9108 Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Notices 

43 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. 90749 

(December 21, 2020), 85 FR 85752 (‘‘Notice’’). 

4 In Amendment No. 1, the Exchange (i) 

represented that its existing surveillance and 

reporting safeguards in place are adequate to deter 

and detect possible manipulative behavior which 

might arise from listing and trading P.M.-settled 

MRUT options and (ii) stated that the trading of 

P.M.-settled MRUT options will be subject to 

Exchange Rules governing customer accounts, 

position and exercise limits, margin requirements 

and trading halt procedures. Because Amendment 

No. 1 to the proposed rule change does not 

materially alter the substance of the proposed rule 

change and makes conforming and technical 

changes, Amendment No. 1 is not subject to notice 

and comment. Amendment No. 1 is available at: 

https://www.sec.gov/comments/sr-cboe-2020-116/ 

srcboe2020116-8302266-228358.pdf. 

5See Securities Exchange Act Release No. 90263 

(October 23, 2020), 85 FR 68611 (October 29, 2020) 

(CBOE–2020–100). See also Securities Exchange 

Act Release No. 70087 (July 31, 2013), 78 FR 47809 

(August 6, 2013) (SR–CBOE–2013–055) (‘‘P.M.- 

settled XSP Approval Order’’). 

6 See Notice, supra note 3, fn. 3 at 85753. The 

Exchange represents that its existing surveillance 

and reporting safeguards in place are adequate to 

deter and detect possible manipulative behavior 

which might arise from listing and trading P.M.- 

settled MRUT options. See Amendment No. 1, 

supra note 4. 

7See P.M.-settled XSP Approval Order supra note 

4. 

8See P.M.-settled XSP Approval Order, supra 

note 4. 

All submissions should refer to File 

Number SR–PEARL–2021–02. 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 

submissions should refer to File 

Number SR–PEARL–2021–02 and 

should be submitted on or before March 

4, 2021. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.43

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2021–02776 Filed 2–10–21; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–91067; File No. SR–CBOE– 

2020–116] 

Self-Regulatory Organizations; Cboe 

Exchange, Inc.; Order Approving a 

Proposed Rule Change, as Modified by 

Amendment No. 1, To Add Options on 

the Mini-Russell 2000 Index to Its P.M. 

Pilot Program 

February 5, 2021. 

I. Introduction 

On December 18, 2020, Cboe 

Exchange, Inc. (‘‘Cboe’’ 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 add Mini-Russell 2000 Index 

(‘‘Mini-RUT’’ or ‘‘MRUT’’) options to 

the Exchange’s pilot program for P.M. 

settled options with third-Friday-of-themonth expiration dates (‘‘Expiration 

Friday’’). The proposed rule change was 

published for comment in the Federal 

Register on December 29, 2020.3 On 

January 28, 2021, the Exchange filed 

Amendment No. 1 to the proposed rule 

change.4 The Commission received no 

comment letters on the proposed rule 

change. The Commission is approving 

the proposed rule change. 

II. Description of the Proposal, as 

Modified by Amendment No. 1 

The Exchange is proposing to amend 

its rules to permit it to list and trade, on 

a pilot basis, cash-settled MRUT options 

with Expiration Friday expiration dates, 

for which the exercise settlement value 

will be based on the index value derived 

from the closing prices of the 

component securities (‘‘P.M.-settled’’). 

MRUT options are options on the MiniRUT Index, the value of which is 1/10th 

the value of the Russell 2000 (‘‘RUT’’) 

Index. 

The Exchange proposes to add P.M.- 

settled MRUT options to the Exchange’s 

pilot program under Interpretation and 

Policy .13 to Rule 4.13 that allows the 

listing of P.M. settled options that 

expire on Expiration Friday (‘‘P.M. Pilot 

Program’’). The Exchange notes that the 

existing P.M. Pilot Program, which is set 

to end on May 3, 2021, includes options 

on the Mini-SPX Index (‘‘XSP’’), the 

value of which is 1/10th the value of the 

S&P 500 Index.5 Cboe has proposed to 

add P.M.-settled MRUT options to that 

pilot so that the end of the pilot period 

for P.M.-settled MRUT options would 

also be May 3, 2021. 

The Exchange notes that trading in 

P.M.-settled MRUT options would 

operate in the same manner as provided 

in the proposal to list and trade MiniRUT options on the Exchange. That is, 

P.M.-settled MRUT options would have 

the same European-style exercise, same 

number of permissible expirations, same 

exercise interval prices and limitations, 

same position and exercise limits, and 

will trade in the same minimum price 

increment.6

The Exchange proposes to abide by 

the same reporting requirements for the 

trading of P.M.-settled MRUT options 

that it does for the trading of P.M.- 

settled XSP options.7 The Exchange 

proposes to include data regarding P.M.- 

settled MRUT options as it does for 

P.M.-settled XSP options in the pilot 

program report that it submits to the 

Commission at least two months prior to 

the expiration date of the P.M. Pilot 

Program (the ‘‘annual report’’).8

Specifically, the Exchange submits 

annual reports to the Commission that 

contain an analysis of volume, open 

interest, and trading patterns in 

connection with products in the P.M. 

Pilot Program. The analysis examines 

trading in products in the P.M. Pilot 

Program, as well as trading in the 

securities that comprise the underlying 

index. Additionally, for series that 

exceed certain minimum open interest 

parameters, the annual reports provide 

analysis of index price volatility and 

share trading activity. 

Going forward, the Exchange would 

include the same analysis of P.M.- 

settled MRUT options, as well as trading 

in securities that comprise the RUT 

Index (as MRUT options are based on 1/ 

10th the value of the RUT Index), in the 

annual reports. Also, like it currently 

does for P.M.-settled XSP options, the 

Exchange would submit periodic 

interim reports for P.M.-settled MRUT 

options that contain some, but not all, 

of the information contained in the 

annual reports. 

The pilot reports will both contain the 

following volume and open interest 

data: 


khammond on DSKJM1Z7X2PROD with NOTICES
Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Notices 9109 

9P.M. Pilot products data and analyses are made 

available at https://www.cboe.com/aboutcboe/legalregulatory/national-market-system-plans/pmsettlement-spxpm-data. 10See Notice supra, note 3 at 85754. 11See Notice supra, note 3 at 85754. 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. 

14 15 U.S.C. 78(f)(b)(5). 

15See Securities Exchange Act Release No. 68888 

(February 8, 2013), 78 FR 10668, 10669 (February 

14, 2013) (order approving the listing and trading 

of SPXPM on CBOE). See also Securities Exchange 

Act Release Nos. 64599 (June 3, 2011), 76 FR 33798, 

33801–02 (June 9, 2011) (order instituting 

proceedings to determine whether to approve or 

disapprove a proposed rule change to allow the 

listing and trading of SPXPM options); and 65256 

(September 2, 2011), 76 FR 55969, 55970–76 

(September 9, 2011) (order approving proposed rule 

change to establish a pilot program to list and trade 

SPXPM options). 

(1) Monthly volume aggregated for all 

trades; 

(2) monthly volume aggregated by 

expiration date; 

(3) monthly volume for each 

individual series; 

(4) month-end open interest 

aggregated for all series; 

(5) month-end open interest for all 

series aggregated by expiration date; and 

(6) month-end open interest for each 

individual series. 

The annual reports will also contain 

the information noted in Items (1) 

through (6) above for Expiration Friday, 

A.M.-settled, RUT index options traded 

on Cboe, as well as the following 

analysis of trading patterns in P.M.- 

settled MRUT options series in the Pilot 

Program: 

(1) A time series analysis of open 

interest; and 

(2) an analysis of the distribution of 

trade sizes. 

Finally, for series that exceed certain 

minimum parameters, the annual 

reports will contain the following 

analysis related to index price changes 

and underlying share trading volume at 

the close on Expiration Fridays: 

(1) A comparison of index price 

changes at the close of trading on a 

given Expiration Friday with 

comparable price changes from a control 

sample. The data includes a calculation 

of percentage price changes for various 

time intervals and compare that 

information to the respective control 

sample. Raw percentage price change 

data as well as percentage price change 

data normalized for prevailing market 

volatility, as measured by the Cboe 

Volatility Index (VIX), is provided; and 

(2) a calculation of share volume for 

a sample set of the component securities 

representing an upper limit on share 

trading that could be attributable to 

expiring in-the-money series. The data 

includes a comparison of the calculated 

share volume for securities in the 

sample set to the average daily trading 

volumes of those securities over a 

sample period. 

The minimum open interest 

parameters, control sample, time 

intervals, method for randomly selecting 

the component securities, and sample 

periods are determined by the Exchange 

and the Commission. Additionally, the 

Exchange would provide the 

Commission with any additional data or 

analyses the Commission requests 

because it deems such data or analyses 

necessary to determine whether the 

P.M. Pilot Program, including P.M.- 

settled MRUT options as proposed, is 

consistent with the Exchange Act. As it 

does for current P.M. Pilot products, the 

Exchange would make public any data 

and analyses in connection with P.M.- 

settled MRUT options it submits to the 

Commission under the Pilot Program.9

Further, the Exchange proposes to 

amend Rule 5.1, which governs trading 

days and hours, in conjunction with the 

proposed addition of MRUT options to 

the P.M. Pilot Program. Cboe Rule 

5.1(b)(2)(C) currently provides that on 

their last trading day, Regular Trading 

Hours for P.M.-settled XSP options are 

between 9:30 a.m. and 4:00 p.m. Eastern 

Time (as opposed to the 9:30 a.m. to 

4:15 p.m. Regular Trading Hours for 

options with those expirations that are 

non-expiring). The proposed rule 

change amends Rule 5.1(b)(2)(C) to 

apply these time frames to the trading 

of P.M.-settled MRUT options on their 

last trading day. 

With regard to the impact of this 

proposal on system capacity, the 

Exchange has analyzed its capacity and 

represents that it and the Options Price 

Reporting Authority have the necessary 

systems capacity to handle any potential 

additional traffic associated with trading 

of P.M.-settled MRUT options.10 The 

Exchange believes that its Trading 

Permit Holders will not experience a 

capacity issue as a result of this 

proposal. Cboe represents that it will 

monitor the trading volume associated 

with any possible additional options 

series listed as a result of this proposal 

and the effect (if any) of these additional 

series on market fragmentation and on 

the capacity of the Exchange’s 

automated systems.11

III. Discussion and Commission 

Findings 

After careful consideration of the 

proposal, the Commission finds that the 

proposed rule is consistent with the 

requirements of the Act and the rules 

and regulations thereunder applicable to 

a national securities exchange,12 and, in 

particular, the requirements of Section 6 

of the Act.13 Specifically, the 

Commission finds that the proposed 

rule change to allow the Exchange to 

add P.M.-settled MRUT options to the 

P.M. Pilot Program is consistent with 

Section 6(b)(5) of the Act,14 which 

requires that an exchange have rules 

designed to remove impediments to and 

perfect the mechanism of a free and 

open market and to protect investors 

and the public interest. 

As the Commission noted in its orders 

approving the listing and trading of 

P.M.-settled options on the S&P 500 

Index (‘‘SPXPM’’), the Commission has 

had concerns about the potential 

adverse effects and impact of P.M. 

settlement upon market volatility and 

the operation of fair and orderly markets 

on the underlying cash markets at or 

near the close of trading, including for 

cash-settled derivatives contracts based 

on a broad-based index.15 The potential 

impact today remains unclear, given the 

significant changes in the closing 

procedures of the primary markets in 

recent decades. The Commission is 

mindful of the historical experience 

with the impact of P.M. settlement of 

cash-settled index derivatives on the 

underlying cash markets, but recognizes 

that these risks may be mitigated today 

by the enhanced closing procedures that 

are now in use at the primary equity 

markets. 

For the reasons described below, the 

Commission believes that the 

Exchange’s proposal to add P.M.-settled 

MRUT options to the P.M. Pilot Program 

is designed to mitigate concerns 

regarding P.M. settlement and will 

provide additional trading opportunities 

for investors while providing the 

Commission with data to monitor the 

effects of MRUT options and the impact 

of P.M. settlement on the markets. To 

assist the Commission in assessing any 

potential impact of a P.M.-settled MiniRUT index option on the options market 

as well as the underlying cash equities 

markets, Cboe will be required to submit 

data to the Commission in connection 

with the P.M. Pilot Program. The 

Commission believes that Cboe’s P.M. 

Pilot Program, together with the data 

and analysis that the Exchange will 

provide to the Commission, will allow 

Cboe and the Commission to monitor for 

and assess any potential for adverse 

market effects of allowing P.M. 

settlement for Mini-RUT index options, 

including on the underlying component 

stocks. In particular, the data collected 

from Cboe’s P.M. Pilot Program will 

help inform the Commission’s 

consideration of whether the P.M. Pilot 


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9110 Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Notices 

16See Amendment No. 1, supra note 4. 

17See Notice, supra note 3 at 85754. 

18See Notice, supra note 3 at 85755. 

19 15 U.S.C. 78s(b)(2). 

20 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3See infra Section II. 

4See Exchange Act Release No. 90324 (November 

3, 2020), 85 FR 71387 (November 9, 2020) (File No. 

SR–FINRA–2020–037) (the ‘‘Notice’’). 

5See id. at 71388, n.4 (citing the Plan, Sec. II., 

FINRA Regulation, Inc., https://www.finra.org/ 

rules-guidance/rulebooks/corporate-organization/iifinra-regulation-inc). 

6See id. (citing Article V, Sec. 5.1 of the FINRA 

Regulation By-Laws). 

7See id. FINRA states that the NAC also exercises 

exemption authority and acts in other proceedings 

as set forth in the FINRA Rule 9000 Series (Code 

of Procedure). The FINRA Board may also delegate 

other powers and duties to the NAC as the FINRA 

Board deems appropriate and in a manner not 

inconsistent with the Plan. See id. 

8See id. 

9See id. 

10See id. As FINRA explains, the FINRA 

Regulation By-Laws were amended in 2008 to, 

among other things, designate the FINRA Board as 

the body authorized to oversee the NAC and 

empowered to remove NAC members for the 

grounds mentioned above. See id. (citing Exchange 

Act Release No. 58909 (November 6, 2008), 73 FR 

68467 (November 18, 2008) (Order Approving File 

No. SR–FINRA–2008–046) (the ‘‘FINRA Regulation 

By-Laws Approval Order’’). 

11See id. Compare Article VII, Section 1(b) of the 

FINRA By-Laws, with Article V, Sec. 5.8 of the 

FINRA Regulation By-Laws. 

12See Notice, 85 FR at 71388. 

13See id. 

14See id. As FINRA notes, both FINRA and 

FINRA Regulation are corporations organized under 

Program should be modified, 

discontinued, extended, or permanently 

approved. Furthermore, the Exchange’s 

ongoing analysis of the P.M. Pilot 

Program should help it monitor any 

potential risks from large P.M.-settled 

positions and take appropriate action on 

a timely basis if warranted. 

The Exchange represents that it has 

adequate surveillance procedures to 

monitor trading in these options thereby 

helping to ensure the maintenance of a 

fair and orderly market 16 and has 

represented that it has sufficient 

capacity to handle additional traffic 

associated with this new listing.17

For the reasons discussed above, the 

Commission finds that Cboe’s proposal 

is consistent with the Act, including 

Section 6(b)(5) thereof, in that it is 

designed to remove impediments to and 

perfect the mechanism of a free and 

open market, and, in general, to protect 

investors and the public interest. In 

light of the enhanced closing procedures 

at the underlying markets and the 

potential benefits to investors discussed 

by the Exchange in the Notice,18 the 

Commission finds that it is appropriate 

and consistent with the Act to approve 

Cboe’s proposal on a pilot basis. The 

collection of data during the P.M. Pilot 

Program and Cboe’s active monitoring of 

any effects of P.M.-settled MRUT 

options on the markets will help Cboe 

and the Commission assess any impact 

of P.M. settlement in today’s market. 

IV. Conclusion 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act,19 that the 

proposed rule change (SR–CBOE–2020– 

116), as modified by Amendment No. 1, 

be, and hereby is, approved, subject to 

a pilot period set to expire on May 3, 

2021. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.20

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2021–02780 Filed 2–10–21; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–91070; File No. SR–FINRA– 

2020–037] 

Self-Regulatory Organizations; 

Financial Industry Regulatory 

Authority, Inc.; Order Approving 

Proposed Rule Change To Amend the 

By-Laws of FINRA Regulation, Inc. To 

Align the Grounds for Member 

Removal From the NAC With an 

Existing Provision in the FINRA ByLaws 

February 5, 2021. 

I. Introduction 

On October 22, 2020, the Financial 

Industry Regulatory Authority, Inc. 

(‘‘FINRA’’) filed with the Securities and 

Exchange Commission (‘‘Commission’’), 

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

Securities Exchange Act of 1934 (the 

‘‘Act’’ or ‘‘Exchange Act’’) 1 and Rule 

19b–4 thereunder,2 a proposed rule 

change to amend a provision in the ByLaws of FINRA Regulation, Inc. 

(‘‘FINRA Regulation’’), FINRA’s 

regulatory subsidiary. The proposed 

rule change would further align the 

grounds in the FINRA Regulation ByLaws for removal of a member from the 

National Adjudicatory Council (‘‘NAC’’) 

with an existing provision in the FINRA 

By-Laws for removal of a governor from 

the FINRA Board of Governors (‘‘FINRA 

Board’’).3

The proposed rule change was 

published for comment in the Federal 

Register on November 9, 2020.4 The 

Commission received no comments on 

the proposed rule change. This order 

approves the proposed rule change. 

II. Description of the Proposal 

As described in the Notice, FINRA 

Regulation is the regulatory subsidiary 

of FINRA and operates according to the 

Plan of Allocation and Delegation of 

Functions by FINRA to Subsidiaries (the 

‘‘Plan’’).5 The FINRA Regulation ByLaws authorize the NAC to function on 

behalf of the FINRA Board in several 

capacities.6 For example, FINRA 

explains that the NAC presides over 

disciplinary matters that have been 

appealed to or called for review by the 

NAC and also acts on applications in 

statutory disqualification and 

membership proceedings.7 In most 

matters that the NAC considers, FINRA 

states that the NAC prepares proposed 

written decisions that become final 

FINRA action if the FINRA Board does 

not call for review of those decisions.8

FINRA also states that it periodically 

reviews its and FINRA Regulation’s ByLaws to ensure adherence to effective 

governance practices.9 Based on that 

review, FINRA explains that currently, 

Article V, Section 5.8 of the FINRA 

Regulation By-Laws provides that, 

‘‘[a]ny or all of the members of the 

[NAC] may be removed from office at 

any time for refusal, failure, neglect, or 

inability to discharge the duties of such 

office by majority vote of the FINRA 

Board.’’ 10 By comparison, however, the 

FINRA By-Laws provide that a governor 

may be removed for those grounds as 

well as ‘‘for any cause affecting the best 

interests of [FINRA] the sufficiency of 

which the Board shall be the sole 

judge.’’ 11 As a result, FINRA proposes 

to amend the FINRA Regulation ByLaws to add this ground for removal of 

a NAC member to further align the bases 

for removal of a NAC member with the 

bases for removal of a FINRA Board 

governor.12 Specifically, the proposed 

rule change would amend the FINRA 

Regulation By-Laws to permit a NAC 

member to be removed by a majority 

vote of the FINRA Board ‘‘for any cause 

affecting the best interests of the [NAC] 

the sufficiency of which the FINRA 

Board shall be the sole judge.’’ 13

FINRA further explains that the 

removal of a NAC member would 

continue to require a majority vote of 

the FINRA Board, while a vote to 

remove a FINRA Board governor 

requires a two-thirds vote.14 In 


khammond on DSKJM1Z7X2PROD with NOTICES