[Federal Register Volume 88, Number 61 (Thursday, March 30, 2023)]
[Notices]
[Pages 19180-19183]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-06561]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-97197; File No. SR-CboeEDGA-2023-004]
Self-Regulatory Organizations; Cboe EDGA Exchange, Inc.; Notice
of Filing and Immediate Effectiveness of a Proposed Rule Change To
Amend Its Sponsored Participant Rules
March 24, 2023.
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 March 13, 2023, Cboe EDGA Exchange, Inc. (the ``Exchange'' or
``EDGA'') 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 EDGA Exchange, Inc. (the ``Exchange'' or ``EDGA'') proposes to
amend Exchange Rules 11.3(a)-(b), to: (1) define the term ``Sponsored
Access''; and (2) to codify that the agreement required by and between
the Sponsoring Member and Sponsored Participant must include a
provision that any Sponsored Access relationship must follow the
requirements of SEC Rule 15c3-5, the Market Access Rule (``MAR'').\5\
The text of the proposed rule change is provided in Exhibit 5.\6\
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\5\ 17 CFR 240.15c3-5--Risk management controls for brokers or
dealers with market access.
\6\ The Exchange proposes to implement the proposed changes to
Rule 11.3(a)-(b)(1)-(3) on a date that will be announced via Cboe
Trade Desk, notifying both existing and prospective Sponsoring
Members and Sponsored Participants, of the new rule language and
required contractual provisions.
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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/edga/), 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 purpose of this filing is to amend Exchange Rules 11.3(a)-(b)
to: (1) define the term ``Sponsored Access''; and (2) to codify that
the agreement required by and between the Sponsoring Member and
Sponsored Participant must include a provision that any Sponsored
Access relationship must follow the requirements of the MAR.
Sponsored Access Definition
Per current Exchange rules a ``Sponsored Participant'' \7\ may be a
Member \8\ or non-Member of the Exchange whose direct electronic access
to the Exchange is authorized by a Sponsoring Member \9\ pursuant to
the requirements set forth in Exchange Rule 11.3(b)(1)-(3), ``Sponsored
Participants''. The Exchange proposes to amend Rule 11.3(a) to include
the following definition, ``Sponsored Access shall mean an arrangement
whereby a Member permits its Sponsored Participants to enter orders
into the Exchange's System that bypass the Member's trading system and
are routed directly to the Exchange, including through a service bureau
or other third-party technology provider.'' The Exchange notes that the
proposed definition of Sponsored Access is identical to that adopted
\10\ by the Nasdaq Stock Market, LLC (``Nasdaq''), General 2 in Section
22, Sponsored Participants, of their General Equity and Options
Rules.\11\ The Exchange believes defining Sponsored Access will provide
[[Page 19181]]
Sponsoring Members with greater clarity in understanding which types of
market access relationships are subject to Exchange Rule 11.3(a)-
(b),\12\ and what obligations Sponsoring Members and Sponsored
Participants must satisfy when establishing a Sponsored Access
relationship.
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\7\ The term ``Sponsored Participant'' shall mean a person which
has entered into a sponsorship arrangement with a Sponsoring Member
pursuant to Rule 11.3. See Exchange Rule 1.5(z), definition of
``Sponsored Participant''.
\8\ The term ``Member'' shall mean any registered broker or
dealer that has been admitted to membership in the Exchange. A
Member will have the status of a ``member'' of the Exchange as that
term is defined in Section 3(a)(3) of the Act. Membership may be
granted to a sole proprietor, partnership, corporation, limited
liability company or other organization which is a registered broker
or dealer pursuant to Section 15 of the Act, and which has been
approved by the Exchange. See Exchange Rule 1.5(n), definition of
``Member''.
\9\ The term ``Sponsoring Member'' shall mean a broker-dealer
that has been issued a membership by the Exchange who has been
designated by a Sponsored Participant to execute, clear and settle
transactions from the System. The Sponsoring Member shall be either
(i) a clearing firm with membership in a clearing agency registered
with the Commission that maintains facilities through which
transactions may be cleared or (ii) a correspondent firm with a
clearing arrangement with any such clearing firm. See Exchange Rule
1.5(aa), definition of ``Sponsoring Member''.
\10\ See Securities and Exchange Act Release No. 34-76449)
(November 27, 2015) 80 FR 73011 (November 23, 2015) (SR-NASDAQ-2015-
140) (Notice of Filing and Immediate Effectiveness of the Proposed
Rule Change Relating to Sponsored Access) (`Sponsored Access shall
mean an arrangement whereby a member permits its customers to enter
orders into the Exchange's System that bypass the member's trading
system and are routed directly to the Exchange, including routing
through a service bureau or other third party technology
provider.'')
\11\ See General Equity and Options Rule, General 2: General
Provisions, Section 22(a), available at: https://listingcenter.nasdaq.com/rulebook/Nasdaq/rules.
\12\ Consistent with the proposed definition, such relationships
generally include where a broker-dealer allows its customer--such as
a hedge fund, mutual fund, bank or insurance company, an Exchange
registered market maker, an individual, or another broker-dealer--to
use the broker-dealer's market participant identifier (``MPID'') or
other mechanism or mnemonic to enter orders into the Exchange's
System that bypass the Sponsoring Member's order handling system and
are electronically routed directly to the Exchange by the Sponsored
Participant, including through a service bureau or other third-party
technology provider. For the avoidance of doubt, in a scenario where
a Sponsored Participant is also an Exchange Member (e.g., where a
Sponsored Member provides market access to an Exchange Member Market
Maker), (i) the Sponsored Participant will be subject to all
Exchange rules and regulations applicable to Members acting in their
own capacity, whether the Sponsored Participant accesses the
Exchange via their own Membership or via a Sponsored Access
arrangement; and (ii) the Sponsoring Member will be responsible for
the Sponsored Participant activity just as it would for any other
non-Member Sponsored Participant under Rule 11.3(b), including
compliance with the MAR requirements and for compliance with the
applicable Member-related activity electronically routed to the
Exchange via the Sponsored Access arrangement (e.g., the Sponsoring
Member would be required to hold appointments and would be subject
to applicable requirements as an Exchange Market Maker in the
products for which the Sponsored Participant Market Maker is
registered and routes orders/quotes via the Sponsored Access
arrangement).
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Market Access Rule
The Exchange seeks to codify that the agreement currently required
under Exchange Rule 11.3(b)(2), by and between the Sponsoring Member
and Sponsored Participant, must include a provision that any Sponsored
Access relationship must follow the requirements of the MAR. While
Sponsoring Members have existing obligations under the MAR because they
are providing market access to their Sponsored Participants, the
Exchange believes the proposed amendment will help to reinforce such
obligations. Sponsored Participants will now be required to
contractually agree with their Sponsoring Members to follow the
requirements of the MAR.
The Exchange believes that the proposed addition of 11.3(b)(2)(J)
will reinforce to Sponsoring Members that Sponsored Access
relationships must comply with the SEC's MAR, as well as Exchange rules
regarding the provision of market access. As noted above, such
relationships generally include where a broker-dealer allows its
customer to use the broker-dealer's market participant identifier
(``MPID'') or other mechanism or mnemonic to enter orders into the
Exchange's System that bypass the Sponsoring Member's order handling
system and are electronically routed directly to the Exchange by the
Sponsored Participant, including through a service bureau or other
third-party technology provider.
The Exchange notes further that the proposed addition of
11.3(b)(2)(J) is non-substantive in nature for Sponsoring Members
because as broker-dealers providing market access, Sponsoring Members
are already required to comply with the MAR, as well as with existing
Exchange Rules regarding market access. Indeed, per the Exchange's
current Sponsored Participant rules the Sponsoring Member is already
responsible for all its Sponsored Participant's activity on the
Exchange \13\ and is required to comply with the Exchange's Certificate
of Incorporation, By-Laws, Rules, and procedures.\14\ This includes
compliance with Rule 2.2, which requires, among other things,
compliance with the Act and the regulations thereunder, including the
MAR.
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\13\ See Rule 11.3(b)(2)(B)(1)-(2).
\14\ See Rule 11.3(b)(2)(C).
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The proposed addition of Rule 11.3(b)(2)(J) is potentially
substantive in nature to Sponsored Participants in that the proposed
amendment adds a requirement to the agreement by and between the
Sponsoring Member and Sponsored Participant, requiring the Sponsored
Participant to contractually agree to follow the requirements of the
MAR. Importantly, as part of their obligation to comply with Exchange
Rules and procedures, existing Sponsoring Members will be expected to
amend any existing contractual arrangements with their Sponsored
Participants to include the new contractual provision proposed by the
Exchange.
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Act and the rules and regulations thereunder applicable to the
Exchange and, in particular, the requirements of Section 6(b) of the
Act.\15\ Specifically, the Exchange believes the proposed rule change
is consistent with the Section 6(b)(5) \16\ 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) \17\ requirement that the rules of
an exchange not be designed to permit unfair discrimination between
customers, issuers, brokers, or dealers.
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\15\ 15 U.S.C. 78f(b).
\16\ 15 U.S.C. 78f(b)(5).
\17\ Id.
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Defining Sponsored Access
As noted above, the Exchange believes that defining Sponsored
Access will provide Sponsoring Members with greater clarity as to which
types of market access relationships \18\ are subject to Exchange Rule
11.3(a)-(b)(1)-(3), and what obligations Sponsoring Members and
Sponsored Participants must satisfy when establishing a Sponsored
Access relationship. As such, the proposed rule change is designed to
prevent fraudulent and manipulative acts and practices and serves to
promote just and equitable principles of trade.
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\18\ Supra note 12.
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The proposed change will also help to reduce confusion by codifying
a definition for such activity on the Exchange that is consistent with
other industry practices currently in place elsewhere. The Exchange
further notes that the proposed Sponsored Access definition is
reasonable and does not affect investor protection because the proposed
change does not present any novel or unique issues, as the proposed
Sponsored Access definition has previously been adopted by Nasdaq.\19\
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\19\ Supra note 10.
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Market Access Rule
As noted above, the proposed addition of 11.3(b)(2)(J) will
reinforce to Sponsoring Members that Sponsored Access relationships
must comply with the SEC's MAR, as well as Exchange Rules regarding the
provision of market access. Also, by adding proposed paragraph
11.3(b)(2)(J), Sponsored Participants are now required to contractually
agree that their Sponsored Access to the Exchange must follow the
requirements of the MAR.
In this regard, the proposed amendment will help to ensure that by
and between the Sponsoring Member and Sponsored Participant that all
orders entered onto the Exchange pursuant to a Sponsored Access
relationship will follow the requirements of the MAR. As discussed,
[[Page 19182]]
the Exchange believes the proposed addition of 11.3(b)(2)(J) is non-
substantive in nature for Sponsoring Members because as broker-dealers
providing market access, Sponsoring Members are already required to
comply with the MAR, as well as with existing Exchange Rules regarding
market access. The proposed addition of Rule 11.3(b)(2)(J) is
potentially substantive in nature to Sponsored Participants in that the
proposed amendment adds a new requirement to the relationship by and
between the Sponsoring Member and Sponsored Participant, requiring the
Sponsored Participant to contractually agree to follow the requirements
of the MAR.
Accordingly, the proposed rule change will help to promote just and
equitable principles of trade, remove impediments to and perfect the
mechanism of a free and open market and national market system, and, in
general to protect investors and the public interest.
B. Self-Regulatory Organization's Statement on Burden on Competition
For the reasons noted below, 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.
Defining Sponsored Access
The proposed Sponsored Access definition does not impose any burden
on intramarket competition that is not necessary or appropriate in
furtherance of the purposes of the Act. The proposed definition merely
seeks to make clear to Sponsoring Members that Sponsored Access is a
relationship subject to Exchange Rule 11.3(a)-(b)(1)-(3). Moreover,
Sponsored Access is a voluntary arrangement that a Sponsoring Member
voluntarily elects to enter with its Sponsoring Participant. A Member
is not required to become a Sponsoring Member, and in fact, may decline
to enter such a relationship with its customers.
Market Access Rule
Additionally, 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 purposes of the Act.
Notably, other exchanges have in place similar rules and documentation
requirements applicable to sponsored participants and their sponsoring
members.\20\ Moreover, the proposed Sponsored Access definition is
identical to that adopted by Nasdaq \21\ and currently codified in
their rulebook.\22\
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\20\ Supra note 11.
\21\ Supra note 10.
\22\ Supra note 11.
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The proposed rule change to explicitly cite the MAR in Rule
11.3(b)(2)(J) does not impose any burden on intramarket competition
that is not necessary or appropriate in furtherance of the purposes of
the Act. As noted above, this change is non-substantive as Sponsoring
Members are currently responsible for complying with the MAR with
respect to their provision of Sponsored Access to Sponsored
Participants. While the proposed addition of Rule 11.3(b)(2)(J) is
potentially substantive in nature to Sponsored Participants because it
requires a Sponsored Participant to contractually agree with its
Sponsoring Member to follow the requirements of the MAR, the Exchange
notes the proposed contractual requirement also exists in the Nasdaq
rulebook \23\ and as such, should not raise any new or novel issues for
consideration by Sponsored Participants.
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\23\ Id.
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C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received comments on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (i)
significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, the proposed rule
change has become effective pursuant to Section 19(b)(3)(A) of the Act
\24\ and Rule 19b-4(f)(6) \25\ thereunder.
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\24\ 15 U.S.C. 78s(b)(3)(A).
\25\ 17 CFR 240.19b-4(f)(6).
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A proposed rule change filed under Rule 19b-4(f)(6) \26\ normally
does not become operative prior to 30 days after the date of the
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\27\ the Commission
may designate a shorter time of such action is consistent with the
protection of investor and the public interest. The Exchange has asked
the Commission to waive the 30-day operative delay so that the proposed
rule change may become operative upon filing. The Exchange states that
the proposed rule change could immediately benefit market participants
by clarifying for Sponsoring Members which relationships are subject to
the Exchange's Sponsored Access rules and promoting just and equitable
principles of trade. The Exchange also states the proposed addition of
11.3(b)(2)(J) will reinforce to Sponsoring Members their obligation to
comply with MAR. Because the proposed rule change does not raise any
novel regulatory issues, the Commission believes that waiving 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 proposal operative upon filing.\28\
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\26\ 17 CFR 240.19b-4(f)(6).
\27\ 17 CFR 240.19b-4(f)(6)(iii).
\28\ For purposes only of waiving the 30-day operative delay,
the Commission 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-CboeEDGA-2023-004 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-CboeEDGA-2023-004. This
file number should be included on the subject line if email is used. To
help the Commission process and review your
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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
such 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-
CboeEDGA-2023-004 and should be submitted on or before April 20, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\29\
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\29\ 17 CFR 200.30-3(a)(12), (59).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-06561 Filed 3-29-23; 8:45 am]
BILLING CODE 8011-01-P