 

CBOE–2020–106 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street NE, 

Washington, DC 20549–1090. 

All submissions should refer to File 

Number SR–CBOE–2020–106. This file 

number should be included on the 

subject line if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

internet website (http://www.sec.gov/ 

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for website viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street, NE, 

Washington, DC 20549, on official 

business days between the hours of 

10:00 a.m. and 3:00 p.m. Copies of the 

filing also will be available for 

inspection and copying at the principal 

office of the Exchange. All comments 

received will be posted without change. 

Persons submitting comments are 

cautioned that we do not redact or edit 

personal identifying information from 

comment submissions. You should 

submit only information that you wish 

to make available publicly. All 

Federal Register / Vol. 85, No. 234 / Friday, December 4, 2020 / Notices 78389 

48 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 89869 

(September 15, 2020), 85 FR 59354. 

4Amendment No. 1, which amended and 

replaced the proposed rule change in its entirety, 

is available on the Commission’s website at: https:// 

www.sec.gov/comments/sr-nysearca-2020-80/ 

srnysearca202080.htm. 

5 15 U.S.C. 78s(b)(2). 

6See Securities Exchange Act Release No. 90286, 

85 FR 70216 (November 4, 2020). 

7Amendment No. 2, which amended and 

replaced the proposed rule change, as modified by 

Amendment No. 1, in its entirety, is available on 

the Commission’s website at: https://www.sec.gov/ 

comments/sr-nysearca-2020-80/ 

srnysearca202080.htm. 

8Additional information regarding the Funds, the 

Trust (defined infra), and the Shares can be found 

in Amendment No. 2, id., and the Registration 

Statement, infra note 9. 

9The Trust is registered under the Investment 

Company Act of 1940 (‘‘1940 Act’’). On August 17, 

2020, the Trust filed a registration statement on 

Form N–1A under the Securities Act of 1933 and 

the 1940 Act for the Funds (File No. 811–23603) 

(‘‘Registration Statement’’). The Commission issued 

an order granting exemptive relief to the Trust 

(‘‘Exemptive Order’’) under the 1940 Act on May 

19, 2020 (Investment Company Act Release No. 

33869) in response to the Trust’s application 

(‘‘Exemptive Application’’) for exemptive relief 

(File No. 812–15117). 

10Pursuant to the Exemptive Order, the only 

permissible investments for a Fund are the 

following that trade on a U.S. exchange 

contemporaneously with Shares of a Fund: 

Exchange-traded funds (‘‘ETFs’’), exchange-traded 

notes, exchange-listed common stocks, exchangetraded American Depositary Receipts, exchangetraded real estate investment trusts, exchangetraded commodity pools, exchange-traded metals 

trusts, exchange-traded currency trusts and 

exchange-traded futures, as well as cash and cash 

equivalents (short-term U.S. Treasury securities, 

government money market funds, and repurchase 

agreements). 

11Each Fund’s broad-based securities benchmark 

index will be identified in a future amendment to 

the Registration Statement following that Fund’s 

first full calendar year of performance. 

12 In approving this proposed rule change, the 

Commission has considered the proposed rule’s 

impact on efficiency, competition, and capital 

formation. See 15 U.S.C. 78c(f). 

13 15 U.S.C. 78f(b)(5). 

submissions should refer to File 

Number SR–CBOE–2020–106, and 

should be submitted on or before 

December 28, 2020.48

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority. 

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2020–26678 Filed 12–3–20; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–90528; File No. SR– 

NYSEArca–2020–80] 

Self-Regulatory Organizations; NYSE 

Arca, Inc.; Order Approving a 

Proposed Rule Change, as Modified by 

Amendment No. 2, To List and Trade 

Shares of Alger Mid Cap 40 ETF and 

Alger 25 ETF Under Rule 8.900–E 

November 30, 2020. 

I. Introduction 

On September 1, 2020, NYSE Arca, 

Inc. (‘‘NYSE Arca’’ or ‘‘Exchange’’) filed 

with the Securities and Exchange 

Commission (‘‘Commission’’), pursuant 

to Section 19(b)(1) of the Securities 

Exchange Act of 1934 (‘‘Act’’) 1 and Rule 

19b–4 thereunder,2 a proposed rule 

change to list and trade shares 

(‘‘Shares’’) of the Alger Mid Cap 40 ETF 

and Alger 25 ETF (individually, 

‘‘Fund,’’ and collectively, ‘‘Funds’’) 

under NYSE Arca Rule 8.900–E 

(Managed Portfolio Shares). The 

proposed rule change was published for 

comment in the Federal Register on 

September 21, 2020.3

On October 7, 2020, NYSE Arca filed 

Amendment No. 1 to the proposed rule 

change.4 On October 29, 2020, pursuant 

to Section 19(b)(2) of the Act,5 the 

Commission designated a longer period 

within which to approve the proposed 

rule change, disapprove the proposed 

rule change, or institute proceedings to 

determine whether to disapprove the 

proposed rule change.6 On November 5, 

2020, NYSE Arca filed Amendment No. 

2 to the proposed rule change.7 The 

Commission has received no comments 

on the proposal. This order grants 

approval of the proposed rule change, as 

modified by Amendment No. 2. 

II. The Exchange’s Description of the 

Proposal, as Modified by Amendment 

No. 2 8

NYSE Arca Rule 8.900–E(b)(1) 

requires the Exchange to file separate 

proposals under Section 19(b) of the Act 

before listing and trading any series of 

Managed Portfolio Shares on the 

Exchange. Accordingly, the Exchange 

has submitted this proposal to list and 

trade the Shares of the Funds. The 

Shares will be issued by The Alger ETF 

Trust (‘‘Trust’’), a business trust 

organized under the laws of the state of 

Massachusetts and registered with the 

Commission as an open-end 

management investment company.9 The 

investment adviser to each Fund will be 

Fred Alger Management, LLC 

(‘‘Adviser’’), and Fred Alger & 

Company, LLC will serve as the 

distributor of each of the Fund’s Shares. 

A. Description of the Funds 

Each Fund’s holdings will conform to 

the permissible investments as set forth 

in the Exemptive Application and 

Exemptive Order and the holdings will 

be consistent with all requirements in 

the Exemptive Application and 

Exemptive Order.10

Alger Mid Cap 40 ETF 

The Fund’s primary objective is to 

seek long-term capital appreciation. The 

Fund will primarily invest in equity 

securities listed on U.S. exchanges, 

including common or preferred stocks, 

of mid-cap growth companies. The 

Fund will generally own approximately 

40 holdings. 

Alger 25 ETF 

The Fund’s primary objective is to 

seek long-term capital appreciation. The 

Fund will primarily invest in equity 

securities of growth companies of any 

market capitalization listed on U.S. 

exchanges, including common or 

preferred stocks. The Fund will 

generally own approximately 25 

holdings. 

B. The Funds’ Investment Restrictions 

Each Fund’s investments, including 

derivatives, will be consistent with its 

investment objective and will not be 

used to enhance leverage (although 

certain derivatives and other 

investments may result in leverage). 

That is, for each Fund, the Fund’s 

investments will not be used to seek 

performance that is the multiple or 

inverse multiple (e.g., 2X or –3X) of the 

Fund’s primary broad-based securities 

benchmark index (as defined in Form 

N–1A).11

III. Discussion and Commission 

Findings 

After careful review, the Commission 

finds that the proposed rule change, as 

modified by Amendment No. 2, to list 

and trade the Shares is consistent with 

the Act and the rules and regulations 

thereunder applicable to a national 

securities exchange.12 In particular, the 

Commission finds that the proposed 

rule change, as modified by Amendment 

No. 2, is consistent with Section 6(b)(5) 

of the Act,13 which requires, among 

other things, that the Exchange’s rules 

be designed to prevent fraudulent and 

manipulative acts and practices, to 

promote just and equitable principles of 

trade, to remove impediments to and 

perfect the mechanism of a free and 

open market and a national market 

system, and, in general, to protect 

investors and the public interest. 

For each series, the Exchange will 

establish a minimum number of Shares