[Federal Register Volume 85, Number 139 (Monday, July 20, 2020)]
[Notices]
[Pages 43938-43941]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-15550]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-89307; File No. SR-CBOE-2020-066]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
Rule 5.24
July 14, 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 Exchange, Inc. (the ``Exchange'' or ``Cboe
Options'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I 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 Exchange, Inc. (the ``Exchange'' or ``Cboe Options'') proposes
to amend Rule 5.24. The text of the proposed rule change is provided
below.
(additions are italicized; deletions are [bracketed])
* * * * *
Rules of Cboe Exchange, Inc.
* * * * *
Rule 5.24. Disaster Recovery
(a)-(d) No change.
(e) Loss of Trading Floor. If the Exchange trading floor becomes
inoperable, the Exchange will continue to operate in a screen-based
only environment using a floorless configuration of the System that
is operational while the trading floor facility is inoperable. The
Exchange will operate using this configuration only until the
Exchange's trading floor facility is operational. Open outcry
trading will not be available in the event the trading floor becomes
inoperable, except in accordance with paragraph (2) below and
pursuant to Rule 5.26, as applicable.
(1) Applicable Rules. In the event that the trading floor
becomes inoperable, trading will be conducted pursuant to all
applicable System Rules, except that open outcry Rules will not be
in force, including but not limited to the Rules (or applicable
portions of the Rules) in Chapter 5, Section G, and as follows
(subparagraphs (A) through (E) will be effective until [June
30]August 31, 2020):
* * * * *
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 the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend Rule 5.24 regarding the Exchange's
business continuity and disaster recovery plans. Rule 5.24 describes
which Trading Permit Holders (``TPHs'') are required to connect to the
Exchange's backup systems as well as certain actions the Exchange may
take as part of its business continuity plans so that it may maintain
fair and orderly markets if unusual circumstances occurred that could
impact the Exchange's ability to conduct business. This includes what
actions the Exchange would take if its trading floor became inoperable.
Specifically, Rule 5.24(e) states if the Exchange trading floor becomes
inoperable, the Exchange will continue to operate in a screen-based
only environment using a floorless configuration of the System that is
operational while the trading floor facility is inoperable. The
Exchange would operate using that
[[Page 43939]]
configuration only until the Exchange's trading floor facility became
operational. Open outcry trading would not be available in the event
the trading floor becomes inoperable.\5\
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\5\ Pursuant to Rule 5.26, the Exchange may enter into a back-up
trading arrangement with another exchange, which could allow the
Exchange to use the facilities of a back-up exchange to conduct
trading of certain of its products. The Exchange currently has no
back-up trading arrangement in place with another exchange.
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Rule 5.24(e)(1) currently states in the event that the trading
floor becomes inoperable, trading will be conducted pursuant to all
applicable System Rules, except that open outcry Rules would not be in
force, including but not limited to the Rules (or applicable portions)
in Chapter 5, Section G,\6\ and that all non-trading rules of the
Exchange would continue to apply. The Exchange recently adopted several
rule changes that would apply during a time in which the trading floor
in inoperable, which are effective until June 30, 2020.\7\ The Exchange
believes these rules were necessary to implement to maintain a fair and
orderly market while the trading floor was not operable in order to
create an all-electronic trading environment similar to the otherwise
unavailable open outcry trading environment.
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\6\ Chapter 5, Section G of the Exchange's rulebook sets forth
the rules and procedures for manual order handling and open outcry
trading on the Exchange.
\7\ See Securities Exchange Act Release Nos. 88386 (March 13,
2020), 85 FR 15823 (March 19, 2020) (SR-CBOE-2020-019); 88447 (March
20, 2020), 85 FR 17129 (March 26, 2020) (SR-CBOE-2020-023); 88490
(March 26, 2020), 85 FR 18318 (April 1, 2020) (SR-CBOE-2020-026);
88530 (March 31, 2020), 85 FR 19182 (April 6, 2020) (SR-CBOE-2020-
031); and 88886 (May 15, 2020), 85 FR 31008 (May 21, 2020) (SR-CBOE-
2020-047).
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As of March 16, 2020, the Exchange suspended open outcry trading to
help prevent the spread of COVID-19.\8\ The trading floor remained
closed until June 15, 2020. During the time when the trading floor was
closed, the Exchange operated in an all-electronic trading environment
and the temporary rules in Rule 5.24(e)(1) applied to that electronic
trading environment. The Exchange believes that, while those temporary
rules did not fully replicate open outcry trading, they allowed all-
electronic trading to occur more similarly to open outcry trading.\9\
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\8\ On March 11, 2020, the World Health Organization
characterized COVID-19 as a pandemic and to slow the spread of the
disease, federal and state officials implemented social-distancing
measures, placed significant limitations on large gatherings,
limited travel, and closed non-essential businesses.
\9\ The Exchange continues to consider other enhancements to the
all-electronic trading configuration that it believes may permit
this configuration to further replicate the open outcry trading
environment. The Exchange would submit separate rule filings for any
such proposed enhancements. The Exchange notes it recently submitted
a separate rule filing to adopt a virtual trading floor, which the
Exchange may determine to make available if the trading floor
becomes inoperable (or is operating in a modified state). See
Securities Exchange Act Release No. 89131 (June 23, 2020), 85 FR
38951 (June 29, 2020) (SR-CBOE-2020-055). If the Commission approves
that filing, and the trading floor subsequently becomes inoperable
and the Exchange makes the virtual trading floor available, the
temporary rules in Rule 5.24(e)(1) would not be in effect (the
Exchange intends to submit a partial amendment to SR-CBOE-2020-055
to make that clear). Separately, the Exchange believes the temporary
rules in Rule 5.24(e)(1) should be effective for a period of time
while the virtual trading floor is available, the Exchange will
submit a separately rule filing to propose that change.
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The trading floor is currently open for open outcry trading, and
the Exchange is operating pursuant to its normal hybrid trading rules.
The Exchange implemented numerous health and safety measures in
connection with the reopening of the trading floor on June 15, 2020 to
help protect the safety and welfare of the trading floor community and
help prevent the continued spread of COVID-19.\10\ However, the
Exchange recognizes the ongoing nature of the COVID-19 pandemic in the
United States, which may cause the Exchange to once again close its
trading floor to help prevent the continued spread of COVID-19.
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\10\ See Exchange Notice C2020052601, Standards of Conduct
related to the Reopening of the Cboe Options Trading Floor and
COVID-19 (May 26, 2020), available at https://cdn.cboe.com/resources/release_notes/2020/Standards-of-Conduct-related-to-the-Reopening-of-the-Cboe-Options-Trading-Floor-Notice-Final.pdf.
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In the event the Exchange did close its trading floor again, the
Exchange believes it would be necessary to again apply the recently
adopted temporary rules in Rule 5.24(e)(1) to maintain a fair and
orderly market while the trading floor was not operable in order to
create an all-electronic trading environment similar to the otherwise
unavailable open outcry trading environment. As noted above, Rule
5.24(e)(1) is effective only until June 30, 2020 (and the rules became
inapplicable upon the reopening of the trading floor on June 15, 2020).
Given the Exchange may believe it is appropriate to close the trading
floor with little advanced notice and in a short timeframe to help
protect the safety and welfare of the trading floor community, the
Exchange proposes to extend the effectiveness of the temporary rules in
Rule 5.24(e)(1) to August 31, 2020 (unless further extended). The
Exchange believes this will permit the Exchange to as seamlessly as
possible transition back to an all-electronic trading environment. The
Exchange notes Rule 5.24(e)(1) will not apply to trading during times
when the trading floor remains operable.
Previously when the temporary provisions of Rule 5.24(e)(1) were in
place, the Exchange's Regulatory Division has continued its standard
routine surveillance reviews for electronic trading and implemented a
regulatory plan to surveil the rules in place in Rule 5.24(e)(1) when
operating in a screen-based only environment. In the event the Exchange
closes its trading floor again and the temporary provisions in Rule
5.24(e)(1) become applicable in an all-electronic trading environment,
the Exchange's Regulatory Division would reimplement that regulatory
plan to surveil those 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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In particular, the Exchange believes the proposed rule change will
remove impediments to and perfect the mechanism of a free and open
market and a national market system, and, in general, protect investors
and the public interest by permitting the Exchange to as seamlessly as
possible transition back to an all-electronic trading environment in
the event the Exchange determines it is appropriate to again close its
trading floor. The Exchange expects it would take this action if it
believes necessary and appropriate to help protect the safety and
welfare of the trading community. Such a determination may
[[Page 43940]]
occur with little advance notice, and closure of the trading floor may
need to occur in a short time frame. The Exchange continues to believe
the recent amendments to Rule 5.24(e)(1) allowed all-electronic trading
to occur more similarly to open outcry trading while the trading floor
was closed. The Exchange believes the proposed rule change is necessary
and appropriate to provide TPHs with execution opportunities in an all-
electronic trading environment for orders that generally execute in
open outcry trading. Additionally, the proposed rule change will
provide TPHs with an all-electronic trading environment to which they
became accustomed when the trading floor was previously closed, and
therefore will provide investors with consistent rules that apply when
the Exchange operates in an all-electronic environment. The proposed
rule change will provide investors with definitive knowledge of what
rules will apply when the trading floor is closed.
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 as a competitive filing, but rather extends the
effectiveness of temporary rules as part of the Exchange's business
continuity plans, which are intended to allow the Exchange to continue
to maintain fair and orderly markets while the Exchange's trading floor
continues to be inoperable.
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 \14\ and Rule 19b-
4(f)(6) thereunder.\15\
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\14\ 15 U.S.C. 78s(b)(3)(A).
\15\ 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 Commission has waived the five business day notification
requirement for this proposed rule change.
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A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the
Act \16\ normally does not become operative for 30 days after the date
of its filing. However, Rule 19b-4(f)(6)(iii) \17\ 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 operative immediately. The Exchange
believes extension of the temporary rules put in place due to the
ongoing COVID-19 pandemic will permit the Exchange to minimize
disruptions in the market during a transition back to an all-electronic
trading environment if the Exchange believes it is necessary and
appropriate to help protect the safety and welfare of the trading
community. The Commission believes that waiving the 30-day operative
delay is consistent with the protection of investors and the public
interest as it will allow the temporary rules to continue with minimal
interruption, thereby avoiding investor confusion that could result
from an interruption in the effectiveness of the rules. Accordingly,
the Commission hereby waives the operative delay and designates the
proposed rule change operative upon filing.\18\
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\16\ 17 CFR 240.19b-4(f)(6).
\17\ 17 CFR 240.19b-4(f)(6)(iii).
\18\ For purposes only of waiving the 30-day operative delay,
the Commission also has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-CBOE-2020-066 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-2020-066. 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-CBOE-2020-066 and should be submitted on
or before August 10, 2020.
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For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\19\
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\19\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-15550 Filed 7-17-20; 8:45 am]
BILLING CODE 8011-01-P