[Federal Register Volume 84, Number 179 (Monday, September 16, 2019)]
[Notices]
[Pages 48690-48692]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-19900]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-86910; File No. SR-CBOE-2019-055]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
Rule 4.10(b) Regarding the Notice Requirement in Connection With
Trading Permit Holders That Clear Market-Maker Trades
September 10, 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 September 5, 2019, Cboe Exchange, Inc. (the ``Exchange'') 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
[[Page 48691]]
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 4.10(b) regarding the notice requirement in connection
with Trading Permit Holders (``TPHs'') that clear Market-Maker trades.
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
The Exchange proposes to remove the Rule 4.10(b)(2) requirement
that the Exchange issue monthly notices regarding a Trading Permit
Holder's (``TPH's'') proportion of market making clearing business to
TPHs that clear Market-Maker trades.
Current Rule 4.10 generally provides for restrictions that the
Exchange may place on ``TPHs'' that have failed to perform their
contracts, are insolvent or in such financial or operational condition
or otherwise conducting business in such a manner that they cannot be
permitted to continue in business with safety to their customers or
creditors or the Exchange. Current Rule 4.10(b) applies specifically to
TPHs that clear Market-Maker trades. Rule 4.10(b)(2) provides that
proposed Significant Business Transactions (``SBTs'') \5\ of such TPHs
are subject to prior approval of the Chief Executive Officer (``CEO'')
or President of the Exchange, when the TPHs' Market-Maker clearance
activities exceed, or would exceed, as a result of the proposed SBT:
15% of cleared Exchange Market-Maker contract volume for the most
recent three months; an average of 15% of the number of Exchange
registered Market-Makers as of each month and for the most recent three
months; or 25% of Market-Maker gross deductions (haircuts) defined by
SEC Rule 15c3-1(a)(6) or (c)(2)(x) carried by the Clearing Trading
Permit Holder(s) in relation to the aggregate of such haircuts carried
by all other Market-Maker clearing organizations for any month end
within the most recent three months. Current Rule 4.10(b)(2) also
provides that the Exchange must notify in writing each TPH that clears
Market-Maker trades within 10 business days from the close of each
month of that TPH's proportion of the market making clearing business,
whether or not such business exceeds the parameters listed above. The
Exchange now proposes to remove this Exchange notification requirement
from Rule 4.10(b)(2).
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\5\ See Rule 4.10(b)(1)(i)-(vii).
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In particular, the Exchange has determined that its administrative
burden to proactively produce monthly notices, whether or not a Market-
Maker clearing TPH's business exceeds the paragraph (b)(2) parameters,
greatly exceeds the benefit in administering monthly notices due to the
limited number of SBTs actually filed with the Exchange per year. The
Exchange also notes that because proposed SBTs are infrequent, the
receipt of monthly notices is not an integral part of a TPH's financial
and operational maintenance on a month-to-month basis. If a Market-
Maker clearing TPH anticipates an SBT that may require prior Exchange
approval, then the TPH may contact the Exchange to determine whether
the TPH exceeds the parameters. The proposed rule change makes this
explicit in the rule. As a result, the Exchange believes that removing
the current notice requirement from Rule 4.10(b)(2) will remove
burdensome Exchange procedures without impacting the ability of a
Market-Maker clearing TPH to assess its clearance activities in light
of an SBT or to continue to conduct business on the Exchange.
The restrictions that Rule 4.10 imposes on TPHs will continue to
apply. The Exchange notes that removing this administrative burden will
also enable the Exchange to better allocate its regulatory resources,
focusing on the overall monitoring of TPH business and satisfaction of
these restrictions to ensure adequate financial and operational
capabilities to continue to perform contracts and otherwise conduct
business safely for customers, creditors, and the Exchange.
Additionally, the Exchange notes that the corresponding rules of other
options exchanges currently do not contain a provision that requires
such exchanges to send monthly notice to clearing members or otherwise
indicate to their clearing members that they exceed, or may exceed,
substantially similar criteria on the respective exchanges as a result
of an SBT.\6\ Such corresponding rules of other options exchanges have
previously been filed with the Commission.
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\6\ See NASDAQ Options Rules Chapter 3, Sec. 15; NASDAQ BX
Options Rules Chapter 3, Sec. 15; MIAX Options Rule 306.
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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.\7\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \8\ 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) \9\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
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\7\ 15 U.S.C. 78f(b).
\8\ 15 U.S.C. 78f(b)(5).
\9\ Id.
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In particular, the Exchange believes that the proposed change will
remove impediments to and perfect the mechanism of a free and open
market and national market system, and generally protect investors.
Specifically, the Exchange believes that by removing an administrative
burden in producing monthly notices for all Market-Maker clearing TPHs
that greatly outweighs the benefit of such notices, due to the
infrequent number of SBTs per year, the Exchange will be able to
reallocate regulatory resources to focus on the overall monitoring of
TPH business and
[[Page 48692]]
satisfaction of the Rule 4.10 restrictions that continue to apply to
ensure adequate financial and operational capabilities to continue to
perform contracts and otherwise conduct business safely for market
participants, thereby protecting market participants. The Exchange also
believes that the proposed rule change does not impact a Market-Maker
clearing TPH's regular financial or operational maintenance or ability
to assess and conduct a SBT because SBTs occur infrequently. The
proposed rule change makes it clear that if a Market-Maker clearing TPH
anticipates an SBT that may require prior Exchange approval, then the
TPH may contact the Exchange to determine whether the TPH exceeds the
parameters under Rule 4.10(b)(2). In addition to this, the Exchange
believes that the proposed rule change will not present any new or
unique issues for clearing TPHs because the rules of other options
exchanges, which have substantially similar SBT parameters and have
previously been filed with the Commission, do not require the exchanges
to provide monthly notices to their members regarding their proportion
of market making clearing business or otherwise indicate to their
members that they exceed, or may exceed, SBT parameters.\10\
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\10\ 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. In particular, the proposed
rule change is not intended to address competitive issues but rather is
concerned with facilitating less burdensome and more efficient
regulatory administration. The Exchange does not believe that the
proposed rule change will impose any intramarket competition, because
all Market-Maker clearing TPHs are free to contact the Exchange to
determine its standing in regard to the SBT parameters. The proposed
rule change does not change the restrictions imposed on these TPHs,
which will continue to apply to Market-Maker Clearing TPHs in the same
manner. Further, the Exchange does not believe the proposed rule change
will impose any burden on intermarket competition because the rules of
other options exchanges, which have been previously filed with the
Commission, provide for substantially similar parameters in connection
with the impact of a clearing member's SBTs but do not contain a
provision that requires such exchanges to send monthly notice to
clearing members or otherwise indicate to their clearing members that
they exceed such criteria.\11\
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\11\ Id.
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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 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 \12\ and subparagraph (f)(6) of Rule 19b-4
thereunder.\13\
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\12\ 15 U.S.C. 78s(b)(3)(A).
\13\ 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 will 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-2019-055 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-2019-055. 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-2019-055 and should be submitted on
or before October 7, 2019.
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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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-19900 Filed 9-13-19; 8:45 am]
BILLING CODE 8011-01-P