Document ID: SEC-2021-1679-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Cboe BZX Exchange, Inc.
Posted Date: 2021-11-29T05:00Z

[Federal Register Volume 86, Number 226 (Monday, November 29, 2021)]
[Notices]
[Pages 67763-67765]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-25880]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-93641; File No. SR-CboeBZX-2021-076]

Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing of a Proposed Rule Change To Amend Interpretation and Policy .01 
to Rule 11.13 in Connection With a Risk Setting That Users May Elect To 
Apply to Their Orders in Hard To Borrow Securities

November 22, 2021.
    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 November 8, 2021, Cboe BZX Exchange, Inc. filed with the Securities 
and Exchange 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 BZX Exchange, Inc. (``BZX'' or the ``Exchange'') is filing 
with the Securities and Exchange Commission (the ``Commission'') a 
proposal to amend Interpretation and Policy .01 to Rule 11.13 in 
connection with a risk setting that Users \3\ may elect to apply to 
their orders in hard to borrow securities. The text of the proposed 
rule change is provided in Exhibit 5.
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    \3\ A User is any Member or Sponsored Participant who is 
authorized to obtain access to the System pursuant to Rule 11.13. 
See Rule 1.5(cc).
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    The text of the proposed rule change is also available on the 
Exchange's website (http://markets.cboe.com/us/equities/regulation/rule_filings/bzx/), 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 purpose of this proposal is to amend Interpretation and Policy 
.01 to Rule 11.13 to allow the Exchange to offer its Users a hard to 
borrow risk setting (``Hard to Borrow List'') that Users may elect to 
apply to their short sale orders in U.S. equity securities. Pursuant to 
Interpretation and Policy .01 to Rule 11.13, the Exchange currently 
offers certain optional risk settings applicable to a User's activities 
on the Exchange. Specifically,

[[Page 67764]]

Interpretation and Policy .01(d) currently provides Users with controls 
to restrict the types of securities transacted, including restricted 
securities and easy to borrow securities, as well as restricting 
activity to test symbols only. When utilized, these optional risk tools 
act as a risk filter by evaluating a User's orders to determine whether 
the orders comply with certain criteria established by the User.\4\
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    \4\ See Securities Exchange Act Release No. 60236 (July 2, 2009) 
74 FR 34068 (July 14, 2009) (SR-BATS-2009-019) (notice of filing and 
immediate effectiveness of proposed rule change to establish a 
Sponsored Access Risk Management Tool). See also Securities Exchange 
Act Release No. 34-68330 (November 30, 2012) 77 FR 72894 (December 
6, 2012 (SR-BATS-2012-045).
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    The Exchange now proposes to amend Interpretation and Policy .01(d) 
to Exchange Rule 11.13, to also include a Hard to Borrow List. Like the 
existing risk settings, the proposed rule change offers Users an 
optional tool to evaluate whether their orders comply with User 
established criteria. Specifically, orders submitted in securities 
included on a User's Hard to Borrow List will be rejected back to the 
User.
    The Hard to Borrow List resides at a User's port level, a User-
specific logical session used to access the Exchange. Users may upload 
a Hard to Borrow List to their preferred port(s) via a web-based 
application programming interface. When uploaded to the port, Users may 
apply the setting to some or all of the market-participant identifiers 
(MPID) that they use to access the Exchange via the specified port. As 
is the case with the Exchange's existing risk settings, the User, and 
not the Exchange, will have the full responsibility for ensuring that 
their orders comply with applicable securities rules, laws, and 
regulations, and may not rely on the Hard to Borrow List for any such 
purpose.\5\ Furthermore, use of the Hard to Borrow List does not 
automatically constitute compliance with Exchange Rules. As is the case 
with the Exchange's existing risk settings, the Exchange does not 
believe that the use of the Hard to Borrow List can replace User-
managed risk management solutions.
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    \5\ See Securities and Exchange Commission Release No. 34-50103 
(July 28, 2004) 69 FR 48007 (August 6, 2004) (Final Rule: Short 
Sales) at 48014, regarding hard to borrow lists and the locate 
requirements under 17 CFR 242.203 (Regulation SHO Rule 203--
Borrowing and delivery requirements).
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    The Exchange proposes to make the risk setting available to its 
Users upon request and will not require Users to utilize the Hard to 
Borrow List. The Exchange will not provide preferential treatment to 
Users using the Hard to Borrow List. However, the Exchange believes the 
Hard to Borrow List will offer Exchange Users another option in 
efficient risk management of its access to the Exchange. For instance, 
the Hard to Borrow List may assist some Users in managing borrowing 
costs for their short sale transactions. Generally, day over day 
borrowing costs in hard to borrow securities may be costly, and while a 
locate may be secured by a User prior to routing their short sale 
transactions to the Exchange, borrowing costs may make such 
transactions less desirable. By utilizing the Hard to Borrow List, 
Users have a tool that enables them to manage their costs by rejecting 
orders in such securities.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the requirements of Section 6(b) of the Act,\6\ in general, and Section 
6(b)(5) of the Act,\7\ in particular, in that it is 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 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.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
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    Specifically, the Exchange believes that the proposed rule change 
is consistent with these principles because, like the current risk 
settings, the Hard to Borrow List fosters competition by providing 
another option in the efficient risk management of trading on the 
Exchange. Users are free to use the Exchange's Hard to Borrow List, or 
other risk management offerings.
    Moreover, as noted by the Commission, even when shares can be 
borrowed short sellers may find it costly to borrow stock to enter or 
maintain a short position.\8\ In this regard, the Hard to Borrow List 
provides Users with a tool to help manage such costs by rejecting 
orders in hard to borrow securities and thus providing a mechanism of 
financial protection to Exchange Users.
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    \8\ See Staff of the U.S. Securities and Exchange Commission, 
Staff Report on Equity And Options Market Structure Conditions in 
Early 2021, (October 14, 2021) at 30, footnote 84.
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    The proposed rule change also is designed to support the principles 
of Section 11A(a)(1) \9\ in that it seeks to assure economically 
efficient execution of securities transactions, makes it practicable 
for brokers to execute investors' orders in the best market, and 
provides an opportunity for investors' orders to be executed without 
the participation of a dealer. Additionally, the rule proposal is 
consistent with Section 11(a)(1) \10\ in that makes the Hard to Borrow 
List available to all Users, regardless of their size.
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    \9\ 15 U.S.C. 78k-1(a)(1).
    \10\ Id.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change imposes 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act. Rather, the proposed rule 
change is not designed to address any competitive issues and does not 
pose an undue burden on Users, as the Hard to Borrow List is an 
optional risk setting offered to all Users.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange has not solicited, and does not intend to solicit, 
comments on this proposal. No written comments were solicited or 
received 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:
    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 [email protected]. Please include 
File Number SR-CboeBZX-2021-076 on the subject line.

[[Page 67765]]

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-CboeBZX-2021-076. 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-CboeBZX-2021-076 and should be submitted 
on or before December 20, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-25880 Filed 11-26-21; 8:45 am]
BILLING CODE 8011-01-P