[Federal Register Volume 85, Number 19 (Wednesday, January 29, 2020)]
[Notices]
[Pages 5267-5269]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-01518]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-88019; File No. SR-C2-2020-002]
Self-Regulatory Organizations; Cboe C2 Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change Relating
To Amend Rule 6.31 in Connection with the Exchange's Clearing Editor
January 23, 2020.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on January 16, 2020, Cboe C2 Exchange, Inc. (the ``Exchange'' or
``C2'') filed with the Securities and Exchange Commission (``SEC'' or
``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Cboe C2 Exchange, Inc. (the ``Exchange'' or ``C2'') proposes to
amend Rule 6.31 in connection with the Exchange's Clearing Editor. The
text of the proposed rule change is provided below.
(additions are italicized; deletions are [bracketed])
* * * * *
Rules of Cboe C2 Exchange, Inc.
* * * * *
Rule 6.31. Clearing Editor
(a) No change.
(b) Trading Permit Holders may change the following fields through
the Clearing Editor: (1) Executing Firm and Contra Firm; (2) Executing
Broker and Contra Broker; (3) CMTA; (4) Account and Sub Account; (5)
[Customer]Client Order ID; (6) Position Effect (open/close); or (7)
Capacity (if the change is from a customer Capacity code of (C) to any
other Capacity code, it must be accompanied by a Reason Code, and
notice of such change will automatically be sent to the Exchange with
the submission of the change through the Clearing Editor).
* * * * *
The text of the proposed rule change is also available on the
Exchange's website (http://markets.cboe.com/us/options/regulation/rule_filings/ctwo/), 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 Rule 6.31 in connection with its
Clearing Editor. The Clearing Editor currently allows Trading Permit
Holders (``TPHs'') to update executed trades on their trading dates and
revise them for clearing. Specifically, the Clearing Editor allows TPHs
to correct certain bonafide errors by changing certain fields, pursuant
to Rule 6.31(b), including: (1) Executing Firm and Contra Firm; (2)
Executing Broker and Contra Broker; (3) CMTA; (4) Account and Sub
Account; (5) Customer ID; (6) Position Effect (open/close); or (7)
Capacity. The Exchange proposes to amend the rule to provide additional
specificity regarding a Capacity code change. The proposed rule
provides that that if the change is from a customer Capacity code of
(C) to any other Capacity code, it must be accompanied by a Reason Code
and notice of such change will automatically be sent to the Exchange
with the submission of the change through the Clearing Editor. As
proposed, Rule 6.31(b) would continue to allow a TPH to change any
Capacity code to another, however, would just require a TPH to provide
automatic notification and explanation to the Exchange via a prompted
Reason Code of a Capacity code change from a customer Capacity code to
another Capacity code.\3\ The Exchange notes that while a change from
customer Capacity code does not affect the Consolidated Tape or terms
of a contract, such changes may affect other substantive aspects of how
a trade was processed, including whether or not a trade should have
been given certain preferable customer treatment (e.g. customer complex
orders are not subject to certain Complex Order Auction (``COA'')
restrictions and customer orders may receive specific rebates or are
assessed reduced fees).\4\ Accordingly, the Exchange believes that TPHs
making changes to this field should be required to provide to the
Exchange notice and explanation relating to the change. As a result,
the proposed Reason Code for customer Capacity code changes would
better enable the Exchange to surveil for and enforce against potential
issues or abusive behavior via the Clearing Editor by allowing the
Exchange to understand the rationale behind all such changes.
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\3\ Example Reason Codes include: Input Error; Unmatched Trade;
Unknown; Manual Add; Other Text Required; Trade Nullification; Trade
Adjustment; Error Account; and System Issue.
\4\ See C2 Options Exchange Fees Schedule. The Exchange notes
that preferential pricing to Customers is a long-standing options
industry practice.
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The proposed rule change also updates the term Customer ID in Rule
6.31(b) to Client Order ID, as this term more accurately reflect the
name of the
[[Page 5268]]
field displayed on an order \5\ and in the Clearing Editor. This
proposed rule change is identical to the manner in which a Capacity
code may be changed via the Clearing Editor, and the term Client Order
ID is used, on the Exchange's affiliated exchange, Cboe Exchange, Inc.
(``Cboe Options'').\6\
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\5\ See Cboe Options FIX Specifications, available at: https://cdn.cboe.com/resources/membership/US_Options_FIX_Specification.pdf.
\6\ See Cboe Options Rule 6.1.
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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, by requiring a TPH to submit a Reason Code via the
Clearing Editor in conjunction with a change made from a customer
Capacity code, the Exchange believes the proposed rule change may
prevent fraudulent and manipulative acts and otherwise promote just and
equitable principles of trade because it would allow the Exchange to
automatically be notified of such a change and the rationale behind the
change. This, in turn, would allow the Exchange to better surveil for
and enforce against potential issues or abusive behavior via the
Clearing Editor. As such, the proposed rule change is specifically
designed to protect investors and the public interest. The Exchange
further notes that, for the same reasons enumerated above, the proposed
rule change is also consistent with Section 6(b)(1) of the Act,\10\
which provides that the Exchange be organized and have the capacity to
be able to carry out the purposes of the Act and to enforce compliance
by the Exchange's Trading Permit Holders and persons associated with
its Trading Permit Holders with the Act, the rules and regulations
thereunder, and the rules of the Exchange.
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\10\ 15 U.S.C. 78f(b)(1).
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Additionally, the Exchange believes that the proposed rule change
to update the term Customer ID to Client Order ID, a term that more
accurately reflects the field name that is displayed on an order and in
the Clearing Editor, would remove impediments to and perfect the
mechanism of a free and open market and a national market system and
protect investors by mitigating any potential confusion surrounding the
use of this field. Finally, the Exchange notes that the proposed rule
change is identical to the manner in which a Capacity code change from
a customer Capacity code must be made and the term Client Order ID is
used in Cboe Options Rule 6.6, previously filed with the Commission.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change would
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The Exchange does not
believe the proposed rule change would impose any burden on intramarket
competition that is not necessary or appropriate in furtherance of the
Act, because it would require all TPHs to input a Reason Code via the
Clearing Editor when changing from a customer Capacity code. The
Exchange notes that the proposed rule change does not alter or restrict
any the fields that a TPH may currently change via the Clearing Editor.
The Exchange does not believe that the proposed rule change would
impose any burden on intermarket competition, because it is
substantially the same as the Clearing Editor rule on Cboe Options,
previously filed with the Commission. In addition to this, the Exchange
notes that the proposed rule change is not intended to address
competitive issues, but rather, is concerned with the correction of
post-trade information for purposes of enhancing surveillance and
enforcement for potential issues or abuses of the Clearing Editor.
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:
A. significantly affect the protection of investors or the public
interest;
B. impose any significant burden on competition; and
C. 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 \11\ and
Rule 19b-4(f)(6) \12\ thereunder. 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.
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\11\ 15 U.S.C. 78s(b)(3)(A).
\12\ 17 CFR 240.19b-4(f)(6).
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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-C2-2020-002 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-C2-2020-002. 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
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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 offices 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-C2-2020-002, and should be submitted on
or before February 19, 2020.
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\13\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\13\
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2020-01518 Filed 1-28-20; 8:45 am]
BILLING CODE 8011-01-P