Document ID: SEC-2020-0560-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Cboe Exchange, Inc.
Posted Date: 2020-04-13T04:00Z

[Federal Register Volume 85, Number 71 (Monday, April 13, 2020)]
[Notices]
[Pages 20558-20561]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-07652]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88575; File No. SR-CBOE-2020-025]

Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
Interpretation and Policy .01 to Rule 5.24 in Connection with Business 
Continuity and Disaster Recovery Testing

April 7, 2020.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on March 26, 2020, Cboe Exchange, Inc. (``Exchange'' or ``Cboe 
Options'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by the Exchange. The 
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.
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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 Interpretation and Policy .01 to Rule 5.24 in connection with 
business continuity and disaster recovery testing. 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 harmonize Interpretation and Policy .01 to 
Rule 5.24, in connection with business continuity and disaster recovery 
testing, with the corresponding rules of its affiliated options 
exchanges, Cboe BZX Exchange, Inc. (``BZX Options''), Cboe EDGX 
Exchange, Inc. (``EDGX Options''), and Cboe C2 Exchange, Inc. 
(``C2'').\3\
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    \3\ The Exchange notes that C2 is simultaneously filing a rule 
change to harmonize certain provisions of its business continuity 
and disaster recovery testing rules with that of BZX Options and 
EDGX Options.
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    As background, Regulation Systems Compliance and Integrity 
(``Regulation SCI'') \4\ applies to certain self-regulatory 
organizations (including the Exchange), alternative trading systems 
(``ATSs''), plan processors, and exempt clearing agencies 
(collectively, ``SCI entities''). Specifically, Rule 1004 of Regulation 
SCI (``Reg SCI'') states that each SCI entity shall establish standards 
for the designation of members or participants that are necessary for 
the maintenance of fair and orderly markets in the event of the 
activation of the business continuity and disaster recovery plans, 
designate such members or participants in scheduled functional and 
performance testing of the operation of such plans no less than once 
every 12 months, and coordinate the testing of such plans on an 
industry- or sector-wide basis with other SCI entities.
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    \4\ See Securities Exchange Act Release No. 73639 (November 19, 
2014), 79 FR 72252 (December 5, 2014) (``SCI Adopting Release'').
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    In order to comply with the coordination requirement among SCI 
entities, the Exchange has conducted the required operational testing 
in parallel with the industry-led testing program coordinated by the 
Securities Industry and Financial Markets Association (``SIFMA''), 
which occurs on an annual basis. In particular, Rule 5.24(b) requires 
certain Trading Permit Holders (``TPHs'') to connect to the Exchange's 
backup systems and participate in functional and performance testing 
announced by the Exchange, which occurs every 12 months pursuant to Reg 
SCI. Subparagraphs (b)(1) and (b)(2) respectively require TPHs that the 
Exchange determine which TPHs contribute a meaningful percentage of the 
Exchange's overall volume and the Exchange's executed customer volume 
in SPX and VIX combined, which TPHs are required to connect to the 
Exchange's backup systems and participate in the functional and 
performance testing. Interpretation and Policy .01 to Rule 5.24 
currently provides that for purposes of determining which TPHs 
contribute a meaningful percentage of the Exchange's overall volume and 
customer volume in SPX and VIX pursuant to subparagraphs (b)(1) and 
(2), respectively, the Exchange measures volume executed on the 
Exchange during a specified calendar quarter (the ``measurement 
quarter''). Pursuant to Interpretation and Policy .01(a), the Exchange 
provides TPHs with reasonable advance notice of the applicable 
meaningful percentage and measurement quarter, which meaningful 
percentage may not apply retroactively to any measurement quarter 
completed or in progress, and, pursuant to Interpretation and Policy 
.01(b), the Exchange individually notifies all TPHs that are subject to 
paragraph (b) of Rule 5.24 based on the applicable meaningful 
percentage following the completion of the applicable measurement 
quarter. The Exchange provides these TPHs with reasonable advance 
notice that they must participate in the next annual functional and 
performance testing, which generally occurs in October. For example, 
TPHs could potentially receive notice they will be required to 
participate in the annual functional and performance testing based on 
their activity in the third or fourth quarter of the preceding year.
    In order to harmonize its business continuity and disaster recovery 
testing provisions with that of its affiliated options exchanges, the 
Exchange proposes to amend the application of the meaningful percentage 
to a specified quarter's volume, as well as the timing for which the 
Exchange notifies a TPH required to participate in annual testing. 
Specifically, the proposed rule change removes the provision in current 
Interpretation and Policy .01(a) \5\ which provides that a meaningful 
percentage

[[Page 20559]]

may not apply retroactively to any measurement quarter completed or in 
progress. The proposed rule change is consistent with BZX Options and 
EDGX Options Interpretation and Policy .01 to Rule 2.4, as well as C2 
Rule 6.34(b). The proposed rule change is intended to provide the 
Exchange with greater flexibility in selecting the most relevant 
quarter's trade data for which the Exchange may identify TPHs that will 
be designated to participate in annual testing. As such, the Exchange 
may identify TPHs designated for testing based on potentially the most 
representative measure of trading activity. For example, if a current 
quarter is generally experiencing high volume and trading activity, 
such a quarter would provide a better, more accurate sample of overall 
activity and trading patterns on the Exchange than a future, 
potentially less active quarter, thus providing a more accurate, 
holistic representation of the TPHs who meet the requirements set forth 
in Rules 5.24(b)(1) and (b)(2). The Exchange also reflects this 
proposed rule change by removing language in connection with the 
application of a meaningful percentage following the completion of the 
measurement quarter, currently in Interpretation and Policy .01(b).
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    \5\ The Exchange also removes (a) and (b) as separate paragraphs 
under Interpretation and Policy .01 and consolidates the rule text 
into a single Interpretation and Policy .01 provision. This is 
consistent with Interpretation and Policy .01 to Rule 2.4 of BZX 
Options and EDGX Options.
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    The proposed rule change amends language in current Interpretation 
and Policy .01(b) \6\ regarding notification to TPHs that are 
designated for testing by adopting a specific notification timeframe in 
which the Exchange must notify such designated TPHs. Specifically, the 
proposed rule change provides that the Exchange individually notifies 
all TPHs (designated for testing) annually, and at least three months 
prior to the scheduled functional and performance testing, and removes 
language in connection with giving reasonable advanced notice. The 
proposed rule change is substantively identical to the language 
regarding testing notification provided in Interpretation and Policy 
.01 to Rule 2.4 of BZX Options and EDGX Options. The proposed rule 
change provides additional detail regarding the timeframe for which the 
Exchange will provide notice to TPHs that have been designated to test 
pursuant to subparagraph (b)(1) and (b)(2) of Rule 5.24. Additionally, 
the proposed rule change is consistent with the current language, which 
provides the Exchange will provide reasonable advanced notice, which 
the Exchange believes three months is reasonable advanced notice.
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    \6\ See supra note 4.
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    Finally, the proposed rule change makes nonsubstantive changes to 
certain language in Interpretation and Policy .01 in order to provide 
consistencies between the corresponding business continuity and 
disaster recovery testing provisions in the rules of BZX Options, EDGX 
Options and C2. The proposed rule change removes the provision under 
current Interpretation and Policy .01(a) which provides that the 
Exchange gives TPHs reasonable advance notice of the applicable 
meaningful percentage and measurement quarter. Instead, the proposed 
rule change streamlines this language and makes it consistent with 
current BZX Options and EDGX Options Interpretation and Policy .01 and 
C2 Rule 6.34(b)(1) by providing that the Exchange determines the 
percentage of volume it considers to be meaningful for purposes of Rule 
5.24. The Exchange notes that, pursuant to Rule 1.5, the Exchange is 
automatically required to announce such a determination to TPHs in a 
specification, Notice or Circular with appropriate advanced notice. The 
proposed rule change also updates ``specified calendar quarter (``the 
measurement quarter'')'' to state ``single designated quarter for a 
given year'' and updates the relevant terms where applicable in the 
remainder of Interpretation and Policy .01, which is consistent with 
the terms used in the corresponding rules of the Exchange's affiliated 
options exchanges.
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.\7\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \8\ 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) \9\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
    \9\ Id.
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    In particular, the proposed change is intended to harmonize the 
rules in connection with business continuity and disaster recovery 
testing across the Exchange and its affiliated options exchanges, BZX 
Options and EDGX Options, as well as C2.\10\ The proposed rule change 
does not proposed new or unique business continuity and disaster 
recovery procedures or requirements as the proposed changes are 
substantively similar to rules currently in place on the Exchange's 
affiliated options exchanges and previously filed with the Commission. 
Consistent requirements and procedures in connection with business 
continuity and disaster recovery testing will simplify the regulatory 
requirements and increase the understanding of the Exchange's 
operations for TPHs that are also participants on the Exchange's 
affiliated options exchanges. Greater harmonization across the 
affiliated options exchanges will result in greater uniformity, rules 
that are easier to follow and understand, and less burdensome, more 
efficient regulatory compliance, thereby contributing to the protection 
of investors and the public interest. Moreover, the proposed rule 
change will harmonize Exchange rules with those of other self-
regulatory organizations in furtherance of the coordination of testing 
among SCI entities required by Rule 1004(c) of Regulation SCI. As set 
forth in Regulation SCI, ``SROs have the authority, and legal 
responsibility, under Section 6 of the Exchange Act, to adopt and 
enforce rules (including rules to comply with Regulation SCI's 
requirements relating to business continuity and disaster recovery 
testing) applicable to their members or participants that are designed 
to, among other things, 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.'' \11\ The Exchange believes 
that the proposed rule change is consistent with such authority and 
legal responsibility and will serve to strengthen the Exchange's 
coordination

[[Page 20560]]

with other SCI entities to the benefit of investors and the public 
interest.
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    \10\ See supra note 5.
    \11\ See supra note 6.
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    In addition to this, by allowing the Exchange to identify TPHs that 
are subject to testing based on activity during any single designated 
quarter and to issue an annual notification at least three months prior 
to testing the proposed rule change will remove impediments to and 
perfect the mechanism of a free and open market and national market 
system, and, in general, protect investors as it will allow the 
Exchange to rely on the trading activity within a quarter that may be 
more representative of overall trading activity and patterns on the 
Exchange in order to better determine which TPHs should participate in 
testing, provide the more specificity as to the timing for which the 
Exchange will give notice to TPHs designated to participate in testing, 
and, in general, will simplify the TPH designation and notice process.

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 notes that the 
proposed rule change is not a competitive proposal as it is intended to 
coordinate TPH notification and designated calendar quarters in 
connection with annual functional and performance testing participation 
with the rules of its affiliated options exchanges.
    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 
trading activity of TPHs will continue to be measured during the same 
Exchange-determined quarter for all TPHs and annual notice will be 
given to each TPH designated for testing at the same time at least 
three months in advance.
    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 changes are substantively identical to the corresponding 
rules of BZX Options and EDGX Options, and generally consistent with 
the corresponding rules of C2, all of which have previously been filed 
with the Commission.

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 \12\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\13\
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    \12\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \13\ 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 under Rule 19b-4(f)(6) \14\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, Rule 19b-4(f)(6)(iii) \15\ 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 proposed 
rule change may become effective and operative immediately upon filing. 
The Exchange states that waiver of the operative delay would eliminate 
potential confusion in connection with testing participation in the 
next annual functional and performance testing (October 2020) across 
the Exchange and its affiliated options exchanges and in coordination 
with other SCI entities. The Exchange also states that the proposed 
rule changes will harmonize Exchange rules with those of other self-
regulatory organizations in furtherance of the coordination of testing 
among SCI entities, thereby contributing the protection of investors 
and the public interest. The Exchange further states that the proposed 
rule change will simplify and streamline the process of notification to 
TPHs designated to participate in the annual test and will ensure that 
the Exchange and its affiliated options exchanges will be able to base 
participation on the same designated quarter (e.g., Q1 2020) for the 
upcoming annual test, thus resulting in more efficient regulatory 
compliance and operations for investors across the exchanges. 
Accordingly, the Commission believes that waiver of the 30-day 
operative delay is consistent with the protection of investors and the 
public interest. Therefore, the Commission hereby waives the 30-day 
operative delay and designates the proposed rule change as operative 
upon filing.\16\
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    \14\ 17 CFR 240.19b-4(f)(6).
    \15\ 17 CFR 240.19b-4(f)(6)(iii).
    \16\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is: (i) 
Necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) 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 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-2020-025 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-2020-025. 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 20561]]

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-2020-025 and should be submitted on or before May 4, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-07652 Filed 4-10-20; 8:45 am]
 BILLING CODE 8011-01-P