[Federal Register Volume 86, Number 103 (Tuesday, June 1, 2021)]
[Notices]
[Pages 29305-29308]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-11408]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-92015; File No. SR-CboeBZX-2021-041]


Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Define 
the Terms ``Derivative Security'' and ``UTP Derivative Security'' and 
Amend Certain Related Rules

May 25, 2021.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on May 19, 2021, Cboe BZX Exchange, Inc. (``Exchange'') filed with the 
Securities and Exchange Commission (``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 BZX Exchange, Inc. (the ``Exchange'' or ``BZX'') is filing 
with the Securities and Exchange Commission (``Commission'') a proposed 
amendment to define the terms ``Derivative Security'' and ``UTP 
Derivative Security'' in Exchange Rule 1.5. Additionally, the Exchange 
proposes to make certain amendments to Rules 3.21 and 14.11 to both 
simplify and clarify the Exchange's rules as they pertain to UTP 
Derivative Securities. 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://markets.cboe.com/us/equities/regulation/rule_filings/bzx/), 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.

[[Page 29306]]

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

1. Purpose
    As part of this proposal, the Exchange proposes to (1) adopt a new 
definition for Derivative Security under proposed Rule 1.5(dd); (2) 
move the definition of unlisted trading privileges (``UTP'') Derivative 
Security \5\ from Rule 14.11(j) to Exchange Rule 1.5(ee); and (3) amend 
Exchange Rule 14.11(j) applicable to UTP Derivative Securities. The 
Exchange also proposes to make ministerial changes to update numbering, 
lettering, Rule references, and provide clarifying text to Rules 1.5, 
3.21, and 14.11. As discussed in further detail below, all of the 
proposed substantive changes are substantially similar to other 
exchange rules.
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    \5\ See Rule 14.11(j) and proposed amendments to Rule 1.5(ee).
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(1) Proposal To Define Derivative Security in Exchange Rule 1.5(dd) and 
UTP Derivative Security in Exchange Rule 1.5(ee)
    The Exchange proposes to define ``Derivative Security'' in proposed 
Rule 1.5(dd) and amend existing Rule 1.5(ee) to include the definition 
of ``UTP Derivative Security''. ``Derivative Security'' would be a new 
definition and would mean a security that meets the definition of ``new 
derivative securities product'' in Rule 19b-4(e) under the Act. ``UTP 
Derivative Security'' would refer to any one of a list of Derivative 
Securities that trades on the Exchange pursuant to unlisted trading 
privileges. The list of proposed Derivative Securities that may meet 
the definition of UTP Derivative Security are as follows: Equity Linked 
Notes; Index Fund Shares listed pursuant to Exchange Rule 14.11(c) or 
Nasdaq Stock Market LLC (``Nasdaq'') Rule 5705(b) and Investment 
Company Units listed pursuant to NYSE Arca, Inc. (``NYSE Arca'') Rule 
5.2-E(j)(3); Index-Linked Exchangeable Notes; Equity Gold Shares; 
Equity Index-Linked Securities; Commodity-Linked Securities; Currency-
Linked Securities; Fixed Income Index-Linked Securities; Futures-Linked 
Securities; Multifactor Index-Linked Securities; Trust Certificates; 
Currency and Index Warrants; Portfolio Depository Receipts; Trust 
Issued Receipts; Commodity-Based Trust Shares; Currency Trust Shares; 
Commodity Index Trust Shares; Commodity Futures Trust Shares; 
Partnership Units; Paired Trust Shares; Trust Units; Managed Fund 
Shares; Managed Trust Securities; Managed Portfolio Shares; Tracking 
Fund Shares listed pursuant to Exchange Rule 14.11(m), Active Proxy 
Portfolio Shares listed pursuant to NYSE Arca Rule 8.601-E, and Proxy 
Portfolio Shares listed pursuant to Nasdaq Stock Market LLC Rule 5750; 
Selected Equity-linked Debt Securities (``SEEDS''); and Exchange-Traded 
Fund Shares.\6\ The proposal is substantially similar to NYSE National, 
Inc. (``NYSE National'') Rule 1.1(m), but the list of Derivative 
Securities that may be UTP Derivative Securities includes two 
additional Derivative Securities, SEEDS and Exchange-Traded Fund 
Shares. While SEEDS and Exchange-Traded Fund Shares are not included in 
NYSE National Rule 1.1(m), they are Derivative Securities set forth not 
only in Exchange Rules 14.11(e)(12) and 14.11(l), respectively, but 
also in section 5700 of the Nasdaq Rules.
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    \6\ For inclusiveness, all Derivative Securities that are 
subject to unlisted trading privileges have been identified in the 
list of proposed UTP Derivative Securities.
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    The Exchange also proposes to re-letter existing Rules 1.5(dd) 
through (ee) to allow for the addition of proposed Rule 1.5(dd). 
Further, the Exchange proposes to amend Rule 3.21 to reference the 
proposed definition of UTP Derivative Securities in Rule 1.5(ee).
(2) Proposal To Amend the Exchange's Rule Applicable to UTP Derivative 
Securities
    First, the Exchange proposes to re-name Rule 14.11(j) to ``UTP 
Derivative Securities'' so that it is consistent with the proposed 
definition set forth in Rule 1.5(ee). The Exchange also proposes to 
amend the preamble to Rule 14.11(j) to refer to the defined term UTP 
Derivative Security, as proposed in Exchange Rule 1.5(ee).
    The Exchange also proposes to eliminate existing Rule 14.11(j)(1), 
which provides that the Exchange shall file with the Commission a Form 
19b-4(e) with respect to each UTP Derivative Security. The Exchange 
believes that it should not be necessary to file a Form 19b-4(e) with 
the Commission if it begins trading a UTP Derivative Security because 
Rule 19b-4(e) under the Act refers to the ``listing and trading'' of a 
``new derivative securities product''. The Exchange believes that the 
requirements of Rule 19b-4(e) refer to when an exchange lists and 
trades a Derivative Security, and not when an exchange seeks only to 
trade such product on a UTP basis pursuant to Rule 12f-2 under the 
Act.\7\ The proposal is substantially identical to rule amendments made 
by other exchanges.\8\
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    \7\ 17 CFR 240.12f-2.
    \8\ See Securities Exchange Act No. 83289 (May 17, 2018) 83 FR 
23968 (May 23, 2018) (SR-NYSENAT-2018-02). See also Securities 
Exchange Act No. 84546 (November 7, 2018) 83 FR 56888 (November 14, 
2018) (SR-BX-2018-051).
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    The Exchange proposes to amend proposed Rule 14.11(j)(1) to replace 
the term ``new derivative securities product'' with the defined term 
``Derivative Security'' as provided in proposed Rule 1.5(dd). 
Additionally, the Exchange proposes to clarify that the Early Trading 
Session is from 7:00 a.m. to 8:00 a.m. Eastern Time in order to 
consistently reference the relevant time zone throughout the paragraph.
    The Exchange also proposes to add additional explanatory language 
to paragraph (j)(3) that states nothing in the Rule will limit the 
power of the Exchange under the Rules or procedures of the Exchange 
with respect to the Exchange's ability to suspend trading in any 
securities if such suspension is necessary for the protection of 
investors or in the public interest. The proposed text is identical to 
that included in NYSE National Rule 5.1(a)(2)(C). Further, the proposed 
text reinforces existing Exchange Rule 11.18(d).
    Lastly, based on the proposal to eliminate Rule 14.11(j)(1), the 
Exchange proposes to renumber existing paragraphs (j)(2) through (j)(6) 
accordingly.
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. 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

[[Page 29307]]

to permit unfair discrimination between customers, issuers, brokers, or 
dealers.
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    \9\ 15 U.S.C. 78f(b)(5).
    \10\ Id.
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    In particular, the Exchange believes the proposed definitions of 
Derivative Security and UTP Derivative Security are reasonable as the 
proposed substantive changes are substantially similar to other 
exchanges' rules. Specifically, the proposed definition of Derivative 
Security in Rule 1.5(dd) is substantially similar to the definition of 
Exchange Traded Product provided for in NYSE National Rule 1.1(m), 
except that it better conforms to the defined term ``new derivative 
securities product'' of Rule 19b-4(e) under the Act. The proposed 
definition of UTP Derivative Securities is substantially similar to UTP 
Exchange Traded Product provided under NYSE National Rule 1.1(m), but 
includes two additional Derivative Securities, SEEDS and Exchange-
Traded Fund Shares. While SEEDS and Exchange-Traded Fund Shares are not 
included in NYSE National Rule 1.1(m), they are Derivative Securities 
set forth not only in Exchange Rules 14.11(e)(12) and 14.11(l), 
respectively, but also in section 5700 of the Nasdaq Rules.
    Eliminating the requirement to file a Form 19b-4(e) for each 
Derivative Security is consistent with the Act because the regulatory 
requirement was not intended to apply in the context of Derivative 
Securities trading on a UTP basis. Moreover, the proposal to eliminate 
Rule 14.11(j)(1) will provide for a more efficient process for adding 
Derivative Securities to trading on the Exchange on a UTP basis. The 
Exchange also notes that the proposal is substantially identical to 
other exchange rules.\11\
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    \11\ See supra note 8.
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    The Exchange believes that its proposal to amend the preamble to 
Rule 14.11(j) to correspond to Rule 1.5(ee) and the proposed defined 
term UTP Derivative Security will add clarity to the Exchange's Rules. 
Further, the Exchange believes that its proposal to amend the preamble 
to Rule 14.11(j)(1) to reference the proposed term UTP Derivative 
Security rather than ``new derivative securities product'' will conform 
the Rule to proposed Rule 1.5(dd) and will add clarity to the 
Exchange's Rules. Additionally, the proposal to add ``Eastern Time'' to 
the description of the Early Trading Session in proposed Rule 
14.11(j)(1) will consistently reference the applicable time zone 
throughout the paragraph.
    The proposed amendment to proposed Rule 14.11(j)(3) is identical to 
a sentence provided in NYSE National Rule 5.1(a)(2)(C) (trading halts). 
Furthermore, the proposal reinforces existing Exchange Rule 11.18(d). 
Lastly, the Exchange's proposal to renumber existing paragraphs 
14.11(j)(2)-(j)(6) based on its proposal to eliminate Rule 14.11(j)(1) 
will clarify and simplify the Exchange's Rules.
    The Exchange believes that its proposal to amend Rule 3.21 to 
reference the proposed definition of UTP Derivative Securities in Rule 
1.5(ee) will add clarity to the Exchange's Rules.
    In light of the above proposals, the Exchange has also proposed to 
renumber and re-letter certain paragraphs or subparagraphs of Rules 1.5 
and 14.11 and update applicable rule references.
    The proposal is intended to simplify and clarify the Exchange's 
Rules as it relates to UTP Derivative Securities, which the Exchange 
believes will 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. The Exchange believes that 
renumbering and re-lettering current Rules to correspond to the 
proposed changes will allow the Exchange to maintain a clear and 
organized rule structure, thus preventing investor confusion. For these 
reasons, the Exchange believes the proposed rule change is consistent 
with the requirements of Section 6(b)(5) of the Act.

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 designed to address any competitive issues but rather to harmonize 
certain Exchange Rules with those of other exchanges which will 
simplify and clarify the Exchange's Rules. The Exchange further 
believes that the proposed rule change would promote transparency on 
the Exchange, thus making the Exchange's rules easier to navigate.

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 \12\ and Rule 19b-
4(f)(6) thereunder.\13\
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    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
under the Act 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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    A proposed rule change filed under Rule 19b-4(f)(6) \14\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\15\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay. Waiver of the 
operative delay would allow certain of the Exchange's rules to conform 
to equivalent rules on other exchanges, as discussed herein, and to 
make clarifying and technical changes. The Commission therefore 
believes that waiver of the 30-day operative delay is consistent with 
the protection of investors and the public interest. Accordingly, the 
Commission hereby waives the operative delay and designates the 
proposed rule change operative upon filing.\16\
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    \14\ 17 CFR 240.19b-4(f)(6).
    \15\ 17 CFR 240.19b-4(f)(6)(iii).
    \16\ 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

[[Page 29308]]

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#bac8cfd6df97d9d5d7d7dfd4cec9fac9dfd994ddd5cc"><span class="__cf_email__" data-cfemail="a8daddc4cd85cbc7c5c5cdc6dcdbe8dbcdcb86cfc7de">[email protected]</span></a>. Please include 
File Number SR-CboeBZX-2021-041 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-2021-041. 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-CboeBZX-2021-041 and should be submitted 
on or before June 23, 2021.
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    \17\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-11408 Filed 5-28-21; 8:45 am]
BILLING CODE 8011-01-P


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