Document ID: SEC-2019-1593-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Cboe Exchange, Inc.
Posted Date: 2019-10-25T04:00Z

[Federal Register Volume 84, Number 207 (Friday, October 25, 2019)]
[Notices]
[Pages 57500-57506]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-23265]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87377; File No. SR-CBOE-2019-099]

Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
and Consolidate Various Exchange Rules Relating to Trading Permit 
Holder Membership, Registration and Participants and Move Those Rules 
From the Currently Effective Rulebook to Proposed Chapter 3 of the 
Shell Structure for the Exchange's Rulebook That Will Become Effective 
Upon the Migration of the Exchange's Trading Platform to the Same 
System Used by the Cboe Affiliated Exchanges

October 21, 2019.
    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 October 7, 2019, 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 \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

    The Exchange proposes to amend and consolidate various Exchange 
Rules relating to Trading Permit Holder membership, registration and 
participants and move those Rules from the currently effective Rulebook 
to proposed Chapter 3 of the shell structure for the Exchange's 
Rulebook that will become effective upon the migration of the 
Exchange's trading platform to the same system used by the Cboe 
Affiliated Exchanges (as defined below) (``shell Rulebook''). 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/

[[Page 57501]]

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
    In 2016, the Exchange's parent company, Cboe Global Markets, Inc. 
(formerly named CBOE Holdings, Inc.) (``Cboe Global''), which is also 
the parent company of Cboe C2 Exchange, Inc. (``C2''), acquired Cboe 
EDGA Exchange, Inc. (``EDGA''), Cboe EDGX Exchange, Inc. (``EDGX'' or 
``EDGX Options''), Cboe BZX Exchange, Inc. (``BZX'' or ``BZX 
Options''), and Cboe BYX Exchange, Inc. (``BYX'' and, together with 
Cboe Options, C2, EDGX, EDGA, and BZX, the ``Cboe Affiliated 
Exchanges''). Cboe Options intends to migrate its trading platform to 
the same system used by the Cboe Affiliated Exchanges, which the 
Exchange expects to complete on October 7, 2019 (the ``migration''). 
The Exchange proposes to amend certain registration-related rules, 
effective October 7, 2019. In connection with this technology 
migration, the Exchange has a shell Rulebook that resides alongside its 
current Rulebook, which shell Rulebook will contain the Rules that will 
be in place upon completion of the Cboe Options technology migration.
    Also, in connection with the restructuring of the Exchange's 
Trading Permits, the Exchange proposes to modify its rules related to 
nominees and proposed Responsible Persons (current Rules 1.1, 3.1, 3.8, 
3.9, 3.10, 3.19 and 17.6), as discussed more fully below. The Exchange 
also proposes to make non-substantive changes to simplify, clarify, and 
generally update its registration-related rules by consolidating 
various provisions and rules (including select rules not covered under 
current Chapter III but pertain to membership, registration and 
participants), deleting duplicative and obsolete rule provisions, 
reformatting provision sequencing, numbering, and lettering, and 
revising titles. The Exchange also updates cross-references to rules in 
the shell Rulebook that will be implemented upon migration. The table 
below lists each rule under current Chapter III, along with the few 
additional rules related to membership, registration and participants 
that the Exchange proposes to consolidate with the registration-related 
rules, the proposed rule in the shell Rulebook to which the current 
rule will be moved, whether the proposed change is substantive or non-
substantive, and finally, a description of the proposed rule change. 
The Exchange notes that all current provisions proposed to move to the 
corresponding proposed provisions in the shell Rulebook will also be 
deleted from the current rules upon migration.

----------------------------------------------------------------------------------------------------------------
             Current rule                   Proposed rule          Substantive change     Description of change
----------------------------------------------------------------------------------------------------------------
N/A..................................  Rule 1.1 (Nominee        Y: see further           Updates the nominee
                                        defined).                discussion below.        definition to provide
                                                                                          that a nominee
                                                                                          represents TPH
                                                                                          organization in all
                                                                                          matters relating to
                                                                                          the Exchange with
                                                                                          respect to a Floor
                                                                                          Broker or Market-Maker
                                                                                          Floor Trading Permit,
                                                                                          as more fully
                                                                                          described below
N/A..................................  Rule 1.1 (Responsible    Y: see further           Adopts definition of a
                                        Person defined).         discussion below.        ``Responsible Person''
                                                                                          as described more
                                                                                          fully below.
Rule 3.1 (Trading Permits)...........  Rule 3.1 (Trading        N......................  Moves rule in its
                                        Permits).                                         entirety. Adds
                                                                                          references to
                                                                                          ``Responsible
                                                                                          Persons'' in light of
                                                                                          proposed rule change.
                                                                                          Eliminates language
                                                                                          regarding separate
                                                                                          Trading Permits for
                                                                                          RTH and GTH in current
                                                                                          Rule 3.1(a)(iv) as
                                                                                          post-migration
                                                                                          electronic Trading
                                                                                          Permits provide access
                                                                                          to both sessions.
                                                                                          Renumbers provisions
                                                                                          and updates cross-
                                                                                          references.
Rule 3.1A (Issuance of Trading         N/A (deleted)..........  N......................  Deletes obsolete rules
 Permits in Respect of Memberships                                                        that previously
 and Pre-Restructuring Transaction                                                        governed the issuance
 Trading Permits).                                                                        of Trading Permits in
                                                                                          connection with the
                                                                                          prior restructuring of
                                                                                          the Exchange from a
                                                                                          non-stock corporation
                                                                                          to a stock corporation
                                                                                          and wholly owned
                                                                                          subsidiary of Cboe
                                                                                          Global Markets, Inc.
Rule 3.2 (Qualifications of            Rule 3.2                 N......................  Moves rule in its
 Individual Trading Permit Holders).    (Qualifications of                                entirety. Renumbers
                                        Individual TPH).                                  provisions and updates
                                                                                          title.
Rule 3.3 (Qualifications of TPH        Rule 3.3                 N......................  Moves rule in its
 organizations).                        (Qualifications of TPH                            entirety. Renumbers
                                        Organizations).                                   provisions.
Rule 3.4 (Foreign Trading Permit       Rule 3.4 (Foreign TPHs)  N......................  Moves rule in its
 Holders).                                                                                entirety. Updates
                                                                                          title.
Rule 3.4A (Additional Trading Permit   Rule 3.5 (Additional     N......................  Moves rule in its
 Holder Qualifications).                TPH Qualifications).                              entirety. Renumbers
                                                                                          provisions and updates
                                                                                          title.
Rule 3.5 (Denial of and Conditions to  Rule 3.6 (Denial of and  N......................  Moves rule in its
 Being a Trading Permit Holder or       Conditions to Being a                             entirety. Renumbers
 Associated with a Trading Permit       TPH or Associated with                            provisions and updates
 Holder).                               a TPH).                                           cross-references and
                                                                                          title.
Rule 3.6 (Persons Associated with TPH  Rule 3.7 (Persons        N......................  Moves rule in its
 Organizations).                        Associated with TPH                               entirety.
                                        Organizations).

[[Page 57502]]

 
Rule 3.6A (Qualification and           Rule 3.30                N......................  Moves rule in its
 Registration of Trading Permit         (Qualifications and                               entirety. Renumbers
 Holders and Associated Persons).       Registration of TPHs                              provisions and updates
                                        and Associated                                    cross-references and
                                        Persons).                                         title.
Rule 3.7 (Certain Documents Required   Rule 3.8 (Certain        N......................  Moves rule in its
 of Trading Permit Holders,             Documents Required of                             entirety. Renumbers
 Applicants, and Associated Persons).   TPHs, Applications and                            provisions and updates
                                        Associated Persons).                              cross-references and
                                                                                          title.
Rule 3.8 (Nominees)..................  Rule 3.9 (Responsible    Y: see further           Moves rule in its
                                        Persons and Nominees).   discussion below.        entirety. Adopts
                                                                                          concept of
                                                                                          ``Responsible
                                                                                          Person''. Amends and
                                                                                          updates Rule
                                                                                          accordingly, as
                                                                                          described more fully
                                                                                          below. Renumbers
                                                                                          provisions, eliminates
                                                                                          redundant provisions,
                                                                                          and updates cross-
                                                                                          references and title.
Rule 3.9 (Application Procedures and   Rule 3.10 (Application   N......................  Moves rule in its
 Approval or Disapproval).              Procedures and                                    entirety. Adds
                                        Approval or                                       references to
                                        Disapproval).                                     ``Responsible
                                                                                          Persons'' and
                                                                                          ``nominees''. Updates
                                                                                          cross-references.
Rule 3.10 (Effectiveness of Trading    Rule 3.11                N......................  Moves rule in its
 Permit Holder or Approved Associated   (Effectiveness of PTH                             entirety. Adds
 Person Status).                        or Approved Associated                            references to
                                        Person Status).                                   ``Responsible
                                                                                          Persons'' and
                                                                                          ``nominees''. Updates
                                                                                          cross-reference and
                                                                                          title.
Rule 3.11 (Affiliation Between the     Rule 3.62 (Affiliation   N......................  Moves rule in its
 Exchange and a Trading Permit          Between the Exchange                              entirety. Updates
 Holder).                               and a TPH).                                       title.
Rule 3.12 (Cboe Trading as Outbound    Rule 3.63 (Cboe Trading  N......................  Moves rule in its
 Router).                               as Outbound Router).                              entirety.
Rule 3.13 (Cboe Trading as Inbound     Rule 3.64 (Cboe Trading  N......................  Moves rule in its
 Router).                               as Inbound Router).                               entirety.
Rule 3.14 (Reserved).................  N/A (deleted)..........  N......................  Deletes reserved rule.
Rule 3.15 (Reserved).................  N/A (deleted)..........  N......................  Deletes reserved rule.
Rule 3.16 (Reserved).................  N/A (deleted)..........  N......................  Deletes reserved rule.
Rule 3.17 (Reserved).................  N/A (deleted)..........  N......................  Deletes reserved rule.
Rule 3.18 (Trading Permit Holders and  Rule 3.13 (TPHs and      N......................  Moves rule in its
 Associated Persons Who Are or Become   Associated Persons Who                            entirety. Updates
 Subject to a Statutory                 Are or Become Subject                             cross-references and
 Disqualification).                     to a Statutory                                    title.
                                        Disqualification).
Rule 3.19 (Termination from Trading    Rule 3.14 (Termination   N......................  Moves rule in its
 Permit Holder Status).                 from TPH Status).                                 entirety. Adds
                                                                                          reference to
                                                                                          ``Responsible
                                                                                          Person''. Updates
                                                                                          title.
Rule 3.20 (Dissolution and             Rule 3.15 (Dissolution   N......................  Moves rule in its
 Liquidation of TPH Organizations).     and Liquidation of TPH                            entirety. Updates
                                        Organizations).                                   cross-reference.
Rule 3.21 (Obligations of Terminating  Rule 3.16 (Obligations   N......................  Moves in its entirety.
 Trading Permit Holders).               of Terminating TPHs).                             Updates title.
Rule 3.22 (Reserved).................  N/A (deleted)..........  N......................  Deletes reserved rule.
Rule 3.24 (Reserved).................  N/A (deleted)..........  N......................  Deletes reserved rule.
Rule 3.25 (Reserved).................  N/A (deleted)..........  N......................  Deletes reserved rule.
Rule 3.26 (Reserved).................  N/A (deleted)..........  N......................  Deletes reserved rule.
Rule 3.27 (Reserved).................  N/A (deleted)..........  N......................  Deletes reserved rule.
Rule 3.28 (Letters of Guarantee and    Rule 3.61 (Letters of    N......................  Moves rule in its
 Authorization).                        Guarantee and                                     entirety. New
                                        Authorization).                                   provisions added from
                                                                                          other rules, as
                                                                                          described more fully
                                                                                          below. Clarify in new
                                                                                          Rule 3.61(a) that TPHs
                                                                                          must have a letter of
                                                                                          guarantee from a
                                                                                          Clearing Trading
                                                                                          Permit Holder that is
                                                                                          properly authorized by
                                                                                          the Options Clearing
                                                                                          Corporation (``OCC'')
                                                                                          to operate during the
                                                                                          GTH session, which is
                                                                                          required currently
                                                                                          today. Renumbers
                                                                                          provisions.
Rule 3.29 (Membership in OneChicago,   Rule 3.65 (Membership    N......................  Moves rule in its
 LLC).                                  in OneChicago, LLC).                              entirety.
Rule 3.30 (Extension of Time Limits).  Rule 3.17 (Extension of  N......................  Moves rule in its
                                        Time Limits).                                     entirety.
Rule 3.31 (Reserved).................  N/A (deleted)..........  N......................  Deletes reserved rule.
Rule 3.32 (Ownership Concentration     Rule 3.18 (Ownership     N......................  Moves rule in its
 and Affiliation Limitation).           Concentration and                                 entirety.
                                        Affiliation
                                        Limitation).
Rule 6.20A (Sponsored Users).........  Rule 3.60 (Sponsored     N......................  Moves rule in its
                                        Users).                                           entirety. Eliminates
                                                                                          reference to FLEX
                                                                                          Hybrid Trading System
                                                                                          in current Rule 6.20A
                                                                                          .01 as FLEX will no
                                                                                          longer trade on that
                                                                                          system post-migration,
                                                                                          but rather the same
                                                                                          system as all other
                                                                                          trading on Cboe
                                                                                          Options. Renumbers
                                                                                          provisions and updates
                                                                                          cross-references.
Rule 6.70 (Floor Broker Defined)       Rule 3.50 (Floor         N......................  Current Rule 6.70 moves
Rule 6.71 (Registration of Floor        Brokers).                                         to new Rule 3.50(a).
 Brokers).                                                                                Current Rule 6.71
                                                                                          moves to new Rule
                                                                                          3.50(b). Renumbers
                                                                                          provisions and updates
                                                                                          cross-references.
                                                                                          Updates title.

[[Page 57503]]

 
Rule 6.72 (Letters of Authorization).  Rule 3.61 (Letters of    N......................  Moves to Rule 3.61(b);
                                        Guarantee and                                     eliminates provisions
                                        Authorization).                                   in current rule
                                                                                          6.72(c) and (d) as
                                                                                          such provisions are
                                                                                          redundant to
                                                                                          provisions already
                                                                                          covered by current
                                                                                          Rule 3.28 (and now new
                                                                                          rule 3.61(a)). Renames
                                                                                          ``Letter of
                                                                                          Authorization'' to
                                                                                          ``Letter of
                                                                                          Guarantee'' for
                                                                                          consistency.
Rule 6.77 (Order Service Firms)......  Rule 3.59 (Order         N......................  Moves rule in its
                                        Service Firms).                                   entirety.
Rule 6.78 (Letters of Guarantee        Rule 3.61 (Letters of    N......................  Moves to Rule 3.61(d);
 Required of Order Service Firms).      Guarantee and                                     eliminates
                                        Authorization).                                   subparagraph (c) as
                                                                                          such provision is
                                                                                          redundant to provision
                                                                                          already in current
                                                                                          Rule 3.28 (and now new
                                                                                          rule 3.61(a)).
Rule 8.5 (Letters of Guarantee)......  Rule 3.61 (Letters of    N......................  Moves to Rule 3.61(b);
                                        Guarantee and                                     eliminates
                                        Authorization).                                   subparagraph (c) as
                                                                                          such provision is
                                                                                          redundant to provision
                                                                                          already in current
                                                                                          Rule 3.28 (and now new
                                                                                          rule 3.61(a)).
Rule 24A.13 (Letter of Guarantee or    Rule 3.61 (Letters of    N......................  Moves to Rule 3.61(e);
 Authorization).                        Guarantee and                                     eliminates
                                        Authorization).                                   subparagraph (c) as
                                                                                          not necessary in light
                                                                                          of consolidated rule.
N/A..................................  Rule 3.51 (OEFs).......  N......................  Adopts definition of
                                                                                          ``OEF'' from Rule 1.1
                                                                                          (Definitions) in shell
                                                                                          rulebook.
N/A..................................  13.6...................  N......................  Adds reference to
                                                                                          ``Responsible
                                                                                          Person''.
----------------------------------------------------------------------------------------------------------------

    Other than the proposed changes regarding Responsible Persons, 
described more fully below, the proposed rules are virtually identical 
(renumbering or reorganizing paragraphs, updating cross-references and 
titles, and making the types of non-substantive or clarifying changes 
as described above), and are merely moving from the current Rulebook to 
the shell Rulebook. The Exchange intends to move the current rules 
indicated above to proposed Chapter 3 of the shell Rulebook in order to 
consolidate into one location the rules that relate to membership, 
registration and participants.
Responsible Persons
    As noted above, in connection with the migration, the Exchange 
intends to modify its current Trading Permit structure. By way of 
background, current Cboe Option Rule 1.1 defines a Trading Permit as a 
license issued by the Exchange that grants the holder or the holder's 
nominee the right to access one or more of the facilities of the 
Exchange for the purpose of effecting transactions in securities traded 
on the Exchange without the services of another person acting as 
broker, and otherwise to access the facilities of the Exchange for 
purposes of trading or reporting transactions or transmitting orders or 
quotations in securities traded on the Exchange, or to engage in other 
activities that, under Cboe Options Rules, may only be engaged in by 
Trading Permit Holders, provided that the holder or the holder's 
nominee, as applicable, satisfies any applicable qualification 
requirements to exercise those rights.\5\ The Exchange may issue 
different types of Trading Permits and determine the fees for those 
Trading Permits.\6\ The Exchange currently maintains three types of 
Trading Permits. Particularly, the Exchange offers a Market-Maker 
Trading Permit, a Floor Broker Trading Permit and an Electronic Access 
Permit. The Exchange also offers separate Market-Maker and Electronic 
Access Permit for the Global Trading Hours (``GTH'') session. More 
specifically, Market-Maker trading Permits entitle the holder to act as 
a Market-Maker, including a Market-Maker trading remotely, DPM, eDPM, 
or LMM, and also provides an appointment credit of 1.0, a quoting and 
order entry bandwidth allowance, up to three logins, trading floor 
access and TPH status.\7\ A Floor Broker Trading Permit entitles the 
holder to act as a Floor broker, provides an order entry bandwidth 
allowance, up to 3 logins, trading floor access and TPH status.\8\ 
Lastly, an Electronic Access Permit (``EAP'') entitles the holder to 
electronic access to the Exchange. Holders of EAPs must be broker-
dealers registered with the Exchange in one or more of the following 
capacities: (a) Clearing TPH, (b) TPH organization approved to transact 
business with the public, (c) Proprietary TPHs and (d) order service 
firms. The permit does not provide access to the trading floor. An EAP 
also provides an order entry bandwidth allowance, up to 3 logins and 
TPH status.\9\ In addition, Rule 3.1(a)(v) provides, in relevant part, 
that Trading Permits will be subject to such fees and charges as are 
established by the Exchange from time to time pursuant to Exchange Rule 
2.1 and the Exchange Fees Schedule.\10\
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    \5\ A Trading Permit does not convey any ownership interest in 
the Exchange, is only available through the Exchange, and is subject 
to the terms and conditions set forth in Cboe Options Rule 3.1.
    \6\ See Cboe Options Rule 3.1(v).
    \7\ See Cboe Options Fees Schedule.
    \8\ Id.
    \9\ Id.
    \10\ The Exchange has submitted a separate rule filing to amend 
Trading Permit fees. See SR-CBOE-2019-082.
---------------------------------------------------------------------------

    As noted above, Trading Permits are currently tied to bandwidth 
allocation, logins and appointment costs, and as such, TPH 
organizations may hold multiple Trading Permits of the same type in 
order to meet their connectivity needs. Post-Migration, bandwidth 
allocation, logins and appointment costs will no longer be tied to a 
Trading Permit, and as such, the Exchange is modifying its Trading 
Permit structure. Specifically, post-Migration, the Exchange will issue 
five types of Trading Permits; an electronic Market-Maker Permit, an 
Electronic Access Permit, a Clearing TPH Permit, a Market-Maker Floor 
Permit and a Floor Broker Permit.\11\ More specifically, the Exchange 
will provide that for electronic access to the Exchange, a TPH need 
only purchase one of the following permit types for each trading 
function the TPH intends to perform: Market-Maker Electronic Access 
Permit (``MM EAP'') in order to act as an off-floor Market-Maker, 
Electronic Access Permit (``EAP'') in order to submit orders

[[Page 57504]]

electronically to the Exchange,\12\ and a Clearing TPH Permit, for TPHs 
approved solely as a Clearing TPH.\13\ Additionally, as part of the 
migration the Exchange is eliminating Global Trading Hours Trading 
Permits. Instead, the Exchange will provide that any MM EAP, EAP and 
Clearing TPH Permit provides access (at no additional cost) to the GTH 
session.\14\ Post-migration, the Exchange will have separate Trading 
Permits for on-floor and off-floor activity. As such, the Exchange will 
be maintaining a Floor Broker Trading Permit (``FB Permit'') and 
adopting a new Market-Maker Floor Permit (``MM Floor Permit'') for on-
floor Market-Makers. Floor-based permits may only be tied to one 
individual (i.e., nominee) at a time.
---------------------------------------------------------------------------

    \11\ Cboe Option Rules provides the Exchange authority to issue 
different types of Trading Permits which allows holders, among other 
things, to act in one or more trading functions authorized by the 
Rules. See Cboe Options Rule 3.1(a)(iv).
    \12\ EAPs may be purchased by TPHs that both clear transactions 
for other TPHs (i.e., a ``Clearing TPH'') and submit orders 
electronically.
    \13\ Currently any TPH that is registered to act as a Clearing 
TPH must purchase an Electronic Access Permit, whether or not that 
Clearing TPH acts solely as a Clearing TPH or acts as a Clearing TPH 
and submits orders electronically. The Exchange proposes to adopt a 
new Trading Permit, for any TPH that is registered to act solely as 
Clearing TPH. Clearing TPHs that both clear transactions for other 
TPHs and that are approved in a capacity to submit orders 
electronically to the Exchange need only obtain the proposed EAP.
    \14\ Clearing TPHs must be properly authorized by the Options 
Clearing Corporation (``OCC'') to operate during the GTH session. As 
such, in order to participate in GTH, a TPH must have a Letter of 
Guarantee on file from a Clearing TPH that is authorized to operate 
during GTH. The Exchange proposes to amend proposed Rule 3.61 
(current Rule 3.28), to make this point clear in the rules.
---------------------------------------------------------------------------

    In light of the restructuring of the Exchange's Trading Permits, 
the Exchange therefore proposes to modify its rules related to 
nominees. Currently, a TPH organization must designate an individual 
nominee to represent the organization with respect to that Trading 
Permit in all matters relating to the Exchange, provided that in the 
case of a Trading Permit held in the name of an individual, the TPH 
organization shall be required to designate that individual as the 
nominee for that Trading Permit.\15\ Additionally, in the situation 
where the TPH organization is holding multiple Trading Permits in its 
name, the TPH organization may designate the same individual to be a 
nominee for those Trading Permits.\16\ Moreover, each nominee of a TPH 
organization, except for a nominee of a TPH organization approved 
solely as a Clearing Trading Permit Holder and/or to transact business 
with the public pursuant to current Rule 9.1, is required to have an 
authorized trading function.\17\ Among other requirements, a nominee is 
required to be materially involved in the daily operation of the 
Exchange business activities of the TPH organization for which the 
person is a nominee; have authorized trading functions only on behalf 
of one TPH organization; and perform trading functions only on behalf 
of the TPH organization for which the person is approved by the 
Exchange to perform such functions and may not perform trading 
functions on the person's own behalf or on behalf of another TPH 
organization.\18\
---------------------------------------------------------------------------

    \15\ See Current Cboe Options Rule 3.8(a)(i).
    \16\ See Current Cboe Options Rule 3.8(a)(ii).
    \17\ See Current Cboe Options Rule 3.8(a)(iii).
    \18\ See Current Cboe Options Rule 3.8(c).
---------------------------------------------------------------------------

    Post-migration the Exchange proposes to provide that only floor-
based Trading Permits (i.e., MM Floor and FB Permits) require the 
designation of a nominee. In lieu of nominees, TPH organizations that 
hold electronic permits (i.e., MM EAPs, EAPs and Clearing TPH Permits) 
will be required to designate at least one ``Responsible Person''. The 
Responsible Person will be required to be affiliated with the TPH and 
shall represent the organization with respect to a TPH's electronic 
Trading Permit(s) in all matters relating to the Exchange. The 
Responsible Person must be a U.S.-based officer, director or 
management-level employee of the TPH, who is responsible for the direct 
supervision and control of Associated Persons of that TPH. A 
Responsible Person for a Foreign Trading Permit Holder does not need to 
be U.S.-based, but must be an individual registered in Web CRD.\19\ The 
Exchange notes that its affiliate C2 similarly requires the designation 
of a Responsible Person.\20\ In connection with the proposed change, 
the Exchange proposes to amend its nominee rule (current Rule 3.8, 
proposed new Rule 3.9) to adopt new subparagraph 3.9(a), which will set 
forth the requirements relating to Responsible Persons, as well as add 
corresponding references to Responsible Persons in the remaining 
provisions of proposed Rule 3.9. Proposed Rule 3.9(a) is substantially 
similar to C2's corresponding rule.\21\
---------------------------------------------------------------------------

    \19\ The Exchange notes that for Foreign TPHs, the requirement 
that the individual be U.S.-based is waived as such TPHs may not 
have an individual that meets all of the proposed requirements based 
in the U.S.
    \20\ See C2 Rule 1.1 (``Responsible Person'') and Rule 3.8 
(Responsible Person).
    \21\ See C2 Rule 1.1 (``Responsible Person'') and Rule 3.8 
(Responsible Person).
---------------------------------------------------------------------------

    With respect to floor-based permits, the Exchange will still 
require the designation of a nominee per permit. Particularly, proposed 
subparagraph (b) will provide that each TPH organization that is holder 
of a FB Permit or MM Floor Permit must designate an individual nominee 
to represent the organization with respect to each FB Permit or MM 
Floor Permit in all matters relating to the Exchange. As noted above, 
each FB Permit and MM Floor Permit may only be tied to one individual 
at a time.\22\ As such, the Exchange proposes to eliminate the language 
in current Rule 3.8(a)(ii) which allows a TPH to designate the same 
individual to be a nominee for its Trading Permits. The Exchange notes 
however, that a nominee of a TPH may also be designated as a 
Responsible Person with respect to a TPH's electronic Trading Permits 
so long as such nominee satisfies the proposed requirements of being a 
Responsible Person. Similarly, a Responsible Person may also be 
designated as a nominee for a TPH's floor Trading Permits so long as 
such person satisfies the requirements of being a nominee. A TPH 
organization may never have more individuals (i.e., nominees) on the 
floor than it has floor-based Trading Permits. Further, each nominee 
must be registered as a Floor Broker if acting as a nominee on behalf 
of a FB Permit and registered as a Market-Maker if acting as a nominee 
on behalf of a MM Floor Permit. As is the case today, a nominee may 
have authorized trading functions only on behalf of one TPH 
organization and may perform trading functions only on behalf of the 
TPH organization for which the person is approved by the Exchange to 
perform such functions and may not perform trading functions on the 
person's own behalf or on behalf of another TPH organization.\23\ As 
nominees will be required to be registered as either a Floor Broker or 
Market-Maker, the Exchange believes the requirement under current Rule 
3.8(c)(i) to be materially involved in the daily operation of the 
Exchange activities of the TPH organization is no longer necessary and 
as such the Exchange proposes to delete such provision.\24\ The 
Exchange also proposes to eliminate current subparagraph 3.8(a)(v), 
which provides each nominee of a TPH organization who is approved to be 
a Trading Permit Holder shall be deemed to be an individual Trading 
Permit Holder. The Exchange believes this point is already made clear 
current (and proposed) Rule

[[Page 57505]]

3.2 which provides ``An individual must satisfy the following 
requirements in order to be an individual Trading Permit Holder, 
whether in the capacity of a holder of a Trading Permit or a nominee of 
a TPH'' and as such the proposed language is redundant and unnecessary.
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    \22\ TPHs may continue to designate and maintain ``inactive 
nominees'' pursuant to proposed Rule 3.9(e) (current Rule 3.8(e)).
    \23\ The Exchange proposes to relocate these provisions from 
current Cboe Options Rule 3.8(c)(ii)-(iii) to new subparagraph (b) 
of proposed Rule 3.9, making the rule easier to follow.
    \24\ Given the proposed deletion of the language in current Rule 
3.8(c)(i) and the relocation of current subparagraphs (c)(ii) and 
(c)(iii), current Rule 3.8(c) will be eliminated in its entirety.
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    In connection with the proposed changes relating to Responsible 
Persons and nominees, the Exchange proposes to also amend other 
exchange rules. Particularly, the Exchange proposes to amend the 
following rules: (1) Proposed Rule 3.1 (currently Rule 3.1), to provide 
Responsible Persons, in addition to nominees, are subject to the 
regulatory jurisdiction of the Exchange and that a TPH organization may 
change the designation of Responsible Persons in addition to nominees 
with respect to its Trading Permits; (2) proposed Rule 3.10 (currently 
Rule 3.9) to clarify that any individual that is designated as a 
nominee or Responsible Person must submit an application and be 
investigated, in accordance with the rule; (3) proposed Rule 3.11 
(currently Rule 3.10) to clarify that each Responsible Person and 
nominee must become effective within 90 days of the date of the 
applicant's approval for such status; (4) proposed Rule 3.14 (currently 
Rule 3.19) to clarify that a TPH's status may be automatically 
terminated if it has no Responsible Person or nominee; and (5) proposed 
Rule 13.6 (currently Rule 17.6) to provide that a Responsible Person or 
nominee may represent a TPH organization in a hearing.
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.\25\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \26\ 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) \27\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \25\ 15 U.S.C. 78f(b).
    \26\ 15 U.S.C. 78f(b)(5).
    \27\ Id.
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    In particular, the Exchange believes the proposed rule changes will 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system by providing for a more streamlined 
and simplified permit structure and rules relating to nominees and 
proposed Responsible Persons. Particularly, post-migration, the new 
connectivity and permit structure will eliminate the need for TPHs to 
hold multiple permits for purposes of appointment costs, logins and/or 
bandwidth and will provide clear distinctions between off-floor and on-
floor permits and the individual representatives of such permits (i.e., 
nominees and Responsible Persons). The Exchange believes the proposal 
to require TPHs to designate a Responsible Person, instead of a 
nominee, for such Trading Permits therefore provides for a more 
straightforward administration of the Exchange's permit structure. 
Indeed, the proposed change more closely aligns the Exchange's 
membership requirements with those of its affiliate exchange, C2, which 
has a similar electronic permit structure as proposed and is on the 
same platform the Exchange is migrating to.\28\ The Exchange believes 
its proposal to adopt Responsible Persons therefore provides greater 
uniformity of the Exchange's rules and its affiliated exchange and 
therefore less burdensome and more efficient regulatory compliance. The 
proposed definition of a Responsible Persons is also substantially the 
same as other exchanges that have a similar requirement.\29\ The 
Exchange notes that similar to a designated nominee, Responsible 
Persons will represent the organization with respect to each electronic 
Trading Permit in all matters relating to the Exchange. As such, every 
TPH organization, whether participating electronically or on the floor 
of the Exchange, will continue to have a designated individual that 
represents the Exchange, and has gone through an application and 
investigation process.
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    \28\ See C2 Rules1.1 (``Responsible Person'') and 3.8 
(Responsible Person).
    \29\ See e.g., MIAX Options Rules 100 and 207.
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    The Exchange notes that it is not substantively changing any rights 
or obligations of nominees of floor Trading Permits. Rather, the 
Exchange merely is proposing to update its rules to reflect that 
nominees will, upon migration, only represent a FB Trading Permit or MM 
Floor Trading Permit and therefore must only be registered as a FB or 
MM, respectively. The Exchange believes the proposed changes to its 
nominee rule (current Rule 3.8, proposed Rule 3.9) also alleviates 
confusion by reorganizing and consolidating provisions, simplifying 
language, and removing redundancies.
    As stated, the proposed rule changes not related to Responsible 
Persons makes no substantive changes to the rules. Rather, those 
proposed rule changes are merely intended to make the types of non-
substantive or clarifying changes as described in the table and 
discussion above and relocate the Exchange's rules to the shell 
Rulebook and update their numbers, paragraph structure, including 
number and lettering format, and cross-references to conform to the 
shell Rulebook as a whole in anticipation of the technology migration 
on October 7, 2019. As such, the proposed rule change is designed to 
promote just and equitable principles of trade, 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, by improving the way the Exchange's Rulebook is organized, 
making it easier to read, and, particularly, helping market 
participants better understand the rules of the Exchange, which will 
also result in less burdensome and more efficient regulatory 
compliance.

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. Particularly, the Exchange 
does not believe that the proposed rule change will impose any burden 
on intramarket competition that is not necessary or appropriate in 
furtherance of the purposes of the Act because the proposed changes 
apply to all TPHs. The proposed rule change also does not address 
competitive issues, but rather, amends its requirements relating to 
nominees in connection with the upcoming technology migration and 
resulting change in the Exchange's Trading Permit structure and/or 
makes non-substantive rule changes in relocating the rules and updating 
cross-references to shell rules in anticipation of the October 7, 2019 
technology migration. The Exchange does not believe that the proposed 
rule change will impose any burden on intermarket competition that is 
not necessary or appropriate in furtherance of the

[[Page 57506]]

purposes of the Act because the proposed change only affects TPHs of 
Cboe Options and those applying for membership to Cboe Options. To the 
extent that the proposed change makes Cboe Options a more attractive 
marketplace for market participants at other exchanges, such market 
participants are welcome to become Cboe Options market participants.

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 \30\ and Rule 19b-
4(f)(6) thereunder.\31\
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    \30\ 15 U.S.C. 78s(b)(3)(A).
    \31\ 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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    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act \32\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \33\ permits the 
Commission to 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 so that 
the Exchange may implement the proposed rule change at the time of its 
anticipated October 7, 2019 system migration. The Exchange believes 
that waiver of the operative delay is appropriate because, as the 
Exchange discussed above, its proposal does not make any substantive 
changes to the Exchange's rules. The Commission believes that waiver of 
the 30-day operative delay is consistent with the protection of 
investors and the public interest because the proposal does not raise 
any new or novel issues and makes only non-substantive changes to the 
rules. Therefore, the Commission hereby waives the operative delay and 
designates the proposal as operative upon filing.\34\
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    \32\ 17 CFR 240.19b-4(f)(6).
    \33\ 17 CFR 240.19b-4(f)(6)(iii).
    \34\ For purposes only of waiving the 30-day operative delay, 
the Commission also has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission will institute proceedings to 
determine whether the proposed rule change should be approved or 
disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-CBOE-2019-099 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-2019-099. 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-2019-099 and should be submitted on 
or before November 15, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\35\
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    \35\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-23265 Filed 10-24-19; 8:45 am]
BILLING CODE 8011-01-P