[Federal Register Volume 84, Number 207 (Friday, October 25, 2019)]
[Notices]
[Pages 57500-57506]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-23265]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-87377; File No. SR-CBOE-2019-099]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
and Consolidate Various Exchange Rules Relating to Trading Permit
Holder Membership, Registration and Participants and Move Those Rules
From the Currently Effective Rulebook to Proposed Chapter 3 of the
Shell Structure for the Exchange's Rulebook That Will Become Effective
Upon the Migration of the Exchange's Trading Platform to the Same
System Used by the Cboe Affiliated Exchanges
October 21, 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 October 7, 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
The Exchange proposes to amend and consolidate various Exchange
Rules relating to Trading Permit Holder membership, registration and
participants and move those Rules from the currently effective Rulebook
to proposed Chapter 3 of the shell structure for the Exchange's
Rulebook that will become effective upon the migration of the
Exchange's trading platform to the same system used by the Cboe
Affiliated Exchanges (as defined below) (``shell Rulebook''). 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/
[[Page 57501]]
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 (the ``migration'').
The Exchange proposes to amend certain registration-related rules,
effective October 7, 2019. 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.
Also, in connection with the restructuring of the Exchange's
Trading Permits, the Exchange proposes to modify its rules related to
nominees and proposed Responsible Persons (current Rules 1.1, 3.1, 3.8,
3.9, 3.10, 3.19 and 17.6), as discussed more fully below. The Exchange
also proposes to make non-substantive changes to simplify, clarify, and
generally update its registration-related rules by consolidating
various provisions and rules (including select rules not covered under
current Chapter III but pertain to membership, registration and
participants), deleting duplicative and obsolete rule provisions,
reformatting provision sequencing, numbering, and lettering, and
revising titles. The Exchange also updates cross-references to rules in
the shell Rulebook that will be implemented upon migration. The table
below lists each rule under current Chapter III, along with the few
additional rules related to membership, registration and participants
that the Exchange proposes to consolidate with the registration-related
rules, the proposed rule in the shell Rulebook to which the current
rule will be moved, whether the proposed change is substantive or non-
substantive, and finally, a description of the proposed rule change.
The Exchange notes that all current provisions proposed to move to the
corresponding proposed provisions in the shell Rulebook will also be
deleted from the current rules upon migration.
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Current rule Proposed rule Substantive change Description of change
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N/A.................................. Rule 1.1 (Nominee Y: see further Updates the nominee
defined). discussion below. definition to provide
that a nominee
represents TPH
organization in all
matters relating to
the Exchange with
respect to a Floor
Broker or Market-Maker
Floor Trading Permit,
as more fully
described below
N/A.................................. Rule 1.1 (Responsible Y: see further Adopts definition of a
Person defined). discussion below. ``Responsible Person''
as described more
fully below.
Rule 3.1 (Trading Permits)........... Rule 3.1 (Trading N...................... Moves rule in its
Permits). entirety. Adds
references to
``Responsible
Persons'' in light of
proposed rule change.
Eliminates language
regarding separate
Trading Permits for
RTH and GTH in current
Rule 3.1(a)(iv) as
post-migration
electronic Trading
Permits provide access
to both sessions.
Renumbers provisions
and updates cross-
references.
Rule 3.1A (Issuance of Trading N/A (deleted).......... N...................... Deletes obsolete rules
Permits in Respect of Memberships that previously
and Pre-Restructuring Transaction governed the issuance
Trading Permits). of Trading Permits in
connection with the
prior restructuring of
the Exchange from a
non-stock corporation
to a stock corporation
and wholly owned
subsidiary of Cboe
Global Markets, Inc.
Rule 3.2 (Qualifications of Rule 3.2 N...................... Moves rule in its
Individual Trading Permit Holders). (Qualifications of entirety. Renumbers
Individual TPH). provisions and updates
title.
Rule 3.3 (Qualifications of TPH Rule 3.3 N...................... Moves rule in its
organizations). (Qualifications of TPH entirety. Renumbers
Organizations). provisions.
Rule 3.4 (Foreign Trading Permit Rule 3.4 (Foreign TPHs) N...................... Moves rule in its
Holders). entirety. Updates
title.
Rule 3.4A (Additional Trading Permit Rule 3.5 (Additional N...................... Moves rule in its
Holder Qualifications). TPH Qualifications). entirety. Renumbers
provisions and updates
title.
Rule 3.5 (Denial of and Conditions to Rule 3.6 (Denial of and N...................... Moves rule in its
Being a Trading Permit Holder or Conditions to Being a entirety. Renumbers
Associated with a Trading Permit TPH or Associated with provisions and updates
Holder). a TPH). cross-references and
title.
Rule 3.6 (Persons Associated with TPH Rule 3.7 (Persons N...................... Moves rule in its
Organizations). Associated with TPH entirety.
Organizations).
[[Page 57502]]
Rule 3.6A (Qualification and Rule 3.30 N...................... Moves rule in its
Registration of Trading Permit (Qualifications and entirety. Renumbers
Holders and Associated Persons). Registration of TPHs provisions and updates
and Associated cross-references and
Persons). title.
Rule 3.7 (Certain Documents Required Rule 3.8 (Certain N...................... Moves rule in its
of Trading Permit Holders, Documents Required of entirety. Renumbers
Applicants, and Associated Persons). TPHs, Applications and provisions and updates
Associated Persons). cross-references and
title.
Rule 3.8 (Nominees).................. Rule 3.9 (Responsible Y: see further Moves rule in its
Persons and Nominees). discussion below. entirety. Adopts
concept of
``Responsible
Person''. Amends and
updates Rule
accordingly, as
described more fully
below. Renumbers
provisions, eliminates
redundant provisions,
and updates cross-
references and title.
Rule 3.9 (Application Procedures and Rule 3.10 (Application N...................... Moves rule in its
Approval or Disapproval). Procedures and entirety. Adds
Approval or references to
Disapproval). ``Responsible
Persons'' and
``nominees''. Updates
cross-references.
Rule 3.10 (Effectiveness of Trading Rule 3.11 N...................... Moves rule in its
Permit Holder or Approved Associated (Effectiveness of PTH entirety. Adds
Person Status). or Approved Associated references to
Person Status). ``Responsible
Persons'' and
``nominees''. Updates
cross-reference and
title.
Rule 3.11 (Affiliation Between the Rule 3.62 (Affiliation N...................... Moves rule in its
Exchange and a Trading Permit Between the Exchange entirety. Updates
Holder). and a TPH). title.
Rule 3.12 (Cboe Trading as Outbound Rule 3.63 (Cboe Trading N...................... Moves rule in its
Router). as Outbound Router). entirety.
Rule 3.13 (Cboe Trading as Inbound Rule 3.64 (Cboe Trading N...................... Moves rule in its
Router). as Inbound Router). entirety.
Rule 3.14 (Reserved)................. N/A (deleted).......... N...................... Deletes reserved rule.
Rule 3.15 (Reserved)................. N/A (deleted).......... N...................... Deletes reserved rule.
Rule 3.16 (Reserved)................. N/A (deleted).......... N...................... Deletes reserved rule.
Rule 3.17 (Reserved)................. N/A (deleted).......... N...................... Deletes reserved rule.
Rule 3.18 (Trading Permit Holders and Rule 3.13 (TPHs and N...................... Moves rule in its
Associated Persons Who Are or Become Associated Persons Who entirety. Updates
Subject to a Statutory Are or Become Subject cross-references and
Disqualification). to a Statutory title.
Disqualification).
Rule 3.19 (Termination from Trading Rule 3.14 (Termination N...................... Moves rule in its
Permit Holder Status). from TPH Status). entirety. Adds
reference to
``Responsible
Person''. Updates
title.
Rule 3.20 (Dissolution and Rule 3.15 (Dissolution N...................... Moves rule in its
Liquidation of TPH Organizations). and Liquidation of TPH entirety. Updates
Organizations). cross-reference.
Rule 3.21 (Obligations of Terminating Rule 3.16 (Obligations N...................... Moves in its entirety.
Trading Permit Holders). of Terminating TPHs). Updates title.
Rule 3.22 (Reserved)................. N/A (deleted).......... N...................... Deletes reserved rule.
Rule 3.24 (Reserved)................. N/A (deleted).......... N...................... Deletes reserved rule.
Rule 3.25 (Reserved)................. N/A (deleted).......... N...................... Deletes reserved rule.
Rule 3.26 (Reserved)................. N/A (deleted).......... N...................... Deletes reserved rule.
Rule 3.27 (Reserved)................. N/A (deleted).......... N...................... Deletes reserved rule.
Rule 3.28 (Letters of Guarantee and Rule 3.61 (Letters of N...................... Moves rule in its
Authorization). Guarantee and entirety. New
Authorization). provisions added from
other rules, as
described more fully
below. Clarify in new
Rule 3.61(a) that TPHs
must have a letter of
guarantee from a
Clearing Trading
Permit Holder that is
properly authorized by
the Options Clearing
Corporation (``OCC'')
to operate during the
GTH session, which is
required currently
today. Renumbers
provisions.
Rule 3.29 (Membership in OneChicago, Rule 3.65 (Membership N...................... Moves rule in its
LLC). in OneChicago, LLC). entirety.
Rule 3.30 (Extension of Time Limits). Rule 3.17 (Extension of N...................... Moves rule in its
Time Limits). entirety.
Rule 3.31 (Reserved)................. N/A (deleted).......... N...................... Deletes reserved rule.
Rule 3.32 (Ownership Concentration Rule 3.18 (Ownership N...................... Moves rule in its
and Affiliation Limitation). Concentration and entirety.
Affiliation
Limitation).
Rule 6.20A (Sponsored Users)......... Rule 3.60 (Sponsored N...................... Moves rule in its
Users). entirety. Eliminates
reference to FLEX
Hybrid Trading System
in current Rule 6.20A
.01 as FLEX will no
longer trade on that
system post-migration,
but rather the same
system as all other
trading on Cboe
Options. Renumbers
provisions and updates
cross-references.
Rule 6.70 (Floor Broker Defined) Rule 3.50 (Floor N...................... Current Rule 6.70 moves
Rule 6.71 (Registration of Floor Brokers). to new Rule 3.50(a).
Brokers). Current Rule 6.71
moves to new Rule
3.50(b). Renumbers
provisions and updates
cross-references.
Updates title.
[[Page 57503]]
Rule 6.72 (Letters of Authorization). Rule 3.61 (Letters of N...................... Moves to Rule 3.61(b);
Guarantee and eliminates provisions
Authorization). in current rule
6.72(c) and (d) as
such provisions are
redundant to
provisions already
covered by current
Rule 3.28 (and now new
rule 3.61(a)). Renames
``Letter of
Authorization'' to
``Letter of
Guarantee'' for
consistency.
Rule 6.77 (Order Service Firms)...... Rule 3.59 (Order N...................... Moves rule in its
Service Firms). entirety.
Rule 6.78 (Letters of Guarantee Rule 3.61 (Letters of N...................... Moves to Rule 3.61(d);
Required of Order Service Firms). Guarantee and eliminates
Authorization). subparagraph (c) as
such provision is
redundant to provision
already in current
Rule 3.28 (and now new
rule 3.61(a)).
Rule 8.5 (Letters of Guarantee)...... Rule 3.61 (Letters of N...................... Moves to Rule 3.61(b);
Guarantee and eliminates
Authorization). subparagraph (c) as
such provision is
redundant to provision
already in current
Rule 3.28 (and now new
rule 3.61(a)).
Rule 24A.13 (Letter of Guarantee or Rule 3.61 (Letters of N...................... Moves to Rule 3.61(e);
Authorization). Guarantee and eliminates
Authorization). subparagraph (c) as
not necessary in light
of consolidated rule.
N/A.................................. Rule 3.51 (OEFs)....... N...................... Adopts definition of
``OEF'' from Rule 1.1
(Definitions) in shell
rulebook.
N/A.................................. 13.6................... N...................... Adds reference to
``Responsible
Person''.
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Other than the proposed changes regarding Responsible Persons,
described more fully below, the proposed rules are virtually identical
(renumbering or reorganizing paragraphs, updating cross-references and
titles, and making the types of non-substantive or clarifying changes
as described above), and are merely moving from the current Rulebook to
the shell Rulebook. The Exchange intends to move the current rules
indicated above to proposed Chapter 3 of the shell Rulebook in order to
consolidate into one location the rules that relate to membership,
registration and participants.
Responsible Persons
As noted above, in connection with the migration, the Exchange
intends to modify its current Trading Permit structure. By way of
background, current Cboe Option Rule 1.1 defines a Trading Permit as a
license issued by the Exchange that grants the holder or the holder's
nominee the right to access one or more of the facilities of the
Exchange for the purpose of effecting transactions in securities traded
on the Exchange without the services of another person acting as
broker, and otherwise to access the facilities of the Exchange for
purposes of trading or reporting transactions or transmitting orders or
quotations in securities traded on the Exchange, or to engage in other
activities that, under Cboe Options Rules, may only be engaged in by
Trading Permit Holders, provided that the holder or the holder's
nominee, as applicable, satisfies any applicable qualification
requirements to exercise those rights.\5\ The Exchange may issue
different types of Trading Permits and determine the fees for those
Trading Permits.\6\ The Exchange currently maintains three types of
Trading Permits. Particularly, the Exchange offers a Market-Maker
Trading Permit, a Floor Broker Trading Permit and an Electronic Access
Permit. The Exchange also offers separate Market-Maker and Electronic
Access Permit for the Global Trading Hours (``GTH'') session. More
specifically, Market-Maker trading Permits entitle the holder to act as
a Market-Maker, including a Market-Maker trading remotely, DPM, eDPM,
or LMM, and also provides an appointment credit of 1.0, a quoting and
order entry bandwidth allowance, up to three logins, trading floor
access and TPH status.\7\ A Floor Broker Trading Permit entitles the
holder to act as a Floor broker, provides an order entry bandwidth
allowance, up to 3 logins, trading floor access and TPH status.\8\
Lastly, an Electronic Access Permit (``EAP'') entitles the holder to
electronic access to the Exchange. Holders of EAPs must be broker-
dealers registered with the Exchange in one or more of the following
capacities: (a) Clearing TPH, (b) TPH organization approved to transact
business with the public, (c) Proprietary TPHs and (d) order service
firms. The permit does not provide access to the trading floor. An EAP
also provides an order entry bandwidth allowance, up to 3 logins and
TPH status.\9\ In addition, Rule 3.1(a)(v) provides, in relevant part,
that Trading Permits will be subject to such fees and charges as are
established by the Exchange from time to time pursuant to Exchange Rule
2.1 and the Exchange Fees Schedule.\10\
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\5\ A Trading Permit does not convey any ownership interest in
the Exchange, is only available through the Exchange, and is subject
to the terms and conditions set forth in Cboe Options Rule 3.1.
\6\ See Cboe Options Rule 3.1(v).
\7\ See Cboe Options Fees Schedule.
\8\ Id.
\9\ Id.
\10\ The Exchange has submitted a separate rule filing to amend
Trading Permit fees. See SR-CBOE-2019-082.
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As noted above, Trading Permits are currently tied to bandwidth
allocation, logins and appointment costs, and as such, TPH
organizations may hold multiple Trading Permits of the same type in
order to meet their connectivity needs. Post-Migration, bandwidth
allocation, logins and appointment costs will no longer be tied to a
Trading Permit, and as such, the Exchange is modifying its Trading
Permit structure. Specifically, post-Migration, the Exchange will issue
five types of Trading Permits; an electronic Market-Maker Permit, an
Electronic Access Permit, a Clearing TPH Permit, a Market-Maker Floor
Permit and a Floor Broker Permit.\11\ More specifically, the Exchange
will provide that for electronic access to the Exchange, a TPH need
only purchase one of the following permit types for each trading
function the TPH intends to perform: Market-Maker Electronic Access
Permit (``MM EAP'') in order to act as an off-floor Market-Maker,
Electronic Access Permit (``EAP'') in order to submit orders
[[Page 57504]]
electronically to the Exchange,\12\ and a Clearing TPH Permit, for TPHs
approved solely as a Clearing TPH.\13\ Additionally, as part of the
migration the Exchange is eliminating Global Trading Hours Trading
Permits. Instead, the Exchange will provide that any MM EAP, EAP and
Clearing TPH Permit provides access (at no additional cost) to the GTH
session.\14\ Post-migration, the Exchange will have separate Trading
Permits for on-floor and off-floor activity. As such, the Exchange will
be maintaining a Floor Broker Trading Permit (``FB Permit'') and
adopting a new Market-Maker Floor Permit (``MM Floor Permit'') for on-
floor Market-Makers. Floor-based permits may only be tied to one
individual (i.e., nominee) at a time.
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\11\ Cboe Option Rules provides the Exchange authority to issue
different types of Trading Permits which allows holders, among other
things, to act in one or more trading functions authorized by the
Rules. See Cboe Options Rule 3.1(a)(iv).
\12\ EAPs may be purchased by TPHs that both clear transactions
for other TPHs (i.e., a ``Clearing TPH'') and submit orders
electronically.
\13\ Currently any TPH that is registered to act as a Clearing
TPH must purchase an Electronic Access Permit, whether or not that
Clearing TPH acts solely as a Clearing TPH or acts as a Clearing TPH
and submits orders electronically. The Exchange proposes to adopt a
new Trading Permit, for any TPH that is registered to act solely as
Clearing TPH. Clearing TPHs that both clear transactions for other
TPHs and that are approved in a capacity to submit orders
electronically to the Exchange need only obtain the proposed EAP.
\14\ Clearing TPHs must be properly authorized by the Options
Clearing Corporation (``OCC'') to operate during the GTH session. As
such, in order to participate in GTH, a TPH must have a Letter of
Guarantee on file from a Clearing TPH that is authorized to operate
during GTH. The Exchange proposes to amend proposed Rule 3.61
(current Rule 3.28), to make this point clear in the rules.
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In light of the restructuring of the Exchange's Trading Permits,
the Exchange therefore proposes to modify its rules related to
nominees. Currently, a TPH organization must designate an individual
nominee to represent the organization with respect to that Trading
Permit in all matters relating to the Exchange, provided that in the
case of a Trading Permit held in the name of an individual, the TPH
organization shall be required to designate that individual as the
nominee for that Trading Permit.\15\ Additionally, in the situation
where the TPH organization is holding multiple Trading Permits in its
name, the TPH organization may designate the same individual to be a
nominee for those Trading Permits.\16\ Moreover, each nominee of a TPH
organization, except for a nominee of a TPH organization approved
solely as a Clearing Trading Permit Holder and/or to transact business
with the public pursuant to current Rule 9.1, is required to have an
authorized trading function.\17\ Among other requirements, a nominee is
required to be materially involved in the daily operation of the
Exchange business activities of the TPH organization for which the
person is a nominee; have authorized trading functions only on behalf
of one TPH organization; and perform trading functions only on behalf
of the TPH organization for which the person is approved by the
Exchange to perform such functions and may not perform trading
functions on the person's own behalf or on behalf of another TPH
organization.\18\
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\15\ See Current Cboe Options Rule 3.8(a)(i).
\16\ See Current Cboe Options Rule 3.8(a)(ii).
\17\ See Current Cboe Options Rule 3.8(a)(iii).
\18\ See Current Cboe Options Rule 3.8(c).
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Post-migration the Exchange proposes to provide that only floor-
based Trading Permits (i.e., MM Floor and FB Permits) require the
designation of a nominee. In lieu of nominees, TPH organizations that
hold electronic permits (i.e., MM EAPs, EAPs and Clearing TPH Permits)
will be required to designate at least one ``Responsible Person''. The
Responsible Person will be required to be affiliated with the TPH and
shall represent the organization with respect to a TPH's electronic
Trading Permit(s) in all matters relating to the Exchange. The
Responsible Person must be a U.S.-based officer, director or
management-level employee of the TPH, who is responsible for the direct
supervision and control of Associated Persons of that TPH. A
Responsible Person for a Foreign Trading Permit Holder does not need to
be U.S.-based, but must be an individual registered in Web CRD.\19\ The
Exchange notes that its affiliate C2 similarly requires the designation
of a Responsible Person.\20\ In connection with the proposed change,
the Exchange proposes to amend its nominee rule (current Rule 3.8,
proposed new Rule 3.9) to adopt new subparagraph 3.9(a), which will set
forth the requirements relating to Responsible Persons, as well as add
corresponding references to Responsible Persons in the remaining
provisions of proposed Rule 3.9. Proposed Rule 3.9(a) is substantially
similar to C2's corresponding rule.\21\
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\19\ The Exchange notes that for Foreign TPHs, the requirement
that the individual be U.S.-based is waived as such TPHs may not
have an individual that meets all of the proposed requirements based
in the U.S.
\20\ See C2 Rule 1.1 (``Responsible Person'') and Rule 3.8
(Responsible Person).
\21\ See C2 Rule 1.1 (``Responsible Person'') and Rule 3.8
(Responsible Person).
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With respect to floor-based permits, the Exchange will still
require the designation of a nominee per permit. Particularly, proposed
subparagraph (b) will provide that each TPH organization that is holder
of a FB Permit or MM Floor Permit must designate an individual nominee
to represent the organization with respect to each FB Permit or MM
Floor Permit in all matters relating to the Exchange. As noted above,
each FB Permit and MM Floor Permit may only be tied to one individual
at a time.\22\ As such, the Exchange proposes to eliminate the language
in current Rule 3.8(a)(ii) which allows a TPH to designate the same
individual to be a nominee for its Trading Permits. The Exchange notes
however, that a nominee of a TPH may also be designated as a
Responsible Person with respect to a TPH's electronic Trading Permits
so long as such nominee satisfies the proposed requirements of being a
Responsible Person. Similarly, a Responsible Person may also be
designated as a nominee for a TPH's floor Trading Permits so long as
such person satisfies the requirements of being a nominee. A TPH
organization may never have more individuals (i.e., nominees) on the
floor than it has floor-based Trading Permits. Further, each nominee
must be registered as a Floor Broker if acting as a nominee on behalf
of a FB Permit and registered as a Market-Maker if acting as a nominee
on behalf of a MM Floor Permit. As is the case today, a nominee may
have authorized trading functions only on behalf of one TPH
organization and may perform trading functions only on behalf of the
TPH organization for which the person is approved by the Exchange to
perform such functions and may not perform trading functions on the
person's own behalf or on behalf of another TPH organization.\23\ As
nominees will be required to be registered as either a Floor Broker or
Market-Maker, the Exchange believes the requirement under current Rule
3.8(c)(i) to be materially involved in the daily operation of the
Exchange activities of the TPH organization is no longer necessary and
as such the Exchange proposes to delete such provision.\24\ The
Exchange also proposes to eliminate current subparagraph 3.8(a)(v),
which provides each nominee of a TPH organization who is approved to be
a Trading Permit Holder shall be deemed to be an individual Trading
Permit Holder. The Exchange believes this point is already made clear
current (and proposed) Rule
[[Page 57505]]
3.2 which provides ``An individual must satisfy the following
requirements in order to be an individual Trading Permit Holder,
whether in the capacity of a holder of a Trading Permit or a nominee of
a TPH'' and as such the proposed language is redundant and unnecessary.
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\22\ TPHs may continue to designate and maintain ``inactive
nominees'' pursuant to proposed Rule 3.9(e) (current Rule 3.8(e)).
\23\ The Exchange proposes to relocate these provisions from
current Cboe Options Rule 3.8(c)(ii)-(iii) to new subparagraph (b)
of proposed Rule 3.9, making the rule easier to follow.
\24\ Given the proposed deletion of the language in current Rule
3.8(c)(i) and the relocation of current subparagraphs (c)(ii) and
(c)(iii), current Rule 3.8(c) will be eliminated in its entirety.
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In connection with the proposed changes relating to Responsible
Persons and nominees, the Exchange proposes to also amend other
exchange rules. Particularly, the Exchange proposes to amend the
following rules: (1) Proposed Rule 3.1 (currently Rule 3.1), to provide
Responsible Persons, in addition to nominees, are subject to the
regulatory jurisdiction of the Exchange and that a TPH organization may
change the designation of Responsible Persons in addition to nominees
with respect to its Trading Permits; (2) proposed Rule 3.10 (currently
Rule 3.9) to clarify that any individual that is designated as a
nominee or Responsible Person must submit an application and be
investigated, in accordance with the rule; (3) proposed Rule 3.11
(currently Rule 3.10) to clarify that each Responsible Person and
nominee must become effective within 90 days of the date of the
applicant's approval for such status; (4) proposed Rule 3.14 (currently
Rule 3.19) to clarify that a TPH's status may be automatically
terminated if it has no Responsible Person or nominee; and (5) proposed
Rule 13.6 (currently Rule 17.6) to provide that a Responsible Person or
nominee may represent a TPH organization in a hearing.
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.\25\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \26\ 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) \27\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
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\25\ 15 U.S.C. 78f(b).
\26\ 15 U.S.C. 78f(b)(5).
\27\ Id.
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In particular, the Exchange believes the proposed rule changes will
remove impediments to and perfect the mechanism of a free and open
market and a national market system by providing for a more streamlined
and simplified permit structure and rules relating to nominees and
proposed Responsible Persons. Particularly, post-migration, the new
connectivity and permit structure will eliminate the need for TPHs to
hold multiple permits for purposes of appointment costs, logins and/or
bandwidth and will provide clear distinctions between off-floor and on-
floor permits and the individual representatives of such permits (i.e.,
nominees and Responsible Persons). The Exchange believes the proposal
to require TPHs to designate a Responsible Person, instead of a
nominee, for such Trading Permits therefore provides for a more
straightforward administration of the Exchange's permit structure.
Indeed, the proposed change more closely aligns the Exchange's
membership requirements with those of its affiliate exchange, C2, which
has a similar electronic permit structure as proposed and is on the
same platform the Exchange is migrating to.\28\ The Exchange believes
its proposal to adopt Responsible Persons therefore provides greater
uniformity of the Exchange's rules and its affiliated exchange and
therefore less burdensome and more efficient regulatory compliance. The
proposed definition of a Responsible Persons is also substantially the
same as other exchanges that have a similar requirement.\29\ The
Exchange notes that similar to a designated nominee, Responsible
Persons will represent the organization with respect to each electronic
Trading Permit in all matters relating to the Exchange. As such, every
TPH organization, whether participating electronically or on the floor
of the Exchange, will continue to have a designated individual that
represents the Exchange, and has gone through an application and
investigation process.
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\28\ See C2 Rules1.1 (``Responsible Person'') and 3.8
(Responsible Person).
\29\ See e.g., MIAX Options Rules 100 and 207.
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The Exchange notes that it is not substantively changing any rights
or obligations of nominees of floor Trading Permits. Rather, the
Exchange merely is proposing to update its rules to reflect that
nominees will, upon migration, only represent a FB Trading Permit or MM
Floor Trading Permit and therefore must only be registered as a FB or
MM, respectively. The Exchange believes the proposed changes to its
nominee rule (current Rule 3.8, proposed Rule 3.9) also alleviates
confusion by reorganizing and consolidating provisions, simplifying
language, and removing redundancies.
As stated, the proposed rule changes not related to Responsible
Persons makes no substantive changes to the rules. Rather, those
proposed rule changes are merely intended to make the types of non-
substantive or clarifying changes as described in the table and
discussion above and relocate the Exchange's rules to the shell
Rulebook and update their numbers, paragraph structure, including
number and lettering format, and cross-references to conform to the
shell Rulebook as a whole in anticipation of the technology migration
on October 7, 2019. As such, the proposed rule change is designed to
promote just and equitable principles of trade, 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, by improving the way the Exchange's Rulebook is organized,
making it easier to read, and, particularly, helping market
participants better understand the rules of the Exchange, which will
also result in less burdensome and more efficient regulatory
compliance.
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. Particularly, the Exchange
does not believe that the proposed rule change will impose any burden
on intramarket competition that is not necessary or appropriate in
furtherance of the purposes of the Act because the proposed changes
apply to all TPHs. The proposed rule change also does not address
competitive issues, but rather, amends its requirements relating to
nominees in connection with the upcoming technology migration and
resulting change in the Exchange's Trading Permit structure and/or
makes non-substantive rule changes in relocating the rules and updating
cross-references to shell rules in anticipation of the October 7, 2019
technology migration. The Exchange does not believe that the proposed
rule change will impose any burden on intermarket competition that is
not necessary or appropriate in furtherance of the
[[Page 57506]]
purposes of the Act because the proposed change only affects TPHs of
Cboe Options and those applying for membership to Cboe Options. To the
extent that the proposed change makes Cboe Options a more attractive
marketplace for market participants at other exchanges, such market
participants are welcome to become Cboe Options market participants.
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 \30\ and Rule 19b-
4(f)(6) thereunder.\31\
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\30\ 15 U.S.C. 78s(b)(3)(A).
\31\ 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 \32\ normally does not become operative for 30 days after the date
of its filing. However, Rule 19b-4(f)(6)(iii) \33\ 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 Exchange may implement the proposed rule change at the time of its
anticipated October 7, 2019 system migration. The Exchange believes
that waiver of the operative delay is appropriate because, as the
Exchange discussed above, its proposal does not make any substantive
changes to the Exchange's rules. The Commission believes that waiver of
the 30-day operative delay is consistent with the protection of
investors and the public interest because the proposal does not raise
any new or novel issues and makes only non-substantive changes to the
rules. Therefore, the Commission hereby waives the operative delay and
designates the proposal as operative upon filing.\34\
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\32\ 17 CFR 240.19b-4(f)(6).
\33\ 17 CFR 240.19b-4(f)(6)(iii).
\34\ 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 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-2019-099 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-2019-099. 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-2019-099 and should be submitted on
or before November 15, 2019.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\35\
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\35\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-23265 Filed 10-24-19; 8:45 am]
BILLING CODE 8011-01-P