Document ID: SEC-2020-0116-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Cboe C2 Exchange, Inc.
Posted Date: 2020-01-29T05:00Z

[Federal Register Volume 85, Number 19 (Wednesday, January 29, 2020)]
[Notices]
[Pages 5267-5269]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-01518]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88019; File No. SR-C2-2020-002]

Self-Regulatory Organizations; Cboe C2 Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change Relating 
To Amend Rule 6.31 in Connection with the Exchange's Clearing Editor

January 23, 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 January 16, 2020, Cboe C2 Exchange, Inc. (the ``Exchange'' or 
``C2'') filed with the Securities and Exchange Commission (``SEC'' or 
``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.
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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 C2 Exchange, Inc. (the ``Exchange'' or ``C2'') proposes to 
amend Rule 6.31 in connection with the Exchange's Clearing Editor. The 
text of the proposed rule change is provided below.
(additions are italicized; deletions are [bracketed])
* * * * *

Rules of Cboe C2 Exchange, Inc.

* * * * *

Rule 6.31. Clearing Editor

    (a) No change.
    (b) Trading Permit Holders may change the following fields through 
the Clearing Editor: (1) Executing Firm and Contra Firm; (2) Executing 
Broker and Contra Broker; (3) CMTA; (4) Account and Sub Account; (5) 
[Customer]Client Order ID; (6) Position Effect (open/close); or (7) 
Capacity (if the change is from a customer Capacity code of (C) to any 
other Capacity code, it must be accompanied by a Reason Code, and 
notice of such change will automatically be sent to the Exchange with 
the submission of the change through the Clearing Editor).
* * * * *
    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 6.31 in connection with its 
Clearing Editor. The Clearing Editor currently allows Trading Permit 
Holders (``TPHs'') to update executed trades on their trading dates and 
revise them for clearing. Specifically, the Clearing Editor allows TPHs 
to correct certain bonafide errors by changing certain fields, pursuant 
to Rule 6.31(b), including: (1) Executing Firm and Contra Firm; (2) 
Executing Broker and Contra Broker; (3) CMTA; (4) Account and Sub 
Account; (5) Customer ID; (6) Position Effect (open/close); or (7) 
Capacity. The Exchange proposes to amend the rule to provide additional 
specificity regarding a Capacity code change. The proposed rule 
provides that that if the change is from a customer Capacity code of 
(C) to any other Capacity code, it must be accompanied by a Reason Code 
and notice of such change will automatically be sent to the Exchange 
with the submission of the change through the Clearing Editor. As 
proposed, Rule 6.31(b) would continue to allow a TPH to change any 
Capacity code to another, however, would just require a TPH to provide 
automatic notification and explanation to the Exchange via a prompted 
Reason Code of a Capacity code change from a customer Capacity code to 
another Capacity code.\3\ The Exchange notes that while a change from 
customer Capacity code does not affect the Consolidated Tape or terms 
of a contract, such changes may affect other substantive aspects of how 
a trade was processed, including whether or not a trade should have 
been given certain preferable customer treatment (e.g. customer complex 
orders are not subject to certain Complex Order Auction (``COA'') 
restrictions and customer orders may receive specific rebates or are 
assessed reduced fees).\4\ Accordingly, the Exchange believes that TPHs 
making changes to this field should be required to provide to the 
Exchange notice and explanation relating to the change. As a result, 
the proposed Reason Code for customer Capacity code changes would 
better enable the Exchange to surveil for and enforce against potential 
issues or abusive behavior via the Clearing Editor by allowing the 
Exchange to understand the rationale behind all such changes.
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    \3\ Example Reason Codes include: Input Error; Unmatched Trade; 
Unknown; Manual Add; Other Text Required; Trade Nullification; Trade 
Adjustment; Error Account; and System Issue.
    \4\ See C2 Options Exchange Fees Schedule. The Exchange notes 
that preferential pricing to Customers is a long-standing options 
industry practice.
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    The proposed rule change also updates the term Customer ID in Rule 
6.31(b) to Client Order ID, as this term more accurately reflect the 
name of the

[[Page 5268]]

field displayed on an order \5\ and in the Clearing Editor. This 
proposed rule change is identical to the manner in which a Capacity 
code may be changed via the Clearing Editor, and the term Client Order 
ID is used, on the Exchange's affiliated exchange, Cboe Exchange, Inc. 
(``Cboe Options'').\6\
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    \5\ See Cboe Options FIX Specifications, available at: https://cdn.cboe.com/resources/membership/US_Options_FIX_Specification.pdf.
    \6\ See Cboe Options Rule 6.1.
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2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Securities Exchange Act of 1934 (the ``Act'') and the rules and 
regulations thereunder applicable to the Exchange and, in particular, 
the requirements of Section 6(b) of the Act.\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, by requiring a TPH to submit a Reason Code via the 
Clearing Editor in conjunction with a change made from a customer 
Capacity code, the Exchange believes the proposed rule change may 
prevent fraudulent and manipulative acts and otherwise promote just and 
equitable principles of trade because it would allow the Exchange to 
automatically be notified of such a change and the rationale behind the 
change. This, in turn, would allow the Exchange to better surveil for 
and enforce against potential issues or abusive behavior via the 
Clearing Editor. As such, the proposed rule change is specifically 
designed to protect investors and the public interest. The Exchange 
further notes that, for the same reasons enumerated above, the proposed 
rule change is also consistent with Section 6(b)(1) of the Act,\10\ 
which provides that the Exchange be organized and have the capacity to 
be able to carry out the purposes of the Act and to enforce compliance 
by the Exchange's Trading Permit Holders and persons associated with 
its Trading Permit Holders with the Act, the rules and regulations 
thereunder, and the rules of the Exchange.
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    \10\ 15 U.S.C. 78f(b)(1).
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    Additionally, the Exchange believes that the proposed rule change 
to update the term Customer ID to Client Order ID, a term that more 
accurately reflects the field name that is displayed on an order and in 
the Clearing Editor, would remove impediments to and perfect the 
mechanism of a free and open market and a national market system and 
protect investors by mitigating any potential confusion surrounding the 
use of this field. Finally, the Exchange notes that the proposed rule 
change is identical to the manner in which a Capacity code change from 
a customer Capacity code must be made and the term Client Order ID is 
used in Cboe Options Rule 6.6, previously filed with the Commission.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change would 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The Exchange does not 
believe the proposed rule change would impose any burden on intramarket 
competition that is not necessary or appropriate in furtherance of the 
Act, because it would require all TPHs to input a Reason Code via the 
Clearing Editor when changing from a customer Capacity code. The 
Exchange notes that the proposed rule change does not alter or restrict 
any the fields that a TPH may currently change via the Clearing Editor. 
The Exchange does not believe that the proposed rule change would 
impose any burden on intermarket competition, because it is 
substantially the same as the Clearing Editor rule on Cboe Options, 
previously filed with the Commission. In addition to this, the Exchange 
notes that the proposed rule change is not intended to address 
competitive issues, but rather, is concerned with the correction of 
post-trade information for purposes of enhancing surveillance and 
enforcement for potential issues or abuses of the Clearing Editor.

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:
    A. significantly affect the protection of investors or the public 
interest;
    B. impose any significant burden on competition; and
    C. become operative for 30 days from the date on which it was 
filed, or such shorter time as the Commission may designate, it has 
become effective pursuant to Section 19(b)(3)(A) of the Act \11\ and 
Rule 19b-4(f)(6) \12\ thereunder. At any time within 60 days of the 
filing of the proposed rule change, the Commission summarily may 
temporarily suspend such rule change if it appears to the Commission 
that such action is necessary or appropriate in the public interest, 
for the protection of investors, or otherwise in furtherance of the 
purposes of the Act. If the Commission takes such action, the 
Commission will institute proceedings to determine whether the proposed 
rule change should be approved or disapproved.
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f)(6).
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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-C2-2020-002 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-C2-2020-002. 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

[[Page 5269]]

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 offices 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-C2-2020-002, and should be submitted on 
or before February 19, 2020.
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    \13\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2020-01518 Filed 1-28-20; 8:45 am]
BILLING CODE 8011-01-P