Document ID: SEC-2019-1327-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Cboe Exchange, Inc.
Posted Date: 2019-09-16T04:00Z

[Federal Register Volume 84, Number 179 (Monday, September 16, 2019)]
[Notices]
[Pages 48690-48692]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-19900]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-86910; File No. SR-CBOE-2019-055]

Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
Rule 4.10(b) Regarding the Notice Requirement in Connection With 
Trading Permit Holders That Clear Market-Maker Trades

September 10, 2019.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on September 5, 2019, Cboe Exchange, Inc. (the ``Exchange'') filed 
with the Securities and Exchange Commission (the ``Commission'') the 
proposed rule change as described in Items I and II 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

[[Page 48691]]

solicit comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Cboe Exchange, Inc. (the ``Exchange'' or ``Cboe Options'') proposes 
to amend Rule 4.10(b) regarding the notice requirement in connection 
with Trading Permit Holders (``TPHs'') that clear Market-Maker trades. 
The text of the proposed rule change is provided in Exhibit 5.
    The text of the proposed rule change is also available on the 
Exchange's website (http://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx), at the Exchange's Office of the 
Secretary, and at the Commission's Public Reference Room.

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

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

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

1. Purpose
    The Exchange proposes to remove the Rule 4.10(b)(2) requirement 
that the Exchange issue monthly notices regarding a Trading Permit 
Holder's (``TPH's'') proportion of market making clearing business to 
TPHs that clear Market-Maker trades.
    Current Rule 4.10 generally provides for restrictions that the 
Exchange may place on ``TPHs'' that have failed to perform their 
contracts, are insolvent or in such financial or operational condition 
or otherwise conducting business in such a manner that they cannot be 
permitted to continue in business with safety to their customers or 
creditors or the Exchange. Current Rule 4.10(b) applies specifically to 
TPHs that clear Market-Maker trades. Rule 4.10(b)(2) provides that 
proposed Significant Business Transactions (``SBTs'') \5\ of such TPHs 
are subject to prior approval of the Chief Executive Officer (``CEO'') 
or President of the Exchange, when the TPHs' Market-Maker clearance 
activities exceed, or would exceed, as a result of the proposed SBT: 
15% of cleared Exchange Market-Maker contract volume for the most 
recent three months; an average of 15% of the number of Exchange 
registered Market-Makers as of each month and for the most recent three 
months; or 25% of Market-Maker gross deductions (haircuts) defined by 
SEC Rule 15c3-1(a)(6) or (c)(2)(x) carried by the Clearing Trading 
Permit Holder(s) in relation to the aggregate of such haircuts carried 
by all other Market-Maker clearing organizations for any month end 
within the most recent three months. Current Rule 4.10(b)(2) also 
provides that the Exchange must notify in writing each TPH that clears 
Market-Maker trades within 10 business days from the close of each 
month of that TPH's proportion of the market making clearing business, 
whether or not such business exceeds the parameters listed above. The 
Exchange now proposes to remove this Exchange notification requirement 
from Rule 4.10(b)(2).
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    \5\ See Rule 4.10(b)(1)(i)-(vii).
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    In particular, the Exchange has determined that its administrative 
burden to proactively produce monthly notices, whether or not a Market-
Maker clearing TPH's business exceeds the paragraph (b)(2) parameters, 
greatly exceeds the benefit in administering monthly notices due to the 
limited number of SBTs actually filed with the Exchange per year. The 
Exchange also notes that because proposed SBTs are infrequent, the 
receipt of monthly notices is not an integral part of a TPH's financial 
and operational maintenance on a month-to-month basis. If a Market-
Maker clearing TPH anticipates an SBT that may require prior Exchange 
approval, then the TPH may contact the Exchange to determine whether 
the TPH exceeds the parameters. The proposed rule change makes this 
explicit in the rule. As a result, the Exchange believes that removing 
the current notice requirement from Rule 4.10(b)(2) will remove 
burdensome Exchange procedures without impacting the ability of a 
Market-Maker clearing TPH to assess its clearance activities in light 
of an SBT or to continue to conduct business on the Exchange.
    The restrictions that Rule 4.10 imposes on TPHs will continue to 
apply. The Exchange notes that removing this administrative burden will 
also enable the Exchange to better allocate its regulatory resources, 
focusing on the overall monitoring of TPH business and satisfaction of 
these restrictions to ensure adequate financial and operational 
capabilities to continue to perform contracts and otherwise conduct 
business safely for customers, creditors, and the Exchange. 
Additionally, the Exchange notes that the corresponding rules of other 
options exchanges currently do not contain a provision that requires 
such exchanges to send monthly notice to clearing members or otherwise 
indicate to their clearing members that they exceed, or may exceed, 
substantially similar criteria on the respective exchanges as a result 
of an SBT.\6\ Such corresponding rules of other options exchanges have 
previously been filed with the Commission.
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    \6\ See NASDAQ Options Rules Chapter 3, Sec. 15; NASDAQ BX 
Options Rules Chapter 3, Sec. 15; MIAX Options Rule 306.
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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, the Exchange believes that the proposed change will 
remove impediments to and perfect the mechanism of a free and open 
market and national market system, and generally protect investors. 
Specifically, the Exchange believes that by removing an administrative 
burden in producing monthly notices for all Market-Maker clearing TPHs 
that greatly outweighs the benefit of such notices, due to the 
infrequent number of SBTs per year, the Exchange will be able to 
reallocate regulatory resources to focus on the overall monitoring of 
TPH business and

[[Page 48692]]

satisfaction of the Rule 4.10 restrictions that continue to apply to 
ensure adequate financial and operational capabilities to continue to 
perform contracts and otherwise conduct business safely for market 
participants, thereby protecting market participants. The Exchange also 
believes that the proposed rule change does not impact a Market-Maker 
clearing TPH's regular financial or operational maintenance or ability 
to assess and conduct a SBT because SBTs occur infrequently. The 
proposed rule change makes it clear that if a Market-Maker clearing TPH 
anticipates an SBT that may require prior Exchange approval, then the 
TPH may contact the Exchange to determine whether the TPH exceeds the 
parameters under Rule 4.10(b)(2). In addition to this, the Exchange 
believes that the proposed rule change will not present any new or 
unique issues for clearing TPHs because the rules of other options 
exchanges, which have substantially similar SBT parameters and have 
previously been filed with the Commission, do not require the exchanges 
to provide monthly notices to their members regarding their proportion 
of market making clearing business or otherwise indicate to their 
members that they exceed, or may exceed, SBT parameters.\10\
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    \10\ See supra note 6.
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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. In particular, the proposed 
rule change is not intended to address competitive issues but rather is 
concerned with facilitating less burdensome and more efficient 
regulatory administration. The Exchange does not believe that the 
proposed rule change will impose any intramarket competition, because 
all Market-Maker clearing TPHs are free to contact the Exchange to 
determine its standing in regard to the SBT parameters. The proposed 
rule change does not change the restrictions imposed on these TPHs, 
which will continue to apply to Market-Maker Clearing TPHs in the same 
manner. Further, the Exchange does not believe the proposed rule change 
will impose any burden on intermarket competition because the rules of 
other options exchanges, which have been previously filed with the 
Commission, provide for substantially similar parameters in connection 
with the impact of a clearing member's SBTs but do not contain a 
provision that requires such exchanges to send monthly notice to 
clearing members or otherwise indicate to their clearing members that 
they exceed such criteria.\11\
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    \11\ Id.
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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 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) 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).
    \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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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission will institute proceedings to 
determine whether the proposed rule change should be approved or 
disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-CBOE-2019-055 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-2019-055. 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-2019-055 and should be submitted on 
or before October 7, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-19900 Filed 9-13-19; 8:45 am]
BILLING CODE 8011-01-P