[Federal Register Volume 88, Number 82 (Friday, April 28, 2023)]
[Notices]
[Pages 26359-26366]
[FR Doc No: 2023-08985]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-97366; File No. SR-CBOE-2023-019]

Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of
Filing of a Proposed Rule Change To Make Permanent the Operation of Its
Program (``Pilot Program'') That Allows the Exchange To List P.M.-
Settled Third Friday-of-the-Month Mini-SPX Index (``XSP'') Options and
Mini-Russell 2000 Index (``MRUT'') Options Series

April 24, 2023.
    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 April 19, 2023, Cboe Exchange, Inc. (``Exchange'' or ``Cboe
Options'') filed with the Securities and Exchange Commission
(``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 Exchange, Inc. (the ``Exchange'' or ``Cboe Options'') proposes
to make permanent the operation of its program (``Pilot Program'') that
allows the Exchange to list P.M.-settled third Friday-of-the-month
Mini-SPX Index (``XSP'') options and Mini-Russell 2000 Index (``MRUT'')
options series. The text of the proposed rule change is provided below.

(additions are italicized; deletions are [bracketed])
* * * * *

Rules of Cboe Exchange, Inc.

* * * * *

Rule 4.13. Series of Index Options

* * * * *

Interpretations and Policies

    .01-.12 No change.

[based on currently effective rule text]

    .13 In addition to A.M.-settled S&P 500 Stock Index (``SPX'')
options, Mini-SPX Index (``XSP'') options, and Mini-RUT Index
(``MRUT'') options approved for trading on the Exchange pursuant to
Rule 4.13, the Exchange may also list options on SPX, XSP, and MRUT
whose exercise settlement value is derived from closing prices on the
last trading day prior to expiration (P.M.-settled third Friday-of-the-
month SPX options series). [The Exchange may also list options on the
Mini-SPX Index (``XSP'') and Mini-RUT Index (``MRUT'') whose exercise
settlement value is derived from closing prices on the last trading day
prior to expiration (``P.M.-settled''). P.M.-settled third Friday-of-
the-month SPX options series and P.M.-settled XSP and MRUT options will
be listed for trading for a pilot period ending May 8, 2023.]

[based on rule text if SR-CBOE-2023-005 is approved]

    .13 In addition to A.M.-settled S&P 500 Stock Index (``SPX'')
options approved for trading on the Exchange pursuant to Rule 4.13, the
Exchange may also list options on SPX whose exercise settlement value
is derived from closing prices on the last trading day prior to
expiration (P.M.-settled third Friday-of-the-month SPX options series).
    .14 In addition to A.M.-settled Mini-SPX Index (``XSP'') options
and Mini-RUT Index (``MRUT'') options approved for trading on the
Exchange pursuant to Rule 4.13, t[T]he Exchange may list XSP and MRUT
options [on the Mini-SPX Index (``XSP'') and Mini-RUT Index (``MRUT'')]
whose exercise settlement value is derived from closing prices on the
last trading day prior to expiration (``P.M.-settled''). [P.M.-settled
XSP and MRUT options will be listed for trading for a pilot period
ending May 8, 2023.]
* * * * *
    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 make permanent its Pilot Program that
permits the Exchange to list XSP and MRUT options whose exercise
settlement value is derived from closing prices on the last trading day
prior to expiration (``P.M.-settled''). The Securities and Exchange
Commission (the ``Commission'') approved a rule change that established
the Pilot Program to allow the Exchange to list options on the S&P 500
Index (``SPX'') whose exercise settlement value is derived from closing
prices on the last trading day prior to expiration (``SPXPM'') on
February 8, 2013.\3\ On July 31, 2013, the Commission approved a rule
change that amended the Pilot Program to allow the Exchange to list XSP
options whose exercise settlement value is derived from closing prices
on the last trading day prior to expiration (``P.M.-settled XSP'').\4\
On February 5, 2021, the Commission approved a rule change that amended
the Pilot Program to allow the Exchange to list options on the MRUT
options whose exercise settlement value is derived from closing prices
on the last trading day prior to expiration (``P.M.-settled MRUT'') \5\
(together, P.M.-settled XSP and P.M.-settled MRUT to be referred to
herein as the ``Pilot Products'').\6\ The Exchange has extended the
pilot period numerous times, which, pursuant to Rule 4.13.13, is
currently set to expire on the earlier of May 8, 2023 or the date on
which the pilot program is approved on a permanent basis.\7\ The
Exchange hereby requests that the Commission approve the Pilot Program
for the Pilot Products on a permanent basis.\8\
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    \3\ See Securities Exchange Act Release No. 68888 (February 8,
2013), 78 FR 10668 (February 14, 2013) (SR-CBOE-2012-120) (the
``SPXPM Approval Order''). Pursuant to Securities Exchange Act
Release No. 80060 (February 17, 2017), 82 FR 11673 (February 24,
2017) (SR-CBOE-2016-091), the Exchange moved third-Friday P.M.-
settled options into the S&P 500 Index options class, and as a
result, the trading symbol for P.M.-settled S&P 500 Index options
that have standard third Friday-of-the-month expirations changed
from ``SPXPM'' to ``SPXW.'' This change went into effect on May 1,
2017, pursuant to Cboe Options Regulatory Circular RG17-054.
    \4\ See Securities Exchange Act Release No. 70087 (July 31,
2013), 78 FR 47809 (August 6, 2013) (SR-CBOE-2013-055) (the ``P.M.-
settled XSP Approval Order'').
    \5\ See Securities Exchange Act Release No. 91067 (February 5,
2021), 86 FR 9108 (SR-2020-CBOE-116) (the ``P.M.-settled MRUT
Approval Order'').
    \6\ For more information on the Pilot Products or the Pilot
Program, see the P.M.-settled XSP Approval Order and the P.M.-
settled MRUT Approval Order.
    \7\ See Securities Exchange Act Release Nos. 71424 (January 28,
2014), 79 FR 6249 (February 3, 2014) (SR-CBOE-2014-004); 73338
(October 10, 2014), 79 FR 62502 (October 17, 2014) (SR-CBOE-2014-
076); 77573 (April 8, 2016), 81 FR 22148 (April 14, 2016) (SR-CBOE-
2016-036); 80386 (April 6, 2017), 82 FR 17704 (April 12, 2017) (SR-
CBOE-2017-025); 83166 (May 3, 2018), 83 FR 21324 (May 9, 2018) (SR-
CBOE-2018-036); 84535 (November 5, 2018), 83 FR 56129 (November 9,
2018) (SR-CBOE-2018-069); 85688 (April 18, 2019), 84 FR 17214 (April
24, 2019) (SR-CBOE-2019-023); 87464 (November 5, 2019), 84 FR 61099
(November 12, 2019) (SR-CBOE-2019-107); 88674 (April 16, 2020), 85
FR 22479 (April 22, 2020) (SR-CBOE-2020-036); 90263 (October 23,
2020), 85 FR 68611 (October 29, 2020) (SR-CBOE-2020-100); 91698
(April 28, 2021), 86 FR 23761 (May 4, 2021) (SR-CBOE-2021-027);
93455 (October 28, 2021), 86 FR 60660 (November 3, 2021) (SR-CBOE-
2021-062); and 94799 (April 27, 2022), 87 FR 26244 (May 3, 2022)
(SR-CBOE-2022-019).
    \8\ The Exchange notes that it also proposes nonsubstantive
changes to the rule text to conform the language to that for SPXPM
(by referencing the corresponding A.M.-settled products). As noted
above, the Exchange submitted a previous rule filing to propose to
make the SPXPM Pilot Program permanent, which is still pending at
the Commission. This rule filing proposes changes to the rule text
that reflect both currently effective rule text and the rule text if
that other rule filing is approved by the Commission.
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    By way of background, when cash-settled \9\ index options were
first

introduced in the 1980s, settlement was based on the closing value of
the underlying index on the option's expiration date. The Commission
later became concerned about the impact of P.M.-settled, cash-settled
index options on the markets for the underlying stocks at the close on
expiration Fridays. Specifically, certain episodes of price reversals
around the close on quarterly expiration dates attracted the attention
of regulators to the possibility that the simultaneous expiration of
index futures, futures options, and options might be inducing abnormal
volatility in the index value around the close.\10\ Academic research
at the time provided at least some evidence suggesting that futures and
options expirations contributed to excess volatility and reversals
around the close on those days.\11\ In light of the concerns with P.M.-
settlement and to help ameliorate the price effects associated with
expirations of P.M.-settled, cash-settled index products, in 1987, the
Commodity Futures Trading Commission (``CFTC'') approved a rule change
by the Chicago Mercantile Exchange (``CME'') to provide for A.M.
settlement \12\ for index futures, including futures on the S&P
500.\13\ The Commission subsequently approved a rule change by Cboe
Options to list and trade A.M.-settled SPX options.\14\ In 1992, the
Commission approved Cboe Options' proposal to transition all of its
European-style cash-settled options on the S&P 500 Index to A.M.
settlement; \15\ however, in 1993, the Commission approved a rule
allowing Cboe Options to list P.M.-settled options on certain broad-
based indices, including the S&P 500 Index, expiring at the end of each
calendar quarter (``Quarterly Index Expirations'') (since adopted as
permanent).\16\ Starting in 2006, the Commission approved numerous rule
changes, on a pilot basis, permitting Cboe Options to introduce other
index options, including SPX options, with P.M.-settlement. These
include P.M.-settled index options expiring weekly (other than the
third Friday) and at the end of each month (``EOM''),\17\ SPXPM,\18\ as
well as the Pilot Products.\19\
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    \9\ The seller of a ``cash-settled'' index option pays out the
cash value of the applicable index on expiration or exercise. A
``physically settled'' option, like equity and ETF options, involves
the transfer of the underlying asset rather than cash. See
Characteristics and Risks of Standardized Options, available at:
https://www.theocc.com/Company-Information/Documents-and-Archives/Options-Disclosure-Document.
    \10\ The close of trading on the quarterly expiration Friday
(i.e., the third Friday of March, June, September and December),
when options, index futures, and options on index futures all expire
simultaneously, became known as the ``triple witching hour.''
    \11\ See Securities and Exchange Commission, Division of
Economic Risk and Analysis, Memorandum, Cornerstone Analysis of PM
Cash-Settled Index Option Pilots (February 2, 2021) (``DERA Staff PM
Pilot Memo'') at 5, available at: https://www.sec.gov/files/Analysis_of_PM_Cash_Settled_Index_Option_Pilots.pdf.
    \12\ The exercise settlement value for an A.M.-settled index
option is determined by reference to the reported level of the index
as derived from the opening prices of the component securities on
the business day before expiration.
    \13\ See Securities Exchange Act Release No. 24367 (April 17,
1987), 52 FR 13890 (April 27, 1987) (SR-CBOE-87-11) (noting that CME
moved S&P 500 futures contract's settlement value to opening prices
on the delivery date).
    \14\ See id.
    \15\ See Securities Exchange Act Release No. 30944 (July 21,
1992), 57 FR 33376 (July 28, 1992) (SR-CBOE-92-09). Thereafter, the
Commission approved proposals by the options markets to transfer
most of their cash-settled index products to A.M. settlement.
    \16\ See Securities Exchange Act Release No. 31800 (February 1,
1993), 58 FR 7274 (February 5, 1993) (SR-CBOE-92-13); and see Rule
4.13(a)(2)(B); see also Securities Exchange Act Release Nos. 54123
(July 11, 2006), 71 FR 40558 (July 17, 2006) (SR-CBOE-2006-65); and
60164 (June 23, 2009), 74 FR 31333 (June 30, 2009) (SR-CBOE-2009-
029).
    \17\ See Securities Exchange Act Release Nos. 62911 (September
14, 2010), 75 FR 57539 (September 21, 2010) (SR-CBOE-2009-075);
76529 (November 30, 2015), 80 FR 75695 (December 3, 2015) (SR-CBOE-
2015-106); 78132 (June 22, 2016), 81 FR 42018 (June 28, 2016) (SR-
CBOE-2016-046); 78531 (August 10, 2016), 81 FR 54643 (August 16,
2016) (SR-CBOE-2016-046); 94682 (April 12, 2022), 87 FR 22993 (April
18, 2022) (SR-CBOE-2022-005); and 95795 (September 15, 2022), 87 FR
57745 (September 21, 2022) (SR-CBOE-2022-039).
    \18\ See SPXPM Approval Order.
    \19\ See P.M.-settled XSP Approval Order and the P.M.-settled
MRUT Approval Order.
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    As stated above, since their inceptions in 2016 and 2020, the
Exchange has continuously extended the P.M.-settled XSP Pilot Program
and the P.M.-settled MRUT Pilot Program, respectively, and, during the
course of the these Pilot Programs and in support of the extensions of
these Pilot Programs, the Exchange has submitted reports to the
Commission regarding the Pilot Programs that detail the Exchange's
experience with the Pilot Programs, pursuant to the P.M.-settled XSP
Approval Order and the P.M.-settled MRUT Approval Order (together, the
``Pilot Product Approval Orders'').\20\ Specifically, the Exchange has
submitted annual Pilot Programs reports to the Commission that contain
an analysis of volume, open interest, and trading patterns. The
analysis examines trading in the Pilot Products, as well as trading in
the securities that comprise the underlying indexes. Additionally, for
series that exceed certain minimum open interest parameters, the annual
reports provide analysis of index price volatility and share trading
activity. The Exchange has also submitted periodic interim reports that
contain some, but not all, of the information contained in the annual
reports (together with the periodic interim reports, the ``pilot
reports'').\21\
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    \20\ See supra notes 3 and 4.
    \21\ In providing the pilot reports to the Commission, the
Exchange previously requested confidential treatment of the pilot
reports under the Freedom of Information Act (``FOIA''). See 5
U.S.C. 552.
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    The pilot reports contained the following volume and open interest
data:
    (1) monthly volume aggregated for all trades;
    (2) monthly volume aggregated by expiration date;
    (3) monthly volume for each individual series;
    (4) month-end open interest aggregated for all series;
    (5) month-end open interest for all series aggregated by expiration
date; and
    (6) month-end open interest for each individual series.

The annual reports also contained the information noted in Items (1)
through (6) above for SPX and Expiration Friday, A.M.-settled RUT index
options traded on Cboe Options, as well as the following analysis of
trading patterns in the Pilot Products options series in the Pilot
Program:

    (1) a time series analysis of open interest; and
    (2) an analysis of the distribution of trade sizes.

    Finally, for series that exceed certain minimum parameters,\22\ the
annual reports contained the following analysis related to index price
changes and underlying share trading volume at the close on Expiration
Fridays:
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    \22\ The Exchange and the Commission determined the minimum open
interest parameters, control sample, time intervals, method for
randomly selecting the component securities, and sample periods.

    (1) a comparison of index price changes at the close of trading
on a given Expiration Friday with comparable price changes from a
control sample. The data includes a calculation of percentage price
changes for various time intervals and compare that information to
the respective control sample. Raw percentage price change data as
well as percentage price change data normalized for prevailing
market volatility, as measured by the Cboe Volatility Index (VIX),
is provided; and
    (2) a calculation of share volume for a sample set of the
component securities representing an upper limit on share trading
that could be attributable to expiring in-the-money series. The data
includes a comparison of the calculated share volume for securities
in the sample set to the average daily trading volumes of those
securities over a sample period.

    Also, during the course of the Pilot Products Pilot Programs, the
Exchange provided the Commission with any additional data or analyses
the

Commission requested if it deemed such data or analyses necessary to
determine whether the Pilot Programs were consistent with the Exchange
Act. The Exchange has made public on its website all data and analyses
previously submitted to the Commission under the Pilot Programs,\23\
and will continue to make public any data and analyses it submits to
the Commission while the Pilot Products Pilot Programs are still in
effect.
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    \23\ Available at https://www.cboe.com/aboutcboe/legal-regulatory/national-market-system-plans/pm-settlement-spxpm-data.
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    The Exchange has concluded that the Pilot Products Pilot Program
does not negatively impact market quality or raise any unique or
prohibitive regulatory concerns. The Exchange has not identified any
evidence from the pilot data indicating that the trading of P.M.-
settled XSP or MRUT options has any adverse impact on fair and orderly
markets on Expiration Fridays for the Mini-SPX Index, the Mini-RUT
Index or the underlying securities comprising the underlying indexes,
nor have there been any observations of abnormal market movements
attributable to P.M.-settled XSP or MRUT options from any market
participants that have come to the attention of the Exchange.
    Based on a study conducted by the Commission's Division of Economic
and Risk Analysis (``DERA'') staff on the pilot data from 2006 through
2018,\24\ and the Exchange's review of the pilot data from 2019 through
2021, the size of the market for P.M.-settled SPX options (including
quarterly, weekly, EOM and third Friday expirations) since 2007 has
grown from a trivial portion of the overall market to a substantial
share (from around 0.1% of open interest in 2007 to 30% in 2021).\25\
Notional value of open interest in P.M.-settled SPX options increased
from approximately a median of $1.5 billion in 2007 to $1.9 trillion in
2021, approximately 1260 times its value in 2007. Notional open
interest in A.M.-settled SPX options was already hovering around a
median of $1.4 trillion in 2007, and it has since increased to
approximately $4.4 trillion in 2021. It is also important to note that
open interest on expiring P.M.-settled SPX options, as compared to
A.M.-settled options, is spread out across a greater number of
expiration dates, which results in a smaller percentage of open
interest expiring on any one date, thus mitigating concerns that SPXPM
option expiration may have a disruptive effect on the market.\26\ Daily
trading volume in P.M.-settled SPX options has increased from a median
of about 700 contracts in 2007 to nearly 1.9 million contracts in
2021,\27\ and now exceeds trading volume in A.M.-settled SPX options.
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    \24\ See DERA Staff PM Pilot Memo, at 13 (``Option settlement
quantity data for A.M.- and P.M.-settled options were obtained from
the Cboe, including the number of contracts that settled in-the-
money for each exchange-traded option series on the S&P 500 index .
. . on expiration days from January 20, 2006 through December 31,
2018. Daily open interest and volume data for [SPX] option series
were also obtained from Cboe, including open interest data from
January 3, 2006 through December 31, 2018 and trading volume data
from January 3, 2006 through December 31, 2018.'')
    \25\ The DERA staff study reviewed and provided statistics for
market share, median notional value of open interest and median
volume in 2007 and in 2018. The Exchange provides updated statistics
for market share, median notional value of open interest and median
volume in 2021, replacing the 2018 statistics provided in the
Commission staff study.
    \26\ See DERA Staff PM Pilot Memo, at 2.
    \27\ The Exchange notes that the DERA staff study used two-sided
volume data for the median volume in 2007 and in 2018; therefore,
the Exchange provides two-sided volume data for the median volume in
2021.
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    Moreover, the DERA staff study of the P.M.-settled SPX options
pilot data (2006 through 2018) did not identify any significant
economic impact on S&P 500 futures,\28\ the S&P 500, or the underlying
component securities of the S&P 500 surrounding the close. For purposes
of the study, volatility was by and large measured by using the
standard deviation \29\ of one-minute returns of S&P 500 futures values
and the index value during regular hours on each day reviewed
(excluding the first and last 15 minutes of trading) and then compared
with the standard deviation of one-minute returns (for S&P 500 futures,
the S&P 500, and the underlying component securities of the S&P 500)
over the last 15 minutes of a trading day.\30\ Using this as a general
measure,\31\ the DERA staff study then reviewed whether, and to what
extent, the settlement quantity of SPXPM options and the levels of open
interest in SPXPM options on expiration days (as compared to non-
expiration days) may be associated with general price volatility and
price reversals for S&P 500 futures, the S&P 500, and the underlying
component securities of the S&P 500 near the close. From its review of
the study, the Exchange agrees that, although volatility before the
market close is generally higher than during the rest of the trading
day, there is no evidence of any significant adverse economic impact to
the futures, index, or underlying index component securities markets as
a result of the quantity of P.M.-settled SPX options that settle at the
close or the amount of expiring open interest in P.M.-settled SPX
options. For example, the largest settlement event that occurred during
the time period of the study (a settlement of $100.4 billion of
notional on December 29, 2017) had an estimated impact on the futures
price of only approximately 0.02% (a predicted impact of $0.54 relative
to a closing futures price of $2,677).
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    \28\ Futures on the S&P 500 experience high volume and liquidity
both before and after the close of the underlying market. Therefore,
futures are a useful measure of abnormal volatility surrounding the
close and the open. See DERA Staff PM Pilot Memo, at 14. The
Exchange agrees with this approach.
    \29\ Standard deviation applied to a rate of return (in this
case, one-minute) of an instrument can indicate that instrument's
historical volatility. The greater the standard deviation, the
greater the variance between price and the mean, which indicates a
larger price range, i.e., higher volatility.
    \30\ For example, if on a particular day the standard deviation
of one-minute returns between 3:45 p.m. ET and 4:00 p.m. ET is 0.004
and the standard deviation of returns from 9:45 a.m. ET to 3:45 p.m.
ET is 0.002, this metric would take on a value of 2 for that day,
indicating that volatility during the last 15 minutes of the trading
day was twice as high as it was during the rest of the trading day.
See DERA Staff PM Pilot Memo, at 15; see also DERA Staff PM Pilot
Memo, at Section V, which discusses in detail the metrics used to
measure, for the purposes of the study, the extent to which the
market may experience abnormal volatility surrounding SPXPM option
settlement.
    \31\ See DERA Staff PM Pilot Memo, at Section V, which discusses
in detail the metrics used to measure, for the purposes of the
study, the extent to which the market may experience abnormal
volatility surrounding SPXPM option settlement.
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    In particular, the DERA staff study found that an additional P.M.-
settled SPX options settlement quantity equal to $10 billion in
notional value is associated with a marginal impact on futures prices
during the last 15 minutes of the trading day of only about $0.06
(where the hypothetical index level is 2,500), additional expiring open
interest in P.M.-settled SPX options equal to $10 billion in notional
value is associated with a marginal impact on futures prices during the
last 15 minutes of the trading day of only about $0.05 (assumed index
level is 2,500). Also, an additional increase in settlement quantity or
in expiring open interest, each equal to $20 million in notional value,
did not result in any meaningful futures price reversals near the close
(neither was found to cause a price reversal of over one standard
deviation \32\).
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    \32\ See supra note 27.
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    Likewise, the study identified that an additional total P.M.-
settled SPX options settlement quantity equal to $10 billion in
notional value corresponds to price movement in the S&P 500 of only
about $0.08 (assuming an index level of 2,500) during the last 15
minutes of the trading day, and that additional expiring open interest
equal to $10 billion in notional value corresponds to a price movement
in the S&P 500 of only about

$0.06 (assuming an index level of 2,500) during the last 15 minutes of
the trading day. The study also identified that it would take an
increase of $34 billion in notional value of total settlement quantity
and of expiring open interest for one additional S&P 500 price reversal
of greater than two standard deviations to occur in the last 15 minutes
before the market close. Also, regarding potential impact to S&P 500
component securities, it would take an increase in total P.M.-settled
SPX options settlement quantity equal to $20 billion to effect a price
movement of only approximately $0.03 for a $200 stock, an increase in
expiring open interest in P.M.-settled SPX options equal to $10 billion
to effect a price movement less than half a standard deviation, and an
increase in total P.M.-settled SPX settlement quantity equal to $7
billion to achieve a price reversal greater two standard deviations.
    The study employed the same metrics to determine whether there is
greater price volatility for S&P 500 futures, the S&P 500, and the
component securities of the S&P 500 related to SPXPM option settlements
during an environment of high market volatility (i.e., on days in which
the VIX Index was in the top 10% of closing index values) and did not
identify indicators of any significant economic impact on these markets
near the close as a result of the P.M.-settled SPX options
settlement.\33\ In addition to this, the DERA staff study, applying the
same metrics and analysis as for P.M.-settled SPX options to A.M.-
settled SPX options, did not identify any evidence of a statistically
significant relationship between settlement quantity or expiring open
interest of A.M.-settled options and volatility near the open.
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    \33\ The Exchange also notes that the study did not identify any
evidence that less liquid S&P 500 constituent securities experienced
any greater impact from the settlement of P.M.-settled SPX options.
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    Upon review of the results of the DERA staff study, the Exchange
agrees that each of the above-described marginal price movements in S&P
500 futures, the S&P 500, and the S&P 500 component securities affected
by increases in P.M.-settled SPX options settlement quantity and
expiring open interest appear to be de minimis pricing changes from
those that occur over regular trading hours (outside of the last 15
minutes of the trading day). Further, the Exchange has not observed any
significant economic impact or other adverse effects on the market from
similar reviews of its pilot reports and data submitted after 2018.\34\
In its review of a sample of the pilot data from 2019 through 2021, the
Exchange similarly measured volatility over the final fifteen minutes
of each trading day by taking the standard deviation of rolling one-
minute returns of the S&P 500 level (excluding the first and last
fifteen minutes of trading) and comparing such with the standard
deviation of one-minute returns \35\ of the S&P 500 level, over the
last 15 minutes of a trading day. The Exchange identified an average
standard deviation ratio of 1.42 for the S&P 500 on non-expiration days
and an average standard deviation ratio of 1.54 for the S&P 500 on
expiration days (a ratio between expiration days and non-expiration
days of 1.09). The Exchange also notes that, using the same
methodology, it observed that, from 2015 through 2019,\36\ the average
standard deviation ratio for the S&P 500 on non-expiration days was
1.11 and the average standard deviation ratio for the S&P 500 on
expiration days was 1.22 (a ratio between expiration days and non-
expiration days of 1.10). While the average standard deviation ratio on
both expiration and non-expiration days was higher in 2019 through 2021
due to overall market volatility, the ratios between the standard
deviation ratios on expiration days and non-expirations days remained
nearly identical between the 2015 through 2019 timeframe and the 2019
through 2021. This shows that, in cases where overall market volatility
may increase, the normalized impact on expiration days to non-
expiration days generally remains consistent.
---------------------------------------------------------------------------

    \34\ Total SPX open interest volumes were examined for
expiration dates over a roughly two-year period between October 2019
and November 2021.
    \35\ Calculated at every tick for the prior minute.
    \36\ November 2015 through November 2021.
---------------------------------------------------------------------------

    In addition to this, the Exchange notes that the S&P 500 is
rebalanced quarterly. The changes resulting from each rebalancing
coincide with the third-Friday of the quarterly rebalancing month
(i.e., March, June, September, October and December) \37\ and generally
drive an increase in trading activity from investors that seek to track
the S&P 500. As such, the Exchange measured volatility on quarterly
rebalancing dates and found that the average standard deviation ratio
was 1.62, which suggests more closing volatility on quarterly rebalance
dates compared to non-quarterly expiration dates (for which the average
standard deviation ratio was 1.22), thus indicating that the impact
rebalancing may have on the S&P 500 is greater than any impact that
P.M.-settled SPX options may have on the S&P 500.
---------------------------------------------------------------------------

    \37\ See S&P Dow Jones Indices, Equity Indices Policies &
Practices, Methodology (August 2021), at 15, available at https://www.spglobal.com/spdji/en/documents/methodologies/methodology-sp-equity-indices-policies-practices.pdf.
---------------------------------------------------------------------------

    The Exchange additionally focused its study of the post-2018 sample
pilot data on reviewing for potential correlation between excess market
volatility and price reversals and the hedging activity of liquidity
providers. As explained in the DERA staff study, potential impact of
P.M.-settled SPX options on the correlated equity markets is thought to
stem from the hedging activity of liquidity providers in such
options.\38\ To determine any such potential correlation, the Exchange
studied the expected action of liquidity providers that are the primary
source of the hedging on settlement days. These liquidity providers
generally delta-hedge their S&P 500 index exposure via S&P 500 futures
and on settlement day unwind their futures positions that correspond
with the delta of their in-the-money (ITM) expiring P.M.-settled SPX
options. Assuming such behavior, the Exchange estimated the Market-On-
Close (``MOC'') \39\ volume for the shares of the S&P 500 component
securities (i.e., ``MOC share volume'') that could ultimately result
from the unwinding of the liquidity providers' futures positions by
equating the notional value of the futures positions that correspond to
expiring ITM open interest to the number S&P 500 component security
contracts (based on the weight of each S&P 500 component security).
That is, the Exchange calculated (an estimate) of the amount of MOC
volume in the S&P 500 component markets attributable hedging activity
as a result of expiring ITM P.M.-settled SPX options (i.e., ``hedging
MOC''). The Exchange then: (1) compared the hedging MOC share volume to
all MOC share volume on expiration days and non-expiration trading
days; and (2) compared the notional value of the hedging futures
positions (i.e., that correspond to expiring ITM P.M.-settled SPX
options open interest) to the notional value of expiring ITM P.M.-
settled SPX options open interest, the notional value of all expiring
P.M.-settled SPX options open interest and the notional value of all
P.M.-settled SPX options open interest.
---------------------------------------------------------------------------

    \38\ See DERA Staff PM Pilot Memo, at 10-12.
    \39\ MOC orders allow a market participant to trade at the
closing price. Market participants generally utilize MOC orders to
ensure they exit positions at the end of the trading day.
---------------------------------------------------------------------------

    The Exchange observed that, on average, there were approximately
25% more MOC shares executed on expiration days (332 expiration days)
than non-expiration days (209 non-expiration days). While, at first
glance, the volume of MOC shares executed on

expiration days seems much greater than the volume executed on non-
expiration days, the Exchange notes that much of this difference is
attributable to just eight expiration days--the quarterly index
rebalancing dates captured within the scope of the post-2018 sample
pilot data. The average MOC share volume on the eight quarterly
rebalancing dates was approximately 4.8 times the average MOC share
volume on the non-quarterly rebalancing expiration dates; again,
indicating that the impact rebalancing may have on the S&P 500 Index is
greater than any impact that P.M.-settled SPX options may have on the
S&P 500 Index. That is, the Exchange observed that the majority of
closing volume on quarterly rebalance dates is driven by rebalancing of
shares in in the S&P 500, and not by P.M.-settled SPX options
expiration-related hedging activity. Notwithstanding the MOC share
volume on quarterly rebalancing dates, the volume of MOC shares
executed on expiration days (324 expiration days) was only
approximately 13% more than that on non-expiration days, substantially
less than the increase in volume over non-expiration days wherein the
eight index rebalancing dates are included in expiration day volume. In
addition to this, the Exchange observed that the hedging MOC share
volume (i.e., the expected MOC share volume resulting from hedging
activity in connection with expiring ITM P.M.-settled SPX options) was,
on average, less than the MOC share volume on non-expiration days, and
was only approximately 20% of the total MOC share volume on expiration
days, indicating that other sources of MOC share volume generally
exceed the volume resulting from hedging activity of expiring ITM P.M.-
settled SPX options and would more likely be a source of any potential
market volatility.
    The Exchange also observed that, across all third-Friday
expirations, the notional value of the hedging futures positions was
approximately 25% of the notional value of expiring ITM P.M.-settled
SPX options, approximately 3.8% of the notional value of all expiring
P.M.-settled SPX options, and approximately only 0.5% of the notional
value of all P.M.-settled SPX options. As such, the estimated hedging
activity from liquidity providers on expiration days is a fraction of
the expiring open interest in P.M.-settled SPX options, which, the
Exchange notes, is only 14% of the total open interest in P.M.-settled
SPX options; thus, indicating negligible capacity for hedging activity
to increase volatility in the underlying markets.
    While unrelated to the initial concerns of P.M.-settlement as
described above, at the request of the Commission, the Exchange
recently completed an analysis intended to evaluate whether the
introduction of P.M.-settled options impacted the quality of the A.M.-
settled option market. Specifically, the Exchange compared values of
key market quality indicators (specifically, the bid-ask spread \40\
and effective spread \41\) in SPXW options both before and after the
introduction of Tuesday expirations and Thursday expirations for SPXW
options on April 18 and May 11, 2022, respectively.\42\ Options on the
Standard & Poor's Depositary Receipts S&P 500 ETF (``SPY'') were used
as a control group to account for any market factors that might
influence key market quality indicators. The Exchange used data from
January 3, 2022 through March 4, 2022 (the two-month period prior to
the introduction of SPXW options with Tuesday expirations) and data
from May 11, 2022 to July 10, 2022 (the two-month period following the
introduction of SPXW options with Thursday expirations).\43\
---------------------------------------------------------------------------

    \40\ The Exchange calculated for each of SPXW options (with
Monday, Wednesday, and Friday expirations) and SPY Weekly options
(with Monday, Wednesday, and Friday expirations) the daily time-
weighted bid-ask spread on the Exchange during its regular trading
hours session, adjusted for the difference in size between SPXW
options and SPY options (SPXW options are approximately ten times
the value of SPY options).
    \41\ The Exchange calculated the volume-weighted average daily
effective spread for simple trades for each of SPXW options (with
Monday, Wednesday, and Friday expirations) and SPY Weekly options
(with Monday, Wednesday, and Friday expirations) as twice the amount
of the absolute value of the difference between an order execution
price and the midpoint of the national best bid and offer at the
time of execution, adjusted for the difference in size between SPXW
options and SPY options.
    \42\ For purposes of comparison, the Exchange paired SPXW
options and SPY options with the same moneyness and same days to
expiration.
    \43\ The Exchange observed comparable market volatility levels
during the pre-intervention and post-intervention time ranges.
---------------------------------------------------------------------------

    Given the time that as passed since the introduction of the Pilot
Products, the Exchange is unable to analyze whether the introduction of
Pilot Products significantly impacted the market quality of A.M.-
settled options. Additionally, the Exchange is unable to analyze
whether the introduction of the Pilot Products significantly impacted
the market quality of A.M.-settled XSP or MRUT options, as applicable
(which the Exchange does not list for trading). However, the Exchange
believes analyzing whether the introduction of new SPXW P.M.-settled
expirations (i.e., SPXW options with Tuesday and Thursday expirations)
impacted the market quality of then-existing SPXW P.M.-settled
expirations (i.e., SPXW options with Monday, Wednesday, and Friday
expirations) provides a reasonable substitute to evaluate whether the
introduction of P.M.-settled index options impacted the market quality
of the underlying cash markets when the pilot began. The full analysis
is included in Exhibit 3 of this rule filing.
    As a result of this analysis, the Exchange believes the
introduction of SPX options with Tuesday and Thursday options had no
significant impact on the market quality of SPXW options with Monday,
Wednesday, and Friday expirations. With respect to the majority of
series analyzed, the Exchange observed no statistically significant
difference in the bid-ask spread or the effective spread of the series
in the period prior to introduction of the Tuesday and Thursday
expirations and the period following the introduction of the Tuesday
and Thursday expirations. While statistically insignificant, the
Exchange notes that in many series, particularly as they were closer to
expiration, the Exchange observed that the values of these spreads
decreased during the period following the introduction of the Tuesday
and Thursday expirations.\44\
---------------------------------------------------------------------------

    \44\ In any series in which the Exchange observed an increase in
the market quality indicators, the Exchange notes any such increase
was also statistically insignificant.
---------------------------------------------------------------------------

    To further note, given the significant changes in the closing
procedures of the primary markets in recent decades, including
considerable advances in trading systems and technology, the Exchange
believes that the risks of any potential impact of P.M.-, cash-settled
XSP or MRUT options on the underlying cash markets are also de minimis.
    The Exchange proposes to make the Pilot Products Pilot Programs
permanent as P.M.-settled index products have become an integral part
of the Exchange's product offerings, providing investors with greater
trading opportunities and flexibility. As indicated by the significant
growth in the size of the market for P.M.-settled options, such options
have been, and continue to be, well-received and widely used by market
participants. Therefore, the Exchange wishes to be able to continue to
provide investors with the ability to trade the Pilot Products on a
permanent basis.\45\ The Exchange believes that the permanent
continuation of the Pilot Products will serve to maintain the status
quo by continuing to offer products to which

investors have become accustomed and have incorporated into their
business models and day-to-day trading methodologies for nearly ten
years. As such, the Exchange also believes that ceasing to offer the
Pilot Products options may result in significant market disruption and
investor confusion. The Exchange has not identified any significant
impact on market quality nor any unique or prohibitive regulatory
concerns as a result of the Pilot Products Pilot Programs, and, as
such, the Exchange believes that the continuation of the Pilot Products
Programs as pilots, including the use of time and resources to compile
and analyze quarterly and annual pilot reports and pilot data, is no
longer necessary and that making the Pilot Products Pilot Programs
permanent will allow the Exchange to otherwise allocate time and
resources to other industry initiatives.
---------------------------------------------------------------------------

    \45\ As noted above, the Exchange does not list A.M.-settled XSP
or MRUT options for trading, just P.M.-settled.
---------------------------------------------------------------------------

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.\46\ Specifically, the
Exchange believes the proposed rule change is consistent with the
section 6(b)(5) \47\ 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.
---------------------------------------------------------------------------

    \46\ 15 U.S.C. 78f(b).
    \47\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    In particular, the Exchange believes that the making the Pilot
Products Pilot Programs permanent will allow the Exchange to be able to
continue to offer the Pilot Products on a continuous and permanent
basis. These products have been, and continue to be, well-received and
widely used by market participants, providing investors with greater
trading opportunities and flexibility. The Exchange believes that the
permanent continuation of the Pilot Products Pilot Programs will remove
impediments to and perfect the mechanism of a free and open market and
a national market system, and, in general, protect investors and the
public interest by continuing to offer products to which investors have
become accustomed and have incorporated into their business models and
day-to-day trading strategies for nearly seven (XSP) and three (MRUT)
years. The Exchange believes ceasing to offer the Pilot Products may
result in significant market disruption and investor confusion, as
P.M.-settled index products have become an integral part of the
Exchange's product offerings (the Exchange does not list A.M.-settled
XSP and MRUT options), providing investors with greater trading
opportunities and flexibility.
    The Exchange further believes that making the Pilot Products Pilot
Programs permanent will remove impediments to and perfect the mechanism
of a free and open market and a national market system and protect
investors, while maintaining a fair and orderly market, as the Exchange
believes that previous concerns (arising in the 1980s) regarding
options expirations potentially contributing to excess volatility and
reversals around the close have been adequately diminished. As
described in detail above, the Exchange has observed no significant
adverse market impact or identified any meaningful regulatory concerns
during the multi-year operation of the Pilot Products Pilot Programs as
a pilot nor during the 15 years since P.M.-settled index options (SPX)
were reintroduced to the marketplace.\48\ Notably, the Exchange did not
identify any significant economic impact (including on pricing or
volatility or in connection with reversals) on the related futures, the
underlying indexes, or the underlying component securities of the
underlying indexes surrounding the close as a result of the quantity of
P.M.-settled index options that settle at the close or the amount of
expiring open interest in P.M.-settled index options, nor any
demonstrated capacity for options hedging activity to impact volatility
in the underlying markets. While the DERA staff study and corresponding
Exchange study described above specifically evaluated SPX options,
because XSP options overly the same index comprised of the same
securities (just one tenth the size) and MRUT is also a broad-based
index, the Exchange believes it is appropriate to extrapolate the data
to apply the Pilot Products. This is particularly true given that the
reports submitted by the Exchange during the pilot period have
similarly demonstrated no significant economic impact on the respective
underlying indexes or other products.
---------------------------------------------------------------------------

    \48\ See supra notes 24-37.
---------------------------------------------------------------------------

    The Exchange also believes the introduction of P.M.-settled XSP and
MRUT options had no significant impact on the market quality of
corresponding A.M.-settled options (as the Exchange does not list
those) or other options (such as A.M.-settled SPX or RUT options). The
Exchange believes this as a result of its analysis conducted after the
introduction of SPXW options with Tuesday and Thursday expirations,
which demonstrated no statistically significant impact on the bid-ask
or effective spreads of SPXW options with Monday, Wednesday, and Friday
expirations after trading in the SPXW options with Tuesday and Thursday
expirations began. While SPXW options are P.M.-settled and SPX options
are A.M.-settled, they are otherwise nearly identical products. P.M.-
settled XSP options are nearly identical to P.M.-settled and A.M.-
settled SPX options, as they are based on an index comprised of the
same securities, just \1/10\th the size. Similarly, P.M.-settled MRUT
options are nearly identical to A.M.-settled RUT Options, as they are
based on an index comprised of the same securities, just \1/10\th the
size. Therefore, the Exchange believes analyzing the impact of new SPXW
options on then-existing SPXW options permit the Exchange to
extrapolate from this data that it is unlikely the introduction of
P.M.-settled XSP or MRUT options significantly impacted the market
quality of A.M.-settled options, such as A.M.-settled SPX or RUT
options, respectively, when the pilots began.
    Additionally, the significant changes in the closing procedures of
the primary markets in recent decades, including considerable advances
in trading systems and technology, has significantly minimized risks of
any potential impact of P.M.-, cash-settled XSP and MRUT options on the
underlying cash markets. As such, the Exchange believes that permanent
Pilot Products Pilot Programs do not raise any unique or prohibitive
regulatory concerns and that such trading has not, and will not,
adversely impact fair and orderly markets on Expiration Fridays for the
underlying indexes or their component securities. Further, as the
Exchange has not identified any significant impact on market quality or
any unique or prohibitive regulatory concerns as a result of offering
the Pilot Products, the Exchange believes that the continuation of the
Pilot Products Pilot Programs as pilots, including the gathering,
submission and review of the pilot reports and data, is no longer
necessary and that making the Pilot Products Pilot Programs permanent
will

allow the Exchange to otherwise allocate time and resources to other
industry initiatives.

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

    Cboe Options 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 that making the Pilot Products Pilot Programs permanent will
impose any unnecessary or inappropriate burden on intramarket
competition because the Pilot Products options will continue to be
available to all market participants who wish to participate in the XSP
and MRUT options markets. The Exchange believes that the growth that
the markets for P.M.-settled products, including the Pilot Products,
have experienced since their reintroduction through pilot programs
indicates strong, continued investor interest and demand, warranting
permanent Pilot Products Pilot Programs. The Exchange believes that,
for the period that P.M.-settled XSP and MRUT options have been in
operation as pilot programs, they have provided investors with
desirable products with which to trade and wishes to permanently offer
these products to investors. Furthermore, during the pilot period, the
Exchange has not observed any significant adverse market effects nor
identified any regulatory concerns as a result of the Pilot Products
Pilot Programs, and, as such, the continuation of the programs as
pilots, including the gathering, submission and review of the pilot
reports and data, is no longer necessary--permanent Pilot Products
Pilot Programs will allow the Exchange to otherwise allocate time and
resources to other industry initiatives.
    The Exchange further does not believe that making the Pilot
Products Pilot Programs permanent will impose any burden on intermarket
competition that is not necessary or appropriate in furtherance of the
purposes of the Act because it applies to classes of options listed
only for trading on Cboe Options. The Exchange notes that other
exchanges are free to and do offer competing products. To the extent
that the permanent offering and continued trading of P.M.-settled XSP
and MRUT options may make Cboe Options a more attractive marketplace to
market participants at other exchanges, such market participants may
elect to become Cboe Options market participants.

C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others

    The Exchange neither solicited nor received comments on the
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action

    Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the Exchange consents, the Commission will:
    A. by order approve or disapprove such proposed rule change, or
    B. institute proceedings to determine whether the proposed rule
change should be disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include
File Number SR-CBOE-2023-019 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-2023-019. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (http://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549 on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. Do not include
personal identifiable information in submissions; you should submit
only information that you wish to make available publicly. We may
redact in part or withhold entirely from publication submitted material
that is obscene or subject to copyright protection. All submissions
should refer to File Number SR-CBOE-2023-019, and should be submitted
on or before May 19, 2023.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\49\
---------------------------------------------------------------------------

    \49\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-08985 Filed 4-27-23; 8:45 am]
BILLING CODE 8011-01-P


[Federal Register Volume 84, Number 230 (Friday, November 29, 2019)]
[Notices]
[Pages 65805-65806]
[FR Doc No: 2019-25915]

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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

[Docket No. CP19-512-000]

Texas Eastern Transmission, L.P.; Notice of Schedule for
Environmental Review of the Cameron Extension Project

    On September 26, 2019, Texas Eastern Transmission, L.P. (Texas
Eastern) filed an application in Docket No. CP19-512-000 requesting a
Certificate of Public Convenience and Necessity pursuant to Section
7(c) of the Natural Gas Act to construct and operate certain natural
gas pipeline facilities in Louisiana. The proposed project is known as
the Cameron Extension Project (Project), and would provide 750 million
cubic feet per day of firm transportation service.
    On October 9, 2019, the Federal Energy Regulatory Commission
(Commission or FERC) issued its Notice of Application for the Project.
Among other things, that notice alerted agencies issuing federal
authorizations of the requirement to complete all necessary reviews and
to reach a final decision on a request for a federal authorization
within 90 days of the date of issuance of the Commission staff's
Environmental Assessment (EA) for the Project. This instant notice
identifies the FERC staff's planned schedule for the completion of the
EA for the Project.

Schedule for Environmental Review

Issuance of EA--March 9, 2020.
90-day Federal Authorization Decision Deadline--June 7, 2020.

    If a schedule change becomes necessary, additional notice will be
provided so that the relevant agencies are kept informed of the
Project's progress.

Project Description

    Texas Eastern proposes to construct and operate a new compressor
station (East Calcasieu Compressor Station) in Calcasieu Parish,
Louisiana. The new compressor station is comprised of one 30,000 ISO-
rated horsepower, natural gas-driven turbine compressor unit and
related appurtenances. The Project would also consist of three new
delivery meter and regulatory stations in Cameron, Beauregard, and
Jefferson Davis Parishes, Louisiana; installation of 0.2 mile of 30-
inch-diameter piping to interconnect with TransCameron Pipeline, LLC's
pipeline system in Cameron Parish, Louisiana; installation of
miscellaneous equipment at the Gillis Compressor Station in Beauregard
Parish, Louisiana; modifications to existing internal pipeline
inspection launcher and receiver facilities and two new bypass
facilities at existing sites along Texas Eastern's Line 41; and other
related auxiliary facilities and appurtenances.

Background

    On November 8, 2019, the Commission issued a Notice of Intent to
Prepare an Environmental Assessment for the Proposed Cameron Extension
Project and Request for Comments on Environmental Issues (NOI). The NOI

was sent to affected landowners; federal, state, and local government
representatives and agencies; elected officials; Native American
tribes; other interested parties; and local libraries and newspapers.
All substantive comments in response to the NOI will be addressed in
the EA.

Additional Information

    In order to receive notification of the issuance of the EA and to
keep track of all formal issuances and submittals in specific dockets,
the Commission offers a free service called eSubscription. This can
reduce the amount of time you spend researching proceedings by
automatically providing you with notification of these filings,
document summaries, and direct links to the documents. Go to
www.ferc.gov/docs-filing/esubscription.asp.
    Additional information about the Project is available from the
Commission's Office of External Affairs at (866) 208-FERC or on the
FERC website (www.ferc.gov). Using the ``eLibrary'' link, select
``General Search'' from the eLibrary menu, enter the selected date
range and ``Docket Number'' excluding the last three digits (i.e.,
CP19-512), and follow the instructions. For assistance with access to
eLibrary, the helpline can be reached at<PHONE_NUMBER>, TTY (202) 502-
8659, or at<EMAIL_ADDRESS>The eLibrary link on the FERC
website also provides access to the texts of formal documents issued by
the Commission, such as orders, notices, and rule makings.

    Dated: November 22, 2019.
Nathaniel J. Davis, Sr.,
Deputy Secretary.
[FR Doc. 2019-25915 Filed 11-27-19; 8:45 am]
BILLING CODE 6717-01-P


[Federal Register Volume 77, Number 221 (Thursday, November 15, 2012)]
[Notices]
[Pages 68163-68167]
[FR Doc No: 2012-27712]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68179; File No. SR-NYSEARCA-2012-121]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend the NYSE
Arca Options Fee Schedule Relating to Pricing Applicable to Electronic
Transactions in Non-Penny Pilot Issues

November 8, 2012.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that, on October 25, 2012, NYSE Arca, Inc. (the ``Exchange'' or
``NYSE Arca'') 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 self-regulatory
organization. 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\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

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

    The Exchange proposes to amend the NYSE Arca Options Fee Schedule
(``Fee Schedule'') to restructure the pricing applicable to electronic
transactions in non-Penny Pilot issues. The text of the proposed rule
change is available on the Exchange's Web site at www.nyse.com, at the
principal office of the Exchange, 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 self-regulatory organization
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 those 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 parts of such statements.

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

1. Purpose
    The Exchange proposes to restructure the pricing applicable to
electronic transactions in non-Penny Pilot issues.\4\ The Exchange
proposes to make the fee change operative on November 1, 2012.
---------------------------------------------------------------------------

    \4\ As provided under NYSE Arca Options Rule 6.72, options on
certain issues have been approved to trade with a minimum price
variation of $0.01 as part of a pilot program that is currently
scheduled to expire on December 31, 2012. The proposed change will
not have an impact on pricing applicable to manual transactions in
non-Penny Pilot issues, except that, as proposed, Marketing Charges
would no longer apply. However, the Exchange does propose to amend
the Fee Schedule to reflect that Firm, Broker Dealer and Customer
electronic executions would become ``N/A'' with respect to standard
executions.
---------------------------------------------------------------------------

    Currently, all transactions in non-Penny Pilot issues are
considered ``standard executions,'' as opposed to the ``Post-Take''
pricing structure that

currently applies only to electronic executions in Penny Pilot
issues.\5\ The Exchange now proposes to apply the Post-Take pricing
structure to electronic executions in non-Penny Pilot issues. As a
result, electronic transactions in non-Penny Pilot issues would be
subject to Post-Take credits and fees, as is currently applicable for
Penny Pilot issues. Under this structure, an electronic order or quote
is charged a fee upon execution if it executes against a resting order
or quote in the Consolidated Book (i.e., taking liquidity), or,
alternatively, a resting electronic order or quote in the Consolidated
Book (i.e., posted liquidity) generally receives a liquidity credit
when an incoming order or quote executes against it.\6\
---------------------------------------------------------------------------

    \5\ Manual transactions in Penny Pilot issues are considered
standard executions and billed as such.
    \6\ As described below, a Firm or Broker Dealer electronic
transaction in a non-Penny Pilot issue would be charged a fee, even
if it is posting liquidity.
---------------------------------------------------------------------------

    To remain competitive, the Exchange is adopting Post-Take pricing
for electronic transactions in all non-Penny Pilot issues, but the
rates would be different than those that currently apply to Penny Pilot
issues. To encourage greater Customer participation, the proposed new
rates would provide a higher rebate to Customers that post liquidity,
as compared to other market participants, and a rate for Customer
orders that take liquidity that is comparable to other market
participants. The proposed rates for Lead Market Makers (``LMMs'') and
Market Makers for taking liquidity would be similar to each other,
although not identical because of differing levels of obligations. The
proposed rates also provide for higher rebates for posting liquidity
for Market Makers, in order to offset the higher fees for taking
liquidity. Firm and Broker Dealer electronic orders that are posted in
the Consolidated Book will continue to be charged an execution fee,
which would be the same as the current fee, despite such transactions
posting liquidity.
    The proposed new fees would be as follows:

------------------------------------------------------------------------
                                                   Electronic executions
                                                    in non-Penny Pilot
                                                          issues
                                                 -----------------------
                                                     Post        Take
                                                   liquidity   liquidity
------------------------------------------------------------------------
Customer Electronic.............................      -$0.75       $0.79
LMM.............................................       -0.40        0.78
NYSE Arca Market Maker..........................       -0.30        0.80
Firm and Broker Dealer Electronic...............        0.50        0.85
------------------------------------------------------------------------

    As with the Penny Pilot issues, there would be no charges for
executions in non-Penny Pilot issues on the opening auction. Also,
orders originating from the Trading Floor that execute against the
Consolidated Book so as to complete a manual transaction would continue
to be charged manual order fees, as is currently the case for Penny
Pilot issues, for which standard execution fees apply.\7\
---------------------------------------------------------------------------

    \7\ See endnote 5 in the Fee Schedule.
---------------------------------------------------------------------------

    In addition, the Exchange proposes to eliminate Marketing Charges
on the Exchange.\8\ Marketing Charges do not currently apply to
transactions in Penny Pilot issues and, related to the proposal to
apply Post-Take pricing to non-Penny Pilot issues, the Exchange has
decided to eliminate Marketing Charges entirely.
---------------------------------------------------------------------------

    \8\ A Marketing Charge of $0.65 currently applies to LMM and
Market Maker transactions against Customers.
---------------------------------------------------------------------------

    The Exchange also proposes conforming changes to the endnotes in
the Fee Schedule to account for the application of Post-Take pricing
for non-Penny Pilot issues. Specifically, the Exchange proposes to
amend endnote 5 to specify that only manual executions would be
considered ``standard executions'' (i.e., they would not be subject to
Post-Take pricing). The Exchange also proposes to amend endnote 6 to
specify that, as is currently the case for Penny Pilot issues,
transaction fees do not apply to executions occurring during the
Opening Auction, as described above. The Exchange also proposes to
amend endnote 6 to address the proposal that Firms and Broker Dealers
be charged a fee for posting liquidity in non-Penny Pilot issues.
    The Exchange notes that the proposed fees are similar to those
recently adopted by the NASDAQ Stock Market LLC (``NASDAQ'') for
transactions on the NASDAQ Options Market (``NOM'') in non-Penny Pilot
Options.\9\ Additionally, the proposed fees and credits for non-Penny
Pilot issues are similar to fees and rebates currently in place at BATS
Exchange, Inc. (``BATS'') Options (``BATS Options'').\10\
---------------------------------------------------------------------------

    \9\ See Exchange Act Release No. 68029 (October 10, 2012), 77 FR
63384 (October 16, 2012) (SR-NASDAQ-2012-114).
    \10\ BATS assesses a Non-Penny Pilot Option Fee of $0.80 [sic]
per contract for accessing liquidity for a Professional, Firm or
Market Maker order that removes liquidity from the BATS Options
order book and a $0.75 per contract rebate for a Customer order that
removes liquidity from the BATS Options order book. Additionally,
BATS pays a $0.70 per contract rebate for a Professional, Firm or
Market Maker order that adds liquidity to the BATS Options order
book and a $0.75 rebate per contract for a Customer order that adds
liquidity to the BATS Options order book.
---------------------------------------------------------------------------

    The Exchange notes that the proposed changes are not otherwise
intended to address any other issues surrounding fees for non-Penny
Pilot issues and the Exchange is not aware of any problems that OTP
Holders and OTP Firms would have in complying with the proposed change.
    The Exchange proposes to make the fee change operative on November
1, 2012.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Securities Exchange Act of 1934 (the
``Act''),\11\ in general, and furthers the objectives of Section
6(b)(4) of the Act,\12\ in particular, because it provides for the
equitable allocation of reasonable dues, fees, and other charges among
its members, issuers and other persons using its facilities and does
not unfairly discriminate between customers, issuers, brokers or
dealers.
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

    The Exchange operates in a highly competitive market, comprised of
10 U.S. options exchanges, in which sophisticated and knowledgeable
market participants can and do send order flow to competing exchanges
if they deem fee levels at a particular exchange to be excessive or the
rebate offered to be inadequate. The Exchange believes that the
proposed fee and rebate structure is competitive and similar to other
fees and rebates in place on other exchanges.\13\ The Exchange believes
that this competitive marketplace materially impacts the fees and
rebates present on the Exchange today and substantially influences the
proposal set forth herein. The Exchange believes that it is equitable
and not unfairly discriminatory to apply the proposed non-Penny Pilot
issue pricing to the various market participants, as noted in this
proposal. In this regard, all market participants transacting in non-
Penny Pilot issues would be subject to the fees and rebates proposed
herein.
---------------------------------------------------------------------------

    \13\ See supra notes 9 and 10.
---------------------------------------------------------------------------

    The Exchange believes that the proposed Customer credit to post
liquidity in non-Penny Pilot issues is reasonable because it would
continue to incent OTP Holders and OTP Firms to transact Customer order
flow on the Exchange. In this regard, Customer order flow benefits all
market participants through the increased liquidity that it brings to
the market. Customers would be subject to a $0.79 per contract fee to
remove liquidity in non-Penny Pilot issues, as compared to

no fee today, which the Exchange believes is reasonable due to the
opportunity to receive the proposed credit. The Exchange believes that
its proposal to offer a Customer credit to post liquidity in non-Penny
Pilot issues (from no credit today, to $0.75 per contract as proposed)
is reasonable because other market participants will benefit from the
increased order flow to the Exchange.
    The Exchange believes that charging a fee for Firm and Broker
Dealer executions that post liquidity and increasing the fee for their
executions that take liquidity in non-Penny Pilot issues is reasonable
because the fees would enable the Exchange to incentivize Customers to
post greater amounts of liquidity in non-Penny Pilot issues. The
Exchange believes that its success at attracting Customer order flow
benefits all market participants by improving the quality of order
interaction and executions at the Exchange, including for Firms and
Broker Dealers.
    The Exchange believes that it is equitable and not unfairly
discriminatory to assess Firms and Broker Dealers a fee for posting
liquidity in non-Penny Pilot issues, but to provide a credit to other
market participants for posting liquidity in non-Penny Pilot issues.
The Exchange notes that Firms and Broker Dealers would be assessed the
same $0.50 per contract fee that they are currently assessed for
posting liquidity in non-Penny Pilot issues. More specifically, the
Exchange believes that not assessing a Customer, LMM or NYSE Arca
Market Maker a fee for posting liquidity in non-Penny Pilot issues, as
compared to Firms and Broker Dealers, is equitable and not unfairly
discriminatory because Customers, LMMs, and NYSE Arca Market Makers
differ from Firms and Broker Dealers. In this regard, the Exchange
believes that Customer order flow benefits all market participants by
improving liquidity and the quality of order interaction. Additionally,
LMMs and Market Makers have obligations to the market and regulatory
requirements,\14\ which normally do not apply to other market
participants. For example, an LMM has the obligation to make continuous
markets 90% of the time that the Exchange is open for trading, while
other Market Makers have the obligation to make continuous markets 60%
of the time that the Exchange is open for trading. Both LMMs and other
Market Makers must also engage in a course of dealing that is
consistent with the maintenance of a fair and orderly market.
Accordingly, the Exchange believes that it is equitable and not
unfairly discriminatory to charge Firms and Broker Dealers for posting
liquidity but to not charge other market participants for doing so.
---------------------------------------------------------------------------

    \14\ See NYSE Arca Rules 6.32 (Market Maker Defined), 6.37
(Obligations of Market Makers), 6.37A (Obligations of Market
Makers--OX) and 6.37B (Market Maker Quotations--OX).
---------------------------------------------------------------------------

    The proposed differentiation between pricing for Customers, LMMs,
NYSE Arca Market Makers and other market participants is also equitable
and not unfairly discriminatory because it reflects the differing
contributions made to the liquidity and trading environment on the
Exchange by Customers, LMMs, and NYSE Arca Market Makers, as well as
the differing mix of orders entered. The Exchange believes that
increasing the Firm and Broker Dealer fees for taking liquidity in non-
Penny Pilot issues to $0.85 per contract is equitable and not unfairly
discriminatory because Firms and Broker Dealers will be assessed the
same fee. Further, the amount of the fee is reasonable because it is
the same as the rate charged to Firms and Broker Dealers on other
exchanges. For example, NOM charges Professionals, Non-NOM Market
Makers and Firms $0.85 per contract to take liquidity in non-Penny
Pilot issues. Customers, LMMs and Market Makers would be assessed a
lower fee for taking liquidity in non-Penny Pilot issues, as compared
to Firms and Broker Dealers, because, as mentioned above, the fees
reflect the differing contributions made to the liquidity and trading
environment on the Exchange by Customers, LMMs, and Market Makers, as
well as the differing mix of orders.
    The Exchange believes that the rates proposed for LMMs and Market
Makers are equitable and not unfairly discriminatory. In this regard,
non-Penny Pilot issues are typically less liquid than Penny Pilot
issues and thus the heightened quoting obligation of the LMM in these
issues requires a differentiated posting incentive as compared to Penny
Pilot issues. Accordingly, since there is much greater risk for a
liquidity provider when posting versus taking in less liquid names and
the LMM's quoting obligation is 50% higher than a regular Market Maker,
they require a meaningfully higher posting rebate. Taking liquidity is
not as much of the core function of the liquidity provider, thus the
difference in take rates do not have to be as substantial, which the
Exchange believes is reasonable.
    The Exchange also believes that, overall, the proposed fees for
taking liquidity are reasonable because in the current U.S. options
market, many of the contracts are quoted in pennies. Under this pricing
structure, the minimum penny tick increment equates to a $1.00 economic
value difference per contract, given that a single standardized U.S.
option contract covers 100 shares of the underlying stock.
    For contracts that are quoted in $0.05 increments (non-pennies),
the value per tick is $5.00 in proceeds to the investor transacting in
these contracts. Liquidity rebate and access fee structures on the
make-take exchanges, including the Exchange's Post-Take pricing
structure, for securities quoted in penny increments are commonly in
the $0.30 to $0.45 per contract range. A $0.30 per contract rebate in a
penny quoted security is a rebate equivalent to 30% of the value of the
minimum tick. A $0.45 per contract fee in a penny quoted security is a
charge equivalent to 45% of the value of that minimum tick. In other
words, in penny quoted securities, where the price is improved by one
tick with an access fee of $0.45 per contract, an investor paying to
access that quote is still $0.55 better off than trading at the wider
spread, even without the access fee ($1.00 of price improvement less a
$0.45 access fee equals $0.55 better economics). This computation is
equally true for securities quoted in wider increments. Rebates and
access fees near the $0.85 per contract level equate to only 17% of the
value of the minimum tick in non-Penny Pilot issues, less than the
experience today in Penny Pilot issues. For example, a retail investor
transacting a single contract in a non-penny quoted security quoted a
single tick tighter than the rest of the market, and paying an access
fee of $0.79 per contract, is receiving an economic benefit of $4.21
($0.05 improved tick equals $5.00 in proceeds less $0.79 access fee,
which equals $4.21). The Exchange believes that encouraging LMMs and
Market Makers to quote more aggressively by giving credits to post
liquidity and incenting Customer orders to post on NYSE Arca will
narrow the spread in non-Penny Pilot issues to the benefit of investors
and all market participants by improving the overall economics of the
resulting transactions that occur on the Exchange, even if the access
fee paid in connection with such transactions is higher. Accordingly,
the Exchange believes that the proposed fees and rebates for the non-
Penny Pilot issues are reasonable, equitable and not unfairly
discriminatory.
    As with Penny Pilot issues, there will be no fees for transactions
on the Opening Auction. The Exchange believes that this is equitable
and not unfairly discriminatory because it

would apply to trading interest from all market participants, and is
reasonable because a determination of posting liquidity or taking
liquidity is difficult prior to the establishment of the opening
market.
    The Exchange believes the application of manual fees to orders
represented by a Floor Broker and partially executed against the
Consolidated Book are reasonable, equitable and not unfairly
discriminatory, because the fees are those expected by the market
participant that submits the order, and does not alter the fees or
credits expected by the market participant whose order or quote is
resting in the Consolidated Book.
    The Exchange believes that eliminating Marketing Charges on the
Exchange is reasonable because it would eliminate a fee for Market
Makers and LMMs that the Exchange has decided to no longer apply in
light of the proposed application of Post-Take pricing to non-Penny
Pilot issues--currently, Marketing Charges do not apply to Penny Pilot
issues. This is equitable and not unfairly discriminatory because the
charges are currently collected only from LMMs and Market Makers who
interact with Customer orders, and, as a result of the proposed change,
would no longer be collected from any participant on the Exchange. As a
result, Customers would receive direct credit for posted liquidity,
rather than a payment for order flow in an indirect manner.
    Finally, the Exchange notes that it operates in a highly
competitive market in which market participants can readily favor
competing venues. In such an environment, the Exchange must continually
review, and consider adjusting, its fees and credits to remain
competitive with other exchanges. For the reasons described above, the
Exchange believes that the proposed rule change reflects this
competitive environment.

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.

C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others

    The Exchange received one unsolicited, written comment on the
proposed rule change from an LMM on the Exchange. The LMM commented
that the proposed pricing structure would negatively impact its
business because it trades less liquid issues with wider markets, and
that the restructuring of the fees will not provide a sufficient
incentive to him to provide tighter markets to receive credits for
posting liquidity. The LMM also stated that the proposed pricing
structure will encourage order flow providers to send mid-market trades
(orders between the bid and offer) to the Exchange to collect payment
(posted liquidity credits) and gain priority, and then direct market-
taking orders to other exchanges where the order flow provider would
not be charged a market taker fee.
    Additionally, the LMM believed that the proposed pricing structure
would encourage competition from Customers who would have an incentive
to improve on the LMM's markets to collect posted liquidity credits and
also gain priority, diminishing the value of being an OTP-holding
market maker on the Exchange. Lastly, the LMM commented that there
might or might not be an increase in order flow between the bid and
offer, but that other, more sophisticated firms would be more
competitive, and, therefore, the LMM would not see the benefits of the
proposed pricing structure.
    In response to the LMM's statements, the Exchange believes, as
described above, that the proposed fee and rebate structure is
competitive and similar to other fees and rebates in place on other
exchanges. The LMM's complaints are that he will not be able to compete
against Customers or more sophisticated firms. The Exchange believes
that attracting Customer order flow benefits all market participants by
improving the quality of order interaction and executions at the
Exchange, including for Firms and Broker Dealers. Encouraging LMMs and
Market Makers to quote more aggressively by giving credits to post
liquidity and incenting Customer orders to post on NYSE Arca will
narrow the spread in non-Penny Pilot issues to the benefit of investors
and all market participants by improving the overall economics of the
resulting transactions that occur on the Exchange, and by increasing
competition between the LMM and Customers and competing Market Makers,
spreads will narrow and more attractive order flow will be available on
the Exchange, enhancing the markets for all participants.

III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action

    The foregoing rule change is effective upon filing pursuant to
Section 19(b)(3)(A) \15\ of the Act and subparagraph (f)(2) of Rule
19b-4 \16\ thereunder, because it establishes a due, fee, or other
charge imposed by the NYSE Arca.
---------------------------------------------------------------------------

    \15\ 15 U.S.C. 78s(b)(3)(A).
    \16\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------

    At any time within 60 days of the filing of such 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.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to<EMAIL_ADDRESS>Please include
File Number SR-NYSEARCA-2012-121 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSEARCA-2012-121. 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 20549-1090, on official business days between the hours
of 10:00 a.m. and 3:00 p.m. Copies of such

filing also will be available for inspection and copying at the NYSE's
principal office and on its Internet Web site at www.nyse.com. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-NYSEARCA-2012-121, and
should be submitted on or before December 6, 2012.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
---------------------------------------------------------------------------

    \17\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-27712 Filed 11-14-12; 8:45 am]
BILLING CODE 8011-01-P


Comments on U.S. Environmental Protection Agency Proposed Rule, "Control of Air Pollution from Motor Vehicles: Tier 3 Motor Vehicle Emission and Fuel Standards," RIN 2060-AQ86

As EPA granted the waiver for California's program in December 2012, the costs and benefits for that program should be included in the baseline of the RIA analysis for Tier 3.  California's air pollutant standards have long been different than other parts of the country so it makes both analytic and policy sense to consider the incremental impacts, costs and benefits of the rule with and without the California program.  It is requested that EPA breakdown and present these incremental impacts for the scenarios laid out in the matrix below.

A clarifying question would be whether the seven other states that adopted California's standard would also be included in the baseline for Tier 3.  Presumably they should be included in the baseline if they adopted California's program; however, would the seven other states be preempted by the federal program if Tier 3 goes into effect?

                               Fuel Sulfur Only
                       Fuel Sulfur and Vehicle Controls
                           Tier 3 (not counting CA)
                                       A
                                       B
                            Tier 3 (entire country)
                                       C
                                       D

A  -  This breakout will incorporate the impacts of the California program in the Tier 3 baseline so it separates the costs and benefits of the California program from the Tier 3 program.  The costs and benefits of the Tier 3 program will be estimated for all states outside of California and just for the fuel sulfur portion of Tier 3, not the vehicle controls portion of Tier 3.

B -  This breakout will incorporate the impacts of the California program in the Tier 3 baseline so it separates the costs and benefits of the California program from the Tier 3 program.  The costs and benefits of the Tier 3 program will be estimated for all states outside of California covering both the fuel sulfur and vehicle controls portions of Tier 3.

C  -  This breakout will incorporate the impacts of the California program in the Tier 3 cost and benefit analysis, although would only apply to the fuel sulfur portion of Tier 3 and not the vehicle controls portion of the program.

D - This breakout will incorporate the impacts of the California program in the Tier 3 cost and benefit analysis and is what the agency has provide to date.

EPA Response

	The Tier 3 proposal does not include California's Low Emission Vehicle III (LEV III) program in the baseline because the Tier 3 proposal's analysis was initiated and completed well before EPA granted the waiver for the California LEV III program in December 2012.  However, for the final rule's analysis we will include LEV III in the baseline for California and the other states that have adopted it.

EPA Response (continued)

      With respect to the requested matrix, it is not possible to break out benefits in this manner.  The Tier 3 program is a joint vehicle and fuel program that is designed to maximize environmental benefits. Our analysis modeled the air quality impacts of this total program; the health effects and monetized benefits are estimated from this air quality modeling of the total program.  As a result, it is not possible to identify the air quality impacts, health effects, or benefits of a fuel sulfur program that would be independent of a vehicle program.  Similarly, as the air quality modeling accounts for cross-state transport of pollution, it is not possible from the proposal's analysis to separate the impacts of Tier 3 in California from the total program benefits.  As mentioned above, we will be conducting new air quality modeling for the final rule that will not include emission reductions from Tier 3 vehicles and fuels in California.