Document ID: SEC-2017-1921-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Cboe Exchange, Inc.
Posted Date: 2017-11-22T05:00Z

[Federal Register Volume 82, Number 224 (Wednesday, November 22, 2017)]
[Notices]
[Pages 55667-55676]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-25233]

[[Page 55667]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82102; File No. SR-CBOE-2017-070]

Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of 
Filing of a Proposed Rule Change Relating to Rule 6.56

November 16, 2017.
    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 November 3, 2017, Cboe Exchange, Inc. (the ``Exchange'' or 
``Cboe'') 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange seeks to amend Rule 6.56. The text of the proposed 
rule change is available on the Exchange's Web site (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 6.56 (Compression Forums) to: 
(1) Modify the compression-list positions file to include positions 
with multiple legs; (2) provide for the creation of a new multi-leg-
position file; and (3) modify the time by which TPHs must provide 
compression-list positions. This proposal is intended to make it easier 
for TPHs to efficiently close positions in series of SPX options at the 
end of each calendar month in order to mitigate the effects of capital 
constraints on market participants and help ensure continued depth of 
liquidity in the SPX options market.
Modifications to the Compression-List Position File
    Under current Rule 6.56, on the final three business days of each 
calendar month, the Exchange holds compression forums in the SPX 
trading crowd. Beforehand, in order to facilitate TPHs finding 
counterparty offsets against which they can trade closing positions, 
TPHs may submit lists of existing SPX positions to the Exchange that 
they wish to close during a compression forum (``compression-list 
positions''). Prior to the open of trading on the third-to-last 
business day of each calendar month (i.e. the first day of the month on 
which a compression forum is held), the Exchange makes available to all 
TPHs on its Web site a list including each series for which both long 
and short compression-list positions have been submitted to the 
Exchange (``compression-list positions file''). In addition, TPHs that 
submit compression-list positions to the Exchange receive a 
compression-list positions file containing the names of the TPHs that 
contributed to the file (and did not opt out of being identified as 
contributors), including contact information for each TPH's designated 
point of contact. The Exchange then holds open outcry ``compression 
forums'' in which all TPHs may participate, whether or not they 
submitted positions for inclusion in the compression-list position 
file.
    The Exchange proposes to amend Rule 6.56 to enhance the 
effectiveness and utility of its compression forums process for market 
participants. Specifically, the Exchange seeks to modify the 
compression-list positions file to include positions with multiple 
legs. For example, the Exchange proposes to group compression-list 
positions into common multi-leg options strategies and include the 
multi-leg positions in the compression-list position file. 
Specifically, the Exchange proposes to use the list of individual 
series to create a list of all possible vertical call spreads,\3\ 
vertical put spreads,\4\ and box spreads \5\ (common multi-leg options 
strategies). The box spreads will be derived from the aforementioned 
call and put spreads where there is both a long and short position 
(i.e., offsetting interest). The Exchange emphasizes the fact that the 
Exchange is proposing to compile a list of all possible vertical call 
spreads, vertical put spreads, and box spreads. The Exchange is 
proposing to specify in proposed Interpretation and Policy .01 to Rule 
6.56 that for purposes of Rule 6.56 multi-leg positions will include 
vertical call spreads, vertical put spreads, and box spreads. Files 
generated by the Exchange pursuant to Rule 6.56 are provided to TPHs 
for informational purposes only. Individual TPHs determine whether to 
submit compression-list positions; whether to participate in the 
compression forum process; and whether to represent orders on the 
trading floor. The Exchange's provision of the list does not constitute 
advice, guidance, a commitment to trade, an execution, or a 
recommendation to trade.
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    \3\ A vertical call spread involves the purchasing and selling 
of an equal number of call options with the same expiration date but 
different strike prices. For example, buying 100 DEC 2040 calls and 
selling 100 DEC 2070 calls.
    \4\ A vertical put spread involves the purchasing and selling of 
an equal number of put options with the same expiration date but 
different strike prices. For example, buying 100 DEC 2040 puts and 
selling 100 DEC 2070 puts.
    \5\ A box spread involves purchasing (selling) a bull call 
spread and purchasing (selling) a bear put spread. In other words, a 
box spread is composed of a long (short) call and short (long) put 
position at one strike price and a short (long) call and long 
(short) put position at another strike price. For example, a box 
spread would be entered by purchasing 100 DEC 2040 calls and selling 
100 DEC 2070 calls (i.e., bull call spread) and selling 100 DEC 2040 
puts and purchasing 100 DEC 2070 puts (i.e., bear put spread).
---------------------------------------------------------------------------

Example #1
     TPH A submits the following positions to the Exchange:

----------------------------------------------------------------------------------------------------------------
            Expiration                     Call/put             Strike           Size            Long/short
----------------------------------------------------------------------------------------------------------------
12/21/2017.......................  C                                  2400              50  Long.
12/21/2017.......................  C                                  2700              50  Short.
----------------------------------------------------------------------------------------------------------------

[[Page 55668]]

     TPH B submits the following positions to the Exchange:

----------------------------------------------------------------------------------------------------------------
            Expiration                     Call/put             Strike           Size            Long/short
----------------------------------------------------------------------------------------------------------------
12/15/2017.......................  C                                  2400              50  Short.
12/15/2017.......................  C                                  2700              50  Long.
----------------------------------------------------------------------------------------------------------------

     The Exchange will not identify any multi-leg positions 
with offsetting interest because the expiration dates of TPH A's 
positions do not match the expiration dates of TPH B's positions.
Example #2
     TPH A submits the following positions to the Exchange:

----------------------------------------------------------------------------------------------------------------
            Expiration                     Call/put             Strike           Size            Long/short
----------------------------------------------------------------------------------------------------------------
12/21/2017.......................  C                                  2400              50  Long.
12/21/2017.......................  C                                  2700             100  Short.
----------------------------------------------------------------------------------------------------------------

     TPH B submits the following positions to the Exchange:

----------------------------------------------------------------------------------------------------------------
            Expiration                     Call/put             Strike           Size            Long/short
----------------------------------------------------------------------------------------------------------------
12/21/2017.......................  C                                  2400              50  Short.
12/21/2017.......................  C                                  2700             100  Long.
----------------------------------------------------------------------------------------------------------------

     The Exchange will identify a vertical call spread because 
the expiration dates of TPH A's positions and TPH B's position match to 
create a vertical call spread with two parties (TPH A and B) that have 
opposite positions (i.e., the parties have offsetting interest). 
However, a vertical call spread requires the purchase and sale of the 
same number of options contracts; thus, even though there are 100 of 
the 2700 calls in Example #2 the Exchange will identify a vertical call 
spread with total possible offsetting interest of 50 contracts.
     In this example, the compression-list position file 
distributed to all TPHs would include the following information (not 
necessarily representative of the exact format) for both single series 
positions (i.e., information currently provided in the compression-list 
position file) and the multi-leg positions:
     Single series positions with the size of possible 
offsetting interest:

----------------------------------------------------------------------------------------------------------------
                 Expiration                                Call/put                   Strike         Possible
----------------------------------------------------------------------------------------------------------------
12/21/2017..................................  C                                             2400              50
12/21/2017..................................  C                                             2700             100
----------------------------------------------------------------------------------------------------------------

     Call spread positions with the size of possible offsetting 
interest:

----------------------------------------------------------------------------------------------------------------
                          Expiration                               Strike 1         Strike 2         Possible
----------------------------------------------------------------------------------------------------------------
12/21/2017...................................................            2400             2700               50
----------------------------------------------------------------------------------------------------------------

Example #3
     If in Example #2 the positions were puts instead of calls, 
the compression-list position file distributed to all TPHs would 
include the following information (not necessarily representative of 
the exact format) for both single series positions (i.e., information 
currently provided in the compression-list position file) and the 
multi-leg positions:
     Single series positions with size of possible offsetting 
interest:

----------------------------------------------------------------------------------------------------------------
                 Expiration                                Call/put                   Strike         Possible
----------------------------------------------------------------------------------------------------------------
12/21/2017..................................  P                                             2400              50
12/21/2017..................................  P                                             2700             100
----------------------------------------------------------------------------------------------------------------

     Put spread positions with the size of possible offsetting 
interest:

[[Page 55669]]

----------------------------------------------------------------------------------------------------------------
                          Expiration                               Strike 1         Strike 2         Possible
----------------------------------------------------------------------------------------------------------------
12/21/2017...................................................            2400             2700               50
----------------------------------------------------------------------------------------------------------------

Example #4
     TPH A submits the following positions to the Exchange:

----------------------------------------------------------------------------------------------------------------
            Expiration                     Call/put             Strike           Size            Long/short
----------------------------------------------------------------------------------------------------------------
12/21/2017.......................  C                                  2400              50  Long.
12/21/2017.......................  C                                  2700             100  Short.
12/21/2017.......................  P                                  2400              50  Short.
12/21/2017.......................  P                                  2700             100  Long.
----------------------------------------------------------------------------------------------------------------

     TPH B submits the following positions to the Exchange:

----------------------------------------------------------------------------------------------------------------
            Expiration                     Call/put             Strike           Size            Long/short
----------------------------------------------------------------------------------------------------------------
12/21/2017.......................  C                                  2400              50  Short.
12/21/2017.......................  C                                  2700             100  Long.
12/21/2017.......................  P                                  2400              50  Long.
12/21/2017.......................  P                                  2700             100  Short.
----------------------------------------------------------------------------------------------------------------

     The Exchange will identify a vertical call spread (2400 
calls and 2700 calls) and a vertical put spread (2400 puts and 2700 
puts). Again, each vertical call spread and each vertical put spread 
requires the purchase and sale of the same number of options contracts; 
thus, even though the 2700 calls and puts have 100 contracts, the 
Exchange will identify a vertical call spread with total possible 
offsetting interest of 50 contracts and a vertical put spread with 
total possible offsetting interest of 50 contracts.
     In addition to the vertical call spreads and vertical put 
spreads, the Exchange will also identify a box spread. TPH A's position 
is a box spread (long 2400 calls, short 2400 puts, short 2700 calls, 
and long 2700 puts) that is potentially offset by TPH B's position 
(short 2400 calls, long 2400 puts, long 2700 calls, and short 2700 
puts), which represents an opposite interest box spread. Again, as with 
vertical call spreads and vertical put spreads, the total possible 
offsetting interest is limited to 50 contracts.
     In this example, the compression-list position file 
distributed to all TPHs would include the following information (not 
necessarily representative of the exact format) for both single series 
positions (i.e., information currently provided in the compression-list 
position file) and the multi-leg positions:
     Single series positions with the size of possible 
offsetting interest:

----------------------------------------------------------------------------------------------------------------
                 Expiration                                Call/put                   Strike         Possible
----------------------------------------------------------------------------------------------------------------
12/21/2017..................................  C                                             2400              50
12/21/2017..................................  C                                             2700             100
12/21/2017..................................  P                                             2400              50
12/21/2017..................................  P                                             2700             100
----------------------------------------------------------------------------------------------------------------

     Call spread positions with the size of possible offsetting 
interest:

----------------------------------------------------------------------------------------------------------------
                          Expiration                               Strike 1         Strike 2           Size
----------------------------------------------------------------------------------------------------------------
12/21/2017...................................................            2400             2700               50
----------------------------------------------------------------------------------------------------------------

     Put spread positions with the size of possible offsetting 
interest:

----------------------------------------------------------------------------------------------------------------
                          Expiration                               Strike 1         Strike 2           Size
----------------------------------------------------------------------------------------------------------------
12/21/2017...................................................            2400             2700               50
----------------------------------------------------------------------------------------------------------------

     Box spread positions with the size of possible offsetting 
interest:

[[Page 55670]]

----------------------------------------------------------------------------------------------------------------
                          Expiration                               Strike 1         Strike 2           Size
----------------------------------------------------------------------------------------------------------------
12/21/2017...................................................            2400             2700               50
----------------------------------------------------------------------------------------------------------------

    As previously noted a box spread is composed of a long (short) call 
and short (long) put position at one strike price and a short (long) 
call and long (short) put position at another strike price. In Example 
#4 above, identifying the two strike prices of a box spread necessarily 
means that there is a TPH that is long the 2400 call, short the 2400 
put, short the 2700 call, and long the 2700 put and at least one other 
TPH has the opposite position (i.e., short the 2400 call, long the 2400 
put, long the 2700 call, and short the 2700 put).
    As demonstrated above, in addition to providing the offsetting 
interest for each individual series the Exchange is proposing to add 
additional information to the compression-list positions file related 
to multi-leg positions (i.e., the aforementioned vertical call spreads, 
vertical put spreads, and box spreads). Currently, only a fraction of 
the two-sided interest available to be offset is actually being offset. 
This is due, in part, to the compression-list position file containing 
only the offsetting interest for each individual series. TPHs currently 
seeking to close such single series positions must then execute each 
series individually or attempt to identify multi-leg positions 
comprised of individual series. Closing positions on an individual 
series basis is less advantageous because closing a single series may 
change a TPHs risk profile. Closing multi-leg positions is advantageous 
because such positions can be risk neutral, which means the closing of 
the entire multi-leg position has little or no impact on a TPHs risk 
profile. However, in the current compression forum framework TPHs 
seeking to close multi-leg positions must undertake a burdensome 
process of divulging their individual positions in an attempt to 
identify multi-leg positions that have offsetting interest. The process 
is time-consuming, inefficient, and devoid of the anonymity TPHs 
desire, making the use of multi-leg orders to close positions difficult 
and ineffective. The Exchange believes that providing TPHs with a way 
to identify multi-leg positions with offsetting interest will enable 
efficient closing of such positions.
Example #5
     In addition to the positions submitted by TPH A in Example 
#4 TPH A also submits the below position:

----------------------------------------------------------------------------------------------------------------
            Expiration                     Call/put             Strike           Size            Long/short
----------------------------------------------------------------------------------------------------------------
12/21/2017.......................  C                                  2800               0  Short.
----------------------------------------------------------------------------------------------------------------

     In addition to the positions submitted by TPH B in Example 
#4 TPH B also submits the below position:

----------------------------------------------------------------------------------------------------------------
            Expiration                     Call/put            Strike 2          Size            Long/short
----------------------------------------------------------------------------------------------------------------
12/21/2017.......................  C                                  2800              50  Long.
----------------------------------------------------------------------------------------------------------------

     The Exchange will use the 2400 calls multiple times to 
identify all possible combinations of vertical call spreads, vertical 
put spreads, and boxes. In this example, the 2400 calls can be used 
multiple times to create multiple possible vertical call spreads, thus, 
the following information (not necessarily representative of the exact 
format) for both single series positions (i.e., information currently 
provided in the compression-list position file) and the multi-leg 
positions:
     Call spread positions with the size of possible offsetting 
interest:

----------------------------------------------------------------------------------------------------------------
                           Expiration                                Strike 1        Strike 2          Size
----------------------------------------------------------------------------------------------------------------
12/21/2017......................................................            2400            2700              50
12/21/2017......................................................            2400            2800            * 50
----------------------------------------------------------------------------------------------------------------
* Additional position identified due to the 2800 calls.

     Put spread positions with the size of possible offsetting 
interest:

----------------------------------------------------------------------------------------------------------------
                          Expiration                               Strike 1         Strike 2           Size
----------------------------------------------------------------------------------------------------------------
12/21/2017...................................................            2400             2700               50
----------------------------------------------------------------------------------------------------------------

     Box spread positions with the size of possible offsetting 
interest:

----------------------------------------------------------------------------------------------------------------
                          Expiration                               Strike 1         Strike 2           Size
----------------------------------------------------------------------------------------------------------------
12/21/2017...................................................            2400             2700               50
----------------------------------------------------------------------------------------------------------------

[[Page 55671]]

New Individualized Multi-Leg Position File
    In order to further encourage TPHs to submit compression-list 
positions to the Exchange and to allow the Exchange to provide 
information that will enable TPHs to represent multi-leg positions in 
compression forums that have offsetting interest and thus more 
efficiently and effectively close positions via compression forums, the 
Exchange also seeks to create an additional position file containing 
individualized multi-leg positions (``multi-leg position file''). 
Specifically, the Exchange seeks to amend paragraph (a)(4) to Rule 6.56 
to provide that in addition to making available to all Trading Permit 
Holders a compression-list positions file composed of individual series 
with offsetting interest and multi-leg positions with offsetting 
interest (as proposed and described above), the Exchange will 
electronically send an individualized multi-leg positions file to each 
Trading Permit Holder that submitted compression-list positions to the 
Exchange pursuant to paragraph (a)(1). Paragraph (a)(4) will also 
provide that the individualized multi-leg position file will include: A 
complete list of all possible combinations of offsetting multi-leg 
positions that are composed of series the individual Trading Permit 
Holder submitted as part of a compression-list position; a unique 
identification number for each multi-leg position (``PID'') that will 
enable the TPH to identify particular multi-leg positions for purposes 
of proposed paragraph (a)(5), which is discussed below in relation to 
disclosing the identities of TPHs; the series that make up the multi-
leg position; and the offsetting size of the multi-leg position against 
other Trading Permit Holders on an individualized and anonymous basis.
Example #6
     TPH A submits the below positions to the Exchange:

----------------------------------------------------------------------------------------------------------------
            Expiration                     Call/put             Strike           Size            Long/short
----------------------------------------------------------------------------------------------------------------
12/21/2017.......................  C                                  2400              50  Long.
12/21/2017.......................  C                                  2700             100  Short.
12/21/2017.......................  P                                  2400              50  Short.
12/21/2017.......................  P                                  2700             100  Long.
----------------------------------------------------------------------------------------------------------------

     TPH B submits the below positions to the Exchange:

----------------------------------------------------------------------------------------------------------------
            Expiration                     Call/put             Strike           Size            Long/short
----------------------------------------------------------------------------------------------------------------
12/21/2017.......................  C                                  2400              50  Short.
12/21/2017.......................  C                                  2700             100  Long.
12/21/2017.......................  P                                  2400              50  Long.
12/21/2017.......................  P                                  2700             100  Short.
----------------------------------------------------------------------------------------------------------------

     The compression-list position file distributed to all TPHs 
would include the following information (not necessarily representative 
of the exact format) for both single series positions (i.e., 
information currently provided in the compression-list position file) 
and the multi-leg positions:
     Single series positions with the size of possible 
offsetting interest:

----------------------------------------------------------------------------------------------------------------
                 Expiration                                Call/put                   Strike         Possible
----------------------------------------------------------------------------------------------------------------
12/21/2017..................................  C                                             2400              50
12/21/2017..................................  C                                             2700             100
12/21/2017..................................  P                                             2400              50
12/21/2017..................................  P                                             2700             100
----------------------------------------------------------------------------------------------------------------

     Call spread positions with the size of possible offsetting 
interest:

----------------------------------------------------------------------------------------------------------------
                          Expiration                               Strike 1         Strike 2           Size
----------------------------------------------------------------------------------------------------------------
12/21/2017...................................................            2400             2700               50
----------------------------------------------------------------------------------------------------------------

     Put spread positions with the size of possible offsetting 
interest:

----------------------------------------------------------------------------------------------------------------
                          Expiration                               Strike 1         Strike 2           Size
----------------------------------------------------------------------------------------------------------------
12/21/2017...................................................            2400             2700               50
----------------------------------------------------------------------------------------------------------------

     Box spread positions with the size of possible offsetting 
interest:

[[Page 55672]]

----------------------------------------------------------------------------------------------------------------
                          Expiration                               Strike 1         Strike 2           Size
----------------------------------------------------------------------------------------------------------------
12/21/2017...................................................            2400             2700               50
----------------------------------------------------------------------------------------------------------------

     TPH A's individualized position file would include the 
following multi-leg position information (not necessarily 
representative of the exact format):
     Call spread positions with the size of possible offsetting 
interest:

----------------------------------------------------------------------------------------------------------------
                     PID                         Expiration        Strike 1         Strike 2           Size
----------------------------------------------------------------------------------------------------------------
1...........................................      12/21/2017             2400             2700               50
----------------------------------------------------------------------------------------------------------------

     Put spread positions with the size of possible offsetting 
interest:

----------------------------------------------------------------------------------------------------------------
                     PID                         Expiration        Strike 1         Strike 2           Size
----------------------------------------------------------------------------------------------------------------
2...........................................      12/21/2017             2400             2700               50
----------------------------------------------------------------------------------------------------------------

     Box spread positions with the size of possible offsetting 
interest:

----------------------------------------------------------------------------------------------------------------
                     PID                         Expiration        Strike 1         Strike 2           Size
----------------------------------------------------------------------------------------------------------------
3...........................................      12/21/2017             2400             2700               50
----------------------------------------------------------------------------------------------------------------

     TPH B's individualized position file would include the 
following multi-leg position information (not necessarily 
representative of the exact format):
     Call spread positions with the size of possible offsetting 
interest:

----------------------------------------------------------------------------------------------------------------
                     PID                         Expiration        Strike 1         Strike 2           Size
----------------------------------------------------------------------------------------------------------------
1...........................................      12/21/2017             2400             2700               50
----------------------------------------------------------------------------------------------------------------

     Put spread positions with the size of possible offsetting 
interest:

----------------------------------------------------------------------------------------------------------------
                     PID                         Expiration        Strike 1         Strike 2           Size
----------------------------------------------------------------------------------------------------------------
2...........................................      12/21/2017             2400             2700               50
----------------------------------------------------------------------------------------------------------------

     Box spread positions with the size of possible offsetting 
interest:

----------------------------------------------------------------------------------------------------------------
                     PID                         Expiration        Strike 1         Strike 2           Size
----------------------------------------------------------------------------------------------------------------
3...........................................      12/21/2017             2400             2700               50
----------------------------------------------------------------------------------------------------------------

Example #7
     In addition to TPH A and TPH B's positions in Example #6, 
TPH C submits the below position:

----------------------------------------------------------------------------------------------------------------
            Expiration                     Call/put             Strike           Size            Long/short
----------------------------------------------------------------------------------------------------------------
12/21/2017.......................  C                                  2400              50  Short.
12/21/2017.......................  C                                  2700             100  Long.
----------------------------------------------------------------------------------------------------------------

     TPH B's individualized position file noted in Example #6 
would remain the same because TPH A still remains the only contra-party 
with offsetting interest.
     The Exchange will use TPH A's positions multiple times to 
identify all possible contra-parties with offsetting interest. In this 
example, TPH A's 2400/2700 vertical call spread has multiple possible 
contra-parties. Thus, TPH A's

[[Page 55673]]

individualized position file would include the following multi-leg 
position information (not necessarily representative of the exact 
format):
     Call spread positions with the size of possible offsetting 
interest:

----------------------------------------------------------------------------------------------------------------
                       PID                          Expiration       Strike 1        Strike 2          Size
----------------------------------------------------------------------------------------------------------------
1...............................................      12/21/2017            2400            2700              50
4...............................................      12/21/2017            2400            2700            * 50
----------------------------------------------------------------------------------------------------------------
* Additional position identified due to the additional contra-party.

     Put spread positions with the size of possible offsetting 
interest:

----------------------------------------------------------------------------------------------------------------
                     PID                         Expiration        Strike 1         Strike 2           Size
----------------------------------------------------------------------------------------------------------------
2...........................................      12/21/2017             2400             2700               50
----------------------------------------------------------------------------------------------------------------

     Box spread positions with the size of possible offsetting 
interest:

----------------------------------------------------------------------------------------------------------------
                     PID                         Expiration        Strike 1         Strike 2           Size
----------------------------------------------------------------------------------------------------------------
3...........................................      12/21/2017             2400             2700               50
----------------------------------------------------------------------------------------------------------------

    The purpose of grouping individual series into multi-leg positions 
is to allow TPHs to efficiently and effectively identify multi-leg 
positions with offsetting interest in order for TPHs to represent 
multi-leg orders in compression forums. If a TPH does not receive an 
individualized multi-leg position file from the Exchange the TPH will 
be less able to efficiently and effectively identify which of their 
individual series positions can and should be grouped together to be 
represented in the compression forum. Even a compression-list position 
file that contains multi-leg positions is not effective without an 
individualized list because it is an individualized list that will 
allow a TPH to easily identify their particular multi-leg positions 
that can be represented in a compression forum in an efficient and 
effective manner.
    The Exchange proposes to condition receipt of individualized multi-
leg position files on a TPH's submission of compression-list positions. 
The Exchange believes the condition will encourage TPHs to submit 
compression-list positions, which helps to encourage TPHs to close 
positions via the compression forum.
TPH Identity Disclosures
    The Exchange also seeks to add paragraph (a)(5) to give TPHs the 
opportunity to identify themselves as having a particular multi-leg 
position. Pursuant to proposed paragraph (a)(5), TPHs will have the 
opportunity to give the Exchange permission (on a multi-leg position by 
multi-leg position basis--enabled by the PID unique to each identified 
multi-leg position) to share the TPH's identity with the contra-party 
for each multi-leg position and vice versa.
    To illustrate, in Example #5 above TPH A has three multi-leg 
positions that have a potential contra-party with offsetting interest 
(in this example TPH B). TPH A has the option--for PID #1, PID #2, and/
or PID #3--to direct the Exchange to disclose TPH A's identity to the 
potential contra-party for each particular multi-leg position. If, for 
example, TPH A instructed the Exchange to disclose their identity to 
the potential contra-party for PID #3, but not PID #1 or #2, the 
Exchange would notify TPH B that the potential contra-party for TPH B's 
PID #3 is willing to disclose their identity to TPH B if TPH B agrees 
to disclose their identity to the contra-party to PID #3. In short, if 
TPH A and B mutually agree to disclose their identities to the other 
party for purposes of PID #3, the Exchange will disclose the 
information. In the event that TPH B does not want their identity 
disclosed, the Exchange will not disclose any identifying information 
to either party.
    As noted above, each TPH and contra-party each have to agree to 
reveal their identity before the Exchange can provide the information 
to the TPH and contra-party. The Exchange believes providing a process 
by which individual TPHs with offsetting multi-leg positions may 
identify each other will enable TPHs utilizing that process to more 
easily identify potential counterparties during the compression forums, 
which encourages a more efficient and effective compression forum 
process. The Exchange notes that TPHs currently have the ability to 
identify themselves for purposes of the compression-list positions 
file.\6\ Although Rule 6.56(a)(3) does not currently allow the Exchange 
to disclose a TPH's identity in relation to a specific position listed 
on the compression-list position file, the restriction was solely 
designed to alleviate concerns from TPHs that the Exchange's 
publication of the compression-list position file would publically 
disclose the individual positions of every TPH submitting compression-
list positions. The Exchange is not proposing to modify the restriction 
in Rule 6.56(a)(3); thus, the compression-list position file that is 
publically disclosed will not identify any TPH as having a specific 
position. Rather, the Exchange is proposing to allow TPHs to opt-in to 
a process that will disclose their identity to the contra-party for a 
specific multi-leg position, but only if the parties mutually agree to 
do so for the specific multi-leg position. TPHs can make the commercial 
decision not to opt-in to the process. The Exchange notes that 
providing the ability for TPHs to opt-in to the proposed process is 
similar to the manner in which TPHs have the ability to opt-out of 
identifying themselves on the compression-list positions file.\7\
---------------------------------------------------------------------------

    \6\ See Rule 6.56(a)(3).
    \7\ See Rule 6.56(a)(3), which provides, in part, that ``the 
Exchange will electronically send the compression-list positions 
file to the Trading Permit Holders that submitted compression-list 
positions to the Exchange pursuant to paragraph (a)(1), including a 
list of those Trading Permit Holders that contributed to the 
compression-list positions file. The list will not include the name 
of any Trading Permit Holder that requests its name be excluded from 
this list.''

---------------------------------------------------------------------------

[[Page 55674]]

    The Exchange also proposes to determine the deadlines by which TPHs 
must grant the Exchange permission to disclose their identities with 
regards to specific multi-leg positions. The deadlines are necessary to 
allow the Exchange to begin and complete the notification process.
    Importantly, the Exchange is unaware of any regulatory restriction 
that would prevent TPHs from publically disclosing their entire 
position book in an effort to find potential counterparties with 
offsetting interest. In fact, TPHs can and do share position level 
information today. It is standard practice for TPHs to request quotes, 
seek indications of interest, and solicit parties to trade (via the 
trading crowd, electronic messaging systems, telephone, etc.) when 
seeking liquidity for a particular position. The Exchange's role and 
the design of Rule 6.56 (e.g., providing TPHs the option to opt-in to 
the information sharing process or even submit compression-list 
positions to the Exchange in the first instance) helps to alleviate the 
commercial concerns of TPHs, which helps to encourage TPH participation 
in compression forums and ultimately the closing of open positions. 
Furthermore, the proposal has no effect on the manner in which TPHs 
will represent orders on the trading floor. The position level 
information will simply allow TPHs to more effectively and efficiently 
identify other TPHs on the trading floor that have a particular 
offsetting position. TPHs must represent orders on the trading floor, 
and TPHs that do not submit compression-list positions have the 
opportunity to respond to the orders represented on the trading floor, 
including orders represented in compression forums.
    The Exchange notes that all transactions must be effected in 
accordance with applicable trading rules, must be subject to risk of 
the market, and must be reported for dissemination. In addition, TPHs 
are reminded that Section 9(a)(1) of the Act provides in relevant part 
that it shall be unlawful for any member of a national securities 
exchange, for the purpose of creating a false or misleading appearance 
of active trading in any security registered on a national securities 
exchange or a false or misleading appearance with respect to the market 
for any such security, (A) to effect any transaction in such security 
which involves no change in the beneficial ownership thereof, or (B) to 
enter an order or orders for the purchase of such security with the 
knowledge that an order or orders substantially the same size, at 
substantially the same time, and at substantially the same price, for 
the sale of any such security, has been or will be entered by or for 
the same or different parties. Furthermore, under the Exchange's policy 
concerning prearranged trading, TPHs are cautioned that any purchase or 
sale, transaction or series of transactions, coupled with an agreement, 
arrangement or understanding, directly or indirectly to reverse such 
transaction which is not done for a legitimate economic purpose or 
without subjecting the transactions to market risk, violates Exchange 
Rules and may be inconsistent with various provisions of the Act and 
rules thereunder.\8\
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    \8\ See Cboe Regulatory Circular RG17-085.
---------------------------------------------------------------------------

    TPHs receiving individualized multi-leg position lists will still 
be required to represent orders on the trading floor in accordance with 
existing trading rules and thereby expose orders to the risk of the 
market. The Exchange notes that the provision in Rule 6.56(c) is not 
intended as an absolute safe harbor from prearranged trading 
prohibitions, but is instead intended to provide that transacting 
through a compression forum (consistent with open outcry transactions 
generally) will not be deemed to be prearranged trading provided that 
the transaction is otherwise executed in accordance with Exchange 
Rules, including the policy concerning prearranged trading.
Deadline To Submit Compression-List Positions
    Paragraph (a)(1) of Rule 6.56 currently provides that prior to the 
close of Regular Trading Hours (i.e., 3:15 p.m. Chicago time) on the 
fourth to last business day of each calendar month, a Trading Permit 
Holder may provide the Exchange with a list of open SPX options 
positions that it would like to close through the compression forum for 
that calendar month (``compression-list positions''). The Exchange is 
proposing to extend the deadline to 4:30 p.m. Chicago time. TPHs have 
missed the 3:15 p.m. cutoff in the past, and the Exchange believes 
expanding the deadline to 4:30 p.m. Chicago time will give TPHs the 
time necessary after the end of the trading day to submit compression-
list positions to the Exchange.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Act and the rules and regulations thereunder applicable to the 
Exchange and, in particular, the requirements of Section 6(b) of the 
Act.\9\ Specifically, the Exchange believes the proposed rule change is 
consistent with the Section 6(b)(5) \10\ 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, settlpreing [sic], 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) \11\ requirement that the rules 
of an exchange not be designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
    \11\ Id.
---------------------------------------------------------------------------

    In particular, the Exchange believes that its proposal is 
consistent with the Act in that it seeks to foster liquidity in the SPX 
options market in light of the bank regulatory capital requirements. 
The Exchange believes bank regulatory capital requirements could 
potentially limit the amount of capital clearing TPHs can allocate to 
their clients' transactions, which in turn, may impact liquidity, 
particularly in the SPX market. The Exchange believes the proposal 
encourages TPHs to close positions via the compression process by 
providing information regarding multi-leg positions that will enable 
TPHs to more efficiently and effectively close positions via the 
compression forums, which, in general, helps to protect investors and 
the public interest because closing positions via the compression 
process serves to alleviate the adverse impact of bank capital 
requirements.
    In addition, the proposed rule change is not designed to permit 
unfair discrimination between customers, issuers, brokers, or dealers 
because the compression forum process is open to all TPHs and 
completely voluntary. Individual TPHs determine whether to submit 
compression-list positions; whether to participate in the compression 
forum process; and whether to represent orders on the trading floor. 
The Exchange's provision of the list does not constitute advice, 
guidance, a commitment to trade, an execution, or a recommendation to 
trade. Rather, files generated by the Exchange pursuant to Rule 6.56 
are provided to TPHs for informational purposes only. Aiding TPHs 
efforts to identify offsetting multi-leg positions helps TPHs close 
positions and thereby

[[Page 55675]]

helps mitigate the effects of bank capital requirements. Mitigating the 
effects of bank capital requirements helps to promote continued 
liquidity provision by the market-making community, which serves to 
protect investors and the public interest by helping to ensure 
liquidity continues to be available to investors. Each individualized 
multi-leg position file will be customized only in that each 
individualized list will be unique to the positions submitted by the 
individual TPH. In short, each individual multi-leg position list may 
contain different information because each individual TPH's positions 
are different. The individual multi-leg position lists will not be 
different based on any of the Exchange's processes. The Exchange is not 
raking positions but is instead compiling lists of all possible 
combinations of multi-leg positions (defined as vertical call spread, 
vertical put spreads, and boxes), and as previously noted, the 
Exchange's provision of the list does not constitute advice, guidance, 
a commitment to trade, an execution, or a recommendation to trade. 
Again, the multi-leg position files are provided to TPHs for 
informational purposes only. Finally, TPHs are not required to 
participate in the compression forum process. To the extent TPHs 
participate, compression forums are conducted in a non-discriminatory 
manner, which is also consistent with the Act. Furthermore, this 
proposed rule change does not amend rules related to open outcry 
trading, prearranged trading, solicitation orders, etc. The manner in 
which orders must be represented on the trading floor is unaffected by 
this proposed rule change.
    Importantly, the Exchange is unaware of any regulatory restriction 
that would prevent TPHs from publically disclosing their entire 
position book in an effort to find potential counterparties with 
offsetting interest. In fact, TPHs can and do share position level 
information today. It is standard practice for TPHs to request quotes, 
seek indications of interest, and solicit parties to trade (via the 
trading crowd, electronic messaging systems, telephone, etc.) when 
seeking liquidity for a particular position. The Exchange's role and 
the design of Rule 6.56 (e.g., providing TPHs the option to opt-in to 
the information sharing process or even submit compression-list 
positions to the Exchange in the first instance) helps to alleviate the 
commercial concerns of TPHs, which helps to encourage TPH participation 
in compression forums and ultimately the closing of open positions. 
Furthermore, the proposal has no effect on the manner in which TPHs 
will represent orders on the trading floor. The position level 
information will simply allow TPHs to more effectively and efficiently 
identify other TPHs on the trading floor that have a particular 
offsetting position. TPHs must represent orders on the trading floor, 
and TPHs that do not submit compression-list positions have the 
opportunity to respond to the orders represented on the trading floor, 
including orders represented in compression forums.
    The Exchange notes that all transactions must be effected in 
accordance with applicable trading rules, must be subject to risk of 
the market, and must be reported for dissemination. In addition, TPHs 
are reminded that Section 9(a)(1) of the Act provides in relevant part 
that it shall be unlawful for any member of a national securities 
exchange, for the purpose of creating a false or misleading appearance 
of active trading in any security registered on a national securities 
exchange or a false or misleading appearance with respect to the market 
for any such security, (A) to effect any transaction in such security 
which involves no change in the beneficial ownership thereof, or (B) to 
enter an order or orders for the purchase of such security with the 
knowledge that an order or orders substantially the same size, at 
substantially the same time, and at substantially the same price, for 
the sale of any such security, has been or will be entered by or for 
the same or different parties. Furthermore, under the Exchange's policy 
concerning prearranged trading, TPHs are cautioned that any purchase or 
sale, transaction or series of transactions, coupled with an agreement, 
arrangement or understanding, directly or indirectly to reverse such 
transaction which is not done for a legitimate economic purpose or 
without subjecting the transactions to market risk, violates Exchange 
Rules and may be inconsistent with various provisions of the Act and 
rules thereunder.\12\
---------------------------------------------------------------------------

    \12\ See Cboe Regulatory Circular RG17-085.
---------------------------------------------------------------------------

    TPHs receiving individualized multi-leg position lists will still 
be required to represent orders on the trading floor in accordance with 
existing trading rules and thereby expose orders to the risk of the 
market. The Exchange notes that the provision in Rule 6.56(c) is not 
intended as an absolute safe harbor from prearranged trading 
prohibitions, but is instead intended to provide that transacting 
through a compression forum (consistent with open outcry transactions 
generally) will not be deemed to be prearranged trading provided that 
the transaction is otherwise executed in accordance with Exchange 
Rules, including the policy concerning prearranged trading.

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

    Cboe 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 change would 
encourage the closing of positions, which, once closed, may serve to 
alleviate the capital requirement constraints on TPHs and improve 
overall market liquidity by freeing capital currently tied up in 
certain SPX positions. The Exchange does not believe that the proposed 
rule changes will impose any burden on intermarket competition that is 
not necessary or appropriate in furtherance of the purposes of the Act 
because the proposed rule change applies only to the trading of SPX 
options, which are exclusively-listed on Cboe. To the extent that the 
proposed changes make the Exchange a more attractive marketplace for 
market participants at other exchanges, such market participants are 
eligible to participant through Cboe TPHs. Furthermore, participation 
in compression forums is completely voluntary and open to all TPHs. 
Lastly, sharing of position level information is also completely 
voluntary.

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,

[[Page 55676]]

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-CBOE-2017-070 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-2017-070. 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 Web site (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 Web site 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-2017-070 and should be 
submitted on or before December 13, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-25233 Filed 11-21-17; 8:45 am]
 BILLING CODE P