[Federal Register Volume 85, Number 157 (Thursday, August 13, 2020)]
[Notices]
[Pages 49403-49405]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-17669]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-89507; File No. SR-CBOE-2020-077]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
Rule 5.34 (Order and Quote Price Protection Mechanisms and Risk
Controls) in Connection With Sell Market Orders in No-Bid Series
August 7, 2020.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on August 5, 2020, Cboe Exchange, Inc. (the ``Exchange'' or ``Cboe
Options'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I and II
below, which Items have been prepared by the Exchange. The Exchange
filed the proposal as a ``non-controversial'' proposed rule change
pursuant to Section 19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-
4(f)(6) thereunder.\4\ The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A)(iii).
\4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Cboe Exchange, Inc. (the ``Exchange'' or ``Cboe Options'') proposes
to amend Rule 5.34 (Order and Quote Price Protection Mechanisms and
Risk Controls) in connection with sell market orders in no-bid series.
The text of the proposed rule change is provided in Exhibit 5.
The text of the proposed rule change is also available on the
Exchange's website (http://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx), at the Exchange's Office of the
Secretary, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend Rule 5.34(a)(1) in connection with
the System's handling of a sell market orders in no-bid series.
Specifically, if the System receives a sell market order in a series
after it is open for trading with a national best bid (``NBB'') of
zero, current Rule 5.34(a)(1)(A)(ii) provides that if the NBO in the
series is greater than $0.50, then the System cancels or rejects the
market order. The proposed rule change adds to Rule 5.34(a)(1)(A)(ii)
that if the NBO in the series is greater than $0.50, then the System
cancels or rejects the market order or routes the market order to PAR
for manual handling, subject to a User's instructions. This proposed
handling in consistent with order instructions a User may choose to
apply to an order wherein, if the order is not eligible for electronic
handling, the order routes to PAR for manual handling.\5\ Current Rule
5.34(a)(1)(A)(ii), as written, does not specifically consider the case
in which a User's order instructions would route an order to PAR when
such order is not eligible for electronic processing because the NBO in
the series is greater than $0.50.
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\5\ See e.g. Rule 5.6(c), a ``Default'' order is an order a User
designates for electronic processing, and which order (or unexecuted
portion) routes to PAR for manual handling if not eligible for
electronic processing.
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The System, however, currently handles orders under these
circumstances in accordance with the User instruction to route such an
order for manual handling.\6\ The proposed rule change codifies this
behavior. The Exchange notes that Rule 5.34 was recently revised in
connection with a technology migration. The rule filing that revised
Rule 5.34 consolidated all order and quote price protection mechanisms
and risk controls provisions from the pre-migration Exchange Rulebook
into one single rule (current Rule 5.34) as well as harmonized Rule
5.34 with the corresponding rules of the Exchange's affiliated
exchanges, Cboe EDGX Exchange, Inc. (``EDGX Options'') and Cboe C2
Exchange, Inc. (``C2'').\7\ The Exchange's former rule provision
regarding market orders in no-bid (offer) series provided that if the
Exchange's best offer (i.e., NBO) was greater than $0.50, the order
would route to PAR if so instructed by the submitting firm.\8\ The
Exchange inadvertently omitted this specific handling process when it
amended current Rule 5.34 in connection with the technology migration.
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\6\ See Cboe U.S. Options FIX Specification (July 13, 2020) at
12, available at https://cdn.cboe.com/resources/membership/US_Options_FIX_Specification.pdf.
\7\ See Securities Exchange Release No. 86923 (September 10,
2019), 84 FR 48664 (September 16, 2019) (SR-CBOE-2019-057).
\8\ Former Rule 6.13(b)(vi)(B) provided that if the Exchange
best offer in a no-bid series is greater than $0.50, then the order
entry firm has the discretion to have the market order to sell via
the order handling system pursuant to Rule 6.12 (which permitted a
submitting firm to opt to route orders not eligible for electronic
processing to a designated order management terminal or PAR
Workstation).
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2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Securities Exchange Act of 1934 (the ``Act'') and the rules and
regulations thereunder applicable to the Exchange and, in particular,
the requirements of Section 6(b) of the Act.\9\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section
[[Page 49404]]
6(b)(5) \10\ requirements that the rules of an exchange be designed to
prevent fraudulent and manipulative acts and practices, to promote just
and equitable principles of trade, to foster cooperation and
coordination with persons engaged in regulating, clearing, settling,
processing information with respect to, and facilitating transactions
in securities, to remove impediments to and perfect the mechanism of a
free and open market and a national market system, and, in general, to
protect investors and the public interest. Additionally, the Exchange
believes the proposed rule change is consistent with the Section
6(b)(5) \11\ requirement that the rules of an exchange not be designed
to permit unfair discrimination between customers, issuers, brokers, or
dealers.
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\9\ 15 U.S.C. 78f(b).
\10\ 15 U.S.C. 78f(b)(5).
\11\ Id.
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In particular, the proposed rule change will remove impediments to
and perfect the mechanism of a free and open market and national market
system, as well as protect investors, because it will allow the System
to handle orders in a manner that is consistent with the intent of a
User's order instruction to route orders to PAR for manual handling
that are not eligible for electronic processing, including when the NBO
is greater than $0.50 in a no-bid (offer) series. Manual handling
rather than cancellation of orders in these circumstances may provide
these orders with additional execution opportunities. Additionally, the
Exchange does not believe that the proposed rule change raises any new
or novel issues for, nor will affect the protection of investors,
because, less than a year ago, the Exchange's effective rules at the
time included the same order handling provision.\12\ The proposed rule
change codifies current functionality in the Rules, which was
inadvertently omitted in a previous rule filing, which additional
transparency benefits investors.
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\12\ See supra note 7.
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The Exchange does not
believe that the proposed rule change will impose any burden on
intramarket competition that is not necessary or appropriate in
furtherance of the purposes of the Act because it will allow orders to
route in accordance with a User's intended order instruction, and will
apply equally to all Users' orders that are designated to route to PAR
when ineligible for electronic processing.
The Exchange does not believe that the proposed rule change will
impose any burden on intermarket competition that is not necessary or
appropriate in furtherance of the purposes of the Act because the
proposed rule change is not intended to address competitive issues, but
rather conforms the Rules to current System functionality in a manner
that is consistent with order instructions already available to Users.
The Exchange additionally notes that the proposed rule change readopts
rule language that had prior been in the Exchange's Rules up until less
than a year ago.\13\
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\13\ See id.
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C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received comments on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A) of the Act \14\ and Rule 19b-
4(f)(6) thereunder.\15\
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\14\ 15 U.S.C. 78s(b)(3)(A).
\15\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change, along
with a brief description and text of the proposed rule change, at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
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A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the
Act \16\ normally does not become operative for 30 days after the date
of its filing. However, Rule 19b-4(f)(6)(iii) \17\ permits the
Commission to designate a shorter time if such action is consistent
with the protection of investors and the public interest. The Exchange
has asked the Commission to waive the 30-day operative delay. The
Exchange believes that waiver of the operative delay is consistent with
the protection of investors and the public interest because the
proposed rule change does not raise any new or novel issue as the
proposed rule is merely restating rule language that had previously
been approved by the Commission in the Exchange Rules up until less
than a year ago.\18\ The Commission believes that waiver of the 30-day
operative delay is consistent with the protection of investors and the
public interest because the proposal does not raise any new issues and
will allow the Exchange to remedy its recent inadvertent omission
without delay. Therefore, the Commission hereby waives the operative
delay and designates the proposal as operative upon filing.\19\
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\16\ 17 CFR 240.19b-4(f)(6).
\17\ 17 CFR 240.19b-4(f)(6)(iii).
\18\ See supra note 7.
\19\ For purposes only of waiving the 30-day operative delay,
the Commission also has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
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-2020-077 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-CBOE-2020-077. 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
[[Page 49405]]
submission, all subsequent amendments, all written statements with
respect to the proposed rule change that are filed with the Commission,
and all written communications relating to the proposed rule change
between the Commission and any person, other than those that may be
withheld from the public in accordance with the provisions of 5 U.S.C.
552, will be available for website viewing and printing in the
Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-CBOE-2020-077 and should be submitted on
or before September 3, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\20\
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\20\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-17669 Filed 8-12-20; 8:45 am]
BILLING CODE 8011-01-P