Document ID: SEC-2020-1695-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Cboe Exchange, Inc.
Posted Date: 2020-10-22T04:00Z

[Federal Register Volume 85, Number 205 (Thursday, October 22, 2020)]
[Notices]
[Pages 67387-67392]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-23361]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90212; File No. SR-CBOE-2020-099]

Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
Rule 5.34 in Connection With Its Debit/Credit Price Reasonability Check

October 16, 2020,
    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 October 13, 2020, 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 
and II below, which Items have been prepared by the Exchange. The 
Exchange filed the proposal pursuant to Section 19(b)(3)(A)(iii) of the 
Act \3\ and Rule 19b-4(f)(6) thereunder.\4\ 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.
    \3\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \4\ 17 CFR 240.19b-4(f)(6).
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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 5.34 in connection with its debit/credit price 
reasonability check. 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://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 proposed to amend Rule 5.34(b)(3), which provides for 
its debit/credit price reasonability check. Specifically, the proposed 
rule change amends Rule 5.34(b)(3)(A) in connection with two-legged 
strategies that have one A.M.-settled leg and one P.M.-settled leg with 
the same expiration date.\5\ The proposed rule change also codifies the 
definition of diagonal spreads in Rule 5.34(b)(1)(E), which is already 
a strategy described in Rule 5.34(b)(3) and handled by the System in 
connection with the debit/credit reasonability check, the codified 
definition of which was inadvertently omitted in the rule filing that 
allowed the System to apply the debit/credit reasonability check to 
diagonal spreads.\6\
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    \5\ The proposed rule change also updates the definition of 
vertical spread in Rule 5.34(b)(1)(A) and the definition of calendar 
spread in Rule 5.34(b)(1)(D) in light of the proposed change to Rule 
5.34(b)(3)(A).
    \6\ See Securities Exchange Release No. 88923 (May 21, 2020), 85 
FR 32086 (May 28, 2020) (SR-CBOE-2020-046).
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    Pursuant to the debit/credit price reasonability check, the 
Exchange

[[Page 67388]]

cancels or rejects a complex order (or unexecuted portion) that is a 
limit order for a debit strategy with a net credit price that exceeds a 
pre-set buffer, a limit order (or unexecuted portion) for a credit 
strategy with a net debit price that exceeds a pre-set buffer, or a 
market order (or unexecuted portion) for a credit strategy that would 
execute at a net debit price that exceeds a pre-set buffer (the pre-set 
buffers are determined by the Exchange on a class and strategy (i.e., 
vertical, calendar, butterfly, orders with different expiration dates 
and exercise prices) basis). The System defines a complex order as a 
debit (credit) if all pairs and loners are debits (credits).\7\ For 
purposes of the credit/debit price reasonability check, a ``pair'' is a 
pair of legs in an order for which both legs are calls or both legs are 
puts, one leg is a buy and one leg is a sell, and the legs have the 
same expiration date but different exercise prices (i.e., vertical),\8\ 
the same exercise price but different expiration dates (i.e., 
calendar),\9\ or the exercise price for the call (put) with the farther 
expiration date is lower (higher) than the exercise price for the 
nearer expiration date (which is a diagonal pair). A ``loner'' is any 
leg in an order that the System cannot pair with another leg in the 
order.
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    \7\ See Rule 5.34(b)(3)(B)(i) and (ii). The System also 
determines certain call and put butterfly spreads as debits and 
credits.
    \8\ See also Rule 5.34(b)(1)(A), which defines a ``vertical 
spread'' as a two-legged complex order with one leg to buy a number 
of calls (puts) and one leg to sell the same number of calls (puts) 
with the same expiration date but different exercise prices.
    \9\ See also Rule 5.34(b)(1)(D), which defines a ``calendar 
spread'' as a two-legged complex order with one leg to buy a number 
of calls (puts) and one leg to sell the same number of calls (puts) 
with the same exercise price but different expiration dates.
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    The System determines whether an order is a debit or credit based 
on general options volatility and pricing principles, which the 
Exchange understands are used by market participants in their option 
pricing models. With respect to options with the same underlying:
     If two calls (puts) have the same expiration date, the 
price of the call (put) with the lower (higher) exercise price is more 
than the price of the call (put) with the higher (lower) exercise 
price; and
     if two calls (puts) have the same exercise price, the 
price of the call (put) with the nearer expiration is less than the 
price of the call (put) with the farther expiration.
    In other words, a call (put) with a lower (higher) exercise price 
is generally more expensive than a call (put) with a higher (lower) 
exercise price, because the ability to buy stock at a lower price is 
more valuable than the ability to buy stock at a higher price, and the 
ability to sell stock at a higher price is more valuable than the 
ability to sell stock at a lower price. A call (put) with a farther 
expiration is generally more expensive than the price of a call (put) 
with a nearer expiration, because locking in a price further into the 
future involves more risk for the buyer and seller and thus is more 
valuable, making an option (call or put) with a farther expiration more 
expensive than an option with a nearer expiration. Based on the 
principles described above and pursuant to Rule 5.34(b)(3)(B)(iii), the 
System pairs calls (puts) under the current debit/credit reasonability 
check, as follows:
    (1) The System first pairs legs to the extent possible within each 
expiration date, pairing one leg with the leg that has the next highest 
exercise price.
    (2) The System then pairs legs to the extent possible across 
expiration dates, pairing one call (put) with the call (put) that has 
the next nearest expiration date and the same or next lower (higher) 
exercise price.
    (3) A pair of calls is a credit (debit) if the exercise price of 
the buy (sell) leg is higher than the exercise price of the sell (buy) 
leg (if the pair has the same expiration date) or if the expiration 
date of the sell (buy) leg is farther than the expiration date of the 
buy (sell) leg (if the exercise price of the sell (buy) leg is the same 
as or lower than the exercise price of the buy (sell) leg).
    (4) A pair of puts is a credit (debit) if the exercise price of the 
sell (buy) leg is higher than the exercise price of the buy (sell) leg 
(if the pair has the same expiration date) or if the expiration date of 
the sell (buy) leg is farther than the expiration date of the buy 
(sell) leg (if the exercise price of the sell (buy) leg is the same as 
or higher than the exercise price of the buy (sell) leg).
    (5) A loner to buy is a debit, and a loner to sell is a credit.
    Additionally, the System does not apply the debit/credit price 
reasonability check to an order for which the System cannot define 
whether it is a debit or credit.
    As indicated above, the debit/credit reasonability check allows the 
Exchange to determine a pre-set buffer on a class-by-class and strategy 
basis (i.e., vertical, calendar, butterfly, orders with different 
expiration dates and exercise prices). This flexibility allows the 
Exchange to appropriately respond to the different trading 
characteristics and market conditions that have unique impact across 
different classes and different strategies. For example, the Exchange 
understands that in certain market conditions, particularly in volatile 
conditions, the general pricing principles described above may not 
apply to certain classes or strategies. It is possible that the leg 
with the farther expiration may be trading at a discount and thus is 
worth less than the leg with the nearer term expiration, and thus 
entering a diagonal or calendar strategy as a debit may be consistent 
with the then-current market. Specifically, certain classes may exhibit 
backwardation,\10\ which occurs when series with the farther 
expirations are worth less than series with the nearer term 
expirations. In such conditions, the Exchange may deem it appropriate 
to increase the buffer to permit these orders to be accepted for 
electronic processing. While an order with a diagonal or calendar 
strategy entered as a debit in normal market conditions may appear 
erroneous and be appropriately rejected, in volatile market conditions, 
such an order entered as a debit may be accurately reflecting the 
market. As such, the flexibility to establish pre-set buffers on a 
class and strategy basis currently permits the Exchange to provide a 
calendar or diagonal strategy order entered as a debit with electronic 
execution opportunities, as applicable, by modifying the buffer of 
these strategies with legitimate debit prices that are consistent with 
then-current market conditions. In this way, the System may accept such 
orders while maintaining the check's protection for classes and 
strategies whose pricing is not impacted by these market conditions and 
are not experiencing backwardation.
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    \10\ Specifically, European-settled options (which is a group of 
classes) may experience backwardation. For example, SPX is a 
European style option that may be impacted by backwardation in 
unusual or volatile market conditions. Accordingly, the Exchange 
regularly sets widened buffers for SPX diagonal pairs.
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    As stated above, for purposes of the debit/credit reasonability 
check, the System defines a vertical spread order as a two-legged 
complex order with one leg to buy a number of calls (puts) and one leg 
to sell the same number of calls (puts) with the same expiration date 
but different exercise prices,\11\ and a calendar spread order as a 
two-legged complex order with one leg to buy a number of calls (puts) 
and one leg to sell the same number of calls (puts) with the same 
exercise price but different expiration dates.\12\ The Exchange notes

[[Page 67389]]

that while the expiration date of the legs of a vertical or calendar 
spread with an A.M.-settled leg and a P.M.-settled leg may be the same, 
the last trading date of the two legs differs. For example, an S&P 500 
Index (``SPX'') option/SPX Weekly (``SPXW'') vertical spread would 
contain the same expiration date, yet SPX options are A.M.-settled, 
thus they stop trading on the Thursday prior to Friday expiration, and 
SPXW options are P.M.-settled, thus they stop trading at the close on 
Friday expiration. As a result, the time to expiration of trading for 
each leg is different, which the Exchange understands is what market 
participants consider when pricing options with an A.M.-settled/P.M.-
settled vertical strategy, similar to the pricing of a diagonal spread, 
or when pricing options with an A.M.-settled/P.M.-settled calendar 
strategy--in other words, market participants consider these legs to 
have different expiration dates. When applying the debit/credit 
reasonability check, however, the System currently considers a strategy 
with one P.M.-settled leg and one A.M.-settled leg with the same 
expiration date and different exercise prices to be a vertical 
strategy, rather than a diagonal strategy., [sic] and it rejects a 
strategy with one P.M.-settled leg and one A.M.-settled leg with the 
same expiration date and same exercise prices because it does not 
recognize this strategy as a calendar strategy. More specifically, the 
System and the Rules do not currently consider the difference in time 
between the actual close of trading for the A.M.-settled leg and the 
actual close of trading the following day for the P.M.-settled leg--it 
considers only that the legs have the same expiration date. As a 
result, the System does not determine the credit (debit) net price for 
vertical or calendar spread orders with a pair(s) of A.M.-settled/P.M.-
settled legs using the same pricing principles for the debit/credit 
reasonability check that the Exchange understands market participants 
use for these strategies, as market participants consider these spreads 
to have different expiration dates, and thus to be diagonals (rather 
than verticals) or calendars for pricing purposes. That is, if a sell 
(buy) leg is P.M.-settled (i.e., is ``farther out'' in time until 
trading actually ceases) and is a call (put) with an exercise price 
that is the same as or lower (higher) than the exercise price of the 
buy (sell) A.M.-settled leg (thus making the P.M.-settled leg more 
expensive), the System would not treat this as a diagonal spread, nor 
recognize it as a calendar spread, pursuant to Rule 
5.34(b)(3)(B)(iii)(c) and (d), even though market participants would 
price these spreads as a diagonal (if the legs have different exercise 
prices) or calendar (if the legs have the same exercise price) from a 
pricing perspective.
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    \11\ See Rule 5.34(b)(1)(A).
    \12\ See Rule 5.34(b)(1)(D).
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    Specifically, a vertical spread with A.M.-settled/P.M.-settled legs 
essentially emulates the manner in which a diagonal strategy executes, 
given that each leg in a diagonal strategy ceases trading at different 
times (because they have different expiration dates) and diagonal 
spread legs, like vertical spread legs, also have different exercise 
prices. Likewise, a spread with A.M.-settled/P.M.-settled legs with the 
same exercise price essentially emulates the manner in which a calendar 
spread executes, given that each leg in a calendar strategy ceases 
trading at different times (because they have different expiration 
dates). Under the proposal, the debit/credit reasonability check logic 
and Exchange-determined buffers, where applicable, would apply in the 
same manner as they do today for calendar and diagonal spreads, as 
applicable, to spreads with a pair(s) of A.M.-settled/P.M.-settled 
legs. Therefore, the proposed rule change amends Rule 5.34(b)(3)(A) to 
provide that, for the purposes of the debit/credit price reasonability 
check, the System considers a two-legged strategy with one P.M.-settled 
leg and one A.M.-settled leg with the same expiration date to be a 
diagonal spread (where both legs have different expiration dates and 
different exercise prices), rather than a vertical spread, or a 
calendar spread (where both legs have the same exercise price).\13\ As 
a result, the System will apply to such vertical strategies, which are 
generally priced using the same principles as diagonal spreads and may 
be adjusted to reflect backwardation (as described above), the same 
debit/credit check logic and pre-set buffers that it currently applies 
to diagonal spreads. In addition, the System will apply to such 
strategies, which are generally priced using the same principles as 
calendar spreads, the same debit/credit check logic and pre-set buffers 
that it currently applies to calendar spreads and not reject such 
strategies because the legs have the same expiration dates and exercise 
prices. The Exchange believes the enhancing the debit/credit price 
reasonability check to consider a spread that contains a pair of A.M.-
settled/P.M. settled legs with the same expiration date as a diagonal 
or calendar, as appropriate, will cause the System to apply more 
accurate pricing principles to them when determining whether to accept 
or reject strategies with A.M.-settled/P.M.-settled legs.
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    \13\ See supra note 5.
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    Regarding vertical spreads with A.M.-settled/P.M.-settled legs with 
the same expiration date and different exercise prices, currently, if 
the System receives such a vertical spread order, and the exercise 
price for the sell leg is lower than the exercise price of the buy leg 
with a debit price, the System will determine this to be a credit and 
reject it (assuming it is outside of the buffer). However, if the class 
is experiencing backwardation, the debit price may be appropriate. As 
discussed above, the Exchange may widen the buffer for such a class in 
such circumstances for calendars and diagonals to account for the 
backwardation. Therefore, if the System receives a spread with A.M.-
settled/P.M.-settled legs in a class experiencing backwardation during 
unusual or volatile market conditions, the System would apply a 
different buffer to that spread than it would apply to a diagonal 
spread. While the A.M.-settled/P.M.-settled vertical spread would 
likely have been priced using the same pricing principles as the 
diagonal spread, the System would reject the vertical spread order, 
despite it likely having a legitimate price, while accepting the 
diagonal order with a similarly legitimate price. Pursuant to the 
proposed rule change the strategy described above would be handled as a 
diagonal and will have the opportunity to be accepted and executed. 
Similarly, the System will recognize a spread with A.M.-settled/P.M.-
settled legs with the same expiration date and the same exercise price 
as a calendar spread and not reject such spread order.
    The Exchange notes that it announces any changes to the parameters 
of the debit/credit reasonability check to market participants by 
Exchange notice pursuant to Rule 1.5. The Exchange notes too that it 
will continue to regularly monitor the application of the debit/credit 
price reasonability check, including the number of orders rejected as a 
result of the check, as well as continue to monitor orders that may be 
executed at erroneous prices pursuant to Rule 6.5. The Exchange 
currently considers all of these factors, as well as market conditions, 
investor demand, and other relevant factors when determining whether to 
modify the debit/credit reasonability check buffer or other risk 
control parameters in order to attempt to create an appropriate balance 
between protection against executions at potentially erroneous prices 
and provision of execution opportunities for legitimately priced 
orders.

[[Page 67390]]

    In addition to this, the proposed rule change codifies the 
definition of diagonal spreads in the current spread definitions in 
Rule 5.34(b)(1). Specifically, proposed Rule 5.34(b)(1)(E) provides 
that a ``diagonal'' spread is a two-legged complex order with one leg 
to buy a number of calls (puts) and one leg to sell the same number of 
calls (puts) with different expiration dates and different exercise 
prices. As noted above, diagonal spreads are currently described within 
Rule 5.34(b) and the System currently applies the debit/credit 
reasonability check and Exchange-determined buffers to diagonal spreads 
pursuant to Rule 5.34(b)(3)(A).\14\ The Exchange merely inadvertently 
omitted codifying the definition of diagonal spreads in a previous rule 
filing that updated Rule 5.34 to allow the System to apply the debit/
credit reasonability check to diagonals.\15\
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    \14\ In light of the proposed codified definition, the Exchange 
updates the current description of a diagonal in Rule 5.34(b)(3)(A) 
to, instead, refer to ``diagonal'', as well as adds this reference 
to the description of a diagonal in Rule 5.34(b)(3)(B)(iii).
    \15\ See supra note 6.
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2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Securities Exchange Act of 1934 (the ``Act'') and the rules and 
regulations thereunder applicable to the Exchange and, in particular, 
the requirements of Section 6(b) of the Act.\16\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \17\ 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) \18\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \16\ 15 U.S.C. 78f(b).
    \17\ 15 U.S.C. 78f(b)(5).
    \18\ Id.
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    In particular, the Exchange believes the proposed rule change will 
remove impediments to and perfects the mechanism of a free and open 
market and national market system by applying the current debit/credit 
price reasonability check logic for diagonal spreads (which have 
different expiration dates and thus cease trading on different dates, 
as well as different exercise prices) to spread orders with A.M.-
settled/P.M.-settled legs that have different exercise prices but the 
same expiration date (and are thus currently defined as verticals) but 
similarly cease trading on different dates. Additionally, it will allow 
the System to recognize spreads with A.M.-settled/P.M.-settled legs 
that have the same exercise price and the same expiration date, but 
likewise cease trading on different dates, to be calendar spreads 
(which have different expiration dates and the same exercise price). By 
considering these particular orders to be diagonals rather than 
verticals, or to be calendars, the Exchange will apply the same buffers 
to vertical strategies that have legs that stop trading at different 
times (i.e., one leg is A.M-settled and one leg is P.M.-settled) as it 
applies to diagonal strategies (which also have legs that stop trading 
at different times), and will apply the same buffers to strategies that 
have legs that stop trading at different times (i.e., one leg is A.M-
settled and one leg is P.M.-settled) and the same exercise price as it 
applies to calendar strategies. This handling of vertical spreads is 
appropriate in classes in which market conditions may cause the P.M.-
settled leg (with the farther time until trading expiration) to trade 
at a discount and be worth less than the A.M.-settled leg (with the 
nearer time until trading expiration). By considering a vertical 
strategy with A.M.-settled/P.M.-settled legs with the same expiration 
date as diagonal rather than a vertical, for purposes of the debit/
credit price reasonability check, the proposed rule change will provide 
the same execution opportunities for legitimately priced vertical 
strategies with A.M.-settled/P.M.-settled legs in certain classes as it 
may for diagonal strategies in certain classes given then-current 
market conditions. Additionally, this handling of strategies with A.M.-
settled/P.M.-settled legs with the same expiration date and different 
exercise prices as calendar spreads will provide those orders with 
opportunities to be accepted and executed, rather than be rejected 
because the debit/credit price reasonability checks views the orders as 
having legs with the same expiration dates and exercise prices and thus 
does not recognize it as a calendar spread.
    As a result, the proposed rule change ultimately protects investors 
by continuing to prevent execution of spreads with A.M.-settled/P.M.-
settled legs that cease trading on different days at potentially 
erroneous prices, while also providing additional execution 
opportunities for those spreads that may be legitimately priced given 
then-current market conditions but may currently be rejected when these 
orders are treated as vertical spreads for the purposes of the debit/
credit reasonability check, or are not recognized as calendar spreads. 
This proposed application of the debit/credit price reasonability check 
promotes just and equitable principles of trade, as it is based on the 
same general option and volatility pricing principles the System 
currently uses to pair calls and puts for other complex orders that 
also stop trading on different days, and will result in the handling of 
strategies with legs that stop trading on different days in the same 
manner during unusual or volatile market conditions.
    In addition to this, the Exchange notes that the proposed rule 
change would not raise any novel or unique issues for investors as the 
debit/credit reasonability check logic and Exchange-determined buffers, 
where applicable, would apply to strategies with A.M.-settled/P.M.-
settled legs in the same manner as they do today for calendar and 
diagonal spreads, which also have legs that stop trading on different 
dates. The Exchange will continue to announce any changes to the 
parameters of the debit/credit reasonability check to market 
participants by Exchange notice, to regularly monitor the application 
of the debit/credit price reasonability check and for orders that may 
be executed at erroneous prices, to consider market conditions, 
investor demand, and other relevant factors when determining whether to 
modify the debit/credit reasonability check buffer or other risk 
control parameter amount in order to appropriately balance providing 
protection against executions at potentially erroneous prices and 
providing execution opportunities for legitimately priced orders.
    In addition to this, the proposed rule change to codify the 
definition of diagonal spreads in Rule 5.34(b) would generally protect 
investors by adding clarity to the Rules regarding a strategy that is 
already described within the Rules and to which the System currently 
applies the debit/credit reasonability check and Exchange-determined 
price buffers.

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

[[Page 67391]]

necessary or appropriate in furtherance of the purposes of the Act. The 
proposed rule change will not impose any burden on intramarket 
competition, because the debit/credit price reasonability check will 
continue to apply to all incoming complex orders of all TPHs in the 
same manner. The proposed rule change would allow the System to apply 
the logic and pre-set buffers to vertical spreads with A.M.-settled/
P.M.-settled legs (and thus stop trading on different dates) that it 
already applies to other spreads that contain legs that stop trading on 
different dates and have different exercise prices (i.e., diagonals), 
as well as to apply the logic and pre-set buffers to spreads with A.M.-
settled/P.M.-settled legs (and thus stop trading on different dates) 
that it already applies to other spreads that contain legs that stop 
trading on different dates and have the same exercise prices (i.e., 
calendars). This, in turn, will allow the System to apply the 
appropriate Exchange-determined buffer to such vertical orders, which 
the Exchange understands market participants price more similarly to a 
diagonal spread as opposed to a vertical spread, or to such calendar 
orders, given the difference in the actual trading days on which each 
leg stops trading, thus allowing for legitimately priced strategies 
with A.M.-settled/P.M.-settled legs to execute as intended.
    The proposed rule change does not impose any burden on intermarket 
competition, as it is an enhancement to a price protection mechanism 
the System applies to complex orders submitted to the Exchange to 
determine whether they should be accepted for potential execution on 
the Exchange. The Exchange believes the proposed rule change would 
provide all market participants with additional execution opportunities 
when appropriate while still providing protection from anomalous or 
erroneous executions. To the extent that market participants find the 
proposed application of the debit/credit reasonability check to their 
vertical and calendar spreads with A.M.-settled/P.M.-settled legs more 
favorable for execution of their legitimately priced orders, other 
exchanges may adopt functionality to similarly handle such complex 
strategies.
    Additionally, the proposed rule change to codify the definition of 
diagonal spreads to the Rules is a nonsubstantive, noncompetitive 
change that merely provides additional clarity within the Rules 
regarding a term/strategy that is already described in the Rules and 
that the System already accounts for pursuant to the Rules.

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 \19\ and Rule 19b-4(f)(6) thereunder.\20\ 
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 prior to 
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 \21\ and Rule 19b-
4(f)(6)(iii) thereunder.\22\
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    \19\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \20\ 17 CFR 240.19b-4(f)(6).
    \21\ 15 U.S.C. 78s(b)(3)(A).
    \22\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires the Exchange to give the Commission written notice of the 
Exchange's 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) \23\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\24\ 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 proposal 
may become operative immediately upon filing. The Exchange states that 
market participants have voiced concerns regarding the System rejecting 
their legitimately priced A.M.-settled/P.M.-settled calendar spreads 
and vertical spreads, especially closer in time to A.M./P.M. expiration 
dates. The Exchange believes that waiver of the operative delay will 
protect investors by allowing the Exchange to apply a potentially 
widened buffer to A.M.-settled/P.M.-settled vertical spreads during 
volatile market conditions, and by allowing the System to recognize and 
accept A.M.-settled/P.M.-settled spreads with the same expiration date 
and exercise price as calendar spreads, rather than rejecting them. As 
discussed above, the Exchange states that because the component legs of 
an A.M.-settled/P.M.-settled vertical spread cease trading on different 
days, market participants price A.M.-settled/P.M.-settled vertical 
spreads more similarly to diagonal spreads. In addition, market 
participants treat A.M.-settled/P.M.-settled spreads with component 
legs that have the same exercise price and expiration date as calendar 
spreads, although the System currently does not recognize them as 
calendar spreads. The Commission believes that waiver of the operative 
delay will allow the Exchange to modify the debit/credit price 
reasonability check so that it applies to A.M.-settled/P.M.-settled 
calendar and vertical spreads in a manner that is consistent with 
market participants' pricing of these spreads, and could help to ensure 
that the price check does not reject appropriately priced A.M.-settled/
P.M.-settled calendar and vertical spreads. In addition, the Commission 
believes that adding a definition of diagonal spread will help to 
clarify the operation of the rule. 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. According, the 
Commission hereby waives the 30-day operative delay and designates the 
proposal operative upon filing.\25\
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    \23\ 17 CFR 240.19b-4(f)(6).
    \24\ 17 CFR 240.19b-4(f)(6)(iii).
    \25\ For purposed 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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    At any time within 60 days of the filing of this 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:

[[Page 67392]]

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-2020-099 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-2020-099. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-CBOE-2020-099, and should be submitted 
on or before November 12, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\26\
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    \26\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-23361 Filed 10-21-20; 8:45 am]
BILLING CODE 8011-01-P