[Federal Register Volume 87, Number 137 (Tuesday, July 19, 2022)]
[Notices]
[Pages 43079-43081]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-15306]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-95271; File No. SR-CBOE-2022-037]


Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
Certain of Its Rules Related to Market-Makers

July 13, 2022.
    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 July 5, 2022, 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 Commission 
is publishing this notice to solicit comments on the proposed rule 
change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Cboe Exchange, Inc. (``Cboe Options'' or the ``Exchange'') is 
filing with the Securities and Exchange Commission (the ``Commission'') 
a proposed rule change to amend certain of its Rules related to Market-
Makers. 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 amend certain of its Rules related to 
Market-Makers. Specifically, the Exchange proposes to amend its Rules 
to permit a Trading Permit Holder (``TPH'') organization to register 
separate market-maker aggregation units as separate Market-Makers, each 
of which would be subject to Market-Maker obligations on an individual 
basis. Currently, Cboe interprets the term ``Market-Maker'' to apply at 
a firm level, including with respect to obligations.\3\ However, the 
Exchange understands TPH organizations have Market-Maker units that are 
completely separate from each other for operational and profit/loss 
purposes, with appropriate information barriers between units.\4\ 
Because of this operational separation, such organizations may prefer 
to have those units be treated as individual Market-Makers under the 
Exchange's Rules consistent with those organizations' internal 
operations.
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    \3\ The Exchange notes it used to permit a TPH organization to 
determine whether to have Market-Maker continuous quoting 
obligations apply on an individual or collective basis. See 
Securities Exchange Act Release No. 82974 (March 30, 2018), 83 FR 
14685 (April 5, 2018) (SR-CBOE-2018-021). The Exchange eliminated 
this flexibility and began applying the current interpretation as of 
October 2019. See Securities Exchange Act Release No. 87024 
(September 19, 2019), 84 FR 50545 (September 25, 2019) (SR-CBOE-
2019-059). However, the language permitting this flexibility 
inadvertently remained in Rules 5.54(a)(1)(C), 5.55(a)(1)(B), and 
5.56(a)(2) with respect to the continuous quoting obligations of 
Designated Primary Market-Makers (``DPMs''), Lead Market-Makers 
(``LMMs''), and Preferred Market-Makers (``PMMs''), respectively. 
The proposed rule change deletes these outdated provisions and re-
numbers or re-letters, as applicable, the subparagraphs as 
applicable. While the proposed rule change will permit a TPH 
organization to have continuous quoting obligations apply below the 
firm level, it will not permit application of continuous quoting 
obligations at the individual level, as was the case pursuant to the 
prior rule. Instead, the proposed rule change will permit a TPH 
organization to have continuous quoting obligations apply at the 
firm level or business unit level (if sufficient information 
barriers are in place).
    \4\ Cboe Options Rules currently contemplate that TPHs may have 
separate Market-Maker aggregation units. See, e.g., Rule 5.89(b)(1). 
Various other rules (for example contemplate TPH organizations 
having separate business units and require information barriers in 
the form of appropriate policies and procedures that reflect the 
TPH's business to establish those separate business units. See, 
e.g., Rules 5.89 (risk-weighted assets transactions); 8.10 
(prevention of the misuse of material, nonpublic information); and 
8.30, Interpretations and Policies .03 (position limits).
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    The proposed rule change amends certain Rules to provide TPH 
organizations with this flexibility:

[[Page 43080]]

    <bullet> Rule 3.52 currently provides that TPHs registered as 
Market-Makers have certain rights and bear certain responsibilities 
beyond those of other TPHs. The proposed rule change adds 
Interpretation and Policy .01 to provide that if a TPH organization is 
comprised of multiple market-making aggregation units and has in place 
appropriate information barriers or segregation requirements,\5\ the 
TPH may register each individual aggregation unit as a separate Market-
Maker. The proposed rule change also adds a similar interpretation and 
policy to Rules 3.53, 3.55, and 3.56 regarding DPMs, LMMs, and PMMs, 
respectively.
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    \5\ The TPH organization will need to provide the Exchange with 
sufficient evidence of separation of these units.
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    <bullet> The proposed rule change adds Rule 5.50, Interpretation 
and Policy .01 to provide that Market-Maker appointments would apply to 
each individual Market-Maker aggregation unit and adds Rule 5.53, 
Interpretation and Policy .01 to provide that each Market-Maker 
aggregation unit will be evaluated for good standing on an individual 
basis.
    <bullet> The proposed rule change amends Rules 5.33, Interpretation 
and Policy .02 and adds Rule 5.51, Interpretation and Policy .01; Rule 
5.52, Interpretation and Policy .01; Rule 5.54, Interpretation and 
Policy .01; Rule 5.55, Interpretation and Policy .01; and Rule 5.56, 
Interpretation and Policy .01 to provide that Market-Maker obligations 
(including those with respect to DPMs, LMMs, and PMMs, when 
applicable), will apply to individual Market-Maker aggregation units if 
a TPH organization registers separate aggregation units as Market-
Makers.
    <bullet> The proposed rule change adds Rule 5.24, Interpretation 
and Policy .02 to require any individual Market-Maker aggregation unit 
within a single firm to connect to the Exchange's backup systems and 
participate in functional and performance testing announced by the 
Exchange if that unit satisfies the connection criteria set forth in 
Rule 5.24(b).
    <bullet> The proposed rule change adds Rule 5.37, Interpretation 
and Policy .04 (related to the Automated Improvement Mechanism 
(``AIM'')) and Rule 5.39, Interpretation and Policy .04 (related to the 
Solicitation Auction Mechanism (``SAM'')) to provide that the 
restriction in the introductory paragraph of each Rule that prohibits a 
solicited order for the account of any Market-Maker with an appointment 
in the applicable class on the Exchange in all classes except SPX 
applies to an individual Market-Maker aggregation unit if a TPH has 
multiple aggregation units registered as separate Market-Makers.\6\
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    \6\ For example, if Firm ABC has aggregation units DEF and GHI 
each registered as separate Market-Makers, if Market-Maker DEF has 
an appointment in class XYZ but Market-Maker GHI does not, Market-
Maker GHI could be solicited to be the contra-side order in an AIM 
or SAM auction in class XYZ, but Market-Maker DEF could not.
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    These proposed changes are consistent with the concept of treating 
individual Market-Maker aggregation units within a single firm as 
separate Market-Makers.
    The proposed rule change states that a TPH organization may 
register separate aggregation units as individual Market-Makers if the 
organization has in place appropriate information barriers or 
segregation units. The proposed language provides TPHs with flexibility 
to adapt their policies and procedures to reflect their business model 
and activities, including changes thereto. This flexibility is similar 
to other rules that require information barriers, such as Rule 8.10, 
which requires every TPH to establish, maintain, and enforce written 
policies and procedures reasonably designed, taking into consideration 
the nature of the TPH's business, to prevent the misuse, in violation 
of the Exchange Act and Exchange Rules, of material nonpublic 
information by the TPH or persons associated with the TPH. In 
accordance with this proposed rule change, pursuant to Rule 8.10, a TPH 
organization that registers separate business units as individual 
Market-Makers would be obligated to ensure that its policies and 
procedures reflect the current state of its business and continue to be 
reasonably designed to prevent the misuse of material, nonpublic 
information. Separate market-making units registered as individual 
Market-Makers may dictate that an information barrier or functional 
separation be part of the appropriate set of policies and procedures 
that would be reasonably designed to achieve compliance with the 
proposed rule change. The proposed rule change has no pre-approval 
requirement; however, appropriate information barriers would be subject 
to review as part of the process to register the separate aggregation 
units as individual Market-Makers with the Exchange.\7\ Additionally, 
these policies and procedures would be subject to regular review by the 
Exchange's Regulation Division, such as part of the routine examination 
or testing process or as part of internal surveillances and 
investigations.
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    \7\ The Exchange's Regulatory Division intends to announce by 
Regulatory Circular a method by which a TPH organization may seek 
pre-approval of the policies and procedures comprising the 
information barriers.
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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.\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 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 the proposed rule change will 
promote just and equitable principles of trade and 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 will provide TPH organizations with flexibility to 
register its business units as Market-Makers with the Exchange, and 
have the Exchange regulate those Market-Maker business units, in a 
manner consistent with these organizations' internal business 
operations. The Exchange believes this will permit these organizations 
to manage the entirety of their Market-Maker operations--including 
Market-Maker registrations, appointments, and quoting--as they deem 
appropriate based on the nature of their businesses, which may 
ultimately benefit the efficiency of their Market-Maker businesses. The 
Exchange does not propose to modify any Market-Maker responsibilities 
or obligations. The Exchange does not believe the proposed rule change 
will reduce liquidity, as any individual Market-Maker aggregation unit 
(as opposed to the TPH

[[Page 43081]]

organization collectively) will need to satisfy all Market-Maker 
obligations, including continuous quoting obligations, on its own.

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 
will not impose any burden on intramarket competition, because it will 
apply in the same manner to all TPH organizations that register with 
the Exchange as Market-Makers. Whether a TPH organization registers 
separate business units as Market-Makers is within the sole discretion 
of that organization. With respect to TPH organizations that elect to 
register separate business units as Market-Makers, the proposed rule 
change will apply all applicable Market-Maker rules, including those 
regarding Market-Maker obligations and responsibilities, in the same 
manner to those units. The Exchange does not propose to modify any 
Market-Maker obligations or responsibilities, and thus does not believe 
the proposed rule change will diminish liquidity on the Exchange. The 
proposed rule change will not impose any burden on intermarket 
competition, because the proposed rule change applies only to how TPH 
organizations may register with the Exchange as a Market-Maker and how 
the Exchange will determine Market-Maker compliance with Exchange-
imposed Market-Maker obligations and responsibilities.

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\
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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) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file 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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    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act normally does not become operative for 30 days after the date of 
its filing. However, Rule 19b-4(f)(6)(iii) \13\ permits the Commission 
to designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange requested 
that the Commission waive the 30-day operative delay so that the 
proposal may become operative immediately upon filing. The proposal 
provides flexibility to a TPH organization to register separate market-
maker aggregation units as separate Market-Makers, each of which would 
be subject to Market-Maker obligations on an individual basis, if 
appropriate information barriers or segregation requirements are in 
place. The Commission believes that waiver of the 30-day operative 
delay is consistent with the protection of investors and the public 
interest because the proposed rule change does not raise any new or 
novel issues. Accordingly, the Commission hereby waives the 30-day 
operative delay and designates the proposed rule change operative upon 
filing.\14\
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    \13\ 17 CFR 240.19b-4(f)(6)(iii).
    \14\ For purposes only of waiving the 30-day operative delay, 
the Commission has also 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.

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

    <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#ddafa8b1b8f0beb2b0b0b8b3a9ae9daeb8bef3bab2ab"><span class="__cf_email__" data-cfemail="4331362f266e202c2e2e262d3730033026206d242c35">[email protected]</span></a>. Please include 
File Number SR-CBOE-2022-037 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-CBOE-2022-037. 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-2022-037 
and should be submitted on or before August 9, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-15306 Filed 7-18-22; 8:45 am]
BILLING CODE 8011-01-P


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