[Federal Register Volume 87, Number 57 (Thursday, March 24, 2022)]
[Notices]
[Pages 16794-16800]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-06193]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-94474; File No. SR-CboeBZX-2021-083]


Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing of Amendment No. 2 and Order Granting Accelerated Approval of a 
Proposed Rule Change, as Modified by Amendment No. 2, To Amend Rule 
25.3, Which Governs the Exchange's Minor Rule Violation Plan, in 
Connection With Certain Minor Rule Violations and Applicable Fines

March 18, 2022.

I. Introduction

    On December 6, 2021, Cboe BZX Exchange, Inc. (``Exchange'' or 
``BZX'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) \1\ of the Securities 
Exchange Act of 1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ a 
proposed rule change to amend Rule 25.3, which governs the Exchange's 
Minor Rule Violation Plan (``MRVP''), in connection with certain minor 
rule violations and applicable fines. The proposed rule change was 
published for comment in the Federal Register on December 23, 2021.\4\ 
On February 3, 2022, the Commission extended the time period within 
which to approve the proposed rule change, disapprove the proposed rule 
change, or institute proceedings to determine whether to approve or 
disapprove the proposed rule change.\5\ On March 8, 2022, the Exchange 
filed Amendment No. 1 to the proposed rule change, which replaced and 
superseded the proposed rule change as originally filed. On March 11, 
2022, the Exchange filed Amendment No. 2 to the proposed rule change, 
which replaced and superseded the proposed rule change as modified by 
Amendment No. 1.\6\ The Commission received no comments on the proposed 
rule change. The Commission is publishing this notice to

[[Page 16795]]

solicit comments on Amendment No. 2 from interested persons and is 
approving the proposed rule change, as modified by Amendment No. 2, on 
an accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
    \4\ See Securities Exchange Act Release No. 93834 (December 20, 
2021), 86 FR 73072.
    \5\ See Securities Exchange Act Release No. 94142, 87 FR 7518 
(February 9, 2022) (extending the time period to March 23, 2022).
    \6\ In Amendment No. 2, the Exchange revised the proposal to: 
(1) Provide additional detail and clarification regarding the 
Exchange's current and proposed treatment of violations of a Market 
Maker's quoting obligations, (2) correct an inadvertent error in the 
Exhibit 5, and (3) remove a superfluous provision in the Exhibit 5 
to provide for additional clarity. Amendment No. 2 to the proposed 
rule change is available at: https://www.sec.gov/comments/sr-cboebzx-2021-083/srcboebzx2021083.htm.
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II. The Exchange's Description of the Proposed Rule Change, as Modified 
by Amendment No. 2

    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 its MRVP in Rule 25.3 in connection 
with certain minor rule violations and applicable fines. Rule 25.3 
provides for disposition of specific violations through assessment of 
fines in lieu of conducting a formal disciplinary proceeding.\7\ 
Current Rule 25.3(a)-(g) sets forth a list of specific Exchange Rules 
under which an Options Member, associated person of an Options Member, 
or registered or non-registered employee of an Options Member may be 
subject to a fine for violations of such Rules and the applicable fines 
that may be imposed by the Exchange.
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    \7\ The Exchange may, with respect to any such violation, 
proceed under Rule 8.15 (Imposition of Fines for Minor Violation(s) 
of Rules) and impose the fine set forth in Rule 25.3(a)-(g).
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    Specifically, the proposed rule change amends Rule 25.3 by: (1) 
Eliminating violations of Rule 22.6(a) (regarding Market Maker firm 
quotes) in Rule 25.3(c), which currently imposes fines for violations 
of Rules 22.6(a) through (c) (Market Maker Quotations); (2) relocating 
violations of Rule 22.6(b) (regarding Market Maker initial quote volume 
requirements) and Rule 22.6(c) (regarding Market Maker two-sided quote 
requirements) to Rule 25.3(d),\8\ which currently imposes fines for 
violations of Rule 22.6(d) (regarding Market Maker continuous quoting 
obligations) so that a single MRVP provision governs violations of a 
Market Maker's quoting obligations; and (3) updating the fine schedule 
applicable to minor rule violations related to Market Maker quoting 
obligations (i.e., Rules 22.6(b)-(d), as proposed) in Rule 25.3(d).
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    \8\ As a result of the proposed elimination or relocation of the 
rule violations listed under Rule 25.3(c), the proposed rule change 
ultimately eliminates Rule 25.3(c) from the MRVP and subsequently 
renumbers current Rules 25.3(d), 25.3(e), 25.3(f) and 25.3(g) to 
Rules 25.3(c), 25.3(d), 25.3(e) and 25.3(f), respectively. In 
addition to this, the proposed rule change makes a nonsubstantive 
formatting change to Rule 25.3(e) (25.3(d), as amended) to denote 
with a ``(2)'' where subparagraph (2) begins, which is titled 
``American-Style, Cash-Settled Index Options''.
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    First, the proposed rule change eliminates the violation of 22.6(a) 
currently in Rule 25.3(c) of the MRVP. Specifically, Rule 22.6(a) 
requires a Market Maker to submit bids and offers that are firm for all 
orders. The Exchange no longer believes violations of Rule 22.6(a) to 
be minor in nature and therefore proposes to remove it from the list of 
rules in Rule 25.3 eligible for a minor rule fine disposition. 
Particularly, the Exchange believes that violations of Rule 22.6(a), to 
the extent they would occur,\9\ may directly impact trading on the 
Exchange, the maintenance of a fair and orderly market and customer 
protections because honoring firm quotations is vital in promoting 
efficient functioning of intermarket price priority and trading in 
general. Pursuant to Rule 25.3, the Exchange is not required to proceed 
under said Rules as to any rule violation and may, whenever such action 
is deemed appropriate, commence a disciplinary proceeding under Chapter 
VIII (Discipline) rules as to any such violation. The Exchange notes 
that the proposed rule change is consistent with the MRVP of its 
affiliated options exchange, Cboe Exchange, Inc. (``Cboe Options''), 
which recently filed a proposal, approved by the Commission,\10\ to no 
longer include such violations as eligible for a minor rule disposition 
on Cboe Options for the same reason--it no longer believed violations 
of the firm quote requirement to be minor in nature.
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    \9\ The Exchange notes that Market Maker bids and offers entered 
on the Exchange's all-electronic trading platform are firm for all 
orders for the number of contracts specified in the bid and offer, 
subject to the exceptions noted in Rule 22.6(a) and in Rule 602 of 
Regulation NMS under the Exchange Act of 1934 (the ``Act''), and 
that the electronic execution of marketable orders against resting 
bids and offers is system-enforced by the Exchange as provided in 
the Exchange Rules.
    \10\ See Securities Exchange Act Release No. 92702 (August 18, 
2021), 86 FR 47346 (August 24, 2021) (SR-CBOE-2021-045) (Notice of 
Filing and Order Granting Accelerated Approval of a Proposed Rule 
Change To Amend Rule 13.15, Which Governs the Exchange's Minor Rule 
Violation Plan).
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    The proposed rule change next relocates violations of Rules 22.6(b) 
and (c), currently in Rule 25.3(c) of the MRVP, to Rule 25.3(d) (Rule 
25.3(c), as amended) \11\ of the MRVP. The Exchange notes that Rule 
22.6 governs Market Maker quoting obligations on the Exchange and, more 
specifically, Rule 22.6(b) requires a Market Maker to submit initial 
quotes that contain a minimum size (currently, at least one contract) 
and Rule 22.6(c) requires a Market Maker to submit two-sided quotes. As 
stated above, Rule 25.3(d) currently imposes certain fines for a Market 
Maker's failure to meet the continuous quoting obligations in Rule 
22.6(d). By relocating violations of Rules 22.6(b) and (c) to join 
violations of Rule 22.6(d) in Rule 25.3(d) of the MRVP, the proposed 
rule change amends the MRVP to impose the same fine schedule for 
violations of a Market Maker's quoting obligations. As a result of 
combining these into Rule 25.3(d), the proposed rule change 
subsequently renames Rule 25.3(d) as ``Market Maker Quoting 
Obligations''. The Exchange notes that the proposed rule change is 
consistent, and intended to harmonize to the extent possible, with the 
MRVP of the Exchange's affiliated options exchange, Cboe Options, which 
imposes one fine schedule for a market maker's failure to meet its 
quoting obligations on Cboe Options, including failure to meet 
continuous quoting requirements and failure to meet initial quote 
volume requirements.\12\ The Exchange's other affiliated options 
exchanges, Cboe EDGX Exchange, Inc. (``EDGX Options'') and Cboe C2 
Exchange, Inc. (``C2 Options''), have also filed proposals to update 
their MRVPs in connection with the violations of market maker quoting 
requirements on EDGX Options and C2 Options, to the extent possible, in 
an identical manner.\13\
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    \11\ See supra note 9.
    \12\ See Cboe Options Rule 13.15(g)(9).
    \13\ The Exchange notes that C2 Option's proposal has been 
approved by the Commission and EDGX Option's proposal is currently 
pending approval by the Commission. See Securities Exchange Act 
Release Nos. 93887 (December 30, 2021), 87 FR 504 (January 5, 2022) 
(SR-C2-2021-019) (Notice of Filing and Order Granting Accelerated 
Approval of a Proposed Rule Change Relating to Certain Fine Amounts 
in Rule 13.15, Which Governs the Exchange's Minor Rule Violation 
Plan, and Non-Substantive Clarifying Changes); and 93815 (December 
17, 2021), 86 FR 73029 (December 23, 2021) (SR-CboeEDGX-2021-052) 
(Notice of Filing of a Proposed Rule Change To Amend Rule 25.3, 
Which Governs the Exchange's Minor Rule Violation Plan, in 
Connection With Certain Minor Rule Violations and Applicable Fines).
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    The Exchange notes that, under current Rule 25.3(c), violations of 
the Market Maker initial quote volume requirement (Rule 22.6(b)) and 
violations of the Market Maker two-sided quote requirement (Rule 
22.6(c)) are to be treated separately for purposes of determining the 
number of cumulative violations under the applicable fine schedule. For 
example,

[[Page 16796]]

if during the same period, a Market Maker violates the initial quote 
volume requirement five times and also violates the two-sided quote 
requirement four times, the current provision would provide for two 
separate Letters of Caution (one for the initial quote size violations 
and one for the two-sided quote violations).\14\ The Cboe Options MRVP 
applicable to violations of market maker quoting obligations does not 
contain this language and, as proposed, the amended MRVP language would 
not include this ``separate treatment'' provision for Market-Maker 
quoting obligations to be consistent with corresponding Cboe Options 
MRVP provision. Additionally, while current Rule 25.3(c) provides that 
Rules 22.6(b) and (c) shall be treated separately for purposes of 
determining the number of cumulative violations, pursuant to Rule 
8.15(a), the Exchange, like Cboe Options, is permitted to ``aggregate 
similar violations generally if the conduct was unintentional, there 
was no injury to public investors, or the violations resulted from a 
single systemic problem or cause that has been corrected.'' \15\ The 
Exchange, like Cboe Options, considers violations of a Market Maker's 
quoting obligations Rule 22.6(b), (c) and (d)) to be similar in 
nature.\16\ The Exchange believes moving violations of Rule 22.6(b) and 
(c) from Rule 25.3(c) to Rule 25.3(d) and removing the language to 
treat each paragraph separately for purposes of determining the 
cumulative violations aligns with how the Exchange generally surveils 
for and sanctions violations across market maker quoting obligations 
while still allowing the flexibility to treat the violations 
separately, if necessary. By aligning the fine schedule across each of 
the Market Maker quoting obligations the proposed rule change will 
allow for consistent application of the MRVP for the various Market 
Maker quoting obligations whether the violations are sanctioned 
separately or aggregation is warranted pursuant to Rule 8.15(a).
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    \14\ The Exchange notes that Rule 22.6(b) requires the best bid 
and best offer entered by a Market Maker to have a size of at least 
one contract. The System requires a bid or offer to include a size 
of at least one contract, as a bid or offer with a size of zero 
results in any existing bid/offer quote for that series to be 
cancelled. As a result, the Exchange does not observe violations of 
Rule 22.6(b), but retains the provision in MRVP should the minimum 
size requirement be greater than one in the future.
    \15\ Cboe Options Rule 13.15(a) contains the same language. The 
Exchange, like Cboe Options, may consider violations of a Market 
Maker's quoting obligations under Rule 22.6(b), (c), and (d) to be 
similar in nature.
    \16\ The Exchange notes that Rule 22.6(d) requires a Market 
Maker to provide continuous bids and offers in accordance with, 
among other things, the Rule 22.6(c) requirement to provide two-
sided quotes. Because two-sided quotes are an element of the 
continuous electronic quote obligation, and violations of continuous 
quoting requirements can be the direct result of failure to provide 
two-sided quotes, the Exchange commonly cites Rule 22.6(d) in 
connection with two-sided quote violations. However, depending on 
the particular facts and circumstances, a Market Maker may be cited 
for a violation of continuous electronic quotes under Rule 22.6(d) 
or two-sided quotes under Rule 22.6(c) or both.
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    Further, the Exchange notes that Rule 25.3(d) currently provides 
that violations occurring during a calendar month are aggregated and 
sanctioned as a single offense. In line with the proposed change to 
allow the Exchange the flexibility to choose to aggregate violations 
across different sections governing market maker quoting obligations 
(upon the proposed relocation of the Market Maker two-sided quote and 
initial quote volume requirements to Rule 25.3(d)), the proposed rule 
change removes this language.\17\ Without the explicit requirement that 
the Exchange must aggregate and sanction violations as a single 
offense, the Exchange is free to determine whether or not violations of 
a Market Maker's quoting obligations across different sections, and 
across different review periods (e.g., calendar months),\18\ should be 
aggregated and sanctioned as a single offense pursuant to Rule 8.15(a); 
\19\ just as the Exchange may choose to aggregate violations, pursuant 
to Rule 8.15(a), across different sections without time constraints 
(e.g., in a calendar month) under other MRVP provisions that otherwise 
do not contain any explicit aggregation requirement.\20\ Moreover, the 
Exchange believes that, notwithstanding the relocation of the two-sided 
quote and initial quote volume requirements to Rule 25.3(d), the 
aggregation requirement in Rule 25.3(d) currently conflicts with Rule 
22.6(d) and a Market Maker's continuous quoting obligations. 
Specifically, Rule 22.6(d)(1) provides that the Exchange determines 
compliance by a Market Maker with the continuous quoting obligation in 
Rule 22.6(d) on a monthly basis. Rule 22.6(d)(1) goes on to provide 
that determining compliance with the continuous quoting obligations on 
a monthly basis does not relieve a Market Maker from meeting this 
obligation on a daily basis, nor does it prohibit the Exchange from 
taking disciplinary action against a Market Maker for failing to meet 
this obligation each trading day. Therefore, the Exchange believes that 
it should have the flexibility to be able to separately charge for 
violations of a Market Maker's continuous quoting obligations on a 
monthly basis and a daily basis.
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    \17\ Amendment No. 2 corrects an inadvertent error made to the 
rule text in the Exhibit 5. Amendment No. 1 inadvertently did not 
delete the proposed rule text changes to the Exhibit 5 made by the 
Initial Rule Filing to the sentence that provides that ``Violations 
occurring during a calendar month are aggregated and sanctioned as a 
single offense'' before making proposed rule text changes to remove 
this entire sentence. As such, Amendment No. 2 corrects this 
inadvertent error by removing the rule text changes to the Exhibit 5 
made by the Initial Rule Filing to this sentence and updating the 
Exhibit 5 to correctly reflect the deletion of the entire sentence, 
as made pursuant to Amendment No. 1.
    \18\ See infra note 22.
    \19\ See supra note 16.
    \20\ If the current provision were to be maintained in Rule 
25.3(d) upon the relocation of the initial quote volume requirement 
and the two-sided quote requirement to Rule 25.3(d), then violations 
of a Market Maker's quoting obligations would never amount to more 
than one offense if they occurred in the same month. For example, if 
a Market Maker were to violate Rule 22.6(d) in February 2022 and 
violate Rule 22.6(b) and/or Rule 22.6(c) during the same month, 
then, pursuant to the current provision, such violations would have 
to be treated as a single offense and could not constitute more than 
one offense.
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    The proposed rule change also updates the fine schedule heading in 
Rule 25.3(d) to reflect that fines may be imposed per the number of 
offenses, rather than violations, within one period (i.e., any rolling 
24-month period), which more accurately reflects the manner in which 
the Exchange aggregates violations as a single offense under Rule 
25.3(d), currently and as proposed, and further harmonizes Rule 25.3(d) 
with that of Cboe Options corresponding MRVP provision, which also 
counts the number of offenses in connection with market maker 
violations of quoting obligations in any rolling 24-month period.
    Ultimately, the Exchange believes that the proposed flexibility to 
choose whether to aggregate violations of a Market Maker's quoting 
obligations across sections will allow it to administer discipline in a 
manner it deems most appropriate. For example, if a Market Maker 
violates its continuous quoting obligation pursuant to Rule 22.6(d) on 
multiple trading days, January 27, 28 and 31, 2022, due to a systemic 
error, and also violates the initial quote volume requirement pursuant 
to Rule 22.6(b) multiple times during the next trading day, February 1, 
2022,\21\ due to the same systemic error that has since been corrected, 
the

[[Page 16797]]

Exchange may deem it appropriate to treat such violations as a single 
offense \22\ and issue a Letter of Caution, which is applicable to a 
first offense pursuant to Rule 25.3(d). This would be in lieu of 
treating such violations as two separate offenses--the violation of the 
Market Maker's continuous quoting obligations (22.6(d)) as a first 
offense, for which the Exchange would issue a Letter of Caution, and 
the violations of its initial quote volume requirement aggregated into 
a separate, second offense, for which the Exchange would then issue a 
fine applicable to a second offense pursuant to Rule 25.3(d) (as 
proposed and described in detail below). If, in June 2022 (i.e., within 
the same 24-month period as the above referenced violations),\23\ the 
Market Maker violates the initial quote volume requirement multiple 
times throughout the month due to another systemic error, and also 
violates the continuous quote requirement pursuant to Rule 22.6(d) on 
multiple days throughout June 2022 due to the same systemic error, the 
Exchange may again deem it appropriate to treat these violations as a 
single offense, constituting the Market Maker's second offense within 
the previous rolling 24-month period for which the Exchange would then 
issue a fine applicable to a second offense pursuant to Rule 25.3(d) 
(as proposed). The Exchange could, alternatively, choose to aggregate 
the June 2022 violations of the initial quote volume requirement as one 
offense and the June 2022 violations of the continuous quote 
requirement as another offense, which would result in the issuance of 
two offenses stemming from the same review period (i.e., a review of 
June 2022) \24\ to which the Exchange would then issue a fine 
applicable to a second and third offense within the previous rolling 
24-month period pursuant to Rule 25.3(d) (as proposed).
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    \21\ The Exchange is not required to treat violations occurring 
in separate review periods (e.g., a monthly review, a weekly review, 
etc.) as separate offenses and the Exchange is not required to treat 
violations occurring in the same review period as a single offense 
(including as proposed--in connection with removing the provision in 
Rule 25.3(d) that requires the Exchange to aggregate and sanction 
violations occurring in a month as a single offense).
    \22\ See supra note 16.
    \23\ See Rule 25.3, which states that a subsequent violation is 
calculated on the basis of a rolling 24-month period (``Period'').
    \24\ See supra note 22.
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    The proposed rule change next amends the fine schedule in Rule 
25.3(d) (Rule 25.3(c), as amended) \25\ applicable to Market Makers for 
violations of their quoting obligations (Rules 22.6(b)-(d), as 
proposed) in order to harmonize, to the extent possible, this MRVP 
provision with the corresponding Cboe Options MRVP provision applicable 
to violations of a market maker's quoting obligations on Cboe Options. 
The current fine schedule in Rule 25.3(d), currently applicable to 
violations of a Market Maker's continuous quoting obligations, sets 
forth the following:
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    \25\ See supra note 9.
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    For the first violation during any rolling 24-month period (i.e., 
one period),\26\ the fine schedule imposed by Rule 25.3(d) currently 
permits the Exchange to give a Letter of Caution. For a second 
violation during the same period, the fine schedule currently permits 
the Exchange to apply a fine of $1,000. For a third violation in the 
same period, the fine schedule currently permits the Exchange to apply 
a fine of $2,500. For a fourth violation in the same period, the fine 
schedule currently permits the Exchange to apply a fine of $5,000. 
Finally, for five or more violations in the same period, the fine 
schedule currently permits the Exchange to proceed with formal 
disciplinary action.
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    \26\ See supra note 24.
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    The proposed rule change updates the fine schedule to provide that, 
during any rolling 24-month period, the Exchange may continue to give a 
Letter of Caution for a first offense,\27\ may apply a fine of $1,500 
for a second offense,\28\ may apply a fine of $3,000 for a third 
offense, and may proceed with formal disciplinary action for subsequent 
offenses. As described above, and as is the case for all rule 
violations covered under Rule 25.3, the Exchange may determine that it 
is appropriate to commence a formal disciplinary proceeding for a 
violation of Market Maker quoting obligations and may choose to proceed 
under the Exchange's formal disciplinary rules rather than its MRVP. 
The Exchange may continue to aggregate similar violations generally if 
the conduct was unintentional, there was no injury to public investors, 
or the violations resulted from a single systemic problem or cause that 
has been corrected, and treat such violations as a single offense.\29\
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    \27\ As stated herein, the proposed rule change also updates the 
fine schedule heading to reflect that fines may be imposed per the 
number of offenses, rather than violations, which more accurately 
reflects the manner in which the Exchange aggregates violations as a 
single offense under Rule 25.3(d), currently and as proposed.
    \28\ Any fine imposed pursuant to the Exchange's MRVP that does 
not exceed $2,500 and is not contested shall not be publicly 
reported, except as may be required by Rule 19d-1 under the Act or 
as may be required by any other regulatory authority. See Rule 
8.15(a).
    \29\ See Rule 8.15(a).
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    The Exchange believes it is appropriate to increase the fine 
amounts for a second and third offense and to remove the fine imposed 
for a fourth offense and proceed with formal disciplinary proceedings 
for subsequent offenses following a third offense. Particularly, the 
Exchange believes that applying a higher fine per second and third 
offenses in connection with a Market Maker's quoting obligations \30\ 
and, ultimately, formal disciplinary proceedings for any subsequent 
offenses during a rolling 24-month period, will allow the Exchange to 
levy progressively larger fines and greater penalties (i.e., formal 
disciplinary proceedings following a third offense) against repeat-
offenders. The Exchange believes this fine structure may serve to more 
effectively deter repeat-offenders while continuing to provide 
reasonable warning for a first offense during a rolling 24-month 
period. The Exchange notes that the proposed fine schedule for 
violations of a Market Maker's quoting obligations is identical to the 
fine schedule under the MRVP of Cboe Options for market maker 
violations of quoting obligations on Cboe Options, including a 
continuous quoting requirement and initial volume requirement. The 
Exchange further notes that the proposed change is intended to provide 
for consistency across the Exchange's MRVP and the MRVPs of its 
affiliated options exchanges, Cboe Options, EDGX Options and C2 
Options, as EDGX Options and C2 Options also intend to file proposals 
to update their minor rule violation fines for violations of market 
maker quoting requirements on their exchanges in an identical manner.
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    \30\ The proposed fine amounts are also an increase from the 
fines in Rule 25.3(c) currently imposed for violations of Market 
Maker initial quote volume and two-sided requirements. The Exchange 
notes, however, that Rule 25.3(c) currently imposes fines per 
violation whereas Rule 25.3(d) imposes fines per offense, which may 
be cumulative violations of Market Maker quoting obligations, as 
proposed.
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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.\31\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \32\ 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

[[Page 16798]]

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. The Exchange believes the proposed rule change is consistent 
with the Section 6(b)(5) \33\ requirement that the rules of an exchange 
not be designed to permit unfair discrimination between customers, 
issuers, brokers, or dealers.
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    \31\ 15 U.S.C. 78f(b).
    \32\ 15 U.S.C. 78f(b)(5).
    \33\ Id.
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    The Exchange believes that the proposed rule change to remove the 
firm quote requirement, which it no longer considers violations of 
which to be minor in nature, as eligible for a minor rule fine 
disposition under its MRVP, will assist the Exchange in preventing 
fraudulent and manipulative acts and practices and promoting just and 
equitable principles of trade, and will serve to remove impediments to 
and perfect the mechanism of a free and open market and a national 
market system, and, in general, protect investors and the public 
interest. Particularly, the Exchange believes that violations of the 
firm quote requirement may directly impact trading on the Exchange, 
maintenance of a fair and orderly market, and customer protection. As 
such, the Exchange does not believe violations of this rule to be minor 
in nature and, instead, should be handled under its formal disciplinary 
rules, rather than imposing fines pursuant to its MRVP. Also, and as 
stated above, the proposed rule change is consistent with the MRVP of 
its affiliated options exchange, Cboe Options, which, for the same 
reasons provided herein, no longer includes violations of the firm 
quote requirement as eligible for a minor rule disposition on Cboe 
Options.\34\
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    \34\ See supra note 11.
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    The Exchange believes that the proposed rule change to apply the 
same MRVP fine schedule for violations of a Market Makers quoting 
obligations pursuant to Rule 22.6 (i.e., Rules 22.6(b)-(d)) and the 
same process for imposing such fines--that is, permitting the Exchange 
to aggregate violations of such Market Maker obligations into a single 
offense--will assist the Exchange in preventing fraudulent and 
manipulative acts and practices and promoting just and equitable 
principles of trade by uniformly imposing penalties and procedures for 
failure to satisfy obligations governed by the same Rule. By allowing 
for the consistent application of the MRVP for the various Market Maker 
quoting obligations and the administration of discipline in a manner 
the Exchange deems most appropriate (i.e., whether the violations are 
sanctioned separately or aggregation is warranted pursuant to Rule 
8.15(a)), the Exchange believes the proposed rule change provides the 
Exchange with the flexibility to administer its enforcement program in 
a more uniform, effective and efficient manner, and, as described 
above, in a manner that aligns with how the Exchange generally surveils 
for and sanctions violations across market maker quoting obligations, 
thereby removing impediments to and perfect the mechanism of a free and 
open market and a national market system, and, in general, protecting 
investors and the public interest.
    Additionally, the Exchange believes the proposed rule change will 
serve to remove impediments to and perfect the mechanism of a free and 
open market and a national market system, and, in general, protect 
investors and the public interest because it is intended to harmonize 
the Exchange's MRVP in connection with Market Maker quoting obligations 
with that of Cboe Options, as well as EDGX Options and C2 Options (to 
the extent possible),\35\ thereby providing consistent structures and 
procedures across MRVP provisions applicable to market maker 
obligations on the affiliated options exchanges. The proposed rule 
change contributes to the protection of investors and the public 
interest by promoting regulatory consistency by increasing 
understanding of the Exchange's MRVP provisions for Trading Permit 
Holders (``TPHs'') that are also market participants on the Exchange's 
affiliated options exchanges, making it easier for participants across 
the affiliated options exchanges to adhere to the disciplinary rules.
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    \35\ See supra notes 13 and 14.
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    The Exchange also believes that the proposed rule change, in 
connection with the fine schedule for violations of a Market Maker's 
quoting obligations in Rule 25.3(d), as proposed, to increase the fine 
amounts for a second and third offense \36\ and to remove the fine 
imposed for a fourth offense and proceed with formal disciplinary 
proceedings for subsequent offenses following a third offense will 
assist the Exchange in preventing fraudulent and manipulative acts and 
practices and promoting just and equitable principles of trade, and 
will serve to remove impediments to and perfect the mechanism of a free 
and open market and a national market system, and, in general, protect 
investors and the public interest. Particularly, the Exchange believes 
that applying a higher fine per second and third offenses and, 
ultimately, formal disciplinary proceedings for any subsequent offenses 
during a rolling 24-month period, will allow the Exchange to levy 
progressively larger fines and greater penalties (i.e., formal 
disciplinary proceedings following a third offense) against repeat-
offenders which may serve to more effectively deter repeat-offenders 
while providing reasonable warning for a first offense during a rolling 
24-month period. The Exchange believes that more effectively deterring 
repeat-offenders, while continuing to make first instance offenders 
aware of their quoting obligation violations and the subsequent 
consequences for continued failure, will, in turn, further motivate 
Market Makers to continue to uphold their quoting obligations, 
providing liquid markets to the benefit of all investors. The Exchange 
again notes that the proposed fine schedule is consistent with the fine 
schedule under Cboe Options' MRVP applicable to violations of Market 
Maker quoting requirements on Cboe Options, including a continuous 
quoting requirement and initial quote volume requirement. As described 
above, EDGX Options and C2 Options intend to file proposals to update 
their minor rule violation fines applicable to violations of market 
maker quoting obligations in the same manner as Cboe Options and as 
proposed herein. As such, the proposed rule change is also designed to 
benefit investors by providing from consistent penalties across the 
MRVPs of the Exchange and its affiliated options exchanges.
---------------------------------------------------------------------------

    \36\ See supra note 31.
---------------------------------------------------------------------------

    The Exchange further believes that the proposed rule changes to 
Rule 25.3 are consistent with Section 6(b)(6) of the Act,\37\ which 
provides that members and persons associated with members shall be 
appropriately disciplined for violation of the provisions of the rules 
of the exchange, by expulsion, suspension, limitation of activities, 
functions, and operations, fine, censure, being suspended or barred 
from being associated with a member, or any other fitting sanction. As 
noted, the proposed rule change removes a Rule listed as eligible for a 
minor rule fine disposition under the Exchange's MRVP that the Exchange 
no longer believes violations of which are minor in nature and is more 
appropriately disciplined through the Exchange's formal disciplinary 
procedures, amends the MRVP provisions so that the same fine schedule, 
and process to impose such fines, uniformly applies to violations of a 
Market Maker's quoting obligations in Rule 22.6, and amends the fine 
schedule

[[Page 16799]]

applicable to Market Maker failures to meet their quoting obligations 
in a manner that appropriately sanctions such failures.
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    \37\ 15 U.S.C. 78f(b)(6).
---------------------------------------------------------------------------

    The Exchange also believes that the proposed change is designed to 
provide a fair procedure for the disciplining of members and persons 
associated with members, consistent with Sections 6(b)(7) and 6(d) of 
the Act.\38\ Rule 25.3, currently and as amended, does not preclude an 
Options Member, associated person of an Options Member, or registered 
or non-registered employee of an Options Member from contesting an 
alleged violation and receiving a hearing on the matter with the same 
procedural rights through a litigated disciplinary proceeding.
---------------------------------------------------------------------------

    \38\ 15 U.S.C. 78f(b)(7) and 78f(d).
---------------------------------------------------------------------------

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 intended to address competitive issues but rather is concerned 
solely with amending its MRVP in connection with rules eligible for a 
minor rule fine disposition and with the fine schedule for Market Maker 
failures to meet their quoting obligations. The Exchange believes the 
proposed rule changes, overall, will strengthen the Exchange's ability 
to carry out its oversight and enforcement functions and deter 
potential violative conduct.

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. Discussion and Commission Findings

    The Commission finds that the proposed rule change, as modified by 
Amendment No. 2, is consistent with the requirements of the Act and the 
rules and regulations thereunder applicable to a national securities 
exchange.\39\ In particular, the Commission finds that the proposed 
rule change, as modified by Amendment No. 2, is consistent with Section 
6(b)(5) of the Act,\40\ which requires that the rules of an exchange be 
designed to promote just and equitable principles of trade, to remove 
impediments and to perfect the mechanism of a free and open market and 
a national market system, and, in general, to protect investors and the 
public interest. The Commission also believes that the proposal, as 
modified by Amendment No. 2, is consistent with Sections 6(b)(1) and 
6(b)(6) of the Act \41\ which require that the rules of an exchange 
enforce compliance with, and provide appropriate discipline for, 
violations of Commission and Exchange rules. Finally, the Commission 
finds that the proposal, as modified by Amendment No. 2, is consistent 
with the public interest, the protection of investors, or otherwise in 
furtherance of the purposes of the Act, as required by Rule 19d-1(c)(2) 
under the Act,\42\ which governs minor rule violation plans.
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    \39\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \40\ 15 U.S.C. 78f(b)(5).
    \41\ 15 U.S.C. 78f(b)(1) and 78f(b)(6).
    \42\ 17 CFR 240.19d-1(c)(2).
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    As stated above, the Exchange proposes to amend Rule 25.3 by 
eliminating violations of Rule 22.6(a) from Rule 25.3(c) and the 
Exchange's MRVP; relocating violations of Rule 22.6(b) and Rule 22.6(c) 
to proposed Rule 25.3(c) so that a single MRVP provision governs 
violations of a Market Maker's quoting obligations; amending the 
current manner of calculating violations of Market Marker rules, 
including deleting a provision that requires violations of Market Maker 
obligations occurring during a calendar month be aggregated and 
sanctioned as a single offense; and updating the fine schedule 
applicable to minor rule violations related to Market Maker quoting 
obligations.
    The Commission believes that Rule 25.3 is an effective way to 
discipline a member for a minor violation of a rule. More specifically, 
the Commission finds that the Exchange's proposal, as modified by 
Amendment No. 2, to eliminate Rule 22.6(a), a Market Maker quoting 
obligation rule, from the MRVP is consistent with the Act because it 
should help the Exchange enforce compliance with, and provide 
appropriate discipline for, violation of a rule that the Exchange no 
longer believes is minor in nature. Combining all the Market Maker 
quoting obligation rules together in one provision of Rule 25.3 will 
also bring clarity to the Rule. The Commission also finds that amending 
the current manner of calculating violations of Market Maker rules is 
appropriate because the Exchange can already aggregate violations under 
Rule 8.15 under certain circumstances. Finally, the Commission finds 
that amending the associated fee schedule is consistent with the Act 
because it may help the Exchange's ability to better carry out its 
oversight and enforcement responsibilities by levying appropriate fines 
on Market Makers for violations of the Market Marker rules.
    In approving the propose rule change, as modified by Amendment No. 
2, the Commission in no way minimizes the importance of compliance with 
the Exchange's rules and all other rules subject to fines under Rule 
25.3. The Commission believes that a violation of any self-regulatory 
organization's rules, as well as Commission rules, is a serious matter. 
However, Rule 25.3 provides a reasonable means of addressing rule 
violations that may not rise to the level of requiring formal 
disciplinary proceedings, while providing greater flexibility in 
handling certain violations. The Commission expects that the Exchange 
will continue to conduct surveillance with due diligence and make a 
determination based on its findings, on a case-by-case basis, whether a 
fine of more or less than the recommended amount is appropriate for a 
violation under Rule 25.3 or whether a violation requires formal 
disciplinary action.

IV. Solicitation of Comments on Amendment No. 2 to the Proposed Rule 
Change

    Interested persons are invited to submit written views, data, and 
arguments concerning whether Amendment No. 2 is consistent with the 
Act. Comments may be submitted by any of the following methods:

Electronic Comments

    <bullet> Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
    <bullet> Send an email to <a href="/cdn-cgi/l/email-protection#8cfef9e0e9a1efe3e1e1e9e2f8ffccffe9efa2ebe3fa"><span class="__cf_email__" data-cfemail="0b797e676e26686466666e657f784b786e68256c647d">[email protected]</span></a>. Please include 
File Number SR-CboeBZX-2021-083 on the subject line.

Paper Comments

    <bullet> 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-2021-083. 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

[[Page 16800]]

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-2021-083 and should be submitted on or before April 14, 2022.

V. Accelerated Approval of Proposed Rule Change, as Modified by 
Amendment No. 2

    The Commission finds good cause to approve the proposed rule 
change, as modified by Amendment No. 2, prior to the thirtieth day 
after the date of publication of notice of the filing of Amendment No. 
2 in the Federal Register. According to the Exchange, Amendment No. 2 
supplements the proposal by, among other things: (1) Providing 
additional detail and clarification regarding the Exchange's current 
and proposed treatment of a Market Maker's quoting obligations, (2) 
correcting an inadvertent error in the Exhibit 5, and (3) removing a 
superfluous provision in the Exhibit 5 to provide for additional 
clarity. The Commission believes that Amendment No. 2 provides 
additional accuracy and clarity to the proposal and does not raise any 
novel regulatory issues. Accordingly, the Commission finds good cause, 
pursuant to Section 19(b)(2) of the Act,\43\ to approve the proposed 
rule change, as modified by Amendment No. 2, on an accelerated basis.
---------------------------------------------------------------------------

    \43\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------

VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\44\ that the proposed rule change (SR-CboeBZX-2021-083), as 
modified by Amendment No. 2 thereto, be, and it hereby is, approved on 
an accelerated basis.
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    \44\ Id.
    \45\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\45\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-06193 Filed 3-23-22; 8:45 am]
BILLING CODE 8011-01-P


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