[Federal Register Volume 83, Number 131 (Monday, July 9, 2018)]
[Notices]
[Pages 31825-31827]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-14550]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83585; File No. SR-CBOE-2018-050]


Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
Its Fees Schedule To Adopt a Financial Incentive Program for Lead 
Market-Makers Appointed in MSCI EAFE Index Options and MSCI Emerging 
Markets Index Options

July 2, 2018.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on July 2, 2018, Cboe Exchange, Inc. (the ``Exchange'' or ``Cboe 
Options'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend its Fees Schedule to adopt a 
financial incentive program for Lead Market-Makers appointed in MSCI 
EAFE Index (MXEA) options and MSCI Emerging Markets Index (MXEF) 
options (collectively, MSCI options), effective July 2, 2018.
    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 its Fees Schedule to adopt a 
financial incentive program for Lead Market-Makers appointed in MSCI 
EAFE Index (MXEA) options and MSCI Emerging Markets Index (MXEF) 
options (collectively, MSCI options), effective July 2, 2018. More 
specifically, the Exchange proposes to provide a financial incentive to 
any Market-Maker that is appointed as a Lead Market-Maker (``LMM'') in 
MXEA and/or MXEF (``MSCI LMM'') and meet a heightened quoting standard, 
to be set forth in the Fees Schedule.\3\ MSCI LMM(s) that meet the 
heightened quoting standard (which shall be explained herein), will 
receive $20,000 per month/per product.
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    \3\ MSCI LMMs would serve as MSCI LMMs during the RTH session 
only.
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    By way of background, pursuant to Rule 8.15(a), the Exchange may 
approve one or more Market-Makers to act as LMMs in a class for which a 
Designated Primary Market-Maker (``DPM'') has not been appointed, for a 
term of no less than the time until the end of the then-current 
expiration cycle. In addition to a LMM's requirement to fulfill all 
obligations of a Market-Maker under the Exchange Rules, a LMM must also 
satisfy heightened quoting obligations set forth in Rule 8.15(b).
    The Exchange proposes to provide in the Fees Schedule that through 
December 31, 2018, if a MSIC LMM meets the heightened standard 
described below, the LMM in each class will receive $20,000 per month, 
per their respective appointed class. Specifically, the LMM will 
receive $20,000 per month/per class if it provides continuous 
electronic quotes that meet or exceed the following heightened quoting 
standards in at least 90% of the MXEA and/or MXEF series it must quote 
pursuant to Rule 8.15(b) 90% of the time in a given month:

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                                                   Expiring 7 days or less   Near term 8 days to 60    Mid term 61 days to 270    Long term 271 days or
                                                 --------------------------           days                      days                     greater
                  Premium level                                            -----------------------------------------------------------------------------
                                                     Width         Size        Width         Size        Width         Size        Width         Size
--------------------------------------------------------------------------------------------------------------------------------------------------------
$0-$5.00........................................        $3.00            5        $1.50           20        $2.50           15        $5.00           10
$5.01-$15.00....................................         6.00            3         3.00           15         5.00           10        10.00            7
$15.01-$50.00...................................        15.00            2         7.50           10        10.00            7        20.00            5
$50.01-$100.00..................................        25.00            1        15.00            7        20.00            5        30.00            3
$100.01-$200.00.................................        40.00            1        25.00            3        35.00            3        48.00            2
Greater Than $200.01............................        60.00            1        40.00            1        50.00            1        72.00            1
--------------------------------------------------------------------------------------------------------------------------------------------------------

    The Exchange may consider other exceptions to this quoting standard 
based on demonstrated legal or regulatory requirements or other 
mitigating circumstances. For purposes of the financial benefit, MSCI 
LMM(s) will not be obligated to satisfy the heightened quoting standard 
shown above. Rather, the MSCI LMM(s) will only receive the financial 
benefit if they satisfy the abovementioned heightened quoting standard. 
If a MSCI LMM does not meet the heightened quoting standard, then it 
simply will not receive the financial benefit for that month. The

[[Page 31826]]

Exchange notes however, that with respect to quoting obligations, MSCI 
LMM(s) must still comply with the continuous quoting obligation and 
other obligations of Market-Makers and LMMs described in Cboe Options 
Rules.\4\ The Exchange believes the proposed financial incentive for 
the additional quoting standard set forth in the Fees Schedule and 
described above, will further encourage MSCI LMMs to provide 
significant liquidity in MSCI options. Additionally, the Exchange notes 
that it expects that TPHs may need to undertake expenses to be able to 
quote at a significantly heightened standard in these classes, such as 
purchase additional bandwidth. The Exchange notes that the proposed 
financial incentive program for MSCI LMM(s) is similar to the rebate 
program adopted for ETH LMMs and SPX Select Market-Makers, as both 
programs offer financial benefits for meeting heightened quoting 
standards.\5\
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    \4\ See e.g., Cboe Options Rule 8.7 and Rule 8.15.
    \5\ See Cboe Options Fees Schedule, Footnotes 38 and 49.
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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.\6\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \7\ 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 
Section 6(b)(4) of the Act,\8\ which requires that Exchange rules 
provide for the equitable allocation of reasonable dues, fees, and 
other charges among its Trading Permit Holders and other persons using 
its facilities.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
    \8\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes it is reasonable to offer MSCI LMM(s) that 
meet a certain heightened quoting standard (described above) $20,000 
per month, per product, given the potential added costs that MSCI 
LMM(s) may need to undertake in order to satisfy that heightened 
quoting standard (e.g., having to purchase additional bandwidth). The 
Exchange also wishes to ensure the LMM(s) is incentivized to provide 
liquid and active markets in the MSCI products to encourage its growth. 
Additionally, if a MSCI LMM does not satisfy the heightened quoting 
standard, then it simply will not receive the $20,000 per class for 
that month.
    The Exchange believes it is equitable and not unfairly 
discriminatory to only offer the financial incentive to MSCI LMM(s) 
because it benefits all market participants trading in MSCI options to 
encourage MSCI LMMs to satisfy the heightened quoting standards, which 
may increase liquidity and provide more trading opportunities and 
tighter spreads. Indeed, the Exchange notes that the LMM provides a 
crucial role in providing quotes and the opportunity for market 
participants to trade MSCI products, which can lead to increased 
volume, thereby providing a robust market.
    The Exchange notes that without the proposed financial incentive, 
there would not be sufficient incentive for Trading Permit Holders to 
undertake an obligation to quote an heightened levels, which could 
result in lower levels of liquidity. The MSCI LMM incentive program is 
also reasonable, as it designed to encourage increased quoting to add 
liquidity in MSCI products, thereby protecting investors and the public 
interest.
    The Exchange lastly notes that a similar financial incentive 
program was adopted for appointed LMMs in ETH and SPX Select Market-
Makers.\9\
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    \9\ See Cboe Options Fees Schedule, Footnote 38, Cboe Options 
Rule 6.1A and Footnote 49.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule changes will 
impose any burden on competition that are not necessary or appropriate 
in furtherance of the purposes of the Act. The Exchange does not 
believe that the proposed rule change will impose any burden on 
intramarket competition that is not necessary or appropriate in 
furtherance of the purposes of the Act because, while the financial 
incentive is offered only to certain market participants (i.e., 
appointed MSCI LMM(s) that meet a heightened quoting standard), those 
market participants must meet heightened quoting standards to receive 
the financial incentive. Additionally, MSCI LMM(s) may incur additional 
costs to meet the heightened quoting standard. The Exchange believes 
the proposed financial incentive encourages those market participants 
to bring liquidity to the Exchange in MSCI options (which benefits all 
market participants).
    The Exchange does not believe that the proposed rule changes will 
impose any burden on intermarket competition that is not necessary or 
appropriate in furtherance of the purposes of the Act because MSCI 
options are proprietary products that will only be traded on Cboe 
Options. To the extent that the proposed changes make Cboe Options a 
more attractive marketplace for market participants at other exchanges, 
such market participants are welcome to become Cboe Options market 
participants.

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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act \10\ and paragraph (f) of Rule 19b-4 \11\ 
thereunder. At any time within 60 days of the filing of the proposed 
rule change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule change should be approved or 
disapproved.
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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f).
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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

    <bullet> Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or

[[Page 31827]]

    <bullet> Send an email to <a href="/cdn-cgi/l/email-protection#4634332a236b25292b2b232832350635232568212930"><span class="__cf_email__" data-cfemail="0775726b622a64686a6a626973744774626429606871">[email protected]</span></a>. Please include 
File Number SR-CBOE-2018-050 on the subject line.

Paper Comments

    <bullet> 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-2018-050. 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-CBOE-2018-050 and should be submitted on 
or before July 30, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-14550 Filed 7-6-18; 8:45 am]
 BILLING CODE P


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