[Federal Register Volume 84, Number 249 (Monday, December 30, 2019)]
[Notices]
[Pages 72079-72081]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-28083]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87824; File No. SR-CboeBZX-2019-108]


Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
Interpretation and Policy .01 of Rule 2.4 To Allow the Exchange To 
Provide Annual Notification to Individual Members That are Subject to 
Paragraph (b) of Rule 2.4

December 20, 2019.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on December 13, 2019, Cboe BZX Exchange, Inc. (the ``Exchange'' or 
``BZX'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I and II 
below, which Items have been prepared by the Exchange. The Exchange 
filed the proposal as a ``non-controversial'' proposed rule change 
pursuant to Section 19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-
4(f)(6) thereunder.\4\ The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Cboe BZX Exchange, Inc. (``BZX'' or the ``Exchange'') is filing 
with the Securities and Exchange Commission (the ``Commission'') a 
proposed rule change to amend Interpretation and Policy .01 of Rule 2.4 
to allow the Exchange to provide annual notification to individual 
Members \5\ that are subject to paragraph (b) of Rule 2.4, which 
requires certain Members to connect to the Exchange's backup systems 
and participate in functional and performance testing based on the 
prior calendar quarter's volume or participation as Lead Market Maker 
(``LMM'') on the Exchange. The text of the proposed rule change is 
provided in Exhibit 5.
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    \5\ The term ``Member'' is defined as ``any registered broker or 
dealer that has been admitted to membership in the Exchange.'' See 
Exchange Rule 1.5(n).
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    The text of the proposed rule change is also available on the 
Exchange's website (http://markets.cboe.com/us/equities/regulation/rule_filings/bzx/), at the Exchange's Office of the Secretary, and at 
the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend Interpretation and Policy .01 of 
Rule 2.4 to allow the Exchange to provide annual notification to 
individual Members that are subject to paragraph (b) of Rule 2.4, which 
requires certain Members to connect to the Exchange's backup systems 
and participate in functional and performance testing based on the 
prior calendar quarter's volume or participation as LMM on the 
Exchange.
    As background, Regulation Systems Compliance and Integrity 
(``Regulation SCI'') \6\ applies to certain self-regulatory 
organizations (including the Exchange), alternative trading systems 
(``ATSs''), plan processors, and exempt clearing agencies 
(collectively, ``SCI entities''). Specifically, Rule 1004 of Regulation 
SCI states that each SCI entity shall establish standards for the 
designation of Members that are necessary for the maintenance of fair 
and orderly markets in the event of the activation of the business 
continuity and disaster recovery plans, designate such Members in 
scheduled functional and performance testing of the operation of such 
plans no less than once every 12 months, and coordinate the testing of

[[Page 72080]]

such plans on an industry- or sector-wide basis with other SCI 
entities.
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    \6\ See Securities Exchange Act Release No. 73639 (November 19, 
2014), 79 FR 72252 (December 5, 2014) (``SCI Adopting Release'').
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    In order to comply with the coordination requirement among SCI 
entities, the Exchange has conducted the required operational testing 
in parallel with the industry-led testing program coordinated by the 
Securities Industry and Financial Markets Association (``SIFMA''), 
which occurs on an annual basis. Currently, Interpretation and Policy 
.01 to Rule 2.4 requires the Exchange to identify and provide notice to 
designated Members under paragraph (b) on a quarterly basis based on 
trade activity during the previous quarter or a Member's participation 
as LMM on the Exchange. Any Member that receives such notice is 
required to participate in the next annual functional and performance 
testing, which generally occurs in October. As such, a Member that 
receives notice in the third and/or fourth quarter of the preceding 
year or the first and/or second quarters of the current year will be 
required to participate in the annual functional and performance 
testing. As a result, Members would be notified in October, January, 
April, and/or July of their requirement to connect to the Exchange's 
backup systems and participate in functional and performance testing 
scheduled for October, which means that certain Members receive 
notification of their designation and requirement to connect and 
participate in functional and performance testing only three months 
prior to the scheduled operational and functional testing. Further, a 
Member that had been designated in any of the four preceding quarters 
would be required to participate in the functional and performance 
testing even if that Member did not meet the designation requirements 
of subparagraphs (b)(1) in the most recent quarter (i.e., the second 
quarter).
    As proposed, the amendment would allow the Exchange to identify 
designated Members based on trade activity during a single quarter for 
a given year, and to issue one annual notification to the designated 
Members in preparation for the anticipated functional and performance 
testing, which generally occurs in October. As such, the proposal 
would: (i) Simplify the Member designation and notice process; (ii) 
allow the Exchange to require only those Members that meet the volume 
requirements under Rule 2.4(b)(1) in the designated quarter to 
participate in such testing; (iii) provide the Exchange with greater 
flexibility as to the timing that it would provide Members with notice 
of their designation pursuant to paragraph (b), but still require the 
Exchange to provide such notice at least three months prior to the 
anticipated functional and performance testing; and (iv) strengthen the 
Exchange's coordination with other SCI entities by harmonizing the 
frequency of such notifications with other self-regulatory 
organizations, which do not provide quarterly notifications of Member 
designations.\7\ As the proposed amendment provides the Exchange with 
greater flexibility in selecting the relevant quarter's trade data for 
which the designated Members will be identified, the designated Members 
may be identified based on more recent trading activity, rather than 
trade activity that potentially occurred more than one year prior to 
such testing and thus would more accurately represent the Members who 
met the requirements set forth in paragraph (b)(1) of Rule 2.4.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Securities Exchange Act of 1934 (the ``Act'') and the rules and 
regulations thereunder applicable to the Exchange and, in particular, 
the requirements of Section 6(b) of the Act. Specifically, the Exchange 
believes the proposed rule change is consistent with the Section 
6(b)(5) requirements that the rules of an exchange be designed to 
prevent fraudulent and manipulative acts and practices, to promote just 
and equitable principles of trade, to foster cooperation and 
coordination with persons engaged in regulating, clearing, settling, 
processing information with respect to, and facilitating transactions 
in securities, to remove impediments to and perfect the mechanism of a 
free and open market and a national market system, and, in general, to 
protect investors and the public interest.
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    \7\ See Cboe Exchange, Inc. (``Cboe'') Rule 5.24, which states 
``[Cboe] provides [ ] Trading Permit Holders with reasonable advance 
notice that they must participate in the testing described in 
paragraph (b) of this Rule 5.24.'' See also New York Stock Exchange 
(``NYSE'') Rule 49(b)(4), which states ``[a]t least three (3) months 
prior to a scheduled functional and performance testing of the 
Exchange's business continuity and disaster recovery plans, the 
Exchange will . . . notify those member organizations that are 
required to participate based on such criteria.''
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    In particular, the Exchange believes the proposal is consistent 
with the Act because, as noted above, the proposal would allow the 
Exchange to identify designated Members based on activity during a 
single quarter for a given year and to issue one annual notification to 
the designated Members in preparation for the anticipated functional 
and performance testing, which generally occurs in October, which the 
Exchange believes would: (i) Simplify the Member designation and notice 
process; (ii) allow the Exchange to require only those Members that 
meet the requirements under Rule 2.4(b)(1) in the designated quarter to 
participate in such testing; (iii) provide the Exchange with greater 
flexibility as to the timing that it would provide Members with notice 
of their designation pursuant to paragraph (b), but still require the 
Exchange to provide such notice at least three months prior to the 
anticipated functional and performance testing; and (iv) strengthen the 
Exchange's coordination with other SCI entities by harmonizing the 
frequency of such notifications with other self-regulatory 
organizations, which do not provide quarterly notifications of Member 
designations. The proposed amendment will harmonize Exchange rules with 
those of other self-regulatory organizations in furtherance of the 
coordination of testing among SCI entities required by Rule 1004(c) of 
Regulation SCI. As set forth in Regulation SCI, ``SROs have the 
authority, and legal responsibility, under Section 6 of the Exchange 
Act, to adopt and enforce rules (including rules to comply with 
Regulation SCI's requirements relating to BC/DR testing) applicable to 
their members or participants that are designed to, among other things, 
foster cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect to, and 
facilitating transactions in securities, to remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system, and, in general, to protect investors and the public 
interest.'' \8\ The Exchange believes that the proposal is consistent 
with such authority and legal responsibility.
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    \8\ See supra note 6.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The proposed rule change is 
not a competitive proposal as it is intended to coordinate notification 
of Member participation requirements in the Exchange's testing of 
business continuity and disaster recovery plans with the annual 
industry-wide testing program.

[[Page 72081]]

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange neither solicited nor received comments on the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the proposed rule change does not: (i) Significantly affect 
the protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative for 30 
days from the date on which it was filed, or such shorter time as the 
Commission may designate, it has become effective pursuant to Section 
19(b)(3)(A) of the Act \9\ and Rule 19b-4(f)(6) thereunder.\10\
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    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 17 CFR 240.19b-4(f)(6). In addition, Rule19b-4(f)(6)(iii) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change, along 
with a brief description and text of the proposed rule change, at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act \11\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \12\ permits the 
Commission to designate a shorter time if such action is consistent 
with the protection of investors and the public interest. The Exchange 
has asked the Commission to waive the 30-day operative delay so that 
the proposal may become operative upon filing. The Exchange states that 
a waiver of the operative delay is consistent with the protection of 
investors and the public interest because it would eliminate potential 
confusion across self-regulatory organizations and simplify and clarify 
the process of notification to designated Members pursuant to paragraph 
(b) of Rule 2.4. The Commission believes that waiver of the 30-day 
operative delay is consistent with the protection of investors and the 
public interest. Therefore, the Commission hereby waives the operative 
delay and designates the proposed rule change operative upon 
filing.\13\
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    \11\ 17 CFR 240.19b-4(f)(6).
    \12\ 17 CFR 240.19b-4(f)(6)(iii).
    \13\ For purposes only of waiving the 30-day operative delay, 
the Commission also has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule change should be approved or 
disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-CboeBZX-2019-108 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-CboeBZX-2019-108. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549 on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-CboeBZX-2019-108 and should be submitted 
on or before January 21, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2019-28083 Filed 12-27-19; 8:45 am]
BILLING CODE 8011-01-P