Document ID: SEC-2020-1301-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Cboe BZX Exchange, Inc.
Posted Date: 2020-08-14T04:00Z

[Federal Register Volume 85, Number 158 (Friday, August 14, 2020)]
[Notices]
[Pages 49690-49692]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-17758]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-89518; File No. SR-CboeBZX-2020-058]

Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
Rule 20.10 Concerning Off-Floor Transfers

August 10, 2020.
    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 29, 2020, 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 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 
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 BZX Exchange, Inc. (the ``Exchange'' or ``BZX'') proposes to 
amend Rule 20.10. The text of the proposed rule change is provided 
below. (additions are italicized; deletions are [bracketed])
* * * * *
Rules of Cboe BZX Exchange, Inc.
* * * * *

Rule 20.10. Off-Floor Transfers of Positions

    (a)-(c) No change.
    (d) Prior Written Notice. A Member(s) and its Clearing Member(s) 
(to the extent that the Member is not self-clearing) must submit to the 
Exchange, in a manner determined by the

[[Page 49691]]

Exchange, written notice prior to effecting an off-floor transfer from 
or to the account(s) of a Member(s), except that notification is not 
required for transfers [to correct errors]effected pursuant to 
subparagraph (a)(1) or (a)(2) of this Rule.
* * * * *
    (g) Routine, Recurring Transfers. The off-floor transfer procedure 
set forth in this Rule is intended to facilitate non-routine, non-
recurring movements of positions[. The off-floor transfer procedure] 
and is not to be used repeatedly or routinely[ in circumvention of the 
normal auction market process], except for transfers between accounts 
of the same person pursuant to subparagraph (a)(2). The off-floor 
transfer procedure may not be used in circumvention of the normal 
auction process.
* * * * *
    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
    Rule 20.10 describes exceptions to the prohibition against off-
floor transactions set forth in Rule 20.9, subject to certain 
conditions. The exception in Rule 20.10(a)(2) provides that off-floor 
transfers of positions are permissible if from one account to another 
account where no change in ownership is involved (i.e., accounts of the 
same person),\5\ provided the accounts are not in separate aggregation 
units or otherwise subject to information barrier or account 
segregation requirements. These transfers are subject to, among other 
things, the requirement to submit prior written notice of the transfers 
to the Exchange pursuant to paragraph (d) and the restriction on 
effecting these transfers repeatedly or routinely.
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    \5\ Rule 1.5(p) defines ``person'' as a natural person, 
partnership, corporation, limited liability company, entity, 
government, or political subdivision, agency or instrumentality of a 
government.
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    The proposed rule change excepts off-floor position transfers 
effected pursuant to Rule 20.10(a)(2) from the prior written notice 
requirement in paragraph (d) and from repeated, recurring use 
restriction in paragraph (g). Off-floor position transfers pursuant to 
Rule 20.10(a)(2) do not involve a change in ownership. In other words, 
such transfers may only occur between the same individual or legal 
entity. These types of transfers are merely transfers of positions from 
one account to another, both of which accounts are attributable to the 
same individual or legal entity, and thus the transferred option 
positions will continue to be attributable to the same person. A market 
participant effecting an off-floor position transfer pursuant to Rule 
20.10(a)(2) is analogous to an individual transferring funds from a 
checking account to a savings account, or from an account at one bank 
to an account at another bank--the money still belongs to the same 
person, who is just holding it in a different account for personal 
financial reasons.
    Because there is no change in ownership of positions transferred 
pursuant to Rule 20.10(a)(2), the Exchange believes it is appropriate 
to permit them to occur as routinely and repeatedly as a market 
participant would like. These transfers will continue to be subject to 
the prohibition on netting set forth in Rule 20.10(b), and thus may not 
result in the closing of any positions. While the off-floor position 
transfers permitted by Rule 20.10 were intended to accommodate non-
routine and non-recurring transfers, the Exchange believes permitting 
routine, recurring off-floor position transfers that do not result in a 
change in ownership or reduction in open interest is consistent with 
the purpose of not being used to circumvent the normal auction purpose. 
Additionally, given that these transfers may occur on a regular basis 
in accordance with a market participants' business needs and 
procedures, the Exchange believes prior written notice would be onerous 
and would not serve any purpose given the lack of change in ownership 
and in open interest. The Exchange believes this will provide market 
participants with additional flexibility to structure their option 
position accounts as they believe is appropriate and move their 
positions between accounts as they deem necessary and appropriate for 
their business and trading needs, including for risk management 
purposes.
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.\6\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \7\ 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) \8\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
    \8\ Id.
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    In particular, the Exchange believes the proposed rule change will 
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 because it will provide market 
participants with a more efficient process to transfer open positions 
between their own accounts in accordance with their own business and 
trading needs, including to respond to then-current market conditions. 
Because these transfers would not result in a change in ownership or a 
reduction in open interest, the Exchange believes the proposed rule 
change remains consistent with the purpose of Rule 20.10, which was to 
prohibit use of the off-floor transfer procedure in circumvention of 
the normal auction process, as the normal auction process involves the 
opening or closing of positions through a transaction among multiple 
market participants. Market participants may maintain different 
accounts for a variety of reasons, such as the structure of their 
businesses, the manner in which they trade, their risk management 
procedures, and for capital

[[Page 49692]]

purposes. Given that these transfers may occur on a regular basis in 
accordance with a market participants' business needs and procedures, 
the Exchange believes prior written notice would be onerous and would 
not serve any purpose given the lack of change in ownership and in open 
interest. Therefore, the proposed rule change will benefit investors by 
permitting market participants to manage the open positions in their 
accounts in a manner consistent with their businesses.
    The Exchange recognizes the numerous benefits of executing options 
transactions on an exchange, including price transparency, potential 
price improvement, and a clearing guarantee. However, the Exchange 
believes it is appropriate to permit position transfers among accounts 
of the same individual or legal entity where there is no impact on open 
interest to occur off the exchange, as these benefits are inapplicable 
to those transfers. These transfers have a narrow scope and are 
intended to permit market participants to achieve their own business 
needs. These transfers are not intended to be a competitive trading 
tool. There is no need for price discovery or improvement, as the 
transfer merely moves positions to different accounts for the same 
person and does not open or close any positions. These transfers will 
result in no change in ownership. The transactions that resulted in the 
open positions to be transferred pursuant to Rule 20.10(a)(2) were 
already guaranteed by a clearing member of The Options Clearing 
Corporation (``OCC''), and the positions may not be closed pursuant to 
the transfer and will continue to be subject to OCC rules, as they will 
continue to be held in an account with an OCC clearing member.

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 is 
not intended to address competitive issues. The Exchange does not 
believe that the proposed rule change will impose any burden on 
intramarket competition that is not necessary or appropriate in 
furtherance of the purposes of the Act because the proposed rule change 
will apply to all market participants in the same manner. All market 
participants will be able to effect off-floor position transfers 
pursuant to Rule 20.10(a)(2) on a recurring or routine basis without 
providing the Exchange with notice of such transfers. The Exchange does 
not believe the proposed rule change will impose any burden on 
intermarket competition that is not necessary or appropriate in 
furtherance of the purposes of the Act because it relates solely to the 
notice required for off-floor transfers that may occur today, and the 
frequency with which those transfers may occur. These transfers will 
continue to not result in a change in ownership or netting, and thus 
will have no impact on outstanding option positions.

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

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \9\ and Rule 19b-4(f)(6) thereunder.\10\ 
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 \11\ and Rule 19b-4(f)(6) \12\ 
thereunder.
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    \9\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \10\ 17 CFR 240.19b-4(f)(6).
    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f)(6).
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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-CboeBZX-2020-058 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-2020-058. 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; the Commission does not edit 
personal identifying information from submissions. You should submit 
only information that you wish to make available publicly. All 
submissions should refer to File Number SR-CboeBZX-2020-058 and should 
be submitted on or before September 4, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-17758 Filed 8-13-20; 8:45 am]
BILLING CODE 8011-01-P