Document ID: SEC-2020-1003-0001
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 38951-38956]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-13875]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-89131; File No. SR-CBOE-2020-055]

Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of 
Filing of a Proposed Rule Change To Amend Rule 5.24

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 12, 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, II, 
and III below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

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 5.24. 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend Rule 5.24 regarding the Exchange's 
business continuity and disaster recovery plans. Rule 5.24 describes 
which Trading Permit Holders (``TPHs'') are required to connect to the 
Exchange's backup systems as well as certain actions the Exchange may 
take as part of its business continuity plans so that it may maintain 
fair and orderly markets if unusual circumstances occurred that could 
impact the Exchange's ability to conduct business. This includes what 
actions the Exchange would take if its trading floor became inoperable. 
Specifically, Rule 5.24(e) states if the Exchange trading floor becomes 
inoperable, the Exchange will continue to operate in a screen-based 
only environment using a floorless configuration of the System that is 
operational while the trading floor facility is inoperable. The 
Exchange would operate using that configuration only until the 
Exchange's trading floor facility became operational. Open outcry 
trading would currently not be available in the event the trading floor 
becomes inoperable.\3\
---------------------------------------------------------------------------

    \3\ Pursuant to Rule 5.26, the Exchange may enter into a back-up 
trading arrangement with another exchange, which could allow the 
Exchange to use the facilities of a back-up exchange to conduct 
trading of certain of its products. The Exchange currently has no 
back-up trading arrangement in place with another exchange.
---------------------------------------------------------------------------

    Rule 5.24(e)(1) currently states in the event that the trading 
floor becomes inoperable, trading will be conducted pursuant to all 
applicable System Rules, except that open outcry Rules would not be in 
force, including but not limited to the Rules (or applicable portions) 
in Chapter 5, Section G,\4\ and that all non-trading rules of the 
Exchange would continue to apply. The Exchange recently adopted several 
rule changes that would apply during a time in which the trading floor 
in inoperable, which are effective until June 30, 2020.\5\ The Exchange 
believes these Rules were necessary to implement to maintain a fair and 
orderly market while the trading floor was not operable in order to 
create an all-electronic trading environment similar to the otherwise 
unavailable open outcry trading environment.
---------------------------------------------------------------------------

    \4\ Chapter 5, Section G of the Exchange's rulebook sets forth 
the rules and procedures for manual order handling and open outcry 
trading on the Exchange.
    \5\ See Securities Exchange Act Release Nos. 88386 (March 13, 
2020), 85 FR 15823 (March 19, 2020) (SR-CBOE-2020-019); 88447 (March 
20, 2020) (SR-CBOE-2020-023); 88490 (March 26, 2020), 85 FR 18318 
(April 1, 2020) (SR-CBOE-2020-026); 88530 (March 31, 2020), 85 FR 
19182 (April 6, 2020) (SR-CBOE-2020-031); and 88886 (May 15, 2020), 
85 FR 31008 (May 21, 2020) (SR-CBOE-2020-047).
---------------------------------------------------------------------------

    As of March 16, 2020, the Exchange suspended open outcry trading to 
help prevent the spread of COVID-19 \6\ and is currently operating in 
an all-electronic configuration. The Exchange has continued to operate 
in an all-electronic configuration but currently plans to reopen its 
trading floor on June 15, 2020, at which time the Exchange will return 
to its normal operations as a hybrid exchange with electronic and open 
outcry trading. However, given the uncertainty related to the ongoing 
pandemic, which includes the possibility of the Exchange having to 
close its trading floor again, and given the possibility that the 
Exchange's trading floor may be inoperable for other reasons in the 
future, the Exchange

[[Page 38952]]

believes it is appropriate to continue to review and enhance its 
business continuity plans. While the recent amendments to Rule 
5.24(e)(1) allowed all-electronic trading to occur more similarly to 
open outcry trading, an all-electronic trading environment cannot fully 
replicate open outcry trading.\7\ Therefore, the Exchange continues to 
evaluate potential enhancements that it believes would permit trading 
while the trading floor is inoperable to more closely replicate its 
trading environment that exists during normal operations.
---------------------------------------------------------------------------

    \6\ On March 11, 2020, the World Health Organization 
characterized COVID-19 as a pandemic and to slow the spread of the 
disease, federal and state officials implemented social-distancing 
measures, placed significant limitations on large gatherings, 
limited travel, and closed non-essential businesses.
    \7\ The Exchange continues to consider other enhancements to the 
all-electronic trading configuration that it believes may permit 
this configuration to further replicate the open outcry trading 
environment. The Exchange would submit separate rule filings for any 
such proposed enhancements.
---------------------------------------------------------------------------

    There are certain features of open outcry trading that are 
difficult to replicate in an electronic trading environment, 
particularly the human interaction that permits persons to negotiate 
pricing and to facilitate executions of larger orders and high-risk and 
complicated strategies. For example, from January 2 through March 13, 
2020 (the last day on which the trading floor was open), complex orders 
for SPX options with more than six legs represented approximately 5.3% 
of the total SPX complex order average daily volume (``ADV'') during 
that timeframe. However, from March 16, 2020 (the first day on which 
the trading floor was closed) through April 30, 2020, complex orders 
for SPX options with more than six legs represented only approximately 
2.2% of the total SPX complex order ADV during that similar timeframe. 
Similarly, the corresponding ADV percentages for VIX options complex 
orders were approximately 6.2% (prior to the trading floor closing) and 
1.8% (after the trading floor closing), respectively. This data, taken 
into consideration with feedback from customers, demonstrates the 
difficulty market participants have with executing high-risk and 
complex strategies in an all-electronic trading environment that does 
not allow for human interaction.
    The Exchange believes the proposed rule change would further 
enhance the Exchange's trading environment when the trading floor is 
inoperable by permitting market participants that generally operate on 
the trading floor to continue to interact in a substantially similar 
manner as they do on the trading floor. Specifically, the Exchange 
proposes to adopt Rule 5.24(e)(3) to permit it to make available an 
audio and video communication program to serve as a ``virtual trading 
floor'' in one or more option classes \8\ if the physical trading floor 
is inoperable or operating in a modified state (as further discussed 
below). In the program, the Exchange will create ``virtual trading 
pits,'' in each of which the Exchange will determine which options 
class(es) will be available for trading. This is similar to the 
Exchange's authority with respect to open outcry trading on the 
physical trading floor.\9\
---------------------------------------------------------------------------

    \8\ Like open outcry trading on the trading floor, open outcry 
trading on the virtual trading floor would be available only during 
Regular Trading Hours.
    \9\ Pursuant to Rule 5.50(h), the Exchange may determine for 
each options class traded on the Exchange whether the class should 
be appointed to a trading crowd and which trading crowd should be 
appointed the class, and to determine the location on the Exchange's 
trading floor of each trading crowd.
---------------------------------------------------------------------------

    The Exchange will use a communication program that has audio and 
video capabilities, as well as ``chat'' functionality.\10\ In a virtual 
trading pit, each TPH authorized to access the virtual trading floor 
(as described below) that enters the virtual trading pit will be 
visible to all other TPHs in that virtual trading pit. Additionally, 
all TPHs in that virtual trading pit may speak to each other through 
the program. This will allow the same communication capabilities TPHs 
generally have on the physical trading floor so that they may conduct 
open outcry trading on the virtual trading floor in the same manner as 
they do on the physical trading floor.
---------------------------------------------------------------------------

    \10\ Currently available programs with this functionality 
include Zoom, Webex, Microsoft Teams, and others.
---------------------------------------------------------------------------

    All Rules related to open outcry trading, including those in 
Chapter 5, Section G, will apply to open outcry trading on the virtual 
floor in the same manner as they apply to open outcry trading on the 
physical trading floor, except as the context otherwise requires \11\ 
and as set forth in proposed subparagraph (e)(3). Proposed subparagraph 
(e)(3)(A) lists certain terms in the Rules related to open outcry 
trading on the physical trading floor that will be deemed to refer to 
corresponding terms related to open outcry trading on the virtual 
trading floor. Specifically:
---------------------------------------------------------------------------

    \11\ For example, Rule 5.80(d)(4)(1) requires a clerk to remain 
at a booth subject to certain exceptions. The concept of a booth is 
specific to the physical trading floor so has no applicability to 
the virtual trading floor. Additionally, as the virtual trading 
floor has no physical trading space, Rule 5.93 regarding trading 
crowd space disputes has no applicability to the virtual trading 
floor.
---------------------------------------------------------------------------

     References in the Rules to the ``floor,'' ``trading 
floor,'' and ``Exchange floor'' (and any other terms with the same 
meaning) will be deemed to refer to the ``virtual trading floor.''
     References in the Rules to ``pit,'' ``trading station,'' 
and ``trading post'' (and any other terms with the same meaning) will 
be deemed to refer to a ``virtual trading pit.''
     References in the Rules to ``physical presence'' (any 
other terms with the same meaning) in a pit or on the trading floor 
will be deemed to refer ``presence'' in a virtual trading pit or on the 
virtual trading floor, respectively.
     The terms ``in-crowd market participant'' and ``ICMP'' 
mean a Market-Maker, a Designated Primary Market-Maker (``DPM'') or 
Lead Market-Maker (``LMM'') with an allocation in a class, or a Floor 
Broker or PAR Official representing an order in a virtual pit on the 
virtual trading floor.\12\
---------------------------------------------------------------------------

    \12\ This is substantially similar to the definition of ICMP in 
Rule 1.1.
---------------------------------------------------------------------------

     References to an ``on-floor DPM'' or ``on-floor LMM'' will 
be deemed to refer to a DPM or LMM, respectively, in a virtual pit for 
its allocated class(es).
    Access to the virtual trading floor will be substantially similar 
to access to the physical trading floor. Currently, admission to the 
physical trading floor is limited to Trading Permit Holders, Exchange 
employees, clerks employed by Trading Permit Holders and registered 
with the Exchange, service personnel, Exchange visitors that receive 
authorized admission to the trading floor pursuant to Exchange policy, 
and any other persons that the Exchange \13\ authorizes admission to 
the trading floor.\14\ Proposed subparagraph (3)(B) provides the same 
persons with access to the virtual trading floor, except for clerks, 
service personnel, and visitors. Clerks may continue to perform the 
same functions for their associated Floor Broker TPH organizations in 
connection with open outcry trading on the virtual trading floor as 
they do for open outcry trading on the physical trading floor, but they 
will not receive access to enter (i.e. log into) the virtual trading 
floor, as they do not need that access to perform those functions. 
Additionally, as there is no physical equipment that would need service 
on the virtual trading floor, and no purpose for a visitor to observe 
the virtual trading floor, the proposed rule change excludes service 
personnel and visitors from accessing the virtual trading floor.\15\
---------------------------------------------------------------------------

    \13\ Rule 5.80(a) provides the President or a designee with this 
authority. However, decisions regarding admission to the floor are 
generally made by appropriate Exchange staff, which may include the 
President. The Exchange believes use of the term ``Exchange'' is, 
therefore, more appropriate.
    \14\ See Rule 5.80(a).
    \15\ While the Exchange does not anticipate granting any other 
individuals with access to the virtual trading floor outside of TPHs 
and Exchange personnel (such as PAR Officials and Regulatory 
Division staff), the Exchange believes the flexibility to permit 
Exchange personnel to access the virtual trading floor is 
appropriate, such as to permit access to make updates to the 
communication program.

---------------------------------------------------------------------------

[[Page 38953]]

    As is the case with the physical trading floor, the Exchange will 
provide access to the virtual trading floor to TPHs the Exchange has 
approved to perform a trading floor function (including Floor Brokers 
and Market-Makers).\16\ TPHs are not required to display badges on the 
virtual trading floor, as the size of the view on the communication 
program may not permit badges to be visible.\17\ Currently, on the 
physical trading floor, a Market-Maker has an appointment to trade open 
outcry in all classes trading on the Exchange (and must be physically 
present in the trading crowd to trade in open outcry).\18\ Similarly, 
any Market-Maker authorized to act on the physical trading floor will 
receive access to each virtual trading pit on the virtual trading floor 
and may determine which virtual trading pits it wants to enter to 
trade.
---------------------------------------------------------------------------

    \16\ See Rule 5.80(e), pursuant to which only those TPHs the 
Exchange has approved to perform a floor trading function (including 
Floor Brokers and Market-Makers) may enter into transactions on the 
trading floor.
    \17\ The virtual trading floor program will identify the TPH 
organization of each participant in a virtual trading pit.
    \18\ See Rule 5.50(e).
---------------------------------------------------------------------------

    As set forth in Rule 5.81(a), subject to the requirements in that 
Rule, TPHs may use any communication device (e.g., any hardware or 
software related to a phone, system, or other device, including an 
instant messaging system, email system, or similar device) on the 
trading floor and in any trading crowd of the Exchange (which it must 
register with the Exchange). Pursuant to proposed subparagraph (3)(C), 
TPHs may use any equipment to access the virtual trading floor. 
However, TPHs must use Exchange-provided equipment to access PAR 
workstations while transacting on the virtual trading floor for 
security purposes. PAR will be used and work in the same manner for the 
virtual trading floor as it is on the physical trading floor.\19\ Prior 
to using a communications device for business purposes on the trading 
floor of the Exchange, Trading Permit Holders must register the 
communications device by identifying (in a form and manner prescribed 
by the Exchange) the hardware (i.e., headset, cellular telephone, 
tablet, or other similar hardware). Because individuals on the virtual 
trading floor will not be on the Exchange premises (and thus will not 
be using Exchange-provided bandwidth to be shared with all market 
participants and do not pose the same security risks), the proposed 
rule change will not require TPHs to register devices they use while on 
the virtual trading floor. Rule 5.81(a) will otherwise apply in the 
same manner to the virtual trading floor as it does to the physical 
trading floor (to the extent the context requires). This includes 
requirements related to audit trail and record retention, prohibition 
on using any device for the purpose of recording activities in the 
virtual trading pit or maintaining an open line of continuous 
communication whereby a non-associated person not located in the 
trading crowd may continuously monitor the activities in the trading 
crowd, and the prohibition on using devices to disseminate quotes or 
last sale reports.
---------------------------------------------------------------------------

    \19\ See Rule 5.82. The Exchange notes TPHs similarly use 
Exchange-provided hardware to access PAR on the physical trading 
floor.
---------------------------------------------------------------------------

    Proposed subparagraph (3)(D) provides that the Exchange may 
determine to require any Market-Maker or Floor Broker in a virtual 
trading pit that wants to trade against an order represented for 
execution to express its bid or offer in a chat available in the 
virtual trading pit.\20\ TPHs on the physical trading floor only 
verbalize their interest to trade against a represented order, so not 
requiring bids and offers to be included in a chat conforms to current 
practice on the trading floor. However, given potential limitations of 
communication software (such as limitations on how many people may be 
heard at the same time in a virtual pit or potential buffering or 
echoing), the Exchange believes it may be appropriate to require market 
participants to use a chat tool in the communication program to 
indicate their interest in participating in a trade so that the 
representing Floor Broker is able to know the market from the trading 
crowd and fairly allocate the trade pursuant to the Rules. The Exchange 
believes the flexibility to impose this requirement in a virtual 
trading pit is appropriate, as these limitations may ultimately not 
interfere with a Floor Broker's ability to hear all interest 
(particularly in virtual trading pits with few participants) and thus 
the additional requirement may potentially slow down executions. 
Flexibility will permit the Exchange to balance system limitations with 
the additional burden of a new workflow step for each class, some of 
which have different open outcry trading environments than others.
---------------------------------------------------------------------------

    \20\ The Exchange will announce to all TPHs any determination to 
require bids and offers to be expressed in a chat within the 
communication program pursuant to Rule 1.5 (such as by Exchange 
notice or regulatory circular). The Exchange will provide such 
notice with sufficient advance notice.
---------------------------------------------------------------------------

    As noted above, the Exchange may determine to make the virtual 
trading floor available if the physical trading floor is operating in a 
modified state. Proposed subparagraph (e)(3)(E) provides that if the 
Exchange determines to operate the trading floor in a modified state 
that requires the Exchange to limit the number of individuals that may 
access the trading floor,\21\ the Exchange may provide a virtual 
trading for an impacted class. Effective June 15, 2020, the Exchange 
will modify the configuration of certain trading crowds in order to 
ensure compliance with state and local health and safety guidelines, as 
well as ensure the safety and welfare of any individual that accesses 
the trading floor (i.e., operating in a modified state). Specifically, 
the Exchange anticipates having to not only relocate and modify the 
physical area of at least one trading crowd, but also intends to 
require floor participants to stand in such trading crowd in order to 
comply with state and local health and safety guidelines, including 
social distancing (i.e., provide for at least 6 feet between 
individuals). As a result, with respect one trading class (the SPX 
options pit), there will be a smaller number of available trading 
spaces than are generally available in the normal SPX options pit. 
Therefore, certain individuals that normally trade in the SPX options 
pit will be unable to do so while the Exchange operates its trading 
floor in the modified state. Additionally, the Exchange understands 
certain individuals that normally trade on the physical trading floor 
have indicated they do not plan to initially return to the trading 
floor due to their own health and safety concerns.\22\
---------------------------------------------------------------------------

    \21\ For example, as the Exchange intends to do upon reopening 
the physical trading floor on June 15, 2020, the Exchange may 
temporarily relocate or resize a trading pit for safety and welfare 
purposes. See Exchange Notice C2020060300, Schedule Update--Cboe 
Options Trading Floor Re-Opening June 15, 2020, available at https://cdn.cboe.com/resources/release_notes/2020/C1-Trading-Floor-Re-Opening-Second-Reminder-and-Update.pdf.
    \22\ There may be other reasons why the Exchange operates its 
trading floor in a modified state. For example, if there was a fire 
on the trading floor, the Exchange may need to relocate and modify 
the size of one or more trading crowds, which could similarly 
require it to limit the number of individuals that may access the 
physical trading floor.
---------------------------------------------------------------------------

    If the Exchange makes a virtual trading floor available while the 
physical trading floor operates in a modified state, persons authorized 
but unable to access the physical trading floor will be provided with 
access to the virtual trading floor. For example, given the current 
expected reconfiguration of

[[Page 38954]]

the SPX options pit, approximately half of the Floor Brokers and 
Market-Makers that normally trade in the SPX options pit will not be 
able to trade in the modified SPX options pit. The proposed rule change 
would provide these Floor Brokers and Market-Makers with access to the 
virtual trading floor.
    The virtual trading floor would essentially supplement the physical 
trading floor. Specifically, the physical and virtual trading pit for a 
class will together constitute a single trading pit for that class, and 
each will be visible and audible to the other. This will permit any 
orders represented and bids and offers made on the physical trading 
floor to be available for execution against orders represented and bids 
and offers made on the virtual trading floor, and vice versa. In order 
to integrate the physical and virtual trading pits for a class, the 
Exchange intends to add screens and speakers to the physical trading 
floor that would permit ICMPs on the physical trading floor to see and 
hear individuals on the virtual trading floor. Additionally, the 
Exchange intends to add cameras and microphones to the physical trading 
floor that would permit ICMPs on the virtual trading floor to see and 
hear individuals on the physical trading floor.
    The Exchange believes offering a virtual trading floor to 
supplement the physical trading floor for any class impacted by the 
Exchange's operation of the physical trading floor in a modified state 
will provide access to open outcry trading for all individuals that 
normally trade on the physical trading floor, which could increase 
liquidity available in the trading pits within which fewer persons may 
physically participate. Because all participants will have access to 
the same pool of liquidity while the trading floor operates in this 
modified state, customer orders represented for execution within the 
single pit will have access to the best prices available, regardless of 
whether those prices are expressed on the physical trading floor or 
virtual trading floor.
    While open outcry trading on the virtual trading floor will occur 
with in-crowd market participants interacting with each other remotely 
through a computer communication program, all trading that occurs on 
the virtual trading floor will occur in the same manner as it does on 
the physical trading floor. Specifically, open outcry trading on the 
virtual trading floor will be subject to the same priority and 
allocation rules as open trading on the physical trading floor, as set 
forth in Rule 5.85. The Exchange will make the same order types and 
instructions available on the virtual trading floor as it makes 
available on the physical trading floor pursuant to Rule 5.83.\23\ 
Floor Brokers will be subject to the responsibilities set forth in Rule 
5.91 on the virtual trading floor, as they are on the physical trading 
floor. Additionally, TPHs participating on the virtual trading floor 
will be subject to the same regulatory requirements on the virtual 
trading floor as they are on the physical trading floor, including 
those set forth in Chapters 8 and 9. Orders must be systematized \24\ 
and represented,\25\ and transactions reported,\26\ in connection with 
the virtual trading floor in the same manner as they are when trading 
on the physical trading floor. Therefore, the audit trail for open 
outcry trading on the virtual trading floor will capture the same 
information that it does for open outcry trading on the physical 
trading floor. The Regulatory Division will be able to utilize 
preexisting floor surveillances to surveil for the activity occurring 
on the virtual trading floor. As noted above, Regulatory Division staff 
may access the virtual trading floor if it deems necessary.
---------------------------------------------------------------------------

    \23\ Pursuant to Rule 5.83(b), the Exchange may determine 
whether to make complex orders types available for open outcry 
trading. The Exchange will not make a Multi-Class Spread order 
available on the virtual trading floor unless the Exchange has made 
the virtual trading floor available for both classes represented in 
the order, as such an order must be represented at both trading 
stations (or virtual trading pits in the context of the virtual 
trading floor) to be executed. See Rule 5.85(d).
    \24\ See Rule 5.7(f).
    \25\ See Rule 5.91(a)(4).
    \26\ See Rule 6.1(c).
---------------------------------------------------------------------------

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.\27\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \28\ 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) \29\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
---------------------------------------------------------------------------

    \27\ 15 U.S.C. 78f(b).
    \28\ 15 U.S.C. 78f(b)(5).
    \29\ Id.
---------------------------------------------------------------------------

    In particular, the Exchange believes the proposed rule change will 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system, and, in general, to protect 
investors and the public interest, as it will permit open outcry 
trading to continue in the event the Exchange's trading floor is 
inoperable. As discussed above, while the Exchange has adopted Rules 
that have allowed all-electronic trading to occur more similarly to 
open outcry trading, there are certain features of open outcry trading 
that are difficult to replicate in an electronic trading environment. 
The Exchange has observed, and understands from various market 
participants, that they have had difficulty executing certain orders, 
such as larger orders and high-risk and complicated strategies, in an 
all-electronic trading configuration without the element of human 
interaction to negotiate pricing for these orders. The proposed rule 
change would provide an environment in which this interaction would be 
available despite the inoperability of the physical trading floor. The 
Exchange believes the proposed rule change may facilitate continued 
trading of these orders if and when the trading floor is inoperable. As 
a result, the Exchange believes providing continuous access to open 
outcry trading when the physical trading floor is inoperable will 
remove impediments to a free and open market and will ultimately 
benefit investors, particularly those desiring to execute high-risk and 
complex trading strategies.
    The proposed rule change will further remove impediments to a free 
and open market and will ultimately benefit investors when the Exchange 
operates the physical trading floor in a modified state that requires 
it to limit the number of individuals that may access the trading 
floor. In this circumstance, all individuals that are unable to access 
the trading floor (such as for health and safety purposes) may still 
participate in open outcry trading. This ``supplemental'' version of a 
virtual trading floor will provide customer orders represented on the 
trading floor with access to the same pool of liquidity to which it 
would have access if the trading floor was operating in its normal 
state. All orders represented within the pit for a class, whether 
represented by

[[Page 38955]]

a Floor Broker on the physical trading floor or virtual trading floor, 
will be able to execute against any bid and offer expressed within the 
pit, regardless of whether expressed on the physical trading floor or 
virtual trading floor. Providing individuals authorized to act but 
unable to be on the physical trading floor with remote access to open 
outcry trading within the pit for a class, will therefore provide 
increased liquidity for orders represented for execution in open 
outcry, even if the Exchange is operating the physical trading floor in 
a modified state. This increase liquidity may increase price discovery 
and execution opportunities for customer orders represented in open 
outcry.
    The Exchange also believes the proposed rule change will promote 
just and equitable principles of trade, as open outcry trading on a 
virtual trading floor will occur in accordance with the same trading 
rules and be subject to the same regulatory requirements that apply to 
open outcry trading on the physical trading floor, all of which have 
previously been filed with the Commission. The proposed rule change 
will merely permit this open outcry trading to occur in a virtual 
setting rather than a physical setting (which may be appropriate for 
health and safety purposes)--in other words, open outcry trading on a 
virtual trading floor will occur while market participants operate 
remotely as they do when they trade electronically. Specifically, open 
outcry trading on the virtual trading floor will be subject to the same 
priority and allocation rules as open trading on the physical trading 
floor, as set forth in Rule 5.85. As is the case for open outcry 
trading on the physical trading floor, open outcry trading on the 
virtual trading floor is consistent with Section 11(a) of the Act, as 
Rule 5.85(a)(2)(E) (which will apply to open outcry trading on the 
virtual trading floor) requires TPHs relying on Section 11(a)(1)(G) of 
the Act and Rule 11a1-1(T) thereunder (the so called ``G exemption 
rule'') as an exemption must yield priority to any bid (offer) at the 
same price of Priority Customer orders and broker-dealer orders resting 
in the Book, as well as any other bid (offer) that has priority over 
those broker-dealer orders under this Rule. The Exchange may make the 
same order types and instructions available on the virtual trading 
floor as it makes available on the physical trading floor pursuant to 
Rule 5.83. Floor Brokers will be subject to the responsibilities set 
forth in Rule 5.91 on the virtual trading floor, as they are on the 
physical trading floor. Additionally, TPHs participating on the virtual 
trading floor will be subject to the same regulatory requirements on 
the virtual trading floor as they are on the physical trading floor, 
including those set forth in Chapters 8 and 9. Orders must be 
systematized and represented, and transactions reported, in connection 
with the virtual trading floor in the same manner as they are when 
trading on the physical trading floor. Therefore, the audit trail for 
open outcry trading on the virtual trading floor will capture the same 
information that it does for open outcry trading on the physical 
trading floor. The Regulatory Division will be able to utilize 
preexisting floor surveillances to surveil for the activity occurring 
on the virtual trading floor. As noted above, Regulatory Division staff 
may access the virtual trading floor if it deems necessary. The 
Exchange believes it will promote just and equitable principles of 
trading for all open outcry trading to occur in substantially the same 
manner, whether it occurs while market participants are in the same 
physical setting or in remote settings being connected through a 
technological solution.
    In addition, the Exchange believes the proposed rule change will 
not be designed to permit unfair discrimination between customers, 
issuers, brokers, or dealers, as all individuals authorized to act on 
the physical trading floor (both TPH organizations authorized at the 
time the physical trading floor becomes inoperable and any TPH 
organization that becomes authorized after the physical trading floor 
becomes inoperable) will be provided with access to the virtual trading 
floor. Additionally, the proposed rule change to permit the Exchange to 
provide a virtual trading floor if the Exchange is operating the 
physical trading floor in a modified state will provide individuals 
unable to trade on the physical trading floor as a result of the 
modified state to participate in open outcry trading remotely.

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, as all TPH organizations 
authorized by the Exchange, or that become authorized by the Exchange, 
to transact on the trading floor will receive access to the virtual 
trading floor. 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, as 
it relates solely to the location of open outcry trading on the 
Exchange. The proposed rule change will merely permit open outcry 
trading that generally occurs while market participants are located in 
the same physical setting to occur while market participants are in a 
remote setting, connected by a technological solution (as electronic 
trading does).
    The Exchange believes that the proposed rule change will relieve 
any burden on, or otherwise promote, competition. The Exchange believes 
the proposed rule change will provide market participants with 
continuous access to open outcry trading when the physical trading 
floor is inoperable. The Exchange believes this may facilitate 
continued, competitive price negotiations and trading of orders that 
the Exchange understands are more difficult to execute in an all-
electronic trading environment without human interaction. Additionally, 
the proposed rule change will provide customer orders represented for 
open outcry execution with access to the same pool of liquidity when 
the trading floor is inoperable or operating in a modified state to 
which those orders would have access when the trading floor is 
operating in its normal state. Maintenance of this level of liquidity 
at all times, even when the trading floor is inoperable, may promote 
competition by providing these customer orders with increased liquidity 
than may\ otherwise be available, and thus increased execution 
opportunities and price discovery.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission will:

[[Page 38956]]

    A. By order approve or disapprove such proposed rule change, or
    B. institute proceedings to determine whether the proposed rule 
change should be 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-2020-055 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-2020-055. 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-2020-055 and should be submitted on 
or before July 20, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\30\
---------------------------------------------------------------------------

    \30\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-13875 Filed 6-26-20; 8:45 am]
BILLING CODE 8011-01-P