Document ID: SEC-2020-1013-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Cboe Exchange, Inc.
Posted Date: 2020-06-29T04:00Z

[Federal Register Volume 85, Number 125 (Monday, June 29, 2020)]
[Notices]
[Pages 39019-39021]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-13872]

[[Page 39019]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-89128; File No. SR-CBOE-2020-053]

Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
Rule 6.1 in Order To Provide for a Consistent Documentation of Open 
Outcry Execution Information in the Event of an Exchange System 
Malfunction or Disruption

June 23, 2020.
    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 June 10, 2020, 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 Rule 6.1 in order to provide for a 
consistent documentation of open outcry execution information in the 
event of an Exchange system malfunction or disruption.
    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 Rule 6.1 in order to provide for a 
consistent documentation of open outcry execution information in the 
event of an Exchange system malfunction or disruption.
    Specifically, Rule 6.1(a) requires that a Trading Permit Holder 
(``TPH'') in each transaction to be designated by the Exchange must 
report or ensure the transaction is reported to the Exchange within 90 
seconds of the execution in a form and manner prescribed by the 
Exchange so that the trade information may be reported to time and 
sales reports.\5\ Pursuant to Rule 6.1(c)(1), the seller (or buyer if 
designated by the Exchange) must submit the transaction report through 
an electronic data transmission link approved by the Exchange in order 
to fulfill the Rule 6.1(a) reporting requirement. Additionally, Rule 
6.1(c) provides that participants (both the buyer and the seller) must 
immediately record on a card or ticket or enter in an electronic data 
storage medium acceptable to the Exchange certain requisite transaction 
information. Such transaction information includes, among other things, 
the time of the transaction obtained from a source designated by the 
Exchange,\6\ and must be included in the transaction report. Currently, 
TPHs submit transaction reports through Public Automated Routing System 
(``PAR'') \7\ workstations. In practice, generally, when an order is 
executed in open outcry, a participant nearly contemporaneously with 
the execution enters the requisite trade information into a PAR 
workstation, including the transaction time and presses a ``trade'' 
button, which both reports the trade to the Exchange and constitutes 
the entry of requisite trade information in an electronic data storage 
medium pursuant to Rule 6.1(c).
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    \5\ The Exchange notes that for trades executed electronically 
through the System, trade information is immediately submitted to 
the Exchange so that it may be reported to the tape.
    \6\ The Exchange notes that there are universal clocks on the 
trading floor which brokers may use when recording outage reports.
    \7\ See Rule 5.82.
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    Rule 6.1(a) currently allows for designated late reporting, 
however, a pattern or practice of late reporting without exceptional 
circumstances may be considered conduct inconsistent with just and 
equitable principles of trade and subject to fines or discipline under 
Exchange Rules.\8\ Therefore, in the event an Exchange system 
experiences a malfunction or disruption so that a participant is unable 
to electronically submit the requisite transaction information and 
report open outcry transaction information within the 90 second window 
(i.e. an ``outage''), a late reporting designation is considered 
acceptable and the participant is able to electronically submit the 
trade information and simultaneously report the transaction upon 
resolution of the malfunction or disruption and resumption of the 
impacted Exchange system. Although pursuant to Rule 6.1(c), a 
participant is able to record the transaction information on a card or 
ticket, and may currently do so in the case of an outage (and following 
the outage is then able to electronically enter the trade information 
and submit the transaction report), the Exchange Rules do not currently 
provide for a specific manner and form in which a participant should 
report transaction information, including the transaction time, in the 
event that an outage impedes a participant's ability to submit an 
electronic transaction record within the required time period.\9\ As 
such, the Exchange now proposes to amend Rule 6.1(a) to provide 
additional clarity and consistency regarding the documentation and 
submission of transaction reports for open outcry executions that occur 
during an outage.
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    \8\ See also Rule 6.1(j)(2), which provides that in the event a 
Clearing Trading Permit Holder attempts to send trade information by 
electronic transmission but is unable to get through to the Exchange 
computer system, the Clearing Trading Permit Holder may contact the 
Exchange's Trade Desk Department to inquire if the Exchange's system 
is ready to receive such Clearing Trading Permit Holder's 
transmission.
    \9\ In connection with past outages, participants have reported 
this information to the Exchange, but have done so in different 
manners. The proposed rule change will require participants to 
report this information to the Exchange in the same manner as 
designated by the Exchange.
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    Specifically, the proposed change adopts subparagraph (a)(2) \10\ 
to Rule 6.1, which provides that in the event of an Exchange system 
malfunction or disruption such that a participant is unable to 
electronically report trade information pursuant to subparagraph (c) of 
Rule 6.1 for orders executed in open outcry (an ``outage''), a 
participant

[[Page 39020]]

will record execution information, including the transaction time, for 
orders executed in open outcry in a manner and form determined by the 
Exchange. Upon the resolution of the outage, a participant must resume 
electronic submission of transaction reports within the 90 second time 
frame and must use best efforts to input electronically into the 
Exchange's system the execution information required by subparagraph 
(c) of Rule 6.1 for the order(s) executed in open outcry during the 
outage not later than the close of business on the day that the 
malfunction or disruption ceases.
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    \10\ The proposed change also separates the late reporting 
provisions in current Rule 6.1(a) into subparagraph (a)(1) (and 
titles the proposed subparagraph ``Late Reports'') for formatting 
consistency and ease of reading and following Rule 6.1(a) generally.
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    By providing that the Exchange determines the manner and form that 
participants must report transaction information for executions that 
occur during an outage,\11\ the proposed rule change will provide for 
consistency among all participants with respect to their electronic 
submission of transaction reports to the Exchange after the system 
malfunction or disruption is resolved. The proposed rule will also 
provide additional clarity in the Rules regarding the procedure 
participants must use to submit transaction information to the Exchange 
following the resolution of an outage. A uniform approach will also 
provide for more consistency of information in the Exchange's audit 
trail.
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    \11\ Pursuant to Rule 1.5, the Exchange will announce its 
determination of the manner and form via: (1) Specifications, 
Notices, or Regulatory Circulars with appropriate advanced notice, 
which are posted on the Exchange's website, or as otherwise provided 
in the Rules; (2) electronic message; or (3) other communication 
method as provided in the Rules.
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    The Exchange also notes that a similar process is currently in 
place pursuant to the Exchange Rules in the event of a malfunction or 
disruption of the Exchange's systems such that a Trading Permit Holder 
is unable to systematize an order, wherein each order transmitted to 
the Exchange during a malfunction or disruption of the Exchange's 
systems must be recorded legibly in a written form that has been 
approved by the Exchange,\12\ and the Trading Permit Holder receiving 
such order must record the time of its receipt on the floor and legibly 
record the terms of the order, in written form.\13\ Such rules also 
permit the retroactive entry of order receipt information following the 
cessation of the malfunction or disruption.
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    \12\ The Exchange notes that a legible record is a manner in 
which it intends to determine that a participant will be required to 
record execution information upon an outage, as proposed.
    \13\ See Rule 5.7(f)(2)(C)(i).
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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.\14\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \15\ 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) \16\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \14\ 15 U.S.C. 78f(b).
    \15\ 15 U.S.C. 78f(b)(5).
    \16\ Id.
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    In particular, by requiring participants to report open outcry 
transaction information for orders executed during an outage in a 
specific manner and form determined by the Exchange, the Exchange 
believes that the proposed rule change will remove impediments to and 
perfect the mechanism of a free and open market and national market 
system and help to ensure the maintenance of a fair and orderly market, 
thereby protecting investors, as it provides for consistency and 
additional clarity regarding the documentation and form of submission 
of transaction information for open outcry executions that occur during 
an outage, and the form of the reports of that information to the 
Exchange following resolution of the outage. The Exchange further 
believes the proposed rule change may prevent fraudulent and 
manipulative acts and otherwise promote just and equitable principles 
of trade. Particularly, the proposed rule change will require a uniform 
approach to the documentation and reporting procedures of transaction 
information for orders executed during an outage, which will provide 
for consistency in the Exchange's audit trail.
    The Exchange does not believe that documentation of certain trade 
information in a manner and form determined by the Exchange and the 
procedure regarding retroactive submission of certain trade information 
in the event of a system malfunction or disruption would present any 
new or novel issues or reporting policies for participants, as similar 
procedures are already in place under the Exchange Rules in the event a 
system malfunction or disruption results in participants' inability to 
systematize their orders upon receipt.

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 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 it would apply equally 
to all participants. In addition, 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 
purposes of the Act because the proposed rule change is not competitive 
in nature nor does it relate to trading on the Exchange. Rather, it 
relates solely to the manner and form of reporting transaction 
information to the Exchange in outage scenarios.

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 \17\ and Rule 19b-
4(f)(6) thereunder.\18\
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    \17\ 15 U.S.C. 78s(b)(3)(A).
    \18\ 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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[[Page 39021]]

    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act \19\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \20\ 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. The 
Exchange believes that waiver of the operative delay is consistent with 
the protection of investors and the public interest because it is 
substantially similar to the process that is currently in place 
pursuant to the Exchange Rule 5.7 \21\ in the event of a malfunction or 
disruption of the Exchange's systems such that a Trading Permit Holder 
is unable to systematize an order. The Exchange notes that wherein each 
order transmitted to the Exchange during a malfunction or disruption of 
the Exchange's systems must be recorded legibly in a written form that 
has been approved by the Exchange, and the Trading Permit Holder 
receiving such order must record the time of its receipt on the floor 
and legibly record the terms of the order, in written form. The 
Exchange states that the proposed rule change merely requires 
participants currently report transaction information to the Exchange 
with respect to orders executed during an outage, and to continue to do 
so in a uniform manner. For this reason, 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 modify the information that participants must report, nor does 
it change how open outcry trading will occur. The Commission believes 
the proposed rule change will provide consistency and clarity in the 
Cboe Rules regarding how to report transaction information to the 
Exchange in the event of an outage, which will benefit investors. 
Waiver of the operative delay will also permit the Exchange to 
implement the proposed rule change in connection with the current 
proposed reopening of its trading floor on June 15, 2020. Therefore, 
the Commission hereby waives the operative delay and designates the 
proposal as operative upon filing.\22\
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    \19\ 17 CFR 240.19b-4(f)(6).
    \20\ 17 CFR 240.19b-4(f)(6)(iii).
    \21\ See supra note 13.
    \22\ 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 shall 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-2020-053 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-2020-053. 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-2020-053 and should be submitted on 
or before July 20, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\23\
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    \23\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-13872 Filed 6-26-20; 8:45 am]
BILLING CODE 8011-01-P