Federal Register / Vol. 83, No. 164 / Thursday, August 23, 2018 / Notices 42725 

9 15 U.S.C. 78s(b)(3)(A). 

10 17 CFR 240.19b–4(f). 11 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

TPHs on all their transactions that clear 

in the customer range at the OCC. 

The Exchange believes the proposal to 

eliminate obsolete language with respect 

to past ORF rates maintains clarity in 

the rules and alleviates potential 

confusion, thereby protecting investors 

and the public interest. 

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 not 

necessary or appropriate in furtherance 

of the purposes of the Act. This 

proposal does not create an unnecessary 

or inappropriate intra-market burden on 

competition because the ORF applies to 

all customer activity, thereby raising 

regulatory revenue to offset regulatory 

expenses. It also supplements the 

regulatory revenue derived from noncustomer activity. This proposal does 

not create an unnecessary or 

inappropriate inter-market burden on 

competition because it is a regulatory 

fee that supports regulation in 

furtherance of the purposes of the Act. 

The Exchange is obligated to ensure that 

the amount of regulatory revenue 

collected from the ORF, in combination 

with its other regulatory fees and fines, 

does not exceed regulatory costs. 

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 9 and paragraph (f) of Rule 

19b–4 10 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 will institute proceedings 

to determine whether the proposed rule 

change should be approved or 

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 No. SR–C2– 

2018–017 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street NE, 

Washington, DC 20549–1090. 

All submissions should refer to File No. 

SR–C2–2018–017. 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 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 No. 

SR–C2–2018–017, and should be 

submitted on or before September 13, 

2018. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.11

Eduardo A. Aleman, 

Assistant Secretary. 

[FR Doc. 2018–18161 Filed 8–22–18; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–83870; File No. SR–CBOE– 

2018–056] 

Self-Regulatory Organizations; Cboe 

Exchange, Inc.; Notice of Filing of a 

Proposed Rule Change To Adopt 

Exchange Rule 6.57, Risk-Weighted 

Assets (‘‘RWA’’) Transactions 

August 17, 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 August 8, 

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. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange proposes to amend its 

rules to adopt Rule 6.57 to facilitate the 

reduction of SPX options positions 

maintained by Cboe Options MarketMakers. 

The text of the proposed rule change 

is also available on the Exchange’s 

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

AboutCBOE/CBOELegalRegulatory

Home.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 


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42726 Federal Register / Vol. 83, No. 164 / Thursday, August 23, 2018 / Notices 

3See Proposed Rule 6.57(a). 

4This prohibits positions in accounts among 

different trading units for which accounts are 

otherwise required to be maintained separately to 

be represented as an RWA Package. Various rules 

(for example, Regulation SHO in certain 

circumstances) require accounts to be maintained 

separately, and the proposed rule change is 

consistent with those rules. 

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 adopt Rule 

6.57 to facilitate the reduction of SPX 

options positions maintained by Cboe 

Options Market-Makers. Specifically, 

the Exchange proposes to allow Trading 

Permit Holders (‘‘TPHs’’) to execute a 

risk-weighted asset package (‘‘RWA 

Package’’) on the trading floor provided 

that the requirements set forth in Rule 

6.57 are satisfied. 

Market-Makers are the primary source 

of liquidity for listed options; as such, 

Market-Maker liquidity is critically 

important to a functioning options 

market. However, bank capital 

regulations that govern bank-affiliated 

clearing firms are negatively impacting 

the ability of Market-Makers clearing 

through bank-affiliated clearing firms to 

provide liquidity. The Exchange 

believes reducing open SPX options 

positions enables Market-Makers to 

continue to provide the liquidity that is 

critical to the options markets because 

reducing open SPX positions helps to 

reduce risk-weighted assets (RWA) 

attributable to SPX options positions. 

The Exchange developed Rule 6.56 

(Compression Forums) to facilitate the 

reduction of open options positions in 

SPX (and concomitant RWA). Although 

the compression forums have seen 

limited success in reducing open SPX 

positions, the compression forums do 

not provide an adequate mechanism for 

Market-Makers to reduce open SPX 

positions across numerous options 

series in one large transaction, and the 

Exchange believes the ability for 

Market-Makers to efficiently and 

effectively reduce open SPX positions 

across numerous options series in one 

large transaction will help to reduce the 

risk of market dislocation, especially 

during periods of increased volume and 

volatility. 

Compression forums are an 

inadequate, inefficient mechanism to 

close open SPX positions across 

numerous options series in one 

transaction partly because the files the 

Exchange generates pursuant to Rule 

6.56 only identify individual series, call 

spreads, put spreads, and box spreads 

for which there is offsetting interest. 

This means that the SPX positions 

identified by the Exchange pursuant to 

Rule 6.56 have, at most, four legs (by 

definition box spreads have four legs 

and put/call spreads have two legs), 

whereas the proposed RWA Package 

will, by definition, contain at least 50 

legs, which alone demonstrates that the 

proposed RWA Package is a more 

efficient mechanism for closing open 

SPX positions across numerous options 

series in one large transaction. 

Moreover, the process of executing the 

offsetting positions identified by the 

Exchange pursuant to Rule 6.56 is much 

less efficient than the instant RWA 

Package proposal. For example, under 

Rule 6.56 the Exchange identifies 

offsetting positions for individual firms 

that submit their SPX positions in 

accordance with Rule 6.56. Depending 

on the size of the SPX portfolio 

submitted by the firm the Exchange may 

identify 100s of different boxes, call 

spreads, put spreads, and individual 

series. In addition, there will be 

multiple different potential 

counterparties for the identified 

positions. In order to execute just one of 

the identified positions the firm can 

seek out the potential counterparty with 

offsetting interest (if the firm agrees to 

let their identities be unmasked 

pursuant to Rule 6.56(a)(5)); represent 

the individual position (whether it be 

one of the boxes, call spreads, put 

spreads, or individual lines); negotiate a 

suitable execution price; and execute 

the transaction. This process must then 

be repeated over and over again in order 

to reduce open positions across a large 

portfolio of SPX options positions. In 

contrast, as discussed in more detail 

below, an RWA Package will, by 

definition, represent a large portfolio of 

SPX options positions in one large 

transaction (at least 50 series, etc.) as 

opposed to, for example, representing 

an individual box spread in a 

compression forum that contains four 

legs. 

The Exchange believes that the ability 

for Market-Makers to efficiently and 

effectively reduce open SPX positions 

across numerous options series in one 

large transaction will help to reduce the 

risk of market dislocation, especially 

during periods of increased volume and 

volatility. The Exchange Market-Makers 

will be able to continue providing 

liquidity during such times (increasing 

the RWA attributed to the MarketMakers) because they will know that 

they will have the opportunity to 

subsequently reduce their open SPX 

positions (and concomitant RWA) 

across numerous options series in one 

large transaction. Without such a 

mechanism a Market-Maker may be 

forced to limit their market-making 

activity during periods of high volume 

and volatility in order to prevent 

significant increases in RWA attributed 

to the Market-Maker, which is a 

scenario that may lead to market 

dislocation. In short, in order to help 

reduce the risk of market dislocation the 

Exchange proposes to adopt Rule 6.57 to 

provide a mechanism for Market-Makers 

to reduce open SPX options positions 

across numerous SPX options series in 

one large transaction. 

The Exchange proposes to define an 

RWA Package as a set of SPX options 

positions with at least: 50 options series; 

10 contracts per options series; and 

10,000 total contracts.3 The Exchange 

believes that in addition to the other 

requirements of Proposed Rule 6.57 

(described in detail below), requiring an 

RWA Package to contain at least 50 

options series; at least 10 contracts per 

options series; and at least 10,000 total 

contracts will help to ensure that these 

transactions are executed for the 

purpose of reducing RWA attributable to 

open positions and will result in a 

significant net reduction of RWA. The 

Exchange believes limiting RWA 

Packages to SPX options positions will 

similarly help to ensure that these 

transactions are executed for the 

purpose of reducing RWA because an 

SPX options contract has a large 

notional value, which exacerbates the 

negative impact of bank capital 

regulations. 

Proposed Rule 6.57(b) provides that 

Trading Permit Holders (‘‘TPHs’’) may 

execute an RWA Package (an ‘‘RWA 

transaction’’) in the SPX crowd on the 

trading floor in accordance with 

paragraph (c) if: (1) The RWA 

transaction is initiated for the account(s) 

of a Cboe Options Market-Maker, 

provided that an RWA Package 

consisting of SPX options from multiple 

Market-Maker accounts may not be in 

separate aggregation units or otherwise 

subject to information barrier or account 

segregation requirements; 4 (2) the RWA 

transaction results in a change in 

beneficial ownership (i.e., an RWA 

transaction between a Cboe Options 

Market-Maker and an entity unaffiliated 

with the Cboe Options Market-Maker); 

and (3) the Cboe Options Market-Maker 

certifies that as of the beginning of the 

extended trading hours session (i.e., 

2:00 a.m. Chicago time) on the trade 

date in which the RWA Package is 

received by the Exchange under 


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5See Proposed Rule 6.57(c)(1). 

6See Proposed Rule 6.57(c)(2). 

7See Proposed Rule 6.57(c)(3). 

8See id. 

9The Exchange notes that if the RWA Package 

submission contains a bid/offer as contemplated by 

paragraph (c) to Rule 6.57 and a matching bid/off 

is made for the RWA Package in the SPX trading 

crowd, the bid/offer contained in the original 

submission has priority. 

paragraph (c) the Cboe Options MarketMaker held the positions identified in 

the RWA Package and that the RWA 

Package represents a net reduction of 

RWA attributed to the Market-Maker 

based on the positions held prior to the 

beginning of extended trading hours. 

The purpose of this filing is to facilitate 

the closing of open positions in order to 

reduce RWA attributed to Market-Maker 

positions, which is negatively impacting 

liquidity provision by Market-Makers. 

Thus, the Exchange believes it’s 

reasonable to limit the types of accounts 

for which an RWA transaction may be 

initiated to the account(s) of MarketMakers because, as previously noted, 

Market-Makers are the primary source of 

liquidity in the listed options market. In 

addition, the requirement that the RWA 

transaction be initiated for the 

‘‘account(s)’’ of a Cboe Options MarketMaker is designed to, for example, allow 

a Cboe Options Market-Maker to 

represent positions for the marketmaking firm’s universal account or 

represent positions for individual (or 

multiple) Cboe Market-Maker accounts. 

In addition, the change in beneficial 

ownership and certification 

requirements help to ensure that RWA 

transactions will reduce a MarketMaker’s RWA. With regards to the 

certification requirement it’s necessary 

to identify a point in time at which the 

Market-Maker holds positions that are to 

be closed. The Exchange proposes that 

the point in time be prior to the opening 

of extended trading hours (i.e., 2:00 a.m. 

Chicago time) on the Exchange because 

this will enable Cboe Options MarketMakers to identify their settled options 

positions (i.e., positions they hold after 

the close of regular trading hours and 

prior to the open of extended trading 

hours). 

Provided that paragraph (b) is 

satisfied the Exchange proposes to allow 

RWA Packages to be executed in 

accordance with the procedure set forth 

in paragraph (c). Proposed paragraph (c) 

provides that: (1) After the opening of 

regular trading hours and prior to 10:00 

a.m. Chicago time, the Cboe Options 

Market-Maker (or broker) must submit 

the RWA Package to the Exchange in a 

form and manner prescribed by the 

Exchange. The submission must 

contain: (i) A list of individual SPX 

options series and the size of each 

options series; (ii) the contact 

information for the individual that will 

represent the position on the trading 

floor; and (iii) if prior to submitting an 

RWA Package to the Exchange the 

Market-Maker (or broker) has received a 

bid or offer for the RWA Package, the 

proposed net debit or credit price for the 

RWA Package.5 The Exchange believes 

requiring RWA Packages to be received 

by the Exchange after the opening of 

regular trading hours and prior to 10:00 

a.m. Chicago time will help to ensure 

that RWA transactions can be executed 

during regular trading hours, given that 

proposed requirement of a two hour 

request for quotes (‘‘RFQ’’) period, 

which is described more fully below. In 

addition, requiring the RWA Package 

submission to contain a list of 

individual SPX options series, the size 

of each options series, and the contact 

information for the individual 

representing the RWA Package will 

enable market participants to bid/offer 

for the RWA Package on the trading 

floor. 

Upon the Exchange’s receipt of the 

RWA Package, the Exchange will (i) 

electronically notify TPHs 

(electronically and via trading floor 

loudspeaker) as soon as practicable of 

the identity of the individual 

representing the RWA Package in the 

SPX trading crowd, which can be either 

a Market-Maker or Floor Broker, 

provided the individuals are available to 

accept bids/offers for the RWA Package; 

(ii) post in an electronic format on a 

TPH-accessible site the list of individual 

components of the RWA Package, the 

net Package price, and the contact 

information for the individual 

representing the RWA Package on the 

floor, which post will not include the 

identity of the Market-Maker for whom 

the RWA transaction is initiated (unless 

the Market-Maker is representing the 

RWA Package on the trading floor); and 

(iii) notify TPHs that the RWA Package 

has been posted and the time at which 

the two-hour request-for-quote (‘‘RFQ’’) 

period concludes.6 The Exchange 

believes providing the RWA Package on 

a TPH accessible website will give TPHs 

sufficient information to price RWA 

packages. In addition, identifying the 

individual representing the RWA 

Package on the trading floor and 

providing a two hour RFQ period will 

enable TPHs to respond to RWA 

Packages. The Exchange believes 

masking the identity of the MarketMaker for whom the RWA transaction is 

initiated (unless the Market-Maker is 

representing the RWA Package on the 

trading floor) will encourage MarketMakers to initiate RWA transactions. 

The Exchange proposes that the twohour RFQ Period commence upon on 

[sic] the Exchange’s notification to the 

SPX trading crowd of the identity of the 

individual representing the RWA 

Package on the floor.7 The Exchange 

believes the two-hour period is 

sufficient to allow TPHs to review, 

price, and bid/offer for the RWA 

Package because the RWA Package will 

be available in an electronic format on 

a TPH-accessible website, which 

enables TPHs to more readily examine 

and price the positions in the RWA 

Package. Furthermore, the Exchange 

understands that firms have access to 

electronic systems that will aid them in 

evaluating the SPX positions contained 

in an RWA Package and to make a 

reasonable assessment of the price at 

which the firm is will to execute the 

RWA Package. The Exchange also 

proposes that upon the conclusion of 

the RFQ period, the individual 

representing the RWA Package in the 

SPX trading crowd may (but is not 

required to) accept a bid or offer for the 

RWA Package, and the RFQ response 

that represents the best bid or offer on 

a net debit or credit basis for the RWA 

Package has priority. The Exchange also 

proposes in the event equal bids or 

offers are received, the first RFQ 

response at the best bid or offer on a net 

debit or credit basis for the RWA 

Package has priority.8 The Exchange 

notes that the contemplated priority is 

simply price/time priority, which is a 

common priority mechanism in the 

options industry. For example, Rule 

6.45(i)(A) describes price-time priority 

in the context of resting orders and 

quotes in the electronic book. The best 

bid/offer for the RWA Package during 

the two hour RFQ period has priority 

over inferior prices, and if two bid/ 

offers are made at the same price, the 

bid/offer that is made first then has 

priority—all of which is consistent with 

the price-time priority described in Rule 

6.45(i)(A).9 The Exchange notes that an 

individual responding to an RWA 

Package with a better bid/offer than a 

previous bid/offer is necessarily 

improving the bid/offer price for at least 

part of the RWA Package (i.e., at least 

one individual options series in the 

RWA Package) because an improved net 

debit/credit price necessarily means at 

least one individual options series has 

received a better price. 

The Exchange also notes that an RWA 

Package is similar to a complex order in 

that a market participant cannot seek to 

trade against only certain components of 

the RWA Package (e.g., respond with a 


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10Cboe Options Rule 6.45 permits price-time 

priority in certain classes. 11See Proposed Rule 6.57(c)(4). 

bid/offer for half of the options series 

instead of all of the options series in the 

RWA Package). Complex orders 

similarly cannot be split up into 

individual options series by an 

individual responding to a complex 

order. For example, if a complex order 

has three legs (i.e., three separate series), 

a market participant responding to the 

complex order cannot respond with a 

bid/offer for leg #1, but not legs #2 or 

#3. Instead, the complex order is bid/ 

offered upon based on a net debit/credit 

basis for the complex order as is 

contemplated for RWA Packages. For 

example, if an RWA Package is for 50 

legs, a market participant responding to 

the RWA Package cannot respond with 

a bid/offer for legs #1 through #25, but 

not legs #26 through #50. 

In addition, like complex orders, 

market participants may bid/offer for an 

RWA Package in whole or in a 

permissible ratio if the package can be 

divided into a proportional share. For 

example, if a complex order consisting 

of one leg for two contracts and another 

leg for two contracts is represented on 

the floor, a counterparty may bid/offer 

for 100% of the order (i.e., two contracts 

for each leg) or the counterparty may 

bid/offer for a proportional share of the 

complex order in the 1:1 ratio of the 

order (i.e., one contract for each leg in 

this example). Similarly, if an RWA 

Package has 50 SPX options series and 

200 contracts per options series, a 

market participant may bid/offer for 100 

contracts per leg or some other 

proportional share of the RWA Package 

in the ratio of the package. However, as 

with complex orders, if the RWA 

Package cannot be divided into a 

proportional share, market participants 

must bid/offer for the entire RWA 

Package. For example, if a complex 

order consists of one leg for one contract 

and another leg for two contracts, the 

complex order cannot be proportionally 

subdivided to permit a partial trade in 

the ratio of the order (i.e. 1:2); thus, 

market participants must bid/offer for 

the full size of the complex order (i.e., 

one contract on leg #1 and two contracts 

on leg #2). With regards to RWA 

Packages, if, for example, one leg is for 

11 contracts and 49 other legs are for 

200 contracts, the leg for 11 contracts 

cannot be proportionally subdivided to 

permit a partial trade in the ratio of the 

order (i.e., 11:200); thus, market 

participants would be required to bid/ 

offer for the entire RWA package in this 

example. 

As previously noted, the Exchange 

believes that providing a two-hour RFQ 

period will enable TPHs to respond to 

RWA Packages. In addition, the 

Exchange believes it’s appropriate for 

the best bid or offer made in response 

to the representation of an RWA 

Package to have priority; however, 

recognizing that the best bid or offer 

may not satisfy the initiator of the RWA 

transaction, the Exchange believes its 

appropriate to explicitly provide in 

subparagraph (3) that individuals 

representing RWA Packages do not have 

to accept a bid or offer at the conclusion 

of the RFQ period, which simply makes 

it clear that the responses received 

during an RFQ period are indeed quotes 

with which the individual representing 

the RWA Package may execute the RWA 

Package. In addition, the Exchange 

believes it’s important not to obligate 

individuals representing RWA Packages 

to split executions among TPHs that bid 

or offer at the same price; rather, the 

Exchange believes the proposal will 

incentivize TPHs to provide bids or 

offers that better existing bids or offers 

because the first in time best bid or offer 

will have priority. As previously noted, 

this is consistent with the price-time 

priority that is common in the options 

industry.10

For example, suppose a market 

participant submits to the Exchange an 

RWA Package to buy for 50 SPX series 

and 200 contracts on each leg, which 

the Exchange announces to the trading 

floor and posts to the website. During 

the RFQ Period, which lasts from 1:00 

p.m. to 3:00 p.m., the following offers to 

buy the RWA Package are represented 

on the floor: 

• 1:10 p.m.: Floor Broker A offers to 

sell 100 contracts on each leg for a total 

of $50,000. 

• 1:15 p.m.: Floor Broker B offers to 

sell 100 contracts on each leg for a total 

of $49,000. 

• 2:00 p.m.: Floor Broker C offers to 

sell 100 contracts on each leg for a total 

of $50,000. 

Pursuant to price-time priority, Floor 

Broker B made the best offer, and will 

trade 100 contracts on each leg with the 

RWA Package for $49,000, leaving 100 

contracts on each leg remaining in the 

RWA Package. Floor Brokers A and C 

offered the same price for the same 

amount. Pursuant to price-time priority 

Floor Broker A made its offer first, and 

thus will trade 100 contracts on each leg 

with the remaining portion of the RWA 

Package for $50,000. Floor Broker C will 

not participate in the trade. 

Furthermore, the RWA Package is 

considered executed (and a contract 

formed) upon the acceptance of a bid or 

offer by the individual representing the 

RWA Package following the conclusion 

of the RFQ Period. The Exchange 

proposes that if the individual 

representing the RWA Package accepts a 

bid or offer for the RWA Package, the 

individual representing the RWA 

Package on the trading floor must, prior 

to the close of regular trading hours, 

cause a report to be submitted to the 

Exchange in a form and manner 

prescribed by the Exchange which sets 

forth the time of the execution of the 

RWA Package, the net execution price 

for the RWA Package, and the execution 

prices for the individual components of 

the RWA Package.11 The Exchange 

believes the reporting requirements will 

enable the Exchange to maintain an 

adequate audit trail and, if necessary, 

review individual RWA transactions. 

Additionally, the Exchange proposes 

to adopt Interpretation and Policy .01 to 

provide that to the extent applicable, all 

other Rules of the Exchange, including 

Rule 6.9(e), apply to the procedure set 

forth in proposed Rule 6.57. The 

Exchange also proposes to provide in 

Interpretation and Policy .01 that the 

following Rules are either superseded 

by proposed Rule 6.57 or do not apply 

to the above procedures: 6.9(a) 

through(d) and (f), 6.41, 6.44, 6.45, 6.47, 

and 6.74) [sic] and that there may be 

other rules of the Exchange that do not, 

by their terms, apply to the transfer 

procedure set forth in this Rule 6.57. As 

previously noted, proposed Rule 6.57 is 

a special procedure designed to provide 

a mechanism which allows Cboe 

Market-Makers to reduce open SPX 

options positions across numerous 

options series in one large transaction, 

and in order to give the effect to the 

procedures set forth in Rule 6.57 it is 

necessary for Rule 6.57 to supersede 

rules that provide for potentially 

conflicting procedures (e.g., Rules 6.9(a) 

through (d) and (f), 6.41, 6.44, 6.45, 

6.47, and 6.74). The Exchange notes that 

this is patterned from Rule 6.49A, 

which also provided that Rule 6.49A 

supersede Rules 6.41, 6.44, 6.45, 6.47, 

and 6.74. 

Specifically, the Exchange proposes to 

explicitly provide that Rule 6.9(e) 

applies to the procedures set forth in 

Rule 6.57. This reference to Rule 6.9 is 

patterned from Rule 6.49A, which 

explicitly referenced Rule 6.9 in its 

entirety as applying to Rule 6.49A. 

Contrary to Rule 6.49A, however, the 

Exchange proposes that only paragraph 

(e) of Rule 6.9 apply to Rule 6.57 instead 

of Rule 6.9 in its entirety. Rule 6.9(e) 

governs trading based on knowledge of 

imminent undisclosed solicited 

transactions, and the Exchange believes 

it’s important for such rules to apply to 

Rule 6.57. The Exchange believes Rule 


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Federal Register / Vol. 83, No. 164 / Thursday, August 23, 2018 / Notices 42729 

12The Exchange notes that Rule 24.8—Meaning of 

Premium Bids and Offers—applies to index options. 

13S&P 500 Option Variance Basket Trades, a 

particular basket of SPX options with a limited 

purpose, may execute without interacting with preContinued 

6.9(a) through (d) and (f) are sufficiently 

superseded by the procedures set forth 

in Rule 6.57(c). Specifically, Rule 6.9(a) 

through (d) sets forth the priority for 

several different scenarios in which an 

order and solicited order on the 

opposite side of that order may be 

represented on the floor, and the 

priority that will apply in each scenario. 

Rule 6.9(a) governs solicited 

transactions involving a disclosed 

original order and matching solicited 

order that improves the market; Rule 

6.9(b) governs solicited transactions 

involving a disclosed original order that 

is later modified to meet a solicited 

order improving the market; Rule 6.9(c) 

governs solicited transactions involving 

disclosed original order that is later 

modified to meet a solicited order not 

improving the market; and Rule 6.9(d) 

involves solicited transactions involving 

an undisclosed original order. 

Additionally, Rule 6.9(f), which requires 

solicited orders to be marked, would not 

be necessary, as it would be known that 

an order was solicited for an RWA 

Package at the time they were provided 

to the Exchange in accordance with 

proposed Rule 6.57. 

Pursuant to proposed Rule 6.57, an 

RWA Package, including any solicited 

orders to trade against the RWA 

Package, must be represented in a single 

way (by notification to the Exchange, 

which then announces the package to 

the trading floor). As a result, an RWA 

Package and corresponding solicited 

order could never be undisclosed. 

Additionally, pursuant to the proposed 

process, if the Market-Maker receives a 

bid or offer for the RWA Package prior 

to submitting it to the Exchange (as it 

would if it had a solicited order), the 

proposed price must be disclosed. As a 

result, for every RWA Package with a 

solicited order, the Exchange will 

announce them and the proposed price 

to the crowd at the same time, and thus 

the solicitation would have occurred 

before the RWA Package was disclosed 

to the crowd. Therefore, Rule 6.9(a) 

would not apply, as that paragraph 

covers a situation in which an order is 

disclosed prior to solicitation. There is 

also no method in the proposed process 

for modifying the RWA Package or any 

solicited order. Rule 6.9(b) and (c) 

address situations in which a 

represented order is later modified to 

meet a solicited order, and thus would 

not apply to RWA Packages. Lastly, Rule 

6.9(f) is inapplicable to Rule 6.57 

because following the procedures set 

forth in Rule 6.57 will provide all 

necessary information for Exchange 

purposes. 

Proposed Rule 6.57(c) also sets forth 

the specific priority of RWA 

Transactions, and thus no other priority 

rules would apply. The Exchange 

believes it is consistent with Exchange 

Act and helps to remove impediments 

to and perfect the mechanism of a free 

and open market and, in general, helps 

protect investors and the public interest 

to explicitly identify the priority 

applicable to RWA Packages in Rule 

6.57(c) because it will help to avoid 

confusion as to the priority applicable to 

RWA Packages. More importantly, the 

priority set forth in Rule 6.57(c) is 

consistent with Exchange Act because 

the proposed priority is simply pricetime priority, which is common in the 

options industry. 

With regards to the instant proposal 

Rule 6.41—Meaning of Premium Bids 

and Offers—is inapplicable because 

Rule 6.41 is already inapplicable to 

index options such as SPX options. 

Thus, an RWA Package, which by 

definition can only contain SPX 

options, will not be subject to Rule 6.41. 

The Exchange believes it is consistent 

with Exchange Act and helps to remove 

impediments to and perfect the 

mechanism of a free and open market 

and, in general, helps protect investors 

and the public interest to explicitly 

provide that Rule 6.57 supersedes Rule 

6.41 to avoid any possible confusion 

regarding the applicability of Rule 6.41 

to RWA Package execution.12

In addition, Rule 6.44—Bids and 

Offers in Relation to Units of Trading— 

is inapplicable to the instant proposal. 

Rule 6.44 sets forth the meaning of bids 

and offers for one contract where RWA 

Packages must be for more than one 

contract. The Exchange believes it is 

consistent with Exchange Act and helps 

to remove impediments to and perfect 

the mechanism of a free and open 

market and, in general, helps protect 

investors and the public interest to 

explicitly provide that Rule 6.57 

supersedes Rule 6.44 to avoid any 

possible confusion regarding the 

applicability of Rule 6.44 to RWA 

Package execution. 

Furthermore, Rule 6.45—Order and 

Quote Priority and Allocation; Rule 

6.47—Priority on Split-Price 

Transactions Occurring in Open Outcry; 

and Rule 6.74—Crossing Orders—are 

superseded by Rule 6.57. Rules 6.45, 

6.47, and 6.74 set forth priority in 

various scenarios, which is superseded 

by Rule 6.57 because the priority of bids 

and offers for RWA Packages is set forth 

in Rule 6.57(c)(3). In the same manner 

that Rule 6.47 describes the priority for 

a particular scenario (i.e., split-price) 

instead of describing that priority in 

Rule 6.45, the Exchange believes it best 

to describe priority for this particular 

scenario (i.e., RWA Packages) in a 

separate rule. Additionally, as 

previously noted, the priority set forth 

in Rule 6.57 is based on price-time 

priority, which is a longstanding 

priority method in the options industry. 

Moreover, the Exchange believes it is 

consistent with Exchange Act for the 

priority of bids/offers in the context of 

RWA Packages to be based on price-time 

priority as price-time priority is a 

common standard in the options 

industry. 

Importantly, it is critical that RWA 

Packages be executed without regard to 

the specific priority set forth in Rule 

6.45, 6.47, or 6.74. RWA Packages are, 

by design, very large and very 

complicated orders that are specifically 

intended to help SPX Market-Makers 

reduce the RWA associated with open 

SPX positions. Rules 6.45, 6.47, and 

6.74, including provisions in those rules 

that require orders to cede priority to 

individual legs in the electronic book, 

are not designed to accommodate the 

execution of such large, complicated, 

uniquely purposed orders. Thus, the 

Exchange believes the significantly large 

size and complexity of RWA packages 

make it necessary to deviate from Rules 

6.45, 6.47, 6.74. 

Additionally, the limited purpose of 

RWA Packages and the temporary 

nature of the proposed rule further 

support the need to permit executions of 

RWA Packages without regard to the 

priority in current rules. As discussed 

above, the purpose of RWA Packages is 

to reduce the risk-weighted assets 

attributable to Market-Makers’ SPX 

options positions. Requiring trades 

against the leg markets may interfere 

with the desired reduction in RWA 

associated with the package, and may 

cause execution of the package to be less 

efficient. Efficient reductions in RWA 

pursuant to the proposed rule change 

may free up capital, which will to 

enable Market-Makers to continue to 

provide liquidity to the SPX market, 

which liquidity benefits all market 

participants. The Exchange believes the 

narrow scope of the proposed rule 

change and the limited, beneficial 

purpose of RWA Packages make 

allowing RWA Packages to execute 

without interacting with pre-existing 

interest on the electronic book 

appropriate and important to support 

the provision of liquidity in the SPX 

market.13


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existing interest on the electronic book. See Rule 

6.53B(c). 

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

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

16 Id. 

17S&P 500 Option Variance Basket Trades, a 

particular basket of SPX options with a limited 

purpose, may execute without interacting with preexisting interest on the electronic book. See Rule 

6.53B(c). 

Moreover, the Exchange expects many 

potential counterparties to be solicited 

prior to the RWA Package being sent to 

the Exchange or announced in the SPX 

trading crowd. These solicitations will 

likely result in a net package price at 

which the counterparty is willing to 

execute the RWA Package. If parties 

representing RWA Packages were 

required to cede priority to individual 

legs in the electronic order book many 

RWA Packages would likely go 

unexecuted as the execution of one leg 

of an RWA Package would disrupt the 

net execution price and the weighting/ 

risk profile of the RWA package. 

Additionally, the size and complexity of 

RWA Packages make it functionally 

difficult for RWA Packages to interact 

with the electronic book under normal 

circumstances. To the extent one leg of 

an RWA Package could execute with an 

order in the electronic book, the 

remaining orders on the electronic book 

(complex order book or simple order 

book) are unlikely to have the necessary 

size and depth across a large portfolio 

of options to satisfy the terms of an 

RWA Package. Thus, requiring RWA 

Packages to follow the priority in Rule 

6.45, 6.47, or 6.74 would effectively 

prevent RWA Packages from being 

executed. 

The Exchange believes it is consistent 

with Exchange Act and helps to remove 

impediments to and perfect the 

mechanism of a free and open market 

and, in general, helps protect investors 

and the public interest to deviate from 

existing priority rules because doing so 

will allow RWA Packages to be 

executed, which, in turn, will help 

reduce the RWA associated with a 

Market-Maker’s SPX Position, and, in 

turn, will reduce the risk of market 

dislocation, especially during periods of 

increased volume and volatility [sic]. 

In addition, the Exchange proposes to 

adopt Interpretation and Policy .02 to 

provide that nothing in paragraph (a) of 

Rule 6.57 prevents a Market-Maker from 

executing transactions (opening or 

closing) during the RFQ period in the 

normal operation of the Market-Maker’s 

business. Market-Makers have 

affirmative obligations, and the 

Exchange believes the adoption of 

Interpretation and Policy .02 helps 

ensure that Rule 6.57 does not prevent 

Cboe Options Market-Makers from 

satisfying their affirmative obligations 

by, for example, buying and selling 

options series during the RFQ period in 

the normal course of their operations. 

Finally, the Exchange proposes to 

adopt Interpretation and Policy .03 to 

implement Rule 6.57 for a limited term 

ending two years from the approval date 

of this rule filing. 

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.14 Specifically, 

the Exchange believes the proposed rule 

change is consistent with the Section 

6(b)(5) 15 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) 16 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 will help facilitate the 

reduction of open SPX options positions 

(and concomitant RWA), which helps to 

protect investors and the public interest 

by enabling Market-Makers to continue 

to provide liquidity that is critical to the 

SPX options markets. Although the 

Exchange is seeking to limit RWA 

transactions to those initiated by Cboe 

Options Market-Makers, the proposal is 

not designed to permit discrimination 

between customers, issuers, brokers, or 

dealers; rather, the proposal seeks to 

alleviate the negative impact of bank 

capital requirements on the primary 

liquidity providers in the listed options 

market (i.e., Market-Makers), who are 

disproportionately impacted by bank 

capital requirements governing bankaffiliated clearing firms. The Exchange 

believes the ability for Market-Makers to 

efficiently and effectively reduce open 

positions across numerous options 

series in one large transaction will help 

to reduce the risk of market dislocation, 

especially during periods of increased 

volume and volatility. Market-Makers 

will be able to continue providing 

liquidity during such times (increasing 

the RWA attributed to the MarketMakers) because they will know that 

they can subsequently reduce their open 

positions (and concomitant RWA) 

across numerous options series in one 

large transaction. 

Furthermore, the Rule 6.57 is 

patterned on Rule 6.49A, which sets 

forth similar procedures for on-floor 

transfers. In addition, generally, Rule 

6.57 is an exception to various Exchange 

trading rules because RWA Packages are 

designed to carry out the important 

purpose of reducing RWA, and the 

construction and procedures set forth in 

Rule 6.57 are necessary to carry out that 

purpose. RWA Packages are large in size 

(at least 10,000 options) and broad in 

construction (at least 50 separate 

options series) and must be closing 

transactions because the purpose of 

RWA Packages is to significantly reduce 

RWA associated with Market-Maker 

positions to enable Market-Makers to 

continue to provide critical liquidity to 

SPX options. In order to functionally 

execute such a large portfolio of SPX 

options the Exchange believes it is 

necessary for the procedures to deviate 

from certain current exchange trading 

rules. The Exchange believes the narrow 

scope of the proposed rule change and 

the limited, beneficial purpose of RWA 

Packages make allowing RWA Packages 

to execute without interacting with preexisting interest on the electronic book 

appropriate and important to support 

the provision of liquidity in the SPX 

market.17 Specifically, the Exchange 

believes it is necessary and proper for 

interpretation and policy .01 to specify 

that Rules 6.9(a) through (d) and (f), 

6.41, 6.44, 6.45, 6.47, and 6.74 are either 

supersede [sic] by, or do not apply to, 

Rule 6.57. 

As previously noted above, the 

proposed procedure for RWA Packages 

sets forth the specific manner in which 

RWA Packages and any solicited orders 

must be represented, and thus the 

situations described in Rule 6.9(a) 

through (d) and (f) would never occur. 

The proposed rule makes clear that 

these provisions are superseded by the 

proposed rule. 

In addition, Rule 6.41 is inapplicable 

to RWA Packages because Rule 6.41 is 

inapplicable to index options such as 

SPX options. Thus, an RWA Package, 

which by definition can only contain 

SPX options, will not be subject to Rule 

6.41. Furthermore, Rule 6.44 sets forth 

the meaning of bids and offers for one 

contract where RWA Packages must be 

for more than one contract; thus, Rule 


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6.44 is similarly inapplicable to RWA 

Packages. The Exchange believes it is 

consistent with Exchange Act and helps 

to remove impediments to and perfect 

the mechanism of a free and open 

market and, in general, helps protect 

investors and the public interest to 

explicitly provide that Rule 6.57 

supersedes Ruls [sic] 6.41 and 6.44 to 

avoid any possible confusion regarding 

the applicability of Rules 6.41 and 6.44 

to RWA Package execution. 

In particular, the Exchange believes it 

is critical that RWA Packages be 

executed without regard to the specific 

priority set forth in Rule 6.45, 6.47, or 

6.74 because the size of the RWA 

Packages (at least 50 SPX options series, 

10 options per series, and at least 10,000 

options) makes it functionally 

impossible for RWA Packages to interact 

with the electronic book as orders on 

the electronic book (complex order book 

or simple order book) do not have the 

necessary size and depth across a large 

portfolio of options to satisfy the terms 

of an RWA Package. Thus, requiring 

RWA Packages to follow the priority in 

Rule 6.45, 6.47, or 6.74 would prevent 

RWA Packages from being executed. 

Given the limited purpose and 

significant size and complexity of RWA 

Packages, the Exchange believes it is 

consistent with Exchange Act and helps 

remove impediments to and perfect the 

mechanism of a free and open market 

and, in general, helps protect investors 

and the public interest to permit RWA 

transactions to deviate from existing 

priority rules. This will permit [sic] 

because doing so will allow RWA 

Packages to be executed in an efficient 

manner, which, in turn, will help 

reduce the RWA associated with a 

Market-Maker’s SPX positions, and, in 

turn, will reduce the risk of market 

dislocation, especially during periods of 

increased volume and volatility. 

To the extent Cboe Market-Makers 

cannot reduce options positions in an 

efficient and effective manner their 

ability to continue to provide liquidity 

may be impaired. As noted, the 

procedures set forth in Rule 6.57 are 

similar to the procedures set forth in 

Rule 6.49A. The Exchange believes the 

procedures set forth in Rule 6.57 

improve on the procedures set forth in 

Rule 6.49A as Rule 6.57, among other 

things, provides for the publication of 

RWA Packages in an electronic format, 

which allows for a fair process by which 

TPHs may review, price, and bid/offer 

for an RWA Package. 

In addition, the Exchange believes 

proposed Interpretation and Policy .02, 

which provides that nothing in 

paragraph (a) of Rule 6.57 prevents a 

Market-Maker from executing 

transactions (opening or closing) during 

the RFQ period in the normal operation 

of the Market-Maker’s business, is 

consistent with Exchange Act and helps 

to remove impediments to and perfect 

the mechanism of a free and open 

market and, in general, helps protect 

investors and the public interest by 

helping to ensure Market-Makers 

continue to perform their affirmative 

obligations during the trading day. 

Finally, the Exchange believes 

proposed Interpretation and Policy .03, 

which indicates that Rule 6.57 is to be 

adopted for a limited term ending two 

years from the approval date of this rule 

filing, is consistent with Exchange Act 

and helps to remove impediments to 

and perfect the mechanism of a free and 

open market and, in general, helps 

protect investors and the public interest 

by allowing the Exchange to evaluate at 

the end of the two-year period whether 

Rule 6.57 continues to be a useful tool 

to reduce RWA associated with SPX 

options positions. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

Cboe Options 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. Although the 

Exchange is seeking to limit RWA 

transactions to those initiated by Cboe 

Options Market-Makers, the Exchange 

does not believe the proposed rule 

change will impose any burden on 

competition that is not necessary or 

appropriate in furtherance of the 

purposes of the Act because the 

proposal seeks to alleviate the negative 

impact of bank capital requirements on 

the primary liquidity providers in the 

listed options market (i.e., MarketMakers), who are disproportionately 

impacted by bank capital requirements 

governing bank-affiliated clearing firms. 

Use of the proposed process is 

voluntary, and all Market-Makers with 

SPX positions may engage in RWA 

transactions. The proposed rule change 

proposes a process that may be carried 

out only [sic] the Exchange’s trading 

floor in a product that trades solely on 

the Exchange. RWA Transactions have a 

limited purpose, which is to reduce 

RWA attributable to Market-Makers’ 

SPX open positions in order to free up 

capital and enable Market-Makers to 

continue to provide the liquidity to the 

SPX market, which liquidity benefits all 

market participants. This is not 

intended to be a competitive trading 

tool. 

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 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–2018–056 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–2018–056. 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 


daltland on DSKBBV9HB2PROD with NOTICES
42732 Federal Register / Vol. 83, No. 164 / Thursday, August 23, 2018 / Notices 

18 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3Rule 6710 generally defines a ‘‘TRACE-Eligible 

Security’’ as: A debt security that is United States 

(‘‘U.S.’’) dollar-denominated and is: (1) Issued by a 

U.S. or foreign private issuer, and, if a ‘‘restricted 

security’’ as defined in Securities Act Rule 

144(a)(3), sold pursuant to Securities Act Rule 

144A; (2) issued or guaranteed by an Agency as 

defined in Rule 6710(k) or a Government-Sponsored 

Enterprise as defined in Rule 6710(n); or (3) a U.S. 

Treasury Security as defined in Rule 6710(p). 

‘‘TRACE-Eligible Security’’ does not include a debt 

security that is issued by a foreign sovereign or a 

Money Market Instrument as defined in Rule 

6710(o). 

4 ‘‘Agency Debt Security’’ generally includes a 

debt security (i) issued or guaranteed by an Agency 

as defined in Rule 6710(k); (ii) issued or guaranteed 

by a Government-Sponsored Enterprise (‘‘GSE’’) as 

defined in Rule 6710(n); or (iii) issued by a trust 

or other entity that was established or sponsored by 

a GSE for the purpose of issuing debt securities, 

where such enterprise provides collateral to the 

trust or other entity or retains a material net 

economic interest in the reference tranches 

associated with the securities issued by the trust or 

other entity. Rule 6710(n) provides that 

‘‘Government-Sponsored Enterprise’’ has the same 

meaning as defined in 2 U.S.C. 622(8). 

5Rule 6710 provides that ‘‘Investment Grade’’ 

means ‘‘a TRACE-Eligible Security that, if rated by 

only one nationally recognized statistical rating 

organization (‘‘NRSRO’’), is rated in one of the four 

highest generic rating categories; or if rated by more 

than one NRSRO, is rated in one of the four highest 

generic rating categories by all or a majority of such 

NRSROs; provided that if the NRSROs assign 

ratings that are evenly divided between (i) the four 

highest generic ratings and (ii) ratings lower than 

the four highest generic ratings, FINRA will classify 

the TRACE-Eligible Security as Non-Investment 

Grade for purposes of TRACE. If a TRACE-Eligible 

Security is unrated, for purposes of TRACE, FINRA 

may classify the TRACE-Eligible Security as an 

Investment Grade security. FINRA will classify an 

unrated Agency Debt Security as defined in [Rule 

6710(l)] as an Investment Grade security for 

purposes of the dissemination of transaction 

volume.’’ See FINRA Rule 6710(h). 

6Rule 6710 provides that ‘‘Non-Investment 

Grade’’ means ‘‘a TRACE-Eligible Security that, if 

rated by only one NRSRO, is rated lower than one 

of the four highest generic rating categories; or if 

rated by more than one NRSRO, is rated lower than 

one of the four highest generic rating categories by 

all or a majority of such NRSROs. Except as 

provided in paragraph (h), if a TRACE-Eligible 

Security is unrated, FINRA may classify the 

TRACE-Eligible Security as a Non-Investment Grade 

security.’’ See FINRA Rule 6710(i). 

7See Securities Exchange Act Release No. 59733 

(April 8, 2009), 74 FR 17709 (April 16, 2009) 

(Notice of Filing of File No. SR–FINRA–2009–010). 

8See supra note 7. 

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–2018–056 and 

should be submitted on or before 

September 7, 2018. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.18

Eduardo A. Aleman, 

Assistant Secretary. 

[FR Doc. 2018–18158 Filed 8–22–18; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–83882; File No. SR–FINRA– 

2018–032] 

Self-Regulatory Organizations; 

Financial Industry Regulatory 

Authority, Inc.; Notice of Filing of a 

Proposed Rule Change To Amend 

FINRA Rule 6710 To Modify the 

Dissemination Protocols for Agency 

Debt Securities 

August 17, 2018. 

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 August 

16, 2018, the Financial Industry 

Regulatory Authority, Inc. (‘‘FINRA’’) 

filed with the Securities and Exchange 

Commission (‘‘Commission’’) the 

proposed rule change as described in 

Items I, II, and III below, which Items 

have been prepared by FINRA. The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

FINRA is proposing to amend FINRA 

Rule 6710 to modify the dissemination 

protocols with respect to Agency Debt 

Securities. 

The text of the proposed rule change 

is available on FINRA’s website at 

http://www.finra.org, at the principal 

office of FINRA 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, 

FINRA 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. FINRA 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 the 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

FINRA requires members to report to 

the Trade Reporting and Compliance 

Engine (‘‘TRACE’’) transactions in 

TRACE-Eligible Securities,3 including 

securities that meet the definition of 

‘‘Agency Debt Security.’’ 4 FINRA 

disseminates transaction information on 

Agency Debt Securities and displays 

either the actual size (volume) of the 

transaction or a capped amount, 

depending on whether the security is 

rated as Investment Grade,5 NonInvestment Grade,6 or is unrated. For 

transactions in Agency Debt Securities 

that are either Investment Grade or 

unrated, FINRA disseminates the actual 

size of the trade for transactions less 

than or equal to $5 million in par value 

traded, thus providing actual 

transaction size up to $5 million, and 

disseminates ‘‘$5MM+’’ for trades 

exceeding $5 million in par value 

traded.7 For transactions in Agency Debt 

Securities that are Non-Investment 

Grade, FINRA disseminates the actual 

size of the trade for transactions less 

than or equal to $1 million in par value, 

and disseminates ‘‘1MM+’’ for trades 

exceeding $1 million in par value 

traded.8

FINRA is proposing to apply a $5 

million dissemination cap to all Agency 

Debt Securities, regardless of the rating 

assigned to the security. When adopting 

the original dissemination caps for 

Agency Debt Securities, FINRA believed 

that unrated Agency Debt Securities 

should default to the $5 million 

dissemination cap due to factors such as 

that they trade more consistently with 

Investment Grade securities that are 

subject to the $5 million dissemination 

cap. While Non-Investment Grade 

Agency Debt Securities have been 

disseminated with the $1 million 

dissemination cap, FINRA is not aware 

of the existence of any Non-Investment 

Grade Agency Debt Securities other than 

credit risk transfer securities (‘‘CRTs’’), 

a type of Agency Debt Security issued 

by Fannie Mae (‘‘Fannie’’) and Freddie 

Mac (‘‘Freddie’’). Based on experience 

gained with CRTs and in consultation 

with Fannie and Freddie, FINRA 


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