[Federal Register Volume 84, Number 186 (Wednesday, September 25, 2019)]
[Notices]
[Pages 50529-50532]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-20707]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87028; File No. SR-CBOE-2019-061]


Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Add a 
New Version of the Silexx Platform to Support FLEX Options Trading

September 19, 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 13, 2019, 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 add a new version of the Silexx platform to support FLEX Options 
trading. 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''). Cboe Options intends to migrate its trading platform to 
the same system used by the Cboe Affiliated Exchanges, which the 
Exchange expects to complete on October 7, 2019.
    In anticipation of migration, the Exchange proposes to add a new 
version of the Silexx platform in connection with the trading of FLEX 
Options. Silexx is a User-optional order entry and management trading 
platform. The current versions of the Silexx platform are designed so 
that a User may enter orders into the platform to send to the executing 
broker, including Trading Permit Holders (``TPHs''), of its choice with 
connectivity to the platform. The executing broker can then send orders 
to Cboe Options (if the broker-dealer is a TPH) or other U.S. exchanges 
(and trading centers) in accordance with the User's instructions. Users 
cannot directly route orders through any of the current versions of 
Silexx to an exchange or trading center nor is the platform integrated 
into or directly connected to Cboe Option's System. Additionally, the 
Exchange notes that it does not currently have an electronic broker or 
system that that supports FLEX Options trading on Cboe Options. Some 
firms have developed their own front-end systems to support FLEX 
trading,\5\ and others use systems developed and provided by third-
party vendors or brokers that support FLEX trading electronically. 
Moreover, in connection with migration, the Exchange intends to 
simplify the process pursuant to which FLEX Traders \6\ may execute 
FLEX Orders on the Exchange, which will align the trading of FLEX 
Options with the trading on non-FLEX Options, which the Exchange 
believes may encourage more Users to submit FLEX Orders for execution, 
as Users are more familiar with this type of trading.
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    \5\ Market participants are free to do so by accessing the 
Exchange's FLEX specs via the publicly accessible Application 
Programming Interface and using such information in order to support 
FLEX trading within their own technology, software, and front-end 
systems.
    \6\ A Trading Permit Holder may trade FLEX Options if the 
Exchange has approved the Trading Permit Holder to trade FLEX 
Options on the Exchange; such a Trading Permit Holder is referred to 
as a ``FLEX Trader''.
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    In anticipation of the changes to FLEX trading upon migration, the 
Exchange proposes to implement an additional version of the Silexx 
platform, Silexx FLEX. Silexx FLEX will exclusively support the trading 
of FLEX Options and allow for direct access to the Exchange. The 
Exchange notes that only authorized Users and associated persons of 
Users may establish connectivity to and directly access the Exchange, 
pursuant to Rule 5.5 (effective upon migration) \7\, however, a User 
that is not authorized for direct access will be able to send orders 
through the Exchange's broker community who will have access to Silexx 
FLEX and can submit orders directly on the User's behalf.\8\ The 
Exchange notes there will be a verification process for Users that wish 
to access Silexx FLEX to ensure that each User is authorized for direct 
Exchange access. Each verified User will require a username and 
password to authenticate their access. The Exchange notes that those 
authorized to directly access the Exchange must uphold supervisory 
duties over those associated with it to ensure that only authorized 
Users access the platform. In addition, the Exchange at this time does 
not propose to assess any fees in connection with the Silexx FLEX 
platform. Other than the above noted differences, the new Silexx 
platform will function in the same manner as the Silexx versions 
currently available to Users: It will be completely voluntary; FLEX 
orders entered through the platform will receive no preferential 
treatment as compared to FLEX Orders electronically

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sent to Cboe Options in any other manner; FLEX Orders entered through 
the platform will be subject to current trading rules in the same 
manner as all other orders sent to the Exchange, which is the same as 
orders that are sent through the Exchange's System today; the 
Exchange's System will not distinguish between FLEX Orders sent from 
Silexx FLEX and orders sent in any other manner; and Cboe Silexx \9\ 
will provide technical support, maintenance and user training for the 
new platform version upon the same terms and conditions for all 
Users.\10\ The Exchange notes that it currently offers a similar front-
end order entry system, the PULSe workstation, which also permits 
connectivity to Cboe Options. The Exchange notes that no changes are 
being made to the current Silexx platform versions or to the fees 
schedule in connection with the current versions.
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    \7\ The Exchange notes that in connection with this technology 
migration, the Exchange has a shell Rulebook that resides alongside 
its current Rulebook, which shell Rulebook will contain the Rules 
that will be in place upon completion of the Cboe Options technology 
migration. Rule 5.6 is currently in the shell Rulebook.
    \8\ The Exchange notes that Users may also send orders through a 
Silexx FLEX certified broker, once brokers begin electing to become 
certified. The Exchange has implemented a certification process 
which is open to any broker that supports FLEX trading and will 
allow Users without direct access to submit through an electronic 
broker certified with Silexx. The Exchange currently conducts 
similar certifications for any broker that wishes to connect to 
Cboe, and for other platform offerings (e.g. PULSe).
    \9\ Cboe Silexx is the wholly owned subsidiary of Cboe Options' 
parent company, Cboe Global Markets, Inc., which purchased Silexx in 
2017.
    \10\ See Securities Exchange Act Release No. 82088 (November 15, 
2017), 82 FR 55443 (November 21, 2017) (Notice of Filing and 
Immediate Effectiveness of a Proposed Rule Change To Describe 
Functionality of and Adopt Fees for a New Front-End Order Entry and 
Management Platform) (SR-CBOE-2017-068).
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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.\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. Additionally, the Exchange also believes the 
proposed rule change is consistent with Section 6(b)(4) of the Act,\14\ 
which requires that Exchange rules provide for the equitable allocation 
of reasonable dues, fees, and other charges among its Trading Permit 
Holders and other persons using its facilities.
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    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(5).
    \13\ Id.
    \14\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes that offering the Silexx FLEX platform to 
market participants protects investors and is in the public interest 
because it will allow the Exchange to directly offer Users an order 
entry and management tool for FLEX trading in addition to the 
technology products it currently offers for non-FLEX trading, such as 
the other versions of the Silexx platform and the PULSe workstation. In 
addition, firms can create their own proprietary front-end FLEX Order 
entry technology or obtain systems with such functionality from third-
party vendors.\15\
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    \15\ See supra note 5.
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    In particular, the Exchange believes that the proposed Silexx FLEX 
platform will facilitate transactions in FLEX Options and will remove 
impediments to and perfect the mechanism of a free and open market and 
national market system by offering to Users an order and management 
system with direct access to the Exchange for FLEX trading. The 
Exchange believes providing an alternative tool for FLEX Trading, in 
conjunction with the Exchange's planned changes to the FLEX trading 
process upon migration, may encourage more Users to submit FLEX Orders 
and responses to FLEX auctions (including price improvement auctions), 
which may lead to additional liquidity in the FLEX market, which 
ultimately benefits investors. Currently, the Exchange does not have an 
electronic broker or other system or platform that supports FLEX 
trading on the Exchange; Users must either build their own front-end 
systems or rely on outside brokers or vendors that support FLEX 
trading. As the Exchange anticipates an increase of FLEX trading due to 
the changes to be implemented upon migration, the Exchange believes 
that offering Silexx as a direct access platform for FLEX trading will 
facilitate transactions in these securities and, in general, protect 
investors. The Exchange believes the proposed platform will remove 
impediments to and perfect the mechanism of a free and open market and 
national market system because it will allow Users more control over 
the execution of their FLEX orders and to more efficiently trade in 
FLEX Options, as well as potentially reduce transaction costs 
associated with building out their own front-end FLEX systems or using 
outside vendors or brokers.
    The Exchange believes the proposed rule change does not 
discriminate among market participants because use of the platform for 
FLEX trading is completely voluntary. Users can choose to enter FLEX 
Orders without the use of the platform. The Exchange is making the 
proposed version of the platform available as a convenience to market 
participants, who will continue to have the option to use any order 
entry and management system available in the marketplace to send FLEX 
Orders to the Exchange. As such, the platform is not an exclusive means 
available to market participants to send FLEX Orders to the Exchange 
but merely an alternative that will be offered by the Exchange. Like 
current Silexx platform versions, no orders sent through the Silexx 
FLEX platform to Cboe Options for execution will receive any 
preferential treatment or execute in any dissimilar manner from those 
FLEX Orders enters via another means. Additionally, the platform will 
be available to all Users, both those with authorized direct access and 
those without who will be able to call in their orders to an Exchange 
broker for execution through Silexx FLEX. As stated, the Exchange will 
license the platform to participants with authorized direct access 
pursuant to the same terms and conditions as the current versions of 
Silexx.
    The Exchange believes that not charging a fee in connection with 
the proposed Silexx FLEX platform is reasonable and equitable. The 
Exchange notes that FLEX trading currently does not experience the same 
level of volume and liquidity as that of non-FLEX trading. The Exchange 
believes that offering the proposed Silexx FLEX platform is also not 
discriminatory because it will be made available at no cost to all FLEX 
Traders. The Exchange believes supplying market participants with more 
efficient functionality at no cost for FLEX trading may encourage 
participation in FLEX trading. Therefore, in order to incentivize 
growth and participation in FLEX trading, along with the overall 
changes to streamline FLEX trading that the Exchange will implement 
upon migration, the Exchange believes that it is reasonable, equitable 
and nondiscriminatory to allow for use of the Silexx FLEX platform at 
no cost at this time.

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

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proposed change will not impose any burden on intramarket competition 
that is not necessary or appropriate in furtherance of the purposes of 
the Act because the Exchange will make the Silexx FLEX version of the 
platform available to market participants who are approved to trade 
FLEX Options on the Exchange on the same terms and conditions (save for 
its allowing for direct access and offering at no cost) as the current 
Silexx versions. As described in detail above, the use of the platform 
to trade in FLEX Options will be completely voluntary and market 
participants will continue to have the flexibility to use any FLEX 
Order entry and management that is proprietary or from third-party 
vendors, and/or market participants may choose any executing brokers to 
enter their FLEX Orders. The proposed platform is not an exclusive 
means of FLEX trading, and if market participants believe that other 
products, vendors, front-end builds, etc. available in the marketplace 
are more beneficial than the Silexx FLEX platform, they may simply use 
those products instead. Also, the Exchange notes that use of the 
platform will not provide market participants with any additional 
access to the Exchange than that which is available through the use of 
any other front-end order entry system supporting FLEX trading. FLEX 
Orders executed through the platform will not receive preferential 
treatment and the Exchange's System will not distinguish between orders 
sent from Silexx FLEX and orders sent in any other manner. The Exchange 
notes that similar platforms, other Silexx versions and PULSe 
workstations, are currently offered today. In addition to this, all 
market participants may use Silexx FLEX, both those with direct access 
and those without, by sending orders through the Exchange's broker 
community who will be able to submit orders directly though Silexx 
FLEX. Those approved for FLEX trading on the Exchange will be subject 
to the same terms and conditions as other Silexx versions (save for the 
offering of direct access), and no market participants will be assessed 
a fee to use Silexx FLEX.
    The Exchange does not believe that the proposed change will impose 
any burden on intermarket competition that is not necessary or 
appropriate in furtherance of the purposes of the Act because other 
market participants that support FLEX trading may continue to remain 
competitive for FLEX Order entry, including firms that build-out their 
own FLEX-supported front-end systems, and outside vendors and brokers 
that support electronic FLEX connectivity. As such, market participants 
approved for FLEX trading on the Exchange will be able to choose to 
execute, or continue to execute, their FLEX Orders through any of these 
means. The Exchange notes that all market participants are free to 
create their own proprietary front-end FLEX Order entry technology.\16\ 
The Exchange also notes that Silexx FLEX will not have any preferential 
access to current or planned Cboe Options technology and will therefore 
compete on the same terms as any other firms that build-out their own 
FLEX-supported front-end systems and/or outside vendors and brokers 
that support electronic FLEX connectivity.
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    \16\ See supra note 5.
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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 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)(iii) of the Act \17\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\18\
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    \17\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \18\ 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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    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act \19\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \20\ 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 it 
may implement the Silexx FLEX platform in connection with the 
technology migration on October 7, 2019. According to the Exchange, 
waiver of the operative delay will benefit investors by providing them 
with a platform that will support the trading of FLEX Options. The 
Commission believes that the proposed rule change raises no new or 
novel issues and that waiver of the operative delay is consistent with 
the protection of investors and the public interest. Therefore, the 
Commission hereby waives the operative delay and designates the 
proposal operative upon filing.\21\
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    \19\ 17 CFR 240.19b-4(f)(6).
    \20\ 17 CFR 240.19b-4(f)(6)(iii).
    \21\ 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 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-2019-061 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-2019-061. 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

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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-2019-061 and should be submitted on 
or before October 16, 2019.
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    \22\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-20707 Filed 9-24-19; 8:45 am]
 BILLING CODE 8011-01-P