Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing of a Proposed Rule Change Relating to Disaster Recovery, 26825-26830 [2017-11962]

Download as PDF Federal Register / Vol. 82, No. 110 / Friday, June 9, 2017 / Notices mstockstill on DSK30JT082PROD with NOTICES price discovery process. The proposed rule changes would eliminate the use of the intermediary in the price submission process and instead require CPs to submit required price information directly to ICC. In order to implement the direct price submission process, ICC proposed to amend its Pricing Policy to (1) require CPs establish direct connectivity with ICC and use a FIX API to provide ICC with the required price information, (2) add references to FIX API terminology, and (3) make revisions reflecting the replacement of existing trade date files with FIX API firm trade messages.6 Moreover, ICC proposed amending the Pricing Policy to note that ICC will send FIX API messages directly to CPs, and removed references to the intermediary and its ‘‘Valuation Service API’’ previously used.7 Although ICC proposed additional minor changes to the timing of various steps in the pricing process, these proposed changes would not affect the actual settlement submission windows.8 In addition to the changes described above, ICC also proposed changes with respect to the format of information required to be submitted by CPs for the iTraxx Australia and iTraxx Asia ExJapan Indices, as well as the CDX.NA.HY and CDS.EM indices. ICC also proposed modifications to the process for distributing end-of-day prices, which will result in ICC publishing to CPs separate messages setting forth end-of-day price information for single name and index CDS.9 III. Discussion and Commission Findings Section 19(b)(2)(C) of the Act directs the Commission to approve a propose rule change of a self-regulatory organization if it finds that such proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to such organization.10 Section 17A(b)(3)(F) of the Act requires, among other things, that the rules of a registered clearing agency be designed to promote the prompt and accurate clearance and settlement of securities transactions and, to the extent applicable, derivative agreements, contracts, and transactions.11 Rule 17Ad–22(d)(4) requires, in relevant part, that a registered clearing agency shall 82 FR at 13173–74. 7 Notice, 82 FR at 13173. 8 Notice, 82 FR at 13174. 9 Id. 10 15 U.S.C. 78s(b)(2)(C). 11 15 U.S.C. 78q–1(b)(3)(F). 19:25 Jun 08, 2017 IV. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act that the proposed rule change (SR–ICC–2017– 6 Notice, VerDate Sep<11>2014 establish, implement, maintain, and enforce written policies and procedures reasonably designed to identify sources of operational risk and minimize them through the development of appropriate systems, controls, and procedures; implement systems that are reliable, resilient and secure, and have adequate, scalable capacity.12 The Commission finds that the proposed rule change, which modifies ICC’s Pricing Policy to implement a direct price submission process for CPs, is consistent with Section 17A of the Act and Rule 17Ad–22 thereunder. The proposed rule change is consistent with the requirements of Section 17A(b)(3)(F) that the rules of a registered clearing agency be designed to promote the prompt and accurate clearance and settlement of securities transactions and, to the extent applicable, derivative agreements, contracts, and transactions. By reducing operational risk the proposed rule changes reduce the likelihood that ICC will be unable to complete its end-of-day price discovery process. Completion of the end-of-day price discovery process is a necessary and essential element in ICC’s clearance and settlement processes. The Commission believes that the proposed changes should enhance ICC’s ability to complete the necessary pricing process effectively and thereby promote the prompt and accurate clearance and settlement of derivative agreements, contracts and transactions consistent with Section 17A(b)(3)(F). For similar reasons, the proposed rule changes are also consistent with Rule 17Ad–22(d)(4) in that they are designed to reduce operational risk outside of ICC’s control.13 The proposed rule changes are intended to reduce ICC’s external operational risk by allowing ICC to control the price submission process through the implementation of systems designed to provide for direct connection and communication with CPs instead of relying on an intermediary to collect price information needed for ICC’s price discovery process. As a result, because ICC will be able to reduce its reliance on intermediaries and thereby reduce operational risk that is outside of its control, the proposed rule changes are consistent with the requirements of Rule 17Ad–22(d)(4). 12 17 CFR 240.17Ad–22(d)(4). 13 Id. Jkt 241001 PO 00000 Frm 00054 Fmt 4703 Sfmt 4703 26825 003), as amended by Amendment No. 1, be, and hereby is, approved.14 For the Commission by the Division of Trading and Markets, pursuant to delegated authority.15 Robert W. Errett, Deputy Secretary. [FR Doc. 2017–11963 Filed 6–8–17; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–80857; File No. SR–CBOE– 2017–044] Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing of a Proposed Rule Change Relating to Disaster Recovery June 5, 2017. 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 May 24, 2017, Chicago Board Options Exchange, Incorporated (‘‘CBOE’’ or the ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘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. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend Rule 6.18 relating to disaster recovery. The text of the proposed rule change is available on the Exchange’s Web site (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 14 In approving the proposed rule change, the Commission considered the proposal’s impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f). 15 17 CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. E:\FR\FM\09JNN1.SGM 09JNN1 26826 Federal Register / Vol. 82, No. 110 / Friday, June 9, 2017 / Notices 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 the Statutory Basis for, the Proposed Rule Change mstockstill on DSK30JT082PROD with NOTICES 1. Purpose The Exchange adopted Rule 6.18 in 2006 for the limited purpose of providing alternative means of operation in the event of a physical disaster. In particular, Rule 6.18, as originally adopted, was intended to deal with trading floor closures, providing for the operation of a ‘‘Disaster Recovery Facility’’ (‘‘DRF’’) in the event that a disaster or other unusual circumstance rendered the trading floor inoperable.3 Under original Rule 6.18, if the Exchange were forced to halt trading due to a disaster or other physical impairment of its trading floor, the Exchange and its members 4 could operate remotely in a screen-based only environment from the DRF while the trading floor was unavailable. While operating from the DRF, open outcry trading would be suspended. In 2012, Rule 6.18 was amended in connection with the Exchange’s relocation of its primary data center to the East Coast and the consequent conversion of its former primary data center to a back-up data center in Chicago.5 Specifically, Rule 6.18 was amended to address other situations in which the primary data center could continue to operate despite the trading floor being rendered inoperable or in which the back-up data center might be used despite the trading floor being operational. Specifically, as amended, Rule 6.18 provided that in the event that the Exchange were forced to switch operations to the back-up data center, 3 See Securities Exchange Act Release No. 54171 (July 19, 2006), 71 FR 42427 (July 26, 2006) (Order Approving Proposed Rule Change and Amendment No. 1 Thereto Regarding a Disaster Recovery Facility) (SR–CBOE–2006–001). 4 Prior to its demutualization in 2010, the Exchange was a member-owned organization. See Securities Exchange Act Release No. 62382 (June 25, 2010), 75 FR 38164 (July 1, 2010) (Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Conforming Changes in Connection With Demutualization) (SR–CBOE– 2010–058). Individuals and organizations that may trade on CBOE are now referred to as Trading Permit Holders (‘‘TPHs’’). 5 See Securities Exchange Act Release No. 68301 (November 27, 2012), 77 FR 71650 (December 3, 2012) (Notice of Filing and Order Granting Accelerated Approval of Proposed Rule Change To Amend CBOE Rule 6.18 Concerning the Exchange’s Disaster Recovery Facility) (SR–CBOE–2012–111). VerDate Sep<11>2014 19:25 Jun 08, 2017 Jkt 241001 the Exchange’s trading floor could still be used and that in the event that the trading floor were inoperable, the Exchange could still operate using a floorless configuration or screen-based only environment on the Exchange’s primary data center. References to the DRF and other irrelevant portions of the original rule were eliminated or replaced with references to Exchange’s primary and back-up data centers as appropriate. In 2015, Rule 6.18 was again amended to add greater detail to the Exchange’s disaster recovery rules and harmonize the disaster recovery rules with newly implemented disaster recovery-related regulatory imperatives of Regulation Systems Compliance and Integrity (‘‘Regulation SCI’’), which superseded and replaced the SEC’s voluntary Automation Review Policy.6 In doing so, the Exchange made certain changes to Rule 6.18 to provide additional details regarding the Exchange’s backup trading systems, business continuity and disaster recovery plans, and testing and update its disaster recovery rules to ensure consistency with Regulation SCI. The Exchange now proposes to make additional changes to its disaster recovery rules to provide the Exchange authority to take additional steps necessary to preserve the Exchange’s ability to conduct business in the event that the Exchange’s primary and/or back-up data center(s) become inoperable or otherwise unavailable for use due to a significant systems failure, disaster or other unusual circumstances and make clear in the Rules the intermediary steps that the Exchange may take to disable certain systems and users’ connectivity while continuing to operate its primary data center. The Exchange believes this authority serves the interests of all investors and the general public, because it helps the Exchange ensure its continuous operation and ability to maintain fair and orderly markets in the event of a significant systems failure or other unusual circumstance. 6 See Securities Exchange Act Release No. 76203 (October 20, 2015), 80 FR 65258 (October 26, 2015) (Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating to Disaster Recovery) (SR–CBOE–2015–088); see also Securities Exchange Act Release No. 73639 (November 19, 2014), 79 FR at 72252 (December 5, 2014) (Regulation Systems Compliance and Integrity) (File No. S7–01–13); Securities Exchange Act Release No. 27445 (November 16, 1989), 54 FR 48703 (November 24, 1989) (Automated Systems of Self-Regulatory Organizations) (File No. S7–29–89); Securities Exchange Act Release No. 29185 (May 9, 1991), 56 FR 22490 (May 15, 1991) (Automated Systems of Self-Regulatory Organizations) (File No. S7–12–91). PO 00000 Frm 00055 Fmt 4703 Sfmt 4703 Proposal The Exchange proposes to amend Rule 6.18 relating to disaster recovery. Specifically, the Exchange proposes to make changes to Rule 6.18 to: (1) Allow the Exchange to establish certain additional temporary requirements applicable to particular Designated BCP/ DR Participants 7 during use of the backup data center; (2) provide that the Exchange may determine to temporarily allow trading in proprietary classes of options and classes of options exclusively-licensed 8 by the Exchange 9 in an exclusively floor-based environment via open outcry in order to preserve the Exchange’s ability to provide fair and orderly markets in those classes in the event that the Exchange’s primary and back-up data centers become inoperable or otherwise unavailable for use due to a significant systems failure, disaster, or other unusual circumstances; (3) permit the Exchange to deactivate certain nonessential systems and systems functionalities in response to limited systems disruptions or malfunctions, security intrusions, systems compliance issues, or other unusual circumstances; and (4) permit the Exchange to restrict access of a TPH or associated person to 7 Under Rule 6.18(b)(iv), the Exchange shall designate those Trading Permit Holders that the Exchange determines are, as a whole, necessary for the maintenance of fair and orderly markets in the event of the activation of the Exchange’s business continuity and disaster recovery plans (‘‘Designated BCP/DR Participants’’). Designated BCP/DR Participants will be identified based on criteria determined by the Exchange and announced via Regulatory Circular, which may include whether the TPH is an appointed DPM, LMM, or MarketMaker in a class and the quality of markets provided by the DPM, LMM, or Market-Maker, the amount of volume transacted by the market participant in a class or on the Exchange in general, operational capacity, trading experience, and historical contribution to fair and orderly markets on the Exchange. Designated BCP/DR Participants shall include, at a minimum, all Market-Makers in option classes exclusively listed on the Exchange that stream quotes in such classes and all DPMs in multiply listed option classes. 8 The Exchange’s current suite of proprietary and exclusively-licensed option products includes options on CBOE Volatility Index (VIX) futures, the S&P 500 (SPX and XSP) Index, S&P Dow Jones Indexes (OEX, XEO, and DJX), Russell 2000 (RUT) Index, FTSE Emerging Index (FTEM/EMS), MSCI Emerging Markets Index (MXEF), and the MSCI EAFE Index (MXEA), among others. The Exchange will maintain a current list of all proprietary and exclusively-licensed options products on the Exchange’s Web site, including for purposes of this rule. 9 Options exclusively-listed on the Exchange may include products listed on the Exchange and certain other CBOE Holdings Inc. affiliated exchanges, including C2 Options Exchange, Incorporated (‘‘C2’’), Bats BZX Exchange, Inc. (‘‘BZX’’), Bats BYX Exchange Inc. (‘‘BYX’’), Bats EDGA Exchange, Inc. (‘‘EDGA’’), Bats EDGX Exchange, Inc. (‘‘EDGX’’). Currently, RUT is listed on both CBOE and C2. All other exclusively-listed products are currently listed on CBOE only. E:\FR\FM\09JNN1.SGM 09JNN1 Federal Register / Vol. 82, No. 110 / Friday, June 9, 2017 / Notices mstockstill on DSK30JT082PROD with NOTICES the Hybrid Trading System 10 and other Exchange systems if such access poses a significant threat to the Exchange’s ability to operate systems essential to maintain a fair and orderly market. The Exchange proposes to add new Rule 6.18(b)(iv)(B) (Alternative BCP/DR Participant Obligations), which would provide that during the use of the backup data center, the Exchange may, if necessary for the maintenance of fair and orderly markets, establish heightened quoting obligations for Designated BCP/DR Participants in a class in which the Designated BCP/DR Participant is already an appointed Lead Market-Maker or Market-Maker up to the standards specified for Designated Primary Market-Makers (‘‘DPMs’’) specified in Rule 8.85(a) 11 and/or disallow the ability to deselect an appointment intraday in a class in which the Designated BCP/DR Participant is already an appointed Market-Maker.12 Proposed Rule 10 Under Rule 1.1(aaa), the ‘‘Hybrid Trading System’’ refers to (i) the Exchange’s trading platform that allows Market-Makers to submit electronic quotes in their appointed classes and (ii) any connectivity to the foregoing trading platform that is administered by or on behalf of the Exchange, such as a communications hub. 11 Currently, under Rule 8.85(a)(i), for example, DPMs must provide continuous electronic quotes (as defined in Rule 1.1(ccc)) in at least the lesser of 99% of the non-adjusted option series or 100% of the non-adjusted option series minus one call-put pair, with the term ‘‘call-put pair’’ referring to one call and one put that cover the same underlying instrument and have the same expiration date and exercise price, and assure that its disseminated market quotations are accurate. Compliance with this quoting obligation applies to all of a DPM’s allocated classes collectively. The Exchange will determine compliance by a DPM with this quoting obligation on a monthly basis. However, determining compliance with this obligation on a monthly basis does not relieve a DPM from meeting this obligation on a daily basis, nor does it prohibit the Exchange from taking disciplinary action against DPM for failing to meet this obligation each trading day. See Rule 8.85(a)(i). Accordingly, under proposed Rule 6.18(b)(iv)(B), during use of the back-up data center, the Exchange could require that Market-Makers in SPXW provide continuous electronic quotes in up to 99% of the non-adjusted option series or 100% of the non-adjusted option series minus one call-put pair. 12 In accordance with Rule 1001(a)(2)(v) of Regulation SCI, the Exchange maintains written policies and procedures reasonably designed to ensure that its trading systems (including with respect to both the Exchange’s primary and backup data center trading systems), have levels of capacity, integrity, resiliency, availability, and security adequate to maintain the Exchange’s operational capability and promote the maintenance of fair and orderly markets, including, but not limited to business continuity and disaster recovery plans that are reasonably designed to achieve next two-hour resumption of its critical SCI systems, as defined in Rule 1000 of Regulation SCI. See Securities Exchange Act Release No. 73639 (November 19, 2014), 79 FR 72252 (December 5, 2014) (Regulation Systems Compliance and Integrity) (File No. S7–01–13). Notably, the Exchange employs business continuity and disaster recovery standards reasonably designed to achieve VerDate Sep<11>2014 19:25 Jun 08, 2017 Jkt 241001 6.18(b)(iv)(B) would also provide that the Exchange would notify market participants of any such additional temporary requirements prior to implementation in a reasonable manner as determined by the Exchange.13 The Exchange believes this extended authority would afford the Exchange with necessary flexibility to address unexpected contingencies that may arise if a disaster or other unusual circumstances occur, causing the Exchange to use the back-up data center and help ensure that the Exchange operate a fair and orderly market in the event of a market emergency. The Exchange also proposes non-substantive changes to the lettering in paragraph (b)(iv) to accommodate the addition of new Rule 6.18(b)(iv)(B). Accordingly, current Rule 6.18(b)(iv)(B) would become Rule 6.18(b)(iv)(C), and current Rule 6.18(b)(iv)(C) would become Rule 6.18(b)(iv)(D). The Exchange proposes to add Rule 6.18(c) (Operation via Open Outcry), which would provide that if the Exchange’s primary and back-up data centers become inoperable or otherwise unavailable for use due to a significant systems failure, disaster, or other unusual circumstances, in the interests of maintaining fair and orderly markets or for the protection of investors, the Exchange may determine, on a class-byclass basis, to temporarily allow trading in its exclusively-licensed and/or proprietary products 14 in an exclusively floor-based environment via open outcry in order to preserve the Exchange’s ability to conduct business in those option classes.15 Similar to the Exchange’s authority in current Rule 6.18(c) (proposed Rule 6.18(d)), which permits the Exchange to operate in a screen-based only environment if the trading floor facility is inoperable, proposed Rule 6.18(c) would afford the Exchange necessary flexibility to temporarily operate in open outcry in order to trade certain classes of options that are either proprietary or exclusively-licensed in the event that the Exchange’s primary and back-up two-hour resumption of all trading systems that are essential to conducting business on the Exchange and which the Exchange believes are reasonably designed to support resumption in a significantly shorter amount of time, including, but not limited to with respect to those systems that are essential to the trading of proprietary products and products exclusively licensed for trading on the Exchange. 13 The Exchange would make these notifications on the Systems Notification page on the Exchange’s Web site, via the Exchange’s Order Management Terminals (‘‘OMTs’’), via an Exchange-used messaging service, and/or other reasonable notification mechanisms. 14 See supra at note 8. 15 See supra at note 12. PO 00000 Frm 00056 Fmt 4703 Sfmt 4703 26827 data centers are inoperable due to a significant systems failure, disaster, or other unusual circumstances. The Exchange believes that the providing authority for it to temporarily operate in an exclusively floor-based environment in such a situation would help ensure the Exchange’s ability to continue to conduct business and help preserve the Exchange’s ability to continuously provide fair and orderly markets in classes of options that are only traded on CBOE or exclusively-licensed to CBOE. The Exchange also proposes nonsubstantive changes to the lettering in Rule 6.18 to accommodate the addition of new Rule 6.18(c). Accordingly, current Rule 6.18(c) would become Rule 6.18(d). The Exchange also proposes to add Rule 6.18(e) (Deactivation of Certain Systems), which would provide that in the event of a systems disruption or malfunction, security intrusion, systems compliance issue, or other unusual circumstances, the Exchange may, in accordance with the Rules or if necessary to maintain fair and orderly markets or to protect investors, temporarily deactivate certain systems or systems functionalities that are not essential to conducting business on the Exchange. Many of the systems and systems functionalities described in the Rules are provided optionally by the Exchange to enhance participants’ trading experience, but are not required to be active under the Rules and are not necessary for the Exchange to conduct business.16 As is described in the Rules, many of the Exchange’s systems functionalities may be made available (or unavailable) by the Exchange on a class-by-class basis. Such systems and systems functionalities that are nonessential to conducting business on the Exchange include, but are not limited to, Public Automated Routing (‘‘PAR’’) 17 workstations, the Automated Improvement Mechanism (‘‘AIM’’),18 and the Solicitation Auction Mechanism (‘‘SAM’’).19 In addition, the activation of other functionalities may not be described by rule, but could be suspended temporarily (e.g., until the earlier of the end of a trading session or until systems disruptions could be remedied) if disruption or malfunction of that functionality were to interfere with the Exchange’s ability to conduct business in a fair and orderly manner. For example, if a certain order type were to 16 See, e.g., Rules 6.2, 6.2A, 6.2B, 6.12, 6.13, 6.13A, 6.13B, 6.14A, 6.53, 6.53C, 6.74A, and 6.74B. 17 See generally Rule 6.12, Rule 6.12A. 18 See generally Rule 6.74A. 19 See generally Rule 6.74B. E:\FR\FM\09JNN1.SGM 09JNN1 26828 Federal Register / Vol. 82, No. 110 / Friday, June 9, 2017 / Notices mstockstill on DSK30JT082PROD with NOTICES cause a wider system malfunction or a certain complex order product could not be created without triggering widespread systems issues 20 the Exchange might announce, via its systems status page or otherwise, the suspension of the availability of that order type or complex product. If such an event impacts a non-essential system or system functionality, the Exchange may deem it necessary to maintain fair and orderly markets to deactivate that system or functionality until any issues are resolved to prevent any potential harm to investors. Proposed Rule 6.18(e) would also provide that the Exchange would notify market participants of any such deactivation, and subsequent reactivation, promptly and in a reasonable manner determined by the Exchange. The Exchange may make these notifications on the Systems Notification page on the Exchange’s Web site, via the OMT, via an Exchangeused messaging service such as SendWordNow 21 Regulatory Circular, and/or other reasonable notification mechanisms. Finally, the Exchange proposes Rule 6.18(f) (Connectivity Restriction), which would permit the Exchange to temporarily restrict a TPH’s or associated person’s access to the Hybrid Trading System or other electronic trading systems if it is determined by the President (or senior-level designee) of the Exchange, that because of a systems issue, such access threatens the Exchange’s ability to operate systems essential to the maintenance of fair and orderly markets.22 Such access would remain restricted until the end of the trading session or an earlier time if the President (or senior-level designee) of 20 For example, if the creation of a certain complex order product (e.g. the October/November calendar spread in class XYZ) were to cause significant trading disruptions in an entire class (e.g., trading in all of XYZ), the Exchange might determine to turn off calendar spreads or complex orders in general in the class in order to help ensure that regular trading (i.e. trading of simple orders) in the class remained available. Notably, Rule 6.53C permits the Exchange to determine which classes and which complex order origin types (i.e., nonbroker-dealer public customer, broker-dealers that are not Market-Makers or specialists on an options exchange, and/or Market-Makers or specialists on an options exchange) are eligible for entry into the COB and whether such complex orders can route directly to the COB and/or from PAR to the COB. Note also, in this case, if the Exchange were to suspend such complex order types, complex products could still be ‘‘created’’ by legging. 21 See CBOE Regulatory Circular RG14–030 (Send Word Now Smart Notification Services). 22 In such cases, the Exchange would make efforts to contact the affected TPH immediately before or contemporaneously with the restriction of access to the Hybrid Trading System to the extent possible while protecting the Exchange’s ability to operate systems essential to the maintenance of fair and orderly markets. VerDate Sep<11>2014 19:25 Jun 08, 2017 Jkt 241001 the Exchange, in consultation with the affected TPH(s), determines that lifting the restriction no longer poses a threat to the Exchange’s ability to operate systems essential to conducting business or continuing to maintain a fair and orderly market on the Exchange or to investors.23 In the current electronic trading environment, if a TPH’s systems malfunctions or is compromised, it could disrupt the Exchange’s systems or market or harm other investors. For example, software malfunctions may pose a risk to the Exchange’s systems, investors, and the general public without proper risk controls. Proposed Rule 6.18(f) would simply give the Exchange the authority to activate additional risk controls to stem the access of a TPH that has experienced a systems disruption or malfunction, which poses undue risk to the Exchange. 2. Statutory Basis The Exchange believes the proposed rule change is consistent with the Act and the rules and regulations thereunder applicable to the Exchange and, in particular, the requirements of Section 6(b) of the Act.24 Specifically, the Exchange believes the proposed rule change is consistent with the Section 6(b)(5) 25 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) 26 requirement that the rules of an exchange not be designed to permit unfair discrimination between customers, issuers, brokers, or dealers. 23 In determining whether to a TPH’s access threatens the Exchange’s ability to operate systems essential to the maintenance of fair and orderly markets and/or determining that lifting the restriction no longer poses a threat to the Exchange’s ability to operate systems essential to conducting business or continuing to maintain a fair and orderly market on the Exchange or to investors, a designee of the President of the Exchange would only be charged with making such determinations in the President of the Exchange’s absence. In such cases, the designee would be a senior executive (i.e. Vice President or above) of the Exchange. 24 15 U.S.C. 78f(b). 25 15 U.S.C. 78f(b)(5). 26 Id. PO 00000 Frm 00057 Fmt 4703 Sfmt 4703 The proposed rule change is designed to promote the Exchange’s ability to ensure the continued operation of a fair and orderly market in the event of a systems failure, disaster, or other unusual circumstances that might threaten the ability to conduct business on the Exchange. The Exchange recognizes that switching operations to the back-up data center may occur in times of uncertainty or great volatility in the markets. It is at these times that the investors may have the greatest need for viable, trustworthy marketplaces. The proposed rule change seeks to ensure that such a marketplace will exist when most needed and thus, the Exchange believes that the proposed rule protects investors in the most fundamental sense. In particular, the Exchange believes that proposed Rule 6.18(b)(iv)(B) allowing the Exchange, during the use of the back-up data center to (1) establish heightened quoting obligations for Designated BCP/DR Participants in a class in which the Designated BCP/DR Participant is already an appointed Lead Market-Maker or Market-Maker up to the standards specified for Designated Primary Market-Makers specified in Rule 8.85(a) and/or (2) disallow the ability to deselect an appointment intraday in a class in which the Designated BCP/DR Participant is already an appointed Market-Maker would help ensure the maintenance of a fair and orderly market in the event of a disaster, which is in the interests of all market participants, investors, and the general public. The Exchange believes that adopting rules that help ensure that markets are open and available during times of turmoil and emergency is an important goal consistent with the Act. In the same vein, the Exchange believes that proposed Rule 6.18(c), which would permit the Exchange, in the interests of maintaining fair and orderly markets or for the protection of investors, to temporarily allow trading in certain proprietary and exclusivelylicensed options classes, which only trade on the Exchange or the Exchange and the Exchange’s affiliated exchanges, in an exclusively floor-based environment via open outcry to preserve the Exchange’s ability conduct business on the Exchange in those option classes. The Exchange believes that this proposed provision would help the Exchange maintain fair and orderly markets in these classes during a disaster situation and would serve the interests of market participants, investors, and the general public by helping to ensure that the Exchange’s proprietary and exclusively-licensed E:\FR\FM\09JNN1.SGM 09JNN1 Federal Register / Vol. 82, No. 110 / Friday, June 9, 2017 / Notices products remain available for trading in the event of a significant systems failure, disaster, or other unusual circumstances. The Exchange also believes that deactivation of certain systems in proposed Rule 6.18(e), whether by rule or otherwise, in order to ensure that the Exchange is able to provide a fair and orderly market in the face of systems disruptions and malfunction is in the best interests of market participants, investors, and the general public. Similarly, the Exchange believes that the proposed connectivity restriction in proposed Rule 6.18(f) would help ensure that the Exchange remains open and available to all market participants. The Exchange notes that other connectivity restrictions are already in place on the Exchange.27 Furthermore, the Exchange believes that proposed Rule 6.18(f) is consistent with Section 6(b)(7) 28 of the Act, which requires the Exchange to adopt rules that provide a fair procedure for the disciplining of members and persons associated with members, the denial of membership to any person seeking membership therein, the barring of any person from becoming associated with a member thereof, and the prohibition or limitation by the exchange of any person with respect to access to services offered by the exchange or a member thereof. The Exchange notes that proposed Rule 6.18(f) is not aimed at denying access to a particular TPH, but rather making sure that the Exchange remains accessible to all other TPHs that do not threaten the Exchange’s ability to conduct normal business operations. The Exchange notes that as soon as the President of the mstockstill on DSK30JT082PROD with NOTICES 27 See, e.g., Rules 6.23A (Trading Permit Holder Connectivity) and 6.23C (Technical Disconnect). Under Rule 6.23A(b), the Exchange may limit the number of messages sent by Trading Permit Holders accessing the Exchange electronically in order to protect the integrity of the Hybrid trading system. In addition, the Exchange may impose restrictions on the use of a computer connected through an application programming interface (‘‘API’’) if it believes such restrictions are necessary to ensure the proper performance of the system. Any such restrictions shall be objectively determined and submitted to the Commission for approval pursuant to a rule change filing under Section 19(b) of the Exchange Act. Under Rule 6.23C(a), when a CBOE Application Server (‘‘CAS’’) loses communication with a Client Application such that a CAS does not receive an appropriate response to a Heartbeat Request within ‘‘x’’ period of time, the Technical Disconnect Mechanism will automatically logoff the Trading Permit Holder’s affected Client Application and automatically cancel all the Trading Permit Holder’s Market-Maker quotes, if applicable, and open orders with a time-in-force of ‘‘day’’ resting in the Book (which excludes orders resting on a PAR workstation or order management terminal) (‘‘day orders’’), if the Trading Permit Holder enables that optional service, posted through the affected Client Application. 28 15 U.S.C. 78f(b)(7). VerDate Sep<11>2014 19:25 Jun 08, 2017 Jkt 241001 Exchange (or designee), working with the TPH organization that poses a threat to the Exchange, were able to confirm that the TPH organization no longer posed such a threat, access to the Exchange would be restored to that TPH. The Exchange believes that this is a fair result and is in the best interests of all market participants, investors, and the general public. The Exchange also believes that the proposed rule change promotes just and equitable principles of trade by adding detail and clarity to the Rules. The proposed rule change seeks to provide additional clarity to the Exchange’s disaster recovery rules, putting all market participants on notice as to how the Exchange will function in case of significant systems disruption or other disaster situation. The Exchange is continuously updating the Rules to provide additional detail, clarity, and transparency regarding its operations and trading systems and regulatory authority. The Exchange believes that the adoption of detailed, clear, and transparent rules reduces burdens on competition and promotes just and equitable principles of trade. The Exchange also believes that adding greater detail to the Rules regarding the Exchange’s ability to ensure the continuous operation of the market and preserve the ability to conduct business on the Exchange will increase confidence in the markets and encourage wider participation in the markets and greater investment. 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. Rather, the proposed rule change will help ensure that competitive markets remain operative in the event of a systems failure or other disaster event. The Exchange notes that the proposed rule change is designed to provide the Exchange with authority to require market participants to participate in, and provide necessary liquidity to, the market to ensure that the Exchange functions in a fair and orderly manner in the event of a significant systems failure, disaster, or other unusual circumstances. Accordingly, the Exchange believes that the proposed rule change is designed to ensure fair and competitive markets at time when they may be most needed. PO 00000 Frm 00058 Fmt 4703 Sfmt 4703 26829 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 written comments 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 rule-comments@ sec.gov. Please include File Number SR– CBOE–2017–044 on the subject line. Paper Comments • Send paper comments in triplicate to Brent J. Fields, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–CBOE–2017–044. 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 Web site (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 E:\FR\FM\09JNN1.SGM 09JNN1 26830 Federal Register / Vol. 82, No. 110 / Friday, June 9, 2017 / Notices provisions of 5 U.S.C. 552, will be available for Web site 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 such 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–CBOE– 2017–044, and should be submitted on or before June 30, 2017. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.29 Robert W. Errett, Deputy Secretary. [FR Doc. 2017–11962 Filed 6–8–17; 8:45 am] BILLING CODE 8011–01–P SMALL BUSINESS ADMINISTRATION [Disaster Declaration #15153 and #15154; Missouri Disaster #MO–00082] Presidential Declaration of a Major Disaster for Public Assistance Only for the State of Missouri U.S. Small Business Administration. ACTION: Notice. AGENCY: This is a Notice of the Presidential declaration of a major disaster for Public Assistance Only for the State of Missouri (FEMA–4317–DR), dated 06/02/2017. Incident: Severe Storms, Tornadoes, Straight-line Winds, and Flooding. Incident Period: 04/28/2017 through 05/11/2017. DATES: Effective 06/02/2017. Physical Loan Application Deadline Date: 08/01/2017. Economic Injury (EIDL) Loan Application Deadline Date: 03/02/2018. ADDRESSES: Submit completed loan applications to: U.S. Small Business Administration, Processing and Disbursement Center, 14925 Kingsport Road, Fort Worth, TX 76155. FOR FURTHER INFORMATION CONTACT: A. Escobar, Office of Disaster Assistance, U.S. Small Business Administration, 409 3rd Street SW., Suite 6050, Washington, DC 20416, (202) 205–6734. SUPPLEMENTARY INFORMATION: Notice is hereby given that as a result of the mstockstill on DSK30JT082PROD with NOTICES SUMMARY: 29 17 CFR 200.30–3(a)(12). VerDate Sep<11>2014 19:25 Jun 08, 2017 Jkt 241001 President’s major disaster declaration on 06/02/2017, Private Non-Profit organizations that provide essential services of governmental nature may file disaster loan applications at the address listed above or other locally announced locations. The following areas have been determined to be adversely affected by the disaster: Primary Counties: Barry, Barton, Bollinger, Butler, Camden, Carter, Cedar, Christian, Cole, Crawford, Dade, Dallas, Dent, Douglas, Dunklin, Franklin, Gasconade, Howell, Iron, Jefferson, Lawrence, Madison, Maries, McDonald, Miller, Morgan, Newton, Oregon, Osage, Ozark, Perry, Phelps, Pike, Pulaski, Ralls, Reynolds, Ripley, Saint Louis, Shannon, Stone, Taney, Texas, Washington, Wayne, Webster, Wright. The Interest Rates are: Physical Loan Application Deadline Date: 08/01/2017. Economic Injury (EIDL) Loan Application Deadline Date: 03/02/2018. ADDRESS: Submit completed loan applications to: U.S. Small Business Administration, Processing and Disbursement Center, 14925 Kingsport Road, Fort Worth, TX 76155. FOR FURTHER INFORMATION CONTACT: A. Escobar, Office of Disaster Assistance, U.S. Small Business Administration, 409 3rd Street SW., Suite 6050, Washington, DC 20416, (202) 205–6734. SUPPLEMENTARY INFORMATION: Notice is hereby given that as a result of the President’s major disaster declaration on 06/02/2017, applications for disaster loans may be filed at the address listed above or other locally announced locations. The following areas have been determined to be adversely affected by the disaster: Percent Primary Counties (Physical Damage and Economic Injury Loans): Bollinger, For Physical Damage: Butler, Carter, Douglas, Dunklin, Non-Profit Organizations with Franklin, Gasconade, Howell, Jasper, Credit Available Elsewhere ... 2.500 Jefferson, Madison, Maries, Non-Profit Organizations without Credit Available ElseMcDonald, Newton, Oregon, Osage, where ..................................... 2.500 Ozark, Pemiscot, Phelps, Pulaski, For Economic Injury: Reynolds, Ripley, Saint Louis, Non-Profit Organizations withShannon, Stone, Taney, Texas. out Credit Available ElseContiguous Counties (Economic Injury where ..................................... 2.500 Loans Only): Missouri: Barry, Barton, Callaway, The number assigned to this disaster Camden, Cape Girardeau, Christian, for physical damage is 151536 and for Cole, Crawford, Dade, Dent, Iron, economic injury is 151546. Laclede, Lawrence, Miller, (Catalog of Federal Domestic Assistance Montgomery, New Madrid, Perry, Number 59008) Saint Charles, Saint Francois, Saint Louis City, Sainte Genevieve, James E. Rivera, Stoddard, Warren, Washington, Associate Administrator for Disaster Wayne, Webster, Wright. Assistance. Arkansas: Baxter, Benton, Boone, [FR Doc. 2017–11971 Filed 6–8–17; 8:45 am] Carroll, Clay, Craighead, Fulton, BILLING CODE 8025–01–P Greene, Marion, Mississippi, Randolph, Sharp. Illinois: Madison, Monroe, Saint Clair. SMALL BUSINESS ADMINISTRATION Kansas: Cherokee, Crawford. Oklahoma: Delaware, Ottawa. [Disaster Declaration #15151 and #15152; Tennessee: Dyer, Lake. Missouri Disaster #MO–00081] The Interest Rates are: Presidential Declaration of a Major Disaster for the State of Missouri Percent U.S. Small Business Administration. ACTION: Notice. AGENCY: This is a Notice of the Presidential declaration of a major disaster for the State of MISSOURI (FEMA–4317–DR), dated 06/02/2017. Incident: Severe Storms, Tornadoes, Straight-line Winds, and Flooding. Incident Period: 04/28/2017 through 05/11/2017. DATES: Effective 06/02/2017. SUMMARY: PO 00000 Frm 00059 Fmt 4703 Sfmt 4703 For Physical Damage: Homeowners with Credit Available Elsewhere ...................... Homeowners without Credit Available Elsewhere .............. Businesses with Credit Available Elsewhere ...................... Businesses without Credit Available Elsewhere .............. Non-Profit Organizations with Credit Available Elsewhere ... Non-Profit Organizations without Credit Available Elsewhere ..................................... E:\FR\FM\09JNN1.SGM 09JNN1 3.875 1.938 6.430 3.215 2.500 2.500

Agencies

[Federal Register Volume 82, Number 110 (Friday, June 9, 2017)]
[Notices]
[Pages 26825-26830]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-11962]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80857; File No. SR-CBOE-2017-044]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing of a Proposed Rule Change Relating to 
Disaster Recovery

June 5, 2017.
    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 May 24, 2017, Chicago Board Options Exchange, Incorporated (``CBOE'' 
or the ``Exchange'') filed with the Securities and Exchange Commission 
(``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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Rule 6.18 relating to disaster 
recovery. The text of the proposed rule change is available on the 
Exchange's Web site (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

[[Page 26826]]

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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange adopted Rule 6.18 in 2006 for the limited purpose of 
providing alternative means of operation in the event of a physical 
disaster. In particular, Rule 6.18, as originally adopted, was intended 
to deal with trading floor closures, providing for the operation of a 
``Disaster Recovery Facility'' (``DRF'') in the event that a disaster 
or other unusual circumstance rendered the trading floor inoperable.\3\ 
Under original Rule 6.18, if the Exchange were forced to halt trading 
due to a disaster or other physical impairment of its trading floor, 
the Exchange and its members \4\ could operate remotely in a screen-
based only environment from the DRF while the trading floor was 
unavailable. While operating from the DRF, open outcry trading would be 
suspended.
---------------------------------------------------------------------------

    \3\ See Securities Exchange Act Release No. 54171 (July 19, 
2006), 71 FR 42427 (July 26, 2006) (Order Approving Proposed Rule 
Change and Amendment No. 1 Thereto Regarding a Disaster Recovery 
Facility) (SR-CBOE-2006-001).
    \4\ Prior to its demutualization in 2010, the Exchange was a 
member-owned organization. See Securities Exchange Act Release No. 
62382 (June 25, 2010), 75 FR 38164 (July 1, 2010) (Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change Relating to 
Conforming Changes in Connection With Demutualization) (SR-CBOE-
2010-058). Individuals and organizations that may trade on CBOE are 
now referred to as Trading Permit Holders (``TPHs'').
---------------------------------------------------------------------------

    In 2012, Rule 6.18 was amended in connection with the Exchange's 
relocation of its primary data center to the East Coast and the 
consequent conversion of its former primary data center to a back-up 
data center in Chicago.\5\ Specifically, Rule 6.18 was amended to 
address other situations in which the primary data center could 
continue to operate despite the trading floor being rendered inoperable 
or in which the back-up data center might be used despite the trading 
floor being operational. Specifically, as amended, Rule 6.18 provided 
that in the event that the Exchange were forced to switch operations to 
the back-up data center, the Exchange's trading floor could still be 
used and that in the event that the trading floor were inoperable, the 
Exchange could still operate using a floorless configuration or screen-
based only environment on the Exchange's primary data center. 
References to the DRF and other irrelevant portions of the original 
rule were eliminated or replaced with references to Exchange's primary 
and back-up data centers as appropriate.
---------------------------------------------------------------------------

    \5\ See Securities Exchange Act Release No. 68301 (November 27, 
2012), 77 FR 71650 (December 3, 2012) (Notice of Filing and Order 
Granting Accelerated Approval of Proposed Rule Change To Amend CBOE 
Rule 6.18 Concerning the Exchange's Disaster Recovery Facility) (SR-
CBOE-2012-111).
---------------------------------------------------------------------------

    In 2015, Rule 6.18 was again amended to add greater detail to the 
Exchange's disaster recovery rules and harmonize the disaster recovery 
rules with newly implemented disaster recovery-related regulatory 
imperatives of Regulation Systems Compliance and Integrity 
(``Regulation SCI''), which superseded and replaced the SEC's voluntary 
Automation Review Policy.\6\ In doing so, the Exchange made certain 
changes to Rule 6.18 to provide additional details regarding the 
Exchange's back-up trading systems, business continuity and disaster 
recovery plans, and testing and update its disaster recovery rules to 
ensure consistency with Regulation SCI.
---------------------------------------------------------------------------

    \6\ See Securities Exchange Act Release No. 76203 (October 20, 
2015), 80 FR 65258 (October 26, 2015) (Notice of Filing and 
Immediate Effectiveness of a Proposed Rule Change Relating to 
Disaster Recovery) (SR-CBOE-2015-088); see also Securities Exchange 
Act Release No. 73639 (November 19, 2014), 79 FR at 72252 (December 
5, 2014) (Regulation Systems Compliance and Integrity) (File No. S7-
01-13); Securities Exchange Act Release No. 27445 (November 16, 
1989), 54 FR 48703 (November 24, 1989) (Automated Systems of Self-
Regulatory Organizations) (File No. S7-29-89); Securities Exchange 
Act Release No. 29185 (May 9, 1991), 56 FR 22490 (May 15, 1991) 
(Automated Systems of Self-Regulatory Organizations) (File No. S7-
12-91).
---------------------------------------------------------------------------

    The Exchange now proposes to make additional changes to its 
disaster recovery rules to provide the Exchange authority to take 
additional steps necessary to preserve the Exchange's ability to 
conduct business in the event that the Exchange's primary and/or back-
up data center(s) become inoperable or otherwise unavailable for use 
due to a significant systems failure, disaster or other unusual 
circumstances and make clear in the Rules the intermediary steps that 
the Exchange may take to disable certain systems and users' 
connectivity while continuing to operate its primary data center. The 
Exchange believes this authority serves the interests of all investors 
and the general public, because it helps the Exchange ensure its 
continuous operation and ability to maintain fair and orderly markets 
in the event of a significant systems failure or other unusual 
circumstance.
Proposal
    The Exchange proposes to amend Rule 6.18 relating to disaster 
recovery. Specifically, the Exchange proposes to make changes to Rule 
6.18 to: (1) Allow the Exchange to establish certain additional 
temporary requirements applicable to particular Designated BCP/DR 
Participants \7\ during use of the back-up data center; (2) provide 
that the Exchange may determine to temporarily allow trading in 
proprietary classes of options and classes of options exclusively-
licensed \8\ by the Exchange \9\ in an exclusively floor-based 
environment via open outcry in order to preserve the Exchange's ability 
to provide fair and orderly markets in those classes in the event that 
the Exchange's primary and back-up data centers become inoperable or 
otherwise unavailable for use due to a significant systems failure, 
disaster, or other unusual circumstances; (3) permit the Exchange to 
deactivate certain nonessential systems and systems functionalities in 
response to limited systems disruptions or malfunctions, security 
intrusions, systems compliance issues, or other unusual circumstances; 
and (4) permit the Exchange to restrict access of a TPH or associated 
person to

[[Page 26827]]

the Hybrid Trading System \10\ and other Exchange systems if such 
access poses a significant threat to the Exchange's ability to operate 
systems essential to maintain a fair and orderly market.
---------------------------------------------------------------------------

    \7\ Under Rule 6.18(b)(iv), the Exchange shall designate those 
Trading Permit Holders that the Exchange determines are, as a whole, 
necessary for the maintenance of fair and orderly markets in the 
event of the activation of the Exchange's business continuity and 
disaster recovery plans (``Designated BCP/DR Participants''). 
Designated BCP/DR Participants will be identified based on criteria 
determined by the Exchange and announced via Regulatory Circular, 
which may include whether the TPH is an appointed DPM, LMM, or 
Market-Maker in a class and the quality of markets provided by the 
DPM, LMM, or Market-Maker, the amount of volume transacted by the 
market participant in a class or on the Exchange in general, 
operational capacity, trading experience, and historical 
contribution to fair and orderly markets on the Exchange. Designated 
BCP/DR Participants shall include, at a minimum, all Market-Makers 
in option classes exclusively listed on the Exchange that stream 
quotes in such classes and all DPMs in multiply listed option 
classes.
    \8\ The Exchange's current suite of proprietary and exclusively-
licensed option products includes options on CBOE Volatility Index 
(VIX) futures, the S&P 500 (SPX and XSP) Index, S&P Dow Jones 
Indexes (OEX, XEO, and DJX), Russell 2000 (RUT) Index, FTSE Emerging 
Index (FTEM/EMS), MSCI Emerging Markets Index (MXEF), and the MSCI 
EAFE Index (MXEA), among others. The Exchange will maintain a 
current list of all proprietary and exclusively-licensed options 
products on the Exchange's Web site, including for purposes of this 
rule.
    \9\ Options exclusively-listed on the Exchange may include 
products listed on the Exchange and certain other CBOE Holdings Inc. 
affiliated exchanges, including C2 Options Exchange, Incorporated 
(``C2''), Bats BZX Exchange, Inc. (``BZX''), Bats BYX Exchange Inc. 
(``BYX''), Bats EDGA Exchange, Inc. (``EDGA''), Bats EDGX Exchange, 
Inc. (``EDGX''). Currently, RUT is listed on both CBOE and C2. All 
other exclusively-listed products are currently listed on CBOE only.
    \10\ Under Rule 1.1(aaa), the ``Hybrid Trading System'' refers 
to (i) the Exchange's trading platform that allows Market-Makers to 
submit electronic quotes in their appointed classes and (ii) any 
connectivity to the foregoing trading platform that is administered 
by or on behalf of the Exchange, such as a communications hub.
---------------------------------------------------------------------------

    The Exchange proposes to add new Rule 6.18(b)(iv)(B) (Alternative 
BCP/DR Participant Obligations), which would provide that during the 
use of the back-up data center, the Exchange may, if necessary for the 
maintenance of fair and orderly markets, establish heightened quoting 
obligations for Designated BCP/DR Participants in a class in which the 
Designated BCP/DR Participant is already an appointed Lead Market-Maker 
or Market-Maker up to the standards specified for Designated Primary 
Market-Makers (``DPMs'') specified in Rule 8.85(a) \11\ and/or disallow 
the ability to deselect an appointment intraday in a class in which the 
Designated BCP/DR Participant is already an appointed Market-Maker.\12\ 
Proposed Rule 6.18(b)(iv)(B) would also provide that the Exchange would 
notify market participants of any such additional temporary 
requirements prior to implementation in a reasonable manner as 
determined by the Exchange.\13\ The Exchange believes this extended 
authority would afford the Exchange with necessary flexibility to 
address unexpected contingencies that may arise if a disaster or other 
unusual circumstances occur, causing the Exchange to use the back-up 
data center and help ensure that the Exchange operate a fair and 
orderly market in the event of a market emergency. The Exchange also 
proposes non-substantive changes to the lettering in paragraph (b)(iv) 
to accommodate the addition of new Rule 6.18(b)(iv)(B). Accordingly, 
current Rule 6.18(b)(iv)(B) would become Rule 6.18(b)(iv)(C), and 
current Rule 6.18(b)(iv)(C) would become Rule 6.18(b)(iv)(D).
---------------------------------------------------------------------------

    \11\ Currently, under Rule 8.85(a)(i), for example, DPMs must 
provide continuous electronic quotes (as defined in Rule 1.1(ccc)) 
in at least the lesser of 99% of the non-adjusted option series or 
100% of the non-adjusted option series minus one call-put pair, with 
the term ``call-put pair'' referring to one call and one put that 
cover the same underlying instrument and have the same expiration 
date and exercise price, and assure that its disseminated market 
quotations are accurate. Compliance with this quoting obligation 
applies to all of a DPM's allocated classes collectively. The 
Exchange will determine compliance by a DPM with this quoting 
obligation on a monthly basis. However, determining compliance with 
this obligation on a monthly basis does not relieve a DPM from 
meeting this obligation on a daily basis, nor does it prohibit the 
Exchange from taking disciplinary action against DPM for failing to 
meet this obligation each trading day. See Rule 8.85(a)(i). 
Accordingly, under proposed Rule 6.18(b)(iv)(B), during use of the 
back-up data center, the Exchange could require that Market-Makers 
in SPXW provide continuous electronic quotes in up to 99% of the 
non-adjusted option series or 100% of the non-adjusted option series 
minus one call-put pair.
    \12\ In accordance with Rule 1001(a)(2)(v) of Regulation SCI, 
the Exchange maintains written policies and procedures reasonably 
designed to ensure that its trading systems (including with respect 
to both the Exchange's primary and back-up data center trading 
systems), have levels of capacity, integrity, resiliency, 
availability, and security adequate to maintain the Exchange's 
operational capability and promote the maintenance of fair and 
orderly markets, including, but not limited to business continuity 
and disaster recovery plans that are reasonably designed to achieve 
next two-hour resumption of its critical SCI systems, as defined in 
Rule 1000 of Regulation SCI. See Securities Exchange Act Release No. 
73639 (November 19, 2014), 79 FR 72252 (December 5, 2014) 
(Regulation Systems Compliance and Integrity) (File No. S7-01-13). 
Notably, the Exchange employs business continuity and disaster 
recovery standards reasonably designed to achieve two-hour 
resumption of all trading systems that are essential to conducting 
business on the Exchange and which the Exchange believes are 
reasonably designed to support resumption in a significantly shorter 
amount of time, including, but not limited to with respect to those 
systems that are essential to the trading of proprietary products 
and products exclusively licensed for trading on the Exchange.
    \13\ The Exchange would make these notifications on the Systems 
Notification page on the Exchange's Web site, via the Exchange's 
Order Management Terminals (``OMTs''), via an Exchange-used 
messaging service, and/or other reasonable notification mechanisms.
---------------------------------------------------------------------------

    The Exchange proposes to add Rule 6.18(c) (Operation via Open 
Outcry), which would provide that if the Exchange's primary and back-up 
data centers become inoperable or otherwise unavailable for use due to 
a significant systems failure, disaster, or other unusual 
circumstances, in the interests of maintaining fair and orderly markets 
or for the protection of investors, the Exchange may determine, on a 
class-by-class basis, to temporarily allow trading in its exclusively-
licensed and/or proprietary products \14\ in an exclusively floor-based 
environment via open outcry in order to preserve the Exchange's ability 
to conduct business in those option classes.\15\ Similar to the 
Exchange's authority in current Rule 6.18(c) (proposed Rule 6.18(d)), 
which permits the Exchange to operate in a screen-based only 
environment if the trading floor facility is inoperable, proposed Rule 
6.18(c) would afford the Exchange necessary flexibility to temporarily 
operate in open outcry in order to trade certain classes of options 
that are either proprietary or exclusively-licensed in the event that 
the Exchange's primary and back-up data centers are inoperable due to a 
significant systems failure, disaster, or other unusual circumstances. 
The Exchange believes that the providing authority for it to 
temporarily operate in an exclusively floor-based environment in such a 
situation would help ensure the Exchange's ability to continue to 
conduct business and help preserve the Exchange's ability to 
continuously provide fair and orderly markets in classes of options 
that are only traded on CBOE or exclusively-licensed to CBOE. The 
Exchange also proposes non-substantive changes to the lettering in Rule 
6.18 to accommodate the addition of new Rule 6.18(c). Accordingly, 
current Rule 6.18(c) would become Rule 6.18(d).
---------------------------------------------------------------------------

    \14\ See supra at note 8.
    \15\ See supra at note 12.
---------------------------------------------------------------------------

    The Exchange also proposes to add Rule 6.18(e) (Deactivation of 
Certain Systems), which would provide that in the event of a systems 
disruption or malfunction, security intrusion, systems compliance 
issue, or other unusual circumstances, the Exchange may, in accordance 
with the Rules or if necessary to maintain fair and orderly markets or 
to protect investors, temporarily deactivate certain systems or systems 
functionalities that are not essential to conducting business on the 
Exchange. Many of the systems and systems functionalities described in 
the Rules are provided optionally by the Exchange to enhance 
participants' trading experience, but are not required to be active 
under the Rules and are not necessary for the Exchange to conduct 
business.\16\ As is described in the Rules, many of the Exchange's 
systems functionalities may be made available (or unavailable) by the 
Exchange on a class-by-class basis. Such systems and systems 
functionalities that are non-essential to conducting business on the 
Exchange include, but are not limited to, Public Automated Routing 
(``PAR'') \17\ workstations, the Automated Improvement Mechanism 
(``AIM''),\18\ and the Solicitation Auction Mechanism (``SAM'').\19\
---------------------------------------------------------------------------

    \16\ See, e.g., Rules 6.2, 6.2A, 6.2B, 6.12, 6.13, 6.13A, 6.13B, 
6.14A, 6.53, 6.53C, 6.74A, and 6.74B.
    \17\ See generally Rule 6.12, Rule 6.12A.
    \18\ See generally Rule 6.74A.
    \19\ See generally Rule 6.74B.
---------------------------------------------------------------------------

    In addition, the activation of other functionalities may not be 
described by rule, but could be suspended temporarily (e.g., until the 
earlier of the end of a trading session or until systems disruptions 
could be remedied) if disruption or malfunction of that functionality 
were to interfere with the Exchange's ability to conduct business in a 
fair and orderly manner. For example, if a certain order type were to

[[Page 26828]]

cause a wider system malfunction or a certain complex order product 
could not be created without triggering widespread systems issues \20\ 
the Exchange might announce, via its systems status page or otherwise, 
the suspension of the availability of that order type or complex 
product. If such an event impacts a non-essential system or system 
functionality, the Exchange may deem it necessary to maintain fair and 
orderly markets to deactivate that system or functionality until any 
issues are resolved to prevent any potential harm to investors. 
Proposed Rule 6.18(e) would also provide that the Exchange would notify 
market participants of any such deactivation, and subsequent 
reactivation, promptly and in a reasonable manner determined by the 
Exchange. The Exchange may make these notifications on the Systems 
Notification page on the Exchange's Web site, via the OMT, via an 
Exchange-used messaging service such as SendWordNow \21\ Regulatory 
Circular, and/or other reasonable notification mechanisms.
---------------------------------------------------------------------------

    \20\ For example, if the creation of a certain complex order 
product (e.g. the October/November calendar spread in class XYZ) 
were to cause significant trading disruptions in an entire class 
(e.g., trading in all of XYZ), the Exchange might determine to turn 
off calendar spreads or complex orders in general in the class in 
order to help ensure that regular trading (i.e. trading of simple 
orders) in the class remained available. Notably, Rule 6.53C permits 
the Exchange to determine which classes and which complex order 
origin types (i.e., non-broker-dealer public customer, broker-
dealers that are not Market-Makers or specialists on an options 
exchange, and/or Market-Makers or specialists on an options 
exchange) are eligible for entry into the COB and whether such 
complex orders can route directly to the COB and/or from PAR to the 
COB. Note also, in this case, if the Exchange were to suspend such 
complex order types, complex products could still be ``created'' by 
legging.
    \21\ See CBOE Regulatory Circular RG14-030 (Send Word Now Smart 
Notification Services).
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    Finally, the Exchange proposes Rule 6.18(f) (Connectivity 
Restriction), which would permit the Exchange to temporarily restrict a 
TPH's or associated person's access to the Hybrid Trading System or 
other electronic trading systems if it is determined by the President 
(or senior-level designee) of the Exchange, that because of a systems 
issue, such access threatens the Exchange's ability to operate systems 
essential to the maintenance of fair and orderly markets.\22\ Such 
access would remain restricted until the end of the trading session or 
an earlier time if the President (or senior-level designee) of the 
Exchange, in consultation with the affected TPH(s), determines that 
lifting the restriction no longer poses a threat to the Exchange's 
ability to operate systems essential to conducting business or 
continuing to maintain a fair and orderly market on the Exchange or to 
investors.\23\ In the current electronic trading environment, if a 
TPH's systems malfunctions or is compromised, it could disrupt the 
Exchange's systems or market or harm other investors. For example, 
software malfunctions may pose a risk to the Exchange's systems, 
investors, and the general public without proper risk controls. 
Proposed Rule 6.18(f) would simply give the Exchange the authority to 
activate additional risk controls to stem the access of a TPH that has 
experienced a systems disruption or malfunction, which poses undue risk 
to the Exchange.
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    \22\ In such cases, the Exchange would make efforts to contact 
the affected TPH immediately before or contemporaneously with the 
restriction of access to the Hybrid Trading System to the extent 
possible while protecting the Exchange's ability to operate systems 
essential to the maintenance of fair and orderly markets.
    \23\ In determining whether to a TPH's access threatens the 
Exchange's ability to operate systems essential to the maintenance 
of fair and orderly markets and/or determining that lifting the 
restriction no longer poses a threat to the Exchange's ability to 
operate systems essential to conducting business or continuing to 
maintain a fair and orderly market on the Exchange or to investors, 
a designee of the President of the Exchange would only be charged 
with making such determinations in the President of the Exchange's 
absence. In such cases, the designee would be a senior executive 
(i.e. Vice President or above) of the Exchange.
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2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Act and the rules and regulations thereunder applicable to the 
Exchange and, in particular, the requirements of Section 6(b) of the 
Act.\24\ Specifically, the Exchange believes the proposed rule change 
is consistent with the Section 6(b)(5) \25\ 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) \26\ requirement that the rules of 
an exchange not be designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
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    \24\ 15 U.S.C. 78f(b).
    \25\ 15 U.S.C. 78f(b)(5).
    \26\ Id.
---------------------------------------------------------------------------

    The proposed rule change is designed to promote the Exchange's 
ability to ensure the continued operation of a fair and orderly market 
in the event of a systems failure, disaster, or other unusual 
circumstances that might threaten the ability to conduct business on 
the Exchange. The Exchange recognizes that switching operations to the 
back-up data center may occur in times of uncertainty or great 
volatility in the markets. It is at these times that the investors may 
have the greatest need for viable, trustworthy marketplaces. The 
proposed rule change seeks to ensure that such a marketplace will exist 
when most needed and thus, the Exchange believes that the proposed rule 
protects investors in the most fundamental sense.
    In particular, the Exchange believes that proposed Rule 
6.18(b)(iv)(B) allowing the Exchange, during the use of the back-up 
data center to (1) establish heightened quoting obligations for 
Designated BCP/DR Participants in a class in which the Designated BCP/
DR Participant is already an appointed Lead Market-Maker or Market-
Maker up to the standards specified for Designated Primary Market-
Makers specified in Rule 8.85(a) and/or (2) disallow the ability to 
deselect an appointment intraday in a class in which the Designated 
BCP/DR Participant is already an appointed Market-Maker would help 
ensure the maintenance of a fair and orderly market in the event of a 
disaster, which is in the interests of all market participants, 
investors, and the general public. The Exchange believes that adopting 
rules that help ensure that markets are open and available during times 
of turmoil and emergency is an important goal consistent with the Act. 
In the same vein, the Exchange believes that proposed Rule 6.18(c), 
which would permit the Exchange, in the interests of maintaining fair 
and orderly markets or for the protection of investors, to temporarily 
allow trading in certain proprietary and exclusively-licensed options 
classes, which only trade on the Exchange or the Exchange and the 
Exchange's affiliated exchanges, in an exclusively floor-based 
environment via open outcry to preserve the Exchange's ability conduct 
business on the Exchange in those option classes. The Exchange believes 
that this proposed provision would help the Exchange maintain fair and 
orderly markets in these classes during a disaster situation and would 
serve the interests of market participants, investors, and the general 
public by helping to ensure that the Exchange's proprietary and 
exclusively-licensed

[[Page 26829]]

products remain available for trading in the event of a significant 
systems failure, disaster, or other unusual circumstances. The Exchange 
also believes that deactivation of certain systems in proposed Rule 
6.18(e), whether by rule or otherwise, in order to ensure that the 
Exchange is able to provide a fair and orderly market in the face of 
systems disruptions and malfunction is in the best interests of market 
participants, investors, and the general public.
    Similarly, the Exchange believes that the proposed connectivity 
restriction in proposed Rule 6.18(f) would help ensure that the 
Exchange remains open and available to all market participants. The 
Exchange notes that other connectivity restrictions are already in 
place on the Exchange.\27\ Furthermore, the Exchange believes that 
proposed Rule 6.18(f) is consistent with Section 6(b)(7) \28\ of the 
Act, which requires the Exchange to adopt rules that provide a fair 
procedure for the disciplining of members and persons associated with 
members, the denial of membership to any person seeking membership 
therein, the barring of any person from becoming associated with a 
member thereof, and the prohibition or limitation by the exchange of 
any person with respect to access to services offered by the exchange 
or a member thereof. The Exchange notes that proposed Rule 6.18(f) is 
not aimed at denying access to a particular TPH, but rather making sure 
that the Exchange remains accessible to all other TPHs that do not 
threaten the Exchange's ability to conduct normal business operations. 
The Exchange notes that as soon as the President of the Exchange (or 
designee), working with the TPH organization that poses a threat to the 
Exchange, were able to confirm that the TPH organization no longer 
posed such a threat, access to the Exchange would be restored to that 
TPH. The Exchange believes that this is a fair result and is in the 
best interests of all market participants, investors, and the general 
public.
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    \27\ See, e.g., Rules 6.23A (Trading Permit Holder Connectivity) 
and 6.23C (Technical Disconnect). Under Rule 6.23A(b), the Exchange 
may limit the number of messages sent by Trading Permit Holders 
accessing the Exchange electronically in order to protect the 
integrity of the Hybrid trading system. In addition, the Exchange 
may impose restrictions on the use of a computer connected through 
an application programming interface (``API'') if it believes such 
restrictions are necessary to ensure the proper performance of the 
system. Any such restrictions shall be objectively determined and 
submitted to the Commission for approval pursuant to a rule change 
filing under Section 19(b) of the Exchange Act. Under Rule 6.23C(a), 
when a CBOE Application Server (``CAS'') loses communication with a 
Client Application such that a CAS does not receive an appropriate 
response to a Heartbeat Request within ``x'' period of time, the 
Technical Disconnect Mechanism will automatically logoff the Trading 
Permit Holder's affected Client Application and automatically cancel 
all the Trading Permit Holder's Market-Maker quotes, if applicable, 
and open orders with a time-in-force of ``day'' resting in the Book 
(which excludes orders resting on a PAR workstation or order 
management terminal) (``day orders''), if the Trading Permit Holder 
enables that optional service, posted through the affected Client 
Application.
    \28\ 15 U.S.C. 78f(b)(7).
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    The Exchange also believes that the proposed rule change promotes 
just and equitable principles of trade by adding detail and clarity to 
the Rules. The proposed rule change seeks to provide additional clarity 
to the Exchange's disaster recovery rules, putting all market 
participants on notice as to how the Exchange will function in case of 
significant systems disruption or other disaster situation. The 
Exchange is continuously updating the Rules to provide additional 
detail, clarity, and transparency regarding its operations and trading 
systems and regulatory authority. The Exchange believes that the 
adoption of detailed, clear, and transparent rules reduces burdens on 
competition and promotes just and equitable principles of trade. The 
Exchange also believes that adding greater detail to the Rules 
regarding the Exchange's ability to ensure the continuous operation of 
the market and preserve the ability to conduct business on the Exchange 
will increase confidence in the markets and encourage wider 
participation in the markets and greater investment.

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. Rather, the proposed rule 
change will help ensure that competitive markets remain operative in 
the event of a systems failure or other disaster event. The Exchange 
notes that the proposed rule change is designed to provide the Exchange 
with authority to require market participants to participate in, and 
provide necessary liquidity to, the market to ensure that the Exchange 
functions in a fair and orderly manner in the event of a significant 
systems failure, disaster, or other unusual circumstances. Accordingly, 
the Exchange believes that the proposed rule change is designed to 
ensure fair and competitive markets at time when they may be most 
needed.

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 written comments 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 rule-comments@sec.gov. Please include 
File Number SR-CBOE-2017-044 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-CBOE-2017-044. 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 Web site (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

[[Page 26830]]

provisions of 5 U.S.C. 552, will be available for Web site 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 such 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-CBOE-2017-044, and should be 
submitted on or before June 30, 2017.
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    \29\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\29\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2017-11962 Filed 6-8-17; 8:45 am]
 BILLING CODE 8011-01-P