[Federal Register Volume 85, Number 71 (Monday, April 13, 2020)]
[Notices]
[Pages 20553-20556]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-07649]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-88577; File No. SR-C2-2020-003]
Self-Regulatory Organizations; Cboe C2 Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
Rule 6.34 in Connection With Business Continuity and Disaster Recovery
Testing
April 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 March 26, 2020, Cboe C2 Exchange, Inc. (``Exchange'' or ``C2'')
filed with the Securities and Exchange Commission (``Commission'') the
proposed rule change as described in Items I and II 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 C2 Exchange, Inc. (the ``Exchange'' or ``C2'') proposes to
amend Rule 6.34 in connection with business continuity and disaster
recovery testing. 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 harmonize Rule 6.34, in connection with
business continuity and disaster recovery testing, with the
corresponding rules of its affiliated options exchanges, Cboe BZX
Exchange, Inc. (``BZX Options'') and Cboe EDGX Exchange, Inc. (``EDGX
Options'').\3\
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\3\ The Exchange notes that Cboe Exchange, Inc. (``Cboe
Options'') is simultaneously filing a rule change to harmonize
certain provisions of its business continuity and disaster recovery
testing rules with that of BZX Options and EDGX Options.
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As background, Regulation Systems Compliance and Integrity
(``Regulation SCI'') \4\ applies to certain self-regulatory
organizations (including the Exchange), alternative trading systems
(``ATSs''), plan processors, and exempt clearing agencies
(collectively, ``SCI entities''). Specifically, Rule 1004 of Regulation
SCI (``Reg SCI'') states that each SCI entity shall establish standards
for the designation of members or participants that are necessary for
the maintenance of fair and orderly markets in the event of the
activation of the business continuity and disaster recovery plans,
designate such members or participants in scheduled functional and
performance testing of the operation of such plans no less than once
every 12 months, and coordinate the testing of such plans on an
industry- or sector-wide basis with other SCI entities.
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\4\ See Securities Exchange Act Release No. 73639 (November 19,
2014), 79 FR 72252 (December 5, 2014) (``SCI Adopting Release'').
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In order to comply with the coordination requirement among SCI
entities, the Exchange has conducted the required operational testing
in parallel with the industry-led testing program coordinated by the
Securities Industry and Financial Markets Association (``SIFMA''),
which occurs on an annual basis. In particular, Rule 6.34(b) requires
certain Trading Permit Holders (``TPHs'') that contribute a meaningful
percentage of the Exchange's overall volume must connect to the
Exchange's backup systems and participate in functional and performance
testing as announced
[[Page 20554]]
by the Exchange, which occurs at least once every 12 months. This is
consistent with Reg SCI and generally occurs in October. In particular,
subparagraph (b)(1) provides that the Exchange determines the
percentage of volume it considers to be meaningful for purposes of Rule
6.34(b), subparagraph (b)(2) provides that the Exchange measures volume
executed on the Exchange on a quarterly basis, and that the Exchange
also individually notifies all Trading Permit Holders quarterly that
are subject to this paragraph (b) based on the prior calendar quarter's
volume, and subparagraph (b)(3) provides that if a Trading Permit
Holder has not previously been subject to the requirements of this
paragraph (b), such Trading Permit Holder has until the next calendar
quarter before such requirements are applicable.
In order to harmonize its business continuity and disaster recovery
testing provisions with that of its affiliated options exchanges, the
Exchange proposes to amend subparagraph (b)(2) to allow the Exchange to
identify TPHs designated to test based on trading activity during a
single designated quarter for a given year. In line with this proposed
rule change, the Exchange also subsequently updates the timeframe for
notification to TPHs that are designated for testing in subparagraph
(b)(2) and removes subparagraph (b)(3) as all TPHs will be subject to
the same measurement quarter selected by the Exchange. Specifically,
the proposed rule change provides that the Exchange individually
notifies all TPHs (designated for testing) annually, and at least three
months prior to the scheduled functional and performance testing. The
proposed rule change is substantively identical to the language
regarding testing notification provided in Interpretation and Policy
.01 to Rule 2.4 of BZX Options and EDGX Options. The proposed rule
change is intended to provide the Exchange with greater flexibility in
selecting the most relevant quarter's trade data for which the Exchange
may identify TPHs that will be designated to participate in annual
testing. As such, the Exchange may identify TPHs designated for testing
based on potentially the most representative measure of trading
activity. For example, if the second quarter of the year in which the
test will take place is generally experiencing high volume and trading
activity, such a quarter would provide a better, more relevant and/or
accurate sample of overall activity and trading patterns on the
Exchange than a former, potentially less active quarter or a quarter
farther removed from the test date (e.g., the third quarter of the
preceding year) for which a TPH might have been designated, thus
providing a more relevant and/or accurate, holistic representation of
the TPHs who meet the requirement set forth in Rules 6.34(b). The
proposed rule change provides additional detail regarding the timeframe
for which the Exchange will provide notice to TPHs that have been
designated to test based on a single designated quarter as opposed to a
quarterly basis. The Exchange believes three months is reasonable
advanced notice.
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.\5\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \6\ 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) \7\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
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\5\ 15 U.S.C. 78f(b).
\6\ 15 U.S.C. 78f(b)(5).
\7\ Id.
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In particular, the proposed change is intended to harmonize the
rules in connection with business continuity and disaster recovery
testing across the Exchange and its affiliated options exchanges, BZX
Options and EDGX Options.\8\ The proposed rule change does not propose
new or unique business continuity and disaster recovery procedures or
requirements as the proposed changes are substantively similar to rules
currently in place on the Exchange's affiliated options exchanges and
previously filed with the Commission. Consistent requirements and
procedures in connection with business continuity and disaster recovery
testing will simplify the regulatory requirements and increase the
understanding of the Exchange's operations for TPHs that are also
participants on the Exchange's affiliated options exchanges. Greater
harmonization across the affiliated options exchanges will result in
greater uniformity, rules that are easier to follow and understand, and
less burdensome, more efficient regulatory compliance, thereby
contributing to the protection of investors and the public interest.
Moreover, the proposed rule change will harmonize Exchange rules with
those of other self-regulatory organizations in furtherance of the
coordination of testing among SCI entities required by Rule 1004(c) of
Regulation SCI. As set forth in Regulation SCI, ``SROs have the
authority, and legal responsibility, under Section 6 of the Exchange
Act, to adopt and enforce rules (including rules to comply with
Regulation SCI's requirements relating to business continuity and
disaster recovery testing) applicable to their members or participants
that are designed to, among other things, 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.'' \9\ The Exchange believes
that the proposed rule change is consistent with such authority and
legal responsibility and will serve to strengthen the Exchange's
coordination with other SCI entities to the benefit of investors and
the public interest.
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\8\ See supra note 5.
\9\ See supra note 6.
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In addition to this, by allowing the Exchange to identify TPHs that
are subject to testing based on activity during a single designated
quarter and to issue an annual notification at least three months prior
to testing the proposed rule change will remove impediments to and
perfect the mechanism of a free and open market and national market
system, and, in general, protect investors as it will allow the
Exchange to rely on the trading activity within a quarter that may be
more relevant or representative of overall trading activity and
patterns on the Exchange in order to better determine which TPHs should
participate in testing, provide specificity as to the timing for which
the Exchange will give notice to TPHs designated to participate in
testing based on the selection of a single measurement
[[Page 20555]]
quarter, and, in general, will simplify the TPH designation and notice
process.
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 notes that the
proposed rule change is not a competitive proposal as it is intended to
coordinate TPH notification and designated calendar quarters in
connection with annual functional and performance testing participation
with the rules of its affiliated options exchanges.
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 the
trading activity of TPHs will be measured during the same Exchange-
determined quarter for all TPHs and annual notice will be given to each
TPH designated for testing at the same time at least three months in
advance.
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 changes are substantively identical to the corresponding
rules of BZX Options and EDGX Options, which have previously been filed
with the Commission.
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)(iii) of the Act \10\ and
subparagraph (f)(6) of Rule 19b-4 thereunder.\11\
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\10\ 15 U.S.C. 78s(b)(3)(A)(iii).
\11\ 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 under Rule 19b-4(f)(6) \12\ normally
does not become operative prior to 30 days after the date of the
filing. However, Rule 19b-4(f)(6)(iii) \13\ 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 so that the proposed
rule change may become effective and operative immediately upon filing.
The Exchange states that waiver of the operative delay would eliminate
potential confusion in connection with testing participation in the
next annual functional and performance testing (October 2020) across
the Exchange and its affiliated options exchanges and in coordination
with other SCI entities. The Exchange also states that the proposed
rule changes will harmonize Exchange rules with those of other self-
regulatory organizations in furtherance of the coordination of testing
among SCI entities, thereby contributing the protection of investors
and the public interest. The Exchange further states that the proposed
rule change will simplify and streamline the process of notification to
TPHs designated to participate in the annual test and will ensure that
the Exchange and its affiliated options exchanges will be able to base
all member participation on the same designated quarter (e.g., Q1 2020)
for the upcoming annual test, thus resulting in more efficient
regulatory compliance and operations for investors across the
exchanges. Accordingly, the Commission believes that waiver of the 30-
day operative delay is consistent with the protection of investors and
the public interest. Therefore, the Commission hereby waives the 30-day
operative delay and designates the proposed rule change as operative
upon filing.\14\
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\12\ 17 CFR 240.19b-4(f)(6).
\13\ 17 CFR 240.19b-4(f)(6)(iii).
\14\ For purposes only of waiving the 30-day operative delay,
the Commission has also 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: (i)
Necessary or appropriate in the public interest; (ii) for the
protection of investors; or (iii) 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-C2-2020-003 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-C2-2020-003. 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. 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-C2-2020-003 and should be submitted on
or before May 4, 2020.
[[Page 20556]]
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\15\
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\15\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-07649 Filed 4-10-20; 8:45 am]
BILLING CODE 8011-01-P