Document ID: SEC-2020-0031-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Cboe Exchange, Inc.
Posted Date: 2020-01-08T05:00Z

[Federal Register Volume 85, Number 5 (Wednesday, January 8, 2020)]
[Notices]
[Pages 942-947]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-00061]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87883; File No. SR-CBOE-2019-126]

Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
Rules Regarding Complex Orders

January 2, 2020.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on December 19, 2019, Cboe Exchange, Inc. (``Exchange'' or ``Cboe 
Options'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend its Rules to adopt a new complex 
order instruction, Index Combo orders, to further facilitate delta 
neutral transactions for investors that use complex orders to trade 
index options.
    The text of the proposed rule change is also available on the 
Exchange's website (http://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx), at the Exchange's Office of the 
Secretary, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend its Rules to adopt a new complex 
order instruction, Index Combo orders, to further facilitate delta 
neutral transactions for investors that use complex orders to trade 
index options. Under the Exchange's current Rules, a ``complex order'' 
is an order involving the concurrent execution of two or more different 
series in the same class (the ``legs'' or ``components'' of the complex 
order), for the same account, occurring at or near the same time and 
for the purpose of executing a particular investment strategy with no 
more than the applicable number of legs (which number the Exchange 
determines on a class-by-class basis). For purposes of Rules 5.33 
(regarding electronic processing of complex orders) and 5.85(b)(1) 
(regarding priority of complex orders with respect to open outcry 
trading), the term ``complex order'' means a complex order with any 
ratio

[[Page 943]]

equal to or greater than one-to-three (.333) and less than or equal to 
three-to-one (3.00), a stock-option order, or a security future-option 
order.\3\ In other words, the Exchange only accepts for electronic 
processing complex orders with any ratio equal to or greater than one-
to-three (.333) and less than or equal to three-to-one (3.00). The 
Exchange accepts for manual handling complex orders with any ratio; 
however, only those with a ratio equal to or greater than one-to-three 
(.333) and less than or equal to three-to-one (3.00) are eligible for 
complex order increments and complex order priority.\4\ The ratio of a 
complex order is determined by comparing the size of the smallest-sized 
option component and the largest-sized option component. For example, a 
complex order with a leg to buy 30 XYZ May 18 calls and sell 10 XYZ 
April 16 calls is three-to-one (30:10).
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    \3\ See Rule 1.1 (definition of complex order).
    \4\ See id.; see also Rules 5.4(b) and 5.85(b).
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    A complex order can also be a ``stock-option order.'' A stock-
option order is the purchase or sale of a stated number units of an 
underlying stock or a security convertible into the stock 
(``convertible security'') coupled with the purchase or sale of an 
option contract(s) on the opposite side of the market representing 
either (1) the same number of units of the underlying stock or 
convertible security or (2) the number of units of the underlying stock 
necessary to create a delta neutral position, but in no case in a ratio 
greater than eight-to-one (8.00), where the ratio represents the total 
number of units of the underlying stock or convertible security in the 
option leg(s) to the total number of units of the underlying stock or 
convertible security in the stock leg.\5\
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    \5\ See Rule 5.33(b)(5) (definition of stock-option order). The 
Rules also permit complex orders to be security future-option 
orders.
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    An option's price can be influenced by a number of different 
factors. Some of these are known as the ``Greeks'' because they are 
commonly abbreviated with Greek letters: Delta, Gamma, Theta, and Vega.
     Delta: The Delta ([Delta]) is a measure of the change in 
an option's price (premium of an option) resulting from a change in the 
underlying security. The value of Delta ranges from -100 to 0 for puts 
and 0 to 100 for calls (multiplied by 100 to shift the decimal). Puts 
generate negative delta because they have a negative relationship with 
the underlying; that is, put premiums fall when the underlying rises 
and vice versa. Conversely, call options have a positive relationship 
with the price of the underlying: If the underlying rises, so does the 
call premium provided there are no changes in other variables such as 
implied volatility or time remaining until expiration. If the price of 
the underlying falls, the call premium will also decline provided all 
other things remain constant.\6\ Delta changes as an option becomes 
more valuable or in-the-money. In-the-money means that the value of the 
option increases due to the option's strike price being more favorable 
to the underlying's price. As the option gets further in the money, 
Delta approaches 100 on a call and -100 on a put with the extremes 
eliciting a one-for-one relationship between changes in the option 
price and changes in the price of the underlying. In effect, at Delta 
values of -100 and 100, the option behaves like the underlying in terms 
of price changes.\7\
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    \6\ See John Summa, Option Greeks: The 4 Factors to Measure 
Risks, Investopedia, available at https://www.investopedia.com/trading/getting-to-know-the-greeks/ (October 11, 2019).
    \7\ See id.
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     Gamma: The Gamma ([Gamma]), sometimes referred to as the 
option's curvature, is the rate of change in the delta as the 
underlying price changes. The gamma is usually expressed in deltas 
gained or lost per one-point change in the underlying, with the delta 
increasing by the amount of gamma when the underlying rises and falling 
by the amount of the gamma when the underlying falls. If an option has 
a gamma of five, for each point rise (fall) in the price of the 
underlying, the option will gain (lose) five deltas. If the option 
initially has a delta of 25 and the underlying moves up (down) one full 
point, the new delta will be 30 (20).\8\
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    \8\ See Sheldon Natenberg, Option Volatility & Pricing 105 
(McGraw Hill Education, 2nd ed. 2015).
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     Theta: An option's value is made up of intrinsic value \9\ 
and time value.\10\ As time passes, the time-value portion gradually 
disappears until, at expiration, the option is worth exactly its 
intrinsic value. The theta ([Theta]), or time decay, is the rate at 
which an option loses value as time passes, assuming that all other 
market conditions remain unchanged. It is usually expressed as value 
lost per one day's passage of time. An option with a theta of 0.05 will 
lose 0.05 in value for each day that passes with no movement in the 
underlying. If an option's theoretical value today is 4.00, one day 
later, it will be worth 3.95. Two days later, it will be worth 
3.90.\11\
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    \9\ The intrinsic value of an option is the difference between 
the price of the underlying asset and the strike price.
    \10\ The time value of an option is equal to the option premium 
minus its intrinsic value.
    \11\ See Natenberg, supra note 9 at 108.
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     Vega: Just as option values are sensitive to changes in 
the underlying price (delta) and to the passage of time (theta), they 
are also sensitive to changes in volatility. Although the terms delta, 
gamma, and theta are generally used by all option traders, there is no 
one generally accepted term for the sensitivity of an option's 
theoretical value to a change in volatility. The most commonly used 
term in the trading community is vega.\12\ The vega of an option is 
usually expressed as the change in theoretical value for each one 
percentage point change in volatility. Because all options gain value 
with rising volatility, the vega for both calls and puts is positive. 
If an option has a vega of 0.15, for each percentage point increase 
(decrease) in volatility, the option will gain (lose) 0.15 in 
theoretical value. If the option has a theoretical value of 3.25 at a 
volatility of 20%, then it will have a theoretical value of 3.40 at a 
volatility of 21% and a theoretical value of 3.10 at a volatility of 
19%.\13\
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    \12\ See id. at 110.
    \13\ See id.
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    Options can be traded not only for profits attributable to 
movements in the underlying, but also for profits attributable to 
changes in other factors such as volatility or the amount of time left 
until expiration. An investor may seek exposure to the Greeks (i.e., 
Delta, Gamma, Theta, and Vega) while minimizing exposure to movements 
in the price of the underlying by creating a delta neutral position. An 
option position could be hedged with options that exhibit a delta that 
is opposite to that of the current options holding to maintain a delta 
neutral position. Delta hedging is an options strategy that aims to 
reduce or hedge the risk associated with price movements in the 
underlying asset.\14\ Strategies that involve creating a delta neutral 
position are typically used for one of three main purposes. They can be 
used to profit from time decay or from volatility, or they can be used 
to hedge an existing position and protect it against small price 
movements.\15\
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    \14\ See James Chen, Delta Hedging, Investopedia, available at 
https://www.investopedia.com/terms/d/deltahedging.asp (May 22, 
2019).
    \15\ Delta Neutral Options Strategies, OptionsTrading.Org 
(December 4, 2019), available at https://optionstrading.org/strategies/other/delta-neutral/.
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    A delta neutral position is one in which the overall delta is 
approximately zero, which minimizes the options' price movements in 
relation to the underlying asset. For example, assume an investor holds 
one call option with a delta of 0.50, which indicates the option is at-
the-money and wishes to maintain a delta neutral position. The investor 
could purchase an at-the-

[[Page 944]]

money put option with a delta of -0.50 to offset the positive delta, 
which would make the position have a delta of zero, thereby minimizing 
unwanted exposure to the price of the underlying and allowing the 
investor to focus instead on the desired exposure (i.e., Delta, Gamma, 
Theta, or Vega). An options position could also be delta hedged using 
shares of the underlying stock. One share of the underlying stock has a 
delta of one as the stock's value changes by $1. For example, assume an 
investor is long one call option on a stock with a delta of 0.75, or 75 
since options have a multiplier of 100. In this case, the investor 
could delta hedge the call option by selling 75 shares of the 
underlying stock.\16\ The following is an example of a delta neutral 
stock-option order, which provides the investor with volatility 
exposure.
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    \16\ See supra note 15.
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Example #1
Strategy 1: Buy 8 XYZ May 18 Calls and Sell 100 Shares XYZ Underlying 
(25 times)
Buy 8 (25x) XYZ May 18 Calls
Sell 100 (25x) Shares XYZ Underlying

Buy 8 XYZ May 18 Calls (12.5 Delta)
Sell 100 XYZ Shares (100 Delta) (where 100 shares of the underlying = 1 
option contract) (8 * 12.5 delta) + (-1 * 100 Delta) + 100 Delta-100 
Delta = 0 Delta

Strategy 1 Position = +200 XYZ May 18 Calls -2500 Shares of XYZ

    Buying a call on an equity stock and selling a put on an equity 
stock (or selling a call on an equity stock and buying a put on an 
equity stock) with the same expiration date and strike price results in 
the creation of a synthetic stock position. For example, assume a call 
and put for XYZ have a strike price of $15. Buying a call gives the 
buyer the right, but not the obligation, to purchase the stock (XYZ) at 
the strike price ($15). Selling a put imposes upon the sell the 
obligation (and not just the right) to purchase the stock (XYZ) at the 
strike price ($15) should the put be exercised.
    If the stock price of XYZ is greater than the strike price of the 
call option ($15) at expiration, the call option may be exercised and 
the holder of the call option has the right to purchase XYZ at $15 
resulting in a long position of 100 shares of XYZ. If the stock price 
of XYZ is greater than the strike price of the put option ($15), the 
put expires worthless as the holder of the put can sell shares on the 
open market at a price greater than the option's strike price.
    If the stock price of XYZ is less than the strike price of the call 
option ($15), the call option expires worthless as it is cheaper to 
purchase the stock on the open market. If the stock price of XYZ is 
less than the strike price of the put option at expiration, the put 
will be exercised and the seller of the put will be obligated to 
purchase 100 shares of XYZ.
    The net result is that the combination of buying a call and selling 
a put with the same expiration date and strike price results in an 
effective (or synthetic) long position of 100 shares of XYZ stock, 
regardless of whether the stock price is above or below the strike 
price of the call or put option. Similarly, selling the call and buying 
the put for the same expiration date and strike price would result in 
an effective (or synthetic) short position of 100 shares of XYZ stock 
(-100). The following is an example of a synthetic underlying.
Example #2
Strategy 2: Sell 1 XYZ May 15 Call, Buy 1 XYZ May 15 Put and Buy 100 
XYZ Stock (25 times)

Combination:
    Sell 1 (25x) XYZ May 15 Calls
    Buy 1 (25x) XYZ May 15 Puts
Stock:
    Buy 100 (25x) shares XYZ Stock
    Sell 1 XYZ May 15 Call (55 delta)
    Buy 1 XYZ May 15 Put (45 delta)
    Buy 100 XYZ shares (100 delta) (where 100 shares of stock = 1 
option)
    (-1 * 55 delta) + (1 * -45 delta) + (1 * 100 delta) -55 + (-45) + 
100 = 0

Strategy 2 Position = -25 May 15 Calls + 25 May 15 Puts + 2500 XYZ 
Stock
Example #3
    Strategy 1 Position: +200 XYZ May 18 Calls - 2500 XYZ Stock
Strategy 2 Position: -25 XYZ May 15 Calls +25 XYZ May 15 Put + 2500 XYZ 
Stock

Net Position:
    + 200 XYZ May 18 Calls -25 XYZ May 15 Calls + 25 XYZ May 15 Puts

+2500 deltas (200 x 12.5)
-2500 deltas (-25 x 55) + (25 x -45)
    0 net deltas

    Combined the equation may be expressed as: (200 x 12.5) + (-25 x 
55) + (25 x -45) = 0

    The net position that results from combining Strategy 1 from 
Example #1 above and Strategy 2 from Example #2 above is a long 
position of 200 May 18 Calls--the May 15 Combination 25x (a short 
synthetic stock position of 2,500 shares as a result of selling a call 
and buying a put with the same expiration date and strike price).\17\
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    \17\ Strategy 1 and Strategy 2 may currently be entered and 
executed on the Exchange under the Exchange's current rules.
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    The Exchange proposes to adopt a complex order instruction in Rule 
5.33(b)(5) to codify and further facilitate delta neutral hedging for 
all index options listed for trading on the Exchange.\18\ Trading 
Permit Holders that transact in index options currently have the 
ability to submit for electronic processing complex orders that are 
delta neutral, so long as the component ratio conforms to the current 
rule for complex orders of one-to-three/three-to-one. Additionally, 
Trading Permit Holders have the ability to submit for manual handling 
complex orders that are delta neutral in any ratio; however, only those 
with a one-to-three/three-to-one ratio are not eligible for complex 
order increments or complex order priority.\19\ Specifically, the 
Exchange proposes to adopt a definition of an ``Index Combo'' order as 
an order to purchase or sell one or more index option series and the 
offsetting number of Index Combinations defined by the delta. For 
purposes of an Index Combo Order, the Exchange proposes to adopt a 
definition of an ``Index Combination'' as a purchase (sale) of an index 
option call and sale (purchase) of an index option put with the same 
underlying index, expiration date, and strike price. Additionally, the 
Exchange proposes to adopt a definition of ``delta'' as the positive 
(negative) number of Index Combinations that must be sold (purchased) 
to establish a market neutral hedge with one or more series of the same 
index option.\20\
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    \18\ The Exchange currently lists options on 24 indexes: Dow 
Jones Industrial Average (DJX), MSCI EAFE Index (MXEA), MSCI 
Emerging Markets Index (MXEF), S&P 100 Index (OEX), Russell 1000 
Growth Index (RLG), Russell 1000 Value Index (RLV), Russell 1000 
Index (RUI), Russell 2000 Index (RUT), S&P Materials Select Sector 
Index (SIXB), S&P Communication Services Select Sector Index (SIXC), 
S&P Energy Select Sector Index (SIXE), S&P Industrials Select Sector 
Index (SIXI), S&P Financial Select Sector (SIXM), S&P Consumer 
Staples Select Sector Index (SIXR), S&P Real Estate Select Sector 
Index (SIXRE), S&P Technology Select Sector Index (SIXT), S&P 
Utilities Select Sector Index (SIXU), S&P Health Care Select Sector 
Index (SIXV), S&P Consumer Discretionary Select Sector Index (SIXY), 
S&P 500 Index (SPX), FTSE 100 Index (reduced-value) (UKXM), Cboe 
Volatility Index (VIX), Mini-S&P 100 Index (XEO), and Mini-S&P 500 
Index (XSP).
    \19\ See Rules 5.4(b) and 5.85(b).
    \20\ See Rule 5.33(b)(5).
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    As noted above, the Exchange lists multiple index options for 
trading. MIAX currently only lists options on one index--the SPIKE 
Index. The primary basis for MIAX's adoption of a SPIKES Combo Order 
was the lack of an

[[Page 945]]

underlying for the SPIKES Index that investors may use for hedging 
purposes.\21\ There was nothing about the SPIKES Combo Order specific 
to the SPIKES Index itself. While MIAX adopted a combo order for a 
single index, all index options, including those the Exchange lists for 
trading, lack an underlying that investors may use for hedging 
purposes. Therefore, the Exchange believes it is appropriate to offer 
investors a combo order for all index options. Additionally, MIAX is an 
electronic only exchange, while the Exchange has a trading floor for 
open outcry trading. As noted above, Trading Permit Holders may 
currently engage in delta neutral hedging for index options 
electronically or on the trading floor, subject to certain ratio 
restrictions. The Exchange believes all Trading Permit Holders should 
be able to use Index Combo orders in the same manner, regardless of 
whether they choose to submit them for electronic or open outcry 
trading.
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    \21\ See Securities Exchange Act Release No. 87199 (October 2, 
2019), 84 FR 53786 (October 8, 2019) (SR-MIAX-2019-37).
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    The Exchange also proposes to adopt a provision that states an 
Index Combo order may not have a ratio greater than eight options to 
one Index Combination (8.00). The Exchange proposes to use this ratio 
as it is already a defined conforming ratio in the System \22\ used for 
stock-option orders, and it will allow the Exchange to implement the 
trading of Index Combo orders in a fashion similar to stock-option 
orders. Currently, stock-options may be traded in a ratio of eight-to-
one, where the ratio represents contracts to the underlying security. 
Similarly, the Exchange proposes to use the same ratio for Index Combo 
orders where the ratio would represent contracts to Index Combinations. 
Lastly, the Exchange proposes to add an internal cross reference to 
state that Index Combo orders will be subject to all provisions 
applicable to complex orders (excluding the one-to-three/three-to-one 
ratio) in the Rules.\23\
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    \22\ The ``System'' means the Exchange's hybrid trading platform 
that integrates electronic and open outcry trading of option 
contracts on the Exchange, and includes any connectivity to the 
foregoing trading platform that is administered by or on behalf of 
the Exchange, such as a communications hub.
    \23\ The Exchange makes conforming changes to Rules 1.1 
(definition of complex order), 5.4(b), 5.6(c) (definition of complex 
order), 5.30(a) and (b), 5.83(b), and 5.85(b).
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    Index options do not have an underlying that can serve as a hedge, 
as the option is based on an index. However, a synthetic underlying 
position may be created by purchasing a call and selling a put (or 
selling a call and purchasing a put), as discussed above. An Index 
Combination creates a synthetic underlying position that is the 
functional equivalent of the stock leg in stock-option orders. 
Therefore, the Exchange proposes to amend the ratio from one-to-three/
three-to-one to eight-to-one for Index Combo orders to align the 
treatment of these orders to that of stock-option orders. This will 
allow for more transactions with better hedging opportunities in all 
index options.
    Below is an example of an index option delta neutral strategy that 
provides the investor exposure to the Greeks that may be created under 
the Exchange's proposal to allow Index Combo orders to leverage the 
eight-to-one ratio afforded stock-option orders.
Example #4
Strategy A: Buy 8 ABC Index May 18 Calls, Sell 1 ABC Index May 15 
Calls, and Buy 1 ABC Index May 15 Put (25 times)
Calls: Buy 8 (25) ABC Index May 18 Calls

Combination:
    Sell 1 (25) ABC Index May 15 Call
    Buy 1 (25) ABC Index May 15 Put

    Buy 8 ABC Index May 18 Calls (12.5 Delta)
    Sell 1 ABC Index May 15 Call (55 Delta)
    Buy 1 ABC Index May 15 Put (45 Delta)

    (8 * 12.5) + (-1 * 55) + (1 * -45)
    100 - 55 - 45 = 0

Net Position: + 200 ABC Index May 18 Calls -25 ABC Index May 15 Calls + 
25 ABC Index May 15 Puts
    +2500 Deltas (200 x 12.5)
    -2500 Deltas (-25 x 55) + (25 x -45)
    0 Net Deltas
Combined, the equation may be expressed as: (200 x 12.5) + (-25 x 55) + 
(25 x -45) = 0

    Example #4 illustrates a delta neutral position in an index option 
which is identical to the net delta neutral position demonstrated in 
Example #1 for a stock-option order. This position may be accomplished 
in a single transaction by using the proposed Index Combo order, which 
includes an Index Combination. The Index Combination (sell call, buy 
put with the same underlying index, expiration date, and strike price) 
creates the synthetic underlying position for the index option, similar 
to the way selling the XYZ call and buying the XYZ put creates the 
synthetic stock position demonstrated in Example #3.
    Under the Exchange's proposal, Index Combinations would be treated 
similar to the stock-leg component of a stock-option order. As 
demonstrated in Example #3 above, the stock leg component of a stock-
option order can be created synthetically by selling a call and buying 
a put option with the same expiration date and strike price. The 
Exchange proposes to define this transaction as an Index Combination 
and allow Index Combo orders to be treated similarly to stock-option 
orders by permitting these orders to leverage the eight-to-one ratio 
defined for stock-option orders. The Exchange believes that a ratio 
greater than three-to-one, but not greater than eight-to-one, would 
allow investors the opportunity to create additional delta neutral 
transactions with index options.
    The Exchange represents that it has the System capacity and 
capability to handle the potential increase in transaction rates. 
Further, the Exchange represents that it has surveillances in place to 
surveil for conduct that violates the Exchange's Rules, specifically as 
it pertains to delta neutral transactions as described herein.
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.\24\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \25\ 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) \26\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \24\ 15 U.S.C. 78f(b).
    \25\ 15 U.S.C. 78f(b)(5).
    \26\ Id.
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    In particular, the Exchange believes the proposed rule change 
promotes just and equitable principles of trade and removes impediments 
to and perfects the mechanisms of a free and open market and a national 
market system

[[Page 946]]

and, in general, protects investors and the public interest, by further 
facilitating the creation of delta neutral transactions in index 
options. Delta neutral strategies protect investors and the public 
interest by providing a means to gain exposure to other elements 
related to the price of an option while reducing the risk associated 
with changes in the price of the underlying. Permitting additional 
delta neutral transactions will improve liquidity in the marketplace 
which will benefit all investors. Additionally, the Exchange's proposal 
protects investors and the public interest as all the rules applicable 
to complex orders on the Exchange will apply equally to Index Combo 
orders, with the exception of the one-to-three/three-to-one ratio 
limitation.
    The proposed eight-to-one ratio for Index Combo orders is already a 
conforming ratio on the Exchange for stock-option orders. The 
Exchange's proposal promotes just and equitable principles of trade and 
removes impediments to and perfects the mechanisms of a free and open 
market and a national market system and, in general, protects investors 
and the public interest, by providing similar hedging capabilities as 
afforded stock-option orders.
    Additionally, another options exchange that offers options on an 
index provides for the creation of delta neutral strategies.\27\ 
Providing investors the ability to create delta neutral transactions 
similar to those created on another exchange reduces investor confusion 
and in turn strengthens investor confidence in the marketplace by 
providing consistency among exchanges.
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    \27\ See Miami International Securities Exchange, LLC (``MIAX'') 
Rule 518, Interpretation and Policy .07.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The Exchange does not 
believe the proposed rule change will impose any burden on intramarket 
competition, as it will be applicable to all Trading Permit Holders 
equally. Any Trading Permit Holder may trade index options and submit 
Index Combo orders, and all Trading Permit Holders can benefit from the 
creation of delta neutral transactions as described in this proposal. 
The System will handle all Index Combo orders in the same manner. The 
Exchange does not believe the proposed rule change will impose any 
burden on intermarket competition, because another exchange options 
offers the same order type for the index option listed on that 
exchange.\28\ The Exchange believes that the proposed rule change will 
relieve any burden on, or otherwise promote, competition, because it 
will provide index options with similar hedging capabilities currently 
afforded stock-option orders. Additionally, providing investors the 
ability to create delta neutral transactions similar to those created 
on another exchange reduces investor confusion and in turn strengthens 
investor confidence in the marketplace by providing consistency among 
exchanges.
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    \28\ See id.
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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

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days after the date of the filing, or such 
shorter time as the Commission may designate, the proposed rule change 
has become effective pursuant to 19(b)(3)(A) of the Act \29\ and Rule 
19b-4(f)(6) \30\ thereunder.
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    \29\ 15 U.S.C. 78s(b)(3)(A).
    \30\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file 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 pursuant to Rule 19b-4(f)(6) under the 
Act \31\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) under the Act \32\ 
permits the Commission to 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 waiver of the operative delay would 
provide investors as soon as possible with similar hedging capabilities 
for index options that they have currently for stock-option orders. In 
addition, the Exchange notes that the proposal is not novel or unique 
because another exchange currently offers the same order type for an 
index option it lists for trading.\33\ The Commission finds that it is 
consistent with the protection of investors and the public interest to 
waive the 30-day operative delay. The Commission believes that the 
proposal will benefit investors by permitting additional delta neutral 
transactions for index options. The Commission notes that another 
options exchange currently permits Combo Orders for options on an 
index.\34\ Accordingly, the Commission hereby waives the operative 
delay and designates the proposal operative upon filing.\35\
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    \31\ 17 CFR 240.19b-4(f)(6).
    \32\ 17 CFR 240.19b-4(f)(6)(iii).
    \33\ See supra note 21 and MIAX Rule 518, Interpretation and 
Policy .07.
    \34\ See id.
    \35\ For purposes only of waiving the 30-day operative delay, 
the Commission has also 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 the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-CBOE-2019-126 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-2019-126. This file 
number should be included on the subject line if email is used. To help 
the

[[Page 947]]

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-2019-126 and should be submitted on 
or before January 29, 2020.
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    \36\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\36\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-00061 Filed 1-7-20; 8:45 am]
 BILLING CODE 8011-01-P