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[Federal Register Volume 86, Number 176 (Wednesday, September 15, 2021)]
[Notices]
[Pages 51408-51410]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-19858]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-92913; File No. SR-CBOE-2021-052]

Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
Rule 5.32 in Connection With Participation Entitlements

September 9, 2021.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that, on September 2, 2021, 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 
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 \4\ and Rule 
19b-4(f)(6) thereunder.\5\ 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\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
    \4\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \5\ 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 Exchange, Inc. (the ``Exchange'' or ``Cboe Options'') proposes 
to amend Rule 5.32 in connection with participation entitlements. 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

[[Page 51409]]

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 5.32(a)(2)(B), in connection 
with participation entitlements, to clarify the manner in which the 
System treats non-Priority Customers with orders and quotes at the same 
price and to correct certain inadvertent rule text regarding the manner 
in which the System applies the PMM participation entitlement 
percentages. In particular, Rule 5.32(a)(2)(B) governs participation 
entitlements for Designated Market-Makers (``DPMs''), Lead Market-
Makers (``LMMs'') and Preferred Market-Makers (``PMMs'') and currently 
provides that the Exchange may apply one or more of the DPM, LMM, and 
PMM participation entitlements (in any sequence) to a class. If the 
DPM, LMM, or PMM, as applicable, has a quote at the highest bid or 
lowest offer, it will receive the greater of (i) the number of 
contracts it would receive pursuant to the applicable base allocation 
algorithm and (ii) 50% of the contracts if there is one other non-
Priority Customer order or quote, 40% of the contracts if there are two 
non-Priority Customer orders or quotes, or 30% of the contracts if 
there are three or more non-Priority Customer orders or quotes on the 
Book at that price.
    First, the proposed rule change updates Rule 5.32(a)(2)(B) to 
clarify the manner in which the System treats non-Priority Customer 
orders and quotes. For the purposes of the participation entitlement, 
the System currently counts the number of firms at each price level, 
aggregating orders or quotes per firm, rather than counting the number 
of each separate order or quote. Therefore, to reflect current System 
functionality, the proposed rule change removes references to 
individual non-Priority Customer orders and quotes in Rule 
5.32(a)(2)(B) and updates the language to provide that, if the DPM or 
LMM,\6\ as applicable, has a quote at the highest bid or lowest offer, 
it will receive the greater of (i) the number of contracts it would 
receive pursuant to the applicable base allocation algorithm and (ii) 
50% of the contracts if there is one other non-Priority Customer, 40% 
of the contracts if there are two non-Priority Customers, or 30% of the 
contracts if there are three or more non-Priority Customers with orders 
or quotes on the Book at that price.
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    \6\ The proposed rule change removes ``PMM'' from this provision 
and adopts language in connection with participation entitlement 
percentages application to PMMs, as described in further detail in 
this proposal.
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    Second, the proposed rule change updates Rule 5.32(a)(2)(B) to be 
consistent with the manner in which the System currently applies the 
participation entitlement percentages for PMMs. The System currently 
applies a 50%/40% participation entitlement percentage structure to 
PMMs, as opposed to the 50%/40%/30% participation entitlement 
percentage structure that, pursuant to Rule 5.32(a)(2)(B), applies to 
all three Market-Maker types. Therefore, to reflect current System 
functionality, the proposed rule change adopts language in Rule 
5.32(a)(2)(B) to provide that, if the PMM, as applicable, has a quote 
at the highest bid or lower offer, it will receive the greater of (i) 
the number of the contracts it would receive pursuant to the applicable 
base allocation algorithm and (ii) 50% of the contracts if there is one 
other non-Priority Customer, or 40% of the contracts if there are two 
or more non-Priority Customers with orders or quotes on the Book at 
that price. The current participation entitlement percentage structure 
for DPMs and LMMs (i.e., 50%/40%/30%) will remain the same and the 
Exchange may continue to apply one or more of the participation 
entitlements for DPMs and LMMs, and for PMMs, as proposed, (in any 
sequence) to a class. The Exchange notes that it previously 
restructured its Rules related to order entry and allocation, including 
the participation entitlement provisions, in connection with a 2019 
technology migration. Prior to this restructuring, separate provisions 
governed the participation entitlement percentages for PMMs, DPMs, and 
LMMs. The provision that governed the PMM participation entitlements 
provided for the same 40%/50% participation entitlement structure as 
proposed herein \7\ and the provisions that governed the DPM and LMM 
participation entitlements provided for the same participation 
entitlement percentage structure for DPMs and LMMs as Rule 
5.32(a)(2)(B) currently provides for today. Upon the migration-related 
restructuring of its Rules, the Exchange intended to continue to apply 
the 50%/40% participation entitlement percentage structure to PMMs and 
the 50%/40%/30% participation entitlement percentage structure to DPMs 
and LMMs. Indeed, following the restructuring, the System today 
continues to apply the 50%/40% participation entitlement percentage 
structure to PMMs and the 50%/40%/30% participation entitlement 
percentage structure to DPMs and LMMs. However, in the migration-
related filing that restructured the rules governing participation 
entitlements by combining such rules, the Exchange inadvertently 
applied the 50%/40%/30% participation entitlement percentage structure 
to all three Market-Maker types. Therefore, the proposed rule change 
updates the Rule to correct this inadvertent rule change and make 
explicit that the 50%/40% participation entitlement percentage 
structure continues to apply to PMMs, consistent with the pre-migration 
provision that was previously filed with the Commission.
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    \7\ Specifically, prior Rule 8.13(c) provided that the PMM 
participation entitlement is the greater of one contract or 40% when 
there are two or more other Market-Maker quotes or broker-dealer 
orders at the BBO, and 50% when there is one other Market-Maker 
quote or broker-dealer order at the BBO. The Exchange notes that the 
current application of the base algorithm, as opposed to one 
contract, was the only substantive change intended to be made to 
this provision. DPMs, LMMs, and PMMs were intended to continue to be 
subject to the obligations that were set forth in the applicable 
Rules in place prior to the 2019 technology migration. See 
Securities Exchange Act Release No. 86374 (July 15, 2019), 84 FR 
34963 (July 19, 2019) (SR-CBOE-2019-033) at footnote 68.
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    The Exchange notes the proposed rule changes reflect how the System 
currently treats non-Priority Customer with orders or quotes at the 
same price for the purposes of the participation entitlement and 
reflect the participation entitlement percentages that the System 
continues to apply to PMMs today. The proposed rule changes are merely 
a clarification and a correction to inadvertently changed rule text 
that do not alter any current functionality nor the current 
participation entitlement percentage structures, but instead add 
clarity to the Rule by more accurately reflecting the current 
participation entitlement process.
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.\8\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \9\ requirements that the rules of an exchange be 
designed to prevent fraudulent and manipulative acts and

[[Page 51410]]

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) \10\ requirement that the rules of 
an exchange not be designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
    \10\ Id.
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    In particular, the Exchange believes that the proposed rule changes 
regarding the manner in which the System treats non-Priority Customer 
with orders and quotes at the same price for the purposes of the 
participation entitlement and applies the PMM participation entitlement 
percentages removes impediments to and perfects the mechanism of a free 
and open market and national market system by amending Rule 
5.32(a)(2)(B) to be consistent with current functionality. The proposed 
changes are merely a clarification and a correction to inadvertently 
changed rule text in the Rule intended to more accurately reflect how 
the System currently works, thereby increasing transparency in the Rule 
and ultimately benefitting investors. The proposed clarification and 
correction do not alter any current functionality nor the current 
participation entitlement percentage structures, which are consistent 
with pre-migration provisions as previously filed with the Commission, 
but instead provide clarity to the Rule by more accurately describing 
the current participation entitlement process.

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 changes to 
Rule 5.32(a)(2)(B) are not competitive in nature but are merely a 
clarification and correction in the Rule, consistent with existing 
System functionality and intended to provide clarity to the Rule by 
more accurately reflecting the current participation entitlement 
process. DPMs, LMMs and PMMs will continue to receive participation 
entitlements in the same manner as they do today.

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, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \11\ and Rule 19b-
4(f)(6) thereunder.\12\ 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). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change, along 
with a brief description and text of the proposed rule change, at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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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-2021-052 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-2021-052. 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-2021-052, and should be submitted 
on or before October 6, 2021.
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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\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-19858 Filed 9-14-21; 8:45 am]
BILLING CODE 8011-01-P
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