[Federal Register Volume 85, Number 82 (Tuesday, April 28, 2020)]
[Notices]
[Pages 23571-23573]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-08933]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-88721; File No. SR-C2-2020-004]
Self-Regulatory Organizations; Cboe C2 Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change Relating
To Remove Its Optional Daily Risk Limits Pursuant to Rule 6.14
April 22, 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 April 13, 2020, Cboe C2 Exchange, Inc. (the ``Exchange'' or
``C2'') 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 C2 Exchange, Inc. (the ``Exchange'' or ``C2'') proposes to
remove its optional daily risk limits pursuant to Rule 6.14. 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://markets.cboe.com/us/options/regulation/rule_filings/ctwo/), 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 remove the optional daily risk limit
settings for Users in Rule 6.14(c)(4).\5\ The daily risk limits are
voluntary functionality. Pursuant to current Rule 6.14(c)(4), if a User
enables this functionality they may establish one or more of the
following values for each of its ports, which the System aggregates
(for simple and complex orders) across all of a User's ports (i.e.,
applies on a firm basis): (i) Cumulative notional booked bid value
(``CBB''); (ii) cumulative notional booked offer value (``CBO''); (iii)
cumulative notional executed bid value (``CEB''); and (iv) cumulative
notional executed offer value (``CEO''). The User may then establish a
limit order notional cutoff, a market order notional cutoff, or both,
each of which it may establish on a net basis, gross basis, or both. If
a User exceeds a cutoff value, the System cancels or rejects all
incoming limit orders or market orders, respectively. If a User
establishes a limit order notional cutoff but does not establish (or
sets as zero) the market order notional cutoff, the System cancels or
rejects all market orders. The System calculates a notional cutoff on a
gross basis by summing CBB, CBO, CEB, and CEO. The System calculates a
notional cutoff on a net basis by summing CEO and CBO, then subtracting
the sum of CEB and CBB, and then taking the absolute value of the
resulting amount. This functionality does not apply to bulk messages.
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\5\ As a result of the proposed rule change, the Exchange also
updates the subsequent paragraph numbering in current subparagraphs
(c)(5) through (c)(10).
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The Exchange proposes to remove the daily limit risk mechanism
because use of this mechanism on Users' ports is infrequent. Indeed, no
Users currently have the daily risk limit enabled on a port connected
to the Exchange. Because so few Users enable this functionality for
their ports, the Exchange believes the current demand does not warrant
the Exchange resources necessary for ongoing System support for the
risk mechanism (e.g., the System must maintain and apply algorithms
that track and calculate gross and net notional exposure). The Exchange
again notes that the use of the daily risk limit is voluntary. The
Exchange will continue to offer to Users
[[Page 23572]]
a full suite of price protection mechanisms and risk controls which
sufficiently mitigate risks associated with Users entering orders and
quotes at unintended prices, and risks associated with orders and
quotes trading at prices that are extreme and potentially erroneous, as
a likely result of human or operational error. This includes other
price protections and risk controls associated with notional value of a
User's orders and quotes. For example, Rule 6.14(c)(3) provides for a
voluntary functionality in which the System cancels or rejects an
incoming order or quote with a notional value that exceeds the maximum
notional value a User establishes for each of its ports, and Rule
6.14(c)(5) \6\ provides for a voluntary functionality in which a User
may establish risk limits within a class or across classes \7\ defined
by certain parameters, of which the notional value of executions is an
parameter option. Once a risk parameter is reached, no new trades are
executed and any orders or quotes in route are System-rejected.
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\6\ The Exchange notes that as a result of the proposed removal
of Rule 6.14(c)(4), current Rule 6.14(c)(5) will become new Rule
6.14(c)(4).
\7\ And for one Executing Firm ID (``EFID'') or a group of
EFIDs.
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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.\8\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \9\ 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) \10\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
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\8\ 15 U.S.C. 78f(b).
\9\ 15 U.S.C. 78f(b)(5).
\10\ 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 and benefit investors, because it will delete from the Rules a
risk control that the Exchange will no longer offer, thereby promoting
transparency in its Rules. The Exchange notes, too, that other options
exchange do not offer daily risk limits, or other risk controls,
associated with notional value of their users' order or quotes.\11\ The
Exchange does not believe that the proposed rule change will affect the
protection of investors or the public interest or the maintenance of a
fair and orderly market because this risk control is so infrequently
implemented, and currently, no User has this risk control established
in any port connected to the Exchange. In addition to this, the
Exchange notes that the use of this risk control is voluntary and the
Exchange will continue to offer a full suite of price protection
mechanisms and risk controls, including those associated with notional
value of a Users' orders and quotes, which sufficiently mitigate risks
associated with Users entering orders and quotes at unintended prices,
and risks associated with orders and quotes trading at prices that are
extreme and potentially erroneous, as a likely result of human or
operational error. Also, the Exchange believes the low usage rate for
the daily risk limits does not warrant the continued resources
necessary for System support of such controls. As a result, the
Exchange believes the proposed rule change will also remove impediments
to and perfect the mechanism of a free and open market and national
market system by allowing the Exchange to reallocate System capacity
and resources to more frequently elected System functionality,
including other price protection and risk control functionality.
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\11\ See NYSE CGW FIX Gateway Specification for NYSE American
Options and NYSE Arca Options (last updated February 27, 2020)
available at https://www.nyse.com/publicdocs/nyse/markets/nyse/FIX_Specification_and_API.pdf, which provides for various User-
defined risk controls, like those of the Exchange, but does not
offer parameter settings in connection with aggregate notional
values. NYSE American Options and NYSE Arca Options also do not
offer such settings in their rules.
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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 proposed rule change is
not competitive in nature, but rather is intended to remove a risk
control that is rarely used on the Exchange. The Exchange does not
believe that the proposed rule change would impose a burden on
intramarket competition that is not necessary or appropriate in
furtherance of the purposes of the Act because it will remove the
option to use this risk control for all Users on the Exchange. In
addition to this, and as stated above, the use of the daily risk limit
is voluntary and the Exchange will continue to offer various other
price protections and risk controls that sufficiently mitigate risks
associated with market participants entering and/or trading orders and
quotes at unintended or extreme prices. Further, the Exchange does not
believe that the proposed rule change would impose a burden on
intermarket competition that is not necessary or appropriate in
furtherance of the purposes of the Act because the proposed rule change
reflects the current risk control offerings on other options
exchanges.\12\
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\12\ See supra note 11.
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C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received comments on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days after the date of the filing, or such
shorter time as the Commission may designate, it has become effective
pursuant to Section 19(b)(3)(A) of the Act \13\ and Rule 19b-4(f)(6)
\14\ thereunder.
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\13\ 15 U.S.C. 78s(b)(3)(A).
\14\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
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The Exchange has asked the Commission to waive the 30-day operative
delay.\15\ The Commission finds that waiving the 30-day operative delay
is consistent with the protection of investors and the public interest.
The Exchange represents that generally the Daily Risk Limits are
utilized infrequently by its Users and that currently the functionality
is not being used at all. The Exchange also indicates that eliminating
Daily Risk Limits will enable the efficient allocation of
[[Page 23573]]
technical resources and the Exchange will continue to offer an
effective suite of risk management options to its Users pursuant to
Rule 6.14. Accordingly, the Commission designates the proposal
operative upon filing.\16\
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\15\ 17 CFR 240.19b-4(f)(6)(iii).
\16\ For purposes only of waiving the 30-day operative delay,
the Commission has considered the proposed rule change's impact on
efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-C2-2020-004 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-C2-2020-004. 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. 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-C2-2020-004 and should be
submitted on or before May 19, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
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\17\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-08933 Filed 4-27-20; 8:45 am]
BILLING CODE 8011-01-P