Document ID: SEC-2020-0098-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Cboe C2 Exchange, Inc.
Posted Date: 2020-01-23T05:00Z

[Federal Register Volume 85, Number 15 (Thursday, January 23, 2020)]
[Notices]
[Pages 3951-3955]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-01035]

[[Page 3951]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87991; File No. SR-C2-2020-001]

Self-Regulatory Organizations; Cboe C2 Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change Relating 
To Amend Its Rules Governing the Give Up of a Clearing Trading Permit 
Holder by a Trading Permit Holder on Exchange Transactions

January 16, 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 January 2, 2020, Cboe C2 Exchange, Inc. (the ``Exchange'' or 
``C2'') 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 C2 Exchange, Inc. (the ``Exchange'' or ``C2 Options'') 
proposes to amend its rules governing the give up of a Clearing Trading 
Permit Holder by a Trading Permit Holder on Exchange transactions. 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://markets.cboe.com/us/options/regulation/rule_filings/ctwo/), 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 6.30, which governs the give up 
of a Clearing Trading Permit Holder \5\ by a Trading Permit Holder \6\ 
on Exchange transactions, to substantially conform to existing Cboe 
Exchange, Inc. (``Cboe Options'') Rule 5.10, proposed Cboe EDGX 
Exchange, Inc. (``EDGX Options'') Rule 21.12, and proposed Cboe BZX 
Exchange, Inc. (``BZX Options'') Rule 21.12.\7\
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    \5\ The term ``Clearing Trading Permit Holder'' means a Trading 
Permit Holder that has been admitted to membership in the Clearing 
Corporation pursuant to the provisions of the rules of the Clearing 
Corporation and is self-clearing or that clears transactions for 
other Trading Permit Holders. See Exchange Rule 1.1.
    \6\ The term ``Trading Permit Holder'' means an Exchange-
recognized holder of a Trading Permit. A Trading Permit Holder is 
deemed a ``member'' under the Exchange Act. See Exchange Rule 1.1.
    \7\ See SR-CboeEDGX-2020-001 (filed January 2, 2020) and SR-
CboeBZX-2020-002 (filed January 2, 2020).
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Background
    By way of background, Exchange Rule 6.30 provides that when a 
Trading Permit Holder executes a transaction on the Exchange, it must 
give up the name of the Clearing Trading Permit Holder (the ``Give 
Up'') through which the transaction will be cleared. Rule 6.30 also 
provides that a Trading Permit Holder may only give up a ``Designated 
Give Up'' \8\ or its ``Guarantor.'' \9\ This limitation is enforced by 
the Exchange's trading systems.\10\
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    \8\ See Exchange Rule 6.30(b)(1).
    \9\ See Exchange Rule 6.30(b)(2).
    \10\ See Exchange Rule 6.30(c).
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    A ``Designated Give Up'' of a Trading Permit Holder refers to a 
Clearing Trading Permit Holder identified to the Exchange by that 
Trading Permit Holder as a Clearing Trading Permit Holder the Trading 
Permit Holder requests the ability to give up and that has been 
processed by the Exchange as a Designated Give Up.\11\ To designate a 
``Designated Give Up'' every Trading Permit Holder (other than a 
Market-Maker) must submit written notification, in a form and manner 
prescribed by the Exchange.\12\ Specifically, the Exchange uses a 
standardized form (``Notification Form'') that a Trading Permit Holder 
needs to complete and submit to the Exchange's Membership Services 
Department (``MSD'').\13\ The Exchange notes that a Trading Permit 
Holder may currently designate any Clearing Trading Permit Holder as a 
Designated Give Up.\14\ Additionally, there is no minimum or maximum 
number of Designated Give Ups that a Trading Permit Holder must 
identify. Paragraph (d) of Rule 6.30 also requires that the Exchange 
notify a Clearing Trading Permit Holder, in writing and as soon as 
practicable, of each Trading Permit Holder that has identified it as a 
Designated Give Up. The Exchange however, will not accept any 
instructions from a Clearing Trading Permit Holder to prohibit a 
Trading Permit Holder from designating the Clearing Trading Permit 
Holder as a Designated Give Up. Additionally, there is no subjective 
evaluation of a Trading Permit Holder's list of proposed Designated 
Give Ups by the Exchange.
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    \11\ Supra note 7.
    \12\ See Exchange Rule 6.30(b)(3).
    \13\ Id.
    \14\ Id.
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    For purposes of Rule 6.30, a ``Guarantor'' of an executing Trading 
Permit Holder refers to a Clearing Trading Permit Holder that has 
issued a Letter of Guarantee for the executing Trading Permit Holder 
under the Rules of the Exchange that are in effect at the time of the 
execution of the applicable trade.\15\ An executing Trading Permit 
Holder may give up its Guarantor without having to first designate it 
to the Exchange as a ``Designated Give Up.'' \16\ Additionally, the 
Exchange notes that a Market-Maker is only enabled to give up the 
Guarantor of the Market-Maker pursuant to Exchange Rule 22.8 and also 
does not need to identify any Designated Give Ups.\17\
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    \15\ Supra note 8.
    \16\ The Exchange already knows each Trading Permit Holder's 
Guarantor and as such, no further designation or identification is 
required of Trading Permit Holders to enable their respective 
Guarantors. See Exchange Rule 6.30(b)(6).
    \17\ See Exchange Rule 6.30(b)(5).
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    Beginning in early 2018, certain Clearing Trading Permit Holders 
(in conjunction with the Securities Industry and Financial Markets 
Association (``SIFMA'')) expressed concerns related to the process by 
which executing brokers on U.S. options exchanges (the ``Exchanges'') 
are allowed to designate or `give up' a clearing firm for purposes of 
clearing particular transactions. The SIFMA-affiliated Clearing Trading 
Permit Holders have recently identified the current give up process as 
a significant source of risk for clearing firms. SIFMA-affiliated 
Clearing Trading Permit Holders subsequently requested

[[Page 3952]]

that the Exchanges alleviate this risk by amending Exchange rules 
governing the give up process.\18\
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    \18\ Cboe Options recently modified its give up procedure under 
rule 5.10 to allow clearing trading permit holders to ``Opt In'' 
such that the clearing trading permit holder (``TPH'') may specify 
which Cboe Options TPH organizations are authorized to give up that 
clearing trading permit holder. See Securities and Exchange Act 
Release No. 86401 (July 17, 2019), 84 FR 35433 (July 23, 2019) (SR-
CBOE-19-036) (``Cboe Options Rule 5.10 Amendment''). Nasdaq PHLX LLC 
(``PHLX''), NYSE Arca, Inc., (``NYSE Arca''), and NYSE American LLC 
(``NYSE American'') also recently modified their respect give up 
rules to adopt an ``Opt In'' process. See also Securities and 
Exchange Act Release No. 85136 (February 14, 2019), 84 FR 5526 
(February 21, 2019) (SR-PHLX-2018-72), Securities and Exchange Act 
Release No. 85871 (May 16, 2019), 84 FR 23613 (May 22, 2019) (SR-
NYSEArca 2019-32) and Securities and Exchange Act Release 85875 (May 
16, 2019), 84 FR 23591 (May 22, 2019) (SR-NYSEAMER-2019-17). The 
Exchange's proposal leads to the same result of providing its 
Clearing Trading Permit Holder's the ability to control risk and 
includes PHLX's, NYSE Arca's and NYSE American's ``Opt In'' process, 
but it otherwise differs slightly in process from their give up 
rules. For example, the Exchange intends to maintain its provisions 
relating to Designated Give Ups and eliminate its provisions 
relating to the rejection of a trade. The Exchange's proposal is 
substantially the same as the existing give up process on Cboe 
Options.
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Proposed Rule Change
    Based on the above, the Exchange now seeks to amend its rules 
regarding the current give up process in order to allow a Clearing 
Trading Permit Holder to ``opt in'', at the Options Clearing 
Corporation (``OCC'') clearing number level, to a feature that, if 
enabled by the Clearing Trading Permit Holder, will allow the Clearing 
Trading Permit Holder to specify which Trading Permit Holders are 
authorized to give up that OCC clearing number. As proposed, Rule 6.30 
will continue to require that Trading Permit Holders identify to the 
Exchange, via the Notification Form, all Clearing Trading Permit 
Holders that the Trading Permit Holder would like to have the ability 
to give up (i.e., Designated Give Ups).\19\ However, the Exchange 
proposes to modify the language of paragraph (a) to provide that a 
Trading Permit Holder may indicate, at the time of the trade or through 
post trade allocation, any OCC number of the Clearing Trading Permit 
Holder through which the transaction will be cleared.\20\ The Exchange 
proposes to also add to Rule 6.30(a) that Clearing Trading Permit 
Holders may elect to ``Opt In,'' as defined in paragraph (c) of the 
proposed Rule and described further below, and restrict one or more of 
its OCC number(s) (``Restricted OCC Number'').\21\ A Trading Permit 
Holder may Give Up a Restricted OCC Number provided the Trading Permit 
Holder has written authorization as described in paragraph (c)(2) 
(``Authorized Trading Permit Holder'').\22\ The Exchange notes that if 
a Trading Permit Holder identifies a particular Clearing Trading Permit 
Holder as a Designated Give Up, but that Clearing Trading Permit Holder 
has restricted its OCC number(s) and has not authorized the Trading 
Permit Holder to give it up, then the Exchange will not give effect to 
the designation on the Notification Form (i.e., the Trading Permit 
Holder will not be able to give up that Clearing Trading Permit Holder 
even though it was identified as a Designated Give Up). Similarly, if a 
Clearing Trading Permit Holder authorizes a Trading Permit Holder to 
give up its Restricted OCC Number(s), the Exchange will not enable that 
Clearing Trading Permit Holder as a give up for that Trading Permit 
Holder until and unless the Trading Permit Holder identifies that 
Clearing Trading Permit Holder as a Designated Give Up on a 
Notification Form. In light of Clearing Trading Permit Holders having 
the ability to restrict their OCC numbers from being given up by 
unauthorized Trading Permit Holders, the Exchange also proposes to 
eliminate the process for Clearing Trading Permit Holders to ``reject'' 
trades. As such, the Exchange proposes to eliminate subparagraphs (e) 
and (f) of Rule 6.30 and any other references to the process in Rule 
6.30.\23\
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    \19\ Id.
    \20\ The Exchange notes that Cboe Options plans to amend 
paragraph (a) of Rule 5.10 to conform to proposed paragraph (a) of 
C2 Options Rule 6.30 and EDGX Options Rule 21.12 with a slight 
modification as it relates to floor trading on Cboe Options.
    \21\ See proposed Exchange Rule 6.30(a); see also Cboe Options 
Rule 5.10(a).
    \22\ Id.
    \23\ The Exchange notes that Cboe Options similarly eliminated 
the process for which Clearing Trading Permit Holders may ``reject'' 
trades in Rule 5.10. See the Cboe Options Rule 5.10 Amendment.
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    Proposed Rule 6.30(c) provides that Clearing Trading Permit Holders 
may request the Exchange restrict one or more of their OCC clearing 
numbers (``Opt In'') from being given up unless otherwise 
authorized.\24\ If a Clearing Trading Permit Holder Opts In, the 
Exchange will require written authorization from the Clearing Trading 
Permit Holder permitting a Trading Permit Holder to give up a Clearing 
Trading Permit Holder's Restricted OCC Number.\25\ An Opt In would 
remain in effect until the Clearing Trading Permit Holder terminates 
the Opt In as described in proposed subparagraph (3).\26\ If a Clearing 
Trading Permit Holder does not Opt In, that Clearing Trading Permit 
Holder's OCC number may be subject to being given up by any Trading 
Permit Holder that has designated it as a Designated Give Up.\27\ 
Proposed Rule 6.30(c)(1) will set forth the process by which a Clearing 
Trading Permit Holder may Opt In.\28\ Specifically, a Clearing Trading 
Permit Holder may Opt In by sending a completed ``Clearing Trading 
Permit Holder Restriction Form'' listing all Restricted OCC Numbers and 
Authorized Trading Permit Holders.\29\ A copy of the proposed form is 
included in Exhibit 3. A Clearing Trading Permit Holder may elect to 
restrict one or more OCC clearing numbers that are registered in its 
name at OCC.\30\ The Clearing Trading Permit Holder would be required 
to submit the Clearing Trading Permit Holder Restriction Form to the 
Exchange's MSD as described on the form.\31\ Once submitted, the 
Exchange requires ninety days before a Restricted OCC Number is 
effective within the System.\32\ This time period is to provide 
adequate time for the Trading Permit Holders of that Restricted OCC 
Number who are not initially specified by the Clearing Trading Permit 
Holder as Authorized Trading Permit Holders to obtain the required 
written authorization from the Clearing Trading Permit Holder for that 
Restricted OCC Number. Such Trading Permit Holders would still be able 
to give up that Restricted OCC Number during this ninety day period 
(i.e., until the number becomes restricted within the System).
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    \24\ See proposed Exchange Rule 6.30(c); see also Cboe Options 
Rule 5.10(c).
    \25\ Id.
    \26\ Id.
    \27\ Id.
    \28\ See proposed Exchange Rule 6.30(c)(1); see also Cboe 
Options Rule 5.10(c)(1).
    \29\ This form will be available on the Exchange's website. The 
Exchange will also maintain, on its website, a list of the 
Restricted OCC Numbers, which will be updated on a regular basis, 
and the Clearing Trading Permit Holder's contact information to 
assist Trading Permit Holders (to the extent they are not already 
Authorized Trading Permit Holders) with requesting authorization for 
a Restricted OCC Number. The Exchange may utilize additional means 
to inform its Trading Permit Holders of such updates on a periodic 
basis.
    \30\ Id.
    \31\ Id.
    \32\ Id.
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    Proposed Rule 6.30(c)(2) will set forth the process for Trading 
Permit Holders to give up a Clearing Trading Permit Holder's Restricted 
OCC Number.\33\ Specifically, a Trading Permit Holder desiring to give 
up a Restricted OCC Number must become an Authorized Trading Permit 
Holder.\34\ The Clearing Trading Permit Holder will be required to 
authorize a Trading Permit Holder as described in subparagraph (1) or 
(3) of

[[Page 3953]]

Rule 6.30(c) (i.e., through a Clearing Trading Permit Holder 
Restriction Form), unless the Restricted OCC Number is already subject 
to a Letter of Guarantee that the Trading Permit Holder is a party to, 
as set forth in Rule 6.30(b)(6).\35\ Pursuant to proposed Rule 
6.30(c)(3), a Clearing Trading Permit Holder may amend the list of its 
Authorized Trading Permit Holders or Restricted OCC Numbers by 
submitting a new Clearing Trading Permit Holder Restriction Form to the 
Exchange's MSD indicating the amendment as described on the form.\36\ 
Once a Restricted OCC Number is effective within the System pursuant to 
Rule 6.30(c)(1), the Exchange may permit the Clearing Trading Permit 
Holder to authorize, or remove authorization for, a Trading Permit 
Holder to give up the Restricted OCC Number intra-day only in unusual 
circumstances, and on the next business day in all regular 
circumstances.\37\ The Exchange will promptly notify Trading Permit 
Holders if they are no longer authorized to give up a Clearing Trading 
Permit Holder's Restricted OCC Number.\38\ If a Clearing Trading Permit 
Holder removes a Restricted OCC Number, any Trading Permit Holder may 
give up that OCC clearing number once the removal has become effective 
on or before the next business day, provided that Clearing Trading 
Permit Holder has been designated as a Designated Give Up.\39\
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    \33\ See proposed Exchange Rule 6.30(c)(2); see also Cboe Option 
Rule 5.10(c)(2).
    \34\ Id.
    \35\ Id.
    \36\ See proposed Exchange Rule 6.30(c)(3); see also Cboe 
Options Rule 5.10(c)(3).
    \37\ Id.
    \38\ Id.
    \39\ Id.
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    The Exchange also proposes to amend current subparagraph (c) 
(System) (to be relettered to paragraph (d)) of Rule 6.30 to clarify 
that in addition to the Exchange's system not accepting orders that 
identify a give up that is not at the time a Designated Give Up or a 
Guarantor, the System will also reject any order that designates a 
Restricted OCC Number for which the Trading Permit Holder is not an 
Authorized Trading Permit Holder.\40\
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    \40\ See proposed Exchange Rule 6.30(d); see also Cboe Options 
Rule 5.10(d).
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    The Exchange proposes to amend current paragraph (d) (Notice to 
Clearing Trading Permit Holders) (to be relettered to paragraph (e)) of 
Rule 6.30 to provide that the Exchange will provide notice to Trading 
Permit Holders that they are authorized or unauthorized by Clearing 
Trading Permit Holders.\41\
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    \41\ See proposed Exchange Rule 6.30(e); see also Cboe Options 
Rule 5.10(e).
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    The Exchange also proposes to amend current paragraph (g) (Other 
Give Up Changes) (to be relettered to subparagraph (f)) of Rule 6.30 to 
provide that a Trading Permit Holder may change the give up on the 
trade to another Designated Give Up, provided it's an Authorized 
Trading Permit Holder for any Restricted OCC Number, or to its 
Grantor.\42\ Additionally, the Exchange seeks to define a specific 
``Trade Date Cutoff Time'' \43\ and ``T+1 Cutoff Time'' in the rule 
text of proposed paragraph (f).\44\
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    \42\ See proposed Exchange Rule 6.30(f); see also Cboe Options 
Rule 5.10(f).
    \43\ The ``Trade Date Cutoff Time'' is established by the 
Clearing Corporation (or 15 minutes thereafter if the Exchange 
receives and is able to process a request to extend its time of 
final trade submission to the Clearing Corporation). See proposed 
Exchange Rule 6.30(f)(1); see also Cboe Options Rule 5.10(f)(1).
    \44\ The ``T+1 Cutoff Time'' is 1:00 p.m. Eastern Time on T+1; 
see proposed Exchange Rule 6.30(f)(3); see also Cboe Options Rule 
5.10(f)(3) (which provides a cutoff time of 12:00 p.m. Central 
Time).
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    The Exchange proposes to amend current paragraph (h) 
(Responsibility) (to be relettered to paragraph (g)) of Rule 6.30 to 
eliminate any applicable reference to current paragraph (e) or (f) of 
the Rule and to conform with Cboe Options Rule 5.10(g).
    The Exchange also proposes to adopt subparagraph (h) of Rule 6.30 
to provide that an intentional misuse of this Rule is impermissible, 
and may be treated as a violation of Rule 3.1, titled ``Business 
Conduct of Trading Permit Holders.'' \45\ This language will make clear 
that the Exchange will regulate an intentional misuse of this Rule, and 
that such behavior would be a violation of Exchange rules. The proposed 
language is similar to corresponding provisions in other exchanges' 
give up rules.\46\
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    \45\ See Cboe Options Rule 5.10(h), which states that 
intentional misuse of Rule 5.10 may be treated as a violation of 
Rule 8.1 (Just and Equitable Principles of Trade).
    \46\ See, e.g., Cboe Options Rule 5.10(h).
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    Lastly, the Exchange proposes to amend its current Trading Permit 
Holder Notification of Designated Give Ups Form (``Designated Give Ups 
Form''). As of October 7, 2019 the Exchange and each of its affiliated 
options exchanges (i.e., C2 Options, BZX Options, and Cboe Options 
(collectively, ``Cboe Markets'')) are on the same technology platform. 
To provide further harmonization across the Cboe Markets and provide 
more seamless administration of the Give up rule, the Exchange proposes 
to eliminate the current Designated Give Ups Form and adopt a new form 
which would be applicable to all Cboe Markets going forward. The 
proposed Designated Give Ups Form is included in Exhibit 3.

Implementation Date

    The Exchange proposes to announce the implementation date of the 
proposed rule change in an Exchange Notice, to be published no later 
than thirty (30) days following the operative date. The implementation 
date will be no later than sixty (60) days following the operative 
date.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Act and the rules and regulations thereunder applicable to the 
Exchange and, in particular, the requirements of Section 6(b) of the 
Act.\47\ Specifically, the Exchange believes the proposed rule change 
is consistent with the Section 6(b)(5) \48\ 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 
facilitation 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) \49\ requirement that the rules of 
an exchange not be designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
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    \47\ 15 U.S.C. 78f(b).
    \48\ 15 U.S.C. 78f(b)(5).
    \49\ Id.
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    Particularly, as discussed above, several clearing firms affiliated 
with SIFMA have recently expressed concerns relating to the current 
give up process, which permits Trading Permit Holders to identify any 
Clearing Trading Permit Holder as a Designated Give Up for purposes of 
clearing particular transactions, and have identified the current give 
up process (i.e., a process that lacks authorization) as a significant 
source of risk for clearing firms. The Exchange believes that the 
proposed changes to Rule 6.30 help alleviate this risk by enabling 
Clearing Trading Permit Holders to `Opt In' to restrict one or more of 
its OCC clearing numbers (i.e., Restricted OCC Numbers), and to specify 
which Authorized Trading Permit Holders may give up those Restricted 
OCC Numbers. As described above, all other Trading Permit Holders would 
be required to receive written authorization from the Clearing Trading 
Permit Holder before they can give up that Clearing Trading Permit 
Holder's

[[Page 3954]]

Restricted OCC Number. The Exchange believes that this authorization 
provides proper safeguards and protections for Clearing Trading Permit 
Holders as it provides controls for Clearing Trading Permit Holders to 
restrict access to their OCC clearing numbers, allowing access only to 
those Authorized Trading Permit Holders upon their request. The 
Exchange also believes that its proposed Clearing Trading Permit Holder 
Restriction Form allows the Exchange to receive in a uniform fashion, 
written and transparent authorization from Clearing Trading Permit 
Holders, which ensures seamless administration of the Rule.
    The Exchange believes that the proposed Opt In process strikes the 
right balance between the various views and interests across the 
industry. For example, although the proposed rule would require Trading 
Permit Holders (other than Authorized Trading Permit Holders) to seek 
authorization from Clearing Trading Permit Holders in order to have the 
ability to give them up, each Trading Permit Holder will still have the 
ability to give up a Restricted OCC Number that is subject to a Letter 
of Guarantee without obtaining any further authorization if that 
Trading Permit Holder is party to that arrangement. The Exchange also 
notes that to the extent the executing Trading Permit Holder has a 
clearing arrangement with a Clearing Trading Permit Holder (i.e., 
through a Letter of Guarantee), a trade can be assigned to the 
executing Trading Permit Holder's guarantor. Accordingly, the Exchange 
believes that the proposed rule change is reasonable and continues to 
provide certainty that a Clearing Trading Permit Holder would be 
responsible for a trade, which protects investors and the public 
interest.

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 not necessary or appropriate in 
furtherance of the purposes of the Act. The Exchange does not believe 
that the proposed rule change will impose an unnecessary burden on 
intramarket competition because it would apply equally to all similarly 
situated Trading Permit Holders. The Exchange also notes that, should 
the proposed changes make the Exchange more attractive for trading, 
market participants trading on other exchanges can always elect to 
become Trading Permit Holders on the Exchange to take advantage of the 
trading opportunities. Furthermore, the proposed rule change does not 
address any competitive issues and ultimately, the target of the 
Exchange's proposal is to reduce risk for Clearing Trading Permit 
Holders under the current give up model. Clearing firms make financial 
decisions based on risk and reward, and while it is generally in their 
beneficial interest to clear transactions for market participants in 
order to generate profit, it is the Exchange's understanding from SIFMA 
and clearing firms that the current process can create significant risk 
when the clearing firm can be given up on any market participant's 
transaction, even where there is no prior customer relationship or 
authorization for that designated transaction. In the absence of a 
mechanism that governs a market participant's use of a Clearing Trading 
Permit Holder's services, the Exchange's proposal may indirectly 
facilitate the ability of a Clearing Trading Permit Holder to manage 
their existing customer relationships while continuing to allow market 
participant choice in broker execution services. While Clearing Trading 
Permit Holders may compete with executing brokers for order flow, the 
Exchange does not believe this proposal imposes an undue burden on 
competition. Rather, the Exchange believes that the proposed rule 
change balances the need for Clearing Trading Permit Holders to manage 
risks and allows them to address outlier behavior from executing 
brokers while still allowing freedom of choice to select an executing 
broker.

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 written 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 after the date of the filing, or such 
shorter time as the Commission may designate, it has become effective 
pursuant to 19(b)(3)(A) of the Act \50\ and Rule 19b-4(f)(6) \51\ 
thereunder.
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    \50\ 15 U.S.C. 78s(b)(3)(A).
    \51\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file 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) normally does 
not become operative for 30 days after the date of the filing. However, 
Rule 19b-4(f)(6)(iii) \52\ permits the Commission to designate a 
shorter time if such action is consistent with the protection of 
investors and the public interest. In its filing, the Exchange 
requested that the Commission waive the 30-day operative delay. The 
Exchange represented that the proposal establishes a rule regarding the 
give up of a Clearing Member in order to help clearing firms manage 
risk while continuing to allow market participants choice in broker 
execution services. The Commission notes that it recently approved a 
substantially similar proposed rule change from Phlx, after which other 
options exchanges subsequently adopted subatantially similarly 
rules.\53\ The Commission believes that waiver of the 30-day operative 
delay is consistent with the protection of investors and the public 
interest, because the Exchange's proposal raises no new issues. 
Further, such waiver will permit the Exchange, without further delay, 
to begin implementing the new standardized give up process, thus 
aligning its give up process with that of the other option exchanges. 
Accordingly, the Commission waives the 30-day operative delay and 
designates the proposed rule change operative upon filing .\54\
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    \52\ 17 CFR 240.19b-4(f)(6)(iii).
    \53\ See Securities Exchange Act Release No. 85136 (February 14, 
2019), 84 FR 5526 (February 21, 2019) (Phlx-2018-72) (order 
approving a proposed rule change to establish rules governing give 
ups). See also supra note 18 (citing the filings in which other 
options exchanges adopted substantially similar rules).
    \54\ 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 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 should be approved or disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing,

[[Page 3955]]

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-C2-2020-001 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-C2-2020-001. 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-C2-2020-001 and should be submitted on 
or before February 13, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\55\
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    \55\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-01035 Filed 1-22-20; 8:45 am]
 BILLING CODE 8011-01-P