[Federal Register Volume 85, Number 71 (Monday, April 13, 2020)]
[Notices]
[Pages 20558-20561]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-07652]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-88575; File No. SR-CBOE-2020-025]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
Interpretation and Policy .01 to Rule 5.24 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
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on March 26, 2020, Cboe Exchange, Inc. (``Exchange'' or ``Cboe
Options'') 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 Exchange, Inc. (the ``Exchange'' or ``Cboe Options'') proposes
to amend Interpretation and Policy .01 to Rule 5.24 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://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 harmonize Interpretation and Policy .01 to
Rule 5.24, in connection with business continuity and disaster recovery
testing, with the corresponding rules of its affiliated options
exchanges, Cboe BZX Exchange, Inc. (``BZX Options''), Cboe EDGX
Exchange, Inc. (``EDGX Options''), and Cboe C2 Exchange, Inc.
(``C2'').\3\
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\3\ The Exchange notes that C2 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 5.24(b) requires
certain Trading Permit Holders (``TPHs'') to connect to the Exchange's
backup systems and participate in functional and performance testing
announced by the Exchange, which occurs every 12 months pursuant to Reg
SCI. Subparagraphs (b)(1) and (b)(2) respectively require TPHs that the
Exchange determine which TPHs contribute a meaningful percentage of the
Exchange's overall volume and the Exchange's executed customer volume
in SPX and VIX combined, which TPHs are required to connect to the
Exchange's backup systems and participate in the functional and
performance testing. Interpretation and Policy .01 to Rule 5.24
currently provides that for purposes of determining which TPHs
contribute a meaningful percentage of the Exchange's overall volume and
customer volume in SPX and VIX pursuant to subparagraphs (b)(1) and
(2), respectively, the Exchange measures volume executed on the
Exchange during a specified calendar quarter (the ``measurement
quarter''). Pursuant to Interpretation and Policy .01(a), the Exchange
provides TPHs with reasonable advance notice of the applicable
meaningful percentage and measurement quarter, which meaningful
percentage may not apply retroactively to any measurement quarter
completed or in progress, and, pursuant to Interpretation and Policy
.01(b), the Exchange individually notifies all TPHs that are subject to
paragraph (b) of Rule 5.24 based on the applicable meaningful
percentage following the completion of the applicable measurement
quarter. The Exchange provides these TPHs with reasonable advance
notice that they must participate in the next annual functional and
performance testing, which generally occurs in October. For example,
TPHs could potentially receive notice they will be required to
participate in the annual functional and performance testing based on
their activity in the third or fourth quarter of the preceding year.
In order to harmonize its business continuity and disaster recovery
testing provisions with that of its affiliated options exchanges, the
Exchange proposes to amend the application of the meaningful percentage
to a specified quarter's volume, as well as the timing for which the
Exchange notifies a TPH required to participate in annual testing.
Specifically, the proposed rule change removes the provision in current
Interpretation and Policy .01(a) \5\ which provides that a meaningful
percentage
[[Page 20559]]
may not apply retroactively to any measurement quarter completed or in
progress. The proposed rule change is consistent with BZX Options and
EDGX Options Interpretation and Policy .01 to Rule 2.4, as well as C2
Rule 6.34(b). 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 a current
quarter is generally experiencing high volume and trading activity,
such a quarter would provide a better, more accurate sample of overall
activity and trading patterns on the Exchange than a future,
potentially less active quarter, thus providing a more accurate,
holistic representation of the TPHs who meet the requirements set forth
in Rules 5.24(b)(1) and (b)(2). The Exchange also reflects this
proposed rule change by removing language in connection with the
application of a meaningful percentage following the completion of the
measurement quarter, currently in Interpretation and Policy .01(b).
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\5\ The Exchange also removes (a) and (b) as separate paragraphs
under Interpretation and Policy .01 and consolidates the rule text
into a single Interpretation and Policy .01 provision. This is
consistent with Interpretation and Policy .01 to Rule 2.4 of BZX
Options and EDGX Options.
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The proposed rule change amends language in current Interpretation
and Policy .01(b) \6\ regarding notification to TPHs that are
designated for testing by adopting a specific notification timeframe in
which the Exchange must notify such designated TPHs. 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, and removes
language in connection with giving reasonable advanced notice. 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 provides additional detail regarding the timeframe for which the
Exchange will provide notice to TPHs that have been designated to test
pursuant to subparagraph (b)(1) and (b)(2) of Rule 5.24. Additionally,
the proposed rule change is consistent with the current language, which
provides the Exchange will provide reasonable advanced notice, which
the Exchange believes three months is reasonable advanced notice.
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\6\ See supra note 4.
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Finally, the proposed rule change makes nonsubstantive changes to
certain language in Interpretation and Policy .01 in order to provide
consistencies between the corresponding business continuity and
disaster recovery testing provisions in the rules of BZX Options, EDGX
Options and C2. The proposed rule change removes the provision under
current Interpretation and Policy .01(a) which provides that the
Exchange gives TPHs reasonable advance notice of the applicable
meaningful percentage and measurement quarter. Instead, the proposed
rule change streamlines this language and makes it consistent with
current BZX Options and EDGX Options Interpretation and Policy .01 and
C2 Rule 6.34(b)(1) by providing that the Exchange determines the
percentage of volume it considers to be meaningful for purposes of Rule
5.24. The Exchange notes that, pursuant to Rule 1.5, the Exchange is
automatically required to announce such a determination to TPHs in a
specification, Notice or Circular with appropriate advanced notice. The
proposed rule change also updates ``specified calendar quarter (``the
measurement quarter'')'' to state ``single designated quarter for a
given year'' and updates the relevant terms where applicable in the
remainder of Interpretation and Policy .01, which is consistent with
the terms used in the corresponding rules of the Exchange's affiliated
options exchanges.
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.\7\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \8\ 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) \9\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
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\7\ 15 U.S.C. 78f(b).
\8\ 15 U.S.C. 78f(b)(5).
\9\ 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, as well as C2.\10\ The proposed rule change
does not proposed 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.'' \11\ 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
[[Page 20560]]
with other SCI entities to the benefit of investors and the public
interest.
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\10\ See supra note 5.
\11\ 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 any 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 representative of overall trading activity and patterns on the
Exchange in order to better determine which TPHs should participate in
testing, provide the more specificity as to the timing for which the
Exchange will give notice to TPHs designated to participate in testing,
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 continue to 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, and generally consistent with
the corresponding rules of C2, all of 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 \12\ and
subparagraph (f)(6) of Rule 19b-4 thereunder.\13\
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\12\ 15 U.S.C. 78s(b)(3)(A)(iii).
\13\ 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) \14\ normally
does not become operative prior to 30 days after the date of the
filing. However, Rule 19b-4(f)(6)(iii) \15\ 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
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.\16\
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\14\ 17 CFR 240.19b-4(f)(6).
\15\ 17 CFR 240.19b-4(f)(6)(iii).
\16\ 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-CBOE-2020-025 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-2020-025. 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
[[Page 20561]]
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-2020-025 and should be submitted on or before May 4, 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. 2020-07652 Filed 4-10-20; 8:45 am]
BILLING CODE 8011-01-P