Document ID: SEC-2019-1958-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Cboe Exchange, Inc.
Posted Date: 2019-12-27T05:00Z

[Federal Register Volume 84, Number 248 (Friday, December 27, 2019)]
[Notices]
[Pages 71488-71491]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-27873]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87806; File No. SR-CBOE-2019-123]

Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
Rule 8.10 To Remove the Attestation Filing Requirements in Connection 
With Trading Permit Holders' Policy and Procedures Regarding the Misuse 
of Material, Nonpublic Information

December 19, 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 December 17, 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, 
II, and III 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 Exchange, Inc. (the ``Exchange'' or ``Cboe Options'') proposes 
to amend Rule 8.10 to remove the attestation filing requirements in 
connection with Trading Permit Holders' (``TPHs'') policy and 
procedures regarding the misuse of material, nonpublic information. The 
text of the proposed rule change is provided in Exhibit 5.
    The text of the proposed rule change is also available on the 
Exchange's website (http://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx), at the Exchange's Office of the 
Secretary, and at the Commission's Public Reference Room.

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

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

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

1. Purpose
    The Exchange proposes to remove the Rule 8.10 requirement that TPHs 
that file only annual SEC Form X-17A-5

[[Page 71489]]

reports (``FOCUS Reports'') \5\ must also file contemporaneous 
attestations regarding compliance with the maintenance and enforcement 
of policies and procedures to prevent the misuse of material, nonpublic 
information with such reports. In addition, the Exchange also proposes 
to remove Rule 8.10.03, which provides that a subset of TPHs that file 
annual FOCUS Reports may use Exchange-developed OE-418 forms to satisfy 
the Rule 8.10 filing and recordkeeping requirements.\6\
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    \5\ FOCUS Reports are ``Financial and Operational Combined 
Uniform Single Reports'' and must be completed by all broker-dealers 
registered with the Securities and Exchange Commission (the 
``Commission''). The form reports a broker-dealer's financial and 
operating condition.
    \6\ See Cboe Options Regulatory Circular RG19-003, which sets 
forth the criteria for use of form OE-418: (1) Individual TPHs with 
no employees; (2) individual TPHs who employ no more than three non-
TPH employees; or (3) TPH organizations with no more than three 
employees who are nominees and which employ no more than six non-TPH 
employees. (January 11, 2019).
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    Current Rule 8.10 provides that every TPH shall establish, maintain 
and enforce written policies and procedures reasonably designed, taking 
into consideration the nature of such TPH's business, to prevent the 
misuse, in violation of the Securities Exchange Act of 1934 (the 
``Act'') and Exchange Rules, of material, nonpublic information by such 
TPH or persons associated with such TPH. It also provides that TPHs 
required to file FOCUS Reports on an annual basis only, pursuant to 
Rule 7.3 (Financial Reports), must contemporaneously file, with their 
annual reports, attestations signed by such TPHs stating that the 
procedures mandated by Rule 8.10 have been established, enforced and 
maintained. Current Rule 8.10.03 provides that the Exchange-developed 
form (OE-418) may be submitted by a subset of TPHs that only file 
annual FOCUS Reports to satisfy attestation and record keeping 
requirements pursuant to Rule 8.10. Specifically, the Exchange 
implemented the attestation requirement for TPHs that file FOCUS 
Reports only annually because those TPHs that file FOCUS Reports on a 
more frequent basis (i.e., monthly and quarterly) were generally 
subject to periodic exams by the Exchange in which the Exchange 
reviewed, among other things, the procedures maintained by such TPHs 
pursuant to Rule 8.10.\7\ TPHs filing FOCUS Reports only annually were 
not subject to periodic exams by the Exchange at the time when Rule 
8.10 was originally adopted.
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    \7\ See Securities Exchange Act Release No. 29967 (November 19, 
1991), 56 FR 61067 (November 29, 1991) (SR-CBOE-91-41).
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    Today, however, all TPHs are subject to the Exchange's risk-based 
exam process, which is conducted by Financial Industry Regulatory 
Authority (``FINRA'') on behalf of the Exchange pursuant to a 
regulatory services agreement (``RSA''). Examinations are based on an 
annual risk assessment to determine the cycle, scope and content of 
examinations per firm to ensure each firm is appropriately examined.\8\ 
Moreover, the Exchange may conduct off-cycle examinations of a TPH, as 
necessary.
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    \8\ While examinations are on a risk-based exam cycle, each TPH 
is examined no less than every three years.
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    The Exchange notes that no more than 10 TPHs currently fall under 
the Rule 8.10 attestation requirement, and that the Exchange currently 
collects the OE-418 forms in accordance with Rule 8.10.03 for those 
TPHs that submit the form to satisfy the Rule's attestation and record-
keeping requirements. As a result of the proposed rule change, all TPHs 
would continue to be subject to the Rule 8.10 recordkeeping 
requirement, which, pursuant to Rule 7.1, a TPH must make available to 
the Exchange upon request. The Exchange believes it is an additional 
administrative burden to the limited number of TPHs who are required to 
submit an attestation when all TPHs are now subject to periodic 
examination, including review of the TPHs procedures pursuant to Rule 
8.10, if warranted.
    The Exchange further notes that all TPHs are subject to Rule 8.16, 
which provides that, among other things, each TPH and associated person 
of a TPH is required to be under the supervision and control of 
appropriately qualified supervisor, as well as implement written 
supervisory procedures and a system for applying such procedures to 
supervise the types of business in which the TPH engages and to 
supervise the activities of all associated persons. Under paragraph (g) 
of Rule 8.16, each TPH must conduct an interview or meeting with all 
associated persons, during which compliance matters relevant to the 
activities of the associated person are discussed. Each TPH must also 
conduct an annual compliance review and written report on the TPH's 
supervision and compliance effort during the preceding year and on the 
adequacy of the TPH's ongoing compliance processes and procedures. The 
Rule further requires that the TPH's Chief Executive Officer (``CEO'') 
(or equivalent officer) certifies that the TPH has processes in place 
to: (a) Establish and maintain policies and procedures reasonably 
designed to achieve compliance with applicable Exchange Rules and 
federal securities laws and regulations; (b) modify such policies and 
procedures as business, regulatory and legislative changes and events 
dictate, and; (c) test the effectiveness of such policies and 
procedures on a periodic basis, the timing and extent of which is 
reasonably designed to ensure continuing compliance with Exchange Rules 
and federal securities laws and regulations. Rule 8.16 was adopted by 
the Exchange following its adoption of Rule 8.10, and prior to the 
adoption of Rule 8.16 only TPHs approved to conduct business with the 
public were subject to such supervision requirements.\9\ The Exchange 
believes that the Rule 8.10 attestation requirement is generally 
redundant of the CEO certification requirement in Rule 8.16.
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    \9\ See Securities Exchange Act Release No. 71644 (February 18, 
2014), 79 FR 13365 (March 10, 2014) (SR-CBOE-2013-126).
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    The Exchange believes that periodic TPH examinations and 
supervision requirements pursuant to Rule 8.16 are sufficient to ensure 
TPH compliance with the requirement to establish enforce and maintain 
policies and procedures to prevent the misuse of material, nonpublic 
information. As noted previously, the Exchange, through its regulatory 
services provider, now conducts periodic risk-based exams of all TPHs 
and all TPHs are currently subject to the supervision requirements of 
Rule 8.16. Therefore, the Exchange believes that the attestation 
requirement and accompanying OE-418 form are redundant of the current 
exam process and other Exchange Rules in place, thus, their proposed 
removal would lift an unnecessary additional reporting step and 
administrative procedure.
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.\10\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \11\ 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

[[Page 71490]]

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) \12\ requirement that the rules 
of an exchange not be designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(5).
    \12\ Id.
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    In particular, the Exchange believes that removing the duplicative 
and unnecessary attestation requirement in connection with Rule 8.10 
and 8.10.03 would serve 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 benefit 
investors. Specifically, the Exchange believes that the supervision, 
annual report and CEO certification requirements pursuant to Rule 8.16 
and changes to its examination practices which subject all TPHs to 
periodic risk-based examination, both of which were implemented/adopted 
after the adoption of Rule 8.10, are sufficient to ensure that TPHs 
have internal processes and procedures in place for identifying and 
preventing misuse of material, non-public information. In addition, all 
TPHs are currently, and will remain, subject to the Rule 8.10 
recordkeeping requirement, and they must make such records available to 
the Exchange upon request. Therefore, the proposed rule change is 
designed to lift the unnecessary administrative burden of the limited 
number of TPHs who are required to also attest that the procedure 
mandated by Rule 8.10 have been established, enforced and maintained. 
As a result of the above-stated practices and procedures already in 
place, the Exchange believes that removing the attestation requirement 
in Rule 8.10 would benefit investors by removing a duplicative and 
unnecessary reporting step and administrative procedure. Further, the 
Exchange does not believe that the proposed rule change would affect 
the protection of investors as the Exchange may at any time require 
TPHs to produce records in connection with maintenance and enforcement 
of policies and procedures to prevent the misuse of material, nonpublic 
information, as well as conduct an off-cycle examination of a TPH, as 
necessary.
    In addition to this, the Exchange also believes the proposed rule 
change is consistent with Section 6(b)(1) of the Act,\13\ which 
provides that the Exchange be organized and have the capacity to be 
able to carry out the purposes of the Act and to enforce compliance by 
the Exchange's Trading Permit Holders and persons associated with its 
Trading Permit Holders with the Act, the rules and regulations 
thereunder, and the rules of the Exchange. As noted above, the Exchange 
currently has the capacity under other Exchange Rules to be able to 
enforce compliance by TPHs related to submission of appropriate records 
in connection with the prevention of the misuse of non-public 
information. The Exchange believes that removing redundant and 
unnecessary rules would allow for the Exchange to be organized and 
better able to carry out the purposes of the Act and enforce 
compliance. Removing the Rule 8.10 attestation requirement would reduce 
the administrative burden on the Exchange in having to collect and 
maintain reports that are generally duplicative of reports required 
under other Exchange Rules, and would allow the Exchange to better 
allocate regulatory resources.
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    \13\ 15 U.S.C. 78f(b)(1).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change would 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. In particular, the proposed 
rule change is not intended to address competitive issues but rather is 
concerned with facilitating less burdensome and more efficient 
regulatory administration. The Exchange notes that the Rule 8.10 
requirement to maintain and enforce policies and procedures to prevent 
the misuse of material nonpublic information and recordkeeping 
requirement of such would continue to uniformly apply to all TPHs.

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)(iii) of the Act \14\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\15\
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    \14\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \15\ 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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    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-2019-123 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-219-123. 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

[[Page 71491]]

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-2019-123 and should be submitted on or before January 17, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2019-27873 Filed 12-26-19; 8:45 am]
 BILLING CODE 8011-01-P