[Federal Register Volume 84, Number 249 (Monday, December 30, 2019)]
[Notices]
[Pages 71994-71997]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-28174]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-87846; File No. SR-CBOE-2019-118]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Correct
Certain Erroneous Cross-References, Add Inadvertently Omitted Rule
Text, and Conform the Use of Certain Defined Terms
December 23, 2019.
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 December 19, 2019, 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 correct certain erroneous cross-references, add inadvertently
omitted rule text, and conforms the use of certain defined terms. 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
In 2016, the Exchange's parent company, Cboe Global Markets, Inc.
(formerly named CBOE Holdings, Inc.) (``Cboe Global''), which is also
the parent company of Cboe C2 Exchange, Inc. (``C2''), acquired Cboe
EDGA Exchange, Inc. (``EDGA''), Cboe EDGX Exchange, Inc. (``EDGX'' or
``EDGX Options''), Cboe BZX Exchange, Inc. (``BZX'' or ``BZX
Options''), and Cboe BYX Exchange, Inc. (``BYX'' and, together with
Cboe Options, C2, EDGX, EDGA, and BZX, the ``Cboe Affiliated
Exchanges''). On October 7, 2019, Cboe Options migrated its trading
platform to the same system used by the Cboe Affiliated Exchanges. In
connection with this technology migration, Cboe Options updated and
reorganized its entire Rulebook (the ``post-migration Rulebook''),
which became effective upon the technology migration.
First, the proposed rule change corrects cross-reference errors in
Rules 5.1, 5.4, 5.6, 5.33, 5.36, 5.37, 5.38, 5.50, 5.52, 5.54, 5.55,
and 5.56 that inadvertently occurred as a result of the total
restructuring of its Rulebook.
Second, the proposed rule change adds rule text that was
unintentionally omitted from the post-migration Rulebook. The proposed
rule change amends Rule 5.83(a)(2) to add Penny Cabinet and Sub-Penny
Cabinet orders to the list of types of order instructions available for
PAR routing for manual handling and open outcry trading on the
Exchange. Currently, Rule 5.85(h) governs cabinet trading on the
Exchange and states that cabinet orders (i.e., penny cabinet and sub-
penny cabinet orders) may only execute on the Exchange's trading floor
in open outcry. Therefore, penny cabinet and sub-penny cabinet orders
are types of order instructions that are available for open outcry
trading. However, when the Exchange proposed Rule 5.83(h) and
incorporated it into the post-migration Rulebook,\3\ it inadvertently
did not include these cabinet order instructions
[[Page 71995]]
in Rule 5.83(a)(2), which the Exchange now proposes to include.
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\3\ See Securities and Exchange Act Release No. 86994 (September
17, 2019), 84 FR 49774 (September 23, 2019) (Proposed Rule Change To
Amend the Exchange's Rules Regarding Cabinet Trading Upon the
Migration of the Exchange's Trading Platform to the Same System Used
by the Cboe Affiliated Exchanges) (SR-CBOE-2019-058); see also
Securities and Exchange Act Release No. 87224 (October 4, 2019), 84
FR 54652 (October 10, 2019) (SR-CBOE-2019-081), which relocated the
cabinet trading rule in the post-migration Rulebook from Rule 5.12
to Rule 5.85(h) where it is currently located.
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The proposed rule change also reinstates a provision from former
Rule 8.14.01(c) \4\ that was inadvertently not included in the post-
migration Rulebook.\5\ Specifically, the Exchange relocated the
provision under former Rule 8.14 that allows the Exchange to determine
to list SPX or VIX on a group basis to post-migration Rule 4.13(f), as
well as removed other provisions under the former rule that had been
previously moved to other rules as part of the migration.\6\ As a
result of the restructuring, the Exchange inadvertently did not include
former Rule 8.14.01(c) in the post-migration Rulebook, which required
the Exchange to determine System trading parameters on a group basis to
the extent the Rules otherwise provide for such parameters to be
established on a class basis. The Exchange continues to establish such
parameters on a group basis, and reinstating this provision in Rule
1.5(c) ensures that the post-migration Rulebook accurately reflects the
manner in which the Exchange applies System parameters to classes the
Exchange lists on a group basis. The Exchange notes that groups of SPX
and VIX series exhibit different trading characteristics from series
listed by class, and the Exchange generally establishes market models
for options classes and groups of SPX and VIX series based on the
characteristics that most fit the product which benefits investors. As
such, the proposed rule change is designed to make it explicit in the
Rules that the Exchange will continue to establish System parameters on
a group basis in order to tailor such parameters to fit the group
product characteristics. Likewise, as a result of the restructuring,
the Exchange also inadvertently did not include the former provision(s)
that allowed the Exchange to make determinations on a group basis that
differed between Global Trading Hours (``GTH'') and Regular Trading
Hours (``RTH'').\7\ The proposed rule change thus incorporates Exchange
determinations on a group basis among the list of other bases in Rule
1.5(b), which allows the Exchange to make determinations on different
bases that differ between GTH and RTH, as SPX and VIX are available for
trading during both sessions. The Exchange also notes that because
trading characteristics during RTH may be different than those during
GTH (such as lower trading levels, reduced liquidity, and fewer
participants), the Exchange believes it is appropriate to continue this
flexibility for determinations on a group basis.
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\4\ Former Rule 8.14.01(c) provided that System trading
parameters will be established by the Exchange on a group basis to
the extent the Rules otherwise provide for such parameters to be
established on a class basis.
\5\ See Securities Exchange Act Release No. 87024 (September 19,
2019), 84 FR 50545 (September 25, 2019) (Proposed Rule Change To
Amend Certain Rules Relating To Market-Makers Upon Migration to the
Trading System Used by Cboe Affiliated Exchanges) (SR-CBOE-2019-
059), which removed Rule 8.14.01, but did not relocate it to the
post-migration Rulebook.
\6\ See Securities Exchange Act Release No. 87337 (October 17,
2019), 84 FR 56879 (October 23, 2019) (SR-CBOE-2019-092).
\7\ Former Rule 6.1A(i) allowed the Exchange to make a
determination, to the extent the Rules allowed, that differed
between GTH and RTH, including on a class-by-class or series-by-
series basis. Former Rule 8.14.01(c) allowed the Exchange to
determine System trading parameters on a group basis to the extent
the Rules otherwise provide for such parameters to be established on
a class basis. Likewise, other former rules provided it could also
make determinations on a group basis where it was permitted to make
determinations on a class basis (e.g., former Rule 6.2.05 (for
Exchange determinations related to the opening auction process), and
former Rule 6.45 (for Exchange determinations related to order and
quote priority and allocation). Therefore, as a whole, these
provisions allowed the Exchange to make determinations on a group
basis that differed between trading sessions.
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In addition, the Exchange also notes that it inadvertently did not
include the provision in former Rule 6.12(a)(3),\8\ which allowed it to
determine the fat finger buffer amount on a class-by-class basis. The
proposed rule change to Rule 5.34(c)(1), which governs the limit order
fat finger check, reinstates the provision that allows the Exchange to
continue to determine a default buffer amount for the fat finger check
on a class-by-class basis. The Exchange notes that the fat finger check
is designed to prevent limit orders from executing at potentially
erroneous prices, and that the Exchange currently maintains the same
class basis flexibility pursuant to certain other price protection and
risk control rules. This flexibility allows the Exchange to apply
different settings and parameters to address the specific
characteristics of that class and its market. For example, Rule
5.34(a)(2) (market order NBBO width protection), (a)(4)(B) (drill-
through protection for order that execute or post to the Book), and
(c)(11) (buy-write/married put check) each allow the Exchange to
determine the respective price check buffer amounts on a class basis.
As such, the proposed rule change to reinstate the flexibility to
determine of the fat finger default buffer on a class basis makes it
explicit that the Exchange may continue to set the default buffer with
the same flexibility in order to appropriately address different
trading characteristics, market models, and investor base of each
class. Because the different characteristics among classes may cause
what would be considered a potentially erroneous price to differ among
classes, the Exchange believes it is appropriate to continue to this
class-based flexibility in determining the buffer amount for the fat
finger check, as well as allow Users to establish class based buffer
amounts that differ from the Exchange's class based default amounts.
The Exchange notes that in prior Rule 6.12(a)(3), though it allowed the
Exchange to determine a fat finger buffer amount on a class-by-class
basis, it had been silent as to User-established buffer amounts. The
Exchange adopted language, that a User may establish a higher or lower
amount than the Exchange default, for the migration in order to make
the Exchange's fat finger rule consistent with the corresponding fat
finger rules of the Affiliated Exchanges.\9\ Therefore, the Exchange
believes that the proposed rule change to mirror Users' ability to
establish buffer amounts that differ from the Exchange's default buffer
on a class basis would provide consistency in manner in which a User
may establish buffer amounts around the Exchange-established default
buffer amounts.
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\8\ Former Rule 6.12(a)(3) provided, in part, that an acceptable
tick distance would be determined by the Exchange on a class-by-
class basis (or a premium basis, which was intentionally removed
from the rule to coincide with planned migration functionality). The
Exchange notes that the fat finger buffer amount was referred to as
the ``acceptable tick distance'' in this former provision.
\9\ See Securities Exchange Act Release No. 86923 (September 10,
2019), 84 FR 48664 (September 16, 2019) (SR-CBOE-2019-057); see also
C2 Rule 6.14(c)(1); and EDGX Options Rule 21.17(b)(7).
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Finally, the proposed rule change conforms the use of certain
defined terms in the post-migration Rulebook. The proposed rule change
removes the term ``Hybrid System'' from Rule 8.20, and replaces it with
the term ``System,'' which is the correct defined term in the post-
migration Rulebook for the Exchange's trading System.\10\ The proposed
rule change also capitalizes the terms ``Penny Cabinet'' orders, ``Sub-
Penny Cabinet'' orders, and ``Reporting Authority'' throughout the
post-migration Rulebook. The proposed change makes these terms
uniformly formatted in the post-migration Rulebook, as they are
currently defined terms in the Rules and are capitalized in some Rules
but not in others.\11\
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\10\ See Rule 1.1. The Exchange also notes that the term
``Hybrid class'' is no longer a relevant distinction because, as of
2018, all classes listed for trading on the Exchange now trade on
the same platform (prior to that, certain classes traded on the
Exchange's Hybrid 3.0 platform, while most classes traded on the
Exchange's Hybrid platform).
\11\ See Rule 1.1.
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[[Page 71996]]
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.\12\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \13\ 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) \14\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
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\12\ 15 U.S.C. 78f(b).
\13\ 15 U.S.C. 78f(b)(5).
\14\ Id.
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The proposed rule change is generally intended to correct
inaccuracies that resulted from the recent restructuring of the
Exchange's Rulebook. The proposed corrections to correct inaccurate
cross-references within various Rules, reinstating rule text that was
inadvertently omitted from the post-migration Rulebook (majority of
which will allow the Exchange to continue to tailor certain settings to
address different product characteristics and market conditions,
thereby protecting investors), updating a Rule to provide consistency
in connection with functionality available pre-migration (and being
reinstated in the Rules) that is directly associated with functionality
now available as of post-migration, and updating or uniformly
formatting certain defined terms are designed to protect investors by
ensuring that these Rules accurately reference and reflect the current,
post-migration Rules in place, thereby mitigating any potential
investor confusion. The proposed rule change will have no impact on
trading on the Exchange, as almost all of the proposed rule changes are
non-substantive in nature (as stated above, one proposed change merely
updates a Rule to provide consistency in connection functionality now
correlated with it as of post-migration).
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, as it merely updates the Rules to
accurately reference the current, post-migration Rules. The proposed
rule change is corrective in nature. The proposed rule change generally
makes no substantive changes to the rules (one change merely updates a
Rule to provide consistency between inadvertently omitted functionality
now being reinstated and correlated functionality which had been
adopted post-migration), and thus will have no impact on trading on the
Exchange.
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 after the date of the filing, or such
shorter time as the Commission may designate, the proposed rule change
has become effective pursuant to 19(b)(3)(A) of the Act \15\ and Rule
19b-4(f)(6) \16\ thereunder.
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\15\ 15 U.S.C. 78s(b)(3)(A).
\16\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give the Commission
written notice of its intent to file 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 \17\ normally does not become operative for 30 days after the date
of its filing. However, Rule 19b-4(f)(6)(iii) under the Act \18\
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 immediately upon
filing. The Exchange states that waiver of the operative delay would
allow the Exchange to immediately correct inaccuracies that resulted
from the recent restructuring of the Exchange's Rulebook, reinstate
rule text that was inadvertently omitted from the post-migration
Rulebook, and update and uniformly format certain defined terms. The
Commission finds that it is consistent with the protection of investors
and the public interest to waive the 30-day operative delay to allow
the Exchange to correct inaccuracies and inadvertent omissions from the
rules, which may help prevent investor confusion. The Commission notes
that the proposed change does not raise new or novel regulatory issues.
Accordingly, the Commission hereby waives the operative delay and
designates the proposal operative upon filing.\19\
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\17\ 17 CFR 240.19b-4(f)(6).
\18\ 17 CFR 240.19b-4(f)(6)(iii).
\19\ 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 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 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-2019-118 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-2019-118. This file
number should be included on the subject line if email is used. To help
the
[[Page 71997]]
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-2019-118 and should be submitted on
or before January 21, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\20\
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\20\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-28174 Filed 12-27-19; 8:45 am]
BILLING CODE 8011-01-P