Document ID: SEC-2019-1504-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Cboe Exchange, Inc.
Posted Date: 2019-10-16T04:00Z

[Federal Register Volume 84, Number 200 (Wednesday, October 16, 2019)]
[Notices]
[Pages 55351-55355]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-22481]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87261; File No. SR-CBOE-2019-096]

Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Make 
Minor Updates and Consolidate Various Exchange Rules in Connection With 
Business Conduct on the Exchange, and Move Those Rules From the 
Currently Effective Rulebook to Proposed Chapter 8 of the Shell 
Structure for the Exchange's Rulebook That Will Become Effective Upon 
the Migration of the Exchange's Trading Platform to the Same System 
Used by the Cboe Affiliated Exchanges

October 9, 2019.
    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 October 4, 2019, Cboe Exchange, Inc. (``Exchange'' or ``Cboe 
Options'') filed with the Securities and Exchange Commission 
(``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

[[Page 55352]]

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 Exchange, Inc. (the ``Exchange'' or ``Cboe Options'') proposes 
to make minor updates and consolidate various Exchange Rules in 
connection with business conduct on the Exchange, and move those Rules 
from the currently effective Rulebook (``current Rulebook'') to 
proposed Chapter 8 of the shell structure for the Exchange's Rulebook 
that will become effective upon the migration of the Exchange's trading 
platform to the same system used by the Cboe Affiliated Exchanges (as 
defined below) (``shell Rulebook''). 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
    In 2016, the Exchange's parent company, Cboe Global Markets, Inc. 
(formerly named CBOE Holdings, Inc.) (``Cboe Global''), which is also 
the parent company of Cboe C2 Exchange, Inc. (``C2''), acquired Cboe 
EDGA Exchange, Inc. (``EDGA''), Cboe EDGX Exchange, Inc. (``EDGX'' or 
``EDGX Options''), Cboe BZX Exchange, Inc. (``BZX'' or ``BZX 
Options''), and Cboe BYX Exchange, Inc. (``BYX'' and, together with 
Cboe Options, C2, EDGX, EDGA, and BZX, the ``Cboe Affiliated 
Exchanges''). The Cboe Affiliated Exchanges are working to align 
certain system functionality, retaining only intended differences, 
between the Cboe Affiliated Exchanges, in the context of a technology 
migration. Cboe Options intends to migrate its trading platform to the 
same system used by the Cboe Affiliated Exchanges, which the Exchange 
expects to complete on October 7, 2019. In connection with this 
technology migration, the Exchange has a shell Rulebook that resides 
alongside its current Rulebook, which shell Rulebook will contain the 
Rules that will be in place upon completion of the Cboe Options 
technology migration.
    The Exchange proposes to consolidate current Chapter 4 and various 
other current rules in connection with business conduct on the Exchange 
into sections of proposed Chapter 8 (Business Conduct) in the shell 
Rulebook. The Exchange notes that in addition to consolidating and 
moving the various rules related to business conduct to proposed 
Chapter 8, the proposed rule change deletes the rules from the current 
Rulebook. The proposed rule change moves and, where applicable, 
consolidates the rules as follows:

------------------------------------------------------------------------
             Proposed rule                         Current rule
------------------------------------------------------------------------
                       Section A. General Conduct
------------------------------------------------------------------------
8.1 Just and Equitable Principles of     4.1 Just and Equitable
 Trade.                                   Principles of Trade.
8.2 Adherence to Law...................  4.2 Adherence to Law.
8.3 Gratuities.........................  4.4 Gratuities.
8.4 Nominal Employment.................  4.5 Nominal Employment.
8.5 False Statements...................  4.6 False Statements.
8.6 Manipulation.......................  4.7 Manipulation.
8.7 Rumors.............................  4.8 Rumors.
8.8 Disciplinary Action by Other         4.9 Disciplinary Action by
 Organizations.                           Other Organizations.
8.9 Other Restrictions on Trading        4.10 Other Restrictions on
 Permit Holders.                          Trading Permit Holders.\5\
8.10 Prevention of the Misuse of         4.18 Prevention of the Misuse
 Material, Nonpublic Information.         of Material, Nonpublic
                                          Information.
8.11 Prohibition Against Harassment....  4.19 Prohibition Against
                                          Harassment.
8.12 Anti-Money Laundering Compliance    4.20 Anti-Money Laundering
 Program.                                 Compliance Program.
8.13 Third Party Deposits Prohibited...  4.21 Third Party Deposits
                                          Prohibited.
8.14 Communications to the Exchange or   4.22 Communications to the
 the Clearing Corporation.                Exchange or the Clearing
                                          Corporation.
8.15 Unbundling of Orders to Maximize    4.23 Unbundling of Orders to
 Rebates of Fees.                         Maximize Rebates of Fees.
8.16 Supervision.......................  4.24 Supervision.
8.17 Proxy Voting......................  4.25 Proxy Voting.
8.18 Failure to Pay Premium \6\........  10.3 Failure to Pay Premium.
8.20 Prohibition Against Customers       6.8 Prohibition Against
 Functioning as Market-Makers.            Customers Functioning as
                                          Market-Makers.
8.21 Multiple Representation Prohibited  6.55 Multiple Representation
                                          Prohibited.
8.22 Trading by Trading Permit Holders   6.22 Trading by Trading Permit
 on the Floor.                            Holders on the Floor.
------------------------------------------------------------------------
  Section B. Position Limits, Exercise Limits, Liquidation and Reports
------------------------------------------------------------------------
8.30 Position Limits...................  4.11 Position Limits.
8.31 Position Limits for Broad-Based     24.4 Position Limits for Broad-
 Index Options.                           Based Index Options.
8.32 Position Limits for Industry Index  24.4A Position Limits for
 Options.                                 Industry Index Options.
8.33 Position Limits for Position        24.4B Position Limits for
 Limits for Options on Micro Narrow-      Options on Micro Narrow-Based
 Based Indexes.                           Indexes As Defined Under Rule
                                          24.2(d).
8.34 Position Limits for Individual      24.4C Position Limits for
 Stock or ETF Based Volatility Index      Individual Stock or ETF Based
 Options.                                 Volatility Index Options.

[[Page 55353]]

 
8.35 Position Limits for FLEX Options..  24A.7(a)-(c) Position Limits
                                          and Reporting Requirements
                                          [FLEX options, provisions
                                          regarding position limits].
8.36 Position Limits for Binary Options  22.6 Position Limits [binary
                                          options].
8.37 Position Limit for Range Options..  20.6 Position Limits [range
                                          options].
8.38 Position Limits for Corporate Debt  28.2 Position Limits [corporate
 Security Options.                        debt security options].
8.39 Position Limits for Credit Options  29.5 Position Limits [credit
                                          options].
8.40 Position Limits for Government      21.3 Position Limits [Treasury
 Security Options.                        Bonds and Notes].
8.41 Position Limits on Interest Rate    23.3 Position Limits [interest
 Options.                                 rate options].
8.42 Exercise Limits
8.42(a)................................  4.12 Exercise Limits.
8.42(b)................................  24.5 Exercise Limits [index
                                          options, including
                                          Interpretations and Policies].
8.42(c)................................  20.8 Exercise Limits [range
                                          options].
8.42(d)................................  28.3 Exercise Limits [corporate
                                          debt security options].
8.42(e)................................  21.4 Exercise Limits
                                          [government security options].
8.42(f)................................  23.4 Exercise Limits [interest
                                          rate options].
8.42(g)................................  24A.8 Exercise Limits [FLEX
                                          options].
8.42(h)................................  22.7 Exercise Limits [binary
                                          options], and 29.7 Exercise
                                          Limits [credit options].
8.43 Reports Related to Position Limits
8.43(a)-(d)............................  4.13 Reports Related to
                                          Position Limits.
8.43(e)................................  20.7 Reports Related to
                                          Position Limits and
                                          Liquidation of Positions
                                          [range options].
8.43(f)................................  22.8 Reports Related to
                                          Position Limits and
                                          Liquidation of Positions
                                          [binary options].
8.43(g)................................  28.4 Reports Related to
                                          Position Limits and
                                          Liquidation of Positions
                                          [corporate debt security
                                          options].
8.43(h)................................  29.6 Reports Related to
                                          Position Limits and
                                          Liquidation of Positions
                                          [credit options].
8.43(i)................................  21.5 Reports Related to
                                          Position Limits and
                                          Liquidation of Positions
                                          (Treasury Bonds and Notes)
                                          [government security options].
8.43(j)................................  24A.7(d) Position Limits and
                                          Reporting Requirements [FLEX
                                          options, provision regarding
                                          reporting requirements].
8.44 Liquidation of Positions..........  4.14 Liquidation of Positions.
8.45 Limit on Outstanding Uncovered      4.15 Limit on Outstanding
 Short Positions.                         Uncovered Short Positions.
8.46 Other Restrictions on Options
 Transactions and Exercises
8.46(a)-(b)............................  4.16 Other Restrictions on
                                          Options Transactions and
                                          Exercises.
8.46(c)................................  22.9 Other Restrictions on
                                          Binary Options Transactions,
                                          and 24.10 Restrictions on
                                          Contracts [index options].
------------------------------------------------------------------------

     
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    \5\ See Securities Exchange Act Release No. 86910 (September 19, 
2019) (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) (SR-CBOE-2019-055). The changes in SR-C2-2019-015 are 
currently effective but not yet operative; however, the proposed 
rule changes assume operativeness of those effective changes.
    \6\ The Exchange notes that Rule 8.25 (Restriction on Acting as 
Market-Maker and Floor Broker) is currently in the shell Rulebook, 
and the proposed rule change merely updates the rule number to Rule 
8.19 to fit within the structure of proposed Chapter 8 in its 
entirety.
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    The proposed rule changes make only non-substantive changes to the 
rules in order to update headings that better flow with the 
consolidated rules, update references to other rule text that will be 
implemented upon migration, as well as correct inaccurate references, 
update certain technical text formatting that will be used in the Rules 
upon migration (specifically, changing all times to Eastern Time 
without time zone indication pursuant to Rule 1.6 in the shell Rulebook 
which states that unless otherwise specified, all times in the Rules 
are Eastern Time), and reformat the paragraph lettering and numbering.
    The proposed rule also makes non-substantive changes in connection 
with removing redundant rules and rule language. The proposed rule 
change removes Rule 29.8 which states that current Rule 4.16 (proposed 
Rule 8.46) shall be applicable to Credit Options, as this is redundant 
of the rule itself. The proposed change also removes redundant language 
under current Rules 21.5, 28.4, and 29.6, in connection with Government 
security options, Corporate Debt Security options, and Credit Options, 
respectively. The proposed rule change removes the language under each 
that states that the respective rule supplements current Rules 4.13 and 
4.14. This language is redundant given the fact that these rules are 
being consolidated into the rules in which they reference and, as 
described below, the rules in which they reference are being updated so 
that they clearly cover Government security, Corporate Debt Security, 
and Credit options. The proposed rule change also removes the 
introductory clause (``in determining compliance with Rule 4.12'') to 
current Rules 28.3, 21.4, 23.4, and 24A.8, because, as indicated in the 
table above, these rules will be consolidated into current Rule 4.12 
(proposed Rule 8.42) which would make this language redundant. 
Additionally, the proposed rule change removes the language under 
current Rules 21.5, 28.4, and 29.6 that states that for the purposes of 
current Rules 4.13 and 4.14 (proposed Rules 8.43 and 8.44), references 
to current Rule 4.11 (proposed Rule 8.30) in connection with position 
limits shall be deemed, in the case of each respective option type, to 
be to the current position limit rule that governs that option type 
(e.g., in the case of Credit Options, references to current Rule 4.11 
are deemed to be to current Rule 29.5). Instead, the proposed rule 
change replaces the references to current Rule 4.11 in proposed Rules 
8.43 and 8.44 with the phrase ``the applicable position limits Rule'', 
thereby encompassing the position limit provision for all respective 
options types and eliminating the need for the existing multiple cross-
reference language in currently in Rules

[[Page 55354]]

21.5, 28.4, 29.6. Likewise, the proposed rule change removes the 
provision under current Rule 21A.7 which states that Rule 24A.7 
supplements current Rule 4.11 generally, but supersedes Interpretations 
.02 and .04 of current Rule 4.11 and all of current Rules 24.4, 24.4A, 
24.4B, 24.4C and 29.5 except to the extent those Rules are referred to 
in this rule. The Exchange proposes to remove the language in the 
above-described rules, as it believes the multiple layers of cross-
references are unnecessarily cumbersome and potentially confusing for 
investors. It believes the proposed consolidated rules with updated and 
more concise cross-references make the proposed rules clear as to the 
specific position limit provisions that apply to different types of 
options.
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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    The proposed rule change does not make any substantive changes to 
the rules and is merely intended to consolidate, reorganize, and make 
nonsubstantive updates to the Exchange's rules in anticipation of the 
technology migration on October 7, 2019. The Exchange believes that the 
non-substantive proposed changes, which update technical text and 
formatting (e.g. paragraph headings and time-related references), 
update rule cross-references, correct inaccurate rule cross-references, 
consolidate and reorganize rules and rule paragraphs and/or 
Interpretations and Policies, and remove redundant and/or cumbersome 
provisions that are potentially confusing for market participants, 
particularly in light of the consolidated shell Rulebook format, will 
foster cooperation and coordination with those facilitating 
transactions in securities and remove impediments to and perfect the 
mechanism of a free and open market and national market system by 
simplifying the Exchange Rules and Rulebook as a whole, and making its 
Rules easier to follow and understand, which will also result in less 
burdensome and more efficient regulatory compliance.

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 Exchange reiterates that 
the proposed rule change is being proposed in the context of a 
technology migration of the Cboe Affiliated Exchanges, and not as a 
competitive filing. The Exchange does not believe that the proposed 
rule change will impose any burden on intramarket competition because 
it does not make any substantive changes to the current Exchange Rules. 
The proposed rule change merely intends to provide consolidated rules 
upon migration and consistent technical text and formatting in the 
shell Rulebook that will be in place come October 7, 2019. The Exchange 
does not believe that the proposed rule change will impose any burden 
on intermarket competition because the proposed rules are substantively 
the same as the Exchange's current rules, all of which have all been 
previously filed with the Commission.

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: (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)(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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    A proposed rule change filed under Rule 19b-4(f)(6) \12\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\13\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay so that the proposal 
may become operative upon filing. As the Exchange represents above, the 
proposed rule change would consolidate current Chapter 4 and various 
other current rules in connection with business conduct on the Exchange 
into sections of proposed Chapter 8 (Business Conduct) in the shell 
Rulebook and would make only non-substantive changes to the relocated 
rules. The Commission believes that waiver of the 30-day operative 
delay is consistent with the protection of investors and the public 
interest because the proposal does not raise any new or novel issues 
and makes only non-substantive changes to the rules. The Commission 
therefore waives the 30-day operative delay and designates the proposal 
operative upon filing.\14\
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    \12\ Id.
    \13\ 17 CFR 240.19b-4(f)(6)(iii).
    \14\ 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:

[[Page 55355]]

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-2019-096 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-2019-096. 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-2019-096, and should be submitted 
on or before November 6, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-22481 Filed 10-15-19; 8:45 am]
 BILLING CODE 8011-01-P