Document ID: SEC-2020-0453-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Cboe Exchange, Inc.
Posted Date: 2020-03-26T04:00Z

[Federal Register Volume 85, Number 59 (Thursday, March 26, 2020)]
[Notices]
[Pages 17129-17134]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-06291]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88447; File No. SR-CBOE-2020-023]

Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change Relating 
To Amend Rule 5.24

March 20, 2020.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on March 20, 2020, Cboe Exchange, Inc. (the ``Exchange'' or ``Cboe 
Options'') filed with the Securities and Exchange Commission (``SEC'' 
or ``Commission'') the proposed rule change as described in Items I and 
II 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

    Cboe Exchange, Inc. (the ``Exchange'' or ``Cboe Options'') proposes 
to amend Rule 5.24. The text of the proposed rule change is provided 
below.
(additions are italicized; deletions are [bracketed])
* * * * *
Rules of Cboe Exchange, Inc.
* * * * *

Rule 5.24. Disaster Recovery

    (a)-(d) No change.
    (e) Loss of Trading Floor. If the Exchange trading floor becomes 
inoperable, the Exchange will continue to operate in a screen-based 
only environment using a floorless configuration of the System that is 
operational while the trading floor facility is inoperable. The 
Exchange will operate using this configuration only until the 
Exchange's trading floor facility is operational. Open outcry trading 
will not be available in the event the trading floor becomes 
inoperable, except in accordance with paragraph (2) below and pursuant 
to Rule 5.26, as applicable.
    (1) Applicable Rules. In the event that the trading floor becomes 
inoperable, trading will be conducted pursuant to all applicable System 
Rules, except that open outcry Rules will not be in force, including 
but not limited to the Rules (or applicable portions of the Rules) in 
Chapter 5, Section G, and as follows (subparagraphs (A) through ([C]D) 
will until May 15, 2020):
    (A) No change.
    (B) with respect to complex orders in any exclusively listed index 
option class:
    (1) Notwithstanding Rule 5.4(b), the minimum increment for bids and 
offers on complex orders with any ratio equal to or greater than one-
to-twenty-five (0.04) and equal to or less than twenty-

[[Page 17130]]

five-to-one (25.00) is $0.01 or greater, which may be determined by the 
Exchange on a class-by-class basis, and the legs may be executed in 
$0.01 increments; and
    (2) notwithstanding the definition of ``complex order'' in Rule 
1.1, for purposes of Rule 5.33, the term ``complex order'' means a 
complex order with any ratio equal to or greater than one-to-twenty-
five (0.04) and equal to or less than twenty-five-to-one (25.00); [and]
    ([3]C) the contract volume a Market-Maker trades electronically 
during a time period in which the Exchange operates in a screen-based 
only environment will be excluded from determination of whether a 
Market-Maker executes more than 20% of its contract volume 
electronically in an appointed class during any calendar quarter, and 
thus is subject to the continuous electronic quoting obligation, as set 
forth in Rule 5.52(d)[.]; and
    (D) a TPH may execute a ``Related Futures Cross'' or ``RFC'' order, 
which is comprised of an SPX or VIX option combo order coupled with a 
contra-side order or orders totaling an equal number of option combo 
orders, which is identified to the Exchange as being part of an 
exchange of option contracts for related futures positions. For 
purposes of RFC orders:
    (1) In order to execute an RFC order:
    (a) Until the time when System functionality described in 
subparagraph (b) is available, a TPH may execute an RFC order without 
exposure on the Exchange by inputting the execution into the Exchange's 
Clearing Editor; and
    (b) at the time when System functionality is available, a TPH must 
submit the RFC order to the System, which may execute automatically on 
entry without exposure.
    (2) A TPH may execute an RFC order pursuant to subparagraph (1) 
above only if: (a) Each option leg executes at a price that complies 
with Rule 5.33(f)(2), provided that no option leg executes at the same 
price as a Priority Customer Order in the Simple Book; (b) each option 
leg executes at a price at or between the NBBO for the applicable 
series; and (c) the execution price is better than the price of any 
complex order resting in the COB, unless the RFC order is a Priority 
Customer Order and the resting complex order is a non-Priority Customer 
Order, in which case the execution price may be the same as or better 
than the price of the resting complex order. Rule 5.9 (related to 
exposure of orders on the Exchange) does not apply to executions of RFC 
orders. The System cancels an RFC order if it cannot execute.
    (3) An RFC order may only be entered in the standard increment 
applicable to the class under Rule 5.4(b).
    (4) For purposes of this subparagraph (D), an SPX or VIX options 
combo order is a two-legged order with one leg to purchase (sell) SPX 
or VIX calls and another leg to sell (purchase) the same number of SPX 
or VIX, respectively, puts with the same expiration date and strike 
price.
    (5) For purposes of this subparagraph (D), an exchange of option 
contracts for related futures positions is a transaction entered into 
by market participants seeking to swap option positions with related 
futures positions with related exposures.
    (a) A related futures position is a position in a futures contract 
with either the same underlying as or a high degree of price 
correlation to the underlying of the option combo in the RFC order so 
that execution of the option combos in the RFC order would serve as an 
appropriate hedge for the related future positions.
    (b) In an exchange of contracts for related positions, one 
party(ies) must be the buyer(s) of (or the holder(s) of the long market 
exposure associated with) the options positions and the seller(s) of 
corresponding futures contracts and the other party(ies) must be the 
seller(s) of (or holder(s) of the short market exposure associated 
with) the options positions and the buyer(s) of the corresponding 
futures contracts. The quantity of the option contracts executed as 
part of the RFC order must correlate to the quantity represented by the 
related futures position portion of the exchange.
    (6) An RFC order may be executed only during Regular Trading Hours 
and contemporaneously with the execution of the related futures 
position portion of the exchange.
    (7) The transaction involving the related futures position of the 
exchange must comply with all applicable rules of the designated 
contract market on which the futures are listed for trading.
* * * * *
    The text of the proposed rule change is also 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 Rule 5.24 regarding the Exchange's 
business continuity and disaster recovery plans. Rule 5.24 describes 
which Trading Permit Holders (``TPHs'') are required to connect to the 
Exchange's backup systems as well as certain actions the Exchange may 
take as part of its business continuity plans so that it may maintain 
fair and orderly markets if unusual circumstances occurred that could 
impact the Exchange's ability to conduct business. This includes what 
actions the Exchange would take if its trading floor became inoperable. 
Specifically, Rule 5.24(e) states if the Exchange trading floor becomes 
inoperable, the Exchange will continue to operate in a screen-based 
only environment using a floorless configuration of the System that is 
operational while the trading floor facility is inoperable. The 
Exchange would operate using that configuration only until the 
Exchange's trading floor facility became operational. Open outcry 
trading would not be available in the event the trading floor becomes 
inoperable.\3\ Rule 5.24(e)(1) also currently states in the event that 
the trading floor becomes inoperable, trading will be conducted 
pursuant to all applicable System Rules, except that open outcry Rules 
would not be in force, including but not limited to the Rules (or 
applicable portions) in Chapter 5, Section G,\4\ and that all non-

[[Page 17131]]

trading rules of the Exchange would continue to apply.\5\ The Exchange 
recently proposed additional exceptions to Rules that would not apply 
during a time in which the trading floor in inoperable.\6\
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    \3\ Pursuant to Rule 5.26, the Exchange may enter into a back-up 
trading arrangement with another exchange, which could allow the 
Exchange to use the facilities of a back-up exchange to conduct 
trading of certain of its products. The Exchange currently has no 
back-up trading arrangement in place with another exchange.
    \4\ Chapter 5, Section G of the Exchange's rulebook sets forth 
the rules and procedures for manual order handling and open outcry 
trading on the Exchange.
    \5\ Current Rule 5.24(e)(1)(B)(3) was intended to be Rule 
5.24(e)(1)(C), and the proposed rule change corrects that incorrect 
subparagraph lettering and numbering.
    \6\ See Securities Exchange Act Release No. 88386 (March 13, 
2020), 85 FR 15823 (March 19, 2020). The rule changes adopted in 
that filing are effective until May 15, 2020, unless extended. See 
Rule 5.24(e)(1).
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    As of March 16, 2020, the Exchange suspended open outcry trading to 
help prevent the spread of the novel coronavirus and is currently 
operating in an all-electronic configuration. While the trading floor 
was open, floor brokers executed crosses of option combos (i.e., 
synthetic futures) on the trading floor on behalf of market 
participants who were exchanging futures contracts for related options 
positions. Market participants enter into these exchanges in order to 
swap related exposures. For instance, if a market participant has 
positions in VIX options but would prefer to hold a corresponding 
position in VIX futures (such as, for example, to reduce margin or risk 
related to the option positions), that market participant may swap its 
VIX options positions with another market participant(s)'s VIX futures 
positions that have corresponding risk exposure.\7\
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    \7\ The transaction between the market participants for the 
futures positions occurs in accordance with the rules of the 
applicable designated contract market that lists the futures. See, 
e.g., Cboe Futures Exchange LLC Rule 414.
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    A key element to these exchanges is that both of the option and 
future transactions must occur between the same market participants. 
When a floor broker represented the cross of the option contracts on 
the trading floor in accordance with applicable rules,\8\ while in-
crowd market participants had the opportunity to bid or offer to 
participate on the trade, those participants generally declined to 
participate upon hearing that the cross was part of an exchange of 
related futures contracts. While not required by the Rules, the Rules 
permit in-crowd market participants to decline to accept contracts that 
would otherwise be allocated to them.\9\ The Exchange understands these 
market participants decline this allocation voluntarily, as they are 
aware of the need for market participants to execute these crosses 
cleanly for the transfer of risk between participants to be 
effective.\10\ These are riskless exchanges that carry no profit or 
loss for the market participants that are party to the transactions, 
but rather are intended to provide a seamless method for market 
participants to reduce margin and capital requirements while 
maintaining the same risk exposure within their portfolios.
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    \8\ See Rules 5.85 and 5.87.
    \9\ See Rule 5.85(a)(2)(C)(iv).
    \10\ Additionally, many market-makers in the crowd that decline 
their allocations in these crosses often similarly engage in these 
exchanges for similar purposes, so may similarly benefit from the 
ability to execute these clean crosses.
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    In response to feedback the Exchange has received from floor 
brokers and their customers regarding the inability to complete these 
crosses in the current all-electronic environment and the potential 
detrimental impact on those market participants as well as the market 
as a whole, the Exchange proposes to provide functionality that would 
permit TPHs to execute these crosses electronically while the trading 
floor is inoperable. Specifically, the Exchange proposes to amend Rule 
5.24(e)(1) to provide that in the event that the trading floor becomes 
inoperable, trading will be conducted pursuant to all applicable System 
Rules, except that open outcry Rules will not be in force, including 
but not limited to the Rules (or applicable portions of the Rules) in 
Chapter 5, Section G,\11\ and a Trading Permit Holder (``TPH'') may 
execute a ``Related Futures Cross'' or ``RFC'' order, which is 
comprised of an SPX or VIX option combo order coupled with a contra-
side order or orders totaling an equal number of option combo orders, 
which is identified to the Exchange as being part of an exchange of 
contracts for related futures positions.
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    \11\ Like the other exceptions recently added to this provision, 
the proposed rule change would apply until May 15, 2020. The 
Exchange will monitor these transactions while the trading floor is 
inoperable. If the trading floor is inoperable beyond May 15, 2020, 
based on that review, the Exchange may submit a separate rule filing 
to extend the effectiveness of this rule.
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    For purposes of RFC orders:
     In order to execute an RFC order:
    (a) Until the time when System functionality described in paragraph 
(b) is available, a TPH may execute an RFC order without exposure on 
the Exchange by inputting the execution into the Exchange's Clearing 
Editor; \12\ and
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    \12\ See Rule 6.6.
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    (b) at the time when System functionality is available, a TPH must 
submit the RFC order to the System, which may execute automatically on 
entry without exposure.
    The Exchange believes the functionality described in paragraph (b) 
will provide a seamless mechanism to execute these crosses, as it will 
provide for orders to be systematized and price protections will be 
systematically enforced. The Exchange needs a small amount of time to 
implement this functionality, and the functionality in paragraph (a) 
will provide an intermediate method for TPHs to effect these crosses 
while the Exchange completes the necessary System work, which it 
expects to occur the week of March 23.
     A TPH may execute an RFC order pursuant to the preceding 
bulleted paragraph only if: (a) Each option leg executes at a price 
that complies with Rule 5.33(f)(2),\13\ provided that no option leg 
executes at the same price as a Priority Customer Order in the Simple 
Book; (b) each option leg executes at a price at or between the 
national best bid or offer (``NBBO'') for the applicable series; and 
(c) the execution price is better than the price of any complex order 
resting in the complex order book (``COB''), unless the RFC order is a 
Priority Customer Order and the resting complex order is a non-Priority 
Customer Order, in which case the execution price may be the same as or 
better than the price of the resting complex order. Rule 5.9 (related 
to exposure of orders on the Exchange) does not apply to executions of 
RFC orders. The System cancels an RFC order if it cannot execute. This 
provision provides that RFC orders must execute in accordance with the 
same priority principles that apply to all other complex orders on the 
Exchange, which protects Priority Customer orders in the simple book 
and COB and prohibits trades through prices available in the book.
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    \13\ Rule 5.33(f)(2) requires complex orders, which would 
include an RFC order, which by definition contains two option legs, 
to execution only if the execution price: At a net price: (i) That 
would cause any component of the complex strategy to be executed at 
a price of zero; (ii) worse than the synthetic best bid or offer 
(``SBBO'') or equal to the SBBO when there is a Priority Customer 
Order at the SBBO, except all-or-none complex orders may only 
execute at prices better than the SBBO; (iii) that would cause any 
component of the complex strategy to be executed at a price worse 
than the individual component prices on the Simple Book; (iv) worse 
than the price that would be available if the complex order Legged 
into the Simple Book; or (v) that would cause any component of the 
complex strategy to be executed at a price ahead of a Priority 
Customer Order on the Simple Book without improving the BBO of at 
least one component of the complex strategy.
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     An RFC order may only be entered in the standard increment 
applicable to the class under Rule 5.4(b). Therefore, RFC orders may 
only be submitted in the same increments as all other complex orders.
     For purposes of proposed subparagraph (D), an SPX or VIX 
options combo order is a two-legged order with one leg to purchase 
(sell) SPX or VIX calls and another leg to sell (purchase) the same 
number of SPX or

[[Page 17132]]

VIX, respectively, puts with the same expiration date and strike price.
     For purposes of proposed subparagraph (D), an exchange of 
options contracts for related futures positions is a transaction 
entered into by market participants seeking to swap option positions 
with related futures positions with related exposures.
    (a) A related futures position is a position in a futures contract 
with either the same underlying as or a high degree of price 
correlation to the underlying of the option combo in the RFC order so 
that execution of the option combos in the RFC order would serve as an 
appropriate hedge for the related future positions.
    (b) In an exchange of contracts for related positions, one 
party(ies) must be the buyer(s) of (or the holder(s) of the long market 
exposure associated with) the options positions and the seller(s) of 
corresponding futures contracts and the other party(ies) must be the 
seller(s) of (or holder(s) of the short market exposure associated 
with) the options positions and the buyer(s) of the corresponding 
futures contracts.\14\ The quantity of the option contracts executed as 
part of the RFC order must correlate to the quantity represented by the 
related futures position portion of the exchange.
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    \14\ As proposed, one side of the cross will consist of one 
party, and the other side may consist of multiple parties.
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     An RFC order may be executed only during Regular Trading 
Hours and contemporaneously with the execution of the related futures 
position portion of the exchange.
     The transaction involving the related futures position of 
the exchange must comply with all applicable rules of the designated 
contract market on which the futures are listed for trading.
    The Exchange understands from customers that the need to reduce 
risk is prevalent in VIX and SPX based on current market conditions, 
and have corresponding futures that could make these exchanges 
possible. For example, Cboe Futures Exchange LLC (``CFE'') permit these 
types of exchanges with respect to VIX futures pursuant to CFE Rule 
414.\15\ The proposed rule will require that the executing TPH identify 
these crosses as related to an exchange for related positions. As a 
result, the Exchange's Regulatory Division has put in place a 
regulatory review plan that will permit it to ensure any RFC orders 
that are executed are done in conjunction with an exchange of contract 
for related positions as required by the proposed rule.
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    \15\ Currently, CME, which lists futures that correspond to SPX 
options, does not offer similar exchange opportunities. If CME 
implements a rule to permit them, the proposed rule change will 
permit TPHs to similar use RFC orders to swap exposure with 
corresponding futures that transact pursuant to CME's rules.
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    Allowing TPHs, and particularly market-makers, to exchange 
synthetic futures (long (short) call, short (long) put--combos) for 
listed futures would replicate functionality that was previously 
available while Cboe was operating with an open outcry environment and 
would provide them with needed relief from the effect of the current 
exposure method (``CEM'') on the options market. The Exchange believes 
there are four reasons that make the proposed rule change for VIX and 
SPX products necessary and appropriate to maintain fair and orderly 
markets.
    First, existing margin models do not fully recognize similar risks 
present in VIX and SPX derivatives positions held by the Exchange's 
liquidity providing community. This results in an overestimation of 
risk causing Clearing TPHs to require out-sized margin deposits from 
their market-maker clients, which restricts the liquidity market-makers 
can provide to the markets. Second, because the Clearing TPHs carrying 
these positions are bank-owned broker/dealers they are subject to 
further bank regulatory capital requirements pursuant to CEM, which 
result in these additional punitive capital requirements being passed 
on to their market-maker clients.\16\ Third, as noted above, the 
Exchange's necessary response to the novel coronavirus global pandemic 
caused the Exchange to suspend open outcry trading, which has 
temporarily eliminated one method of executing necessary position 
reducing trades in VIX and SPX options on the trading floor. Finally, 
the historic levels of market volatility has made providing liquidity 
in VIX and SPX options immensely more challenging. The execution of 
options trades through in an electronic trading environment independent 
of the underlying futures hedge introduces additional risk to these 
transactions, which further reduces available liquidity a liquidity 
provider may provide to the market.
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    \16\ See Letter from Cboe, New York Stock Exchange, and Nasdaq, 
Inc., to the Honorable Randal Quarles, Vice Chair for Supervision of 
the Board of Governors of the Federal Reserve System, March 18, 
2020.
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    The Exchange believes the proposed rule change to make available 
functionality that will allow liquidity providers to execute trades 
tied to the underlying future (i.e. ``delta-neutral'') in a 
substantially similar manner as they were able to do on the trading 
floor will considerably reduce the risk inherent in trying to maintain 
a hedged portfolio. The combination of these four factors is negatively 
impacting the market-making community, which is reducing liquidity 
available in an extremely volatile market, which is when the market 
needs this liquidity the most. The Exchange believes the proposed rule 
change will temporarily reduce existing inefficiencies that have 
resulted from closure of the trading floor which will free up liquidity 
providers' much needed capital, which will benefit the entire market 
and all investors.
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.\17\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \18\ 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) \19\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \17\ 15 U.S.C. 78f(b).
    \18\ 15 U.S.C. 78f(b)(5).
    \19\ Id.
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    The Exchange believes the proposed rule change will remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system, and, in general, protect investors and the 
public interest. The proposed rule change will temporarily provide 
liquidity providers and other market participants with the ability to 
exchange SPX and VIX options positions with corresponding futures 
positions electronically in a substantially similar manner as they were 
able to do when the trading floor was open. These exchange allow market 
participants to reduce options positions in their hedged portfolios 
while maintain the same risk exposure, which would reduce the necessary 
capital associated with those positions and

[[Page 17133]]

permit them to provide more liquidity in the market. This additional 
liquidity may result in tighter spreads and more execution 
opportunities, which benefits all investors, particularly in the 
current volatile markets.
    The Exchange believes that its proposal is also consistent with the 
Act in that it seeks to mitigate the potentially negative effects of 
the bank capital requirements on liquidity in the VIX and SPX markets. 
As described above, current regulatory capital requirements could 
potentially impede efficient use of capital and undermine the critical 
liquidity role that Market-Makers and other liquidity providers play in 
the SPX and VIX options market by limiting the amount of capital 
Clearing TPHs (``CTPHs'') allocate to clearing member transactions. 
Specifically, the rules may cause CTPHs to impose stricter position 
limits on their clearing members. In turn, this could force Market-
Makers to reduce the size of their quotes and result in reduced 
liquidity in the market. The Exchange believes that permitting TPHs to 
reduce options positions in SPX and VIX options that will permit them 
to maintain a hedged portfolio would likely contribute to the 
availability of liquidity in the SPX and VIX options market and help 
ensure that these markets retain their competitive balance. The 
Exchange believes that the proposed rule would serve to protect 
investors by helping to ensure consistent continued depth of liquidity, 
particularly given current market conditions when liquidity is needed 
the most by investors.
    The Exchange also believes the proposed rule change is consistent 
with the Act, because the proposed procedure is consistent with 
transactions that were otherwise permitted on the trading floor. The 
proposed rule would provide an electronic mechanism to replicate a 
process that was used on the trading floor. The proposed rule change 
imposes similar priority requirements to those in open outcry, which 
will protect Priority Customer orders and orders on top of the book 
that comprise the BBO. Additionally, the proposed rule change requires 
RFCs to execute in the same increments as all other complex orders. 
While these orders were exposed on the trading floor, the Exchange 
observed that market participants generally deferred their allocations 
to permit a clean cross, as that is necessary for these transactions to 
achieve their intended effect. Because these orders were generally not 
broken up on the trading floor, and because the purpose of these trades 
is unrelated to profits and losses (making the price at which the 
transaction is executed relatively unimportant like competitive 
trades), the Exchange believes it is appropriate to not expose these 
orders in an electronic setting. The Exchange believes the proposed 
rule change, which is limited to two classes the Exchange believes are 
being significantly impacted by the inability to execute these crosses, 
and to option orders that qualify as combos tied to related futures 
positions, is narrowly tailored for the specific purpose of 
facilitating the ability of liquidity providers to reduce positions 
requiring significant capital as a result of current bank regulatory 
capital requirements and the current historic levels of market 
volatility. The Exchange believes the proposed rule change will protect 
investors by helping to ensure continued depth of liquidity in the SPX 
and VIX options market.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The Exchange does not 
believe the proposed rule change will impose any burden on intramarket 
competition, RFC orders will be available to all market participants. 
As discussed above, while the proposed rule change is directed at 
market-makers, all market participants may use these orders in the same 
manner as long as all criteria of the proposed rule are satisfied. The 
Exchange does not believe the proposed rule change will impose any 
burden on intermarket competition, as it will apply only to products 
currently listed on the Exchange. Additionally, the proposed order is 
intended to accommodate riskless transactions for which parties are not 
seeking price improvement, but rather looking to swap risk exposure to 
free up capital that will permit those parties to continue to provide 
liquidity to the market, and thus is not intended to have a competitive 
impact.

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 Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \20\ and Rule 19b-4(f)(6) thereunder.\21\ 
Because the proposed rule change does not: (i) Significantly affect the 
protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative for 30 
days from the date on which it was filed, or such shorter time as the 
Commission may designate, if consistent with the protection of 
investors and the public interest, the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act \22\ and Rule 19b-
4(f)(6) thereunder.\23\
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    \20\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \21\ 17 CFR 240.19b-4(f)(6).
    \22\ 15 U.S.C. 78s(b)(3)(A).
    \23\ 17 CFR 240.19b-4(f)(6). Pursuant to Rule 19b-4(f)(6)(iii) 
under the Act, the Exchange is required to give the Commission 
written notice of its intent to file the proposed rule change, along 
with a brief description and text of the proposed rule change, at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) \24\ normally 
does not become operative for 30 days after the date of the filing. 
However, pursuant to Rule 19b-4(f)(6)(iii),\25\ the Commission may 
designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay so that the proposed 
rule change may become operative immediately. Given current market 
conditions that have created historic levels of volatility, the 
Exchange believes the proposed rule change will help it maintain fair 
and orderly markets by providing an electronic avenue for market 
participants, particularly liquidity providers, to continue to provide 
liquidity to the VIX and SPX markets. Additionally, the Exchange 
understands market participants generally engage in these attempts to 
reduce their options positions in connection with the third-Friday of 
the month expirations, as well as part of their monthly capital 
calculations. The Exchange also understands that in connection with 
bank capital regulatory requirements, CTPHs recalculate their leverage 
ratios at the end of each calendar quarter, which could result in their 
need to add capital based on their clients' positions and further 
reduce availability liquidity. Waiver of the operative delay would 
permit TPHs to engage in these transactions in connection with the 
March 2020 expiration and expected first quarter CTPH capital 
recalculation,

[[Page 17134]]

which could permit continued liquidity and a fair and orderly market. 
As discussed above, the proposed rule change would apply temporarily, 
and only to two exclusively listed index option classes, during the 
time the trading floor is unavailable for open outcry trading. Waiver 
of the operative delay would allow the proposed changes, which are 
designed to help maintain fair and orderly markets, to be in effect 
immediately. For these reasons, the Commission believes that waiver of 
the 30-day operative delay is consistent with the protection of 
investors and the public interest. Accordingly, the Commission hereby 
waives the 30-day operative delay and designates the proposal operative 
upon filing.\26\
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    \24\ 17 CFR 240.19b-4(f)(6).
    \25\ 17 CFR 240.19b-4(f)(6)(iii).
    \26\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(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

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-CBOE-2020-023 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-CBOE-2020-023. 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 offices 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-2020-023, and should be submitted 
on or before April 16, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\27\
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    \27\ 17 CFR 200.30-3(a)(12), (59).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-06291 Filed 3-25-20; 8:45 am]
BILLING CODE 8011-01-P