[Federal Register Volume 85, Number 134 (Monday, July 13, 2020)]
[Notices]
[Pages 42031-42034]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-14973]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-89235; File No. SR-CboeBYX-2020-020]
Self-Regulatory Organizations; Cboe BYX Exchange, Inc.; Notice of
Filing and Order Granting Accelerated Approval of a Proposed Rule
Change Relating to Add the Consolidated Audit Trail Industry Member
Compliance Rules to the List of Minor Rule Violations in Rule 8.15
July 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 July 2, 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 Commission
is publishing this notice to solicit comments on the proposed rule
change from interested persons and approving the proposal on an
accelerated basis.
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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 BYX Exchange, Inc. (the ``Exchange'' or ``BYX'') proposes to
add
[[Page 42032]]
the Consolidated Audit Trail (``CAT'') industry member compliance rules
(``CAT Compliance Rules'') to the list of minor rule violations in Rule
8.15. 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
In order to implement the National Market System Plan Governing the
Consolidated Audit Trail (the ``CAT NMS Plan'' or ``Plan'') the
Exchange codified the CAT Compliance Rules in Rules 4.5 through
4.16.\3\ The CAT NMS Plan was filed by the Plan Participants to comply
with Rule 613 of Regulation NMS under the Exchange Act,\4\ and each
Plan Participant accordingly has adopted the same compliance rules as
the Exchange's Rules 4.5 through 4.16. The common compliance rules
adopted by each Plan Participant are designed to require industry
members to comply with the provisions of the CAT NMS Plan, which
broadly calls for industry members to record and report timely and
accurate customer, order, and trade information relating to activity in
NMS Securities and OTC Equity Securities.
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\3\ See Securities Exchange Act Release Nos. 79944 (February 2,
2017), 82 FR 9846 (February 8, 2017) (SR-BatsBYX-2017-02); and 80256
(March 15, 2017), 82 FR 14526 (March 21, 2017) (Order Approving
Proposed Rule Changes To Adopt Consolidated Audit Trail Compliance
Rules).
\4\ 17 CFR 242.613.
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Rule 8.15 provides for disposition of certain violations through
assessment of fines in lieu of conducting a formal disciplinary
proceeding. Rule 8.15.01, specifically, sets forth the list of specific
BYX Rules under which a any Member, associated person of a Member, or
registered or non-registered employee of a Member may be subject to a
fine for violations of such Rules. The Exchange proposes to amend Rule
8.15.01 to add the CAT Compliance Rules in Rules 4.5 through 4.16 to
the list of rules in Rule 8.15.01 eligible for disposition pursuant to
a minor fine; specifically, under proposed Rule 8.15.01(h).\5\ Proposed
Rule 8.15.01(h) provides that for failures to comply with the
Consolidated Audit Trail Compliance Rule requirements of Rules 4.5
through 4.16, the Exchange may impose a minor rule violation fine of up
to $2,500. The Exchange may seek other disciplinary action for more
serious violations.
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\5\ FINRA's maximum fine for minor rule violations under FINRA
Rule 9216(b) is $2,500. The Exchange will apply an identical maximum
fine amount for eligible violations of Rules 4.5 through 4.16 to
achieve consistency with FINRA and also amend its minor rule
violation plan (``MRVP'') to include such fines. Like FINRA, the
Exchange would be able to pursue a fine greater than $2,500 for
violations of Rules 4.5 through 4.16 in a regular disciplinary
proceeding or a letter of consent under Chapter 8 as appropriate.
Any fine imposed in excess of $2,500 or not otherwise covered by
Rule 19d-1(c)(2) of the Act would be subject to prompt notice to the
Commission pursuant to Rule 19d-1 under the Act. As noted below, in
assessing the appropriateness of a minor rule fine with respect to
CAT Compliance Rules, the Exchange will be guided by the same
factors that FINRA utilizes. See text accompanying notes 7-8 [sic],
infra.
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The Exchange is coordinating with the Financial Industry Regulatory
Authority, Inc. (``FINRA'') and other Plan Participants to promote
harmonized and consistent enforcement of all the Plan Participants' CAT
Compliance Rules. The Commission recently approved a Rule 17d-2 Plan
under which the regulation of CAT Compliance Rules will be allocated
among Plan Participants to reduce regulatory duplication for industry
members that are members of more than one Participant (``common
members'').\6\ Under the Rule 17d-2 Plan, the regulation of CAT
Compliance Rules with respect to common members that are members of
FINRA is allocated to FINRA. Similarly, under the Rule 17d-2 Plan,
responsibility for common members of multiple other Plan Participants
and not a member of FINRA will be allocated among those other Plan
Participants, including to the Exchange. For those non-common members
who are allocated to BYX pursuant to the Rule 17d-2 Plan, the Exchange
and FINRA have entered into a Regulatory Services Agreement (``RSA'')
pursuant to which FINRA will assist the Exchange with conducting
surveillance, investigation, examination, and enforcement activity in
connection with the CAT Compliance Rules on the Exchange's behalf. The
Exchange expects that the other exchanges will be entering into similar
RSAs.
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\6\ See Securities Exchange Act Release No. 88366 (March 12,
2020), 85 FR 15238 (March 17, 2020).
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The Exchange notes that this proposal is based upon the FINRA
filing to amend FINRA Rule 9217 in order to add FINRA's corresponding
CAT Compliance Rules to FINRA's list of rules that are eligible for
minor rule violation plan treatment.\7\ The Exchange also notes that
the New York Stock Exchange LLC (``NYSE'') submitted a filing to amend
its Minor Rule Violation Plan (``MRVP'') to add its CAT Compliance
Rules in a manner consistent with FINRA's proposal,\8\ and other Plan
Participants intend to submit the same. Thus, in order to achieve
consistency with FINRA and the other Plan Participants, the Exchange
proposes to adopt fines up to $2,500 in connection with minor rule
fines for violations of the CAT Compliance Rules (Rules 4.5 through
4.16) in proposed Rule 8.15.01(h) under the Exchange's MRVP. In
connection with FINRA's proposed amendment to FINRA Rule 9217 to make
FINRA's CAT Compliance Rules MRVP eligible, FINRA has stated that it
will apply the minor fines for CAT Compliance Rules in the same manner
that FINRA has for its similar existing audit trail-related rules.\9\
Accordingly, in order to promote regulatory consistency, the Exchange
plans to do the same. Specifically, application of a minor fine with
respect to CAT Compliance Rule violations will be guided by the same
factors that FINRA references in its filing. However, more formal
disciplinary proceedings may be warranted instead of minor rule
dispositions in certain circumstances such as where violations prevent
regulatory users of the CAT from performing their regulatory functions.
Where minor rule dispositions are appropriate, the following factors
help guide the determination of fine amounts:
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\7\ See Securities Exchange Act Release No. 88870 (May 14,
2020), 85 FR 30768 (May 20, 2020) (SR-FINRA-2020-013).
\8\ See SR-NYSE-2020-51 (filed June 12, 2020).
\9\ See supra note 7; see also FINRA Notice to Members 04-19
(March 2004) available at https://www.finra.org/rules-guidance/notices/04-19 (providing specific factors used to inform
dispositions for violations of OATS reporting rules).
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Total number of reports that are not submitted or
submitted late;
The timeframe over which the violations occur;
Whether violations are batched;
Whether the violations are the result of the actions of
one individual or
[[Page 42033]]
the result of faulty systems or procedures;
Whether the firm has taken remedial measures to correct
the violations;
Prior minor rule violations within the past 24 months;
Collateral effects that the failure has on customers; and
Collateral effects that the failure has on the Exchange's
ability to perform its regulatory function.\10\
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\10\ See id.
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Upon effectiveness of this rule change, the Exchange will publish a
regulatory bulletin notifying its Members of the rule change and the
specific factors that will be considered in connection with assessing
minor rule fines described above.
For the foregoing reasons, the Exchange believes that the proposed
rule change will result in a coordinated, harmonized approach to CAT
Compliance Rule enforcement across Plan Participants that will be
consistent with the approach FINRA has taken with the CAT rules.
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.\11\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \12\ 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) \13\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
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\11\ 15 U.S.C. 78f(b).
\12\ 15 U.S.C. 78f(b)(5).
\13\ Id.
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Minor rule fines provide a meaningful sanction for minor or
technical violations of rules when the conduct at issue does not
warrant stronger, immediately reportable disciplinary sanctions. The
inclusion of a rule in the Exchange's MRVP does not minimize the
importance of compliance with the rule, nor does it preclude the
Exchange from choosing to pursue violations of eligible rules through a
letter of consent if the nature of the violations or prior disciplinary
history warrants more significant sanctions. Rather, the Exchange
believes that the proposed rule change will strengthen the Exchange's
ability to carry out its oversight and enforcement responsibilities in
cases where full disciplinary proceedings are unwarranted in view of
the minor nature of the particular violation. The Exchange believes the
option to impose a minor rule sanction gives the Exchange additional
flexibility to administer its enforcement program in the most effective
and efficient manner while still fully meeting the Exchange's remedial
objectives in addressing violative conduct.\14\ Specifically, the
proposed rule change is designed to prevent fraudulent and manipulative
acts and practices because it will provide the Exchange the ability to
issue a minor rule fine for violations of the CAT Compliance Rules in
Rules 4.5 through 4.16 where a more formal disciplinary action may not
be warranted or appropriate consistent with the approach of other Plan
Participants for the same conduct.
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\14\ Pursuant to Rule 8.15(a) and (e), the Exchange has the
discretion to impose a fine in lieu of commencing a disciplinary
proceeding for a violation that is minor in nature. Rule 8.15(e)
states specifically that nothing in Rule 8.15 requires the Exchange
to impose a fine pursuant to Rule 8.15 with respect to the violation
of any Rule included in any such listing.
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In connection with the fine level specified in the proposed rule
change, adding proposed Rule 8.15.01(h) to specifically provide that
for violations of the CAT Compliance Rules in Rules 4.5 through 4.16
the Exchange may impose a fine not to exceed $2,500 would further the
goal of transparency within the Exchange's rules. Adopting the same cap
as FINRA for minor rule fines in connection with the CAT Compliance
Rules would also promote regulatory consistency across self-regulatory
organizations.
The Exchange further believes that the proposed amendment to Rule
8.15.01 is consistent with Section 6(b)(6) of the Act,\15\ which
provides that members and persons associated with members shall be
appropriately disciplined for violation of the provisions of 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
noted, the proposed rule change would provide the Exchange the ability
to sanction minor or technical violations of Rules 4.5 through 4.16
pursuant to the Exchange's rules.
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\15\ 15 U.S.C. 78f(b)(6).
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Finally, the Exchange also believes that the proposed change is
designed to provide a fair procedure for the disciplining of members
and persons associated with members, consistent with Sections 6(b)(7)
and 6(d) of the Act.\16\ Rule 8.15 does not preclude a Member,
associated person of a Member, or registered or non-registered employee
of a Member from contesting an alleged violation and receiving a
hearing on the matter with the same procedural rights through a
litigated disciplinary proceeding.
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\16\ 15 U.S.C. 78f(b)(7) and 78f(d).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The proposed rule change is
not intended to address competitive issues but rather is concerned
solely with making the CAT Compliance Rules in Rules 4.5 through 4.16
eligible for a minor rule fine disposition, thereby strengthening the
Exchange's ability to carry out its oversight and enforcement functions
and deter potential violative conduct. Also, as stated above, the
proposed rule change is consistent with similar proposals recently
filed by FINRA and NYSE, and other Plan Participants intend to submit
the same.
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. 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
[[Page 42034]]
Send an email to [email protected]. Please include
File Number SR-CboeBYX-2020-020 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-2020-020. 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-2020-020 and should be submitted
on or before August 3, 2020.
IV. Commission's Findings and Order Granting Accelerated Approval of
Proposed Rule Change
The Commission finds that the proposed rule change is consistent
with the requirements of the Act and the rules and regulations
thereunder applicable to a national securities exchange.\17\ In
particular, the Commission finds that the proposed rule change is
consistent with Section 6(b)(5) of the Act,\18\ which requires that the
rules of an exchange be designed to promote just and equitable
principles of trade, to remove impediments and to perfect the mechanism
of a free and open market and a national market system, and, in
general, to protect investors and the public interest. The Commission
also believes that the proposal is consistent with Sections 6(b)(1) and
6(b)(6) of the Act \19\ which require that the rules of an exchange
enforce compliance with, and provide appropriate discipline for,
violations of Commission and Exchange rules. Finally, the Commission
finds that the proposal is consistent with the public interest, the
protection of investors, or otherwise in furtherance of the purposes of
the Act, as required by Rule 19d-1(c)(2) under the Act,\20\ which
governs minor rule violation plans.
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\17\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
\18\ 15 U.S.C. 78f(b)(5).
\19\ 15 U.S.C. 78f(b)(1) and 78f(b)(6).
\20\ 17 CFR 240.19d-1(c)(2).
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As stated above, the Exchange proposes to add the CAT Compliance
Rules to the list of minor rule violations in Rule 8.15 to be
consistent with the approach FINRA has taken for minor violations of
its corresponding CAT Compliance Rules.\21\ The Commission has already
approved FINRA's treatment of CAT Compliance Rules violations when it
approved the addition of CAT Compliance Rules to FINRA's MRVP.\22\ As
noted in that order, and similarly herein, the Commission believes that
Exchange's treatment of CAT Compliance Rules violations as part of its
MRVP provides a reasonable means of addressing violations that do not
rise to the level of requiring formal disciplinary proceedings, while
providing greater flexibility in handling certain violations. However,
the Commission expects that, as with FINRA, the Exchange will continue
to conduct surveillance with due diligence and make determinations
based on its findings, on a case-by-case basis, regarding whether a
sanction under the rule is appropriate, or whether a violation requires
formal disciplinary action. Accordingly, the Commission believes the
proposal raises no novel or significant issues.
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\21\ As discussed above, the Exchange has entered into a Rule
17d-2 Plan and an RSA with FINRA with respect to the CAT Compliance
Rules. The Commission notes that, unless relieved by the Commission
of its responsibility, as may be the case under the Rule 17d-2 Plan,
the Exchange continues to bear the responsibility for self-
regulatory conduct and liability for self-regulatory failures, not
the self-regulatory organization retained to perform regulatory
functions on the Exchange's behalf pursuant to an RSA. See
Securities Exchange Release No. 61419 (January 26, 2010), 75 FR 5157
(February 1, 2010) (SR-BATS-2009-031), note 93 and accompanying
text.
\22\ See supra note 7.
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For the same reasons discussed above, the Commission finds good
cause, pursuant to Section 19(b)(2) of the Act,\23\ for approving the
proposed rule change prior to the thirtieth day after the date of
publication of the notice of the filing thereof in the Federal
Register. The proposal merely adds the CAT Compliance Rules to the
Exchange's MRVP and harmonizes its application with FINRA's application
of CAT Compliance Rules under its own MRVP. Accordingly, the Commission
believes that a full notice-and-comment period is not necessary before
approving the proposal.
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\23\ 15 U.S.C. 78s(b)(2).
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V. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the Act
\24\ and Rule 19d-1(c)(2) thereunder,\25\ that the proposed rule change
(SR-CboeBYX-2020-020) be, and hereby is, approved on an accelerated
basis.
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\24\ 15 U.S.C. 78s(b)(2).
\25\ 17 CFR 240.19d-1(c)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\26\
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\26\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-14973 Filed 7-10-20; 8:45 am]
BILLING CODE 8011-01-P