Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating To Amend Its Provision Related to Its Risk Monitor Mechanism, 64384-64388 [2018-27086]
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of information to the Office of
Management and Budget (‘‘OMB’’) for
extension and approval.
Rules 300–304 of Regulation
Crowdfunding enumerate the
requirements with which intermediaries
must comply to participate in the offer
and sale of securities in reliance on
Section 4(a)(6) of the Securities Act of
1933 (‘‘Section 4(a)(6)’’). Rule 300
requires an intermediary to be registered
with the Commission as a broker or as
a funding portal and be a member of a
registered national securities
association.1
Rule 301 requires intermediaries to
have a reasonable basis for believing
that an issuer seeking to offer and sell
securities in reliance on Section 4(a)(6)
through the intermediary’s platform
complies with the requirements in
Section 4A(b) of the Securities Act and
the related requirements in Regulation
Crowdfunding. Rule 302 provides that
no intermediary or associated person of
an intermediary may accept an
investment commitment in a transaction
involving the offer or sale of securities
made in reliance on Section 4(a)(6) until
the investor has opened an account with
the intermediary and the intermediary
has obtained from the investor consent
to electronic delivery of materials. Rule
303 requires an intermediary to make
publicly available on its platform the
information that an issuer of
crowdfunding securities is required to
provide to potential investors, in a
manner that reasonably permits a
person accessing the platform to save,
download or otherwise store the
information, for a minimum of 21 days
before any securities are sold in the
offering, during which time the
intermediary may accept investment
commitments. Rule 303 also requires
intermediaries to comply with the
requirements related to the maintenance
and transmission of funds. An
intermediary that is a registered broker
is required to comply with the
requirements of Rule 15c2–4 of the
Securities Exchange Act of 1934
(‘‘Exchange Act’’) (Transmission or
Maintenance of Payments Received in
Connection with Underwritings).2 An
intermediary that is a registered funding
portal must direct investors to transmit
the money or other consideration
directly to a qualified third party that
has agreed in writing to hold the funds
for the benefit of, and to promptly
transmit or return the funds to, the
1 Currently,
FINRA is the only registered national
securities association.
2 17 CFR 240.15c2–4.
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persons entitled thereto in accordance
with Regulation Crowdfunding.
The rules also require intermediaries
to implement and maintain systems to
comply with the information disclosure,
communication channels, and investor
notification requirements. These
requirements include providing
disclosure about compensation at
account opening (Rule 302), obtaining
investor acknowledgements to confirm
investor qualifications and review of
educational materials (Rule 303),
providing investor questionnaires (Rule
303), providing communication
channels with third parties and among
investors (Rule 303), notifying investors
of investment commitments (Rule 303),
confirming completed transactions
(Rule 303) and confirming or
reconfirming offering cancellations
(Rule 304).
The Commission staff estimates that
there are 62 intermediaries engaged in
crowdfunding activity and therefore
subject to Rules 300–304. The
Commission staff estimates that
annualized industry burden would be
15,621 hours to comply with Rules 300–
304. This estimate is composed of a onetime burden for new intermediaries to
comply with the rules and develop the
platform and ongoing burdens
associated with maintaining the
platform. The Commission staff
estimates that the costs associated with
complying with Rules 300–304 are
estimated to be approximately a total
amount of $5,772,327. These costs are
composed of a one-time burden for new
intermediaries to comply with the rules
and develop the platform and ongoing
burdens associated with maintaining the
platform.
Written comments are invited on: (a)
Whether the proposed collection of
information is necessary for the proper
performance of the functions of the
Commission, including whether the
information shall have practical utility;
(b) the accuracy of the Commission’s
estimates of the burden of the proposed
collection of information; (c) ways to
enhance the quality, utility, and clarity
of the information to be collected; and
(d) ways to minimize the burden of the
collection of information on
respondents, including through the use
of automated collection techniques or
other forms of information technology.
Consideration will be given to
comments and suggestions submitted in
writing within 60 days of this
publication.
An agency may not conduct or
sponsor, and a person is not required to
respond to, a collection of information
under the PRA unless it displays a
currently valid OMB control number.
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Please direct your written comments
to: Charles Riddle, Acting Director/Chief
Information Officer, Securities and
Exchange Commission, c/o Candace
Kenner, 100 F Street NE, Washington,
DC 20549, or send an email to: PRA_
Mailbox@sec.gov.
Dated: December 10, 2018.
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2018–27093 Filed 12–13–18; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–84778; File No. SR–
CboeEDGX–2018–058]
Self-Regulatory Organizations; Cboe
EDGX Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of a
Proposed Rule Change Relating To
Amend Its Provision Related to Its Risk
Monitor Mechanism
December 10, 2018.
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 November
30, 2018, Cboe EDGX Exchange, Inc.
(the ‘‘Exchange’’ or ‘‘EDGX’’) filed with
the Securities and Exchange
Commission (the ‘‘Commission’’) the
proposed rule change as described in
Items I and II below, which Items have
been prepared by the Exchange. The
Exchange filed the proposal as a ‘‘noncontroversial’’ 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.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Cboe EDGX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘EDGX’’) proposes to
amend its provision related to its Risk
Monitor Mechanism. The text of the
proposed rule change is provided in
Exhibit 5.
The text of the proposed rule change
is also available on the Exchange’s
website (https://www.cboe.com/
AboutCBOE/CBOELegal
RegulatoryHome.aspx), at the
Exchange’s Office of the Secretary, and
at the Commission’s Public Reference
Room.
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A)(iii).
4 17 CFR 240.19b–4(f)(6).
2 17
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II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend
Rule 21.16 which governs the Risk
Monitor Mechanism.
Background
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By way of background, the Risk
Monitor Mechanism providers Users 5
with the ability to manage their order
and execution risk. Particularly, Rule
21.16 provides that the System will
maintain a counting program for each
User. A User may configure a single
counting program or multiple counting
programs to govern its trading activity
(i.e., on a per port basis). The counting
program counts executions, contract
volume and notional value, within a
specified time period established by
each User (‘‘specified time period’’) and
on an absolute basis for the trading day
(‘‘absolute limits’’). The specified time
period will commence for an option
when a transaction occurs in any series
in such option. The counting program
will also count a User’s executions,
contract volume and notional value
across all options which a User trades
(‘‘Firm Category’’). When the system
determines that a User’s Specified
Engagement Trigger (i.e., a volume
trigger, notional trigger, count trigger
and percentage trigger) has reached its
established limit, the Risk Monitor
Mechanism cancels or rejects such
User’s orders or quotes 6 in all series of
the class and cancels or rejects any
additional orders or quotes from the
5 See Exchange Rule 1.5(ee). The term ‘‘User’’
means any Member or Sponsored Participant who
is authorized to obtain access to the System
pursuant to Rule 11.3. As discussed below, the
Exchange is proposing to replace references to
‘‘Users’’ in Rule 21.16 with ‘‘Member’’.
6 See infra discussion accompanying footnotes 6–
7 [sic].
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User in the class until the counting
program resets.
Proposed Rule Change
The Exchange proposes to amend
Rule 21.16 to (i) adopt the Risk Monitor
Mechanism rule language used by its
affiliated exchange, Cboe C2 Exchange,
Inc. (‘‘C2’’) (ii) provide the ability for
Users [sic] to configure limits applicable
to a group of EFIDs, and (iii) adopt a
new a new risk parameter.
Rule Harmonization
First, the Exchange proposes to
harmonize its Risk Monitor Mechanism
Rule to that of its affiliated Exchange,
C2. Particularly, C2 Rule 6.14 governs,
among other things, its Risk Monitor
Mechanism functionality. The Exchange
notes the functionality of the Risk
Monitor Mechanism is substantively the
same as the Risk Monitor Mechanism on
EDGX. Indeed, the Exchange notes that
C2 just recently adopted Rule 6.14 in
connection with the technology
migration of C2 onto the options
platform of EDGX, and at such time
conformed its previous Risk Monitor
Mechanism functionality to the
functionality that already existed on
EDGX.7 Although the functionality is
substantively the same, the rule
structure and terminology used in the
EDGX and C2 rules differ. The Exchange
wishes to provide harmonization with
respect to this rule across the two
exchanges and accordingly proposes to
conform EDGX Rule 21.16 to C2 Rule
6.14(c)(5) (i.e., delete current Rule 21.16
in its entirety with the exception of
subparagraphs (d) and (e), which will be
relocated as described below, and adopt
in whole the language from the relevant
provisions of C2 Rule 6.14). As noted
above, the Exchange is also proposing
substantive enhancements to its current
functionality, which is described further
below. The Exchange notes that C2 is
simultaneously proposing the same Risk
Monitor Mechanism enhancements and
those enhancements are included in the
new proposed conformed rule language.
First, the Exchange notes that
proposed Rule 21.16 will not use the
term ‘‘User’’, and instead will use the
term ‘‘Member’’.8 The Exchange notes
7 See Securities Exchange Act Release No. 83214
(May 11, 2018), 83 FR 22796 (May 16, 2018) (SR–
C2–2018–005).
8 See Exchange Rule 1.5(n). The term ‘‘Member’’
shall mean any registered broker or dealer that has
been admitted to membership in the Exchange. A
Member will have the status of a ‘‘member’’ of the
Exchange as that term is defined in Section 3(a)(3)
of the Act. Membership may be granted to a sole
proprietor, partnership, corporation, limited
liability company or other organization which is a
registered broker or dealer pursuant to Section 15
of the Act, and which has been approved by the
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that the definition of User is broader
than Member, as it specifically captures
Sponsored Participants. The Exchange
believes ‘‘Member’’ is the more
appropriate term to use with respect to
the Risk Monitor Mechanism as the rule
describes how the functionality works
with respect to Members, and not
necessarily Sponsored Participants. The
Exchange notes that it currently does
not have any Sponsored Participants,
and to the extent it expects to have any
in the future, it will revise the rule as
needed to incorporate how the Risk
Monitor Mechanism would function
with respect to Sponsored Participants.
The Exchange notes that ‘‘User’’ will be
referred to herein as ‘‘Member’’.
Next, in connection with adopting
C2’s Risk Monitor Mechanism Rule
language, the Exchange notes that it will
be eliminating the term ‘‘class’’ and
replacing it with ‘‘underlying’’.
Specifically, the Exchange notes that the
Risk Monitor Mechanism is configured
to count the risk parameters (referred to
as ‘‘Specified Engagement Triggers’’ in
current EDGX Rule 21.16) across
underlying securities or indexes. As an
example, any option related to Apple
(AAPL), would be considered to have
the same underlying. Accordingly, if a
corporate action resulted in AAPL1,
AAPL and APPL1 one [sic] would be
considered to share the same underlying
symbol AAPL. Only a single symbollevel rule for underlying AAPL would
be configurable by the Risk Monitor
Mechanism. The Exchange notes that
the term ‘‘underlying’’ is also utilized in
the Exchange’s technical specification
documents. The Exchange therefore
believes underlying is a more accurate
term to use.
The Exchange also intends to clarify
and codify in the new rule language
what occurs in the event a Member does
not reactivate its ability to send quotes
or orders after its configured risk
parameter limits have been reached.
Currently, EDGX Rule 21.16 explains
how a Member may reset its counting
periods. The proposed rule language
includes a provision that provides that
if the Exchange cancels all of a
Member’s quotes and orders resting in
the Book, and the Member does not
reactivate its ability to send quotes or
orders, the block will be in effect only
for the trading day that the Member
reached its limits. The Exchange notes
this is not a substantive change, but
rather is current practice, and that its
affiliated Exchange, Cboe Options,
Exchange. The Exchange notes that corresponding
C2 Rule 6.14(c)(5) will use the term ‘‘TPH’’, as
‘‘Member’’ is not a defined term used by C2.
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includes similar language in its rules.9
The Exchange believes adding this
provision to the rules provides further
transparency in its rules and reduces
potential confusion as to what would
happen in the situation where a Member
fails to reset the counting program.
In connection with adopting C2’s Risk
Monitor Mechanism Rule language, the
Exchange also proposes to include
language regarding a reset limit.
Particularly, C2 Rule 6.14(c)(5)(d)(iii)
[sic] (which will be renumbered to C2
Rule 6.14(c)(5)(d)(iv) [sic]) provides that
the Exchange may restrict the number of
Member underlying, EFID and EFID
Group resets per second. The Exchange
believes adding this provision to its
rules provides transparency in the rules
that the Exchange can impose such a
restriction. The Exchange notes this is
not a substantive change, but rather
current practice. The Exchange believes
adding this provision to the rules
provides further transparency in its
rules and reduces potential confusion as
to whether the Exchange may restrict
resets.
In connection with the harmonization
of C2 Rue [sic] 6.14, the Exchange notes
that certain terminology is also
changing. For example, current EDGX
Rule 21.16, provides that the counting
program counts a Member’s executions,
contract volume and notional value
across all options which a Member
trades (‘‘Firm Category’’). Going
forward, this concept will be restated to
provide generally that the System will
count the risk parameters across all
underlyings of an EFID (‘‘EFID limit’’).
The Exchange reiterates the concept is
the same, but the language conforms to
C2 rules and makes the rule easier to
read.
The Exchange also proposes to adopt
a definition of EFID as it proposes to
reference EFIDs in proposed EDGX Rule
21.16. Particularly, the Exchange
proposes to add Rule 21.1(k) to define
and describe EFIDs. Specifically, a
Member may obtain one or more EFIDs
from the Exchange (in a form and
manner determined by the Exchange).
The Exchange assigns an EFID to a
Member, which the System uses to
identify the Member and clearing
number for the execution of orders and
quotes submitted to the System with
that EFID.10 Each EFID corresponds to a
single Member and a single clearing
number of a Clearing Member with the
9 See
Cboe Options Rule 8.18.
Exchange notes that currently EDGX’s
rules refer only to the term ‘‘MPID’’, which is a
Member’s market participant identifier used for
equities trading. The Exchange does not utilize
MPIDs on its options platform and uses EFIDS
instead. EFIDS are generally equivalent to MPIDs.
10 The
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Clearing Corporation. A Member may
obtain multiple EFIDs, which may be for
the same or different clearing numbers.
A Member may only identify for any of
its EFIDs the clearing number of a
Clearing Member that is a Designated
Give Up or Guarantor of the Trading
Permit Holder as set forth in Rule 21.12.
A Member is able (in a form and manner
determined by the Exchange) to
designate which of its EFIDs may be
used for each of its ports. If a Member
submits an order or quote through a port
with an EFID not enabled for that port,
the System cancels or rejects the order
or quote. The proposed rule change
regarding EFIDs is not a substantive
change but rather codifies current
functionality and mirrors current C2
Rule 6.8(b). The Exchange believes
including a description of the use of
EFIDs in the Rules adds transparency to
the Rules.
The Exchange also notes that the new
harmonized rule language incorporates
the use of the term ‘‘quote’’ and
‘‘quotes’’.11 Currently, however, when
describing what happens when a
Specified Engagement Trigger is
reached, Rule 21.16(b)(i) only references
what happens to a Member’s ‘‘orders’’.
The Exchange notes however, that the
term ‘‘order’’ as is used in Rule 21.16
was intended to capture both orders and
quotes. Particularly, an ‘‘order’’ is
defined as a firm commitment to buy or
sell option contracts submitted to the
System by a Member, and a ‘‘quote’’ is
defined as a bid or offer entered by a
Market-Maker as a firm order that
updates the Market-Maker’s previous
bid or offer, if any.12 Indeed, the
Exchange notes that the proposed
reference to ‘‘quote’’ and ‘‘quotes’’ is not
a substantive change to how the Risk
Monitor Mechanism currently works or
will work going forward. Accordingly,
the Exchange believes incorporating the
term ‘‘quote’’ and ‘‘quotes’’ alleviates
confusion and better reflects how the
Risk Monitor Mechanism operates (i.e.,
both orders and quotes, as defined, can
be affected). Similarly, the Exchange
believes the proposal to eliminate the
references to a ‘‘User’s order size’’ and
‘‘Market-Maker’s quote size’’ with
respect to how the percentage trigger is
calculated is not a substantive change.
The Exchange notes the trigger is
calculated the same on EDGX and C2,
and although proposed EDGX Rule
21.16(a)(iv) doesn’t reference orders and
Market-Maker quotes in particular, the
calculation will not be changing and the
11 See subparagraph (b), (c) and (d) of proposed
EDGX Rule 21.16.
12 See EDGX Rules 16.1(a)(42) and (51) and
21.1(c).
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Exchange doesn’t believe a reference to
orders and Market-Maker quote size in
particular under this provision is
necessary.
As noted above, the Exchange is not
proposing to eliminate subparagraphs
(d) or (e) of current EDGX Rule 21.16,
but rather relocate these provisions. The
Exchange proposes to first relocate the
contents of current subparagraph (d) to
new subparagraph (d)(vi) of proposed
EDGX Rule 21.16 and clarify that the
proposed provision governs ‘‘other
resets’’ (i.e., resets that are not a result
from a limit being reached).13
Particularly, the provision provides the
System will reset the counting period
for absolute limits when a Member
refreshes its risk limit thresholds. The
System will also reset the counting
program and commence a new specified
time period when (i) a previous
specified time period has expired and a
transaction occurs in any series of an
underlying or (ii) a Member refreshes its
risk limit thresholds prior to the
expiration of the specified time period.
The Exchange proposes to keep this
language as it provides transparency in
the rules as to when other resets occur
without limits being reached.. Lastly,
the Exchange notes that it proposes to
relocate current subparagraph (e) to new
subparagraph (f). Particularly, new
subparagraph (f) provides that a Member
may also engage the Risk Monitor
Mechanism to cancel resting bids and
offers, as well as subsequent orders as
set forth in EDGX Rule 22.11.14
EFID Groups
The Exchange next proposes to
provide in the rules that in addition to
underlying limits and EFID limits, the
System will be able to count each of the
risk parameters across all underlyings
for a group of EFIDs (‘‘EFID Group’’)
(‘‘EFID Group limit’’).15 Similar to when
a underlying limit or EFID limit are
reached, when a Member’s EFID Group
limit is reached, the Risk Monitor
Mechanism will cancel or reject such
Member’s orders or quotes in all
underlying and cancel or reject any
additional orders or quotes from any
EFID within that EFID Group in all
underlyings until the counting program
13 The Exchange notes that C2 is also proposing
to add this provision to its C2 Rule 6.14 in order
to provide further transparency in its rules
governing the Risk Monitor Mechanism.
14 The Exchange notes that C2 is proposing to also
add this provision to its C2 Rule 6.14 in order to
provide further transparency in its rules governing
the Risk Monitor Mechanism.
15 An EFID may not belong to more than one EFID
Group. The Exchange notes that the Members
determine how many, if any, EFID Groups to
establish and determine which EFIDs belong to a
particular EFID Group, if any.
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resets. The System will not accept new
orders or quotes from any EFID within
an EFID Group after an EFID Group
limit is reached until the Member
manually notifies the Trade Desk to
reset the counting program for the EFID
Group, unless the Member instructs the
Exchange to permit it to reset the
counting program by submitting an
electronic message to the System. The
Exchange believes each Member is in
the best position to determine risk
settings appropriate for its firm based on
its trading activity and business needs
and that it may be based on a single
EFID or EFID Group(s). The Exchange
notes that its affiliate Exchange, Cboe
Exchange, Inc. (‘‘Cboe Options’’)
similarly allows its members to set
similar risk parameters at the acronymlevel (which is similar to an EFID) or
firm level (similar to an EFID Group).16
New Risk Parameter
The Exchange lastly proposes to adopt
a new risk parameter. Specifically,
under the proposed functionality, a
Member may specify a maximum
number of times that the risk parameters
(i.e., volume, notional, count and/or
percentage) are reached over a specified
interval or absolute period (‘‘risk trips’’).
When a risk trip limit has been reached,
the Risk Monitor Mechanism will cancel
or reject a Member’s orders or quotes
pursuant to subparagraph (b) of Rule
21.16. The Exchange notes that a similar
risk parameter (i.e., a parameter based
on the number of risk ‘‘incidents’’ that
occur over a specified time) is available
on its affiliate Exchange, Cboe
Options.17 The Exchange believes the
proposed changes to its Risk Monitor
Mechanism rule sufficiently allows
Members to adjust and adopt parameter
inputs in accordance with their business
models and risk management needs.
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2. Statutory Basis
The Exchange believes the proposed
rule change is consistent with the
Securities Exchange Act of 1934 (the
‘‘Act’’) and the rules and regulations
thereunder applicable to the Exchange
and, in particular, the requirements of
Section 6(b) of the Act.18 Specifically,
the Exchange believes the proposed rule
change is consistent with the Section
6(b)(5) 19 requirements that the rules of
an exchange be designed to prevent
fraudulent and manipulative acts and
16 See
Cboe Options Rule 8.18.
Cboe Options Rule 8.18, which provides
that a Hybrid Market Maker or a TPH Organization
may specify a maximum number of Quote Risk
Monitor Mechanism (‘‘QRM’’) QRM Incidents on an
Exchange-wide basis.
18 15 U.S.C. 78f(b).
19 15 U.S.C. 78f(b)(5).
17 See
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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) 20 requirement that
the rules of an exchange not be designed
to permit unfair discrimination between
customers, issuers, brokers, or dealers.
First, the Exchange believes its
proposal to harmonize Rule 21.16 to C2
Rule 6.14 provides uniformity across
affiliated exchange rules that govern the
same functionality and makes the rule
easier to read, which reduces potential
confusion. The Exchange also proposes
to mirror C2 Rule 6.14 because it
believes consistent rules will increase
the understanding of the Exchange’s
operations for Members that are also
participants on C2. As discussed above,
notwithstanding the proposal to adopt
new terminology and/or the absence of
certain references, the Exchange intends
no substantive changes to the meaning
or application of Rule 21.16 other than
what is described above with respect to
EFID Groups and the new risk trips
parameter. Particularly, the Exchange
believes the adoption of the definition
of ‘‘EFID’’ provides transparency in the
rules and alleviates confusion, as the
Exchange references EFIDs multiple
times throughout proposed Rule 21.16
and utilizes EFIDs generally on the
Exchange with respect to its options
platform. The Exchange notes the
proposed definition is substantively the
same as the definition of EFIDs under
C2’s rules.21 The Exchange believes the
use of ‘‘quote’’ and ‘‘quotes’’ also
alleviates confusion as the current Risk
Monitor Mechanism in fact affects both
orders and quotes, as defined, and was
intended to cover both a Member’s
orders and Market Maker quotes.
Similarly, the Exchange believes using
the term ‘‘underlying’’ instead of ‘‘class’’
and ‘‘Member’’ instead of ‘‘user’’
alleviates potential confusion as the
proposed terms more accurately reflect
how the Risk Monitor Mechanism
operates.
The Exchange believes the rule
changes to codify current practice
alleviates potential confusion, provides
transparency in the rules and makes the
rules easier to read. For example,
20 Id.
21 See
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providing language regarding (i) a
Member’s failure to reset or initiate a
reset of the counting program and (ii)
the Exchange’s ability to restrict resets,
provides transparency in the rules as to
what occurs in those situations,
harmonizes rule language with that of
the Exchange’s affiliated Exchanges, and
reduces potential confusion. The
alleviation of confusion removes
impediments to, and perfects the
mechanism of, a free and open market
and a national market system, and, in
general, protects investors and the
public interest.
The Exchange believes providing
Members the ability to configure certain
risk parameters across underlyings for
an EFID Group is also appropriate
because it permits a Member to protect
itself from inadvertent exposure to
excessive risk on an additional level
(i.e., on an EFID group-level, not just
underlying- or EFID-level). Reducing
such risk will enable Members to enter
quotes and orders with protection
against inadvertent exposure to
excessive risk, which in turn will
benefit investors through increased
liquidity for the execution of their
orders. Such increased liquidity benefits
investors because they may receive
better prices and because it may lower
volatility in the options market. The
Exchange also believes each Member is
in the best position to determine risk
settings appropriate for its firm based on
its trading activity and business needs
and that that may be based on an EFID
Group(s). Additionally, as discussed
above, Cboe Options similarly allows its
members to set risk parameters at the
acronym-level (which is similar to an
EFID) or firm-level (similar to an EFID
Group).22
Lastly, the Exchange believes the
proposal to adopt the new risk
parameter based on number of times a
risk parameter or group of risk
parameters are reached will provide
Members with an additional tool for
managing risks. Furthermore, as noted
above, the Exchange’s affiliated
exchange offers similar functionality.23
Overall, the proposed rule change
provides Members more protections that
reduce the risks from potential system
errors and market events. As a result,
the proposed changes, including the
new risk parameter for the Risk Monitor
Mechanism, have the potential to
promote just and equitable principles of
trade. Additionally, the proposed
changes apply to all Members.
22 See
C2 Rule 6.8(b).
Frm 00077
Fmt 4703
23 See
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Cboe Options Rule 8.18.
Cboe Options Rule 8.18.
14DEN1
64388
Federal Register / Vol. 83, No. 240 / Friday, December 14, 2018 / Notices
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
Exchange believes that the proposed
changes with respect to its Risk Monitor
Mechanism help promote fair and
orderly markets and provide clarity and
transparency the Rule. For example, the
proposed rule change adds an
additional risk control parameter and
flexibility to help further prevent
potentially erroneous executions, which
benefits all market participants. The
proposed changes apply uniformly to all
Members and the Exchange notes that
the proposed changes apply to all
quotes and orders in the same manner.
Additionally, the Exchange does not
believe that 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 the
proposed enhancements apply only to
trading on the Exchange. Additionally,
the Exchange notes that it is voluntary
for the Members to determine whether
to make use of the new enhancements
of the Risk Monitor Mechanism. To the
extent that the proposed changes may
make the Exchange a more attractive
trading venue for market participants on
other exchanges, such market
participants may elect to become
Exchange market participants.
amozie on DSK3GDR082PROD with NOTICES1
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
The Exchange neither solicited nor
received comments on the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule
change does not:
A. significantly affect the protection
of investors or the public interest;
B. impose any significant burden on
competition; and
C. 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 24 and Rule 19b–4(f)(6) 25
thereunder.26
24 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6).
26 17 CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6)(iii) requires a self-regulatory organization to
25 17
VerDate Sep<11>2014
16:57 Dec 13, 2018
Jkt 247001
A proposed rule change filed
pursuant to Rule 19b–4(f)(6) under the
Act 27 normally does not become
operative for 30 days after the date of its
filing. However, Rule 19b–4(f)(6)(iii) 28
permits the Commission to designate a
shorter time if such action is consistent
with the protection of investors and the
public interest. The Exchange has asked
the Commission to waive the 30-day
operative delay to provide Members
with additional tools and greater
flexibility for managing their potential
risk as soon as possible. Accordingly,
the Commission believes that waiver of
the 30-day operative delay is consistent
with the protection of investors and the
public interest. Therefore, the
Commission hereby waives the
operative delay and designates the
proposal as operative upon filing.29
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 shall institute proceedings
to determine whether the proposed rule
change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–CboeEDGX–2018–058. 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 (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549 on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–CboeEDGX–2018–058 and
should be submitted on or before
January 4, 2019.
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
CboeEDGX–2018–058 on the subject
line.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.30
Eduardo A. Aleman,
Deputy Secretary.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
SECURITIES AND EXCHANGE
COMMISSION
give the Commission written notice of its intent to
file the proposed rule change, along with a brief
description and text of the proposed rule change,
at least five business days prior to the date of filing
of the proposed rule change, or such shorter time
as designated by the Commission. The Exchange
has satisfied this requirement.
27 17 CFR 240.19b–4(f)(6).
28 17 CFR 240.19b–4(f)(6)(iii).
29 For purposes only of waiving the 30-day
operative delay, the Commission also has
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
PO 00000
Frm 00078
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[FR Doc. 2018–27086 Filed 12–13–18; 8:45 am]
BILLING CODE 8011–01–P
[SEC File No. 270–359, OMB Control No.
3235–0410]
Submission for OMB Review;
Comment Request
Upon Written Request Copies Available
From: Securities and Exchange
Commission, Office of FOIA Services,
100 F Street NE, Washington, DC
20549–2736.
Extension:
30 17
E:\FR\FM\14DEN1.SGM
CFR 200.30–3(a)(12).
14DEN1
]]>Agencies
[Federal Register Volume 83, Number 240 (Friday, December 14, 2018)]
[Notices]
[Pages 64384-64388]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-27086]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-84778; File No. SR-CboeEDGX-2018-058]
Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice
of Filing and Immediate Effectiveness of a Proposed Rule Change
Relating To Amend Its Provision Related to Its Risk Monitor Mechanism
December 10, 2018.
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 November 30, 2018, Cboe EDGX Exchange, Inc. (the ``Exchange''
or ``EDGX'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I and II
below, which Items have been prepared by the Exchange. The 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.
---------------------------------------------------------------------------
\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).
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Cboe EDGX Exchange, Inc. (the ``Exchange'' or ``EDGX'') proposes to
amend its provision related to its Risk Monitor Mechanism. The text of
the proposed rule change is provided in Exhibit 5.
The text of the proposed rule change is also available on the
Exchange's website (https://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx), at the Exchange's Office of the
Secretary, and at the Commission's Public Reference Room.
[[Page 64385]]
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend Rule 21.16 which governs the Risk
Monitor Mechanism.
Background
By way of background, the Risk Monitor Mechanism providers Users
\5\ with the ability to manage their order and execution risk.
Particularly, Rule 21.16 provides that the System will maintain a
counting program for each User. A User may configure a single counting
program or multiple counting programs to govern its trading activity
(i.e., on a per port basis). The counting program counts executions,
contract volume and notional value, within a specified time period
established by each User (``specified time period'') and on an absolute
basis for the trading day (``absolute limits''). The specified time
period will commence for an option when a transaction occurs in any
series in such option. The counting program will also count a User's
executions, contract volume and notional value across all options which
a User trades (``Firm Category''). When the system determines that a
User's Specified Engagement Trigger (i.e., a volume trigger, notional
trigger, count trigger and percentage trigger) has reached its
established limit, the Risk Monitor Mechanism cancels or rejects such
User's orders or quotes \6\ in all series of the class and cancels or
rejects any additional orders or quotes from the User in the class
until the counting program resets.
---------------------------------------------------------------------------
\5\ See Exchange Rule 1.5(ee). The term ``User'' means any
Member or Sponsored Participant who is authorized to obtain access
to the System pursuant to Rule 11.3. As discussed below, the
Exchange is proposing to replace references to ``Users'' in Rule
21.16 with ``Member''.
\6\ See infra discussion accompanying footnotes 6-7 [sic].
---------------------------------------------------------------------------
Proposed Rule Change
The Exchange proposes to amend Rule 21.16 to (i) adopt the Risk
Monitor Mechanism rule language used by its affiliated exchange, Cboe
C2 Exchange, Inc. (``C2'') (ii) provide the ability for Users [sic] to
configure limits applicable to a group of EFIDs, and (iii) adopt a new
a new risk parameter.
Rule Harmonization
First, the Exchange proposes to harmonize its Risk Monitor
Mechanism Rule to that of its affiliated Exchange, C2. Particularly, C2
Rule 6.14 governs, among other things, its Risk Monitor Mechanism
functionality. The Exchange notes the functionality of the Risk Monitor
Mechanism is substantively the same as the Risk Monitor Mechanism on
EDGX. Indeed, the Exchange notes that C2 just recently adopted Rule
6.14 in connection with the technology migration of C2 onto the options
platform of EDGX, and at such time conformed its previous Risk Monitor
Mechanism functionality to the functionality that already existed on
EDGX.\7\ Although the functionality is substantively the same, the rule
structure and terminology used in the EDGX and C2 rules differ. The
Exchange wishes to provide harmonization with respect to this rule
across the two exchanges and accordingly proposes to conform EDGX Rule
21.16 to C2 Rule 6.14(c)(5) (i.e., delete current Rule 21.16 in its
entirety with the exception of subparagraphs (d) and (e), which will be
relocated as described below, and adopt in whole the language from the
relevant provisions of C2 Rule 6.14). As noted above, the Exchange is
also proposing substantive enhancements to its current functionality,
which is described further below. The Exchange notes that C2 is
simultaneously proposing the same Risk Monitor Mechanism enhancements
and those enhancements are included in the new proposed conformed rule
language.
---------------------------------------------------------------------------
\7\ See Securities Exchange Act Release No. 83214 (May 11,
2018), 83 FR 22796 (May 16, 2018) (SR-C2-2018-005).
---------------------------------------------------------------------------
First, the Exchange notes that proposed Rule 21.16 will not use the
term ``User'', and instead will use the term ``Member''.\8\ The
Exchange notes that the definition of User is broader than Member, as
it specifically captures Sponsored Participants. The Exchange believes
``Member'' is the more appropriate term to use with respect to the Risk
Monitor Mechanism as the rule describes how the functionality works
with respect to Members, and not necessarily Sponsored Participants.
The Exchange notes that it currently does not have any Sponsored
Participants, and to the extent it expects to have any in the future,
it will revise the rule as needed to incorporate how the Risk Monitor
Mechanism would function with respect to Sponsored Participants. The
Exchange notes that ``User'' will be referred to herein as ``Member''.
---------------------------------------------------------------------------
\8\ See Exchange Rule 1.5(n). The term ``Member'' shall mean any
registered broker or dealer that has been admitted to membership in
the Exchange. A Member will have the status of a ``member'' of the
Exchange as that term is defined in Section 3(a)(3) of the Act.
Membership may be granted to a sole proprietor, partnership,
corporation, limited liability company or other organization which
is a registered broker or dealer pursuant to Section 15 of the Act,
and which has been approved by the Exchange. The Exchange notes that
corresponding C2 Rule 6.14(c)(5) will use the term ``TPH'', as
``Member'' is not a defined term used by C2.
---------------------------------------------------------------------------
Next, in connection with adopting C2's Risk Monitor Mechanism Rule
language, the Exchange notes that it will be eliminating the term
``class'' and replacing it with ``underlying''. Specifically, the
Exchange notes that the Risk Monitor Mechanism is configured to count
the risk parameters (referred to as ``Specified Engagement Triggers''
in current EDGX Rule 21.16) across underlying securities or indexes. As
an example, any option related to Apple (AAPL), would be considered to
have the same underlying. Accordingly, if a corporate action resulted
in AAPL1, AAPL and APPL1 one [sic] would be considered to share the
same underlying symbol AAPL. Only a single symbol-level rule for
underlying AAPL would be configurable by the Risk Monitor Mechanism.
The Exchange notes that the term ``underlying'' is also utilized in the
Exchange's technical specification documents. The Exchange therefore
believes underlying is a more accurate term to use.
The Exchange also intends to clarify and codify in the new rule
language what occurs in the event a Member does not reactivate its
ability to send quotes or orders after its configured risk parameter
limits have been reached. Currently, EDGX Rule 21.16 explains how a
Member may reset its counting periods. The proposed rule language
includes a provision that provides that if the Exchange cancels all of
a Member's quotes and orders resting in the Book, and the Member does
not reactivate its ability to send quotes or orders, the block will be
in effect only for the trading day that the Member reached its limits.
The Exchange notes this is not a substantive change, but rather is
current practice, and that its affiliated Exchange, Cboe Options,
[[Page 64386]]
includes similar language in its rules.\9\ The Exchange believes adding
this provision to the rules provides further transparency in its rules
and reduces potential confusion as to what would happen in the
situation where a Member fails to reset the counting program.
---------------------------------------------------------------------------
\9\ See Cboe Options Rule 8.18.
---------------------------------------------------------------------------
In connection with adopting C2's Risk Monitor Mechanism Rule
language, the Exchange also proposes to include language regarding a
reset limit. Particularly, C2 Rule 6.14(c)(5)(d)(iii) [sic] (which will
be renumbered to C2 Rule 6.14(c)(5)(d)(iv) [sic]) provides that the
Exchange may restrict the number of Member underlying, EFID and EFID
Group resets per second. The Exchange believes adding this provision to
its rules provides transparency in the rules that the Exchange can
impose such a restriction. The Exchange notes this is not a substantive
change, but rather current practice. The Exchange believes adding this
provision to the rules provides further transparency in its rules and
reduces potential confusion as to whether the Exchange may restrict
resets.
In connection with the harmonization of C2 Rue [sic] 6.14, the
Exchange notes that certain terminology is also changing. For example,
current EDGX Rule 21.16, provides that the counting program counts a
Member's executions, contract volume and notional value across all
options which a Member trades (``Firm Category''). Going forward, this
concept will be restated to provide generally that the System will
count the risk parameters across all underlyings of an EFID (``EFID
limit''). The Exchange reiterates the concept is the same, but the
language conforms to C2 rules and makes the rule easier to read.
The Exchange also proposes to adopt a definition of EFID as it
proposes to reference EFIDs in proposed EDGX Rule 21.16. Particularly,
the Exchange proposes to add Rule 21.1(k) to define and describe EFIDs.
Specifically, a Member may obtain one or more EFIDs from the Exchange
(in a form and manner determined by the Exchange). The Exchange assigns
an EFID to a Member, which the System uses to identify the Member and
clearing number for the execution of orders and quotes submitted to the
System with that EFID.\10\ Each EFID corresponds to a single Member and
a single clearing number of a Clearing Member with the Clearing
Corporation. A Member may obtain multiple EFIDs, which may be for the
same or different clearing numbers. A Member may only identify for any
of its EFIDs the clearing number of a Clearing Member that is a
Designated Give Up or Guarantor of the Trading Permit Holder as set
forth in Rule 21.12. A Member is able (in a form and manner determined
by the Exchange) to designate which of its EFIDs may be used for each
of its ports. If a Member submits an order or quote through a port with
an EFID not enabled for that port, the System cancels or rejects the
order or quote. The proposed rule change regarding EFIDs is not a
substantive change but rather codifies current functionality and
mirrors current C2 Rule 6.8(b). The Exchange believes including a
description of the use of EFIDs in the Rules adds transparency to the
Rules.
---------------------------------------------------------------------------
\10\ The Exchange notes that currently EDGX's rules refer only
to the term ``MPID'', which is a Member's market participant
identifier used for equities trading. The Exchange does not utilize
MPIDs on its options platform and uses EFIDS instead. EFIDS are
generally equivalent to MPIDs.
---------------------------------------------------------------------------
The Exchange also notes that the new harmonized rule language
incorporates the use of the term ``quote'' and ``quotes''.\11\
Currently, however, when describing what happens when a Specified
Engagement Trigger is reached, Rule 21.16(b)(i) only references what
happens to a Member's ``orders''. The Exchange notes however, that the
term ``order'' as is used in Rule 21.16 was intended to capture both
orders and quotes. Particularly, an ``order'' is defined as a firm
commitment to buy or sell option contracts submitted to the System by a
Member, and a ``quote'' is defined as a bid or offer entered by a
Market-Maker as a firm order that updates the Market-Maker's previous
bid or offer, if any.\12\ Indeed, the Exchange notes that the proposed
reference to ``quote'' and ``quotes'' is not a substantive change to
how the Risk Monitor Mechanism currently works or will work going
forward. Accordingly, the Exchange believes incorporating the term
``quote'' and ``quotes'' alleviates confusion and better reflects how
the Risk Monitor Mechanism operates (i.e., both orders and quotes, as
defined, can be affected). Similarly, the Exchange believes the
proposal to eliminate the references to a ``User's order size'' and
``Market-Maker's quote size'' with respect to how the percentage
trigger is calculated is not a substantive change. The Exchange notes
the trigger is calculated the same on EDGX and C2, and although
proposed EDGX Rule 21.16(a)(iv) doesn't reference orders and Market-
Maker quotes in particular, the calculation will not be changing and
the Exchange doesn't believe a reference to orders and Market-Maker
quote size in particular under this provision is necessary.
---------------------------------------------------------------------------
\11\ See subparagraph (b), (c) and (d) of proposed EDGX Rule
21.16.
\12\ See EDGX Rules 16.1(a)(42) and (51) and 21.1(c).
---------------------------------------------------------------------------
As noted above, the Exchange is not proposing to eliminate
subparagraphs (d) or (e) of current EDGX Rule 21.16, but rather
relocate these provisions. The Exchange proposes to first relocate the
contents of current subparagraph (d) to new subparagraph (d)(vi) of
proposed EDGX Rule 21.16 and clarify that the proposed provision
governs ``other resets'' (i.e., resets that are not a result from a
limit being reached).\13\ Particularly, the provision provides the
System will reset the counting period for absolute limits when a Member
refreshes its risk limit thresholds. The System will also reset the
counting program and commence a new specified time period when (i) a
previous specified time period has expired and a transaction occurs in
any series of an underlying or (ii) a Member refreshes its risk limit
thresholds prior to the expiration of the specified time period. The
Exchange proposes to keep this language as it provides transparency in
the rules as to when other resets occur without limits being reached..
Lastly, the Exchange notes that it proposes to relocate current
subparagraph (e) to new subparagraph (f). Particularly, new
subparagraph (f) provides that a Member may also engage the Risk
Monitor Mechanism to cancel resting bids and offers, as well as
subsequent orders as set forth in EDGX Rule 22.11.\14\
---------------------------------------------------------------------------
\13\ The Exchange notes that C2 is also proposing to add this
provision to its C2 Rule 6.14 in order to provide further
transparency in its rules governing the Risk Monitor Mechanism.
\14\ The Exchange notes that C2 is proposing to also add this
provision to its C2 Rule 6.14 in order to provide further
transparency in its rules governing the Risk Monitor Mechanism.
---------------------------------------------------------------------------
EFID Groups
The Exchange next proposes to provide in the rules that in addition
to underlying limits and EFID limits, the System will be able to count
each of the risk parameters across all underlyings for a group of EFIDs
(``EFID Group'') (``EFID Group limit'').\15\ Similar to when a
underlying limit or EFID limit are reached, when a Member's EFID Group
limit is reached, the Risk Monitor Mechanism will cancel or reject such
Member's orders or quotes in all underlying and cancel or reject any
additional orders or quotes from any EFID within that EFID Group in all
underlyings until the counting program
[[Page 64387]]
resets. The System will not accept new orders or quotes from any EFID
within an EFID Group after an EFID Group limit is reached until the
Member manually notifies the Trade Desk to reset the counting program
for the EFID Group, unless the Member instructs the Exchange to permit
it to reset the counting program by submitting an electronic message to
the System. The Exchange believes each Member is in the best position
to determine risk settings appropriate for its firm based on its
trading activity and business needs and that it may be based on a
single EFID or EFID Group(s). The Exchange notes that its affiliate
Exchange, Cboe Exchange, Inc. (``Cboe Options'') similarly allows its
members to set similar risk parameters at the acronym-level (which is
similar to an EFID) or firm level (similar to an EFID Group).\16\
---------------------------------------------------------------------------
\15\ An EFID may not belong to more than one EFID Group. The
Exchange notes that the Members determine how many, if any, EFID
Groups to establish and determine which EFIDs belong to a particular
EFID Group, if any.
\16\ See Cboe Options Rule 8.18.
---------------------------------------------------------------------------
New Risk Parameter
The Exchange lastly proposes to adopt a new risk parameter.
Specifically, under the proposed functionality, a Member may specify a
maximum number of times that the risk parameters (i.e., volume,
notional, count and/or percentage) are reached over a specified
interval or absolute period (``risk trips''). When a risk trip limit
has been reached, the Risk Monitor Mechanism will cancel or reject a
Member's orders or quotes pursuant to subparagraph (b) of Rule 21.16.
The Exchange notes that a similar risk parameter (i.e., a parameter
based on the number of risk ``incidents'' that occur over a specified
time) is available on its affiliate Exchange, Cboe Options.\17\ The
Exchange believes the proposed changes to its Risk Monitor Mechanism
rule sufficiently allows Members to adjust and adopt parameter inputs
in accordance with their business models and risk management needs.
---------------------------------------------------------------------------
\17\ See Cboe Options Rule 8.18, which provides that a Hybrid
Market Maker or a TPH Organization may specify a maximum number of
Quote Risk Monitor Mechanism (``QRM'') QRM Incidents on an Exchange-
wide basis.
---------------------------------------------------------------------------
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.\18\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \19\ 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) \20\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
---------------------------------------------------------------------------
\18\ 15 U.S.C. 78f(b).
\19\ 15 U.S.C. 78f(b)(5).
\20\ Id.
---------------------------------------------------------------------------
First, the Exchange believes its proposal to harmonize Rule 21.16
to C2 Rule 6.14 provides uniformity across affiliated exchange rules
that govern the same functionality and makes the rule easier to read,
which reduces potential confusion. The Exchange also proposes to mirror
C2 Rule 6.14 because it believes consistent rules will increase the
understanding of the Exchange's operations for Members that are also
participants on C2. As discussed above, notwithstanding the proposal to
adopt new terminology and/or the absence of certain references, the
Exchange intends no substantive changes to the meaning or application
of Rule 21.16 other than what is described above with respect to EFID
Groups and the new risk trips parameter. Particularly, the Exchange
believes the adoption of the definition of ``EFID'' provides
transparency in the rules and alleviates confusion, as the Exchange
references EFIDs multiple times throughout proposed Rule 21.16 and
utilizes EFIDs generally on the Exchange with respect to its options
platform. The Exchange notes the proposed definition is substantively
the same as the definition of EFIDs under C2's rules.\21\ The Exchange
believes the use of ``quote'' and ``quotes'' also alleviates confusion
as the current Risk Monitor Mechanism in fact affects both orders and
quotes, as defined, and was intended to cover both a Member's orders
and Market Maker quotes. Similarly, the Exchange believes using the
term ``underlying'' instead of ``class'' and ``Member'' instead of
``user'' alleviates potential confusion as the proposed terms more
accurately reflect how the Risk Monitor Mechanism operates.
---------------------------------------------------------------------------
\21\ See C2 Rule 6.8(b).
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The Exchange believes the rule changes to codify current practice
alleviates potential confusion, provides transparency in the rules and
makes the rules easier to read. For example, providing language
regarding (i) a Member's failure to reset or initiate a reset of the
counting program and (ii) the Exchange's ability to restrict resets,
provides transparency in the rules as to what occurs in those
situations, harmonizes rule language with that of the Exchange's
affiliated Exchanges, and reduces potential confusion. The alleviation
of confusion removes impediments to, and perfects the mechanism of, a
free and open market and a national market system, and, in general,
protects investors and the public interest.
The Exchange believes providing Members the ability to configure
certain risk parameters across underlyings for an EFID Group is also
appropriate because it permits a Member to protect itself from
inadvertent exposure to excessive risk on an additional level (i.e., on
an EFID group-level, not just underlying- or EFID-level). Reducing such
risk will enable Members to enter quotes and orders with protection
against inadvertent exposure to excessive risk, which in turn will
benefit investors through increased liquidity for the execution of
their orders. Such increased liquidity benefits investors because they
may receive better prices and because it may lower volatility in the
options market. The Exchange also believes each Member is in the best
position to determine risk settings appropriate for its firm based on
its trading activity and business needs and that that may be based on
an EFID Group(s). Additionally, as discussed above, Cboe Options
similarly allows its members to set risk parameters at the acronym-
level (which is similar to an EFID) or firm-level (similar to an EFID
Group).\22\
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\22\ See Cboe Options Rule 8.18.
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Lastly, the Exchange believes the proposal to adopt the new risk
parameter based on number of times a risk parameter or group of risk
parameters are reached will provide Members with an additional tool for
managing risks. Furthermore, as noted above, the Exchange's affiliated
exchange offers similar functionality.\23\ Overall, the proposed rule
change provides Members more protections that reduce the risks from
potential system errors and market events. As a result, the proposed
changes, including the new risk parameter for the Risk Monitor
Mechanism, have the potential to promote just and equitable principles
of trade. Additionally, the proposed changes apply to all Members.
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\23\ See Cboe Options Rule 8.18.
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[[Page 64388]]
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 Exchange
believes that the proposed changes with respect to its Risk Monitor
Mechanism help promote fair and orderly markets and provide clarity and
transparency the Rule. For example, the proposed rule change adds an
additional risk control parameter and flexibility to help further
prevent potentially erroneous executions, which benefits all market
participants. The proposed changes apply uniformly to all Members and
the Exchange notes that the proposed changes apply to all quotes and
orders in the same manner. Additionally, the Exchange does not believe
that 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 the proposed enhancements apply only to
trading on the Exchange. Additionally, the Exchange notes that it is
voluntary for the Members to determine whether to make use of the new
enhancements of the Risk Monitor Mechanism. To the extent that the
proposed changes may make the Exchange a more attractive trading venue
for market participants on other exchanges, such market participants
may elect to become Exchange market participants.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received comments on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not:
A. significantly affect the protection of investors or the public
interest;
B. impose any significant burden on competition; and
C. 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 \24\ and
Rule 19b-4(f)(6) \25\ thereunder.\26\
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\24\ 15 U.S.C. 78s(b)(3)(A).
\25\ 17 CFR 240.19b-4(f)(6).
\26\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change, along
with a brief description and text of the proposed rule change, at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
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A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the
Act \27\ normally does not become operative for 30 days after the date
of its filing. However, Rule 19b-4(f)(6)(iii) \28\ permits the
Commission to designate a shorter time if such action is consistent
with the protection of investors and the public interest. The Exchange
has asked the Commission to waive the 30-day operative delay to provide
Members with additional tools and greater flexibility for managing
their potential risk as soon as possible. Accordingly, the Commission
believes that waiver of the 30-day operative delay is consistent with
the protection of investors and the public interest. Therefore, the
Commission hereby waives the operative delay and designates the
proposal as operative upon filing.\29\
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\27\ 17 CFR 240.19b-4(f)(6).
\28\ 17 CFR 240.19b-4(f)(6)(iii).
\29\ For purposes only of waiving the 30-day operative delay,
the Commission also has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-CboeEDGX-2018-058 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-CboeEDGX-2018-058. 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 (https://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549 on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-CboeEDGX-2018-058 and should be
submitted on or before January 4, 2019.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\30\
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\30\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2018-27086 Filed 12-13-18; 8:45 am]
BILLING CODE 8011-01-P
