Document ID: SEC-2019-1055-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Cboe BZX Exchange, Inc.
Posted Date: 2019-07-25T04:00Z

[Federal Register Volume 84, Number 143 (Thursday, July 25, 2019)]
[Notices]
[Pages 35907-35910]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-15778]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-86419; File No. SR-CboeBZX-2019-066]

Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change Relating 
To Update Rule 16.1 To Include the Definition of Capacity, as Well as 
Amend Its Fee Schedule To Reflect This Update

July 19, 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 July 17, 2019, Cboe BZX Exchange, Inc. (the ``Exchange'' or 
``BZX'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I, II, 
and III 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 
solicit

[[Page 35908]]

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 BZX Exchange, Inc. (the ``Exchange'' or ``BZX Options'') 
proposes to update Rule 16.1 to include the definition of capacity, as 
well as amend its fee schedule to reflect this update. 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/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 Exchange proposes to add ``capacity'' as a defined term under 
Rule 16.1 (Definitions). The proposed change intends to codify the 
definition of capacity in it rules, which is currently referenced in 
its technical specifications \5\ and in certain rules.\6\ This proposed 
change is also a harmonizing change intended to conform to the capacity 
definition under the rules of its affiliated exchange, Cboe C2 
Exchange, Inc. (``C2''). The Exchange also proposes to update a term 
under Rule 20.7(Audit Trail) to reflect the proposed capacity 
definition. In addition to this, the Exchange proposes to conform 
certain definitions under its fee schedule to this proposed definition.
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    \5\ See Cboe Options Exchanges Binary Order Entry Specification, 
available at http://cdn.batstrading.com/resources/membership/US_Options_BOE_Specification.pdf.
    \6\ See Rule 18.2, Rule 20.7(b), and Rule 21.10.
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    Currently, the System \7\ allows for a User to mark its order with 
various capacity codes which correspond to the capacity of the User 
(i.e., a customer, a Market Maker, etc.),\8\ and, pursuant to current 
Exchange Rules, Users are required to submit orders with the proper 
capacity identification.\9\ The current Exchange Rules, however, do not 
provide for a specific definition of the capacity in which a User may 
submit an order nor for the corresponding codes for different User 
capacity types. Additionally, the current fee schedule provides that a 
Member's transaction is assigned a fee code and defines the various 
types (i.e., capacity type) of Members to which the corresponding fee 
codes are assigned. Specifically, the Member type definitions apply to 
any transaction identified by such Member. For example, ``Market 
Maker'' applies to any transaction identified by a Member for clearing 
in the Market Maker range at the OCC, where such Member is registered 
with the Exchange as a Market Maker.
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    \7\ The automated trading system used by BZX Options for the 
trading of options contracts. See Rule 16.1.
    \8\ See Cboe Options Exchanges Binary Order Entry Specification, 
available at http://cdn.batstrading.com/resources/membership/US_Options_BOE_Specification.pdf.
    \9\ See Rule 20.7.
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    The Exchange now proposes to amend Rule 16.1 to codify the 
definition of ``capacity''. The Exchange proposes to define 
``capacity'' to mean the capacity in which a User submits an order, 
which the User specifies by applying the corresponding code to the 
order. The proposed corresponding codes and capacity types include: 
``B'' to an order for the account of a broker dealer, including a 
foreign broker dealer; ``C'' to an order for the account of a Priority 
Customer; ``F'' to an order for the proprietary account of an OCC 
clearing member firm; ``J'' to an order for a joint back office 
account; ``M'' to an order for the account of a registered Market 
Maker; ``N'' to an order for the account of a market maker, i.e., an 
Away Market Maker; and ``U'' to an order for the account of a 
Professional.\10\
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    \10\ See Rule 16.1(a)(47) (proposed Rule 16.1). A Professional 
means any person or entity that is not a broker or dealer in 
securities and places more than 390 orders in listed options per day 
on average during a calendar month for its own beneficial 
account(s). All Professional orders shall be appropriately marked by 
Options Members.
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    This definition is substantially similar to that of the definition 
under C2 Rule 1.1. The Exchange notes only slight differences between 
its proposed rule and that of its affiliated exchange, C2. First, the 
Exchange provides that capacity code ``C'' applies to orders for the 
account of a Priority Customer, whereas capacity code ``C'' under C2 
Rule 1.1 applies to orders for the account of Public Customer. This 
difference accounts for the fact that C2 does not have a defined term 
for Priority Customer, which pursuant to Rule 16.1, means any person or 
entity that is not a broker or dealer in securities or a Professional. 
The Exchange believes that incorporating this term, as opposed to 
Public Customer, maintains consistency with the Exchange's fee 
schedule, which already excludes Professionals from the definition of 
the term Customer for purposes of pricing on the Exchange, and provides 
that Professional capacity types are to be separately marked as such. 
Second, the Exchange provides that capacity code ``N'' is assigned to 
an order for the account of a market maker on another options exchange, 
and is otherwise known as an Away Market Maker. C2 does not provide in 
its definition that this capacity type is otherwise known as an Away 
Market Maker. The Exchange's fee schedule currently defines Away Market 
Maker to mean the same as this proposed rule definition. Therefore, the 
Exchange believes that incorporating this language is a non-substantive 
addition that does not alter the capacity type definition attached to 
capacity code ``N'' in any way, but rather maintains consistency with 
the Exchange's fee schedule. The Exchange also notes that it does not 
add capacity code ``L'' like that of C2 for non-trading permit holder 
affiliates as this capacity code is only applicable to participants on 
C2.\11\
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    \11\ See supra note 5.
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    In addition to this, the proposed rule change alphabetizes the 
defined terms in Rule 16.1 and removes the paragraph lettering to 
conform to the format of C2 Rule 1.1 for its definitions.
    The Exchange also proposes to update Rule 20.7 (Audit Trail) to 
reflect the proposed capacity definition under Rule 16.1(a). 
Specifically, current Rule 20.7(b) provides that order records relating 
to BZX Options must contain certain information, including Member 
capacity pursuant to subparagraph (b)(6). The Exchange now proposes to 
update subparagraph (b)(6) to User capacity, which is in line with the 
proposed capacity definition under proposed Rule 16.1.
    The Exchange also proposes to update the capacity type definitions 
of ``Away Market Maker'', ``Customer'', ``Firm'', ``Joint Back 
Office'', Market Maker'' and ``Professional'' in its fee schedule to 
reflect the proposed capacity definition and types under proposed Rule 
16.1.

[[Page 35909]]

Specifically, the Exchange notes the proposed change to the current 
language providing that the capacity types apply to transactions 
identified by a Member for clearing in the respective capacity type 
range at the OCC. The Exchange updates this language to provide that 
the defined capacity types apply to orders for the account of the 
respective capacity type.\12\ This change reflects the proposed 
capacity type definitions under proposed Rule 16.1 and is in line with 
the capacity codes applicable to participants on the Exchange's 
affiliated exchange, C2. The Exchange also believes that changing the 
definition of the capacity types to apply to an order for the account 
of the respective capacity types better aligns with the order 
identification requirements under Rule 20.7. Under Rule 20.7 a Member 
must submit proper order information when entering orders and maintain 
Customer order records that must contain, among other things, User 
capacity (as proposed). The Exchange believes that codifying in the 
Rules the codes that Users must apply to orders for the accounts of the 
various capacity types will provide additional transparency to Members 
regarding the appropriate order marking requirements.
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    \12\ Though the Exchange proposes to remove the OCC clearing 
range language in order to better align these fee schedule 
definitions with those under proposed 16.1 and C2 Rule 1.1, this 
does not alter the manner in which each capacity type clears at the 
OCC.
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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.\13\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \14\ 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) \15\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(5).
    \15\ Id.
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    In particular, the Exchange believes that the proposed change to 
adopt the definition of capacity, including types and codes, will 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system by providing Users with rules that 
accurately reflect and add detail to current System capacity code 
specifications for which a User must use to appropriately mark its 
orders. As a result, the proposed change will help facilitate 
understanding of and compliance with the rules. In addition to this, 
the Exchange believes that by harmonizing the definition of capacity 
types and codes, as well as the format of all BZX Options definitions, 
with that of its affiliated exchange, C2, will result in increased 
understanding of the Exchange's Rules and that of its affiliated 
exchange rules for those participating across the two affiliated 
exchanges.
    Additionally, the Exchange believes that the proposed change to 
reflect the proposed capacity definition throughout the corresponding 
definitions in the fee schedule will provide Members with clearer 
definitions of capacity types that will better align with the Exchange 
Rules as well as provide detail to the System specifications already in 
place. As a result, the proposed change will mitigate any confusion 
surrounding the fee schedule capacity definitions and applicable codes. 
As such, increased User understanding of the Exchange's fee schedule 
definitions as they correspond to the Exchange Rules will serve to 
remove impediments to and perfect the mechanism of a free and open 
market, and thereby protect investors. Likewise, the Exchange believes 
that the proposed change to Rule 20.7(b)(6) to more accurately reflect 
the proposed definition of capacity will also serve to remove 
impediments to and perfect the mechanism of a free and open market by 
aligning the Exchange Rules, in turn bolstering Member understanding, 
and thus, facilitating less burdensome regulatory compliance with the 
audit trail rules.

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 notes that the 
proposed rule change is not designed to address any competitive issues 
but is only intended to provide clarity with respect to the definition 
of capacity types and consistency throughout its Rules and fee schedule 
with respect to capacity codes. The Exchange does not believe that the 
proposed change will impose any burden on intramarket competition that 
is not necessary or appropriate in furtherance of the purposes of the 
Act because all Users are already required to submit orders with the 
appropriate capacity code, and the same capacity codes are available to 
all Members. The Exchange also believes that the proposed rule change 
reduces the regulatory compliance burden on all Members by better 
aligning the Rules and fee schedule with the existing audit trail 
requirements. Moreover, the Exchange does not believe that the proposed 
change will impose any burden on intermarket competition that is not 
necessary or appropriate in furtherance of the purposes of the Act. As 
noted, the proposed rule change is not intended as a competitive 
change, but rather to provide Members with added detail and clarity 
regarding the capacity codes applicable to their orders submitted to 
the Exchange.

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 if consistent with the protection of investors 
and the public interest, the proposed rule change has become effective 
pursuant to Section 19(b)(3)(A) of the Act \16\ and Rule 19b-4(f)(6) 
thereunder.\17\
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    \16\ 15 U.S.C. 78s(b)(3)(A).
    \17\ 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 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

[[Page 35910]]

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 shall 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-CboeBZX-2019-066 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-CboeBZX-2019-066. 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-2019-
066 and should be submitted on or before August 15, 2019.
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    \18\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-15778 Filed 7-24-19; 8:45 am]
 BILLING CODE 8011-01-P