[Federal Register Volume 85, Number 226 (Monday, November 23, 2020)]
[Notices]
[Pages 74770-74772]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-25731]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90440; File No. SR-CBOE-2020-109]


Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
Its Interpretations and Policies to Rule 5.33 in Connection With 
Market-Makers' Complex Orders, Quoting Obligations and Volume

November 17, 2020.
    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 November 3, 2020, 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, 
II, and III below, which Items have been prepared by the Exchange. The 
Exchange filed the proposal 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

    Cboe Exchange, Inc. (the ``Exchange'' or ``Cboe'') proposes to 
amend its Interpretations and Policies to Rule 5.33 in connection with 
Market-Makers' complex orders, quoting obligations and volume. The text 
of the proposed rule change is provided in Exhibit 5.
    The text of the proposed rule change is also available on the 
Exchange's website (http://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx), at the Exchange's Office of the 
Secretary, and at the Commission's Public Reference Room.

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

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

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

1. Purpose
    The Exchange proposes to adopt new Interpretation and Policy .02 to 
Rule 5.33 to codify how complex strategy volume is counted when 
determining whether a Market-Maker exceeds the 25% volume threshold in 
its non-appointed classes pursuant to Rule 5.52(g) and when determining 
whether a Market-Maker exceeds the electronic volume thresholds in its 
appointed classes pursuant to 5.52(d)(1) and (d)(2).\5\ The Exchange 
also proposes to make clarifying, nonsubstantive updates to 
Interpretation and Policy .01 to Rule 5.33.
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    \5\ As a result of the proposed Interpretation and Policy, the 
proposed rule change accordingly updates the subsequent 
Interpretation and Policy numbering.
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    Rule 5.33 governs trading of complex orders on the Exchange and, 
currently, Interpretation and Policy .01 to Rule 5.33 specifically 
provides that Market-Makers are not required to quote on the Complex 
Order Book (``COB''). Complex strategies are not subject to any quoting 
requirements that are applicable to Market-Makers in the simple market 
for individual options series or classes. Interpretation and Policy .01 
to Rule 5.33 also states that volume executed in complex strategies is 
not taken into consideration when determining whether Market Makers are 
meeting quoting obligations applicable to Market Makers in the simple 
market for individual options. The proposed rule change updates 
Interpretation and Policy .01 to Rule 5.33 as it inadvertently refers 
to volume executed rather than orders, as ``quoting'' obligations 
relate to the submission of quotes and orders rather than executed 
volume. More specifically, pursuant to Rule 5.52, a Market-Maker's bids 
and offers entered in the simple market are considered in determining 
whether a Market-Maker satisfies its quoting obligations, therefore, 
the proposed rule change amends Interpretation and Policy .01 to Rule 
5.33 to more appropriately reflect this. The proposed change also 
harmonizes the spelling of Market-Maker with the definition set forth 
in Rule 1.1 and updates the language to read in plain English, and, to 
the extent possible, with the language in corresponding Interpretation 
and Policy .01 to Rule 6.13 of its affiliated options exchange, Cboe C2 
Exchange, Inc. (``C2'').
    Current Rule 5.52(g) provides that a Market-Maker is considered an 
order entry firm (``OEF'') \6\ under the Rules in all classes in which 
the Market-Maker has no appointment, and limits the total number of 
contracts a Market-Maker may execute in classes in which it has no 
appointment to 25% of the total number of all contracts the Market-

[[Page 74771]]

Marker executes on the Exchange in any calendar quarter. Rule 
5.52(d)(1) provides that if a Market-Maker never trades more than 20% 
of the Market-Maker's contract volume electronically in an appointed 
class during any calendar quarter, a Market-Maker will not be obligated 
to quote electronically in any designated percentage of series within 
that class pursuant to subparagraph (d)(2), and Rule 5.52(d)(2) 
provides that If a Market-Maker trades more than 20% of the Market-
Maker's contract volume electronically in an appointed class during any 
calendar quarter, commencing the next calendar quarter, a Market-Maker 
must provide continuous electronic quotes. The Exchange currently 
considers all contracts executed by a Market-Maker, regardless of 
whether they are executed in the simple or complex book, in determining 
whether a Market-Maker has exceeded the 25% volume threshold in its 
non-appointed classes and the 20% electronic volume threshold in its 
appointed classes. The Exchange now proposes to codify this in proposed 
Interpretation and Policy .02 to Rule 5.33. Specifically, the proposed 
rule change makes it clear that a Market-Maker's orders for complex 
strategies executed in classes in which it has no appointment are 
included in the total number of all contracts the Market-Maker executes 
on the Exchange in any calendar quarter in determining whether the 
Market-Maker exceeds the 25% threshold pursuant to Rule 5.52(g) and 
makes it clear that a Market-Maker's orders for complex strategies 
executed in classes in which it has an appointment are included in the 
total number of all contracts the Market-Maker executes electronically 
in an appointed class during any calendar quarter in determining 
whether the Market-Maker exceeds the electronic volume threshold 
pursuant to Rule 5.52(d)(1) and (d)(2).
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    \6\ See Rule 1.1., which defines an ``Order Entry Firm'' or 
``OEF'' as a Trading Permit Holder that represents as agent customer 
orders on the Exchange or that is a non-Market-Maker conducting 
proprietary trading.
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2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Securities Exchange Act of 1934 (the ``Act'') and the rules and 
regulations thereunder applicable to the Exchange and, in particular, 
the requirements of Section 6(b) of the Act.\7\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \8\ requirements that the rules of an exchange be 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, to foster cooperation 
and coordination with persons engaged in regulating, clearing, 
settling, processing information with respect to, and facilitating 
transactions in securities, to remove impediments to and perfect the 
mechanism of a free and open market and a national market system, and, 
in general, to protect investors and the public interest. Additionally, 
the Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \9\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
    \9\ Id.
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    In particular, the Exchange believes the proposed rule change will 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system by codifying that the Exchange 
considers a Market-Maker's complex order volume when calculating the 
25% threshold of volume in non-appointed classes pursuant to Rule 
5.52(g) and when calculating the 20% threshold of electronic volume in 
its appointed classes. Specifically, Rule 5.52(g) is designed to 
prevent a Market-Maker from executing volume in non-appointed option 
classes in an amount disproportionate to volume executed in its 
appointed option classes. Similarly, Rule 5.52(d)(1) and (d)(2) are 
designed to prevent a Market-Maker from executing electronic volume in 
its appointed classes in an amount disproportionate to volume executed 
on the trading floor in its appointed classes without being obligated 
to stream continuous electronic quotes. Both Rule 5.52(g) and Rule 
5.52(d)(1) and (d)(2) prevent a Market-Maker from executing volume in a 
manner that potentially derogates the performance of its obligations 
and provision of liquidity in its appointed option classes. As such, 
the Exchange believes that including complex volume in these 
calculations is consistent with and supports the purpose of Rule 
5.52(g) and Rule 5.52(d)(1) and (d)(2), which, thereby, will help to 
ensure that a Market-Maker executes volume in a manner that is 
consistent with the performance of its quoting obligations and 
provision of liquidity in its appointed classes. The proposed rule 
change makes it clear that a Market-Maker's orders executed in complex 
strategies are considered representative of a Market-Maker's total 
volume on the Exchange. The Exchange believes this may mitigate any 
potential confusion regarding this calculation so that Market-Makers 
have more clarity regarding their obligations in appointed classes in 
an appropriate manner as compared to non-appointed classes. As such, 
the Exchange believes the proposed rule change will contribute to the 
protection of investors and the public interest by adding transparency 
and clarity to the Exchange's Rules by codifying an existing practice 
in calculating a Market-Maker's executed volume on the Exchange. In 
addition, the Exchange believes the proposed changes to Interpretation 
and Policy .01 of Exchange Rule 5.33 will add clarity by revising the 
Rule to provide that orders entered in appointed classes, rather than 
volume executed, is considered in connection with determining whether a 
Market-Maker meets its quoting obligations pursuant to Rule 5.52 in its 
appointed classes, conforming the spelling of Market-Maker with its 
applicable definition in Rule 1.1 and (to the extent possible) with the 
language of its affiliated options exchange's corresponding provisions, 
and updating the language to read in plain English.

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 Exchange reiterates that 
the proposed rule change is intended to codify a current Exchange 
interpretation that a Market-Maker's complex strategy execution volume 
is considered when calculating its volume per quarter pursuant to Rule 
5.52(g) and correct an inadvertent error indicating that executed 
volume rather than entered orders are considered when determining 
compliance with a Market-Maker's quoting obligations. Thus, the 
Exchange believes this proposed rule change will benefit Exchange 
participants by providing clarity within the Exchange Rules.
    Additionally, the Exchange believes that the proposed rule change 
regarding the applicability of Rule 5.52(g) to a Market-Maker's 
executions in the COB does not impose any burden on intramarket 
competition because it applies to all Market-Makers in the same manner. 
The proposed rule change codifies an existing interpretation of the 
Rules and therefore does not modify any existing Market-Maker 
obligations or manner in which a Market-Maker's non-appointed volume is 
calculated. The Exchange believes that the proposed rule change does 
not impose any burden on intermarket competition because it relates to 
an obligation regarding Market-Maker executed volume only on the 
Exchange.

[[Page 74772]]

    Additionally, the proposed nonsubstantive updates to Interpretation 
and Policy .01 to Rule 5.33 are not competitive in nature and, instead, 
are intended to correct an inadvertently used term and provide clarity 
and consistency within the Rules and, to the extent possible, with the 
corresponding rule language of its affiliated options exchange.

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 \10\ and 
Rule 19b-4(f)(6) \11\ 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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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 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-CBOE-2020-109 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-2020-109. 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-2020-109, and should be submitted 
on or before December 14, 2020.
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    \12\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-25731 Filed 11-20-20; 8:45 am]
BILLING CODE 8011-01-P