Notice2022-19349
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing of a Proposed Rule Change To Amend Exchange Rule 14.11(d) To Accommodate Exchange Listing and Trading of Options-Linked Securities
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
September 8, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 173 (Thursday, September 8, 2022)</title>
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[Federal Register Volume 87, Number 173 (Thursday, September 8, 2022)]
[Notices]
[Pages 55068-55071]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-19349]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-95655; File No. SR-CboeBZX-2022-043]
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of
Filing of a Proposed Rule Change To Amend Exchange Rule 14.11(d) To
Accommodate Exchange Listing and Trading of Options-Linked Securities
September 1, 2022.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on August 18, 2022, Cboe BZX Exchange, Inc. (the ``Exchange'' or
``BZX'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Cboe BZX Exchange, Inc. (the ``Exchange'' or ``BZX'') proposes to
amend Exchange Rule 14.11(d) (``Securities Linked to the Performance of
Indexes and Commodities (Including Currencies)'') to accommodate
Exchange listing and trading of Options-Linked Securities. The text of
the proposed rule change is provided in Exhibit 5.
The text of the proposed rule change is also available on the
Exchange's website (<a href="http://markets.cboe.com/us/equities/regulation/rule_filings/bzx/">http://markets.cboe.com/us/equities/regulation/rule_filings/bzx/</a>), at the Exchange's Office of the Secretary, and at
the Commission's Public Reference Room.
[[Page 55069]]
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
Exchange Rule 14.11(d) provides for Exchange listing and trading of
Securities Linked to the Performance of Indexes and Commodities
(Including Currencies) (``Linked Securities'').\3\ The Exchange
proposes to amend Rule 14.11(d) to add Options-Linked Securities to the
type of Linked Securities permitted to list and trade on the Exchange.
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\3\ Rule 14.11(d) currently accommodates Exchange listing and
trading of Equity Index-Linked Securities, Commodity-Linked
Securities, Fixed Income Index-Linked Securities, Futures-Linked
Securities, and Multifactor Index-Linked Securities (collectively
referred to as ``Linked Securities'').
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The proposed amendment would include Options-Linked Securities in
the list of Linked-Securities set forth in paragraph (d) of Rule 14.11.
Additionally, the proposal would provide that the payment at maturity
with respect to Options-Linked Securities is based on the performance
of U.S. exchange-traded options on any one or combination of the
following: (a) Index Fund Shares; (b) Managed Fund Shares, (c)
Exchange-Traded Fund Shares; (d) Linked Securities; (e) other
securities defined in Rule 14.11; \4\ (f) the S&P 100 Index, the S&P
500 Index, the Nasdaq 100 Index, the Dow Jones Industrial Average, the
MSCI EAFE Index, the MSCI Emerging Markets Index, the NYSE FANG Index,
the Russell 2000 Index, the Russell 1000 Index, the Russell 1000 Growth
Index, the Russell 1000 Value Index, the Cboe Volatility Index, and the
following subindices of the S&P 500 sectors: the Communication Services
Select Sector Index, the Consumer Discretionary Select Sector Index,
the Consumer Staples Select Sector Index, the Energy Select Sector
Index, the Financial Select Sector Index, the Health Care Select Sector
Index, the Industrial Select Sector Index, the Materials Select Sector
Index, the Real Estate Select Sector Index, the Technology Select
Sector Index, or the Utilities Select Sector Index; or (g) a basket or
index of any of the foregoing (an ``Options Reference Asset''). To the
extent that the Options Reference Asset consists of options based on
Index Fund Shares, Managed Fund Shares, Exchange-Traded Fund Shares,
Linked Securities, or other securities defined in Rule 14.11, such
Index Fund Shares, Exchange-Traded Fund Shares, Linked Securities, or
other securities defined in Rule 14.11 shall not seek to provide
investment results, before fees and expenses, that correspond to the
inverse, a specific multiple, or a specific inverse multiple of the
percentage performance on a given day of a particular index or
combination of indexes. The proposal would also include Options
Reference Assets as a Multifactor Reference Asset.
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\4\ The following other securities are included in Rule 14.11:
Portfolio Depository Receipts (Rule 14.11(b)), Index-Liked
Exchangeable Notes (Rule 14.11(d)(1)), Equity Gold Shares (Rule
14.11(d)(2)), Trust Certificates (Rule 14.11(d)(3)), Commodity-Based
Trust Shares (Rule 14.11(d)(4)), Currency Trust Shares (Rule
14.11(d)(5), Commodity Index Trust Shares (Rule 14.11(d)(6)),
Commodity Futures Trust Shares (Rule 14.11(d)(7), Partnership Units
(Rule 14.11(d)(8), Trust Units (Rule 14.11(d)(9), Managed Trust
Securities (Rule 14.11(d)(10), Listing of Currency Warrants (Rule
14.11(d)(11), Selected Equity-linked Debt Securities (``SEEDS'')
(Rule 14.11(d)(12), Trust Issued Receipts (Rule 14.11(f)), Index
Warrants (Rule 14.11(g)), Managed Portfolio Shares (Rule 14.11(k)),
and Tracking Fund Shares (Rule 14.11(m)).
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The proposal would move existing Rule 14.11(d)(2)(K)(v)
(Multifactor Index-Linked Securities Listings Standards) to Rule
14.11(d)(2)(K)(vi), and would set forth the Option-Linked Securities
Listing Standards in Rule 14.11(d)(2)(K)(v). Proposed Rule
14.11(d)(2)(K)(v)(a) provides that Option-Linked Securities must meet
either of the following initial listing standards: (1) The Options
Reference Asset to which the security is linked shall have been
reviewed and approved for the trading of Options-Linked Securities or
options or other derivatives by the Commission under Section 19(b)(2)
of the Securities Exchange Act of 1934 and rules thereunder and the
conditions set forth in the Commission's approval order, including with
respect to comprehensive surveillance sharing agreements, continue to
be satisfied; or (2) The pricing information for components of the
Options Reference Asset must be derived from a market which is an ISG
member or affiliate or with which the Exchange has a comprehensive
surveillance sharing agreement. Additionally, Proposed Rule
14.11(d)(2)(K)(v)(a) provides that Options-Linked Securities must meet
both of the following initial listing criteria: (3) the value of the
Options Reference Asset must be calculated and widely disseminated by
one or more major market data vendors on at least a 15-second basis
during the Exchange's regular market session; and (4) in the case of
Options-Linked Securities that are periodically redeemable, the
indicative value of the subject Options Linked Securities must be
calculated and widely disseminated by the Exchange or one or more major
market data vendors on at least a 15-second basis during the Exchange's
regular market session.
Proposed Rule 14.11(d)(2)(K)(v)(b) provides that Option-Linked
Securities must meet the following continued listing criteria: (1) the
Exchange will consider the suspension of trading in, and will initiate
delisting proceedings pursuant to Rule 14.12 if any of the initial
listing criteria described above are not continuously maintained; and
(2) the Exchange will consider the suspension of trading in, and will
initiate delisting proceedings pursuant to Rule 14.12 under any of the
following circumstances: (A) if the aggregate market value or the
principal amount of the Options-Linked Securities publicly held is less
than $400,000; (B) if an interruption to the dissemination of the value
of the Options Reference Asset persists past the trading day in which
it occurred or is no longer calculated or available and a new Options
Reference Asset is substituted, unless the new Options Reference Asset
meets the requirements of this proposed Rule 14.11(d)(2)(K); or (C) if
such other event shall occur or condition exists which in the opinion
of the Exchange makes further dealings on the Exchange inadvisable.\5\
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\5\ Proposed Rule 14.11(d)(2)(K)(v)(b) is substantially the same
as existing Rules 14.11(d)(2)(K)(ii)(b), 14.11(d)(2)(K)(iii)(c), and
14.11(d)(2)(K)(iv)(c).
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The Exchange proposes to amend Interpretation and Policy .01(a) and
(b) to Rule 14.11(d) which relate to specified requirements and
obligations of a Member acting as a registered Market Maker, to include
options to the financial instruments covered by Commentary .01 and to
make ministerial changes \6\ to references to currency futures to
clarify that each is part of a list. Last, the Exchange proposes to
amend the definition of UTP Derivative Security, as provided in
[[Page 55070]]
Rule 1.5(ee), to include Options-Linked Securities as such securities
are a ``new derivative securities product'' as defined in Rule 19b-4(e)
under the Act, and, as proposed, would be permitted to trade on the
Exchange.
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\6\ Specifically, the Exchange proposes to correct references to
``currency futures'' to clarify that both currency and futures are
part of a list.
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With respect to equity securities underlying Options Reference
Assets, the Exchange notes that Index Fund Shares,\7\ Managed Fund
Shares,\8\ Exchange-Traded Fund Shares,\9\ and Linked Securities and
securities as defined in Rule 14.11 are subject to initial and
continued listing criteria under applicable Exchange Rules as approved
by the Commission. In addition, the Commission has approved or issued a
notice of effectiveness to permit listing on a national securities
exchange of securities based on certain Indexes.\10\ Further, Index
Fund Shares, Managed Fund Shares, Exchange-Traded Fund Shares, Linked
Securities or securities defined in Rule 14.11 based on the Indexes
have been listed on national securities exchanges under generic listing
criteria applicable to such securities. With respect to options on the
Indexes, options on all of the Indexes are currently traded on U.S.
options exchanges.
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\7\ See Exchange Rule 14.11(c).
\8\ See Exchange Rule 14.11(i).
\9\ See Exchange Rule 14.11(l).
\10\ See, e.g., Securities Exchange Act Release Nos. 31591
(December 11, 1992), 57 FR 60253 (December 18, 1992) (SR-Amex-92-18)
(approving the listing and trading of Portfolio Depositary Receipts
based on the S&P 500 Index); 39525 (January 8, 1998), 63 FR 2438
(January 15, 1998) (SR-Amex-97-29) (approving the listing and
trading of DIAMONDS Trust Units, Portfolio Depositary Receipts based
on the Dow Jones Industrial Average); 39011 (September 3, 1997), 62
FR 47840 (September 11, 1997) (SR-CBOE-97-26) (approving the listing
and trading of options on the Dow Jones Industrial Average); 19907
(June 24, 1983), 48 FR 30814 (July 5, 1983) (SR-CBOE-83-08)
(approving the listing and trading of options on the S&P 500 Index
on the CBOE); 41119 (February 26, 1999), 64 FR 11510 (March 9, 1999)
(SR-Amex-98-34) (Order Approving and Notice of Filing and Order
Granting Accelerated Approval of Amendment Nos. 3 and 4 to the
Proposed Rule Change Relating to the Listing and Trading of Shares
of the Nasdaq-100 Trust); 87437 (October 31, 2019), 84 FR 59900
(November 6, 2019) (SR-NYSEArca-2019-62) (Notice of Filing of
Amendment No. 1, and Order Granting Accelerated Approval of a
Proposed Rule Change, as Modified by Amendment No. 1, Relating to
the Listing and Trading of Shares of the Innovator MSCI EAFE Power
Buffer ETFs and Innovator MSCI Emerging Markets Power Buffer ETFs
under NYSE Arca Rule 8.600-E).
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Finally, all Options-Linked Securities listed pursuant to Exchange
Rule 14.11(d) would be included within the definition of securities as
such terms are used in the Exchange's rules and, as such, are subject
to Exchange rules and procedures that currently govern the trading of
securities on the Exchange.
The Exchange believes that the proposed standards would continue to
ensure transparency surrounding the listing process for Linked
Securities. The Exchange also believes that the standards for listing
and trading Options-Linked Securities are reasonably designed to
promote a fair and orderly market for such securities. The proposed
addition of Options Reference Assets, as described above, would also
work in conjunction with the initial and continued listing criteria
related to surveillance procedures and trading guidelines for Linked
Securities.
The Exchange believes that its surveillance procedures are adequate
to properly monitor the trading of Options-Linked Securities in all
trading sessions and to deter and detect violations of Exchange Rules.
The issuer of a series of Options-Linked Securities will be required to
comply with Rule 10A-3 under the Act \11\ for the initial and continued
listing of Linked Securities, as provided in Exchange Rule
14.11(d)(2)(A)-(G). The Exchange notes that the proposed change is not
intended to amend any other component or requirement of Exchange Rule
14.11(d). With respect to options comprising the Options Reference
Asset, the pricing information for components of the Options Reference
Asset must be derived from a market which is an ISG member or affiliate
or with which the Exchange has a comprehensive surveillance sharing
agreement.
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\11\ 17 CFR 240.10A-3.
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Quotation and last sale information for Options-Linked Securities,
Index Fund Shares, Managed Fund Shares, Exchange-Traded Fund Shares,
Linked Securities, and securities defined in Rule 14.11 are available
via the Consolidated Tape Association (``CTA'') high speed line.
Quotation and last sale information for such securities also will be
available from the exchange on which they are listed. Quotation and
last sale information for options on Index Fund Shares, Managed Fund
Shares, Exchange-Traded Fund Shares, Linked Securities, securities
defined in Rule 14.11 and the Indexes will be available via the Options
Price Reporting Authority and major market data vendors. Information
regarding values of the Indexes is available from major market data
vendors.
The Exchange believes that the proposed rule change will provide
investors with the ability to better diversify and hedge their
portfolios using an exchange-listed security without having to trade
directly in the underlying options contracts, and will facilitate the
listing and trading of additional Linked Securities that will enhance
competition among market participants, to the benefit of investors and
the marketplace.
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Securities Exchange Act of 1934 (the ``Act'') and the rules and
regulations thereunder applicable to the Exchange and, in particular,
the requirements of Section 6(b) of the Act.\12\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \13\ requirements that the rules of an exchange be
designed to prevent fraudulent and manipulative acts and practices, to
promote just and equitable principles of trade, to foster cooperation
and coordination with persons engaged in regulating, clearing,
settling, processing information with respect to, and facilitating
transactions in securities, to remove impediments to and perfect the
mechanism of a free and open market and a national market system, and,
in general, to protect investors and the public interest. Additionally,
the Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \14\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
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\12\ 15 U.S.C. 78f(b).
\13\ 15 U.S.C. 78f(b)(5).
\14\ Id.
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The Exchange believes its proposal to amend the definition of UTP
Derivative Security, as provided in Rule 1.5(ee), to include Options-
Linked Securities as such securities are a ``new derivative securities
product'' as defined in Rule 19b-4(e) under the Act, and, as proposed,
would be permitted to trade on the Exchange.
With respect to equity securities underlying Options Reference
Assets, the Exchange notes that Index Fund Shares, Managed Fund Shares,
Exchange-Traded Fund Shares, Linked Securities and securities defined
in Rule 14.11 are subject to Exchange initial and continued listing
criteria under applicable Exchange rules as approved by the Commission.
In addition, the Commission has approved or issued a notice of
effectiveness to permit listing on a national securities exchange of
securities based on certain Indexes.\15\ With respect to options on the
Indexes, options on all of the Indexes are currently traded on U.S.
options exchanges. All options included in an Options Reference Asset
will be U.S. exchange-traded.
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\15\ Supra note 8.
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Any Options-Linked Securities would be required to meet the
following initial
[[Page 55071]]
listing criteria in proposed Rule 14.11(d)(2)(K)(v)(a): (1) the value
of the Options Reference Asset must be calculated and widely
disseminated by one or more major market data vendors on at least a 15-
second basis during the Exchange's regular market session; and (2) in
the case of Options-Linked Securities that are periodically redeemable,
the indicative value of the subject Options Linked Securities must be
calculated and widely disseminated by the Exchange or one or more major
market data vendors on at least a 15-second basis during the Exchange's
regular market session. Options-Linked Securities also will be subject
to the continued listing criteria in proposed Rule 14.11(d)(2)(K)(v)(b)
as described above. Finally, all Options-Linked Securities listed
pursuant to Exchange Rule 14.11(d) would be included within the
definition of ``security'' or ``securities'' as such terms are used in
the Exchange's rules and, as such, are subject to Exchange rules and
procedures that currently govern the trading of securities on the
Exchange.
The Exchange believes that the proposed standards would continue to
ensure transparency surrounding the listing process for Linked
Securities. The Exchange also believes that the standards for listing
and trading Options-Linked Securities are reasonably designed to
promote a fair and orderly market for such securities. The proposed
addition of Options Reference Assets, as described above, would also
work in conjunction with the initial and continued listing criteria
related to surveillance procedures and trading guidelines for Linked
Securities. The Exchange believes that its surveillance procedures are
adequate to properly monitor the trading of Options Linked Securities
in all trading sessions and to deter and detect violations of Exchange
rules. Trading in the securities may be halted under the conditions
specified in Exchange Rule 14.11(d)(2)(H).
The Exchange believes that the proposed rule change will provide
investors with the ability to better diversify and hedge their
portfolios using an exchange listed security without having to trade
directly in the underlying options contracts, and will facilitate the
listing and trading of additional Linked Securities that will enhance
competition among market participants, to the benefit of investors and
the marketplace.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The proposed rule change
will facilitate the listing and trading of additional Linked Securities
that will enhance competition among market participants, to the benefit
of investors and the marketplace.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received comments on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the Exchange consents, the Commission will:
A. by order approve or disapprove such proposed rule change, or
B. institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#641611080149070b0909010a1017241701074a030b12"><span class="__cf_email__" data-cfemail="e795928b82ca84888a8a82899394a7948284c9808891">[email protected]</span></a>. Please include
File Number SR-CboeBZX-2022-043 on the subject line.
Paper Comments
<bullet> Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-CboeBZX-2022-043. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street, NE, Washington,
DC 20549 on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-CboeBZX-2022-043 and should be submitted
on or before September 29, 2022.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\16\
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\16\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-19349 Filed 9-7-22; 8:45 am]
BILLING CODE 8011-01-P
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