Document ID: SEC-2022-1034-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Cboe EDGX Exchange, Inc.
Posted Date: 2022-08-03T04:00Z

[Federal Register Volume 87, Number 148 (Wednesday, August 3, 2022)]
[Notices]
[Pages 47489-47491]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-16549]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-95382; File No. SR-CboeEDGX-2022-032]

Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice 
of Filing and Immediate Effectiveness of a Proposed Rule Change To 
Amend Certain of Its Rules Related to Market-Makers

July 28, 2022.
    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 July 14, 2022, Cboe EDGX Exchange, Inc. (the ``Exchange'' or 
``EDGX'') 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 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 EDGX Exchange, Inc. (``EDGX Options'' or the ``Exchange'') is 
filing with the Securities and Exchange Commission (the ``Commission'') 
a proposed rule change to amend certain of its Rules related to Market 
Makers. 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/edgx/), 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 certain of its Rules related to 
Market Makers. Specifically, the Exchange proposes to amend its Rules 
to permit an Options Member to register separate Market Maker 
aggregation units as separate Market Makers, each of which would be 
subject to Market Maker obligations on an individual basis. Currently, 
the Exchange interprets the term ``Market Maker'' to apply at a firm 
level, including with respect to obligations. However, the Exchange 
understands Options Members have Market Maker units that are completely 
separate from each other for operational and profit/loss purposes, with 
appropriate information barriers between units.\3\ Because of this 
operational separation, such organizations may prefer to have those 
units be treated as individual Market Makers under the Exchange's Rules 
consistent with those organizations' internal operations.
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    \3\ Certain Exchange rules contemplate Options Members having 
separate business units and require information barriers in the form 
of appropriate policies and procedures that reflect the Options 
Member's business to establish those separate business units. See, 
e.g., Rules 18.4 (prevention of the misuse of material, nonpublic 
information); and 18.7 (which applies Cboe Exchange, Inc. position 
limits to the Exchange).
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    The proposed rule change amends certain Rules to provide Options 
Members with this flexibility:
     Rule 22.2 currently provides that Options Members 
registered as Market Makers have certain rights and bear certain 
responsibilities beyond those of other Options Members. The proposed 
rule change adds Interpretation and Policy .01 to provide that if an 
Options Member is comprised of multiple market making aggregation units 
and has in place appropriate information barriers or segregation 
requirements,\4\ the Options Member may register each individual 
aggregation unit as a separate Market Maker. The proposed rule change 
also adds a similar interpretation and policy .02 regarding Designated 
Primary Market Makers (``DPMs'').
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    \4\ The Options Member will need to provide the Exchange with 
sufficient evidence of separation of these units.
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     The proposed rule change adds Rule 22.3, Interpretation 
and Policy .01 to provide that Market Maker appointments would apply to 
each individual Market Maker aggregation unit and adds Rule 22.4, 
Interpretation and Policy .01 to provide that each Market Maker 
aggregation unit will be evaluated for good standing on an individual 
basis.
     The proposed rule change amends Rules 21.20, 
Interpretation and Policy .02 and adds Rule 22.5, Interpretation and 
Policy .01 and Rule 22.6, Interpretation and Policy .01 to provide that 
Market Maker obligations will apply to individual Market Maker 
aggregation units if an Options Member registers separate aggregation 
units as Market Makers.
     The proposed rule change adds Rule 2.4, Interpretation and 
Policy .02 to require any individual Market Maker aggregation unit 
within a single firm to connect to the Exchange's backup systems and 
participate in functional and performance testing announced by the 
Exchange if that unit satisfies the connection criteria set forth in 
Rule 2.4(b).

[[Page 47490]]

     The proposed rule change adds Rule 21.19, Interpretation 
and Policy .04 (related to the Automated Improvement Mechanism 
(``AIM'')) and Rule 21.21, Interpretation and Policy .04 (related to 
the Solicitation Auction Mechanism (``SAM'')) to provide that the 
restriction in the introductory paragraph of each Rule that prohibits a 
solicited order for the account of any Market Maker registered in the 
applicable series or with an appointment in the applicable class on the 
Exchange, respectively, applies to an individual Market Maker 
aggregation unit if an Options member has multiple aggregation units 
registered as separate Market Makers.\5\
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    \5\ For example, if Firm ABC has aggregation units DEF and GHI 
each registered as separate Market Makers, if Market Maker DEF has 
an appointment in class XYZ but Market Maker GHI does not, Market 
Maker GHI could be solicited to be the contra-side order in an AIM 
or SAM auction in class XYZ, but Market Maker DEF could not.
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    These proposed changes are consistent with the concept of treating 
individual Market Maker aggregation units within a single firm as 
separate Market Makers.
    The proposed rule change states that an Options member may register 
separate aggregation units as individual Market Makers if the 
organization has in place appropriate information barriers or 
segregation units. The proposed language provides Options Members with 
flexibility to adapt their policies and procedures to reflect their 
business model and activities, including changes thereto. This 
flexibility is similar to other rules that require information 
barriers, such as Rule 18.4, which requires every Options Member to 
establish, maintain, and enforce written policies and procedures 
reasonably designed, taking into consideration the nature of the 
Options Members' business, to prevent the misuse of material nonpublic 
information by the Options Member or persons associated with such 
Options Member in violation of the federal securities laws or the Rules 
thereunder, and the Exchange Rules. In accordance with this proposed 
rule change, pursuant to Rule 18.4, an Options Member that registers 
separate business units as individual Market Makers would be obligated 
to ensure that its policies and procedures reflect the current state of 
its business and continue to be reasonably designed to prevent the 
misuse of material, nonpublic information. Separate market making units 
registered as individual Market Makers may dictate that an information 
barrier or functional separation be part of the appropriate set of 
policies and procedures that would be reasonably designed to achieve 
compliance with the proposed rule change. The proposed rule change has 
no pre-approval requirement; however, appropriate information barriers 
would be subject to review as part of the process to register the 
separate aggregation units as individual Market Makers with the 
Exchange.\6\ Additionally, these policies and procedures would be 
subject to regular review by the Exchange's Regulation Division, such 
as part of the routine examination or testing process or as part of 
internal surveillances and investigations.
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    \6\ The Exchange's Regulatory Division intends to announce by 
Regulatory Circular a method by which an Options Member may seek 
pre-approval of the policies and procedures comprising the 
information barriers.
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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 the proposed rule change will 
promote just and equitable principles of trade and remove impediments 
to and perfect the mechanism of a free and open market and a national 
market system, and, in general, protect investors and the public 
interest, because it will provide Options Members with flexibility to 
register its business units as Market-Makers with the Exchange, and 
have the Exchange regulate those Market-Maker business units, in a 
manner consistent with these organizations' internal business 
operations. The Exchange believes this will permit these organizations 
to manage the entirety of their Market-Maker operations--including 
Market-Maker registrations, appointments, and quoting--as they deem 
appropriate based on the nature of their businesses, which may 
ultimately benefit the efficiency of their Market-Maker businesses. The 
Exchange does not propose to modify any Market-Maker responsibilities 
or obligations. The Exchange does not believe the proposed rule change 
will reduce liquidity, as any individual Market-Maker aggregation unit 
(as opposed to the Options Member collectively) will need to satisfy 
all Market-Maker obligations, including continuous quoting obligations, 
on its own.

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 proposed rule change 
will not impose any burden on intramarket competition, because it will 
apply in the same manner to all Options Members that register with the 
Exchange as Market-Makers. Whether an Options Member registers separate 
business units as Market-Makers is within the sole discretion of that 
organization. With respect to Options Members that elect to register 
separate business units as Market-Makers, the proposed rule change will 
apply all applicable Market-Maker rules, including those regarding 
Market-Maker obligations and responsibilities, in the same manner to 
those units. The Exchange does not propose to modify any Market-Maker 
obligations or responsibilities, and thus does not believe the proposed 
rule change will diminish liquidity on the Exchange. The proposed rule 
change will not impose any burden on intermarket competition, because 
the proposed rule change applies only to how Options Members may 
register with the Exchange as a Market-Maker and how the Exchange will 
determine Market-Maker compliance with Exchange-imposed Market-Maker 
obligations and responsibilities.

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.

[[Page 47491]]

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) of the Act \10\ and Rule 19b-
4(f)(6) thereunder.\11\
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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 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 pursuant to Rule 19b-4(f)(6) under the 
Act normally does not become operative for 30 days after the date of 
its filing. However, Rule 19b-4(f)(6)(iii) \12\ permits the Commission 
to designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange requested 
that the Commission waive the 30-day operative delay so that the 
proposal may become operative immediately upon filing. The proposal 
provides flexibility to an Options Member to register separate market-
maker aggregation units as separate Market-Makers, each of which would 
be subject to Market-Maker obligations on an individual basis, if 
appropriate information barriers or segregation requirements are in 
place. The Commission believes that waiver of the 30-day operative 
delay is consistent with the protection of investors and the public 
interest because the proposed rule change does not raise any new or 
novel issues. Accordingly, the Commission hereby waives the 30-day 
operative delay and designates the proposed rule change operative upon 
filing.\13\
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    \12\ 17 CFR 240.19b-4(f)(6)(iii).
    \13\ 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.

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-CboeEDGX-2022-032 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-CboeEDGX-2022-032. 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-CboeEDGX-2022-
032 and should be submitted on or before August 24, 2022.
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    \14\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-16549 Filed 8-2-22; 8:45 am]
BILLING CODE 8011-01-P