Document ID: SEC-2022-1181-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Cboe BZX Exchange, Inc.
Posted Date: 2022-09-08T04:00Z

[Federal Register Volume 87, Number 173 (Thursday, September 8, 2022)]
[Notices]
[Pages 55068-55071]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-19349]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-95655; File No. SR-CboeBZX-2022-043]

Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing of a Proposed Rule Change To Amend Exchange Rule 14.11(d) To 
Accommodate Exchange Listing and Trading of Options-Linked Securities

September 1, 2022.
    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 18, 2022, Cboe BZX Exchange, Inc. (the ``Exchange'' or 
``BZX'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Cboe BZX Exchange, Inc. (the ``Exchange'' or ``BZX'') proposes to 
amend Exchange Rule 14.11(d) (``Securities Linked to the Performance of 
Indexes and Commodities (Including Currencies)'') to accommodate 
Exchange listing and trading of Options-Linked Securities. The text of 
the proposed rule change is provided in Exhibit 5.
    The text of the proposed rule change is also available on the 
Exchange's website (http://markets.cboe.com/us/equities/regulation/rule_filings/bzx/), at the Exchange's Office of the Secretary, and at 
the Commission's Public Reference Room.

[[Page 55069]]

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
    Exchange Rule 14.11(d) provides for Exchange listing and trading of 
Securities Linked to the Performance of Indexes and Commodities 
(Including Currencies) (``Linked Securities'').\3\ The Exchange 
proposes to amend Rule 14.11(d) to add Options-Linked Securities to the 
type of Linked Securities permitted to list and trade on the Exchange.
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    \3\ Rule 14.11(d) currently accommodates Exchange listing and 
trading of Equity Index-Linked Securities, Commodity-Linked 
Securities, Fixed Income Index-Linked Securities, Futures-Linked 
Securities, and Multifactor Index-Linked Securities (collectively 
referred to as ``Linked Securities'').
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    The proposed amendment would include Options-Linked Securities in 
the list of Linked-Securities set forth in paragraph (d) of Rule 14.11. 
Additionally, the proposal would provide that the payment at maturity 
with respect to Options-Linked Securities is based on the performance 
of U.S. exchange-traded options on any one or combination of the 
following: (a) Index Fund Shares; (b) Managed Fund Shares, (c) 
Exchange-Traded Fund Shares; (d) Linked Securities; (e) other 
securities defined in Rule 14.11; \4\ (f) the S&P 100 Index, the S&P 
500 Index, the Nasdaq 100 Index, the Dow Jones Industrial Average, the 
MSCI EAFE Index, the MSCI Emerging Markets Index, the NYSE FANG Index, 
the Russell 2000 Index, the Russell 1000 Index, the Russell 1000 Growth 
Index, the Russell 1000 Value Index, the Cboe Volatility Index, and the 
following subindices of the S&P 500 sectors: the Communication Services 
Select Sector Index, the Consumer Discretionary Select Sector Index, 
the Consumer Staples Select Sector Index, the Energy Select Sector 
Index, the Financial Select Sector Index, the Health Care Select Sector 
Index, the Industrial Select Sector Index, the Materials Select Sector 
Index, the Real Estate Select Sector Index, the Technology Select 
Sector Index, or the Utilities Select Sector Index; or (g) a basket or 
index of any of the foregoing (an ``Options Reference Asset''). To the 
extent that the Options Reference Asset consists of options based on 
Index Fund Shares, Managed Fund Shares, Exchange-Traded Fund Shares, 
Linked Securities, or other securities defined in Rule 14.11, such 
Index Fund Shares, Exchange-Traded Fund Shares, Linked Securities, or 
other securities defined in Rule 14.11 shall not seek to provide 
investment results, before fees and expenses, that correspond to the 
inverse, a specific multiple, or a specific inverse multiple of the 
percentage performance on a given day of a particular index or 
combination of indexes. The proposal would also include Options 
Reference Assets as a Multifactor Reference Asset.
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    \4\ The following other securities are included in Rule 14.11: 
Portfolio Depository Receipts (Rule 14.11(b)), Index-Liked 
Exchangeable Notes (Rule 14.11(d)(1)), Equity Gold Shares (Rule 
14.11(d)(2)), Trust Certificates (Rule 14.11(d)(3)), Commodity-Based 
Trust Shares (Rule 14.11(d)(4)), Currency Trust Shares (Rule 
14.11(d)(5), Commodity Index Trust Shares (Rule 14.11(d)(6)), 
Commodity Futures Trust Shares (Rule 14.11(d)(7), Partnership Units 
(Rule 14.11(d)(8), Trust Units (Rule 14.11(d)(9), Managed Trust 
Securities (Rule 14.11(d)(10), Listing of Currency Warrants (Rule 
14.11(d)(11), Selected Equity-linked Debt Securities (``SEEDS'') 
(Rule 14.11(d)(12), Trust Issued Receipts (Rule 14.11(f)), Index 
Warrants (Rule 14.11(g)), Managed Portfolio Shares (Rule 14.11(k)), 
and Tracking Fund Shares (Rule 14.11(m)).
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    The proposal would move existing Rule 14.11(d)(2)(K)(v) 
(Multifactor Index-Linked Securities Listings Standards) to Rule 
14.11(d)(2)(K)(vi), and would set forth the Option-Linked Securities 
Listing Standards in Rule 14.11(d)(2)(K)(v). Proposed Rule 
14.11(d)(2)(K)(v)(a) provides that Option-Linked Securities must meet 
either of the following initial listing standards: (1) The Options 
Reference Asset to which the security is linked shall have been 
reviewed and approved for the trading of Options-Linked Securities or 
options or other derivatives by the Commission under Section 19(b)(2) 
of the Securities Exchange Act of 1934 and rules thereunder and the 
conditions set forth in the Commission's approval order, including with 
respect to comprehensive surveillance sharing agreements, continue to 
be satisfied; or (2) The pricing information for components of the 
Options Reference Asset must be derived from a market which is an ISG 
member or affiliate or with which the Exchange has a comprehensive 
surveillance sharing agreement. Additionally, Proposed Rule 
14.11(d)(2)(K)(v)(a) provides that Options-Linked Securities must meet 
both of the following initial listing criteria: (3) the value of the 
Options Reference Asset must be calculated and widely disseminated by 
one or more major market data vendors on at least a 15-second basis 
during the Exchange's regular market session; and (4) in the case of 
Options-Linked Securities that are periodically redeemable, the 
indicative value of the subject Options Linked Securities must be 
calculated and widely disseminated by the Exchange or one or more major 
market data vendors on at least a 15-second basis during the Exchange's 
regular market session.
    Proposed Rule 14.11(d)(2)(K)(v)(b) provides that Option-Linked 
Securities must meet the following continued listing criteria: (1) the 
Exchange will consider the suspension of trading in, and will initiate 
delisting proceedings pursuant to Rule 14.12 if any of the initial 
listing criteria described above are not continuously maintained; and 
(2) the Exchange will consider the suspension of trading in, and will 
initiate delisting proceedings pursuant to Rule 14.12 under any of the 
following circumstances: (A) if the aggregate market value or the 
principal amount of the Options-Linked Securities publicly held is less 
than $400,000; (B) if an interruption to the dissemination of the value 
of the Options Reference Asset persists past the trading day in which 
it occurred or is no longer calculated or available and a new Options 
Reference Asset is substituted, unless the new Options Reference Asset 
meets the requirements of this proposed Rule 14.11(d)(2)(K); or (C) if 
such other event shall occur or condition exists which in the opinion 
of the Exchange makes further dealings on the Exchange inadvisable.\5\
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    \5\ Proposed Rule 14.11(d)(2)(K)(v)(b) is substantially the same 
as existing Rules 14.11(d)(2)(K)(ii)(b), 14.11(d)(2)(K)(iii)(c), and 
14.11(d)(2)(K)(iv)(c).
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    The Exchange proposes to amend Interpretation and Policy .01(a) and 
(b) to Rule 14.11(d) which relate to specified requirements and 
obligations of a Member acting as a registered Market Maker, to include 
options to the financial instruments covered by Commentary .01 and to 
make ministerial changes \6\ to references to currency futures to 
clarify that each is part of a list. Last, the Exchange proposes to 
amend the definition of UTP Derivative Security, as provided in

[[Page 55070]]

Rule 1.5(ee), to include Options-Linked Securities as such securities 
are a ``new derivative securities product'' as defined in Rule 19b-4(e) 
under the Act, and, as proposed, would be permitted to trade on the 
Exchange.
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    \6\ Specifically, the Exchange proposes to correct references to 
``currency futures'' to clarify that both currency and futures are 
part of a list.
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    With respect to equity securities underlying Options Reference 
Assets, the Exchange notes that Index Fund Shares,\7\ Managed Fund 
Shares,\8\ Exchange-Traded Fund Shares,\9\ and Linked Securities and 
securities as defined in Rule 14.11 are subject to initial and 
continued listing criteria under applicable Exchange Rules as approved 
by the Commission. In addition, the Commission has approved or issued a 
notice of effectiveness to permit listing on a national securities 
exchange of securities based on certain Indexes.\10\ Further, Index 
Fund Shares, Managed Fund Shares, Exchange-Traded Fund Shares, Linked 
Securities or securities defined in Rule 14.11 based on the Indexes 
have been listed on national securities exchanges under generic listing 
criteria applicable to such securities. With respect to options on the 
Indexes, options on all of the Indexes are currently traded on U.S. 
options exchanges.
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    \7\ See Exchange Rule 14.11(c).
    \8\ See Exchange Rule 14.11(i).
    \9\ See Exchange Rule 14.11(l).
    \10\ See, e.g., Securities Exchange Act Release Nos. 31591 
(December 11, 1992), 57 FR 60253 (December 18, 1992) (SR-Amex-92-18) 
(approving the listing and trading of Portfolio Depositary Receipts 
based on the S&P 500 Index); 39525 (January 8, 1998), 63 FR 2438 
(January 15, 1998) (SR-Amex-97-29) (approving the listing and 
trading of DIAMONDS Trust Units, Portfolio Depositary Receipts based 
on the Dow Jones Industrial Average); 39011 (September 3, 1997), 62 
FR 47840 (September 11, 1997) (SR-CBOE-97-26) (approving the listing 
and trading of options on the Dow Jones Industrial Average); 19907 
(June 24, 1983), 48 FR 30814 (July 5, 1983) (SR-CBOE-83-08) 
(approving the listing and trading of options on the S&P 500 Index 
on the CBOE); 41119 (February 26, 1999), 64 FR 11510 (March 9, 1999) 
(SR-Amex-98-34) (Order Approving and Notice of Filing and Order 
Granting Accelerated Approval of Amendment Nos. 3 and 4 to the 
Proposed Rule Change Relating to the Listing and Trading of Shares 
of the Nasdaq-100 Trust); 87437 (October 31, 2019), 84 FR 59900 
(November 6, 2019) (SR-NYSEArca-2019-62) (Notice of Filing of 
Amendment No. 1, and Order Granting Accelerated Approval of a 
Proposed Rule Change, as Modified by Amendment No. 1, Relating to 
the Listing and Trading of Shares of the Innovator MSCI EAFE Power 
Buffer ETFs and Innovator MSCI Emerging Markets Power Buffer ETFs 
under NYSE Arca Rule 8.600-E).
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    Finally, all Options-Linked Securities listed pursuant to Exchange 
Rule 14.11(d) would be included within the definition of securities as 
such terms are used in the Exchange's rules and, as such, are subject 
to Exchange rules and procedures that currently govern the trading of 
securities on the Exchange.
    The Exchange believes that the proposed standards would continue to 
ensure transparency surrounding the listing process for Linked 
Securities. The Exchange also believes that the standards for listing 
and trading Options-Linked Securities are reasonably designed to 
promote a fair and orderly market for such securities. The proposed 
addition of Options Reference Assets, as described above, would also 
work in conjunction with the initial and continued listing criteria 
related to surveillance procedures and trading guidelines for Linked 
Securities.
    The Exchange believes that its surveillance procedures are adequate 
to properly monitor the trading of Options-Linked Securities in all 
trading sessions and to deter and detect violations of Exchange Rules. 
The issuer of a series of Options-Linked Securities will be required to 
comply with Rule 10A-3 under the Act \11\ for the initial and continued 
listing of Linked Securities, as provided in Exchange Rule 
14.11(d)(2)(A)-(G). The Exchange notes that the proposed change is not 
intended to amend any other component or requirement of Exchange Rule 
14.11(d). With respect to options comprising the Options Reference 
Asset, the pricing information for components of the Options Reference 
Asset must be derived from a market which is an ISG member or affiliate 
or with which the Exchange has a comprehensive surveillance sharing 
agreement.
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    \11\ 17 CFR 240.10A-3.
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    Quotation and last sale information for Options-Linked Securities, 
Index Fund Shares, Managed Fund Shares, Exchange-Traded Fund Shares, 
Linked Securities, and securities defined in Rule 14.11 are available 
via the Consolidated Tape Association (``CTA'') high speed line. 
Quotation and last sale information for such securities also will be 
available from the exchange on which they are listed. Quotation and 
last sale information for options on Index Fund Shares, Managed Fund 
Shares, Exchange-Traded Fund Shares, Linked Securities, securities 
defined in Rule 14.11 and the Indexes will be available via the Options 
Price Reporting Authority and major market data vendors. Information 
regarding values of the Indexes is available from major market data 
vendors.
    The Exchange believes that the proposed rule change will provide 
investors with the ability to better diversify and hedge their 
portfolios using an exchange-listed security without having to trade 
directly in the underlying options contracts, and will facilitate the 
listing and trading of additional Linked Securities that will enhance 
competition among market participants, to the benefit of investors and 
the marketplace.
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.\12\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \13\ 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) \14\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(5).
    \14\ Id.
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    The Exchange believes its proposal to amend the definition of UTP 
Derivative Security, as provided in Rule 1.5(ee), to include Options-
Linked Securities as such securities are a ``new derivative securities 
product'' as defined in Rule 19b-4(e) under the Act, and, as proposed, 
would be permitted to trade on the Exchange.
    With respect to equity securities underlying Options Reference 
Assets, the Exchange notes that Index Fund Shares, Managed Fund Shares, 
Exchange-Traded Fund Shares, Linked Securities and securities defined 
in Rule 14.11 are subject to Exchange initial and continued listing 
criteria under applicable Exchange rules as approved by the Commission. 
In addition, the Commission has approved or issued a notice of 
effectiveness to permit listing on a national securities exchange of 
securities based on certain Indexes.\15\ With respect to options on the 
Indexes, options on all of the Indexes are currently traded on U.S. 
options exchanges. All options included in an Options Reference Asset 
will be U.S. exchange-traded.
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    \15\ Supra note 8.
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    Any Options-Linked Securities would be required to meet the 
following initial

[[Page 55071]]

listing criteria in proposed Rule 14.11(d)(2)(K)(v)(a): (1) the value 
of the Options Reference Asset must be calculated and widely 
disseminated by one or more major market data vendors on at least a 15-
second basis during the Exchange's regular market session; and (2) in 
the case of Options-Linked Securities that are periodically redeemable, 
the indicative value of the subject Options Linked Securities must be 
calculated and widely disseminated by the Exchange or one or more major 
market data vendors on at least a 15-second basis during the Exchange's 
regular market session. Options-Linked Securities also will be subject 
to the continued listing criteria in proposed Rule 14.11(d)(2)(K)(v)(b) 
as described above. Finally, all Options-Linked Securities listed 
pursuant to Exchange Rule 14.11(d) would be included within the 
definition of ``security'' or ``securities'' as such terms are used in 
the Exchange's rules and, as such, are subject to Exchange rules and 
procedures that currently govern the trading of securities on the 
Exchange.
    The Exchange believes that the proposed standards would continue to 
ensure transparency surrounding the listing process for Linked 
Securities. The Exchange also believes that the standards for listing 
and trading Options-Linked Securities are reasonably designed to 
promote a fair and orderly market for such securities. The proposed 
addition of Options Reference Assets, as described above, would also 
work in conjunction with the initial and continued listing criteria 
related to surveillance procedures and trading guidelines for Linked 
Securities. The Exchange believes that its surveillance procedures are 
adequate to properly monitor the trading of Options Linked Securities 
in all trading sessions and to deter and detect violations of Exchange 
rules. Trading in the securities may be halted under the conditions 
specified in Exchange Rule 14.11(d)(2)(H).
    The Exchange believes that the proposed rule change will provide 
investors with the ability to better diversify and hedge their 
portfolios using an exchange listed security without having to trade 
directly in the underlying options contracts, and will facilitate the 
listing and trading of additional Linked Securities that will enhance 
competition among market participants, to the benefit of investors and 
the marketplace.

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 proposed rule change 
will facilitate the listing and trading of additional Linked Securities 
that will enhance competition among market participants, to the benefit 
of investors and the marketplace.

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 [email protected]. Please include 
File Number SR-CboeBZX-2022-043 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-CboeBZX-2022-043. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street, NE, Washington, 
DC 20549 on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-CboeBZX-2022-043 and should be submitted 
on or before September 29, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-19349 Filed 9-7-22; 8:45 am]
BILLING CODE 8011-01-P