[Federal Register Volume 84, Number 204 (Tuesday, October 22, 2019)]
[Notices]
[Pages 56501-56504]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-22935]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-87320; File No. SR-CBOE-2019-095]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change Relating
To Relocate Various Exchange Rules From the Currently Effective to the
Shell Structure for the Exchange's Rulebook That Will Become Effective
Upon the Migration of the Exchange's Trading Platform
October 16, 2019.
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 October 4, 2019, 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,
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 relocate various Exchange Rules from the currently effective
Rulebook (``current Rulebook'') to the shell structure for the
Exchange's Rulebook that will become effective upon the migration of
the Exchange's trading platform to the same system used by the Cboe
Affiliated Exchanges (as defined below) (``shell Rulebook''). The
proposed rule change also deletes certain Exchange Rules from the
currently effective Rulebook that will no longer be applicable
following the migration. 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/
[[Page 56502]]
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
In 2016, the Exchange's parent company, Cboe Global Markets, Inc.
(formerly named CBOE Holdings, Inc.) (``Cboe Global''), which is also
the parent company of Cboe C2 Exchange, Inc. (``C2''), acquired Cboe
EDGA Exchange, Inc. (``EDGA''), Cboe EDGX Exchange, Inc. (``EDGX'' or
``EDGX Options''), Cboe BZX Exchange, Inc. (``BZX'' or ``BZX
Options''), and Cboe BYX Exchange, Inc. (``BYX'' and, together with
Cboe Options, C2, EDGX, EDGA, and BZX, the ``Cboe Affiliated
Exchanges''). The Cboe Affiliated Exchanges are working to align
certain system functionality, retaining only intended differences,
between the Cboe Affiliated Exchanges, in the context of a technology
migration. Cboe Options intends to migrate its trading platform to the
same system used by the Cboe Affiliated Exchanges, which the Exchange
expects to complete on October 7, 2019. In connection with this
technology migration, the Exchange has a shell Rulebook that resides
alongside its current Rulebook, which shell Rulebook will contain the
Rules that will be in place upon completion of the Cboe Options
technology migration.
The Exchange proposes to relocate certain rules currently in the
currently effective Rulebook into the shell Rulebook. The Exchange
notes that in addition to moving these various rules, the proposed rule
change deletes the rules from the current Rulebook. It also proposes to
delete certain current rules that, as a result of the rules already in
the shell Rulebook, are either redundant or are no longer applicable to
trading on the Exchange. The proposed rule change moves and, where
applicable, removes the rules as follows:
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Shell rule Current rule
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5.3 Bids and Offers (introductory 6.43 Manner of Bidding and
paragraph). Offering.
5.5(d) System Access and Connectivity 6.23A(f) Trading Permit Holder
(Mandatory Testing). Connectivity (Mandatory
Systems Testing).\3\
5.6(a) Order Types, Order Instructions, 6.11 Origins Eligible for Book
and Times-in-Force (Availability). Entry.
6.7 Off-Floor Transfers of Positions... 6.49A Off-Floor Transfers of
Positions.
6.8 Off-Floor RWA Transfers............ 6.49B Off-Floor RWA Transfers.
To be deleted.......................... 6.51A Fines for Failure to
Perform Certain Reporting
Duties.
To be deleted.......................... 6.53A Types order Formats.
To be deleted.......................... 24.13 Trading Rotations.
To be deleted.......................... 24A.11 FLEX Index Appointed
Market-Maker Account Equity.
To be deleted.......................... 24A.12 FLEX Appointed Market-
Maker Financial Requirements.
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The proposed changes are of a non-substantive nature and will not
amend the relocated rules other than to update their rule numbers,
conform paragraph structure and number/lettering format to that of the
shell Rulebook, and make cross-reference changes to shell rules.
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\3\ The Exchange notes that this provision was removed from the
currently effective Rulebook in filing SR-CBOE-2019-033. However,
that filing inadvertently did not maintain this language in the
shell Rulebook. See Securities Exchange Act Release No. 86374 (July
15, 2019), 84 FR 34963 (July 19, 2019) (SR-CBOE-2019-033) (Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change
Relating to System Connectivity and Order Entry and Allocation Upon
the Migration of the Exchange's Trading Platform to the Same System
Used by the Cboe Affiliated Exchanges).
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The Exchange notes that the proposed change to incorporate the
language under current Rule 6.11 into shell Rule 5.6(a) does not
substantively change the current provision but updates it to streamline
and simplify the language and the reflect shell rule text. Current Rule
6.11 states that after a class opens for trading, the System accepts
for entry into the Book quotes of Market-Makers (including DPMs and
LMMs) and orders of any origin in Hybrid classes. The proposed
provision that relocates Rule 6.11 under shell Rule 5.6(a) states that
after a class opens for trading pursuant to Rule 5.31 (the shell rule
which will govern the opening auction process upon migration), the
System accepts for entry into the Book orders and quotes with any
Capacity. In other words, orders and quotes of any Capacity will be
eligible to enter the Book. The Exchange notes that this is
substantively the same provision as the current provision because all
classes currently trade on the System, and, pursuant to shell Rule 1.1,
upon migration, the term ``Capacity'' will be used to reference what is
referred to as ``origin'' in the currently effective rules.\4\
Therefore, the proposed language merely simplifies and streamlines the
current provision and updates terms to reflect terms in the shell
Rulebook.
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\4\ See shell Rule 1.1, which defines ``quote'' or
``quotations'' as a firm bid or offer a Market-Maker (a) submits
electronically in an order or bulk message (including to update any
bid or offer submitted in a previous order or bulk message) or (b)
represents in open outcry on the trading floor.
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The proposed change also adds current Rule 6.23A(f), which governs
mandatory systems testing for Trading Permit Holders, to shell Rule
5.5(d). The Exchange notes that SR-CBOE-2019-033 \5\ removed current
Rule 6.23A, but did not incorporate it into the shell Rulebook in
anticipation of migration. While that filing indicated that Rule 5.24
in the shell Rulebook covered the same provision as current Rule
6.23A(f), current Rule 6.23A(f) is broader than the required testing in
shell Rule 5.24, which relates only to disaster recovery testing. Under
current Rule 6.23A(f), the Exchange currently may require other types
of testing, and therefore believes
[[Page 56503]]
it is appropriate to maintain this provision in the shell Rulebook. The
Exchange notes that proposed 5.5(d) will merely continue to govern
mandatory system testing upon the October 7, 2019 migration in the same
manner in which Rule 6.23A(f) currently governs mandatory systems
testing, and therefore will not substantively alter nor have any impact
on trading on the Exchange or on TPHs.
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\5\ See Securities and Exchange Act Release No. 86374 (July 15,
2019), 84 FR 34963 (July 19, 2019) (Notice of Filing and Immediate
Effectiveness of a Proposed Rule Change Relating to System
Connectivity and Order Entry and Allocation Upon the Migration of
the Exchange's Trading Platform to the Same System Used by the Cboe
Affiliated Exchanges) (SR-CBOE-2019-033).
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The proposed changes to remove certain rules are of a non-
substantive nature because they delete rules that are redundant or not
applicable as a result of other rules already in the shell Rulebook.
The proposed rule change removes current Rule 6.53A, which covers order
formats, as these formats relate solely to the Exchange's current
system, and therefore will not be applicable on the new system
following the technology migration and information regarding order
formats is already available in technical specifications on the
Exchange's website.\6\ The proposed change removes current Rule 24.13,
which describes trading rotations for index options because it is
redundant of the opening process in shell Rule 5.31 (current Rule 6.2)
which governs the opening auction process for both equity options and
index options. Pursuant to current Rule 24.13, the Exchange may provide
for the opening rotation to be conducted using the procedures described
in current Rule 24.13 or current Rule 6.2 (shell Rule 5.31). The
Exchange has provided for the opening rotation to be conducted using
the procedures described in current Rule 6.2 (shell Rule 5.31).
Additionally, the Exchange pursuant to current Rule 6.2 (proposed Rule
5.31) has authority to deviate from the opening rotation procedures,
while Designated Primary Market-Makers (``DPMs'') and Lead Market-
Makers (``LMMs'') do not. Therefore, deletion of current Rule 24.13
will have no impact on the opening of index options. Index options will
continue to open for trading pursuant to the same process as other
options as set forth in current Rule 6.2 (shell Rule 5.31).\7\
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\6\ See Cboe US Options FIX Specifications (October 3, 2019),
available at http://cdn.cboe.com/resources/membership/US_Options_FIX_Specification.pdf; and Cboe US Options BOE
Specifications (October 3, 2019), available at http://cdn.cboe.com/resources/membership/US_Options_BOE_Specification.pdf.
\7\ The Commission previously approved certain changes to the
Exchange's opening trading process for.
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The proposed rule change removes Rule 6.51A because this Rule was
deleted in 1992 and merely refers to current Rule 17.50 (shell Rule
13.15).\8\ Finally, the proposed rule change deletes current Rule
24A.11, in connection with FLEX Index appointed Market-Maker account
equity, and Rule 24A.12, in connection with FLEX Index appointed
Market-Maker financial requirements, because the Exchange does not
currently have any FLEX Appointed Market-Makers, and does not intend to
have any following migration. In other rule filings, the Exchange
previously deleted various current Rules related to FLEX Appointed
Market-Makers, and inadvertently did not omit current Rules 24A.11 and
24A.22 in those rule filings.\9\
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\8\ Rule 13.15(g) of the shell Rulebook describes fines that may
be imposed for failure to perform certain reporting duties. See,
e.g., Rule 13.15(g)(4) (failure to submit trade information on time
and failure to submit trade information to the price reporter).
\9\ See Securities Exchange Act Release No. 87024 (September 19,
2019), 84 FR 50545 (September 25, 2019) (SR-CBOE-2019-059) (Notice
of Filing and Immediate Effectiveness of a Proposed Rule Change To
Amend Certain Rules Relating To Market-Makers Upon Migration to the
Trading System Used by Cboe Affiliated Exchanges); and SR-CBOE-2019-
084 (filed October 2, 2019).
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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.\10\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \11\ 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) \12\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
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\10\ 15 U.S.C. 78f(b).
\11\ 15 U.S.C. 78f(b)(5).
\12\ Id.
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As stated, the proposed rule change makes no substantive changes to
the rules. The proposed rule change is merely intended to relocate the
Exchange's rules to the shell Rulebook and update their numbers,
paragraph structure, including number and lettering format, cross-
references, and terms found in the shell Rules, as well as removing
rules that are either redundant or no longer applicable to the
Exchange, in order to conform to the shell Rulebook as a whole in
anticipation of the technology migration on October 7, 2019. As such,
the proposed rule change is designed to promote just and equitable
principles of trade, 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, by improving the way the
Exchange's Rulebook is organized, making it easier to read, and,
particularly, helping market participants better understand the rules
of the Exchange, which will also result in less burdensome and more
efficient regulatory compliance.
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 reiterates that
the proposed rule change is being proposed in the context of a
technology migration of the Exchange's system to the same technology
platform as that used by the Cboe Affiliated Exchanges and a related
reorganization of the Rulebook, and not as a competitive filing. The
Exchange does not believe that the proposed rule change will impose any
burden on intramarket competition because it deletes rules that are
redundant or no longer applicable in light of the rules already in the
shell Rulebook, will allow the provision that currently governs
mandatory systems testing to continue to govern mandatory systems
testing upon migration, and makes non-substantive changes to the rules
by relocating the rules and updating their paragraph structure and
cross-references, to conform to the shell Rulebook that will be in
place come October 7, 2019. The Exchange does not believe that the
proposed rule change will impose any burden on intermarket competition
because the proposed rules are substantially the same as the Exchange's
current rules, all of which have all been previously filed with the
Commission.
[[Page 56504]]
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
The Exchange has filed the proposed rule change pursuant to Section
19(b)(3)(A)(iii) of the Act \13\ and Rule 19b-4(f)(6) thereunder.\14\
Because the 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, if consistent with the protection of
investors and the public interest, the proposed rule change has become
effective pursuant to Section 19(b)(3)(A) of the Act \15\ and Rule 19b-
4(f)(6) thereunder.\16\
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\13\ 15 U.S.C. 78s(b)(3)(A)(iii).
\14\ 17 CFR 240.19b-4(f)(6).
\15\ 15 U.S.C. 78s(b)(3)(A).
\16\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires the Exchange to give the Commission written notice of the
Exchange's 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
Commission has waived that requirement in this case.
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A proposed rule change filed under Rule 19b-4(f)(6) \17\ normally
does not become operative prior to 30 days after the date of the
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\18\ the Commission
may designate a shorter time if such action is consistent with the
protection of investors and the public interest. The Exchange has asked
the Commission to waive the 30-day operative delay so that the proposed
rule change may become operative immediately. The Exchange notes that
the proposed rule change is merely relocating certain rules to its
shell rulebook--which includes corresponding updates to rule numbers,
cross-references, and other references--in order to conform these rules
to the shell rulebook upon the technology migration explained above.
The Exchange believes that the proposed rule change will make its rules
easier to read and understand for all investors. The Exchange also
asserts that the relocation of the rules explained above will not
impose any significant burden on competition as the substance of the
rules remains unchanged. The Commission agrees that allowing this
proposed rule change to become operative upon filing in order to
facilitate the Exchange's technology migration--without changing the
substance of these Exchange Rules--is consistent with the protection of
investors and the public interest. For this reason, the Commission
hereby waives the 30-day operative delay and designates the proposal
operative upon filing.\19\
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\17\ 17 CFR 240.19b-4(f)(6).
\18\ 17 CFR 240.19b-4(f)(6)(iii).
\19\ For purposes only of waiving the 30-day operative delay,
the Commission 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-2019-095 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-CBOE-2019-095. 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 offices of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-CBOE-2019-095, and should be submitted
on or before November 12, 2019.
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), (59).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-22935 Filed 10-21-19; 8:45 am]
BILLING CODE 8011-01-P