[Federal Register Volume 84, Number 249 (Monday, December 30, 2019)]
[Notices]
[Pages 72079-72081]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-28083]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-87824; File No. SR-CboeBZX-2019-108]
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
Interpretation and Policy .01 of Rule 2.4 To Allow the Exchange To
Provide Annual Notification to Individual Members That are Subject to
Paragraph (b) of Rule 2.4
December 20, 2019.
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 December 13, 2019, Cboe BZX Exchange, Inc. (the ``Exchange'' or
``BZX'') 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 BZX Exchange, Inc. (``BZX'' or the ``Exchange'') is filing
with the Securities and Exchange Commission (the ``Commission'') a
proposed rule change to amend Interpretation and Policy .01 of Rule 2.4
to allow the Exchange to provide annual notification to individual
Members \5\ that are subject to paragraph (b) of Rule 2.4, which
requires certain Members to connect to the Exchange's backup systems
and participate in functional and performance testing based on the
prior calendar quarter's volume or participation as Lead Market Maker
(``LMM'') on the Exchange. The text of the proposed rule change is
provided in Exhibit 5.
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\5\ The term ``Member'' is defined as ``any registered broker or
dealer that has been admitted to membership in the Exchange.'' See
Exchange Rule 1.5(n).
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The text of the proposed rule change is also available on the
Exchange's website (http://markets.cboe.com/us/equities/regulation/rule_filings/bzx/), 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 Interpretation and Policy .01 of
Rule 2.4 to allow the Exchange to provide annual notification to
individual Members that are subject to paragraph (b) of Rule 2.4, which
requires certain Members to connect to the Exchange's backup systems
and participate in functional and performance testing based on the
prior calendar quarter's volume or participation as LMM on the
Exchange.
As background, Regulation Systems Compliance and Integrity
(``Regulation SCI'') \6\ 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 states that each SCI entity shall establish standards for the
designation of Members 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 in
scheduled functional and performance testing of the operation of such
plans no less than once every 12 months, and coordinate the testing of
[[Page 72080]]
such plans on an industry- or sector-wide basis with other SCI
entities.
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\6\ 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. Currently, Interpretation and Policy
.01 to Rule 2.4 requires the Exchange to identify and provide notice to
designated Members under paragraph (b) on a quarterly basis based on
trade activity during the previous quarter or a Member's participation
as LMM on the Exchange. Any Member that receives such notice is
required to participate in the next annual functional and performance
testing, which generally occurs in October. As such, a Member that
receives notice in the third and/or fourth quarter of the preceding
year or the first and/or second quarters of the current year will be
required to participate in the annual functional and performance
testing. As a result, Members would be notified in October, January,
April, and/or July of their requirement to connect to the Exchange's
backup systems and participate in functional and performance testing
scheduled for October, which means that certain Members receive
notification of their designation and requirement to connect and
participate in functional and performance testing only three months
prior to the scheduled operational and functional testing. Further, a
Member that had been designated in any of the four preceding quarters
would be required to participate in the functional and performance
testing even if that Member did not meet the designation requirements
of subparagraphs (b)(1) in the most recent quarter (i.e., the second
quarter).
As proposed, the amendment would allow the Exchange to identify
designated Members based on trade activity during a single quarter for
a given year, and to issue one annual notification to the designated
Members in preparation for the anticipated functional and performance
testing, which generally occurs in October. As such, the proposal
would: (i) Simplify the Member designation and notice process; (ii)
allow the Exchange to require only those Members that meet the volume
requirements under Rule 2.4(b)(1) in the designated quarter to
participate in such testing; (iii) provide the Exchange with greater
flexibility as to the timing that it would provide Members with notice
of their designation pursuant to paragraph (b), but still require the
Exchange to provide such notice at least three months prior to the
anticipated functional and performance testing; and (iv) strengthen the
Exchange's coordination with other SCI entities by harmonizing the
frequency of such notifications with other self-regulatory
organizations, which do not provide quarterly notifications of Member
designations.\7\ As the proposed amendment provides the Exchange with
greater flexibility in selecting the relevant quarter's trade data for
which the designated Members will be identified, the designated Members
may be identified based on more recent trading activity, rather than
trade activity that potentially occurred more than one year prior to
such testing and thus would more accurately represent the Members who
met the requirements set forth in paragraph (b)(1) of Rule 2.4.
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. Specifically, the Exchange
believes the proposed rule change is consistent with the Section
6(b)(5) 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.
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\7\ See Cboe Exchange, Inc. (``Cboe'') Rule 5.24, which states
``[Cboe] provides [ ] Trading Permit Holders with reasonable advance
notice that they must participate in the testing described in
paragraph (b) of this Rule 5.24.'' See also New York Stock Exchange
(``NYSE'') Rule 49(b)(4), which states ``[a]t least three (3) months
prior to a scheduled functional and performance testing of the
Exchange's business continuity and disaster recovery plans, the
Exchange will . . . notify those member organizations that are
required to participate based on such criteria.''
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In particular, the Exchange believes the proposal is consistent
with the Act because, as noted above, the proposal would allow the
Exchange to identify designated Members based on activity during a
single quarter for a given year and to issue one annual notification to
the designated Members in preparation for the anticipated functional
and performance testing, which generally occurs in October, which the
Exchange believes would: (i) Simplify the Member designation and notice
process; (ii) allow the Exchange to require only those Members that
meet the requirements under Rule 2.4(b)(1) in the designated quarter to
participate in such testing; (iii) provide the Exchange with greater
flexibility as to the timing that it would provide Members with notice
of their designation pursuant to paragraph (b), but still require the
Exchange to provide such notice at least three months prior to the
anticipated functional and performance testing; and (iv) strengthen the
Exchange's coordination with other SCI entities by harmonizing the
frequency of such notifications with other self-regulatory
organizations, which do not provide quarterly notifications of Member
designations. The proposed amendment 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 BC/DR 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.'' \8\ The Exchange believes that the proposal is consistent
with such authority and legal responsibility.
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\8\ See supra note 6.
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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 a competitive proposal as it is intended to coordinate notification
of Member participation requirements in the Exchange's testing of
business continuity and disaster recovery plans with the annual
industry-wide testing program.
[[Page 72081]]
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 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 \9\ and Rule 19b-4(f)(6) thereunder.\10\
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\9\ 15 U.S.C. 78s(b)(3)(A).
\10\ 17 CFR 240.19b-4(f)(6). In addition, Rule19b-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 pursuant to Rule 19b-4(f)(6) under the
Act \11\ normally does not become operative for 30 days after the date
of its filing. However, Rule 19b-4(f)(6)(iii) \12\ 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 proposal may become operative upon filing. The Exchange states that
a waiver of the operative delay is consistent with the protection of
investors and the public interest because it would eliminate potential
confusion across self-regulatory organizations and simplify and clarify
the process of notification to designated Members pursuant to paragraph
(b) of Rule 2.4. 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 operative
delay and designates the proposed rule change operative upon
filing.\13\
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\11\ 17 CFR 240.19b-4(f)(6).
\12\ 17 CFR 240.19b-4(f)(6)(iii).
\13\ 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-CboeBZX-2019-108 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-CboeBZX-2019-108. 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-CboeBZX-2019-108 and should be submitted
on or before January 21, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\14\
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\14\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2019-28083 Filed 12-27-19; 8:45 am]
BILLING CODE 8011-01-P