[Federal Register Volume 85, Number 101 (Tuesday, May 26, 2020)]
[Notices]
[Pages 31556-31559]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-11133]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-88902; File No. SR-CboeBYX-2020-015]
Self-Regulatory Organizations; Cboe BYX Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
Certain Rules in Connection With the Exchange's Disciplinary Process
May 19, 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 May 8, 2020, Cboe BYX Exchange, Inc. (the ``Exchange'' or ``BYX'')
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 BYX Exchange, Inc. (the ``Exchange'' or ``BYX'') proposes to
amend certain rules in connection with the Exchange's disciplinary
process. 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/equities/regulation/rule_filings/byx/), 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 8.8 in connection with the
timing before which an offer of settlement becomes final, to amend Rule
8.10 in connection with the Board's review of offers of settlement, and
to amend Rule 8.11 to be consistent with the corresponding rules of the
Exchange's affiliated exchanges, Cboe Exchange, Inc. (``Cboe Options'')
and Cboe C2 Exchange, Inc. (``C2'').\5\
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\5\ See Cboe Options Rule 13.11. The Exchange notes that C2
incorporates Cboe Options Disciplinary rules by reference.
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First, the Exchange proposes to amend Rule 8.8 which governs offers
of settlement during a disciplinary proceeding pursuant to Chapter 8
(Discipline). Specifically, it proposes to amend the timing for which
the Chief Regulatory Officer's (``CRO'') decision regarding an offer
shall become final pursuant to Rule 8.8(a). Rule 8.8(a) currently
provides that a Respondent may submit to the CRO a written offer of
settlement, and the CRO may accept an offer of settlement, and, in
doing so, issues a decision, including findings and conclusions and
imposing a penalty, consistent with the terms of such offer. Pursuant
to Rule 8.8(a), the CRO may also reject an offer of settlement and the
matter then proceeds as if such offer had not been made. According to
Rule 8.8(a), a decision of the CRO issued upon acceptance of an offer
of settlement as well as the determination of the CRO whether to accept
or reject such an offer does not currently become final until 20
business days after such decision is issued, and the Respondent may not
seek review thereof.
The Exchange proposes to eliminate the 20-business day timeframe
before which the CRO's determination and decision in connection with an
offer of settlement becomes final. This is consistent with the
corresponding offer of settlement rules of the Exchange's affiliated
exchanges, Cboe Options and C2,\6\ which do not have any such waiting
period before which the CRO's acceptance (and accompanying decision) or
rejection of an offer of settlement becomes final. In addition to
providing consistency between the rules of the affiliated exchanges,
the proposed rule change also removes a process that unnecessarily
prolongs disciplinary proceedings. Where a matter could be either
immediately closed or continued to the next steps of the proceedings
upon the CRO's acceptance or rejection, respectively, of an offer of
settlement, the current process unnecessarily leaves a matter open.
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\6\ See Cboe Options Rule 13.8(a). The Exchange notes that C2
incorporates Cboe Options Disciplinary rules by reference.
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Second, and in line with the proposed rule change to Rule 8.8, the
Exchange also proposes to remove Rule 8.8 offers of settlement from the
list of certain procedural decisions in Rule 8.10 that may be reviewed
by the Board on its own initiative within 20 business days after the
issuance of the decision. This is also consistent with the
corresponding disciplinary review rules of Cboe Options and C2, which
do not include offers of settlement as decisions
[[Page 31557]]
that the Board may review on its own initiative.\7\ The Exchange notes
that the Board has not previously initiated a review of an offer of
settlement. Therefore, the Exchange believes maintaining a 20-business
day waiting period for a review that is not invoked is unnecessary and
merely exhausts additional Exchange and Member resources in the time
that a matter could have been resolved or have continued through
proceedings. Allowing the CRO to accept or reject offers of settlement
with finality will significantly expedite the settlement process while
ensuring that the independence and integrity of the regulatory process
is maintained, as the CRO's regulatory decision-making responsibilities
are entirely separate from those responsible for the Exchange's
business interests.
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\7\ See Cboe Options Rule 13.10(c).
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Finally, the Exchange proposes to amend Rule 8.11 to incorporate
the Principal Considerations in Determining Sanctions (``Principal
Considerations'') into proposed Rule 8.11(c), which are currently in
corresponding Rule 13.11.01 of Cboe Options and C2, and the general
provision regarding sanctions into proposed Rule 8.11(a), which are
currently in corresponding Rule 13.11(a) of Cboe Options and C2, in
order to promote consistency and uniformity across the affiliated
exchanges in determining appropriate remedial sanctions.\8\
Particularly, the proposed rule change incorporates the general
authority of the CRO, Hearing Panel, and committee of the Board \9\ to
determine and apply sanctions, consistent with Cboe Options and C2 Rule
13.11(a), into proposed Rule 8.11(a), which provides that Members and
persons associated with Members shall (subject to any rule or order of
the Securities and Exchange Commission) be appropriately disciplined by
the CRO, Hearing Panel, or the committee of the Board, as applicable,
for violations under these Rules by expulsion, suspension, limitation
of activities, functions and operations, fine, censure, being suspended
or barred from being associated with a Member, suspension or revocation
of membership, or any other fitting sanction. This authority is already
enumerated in Rule 8.1, however, the proposed provision provides
consistency with the rules of the Exchange's affiliated options
exchanges.\10\ As proposed in Rule 8.11(c), the Principal
Considerations promote consistency and uniformity in the imposition of
penalties, and should be considered in connection with the imposition
of sanctions in all cases in determining appropriate remedial sanctions
through the resolution of disciplinary matters through offers of
settlement or after formal disciplinary hearings. The Principal
Considerations include the following:
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\8\ The Exchange notes that its other affiliated exchanges, Cboe
BZX Exchange, Inc. (``BZX''), Cboe EDGX Exchange, Inc. (``EDGX''),
and Cboe BYX Exchange, Inc. (``BYX''), also intend to incorporate
these portions of Cboe Options and C2 Rule 13.11 into their Rule
8.11.
\9\ The Exchange notes that it maintains the inclusion of
committee of the Board (along with the CRO and Hearing Panel) in
connection with the imposition of sanctions throughout proposed
Rules 8.11(a) and (c), which is currently a difference in text
between Cboe Options and C2 Rule 13.11 and current Rule 8.11 and
maintains consistency throughout current Rule 8.11.
\10\ The proposed change also amends the current language under
Rule 8.11 to be provided in paragraph (b), with a heading that reads
``Effective Date of Judgment'', which is consistent with the
corresponding heading in Cboe Options and C2 Rule 13.11. No changes
are made to the current language. It also adds in the same header
language for Rule 8.11 (``Judgment and Sanction'') as that of Cboe
Options and C2 Rule 13.11.
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(1) Disciplinary sanctions are remedial in nature. The CRO, Hearing
Panel or committee of the Board,\11\ as applicable, should design
sanctions to prevent and deter future misconduct by wrongdoers, to
discourage others from engaging in similar misconduct, and to improve
overall business standards of Exchange Members. Pursuant to this Rule
8.11, the CRO, Hearing Panel or committee of the Board, as applicable,
may impose sanctions including expulsion, suspension, limitation of
activities, fine, censure, suspension or revocation of one or more
Members, or any other fitting sanction.
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\11\ See supra note 9. The committee of the Board would, thus,
also apply the Principal Considerations to any determinations made
during a review related to sanctions.
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(2) An important objective of the disciplinary process is to deter
future misconduct by imposing progressively escalating sanctions on
recidivists. The CRO, Hearing Panel or committee of the Board, as
applicable, should consider a party's relevant disciplinary history in
determining sanctions.
(3) The CRO, Hearing Panel or committee of the Board, as
applicable, should consider prior similar disciplinary decisions
(relevant precedent) in determining an appropriate sanction and may
consider relevant precedent from other self-regulatory organizations.
(4) The CRO, Hearing Panel or committee of the Board, as
applicable, should tailor sanctions to address the misconduct at issue.
The CRO, Hearing Panel or committee of the Board, as applicable, should
impose sanctions tailored to the misconduct at issue. For example, the
CRO, Hearing Panel or committee of the Board, as applicable, may
require a Member \12\ to, among other things: Retain a qualified
independent consultant to improve future compliance with regulatory
requirements; disclose disciplinary history to new and/or existing
clients; implement heightened supervision of certain employees; or
requalify by examination in any or all registered capacities.
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\12\ The Exchange notes that, to the extent Cboe Options and C2
Rule 13.11.01 state ``TPH and TPH organization'', the Exchange uses
the term ``Member'', which, pursuant to its definition in Rule
1.5(n), covers the same scope of exchange membership as the
aforementioned language in Cboe Options and C2 Rule 13.11.01.
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(5) Aggregation of violations may be appropriate in certain
instances for purposes of determining sanctions. The CRO, Hearing Panel
or committee of the Board, as applicable, may aggregate individual
violations of particular rules and treat such violations as a single
offense for purposes of determining sanctions. Aggregation may be
appropriate when the Exchange utilizes a comprehensive surveillance
program in the detection of potential rules violations. Aggregation may
also be appropriate where the Exchange has reviewed activity over an
extensive time period during the course of an investigation of matters
disclosed either through a routine examination of the Member or as the
result of a complaint. Similarly, where no exceptional circumstances
are present, the Exchange may impose a fine based upon a determination
that there exists a pattern or practice of violative conduct. The
Exchange also may aggregate similar violations generally if the conduct
was unintentional, there was no injury to public investors, or the
violations resulted from a single systemic problem or cause that has
been corrected.
(6) The CRO, Hearing Panel or committee of the Board, as
applicable, should evaluate appropriateness of disgorgement and/or
restitution. The CRO, Hearing Panel or committee of the Board, as
applicable, should evaluate the appropriateness of disgorgement and/or
restitution in those cases where the amount of harm is quantifiable and
the harmed party is identifiable.
(7) The CRO, Hearing Panel or committee of the Board, as
applicable, should consider contributions or settlements by a
respondent or any related Member to the harmed party as it relates to
the conduct that is the subject of the disciplinary matter.
(8) The CRO, Hearing Panel or committee of the Board, as
applicable, may consider a party's inability to pay
[[Page 31558]]
in connection with the imposition of monetary sanctions.
The Exchange notes that the CRO, Hearing Panel or committee of the
Board, as applicable, already consider the above proposed Principal
Considerations when determining appropriate remedial sanctions
throughout the resolution of disciplinary matters. However, the
Exchange now proposes to codify such considerations in order to ensure
that the CRO, Hearing Panel or committee of the Board, as applicable,
consider aggravating and/or mitigating factors in the same manner
across each disciplinary matter which will, in turn, provide for
consistency, fairness and that the most appropriate disciplinary
measure is implemented during proceedings.
The Exchange intends to announce the operative date of the updates
to Rules 8.8, 8.10, and 8.11 at least 30 days in advance via a
regulatory notice. To facilitate an orderly transition from the current
rules to the proposed rules, the Exchange proposes to apply the current
rules to all matters where a subject has received notice pursuant to
Rule 8.2(d) prior to the operative date. As a consequence of this
transition process, the Exchange will retain the existing processes
during the transition period until such time that there are no longer
any matters proceeding under the current rules. To facilitate this
transition process, the Exchange will retain a transitional Chapter 8
that will contain the Exchange's rules, as they are at the time this
proposal is filed with the Commission. This transitional Chapter 8 will
apply only to matters initiated prior to the operational date of the
changes proposed herein and it will be posted to the Exchange's public
rules website. When the transition is complete and there are no longer
any Members or associated persons subject to current Chapter 8, the
Exchange will remove the transitional Chapter 8 from its public rules
website.
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.\13\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \14\ 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) \15\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
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\13\ 15 U.S.C. 78f(b).
\14\ 15 U.S.C. 78f(b)(5).
\15\ Id.
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In particular, the proposed rule changes are designed to be
consistent with the corresponding rules of its affiliated
exchanges,\16\ which have been previously filed with the Commission.
The Exchange believes that by providing consistent disciplinary rules
across the affiliated exchanges the proposed rule change would foster
cooperation and coordination with persons engaged in facilitating
transactions in securities and would remove impediments to and perfect
the mechanism of a free and open market and a national market system by
increasing the understanding of the Exchange's disciplinary process for
Members that participate across the affiliated exchanges, as well as
result in greater uniformity, and less burdensome and more efficient
regulatory processes. Moreover, the Exchange believes that removing an
unnecessary waiting period in the disciplinary process, as well as a
review provision that is not used, would serve to expedite the outcome
of a matter or the progression of a matter through the next steps in
the process, thereby protecting investors and the public interest by
conserving Exchange and Member resources. The proposed rule change to
remove the waiting period before an offer of settlement becomes final
and the Board's initiative to review such will provide for a more
efficient, streamlined disciplinary process as a matter would then be
either immediately closed or continued to the next steps of the
proceedings upon the CRO's acceptance or rejection, respectively, of an
offer of settlement. Additionally, and as stated above, the CRO's
regulatory decision-making responsibilities are entirely separate from
those responsible for the Exchange's business interests, therefore,
allowing the CRO to accept or reject offers of settlement with finality
will significantly expedite the settlement process while ensuring that
the independence and integrity of the regulatory process is maintained.
In light of these proposed changes, the Exchange notes that the
proposed addition of the Principal Considerations will ensure that the
CRO determines each offer of settlement using the same set of fair
standards and factors, thereby protecting investors and the public
interest throughout the disciplinary process.
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\16\ See supra note 5.
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In addition to this, the Exchange also believes that the proposed
rule in consistent with Section 6(b)(6) of the Act,\17\ which requires
the rules of an exchange provide that its members be appropriately
disciplined for violations of the Act as well as the rules and
regulations thereunder, or the rules of the Exchange, by expulsion,
suspension, limitation of activities, functions, and operations, fine,
censure, being suspended or barred from being associated with a member,
or any other fitting sanction, as well as Section 6(b)(7) of the
Act,\18\ in that it provides fair procedures for the disciplining of
Members and persons associated with Members, the denial of Member
status to any person seeking Membership therein, the barring of any
person from becoming associated with a Member thereof, and the
prohibition or limitation by the Exchange of any person with respect to
access to services offered by the Exchange or a Member thereof.
Specifically, the proposed rule change to incorporate Principal
Considerations that the CRO, Hearing Panel or committee of the Board,
as applicable, may take into consideration when determining
disciplinary sanctions will ensure that the Exchange implements the
most appropriate disciplinary mechanisms for violations and a fair
process in determining such.
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\17\ 15 U.S.C. 78f(b)(6).
\18\ 15 U.S.C. 78f(b)(6).
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Finally, the Exchange believes that its proposed transition plan
would allow for a more orderly and less burdensome transition for the
Exchange's Members. The proposed application of current rules to all
matters where a subject has received notice pursuant to Rule 8.2(d)
prior to the operative date provides a clear demarcation between
matters that would proceed under the new rules and those that would be
completed under the current rules.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change would
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The
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proposed rule changes are not intended to address competitive issues,
but rather, are concerned with facilitating less burdensome regulatory
compliance and processes and enhancing the quality of the regulatory
processes. The Exchange believes the proposed rule changes would reduce
the burdens within the disciplinary process, as well as move matters
through the process expeditiously by providing for more efficient
finality of offers of settlement, to the benefit of all Members.
Moreover, the proposed Principal Considerations will apply to all
remedial sanctions throughout the disciplinary process in the same
manner, thereby equally benefitting all Members by providing for fair
and consistent disciplinary determinations. Additionally, the proposed
rule changes are consistent with the rules of the Exchange's
affiliates, Cboe Options and C2, which have been previously filed with
the Commission.\19\
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\19\ See Cboe Options Rules 13.8, 13.10(c), 13.11(a), and
13.11.01.
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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 \20\ and Rule 19b-
4(f)(6) thereunder.\21\
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\20\ 15 U.S.C. 78s(b)(3)(A).
\21\ 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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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-CboeBYX-2020-015 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-CboeBYX-2020-015. 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-CboeBYX-2020-015 and should be submitted
on or before June 16, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\22\
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\22\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-11133 Filed 5-22-20; 8:45 am]
BILLING CODE 8011-01-P