Self-Regulatory Organizations; Nasdaq GEMX, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Its Rules Governing the Give Up of a Clearing Member by a Member on Exchange Transactions, 27672-27675 [2019-12448]

Download as PDF 27672 Federal Register / Vol. 84, No. 114 / Thursday, June 13, 2019 / Notices Exchange Act of 1934 1 and Rule 19b– 4 thereunder,2 a proposed rule change to adopt Rule 21.21, the Solicitation Auction Mechanism, a solicited order mechanism for larger-sized orders. The proposed rule change was published for comment in the Federal Register on March 12, 2019.3 On April 23, 2019, the Exchange filed Amendment No. 1 to the proposed rule change.4 On April 26, 2019, pursuant to Section 19(b)(2) of the Act,5 the Commission designated a longer period within which to approve the proposed rule change, disapprove the proposed rule change, or institute proceedings to determine whether to approve or disapprove the proposed rule change.6 The Commission received no comments on the proposal. On June 7, 2019, the Exchange withdrew the proposed rule change (SR–CboeEDGX– 2019–009). For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.7 Eduardo A. Aleman, Deputy Secretary. [FR Doc. 2019–12453 Filed 6–12–19; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–86067; File No. SR– NASDAQ–2019–017] Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Designation of Longer Period for Commission Action on a Proposed Rule Change To Adopt Additional Requirements for Listings in Connection With an Offering Under Regulation A of the Securities Act June 7, 2019. On April 5, 2019, The Nasdaq Stock Market LLC (‘‘Nasdaq’’ or the khammond on DSKBBV9HB2PROD with NOTICES 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 See Securities Exchange Act Release No. 85253 (March 6, 2019), 84 FR 8921. 4 Amendment No. 1 revised the proposal to (1) correct minor technical errors in the description of the proposed rule change; (2) remove an inadvertent description of an amendment to Exchange Rule 22.12, which the Exchange does not propose to amend in the proposal; and (3) update the Exchange’s description of the proposed rule change’s consistency with Section 11(a) of the Act. Amendment No. 1 is available at https:// www.sec.gov/comments/sr-cboeedgx-2019-009/ srcboeedgx2019009-5405908-184490.pdf. 5 15 U.S.C. 78s(b)(2). 6 See Securities Exchange Act Release No. 85734, 84 FR 18907 (May 2, 2019). The Commission designated June 10, 2019 as the date by which the Commission shall approve or disapprove, or institute proceedings to determine whether to approve or disapprove, the proposed rule change. 7 17 CFR 200.30–3(a)(12). VerDate Sep<11>2014 16:55 Jun 12, 2019 Jkt 247001 ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change to adopt a new initial listing requirement for any company applying to list on the Exchange in connection with an offering under Regulation A 3 of the Securities Act of 1933.4 The proposed rule change was published for comment in the Federal Register on April 24, 2019.5 The Commission received one comment on the proposed rule change.6 Section 19(b)(2) of the Act 7 provides that, within 45 days of the publication of the notice of the filing of a proposed rule change, or within such longer period up to 90 days as the Commission may designate if it finds such longer period to be appropriate and publishes its reasons for so finding or as to which the self-regulatory organization consents, the Commission shall approve the proposed rule change, disapprove the proposed rule change, or institute proceedings to determine whether the proposed rule change should be disapproved. The 45th day after publication of the notice for this proposed rule change is June 8, 2019. The Commission is extending this 45day time period. The Commission finds that it is appropriate to designate a longer period within which to take action on the proposed rule change so that it has sufficient time to consider the proposed rule change. Accordingly, the Commission, pursuant to Section 19(b)(2) of the Act,8 designates July 23, 2019, as the date by which the Commission should approve, disapprove, or institute proceedings to determine whether to disapprove the proposed rule change (File No. SR– NASDAQ–2019–017). For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.9 Eduardo A. Aleman, Deputy Secretary. [FR Doc. 2019–12452 Filed 6–12–19; 8:45 am] BILLING CODE 8011–01–P 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 17 CFR 230.251–230.263. 4 15 U.S.C. 77a et seq. 5 See Securities Exchange Act Release No. 85687 (April 18, 2019), 84 FR 17224 (April 24, 2019). 6 See Letter from Jeffrey P. Mahoney, General Counsel, Council of Institutional Investors, dated May 2, 2019, available at https://www.sec.gov/ comments/sr-nasdaq-2019-017/srnasdaq20190175441017-184816.pdf. 7 15 U.S.C. 78s(b)(2). 8 Id. 9 17 CFR 200.30–3(a)(31). 2 17 PO 00000 Frm 00094 Fmt 4703 Sfmt 4703 SECURITIES AND EXCHANGE COMMISSION [Release No. 34–86063; File No. SR–GEMX– 2019–06] Self-Regulatory Organizations; Nasdaq GEMX, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Its Rules Governing the Give Up of a Clearing Member by a Member on Exchange Transactions June 7, 2019. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on May 24, 2019, Nasdaq GEMX, LLC (‘‘GEMX’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘SEC’’ or ‘‘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 its rules governing the give up of a Clearing Member 3 by a Member on Exchange transactions. The text of the proposed rule change is available on the Exchange’s website at https://nasdaqgemx.cchwallstreet.com/, at the principal office of the Exchange, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 The term ‘‘Clearing Member’’ means a Member that is self-clearing or an Electronic Access Member that clears Exchange Transactions for other Members of the Exchange. See Rule 100(a)(11). 2 17 E:\FR\FM\13JNN1.SGM 13JNN1 Federal Register / Vol. 84, No. 114 / Thursday, June 13, 2019 / Notices A. Self-Regulatory Organization’s Statement of the Purpose of, and the Statutory Basis for, the Proposed Rule Change khammond on DSKBBV9HB2PROD with NOTICES 1. Purpose The Exchange proposes to amend its requirements in Rule 707 related to the give up of a Clearing Member by a Member on Exchange transactions. This proposed rule change is substantially similar 4 to a recently-approved rule change by the Exchange’s affiliate, Nasdaq PHLX LLC (‘‘Phlx’’),5 and serves to align the rules of Phlx and the Exchange.6 By way of background, to enter transactions on the Exchange, a Member must either be a Clearing Member or must have a Clearing Member agree to accept financial responsibility for all of its transactions. In particular, Rule 707 currently provides that a Member must give up the name of the Clearing Member through whom the transaction will be cleared. Rule 712(b) provides, in relevant part, that every Clearing Member shall be responsible for the clearance of Exchange transactions of such Clearing Member and of each Member who gives up such Clearing Member’s name pursuant to a letter of authorization, letter of guarantee or other authorization given by such Clearing Member to such Member, which authorization must be submitted to the Exchange. Additionally Rule 808(a) provides that no Market Maker (i.e., Primary Market Makers and Competitive Market Makers) shall make any transactions on the Exchange unless a Letter of Guarantee has been issued for such Member by a Clearing Member and filed with the Exchange.7 Recently, certain Clearing Members, in conjunction with the Securities Industry and Financial Markets Association (‘‘SIFMA’’), expressed concerns related to the process by which executing brokers on U.S. options exchanges (‘‘Exchanges’’) are allowed to 4 Specifically, GEMX is not adopting sections (c)(i) and (c)(ii) of Phlx Rule 1037, which relate to how the Phlx trading system will enforce unauthorized Give Ups for floor trades and electronic trades, respectively. With respect to electronic trades, Phlx will block the order from the outset whereas GEMX will automatically default to the Member’s guarantor. See proposed GEMX Rule 707(c). 5 See Securities Exchange Act Release No. 85136 (February 14, 2019) (SR–Phlx–2018–72) (Approval Order). 6 The other Nasdaq, Inc.-owned options markets, Nasdaq BX, Nasdaq ISE, Nasdaq MRX, and The Nasdaq Options Market (collectively, ‘‘Nasdaq HoldCo Exchanges’’), will file similar rule change proposals based on the Phlx filing. 7 Furthermore, the Exchange previously issued guidance on designating Give Ups in Regulatory Information Circular 2013–02. This rule change supersedes the Exchange’s previous interpretation. VerDate Sep<11>2014 16:55 Jun 12, 2019 Jkt 247001 designate or ‘give up’ a clearing firm for purposes of clearing particular transactions. The SIFMA-affiliated Clearing Members have recently identified the current give up process as a significant source of risk for clearing firms, and subsequently requested that the Exchanges alleviate this risk by amending Exchange rules governing the give up process.8 Proposed Rule Change Based on the above, the Exchange now seeks to amend its rules regarding the current give up process in order to allow a Clearing Member to opt in, at The Options Clearing Corporation (‘‘OCC’’) clearing number level, to a feature that, if enabled by the Clearing Member, will allow the Clearing Member to specify which Members are authorized to give up that OCC clearing number. Accordingly, Rule 707 will be retitled as ‘‘Authorization to Give Up,’’ and the current rule text will be replaced by new language. Specifically, proposed Rule 707 will provide that for each transaction in which a Member participates, the Member may indicate, at the time of the trade or through post trade allocation, any OCC number of a Clearing Member through which a transaction will be cleared (‘‘Give Up’’), provided the Clearing Member has not elected to ‘‘Opt In,’’ as defined in paragraph (b) of the proposed Rule, and restrict one or more of its OCC number(s) (‘‘Restricted OCC Number’’). A Member may Give Up a Restricted OCC Number provided the Member has written authorization as described in paragraph (b)(ii) (‘‘Authorized Member’’). Proposed Rule 707(b) provides that Clearing Members may request the Exchange restrict one or more of their OCC clearing numbers (‘‘Opt In’’) as described in subparagraph (b)(i) of Rule 707. If a Clearing Member Opts In, the Exchange will require written authorization from the Clearing Member permitting a Member to Give Up a Clearing Member’s Restricted OCC Number. An Opt In would remain in effect until the Clearing Member terminates the Opt In as described in subparagraph (iii). If a Clearing Member does not Opt In, that Clearing Member’s OCC number may be subject to Give Up by any Member. Proposed Rule 707(b)(i) will set forth the process by which a Clearing Member may Opt In. Specifically, a Clearing Member may Opt In by sending a completed ‘‘Clearing Member Restriction Form’’ listing all Restricted OCC Numbers and Authorized 8 See PO 00000 note 5 above. Frm 00095 Fmt 4703 Sfmt 4703 27673 Members.9 A copy of the proposed form is attached in Exhibit 3[sic]. A Clearing Member may elect to restrict one or more OCC clearing numbers that are registered in its name at OCC. The Clearing Member would be required to submit the Clearing Member Restriction Form to the Exchange’s Membership Department as described on the form. Once submitted, the Exchange requires ninety days before a Restricted OCC Number is effective within the System. This time period is to provide adequate time for the member users of that Restricted OCC Number who are not initially specified by the Clearing Member as Authorized Members to obtain the required written authorization from the Clearing Member for that Restricted OCC Number. Such member users would still be able to Give Up that Restricted OCC Number during this ninety day period (i.e., until the number becomes restricted within the System). Proposed Rule 707(b)(ii) will set forth the process for Members to Give Up a Clearing Member’s Restricted OCC Number. Specifically, a Member desiring to Give Up a Restricted OCC Number must become an Authorized Member.10 The Clearing Member will be required to authorize a Member as described in subparagraph (i) or (iii) of Rule 707(b) (i.e., through a Clearing Member Restriction Form), unless the Restricted OCC Number is already subject to a Letter of Guarantee that the Member is a party to, as set forth in Rule 707(d). Pursuant to proposed Rule 707(b)(iii), a Clearing Member may amend the list of its Authorized Members or Restricted OCC Numbers by submitting a new Clearing Member Restriction Form to the Exchange’s Membership Department indicating the amendment as described on the form. Once a Restricted OCC Number is effective within the System pursuant to Rule 707(b)(i), the Exchange may permit the Clearing Member to authorize, or remove authorization for, a Member to Give Up the Restricted OCC Number intra-day only in unusual circumstances, and on the next business day in all regular circumstances. The Exchange will promptly notify the 9 This form will be available on the Exchange’s website. The Exchange will also maintain, on its website, a list of the Restricted OCC Numbers, which will be updated on a regular basis, and the Clearing Member’s contact information to assist Members (to the extent they are not already Authorized Members) with requesting authorization for a Restricted OCC Number. The Exchange may utilize additional means to inform its members of such updates on a periodic basis. 10 The Exchange will develop procedures for notifying Members that they are authorized or unauthorized by Clearing Members. E:\FR\FM\13JNN1.SGM 13JNN1 khammond on DSKBBV9HB2PROD with NOTICES 27674 Federal Register / Vol. 84, No. 114 / Thursday, June 13, 2019 / Notices Members if they are no longer authorized to Give Up a Clearing Member’s Restricted OCC Number. If a Clearing Member removes a Restricted OCC Number, any Member may Give Up that OCC clearing number once the removal has become effective on or before the next business day. Proposed Rule 707(c) will provide that the System will not allow an unauthorized Member to Give Up a Restricted OCC Number. Specifically, if an unauthorized Give Up with a Restricted OCC Number is submitted to the System, the System will process that transaction using the Member’s default OCC clearing number. Furthermore, the Exchange proposes to adopt paragraph (d) to Rule 707 to provide, as is the case today, that a clearing arrangement subject to a Letter of Guarantee would immediately permit the Give Up of a Restricted OCC Number by the Member that is party to the arrangement. Since there is an OCC clearing arrangement already established in this case, no further action is needed on the part of the Clearing Member or the Member. The Exchange also proposes to adopt paragraph (e) to Rule 707 to provide that an intentional misuse of this Rule is impermissible, and may be treated as a violation of Rule 400, titled ‘‘Just and Equitable Principles of Trade,’’ or Rule 401, titled ‘‘Adherence to Law.’’ This language will make clear that the Exchange will regulate an intentional misuse of this Rule (e.g., sending orders to a Clearing Member’s OCC account without the Clearing Member’s consent), and that such behavior would be a violation of Exchange rules. In light of the foregoing proposal, the Exchange also proposes to amend Rule 712(b), which addresses the Clearing Member’s financial responsibility for the Exchange transactions of Members who give up the name of such Clearing Member pursuant to, for example, a letter of guarantee. In particular, the Exchange proposes to add that every Clearing Member shall be responsible for the clearance of the Exchange transactions of each Member who gives up such Clearing Member’s name pursuant to a written authorization to become an Authorized Member under Rule 707. Lastly, the Exchange proposes the following technical changes in the same provision: (1) To capitalize Letter of Guarantee for consistency throughout its Rulebook, (2) to delete obsolete references to the letter of clearing authorization,11 and (3) to replace the 11 GEMX recently updated its forms to combine the Electronic Access Member letter of clearing VerDate Sep<11>2014 16:55 Jun 12, 2019 Jkt 247001 phrase ‘‘letter of clearing authorization or letter of guarantee’’ with ‘‘authorization’’ to track the foregoing changes. Implementation The Exchange proposes to implement the proposed rule change no later than by the end of Q3 2019. The Exchange will announce the implementation date to its Members in an Options Trader Alert. 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) of the Act,12 in general, and furthers the objectives of Section 6(b)(5) of the Act,13 in particular, in that it is designed to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in 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. Particularly, as discussed above, several clearing firms affiliated with SIFMA have recently expressed concerns relating to the current give up process, which permits Members to identify any Clearing Member as a designated give up for purposes of clearing particular transactions, and have identified the current give up process (i.e., a process that lacks authorization) as a significant source of risk for clearing firms. The Exchange believes that the proposed changes to Rule 707 help alleviate this risk by enabling Clearing Members to ‘Opt In’ to restrict one or more of its OCC clearing numbers (i.e., Restricted OCC Numbers), and to specify which Authorized Members may Give Up those Restricted OCC Numbers. As described above, all other Members would be required to receive written authorization from the Clearing Member before they can Give Up that Clearing Member’s Restricted OCC Number. The Exchange believes that this authorization provides proper safeguards and protections for Clearing Members as it provides controls for Clearing Members to restrict access to their OCC clearing numbers, allowing access only to those Authorized Members upon their request. The Exchange also believes that its proposed Clearing Member Restriction Form allows the Exchange to receive in a authorization and Market Maker guarantee into one Letter of Guarantee applicable to all Members. 12 15 U.S.C. 78f(b). 13 15 U.S.C. 78f(b)(5). PO 00000 Frm 00096 Fmt 4703 Sfmt 4703 uniform fashion, written and transparent authorization from Clearing Members, which ensures seamless administration of the Rule. The Exchange believes that the proposed Opt In process strikes the right balance between the various views and interests across the industry. For example, although the proposed rule would require Members (other than Authorized Members) to seek authorization from Clearing Members in order to have the ability to give them up, each Member will still have the ability to Give Up a Restricted OCC Number that is subject to a Letter of Guarantee without obtaining any further authorization if that Member is party to that arrangement. The Exchange also notes that to the extent the executing Member has a clearing arrangement with a Clearing Member (i.e., through a Letter of Guarantee), a trade can be assigned to the executing Member’s guarantor. Accordingly, the Exchange believes that the proposed rule change is reasonable and continues to provide certainty that a Clearing Member would be responsible for a trade, which protects investors and the public interest. Finally, the Exchange believes that adopting paragraph (e) of Rule 707 will make clear that an intentional misuse of this Rule (e.g., sending orders to a Clearing Member’s OCC account without the Clearing Member’s consent) will be a violation of the Exchange’s rules, and that such behavior would subject a Member to disciplinary action. 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 not necessary or appropriate in furtherance of the purposes of the Act. The Exchange does not believe that the proposed rule change will impose an unnecessary burden on intramarket competition because it would apply equally to all similarly situated Members. The Exchange also notes that, should the proposed changes make GEMX more attractive for trading, market participants trading on other exchanges can always elect to become Members on GEMX to take advantage of the trading opportunities. Furthermore, the proposed rule change does not address any competitive issues and ultimately, the target of the Exchange’s proposal is to reduce risk for Clearing Members under the current give up model. Clearing firms make financial decisions based on risk and reward, and while it is generally in their beneficial interest to clear transactions for market E:\FR\FM\13JNN1.SGM 13JNN1 27675 Federal Register / Vol. 84, No. 114 / Thursday, June 13, 2019 / Notices participants in order to generate profit, it is the Exchange’s understanding from SIFMA and clearing firms that the current process can create significant risk when the clearing firm can be given up on any market participant’s transaction, even where there is no prior customer relationship or authorization for that designated transaction. In the absence of a mechanism that governs a market participant’s use of a Clearing Member’s services, the Exchange’s proposal may indirectly facilitate the ability of a Clearing Member to manage their existing customer relationships while continuing to allow market participant choice in broker execution services. While Clearing Members may compete with executing brokers for order flow, the Exchange does not believe this proposal imposes an undue burden on competition. Rather, the Exchange believes that the proposed rule change balances the need for Clearing Members to manage risks and allows them to address outlier behavior from executing brokers while still allowing freedom of choice to select an executing broker. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were either solicited or received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action khammond on DSKBBV9HB2PROD with NOTICES Because the foregoing proposed rule change does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A)(iii) of the Act 14 and subparagraph (f)(6) of Rule 19b–4 thereunder.15 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 14 15 U.S.C. 78s(b)(3)(A)(iii). CFR 240.19b–4(f)(6). In addition, Rule 19b– 4(f)(6) requires a self-regulatory organization to give the Commission written notice of its intent to file the proposed rule change at least five business days prior to the date of filing of the proposed rule change, or such shorter time as designated by the Commission. The Exchange has satisfied this requirement. 15 17 VerDate Sep<11>2014 16:55 Jun 12, 2019 Jkt 247001 the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.16 Eduardo A. Aleman, Deputy Secretary. 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: [FR Doc. 2019–12448 Filed 6–12–19; 8:45 am] 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– GEMX–2019–06 on the subject line. Self-Regulatory Organizations; Cboe C2 Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating To Amend the Fat Finger Check for Simple Orders in Rule 6.14 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–GEMX–2019–06. 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–GEMX–2019–06 and should be submitted on or before July 5, 2019. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on June 6, 2019, Cboe C2 Exchange, Inc. (the ‘‘Exchange’’ or ‘‘C2’’) 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. PO 00000 Frm 00097 Fmt 4703 Sfmt 4703 BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–86066; File No. SR–C2– 2019–015] June 7, 2019. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change Cboe C2 Exchange, Inc. (the ‘‘Exchange’’ or ‘‘C2’’) proposes to amend the fat finger check for with respect to simple orders in Rule 6.14. The text of the proposed rule change is provided below. (additions are italicized; deletions are [bracketed]) * * * * * Rules of Cboe C2 Exchange, Inc. * * * * * Rule 6.14. Order and Quote Price Protection Mechanisms and Risk Controls (a)–(b) No change. (c) All Orders. (1) Limit Order Fat Finger Check. If a User submits a buy (sell) limit order to the System with a price that is more than a buffer 16 17 CFR 200.30–3(a)(12). 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). 1 15 E:\FR\FM\13JNN1.SGM 13JNN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 84, Number 114 (Thursday, June 13, 2019)]
[Notices]
[Pages 27672-27675]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-12448]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-86063; File No. SR-GEMX-2019-06]


Self-Regulatory Organizations; Nasdaq GEMX, LLC; Notice of Filing 
and Immediate Effectiveness of a Proposed Rule Change To Amend Its 
Rules Governing the Give Up of a Clearing Member by a Member on 
Exchange Transactions

June 7, 2019.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on May 24, 2019, Nasdaq GEMX, LLC (``GEMX'' or ``Exchange'') filed with 
the Securities and Exchange Commission (``SEC'' or ``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.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend its rules governing the give up of a 
Clearing Member \3\ by a Member on Exchange transactions.
---------------------------------------------------------------------------

    \3\ The term ``Clearing Member'' means a Member that is self-
clearing or an Electronic Access Member that clears Exchange 
Transactions for other Members of the Exchange. See Rule 100(a)(11).
---------------------------------------------------------------------------

    The text of the proposed rule change is available on the Exchange's 
website at https://nasdaqgemx.cchwallstreet.com/, at the principal 
office of the Exchange, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

[[Page 27673]]

A. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend its requirements in Rule 707 related 
to the give up of a Clearing Member by a Member on Exchange 
transactions. This proposed rule change is substantially similar \4\ to 
a recently-approved rule change by the Exchange's affiliate, Nasdaq 
PHLX LLC (``Phlx''),\5\ and serves to align the rules of Phlx and the 
Exchange.\6\
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    \4\ Specifically, GEMX is not adopting sections (c)(i) and 
(c)(ii) of Phlx Rule 1037, which relate to how the Phlx trading 
system will enforce unauthorized Give Ups for floor trades and 
electronic trades, respectively. With respect to electronic trades, 
Phlx will block the order from the outset whereas GEMX will 
automatically default to the Member's guarantor. See proposed GEMX 
Rule 707(c).
    \5\ See Securities Exchange Act Release No. 85136 (February 14, 
2019) (SR-Phlx-2018-72) (Approval Order).
    \6\ The other Nasdaq, Inc.-owned options markets, Nasdaq BX, 
Nasdaq ISE, Nasdaq MRX, and The Nasdaq Options Market (collectively, 
``Nasdaq HoldCo Exchanges''), will file similar rule change 
proposals based on the Phlx filing.
---------------------------------------------------------------------------

    By way of background, to enter transactions on the Exchange, a 
Member must either be a Clearing Member or must have a Clearing Member 
agree to accept financial responsibility for all of its transactions. 
In particular, Rule 707 currently provides that a Member must give up 
the name of the Clearing Member through whom the transaction will be 
cleared. Rule 712(b) provides, in relevant part, that every Clearing 
Member shall be responsible for the clearance of Exchange transactions 
of such Clearing Member and of each Member who gives up such Clearing 
Member's name pursuant to a letter of authorization, letter of 
guarantee or other authorization given by such Clearing Member to such 
Member, which authorization must be submitted to the Exchange. 
Additionally Rule 808(a) provides that no Market Maker (i.e., Primary 
Market Makers and Competitive Market Makers) shall make any 
transactions on the Exchange unless a Letter of Guarantee has been 
issued for such Member by a Clearing Member and filed with the 
Exchange.\7\
---------------------------------------------------------------------------

    \7\ Furthermore, the Exchange previously issued guidance on 
designating Give Ups in Regulatory Information Circular 2013-02. 
This rule change supersedes the Exchange's previous interpretation.
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    Recently, certain Clearing Members, in conjunction with the 
Securities Industry and Financial Markets Association (``SIFMA''), 
expressed concerns related to the process by which executing brokers on 
U.S. options exchanges (``Exchanges'') are allowed to designate or 
`give up' a clearing firm for purposes of clearing particular 
transactions. The SIFMA-affiliated Clearing Members have recently 
identified the current give up process as a significant source of risk 
for clearing firms, and subsequently requested that the Exchanges 
alleviate this risk by amending Exchange rules governing the give up 
process.\8\
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    \8\ See note 5 above.
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Proposed Rule Change
    Based on the above, the Exchange now seeks to amend its rules 
regarding the current give up process in order to allow a Clearing 
Member to opt in, at The Options Clearing Corporation (``OCC'') 
clearing number level, to a feature that, if enabled by the Clearing 
Member, will allow the Clearing Member to specify which Members are 
authorized to give up that OCC clearing number. Accordingly, Rule 707 
will be retitled as ``Authorization to Give Up,'' and the current rule 
text will be replaced by new language. Specifically, proposed Rule 707 
will provide that for each transaction in which a Member participates, 
the Member may indicate, at the time of the trade or through post trade 
allocation, any OCC number of a Clearing Member through which a 
transaction will be cleared (``Give Up''), provided the Clearing Member 
has not elected to ``Opt In,'' as defined in paragraph (b) of the 
proposed Rule, and restrict one or more of its OCC number(s) 
(``Restricted OCC Number''). A Member may Give Up a Restricted OCC 
Number provided the Member has written authorization as described in 
paragraph (b)(ii) (``Authorized Member'').
    Proposed Rule 707(b) provides that Clearing Members may request the 
Exchange restrict one or more of their OCC clearing numbers (``Opt 
In'') as described in subparagraph (b)(i) of Rule 707. If a Clearing 
Member Opts In, the Exchange will require written authorization from 
the Clearing Member permitting a Member to Give Up a Clearing Member's 
Restricted OCC Number. An Opt In would remain in effect until the 
Clearing Member terminates the Opt In as described in subparagraph 
(iii). If a Clearing Member does not Opt In, that Clearing Member's OCC 
number may be subject to Give Up by any Member.
    Proposed Rule 707(b)(i) will set forth the process by which a 
Clearing Member may Opt In. Specifically, a Clearing Member may Opt In 
by sending a completed ``Clearing Member Restriction Form'' listing all 
Restricted OCC Numbers and Authorized Members.\9\ A copy of the 
proposed form is attached in Exhibit 3[sic]. A Clearing Member may 
elect to restrict one or more OCC clearing numbers that are registered 
in its name at OCC. The Clearing Member would be required to submit the 
Clearing Member Restriction Form to the Exchange's Membership 
Department as described on the form. Once submitted, the Exchange 
requires ninety days before a Restricted OCC Number is effective within 
the System. This time period is to provide adequate time for the member 
users of that Restricted OCC Number who are not initially specified by 
the Clearing Member as Authorized Members to obtain the required 
written authorization from the Clearing Member for that Restricted OCC 
Number. Such member users would still be able to Give Up that 
Restricted OCC Number during this ninety day period (i.e., until the 
number becomes restricted within the System).
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    \9\ This form will be available on the Exchange's website. The 
Exchange will also maintain, on its website, a list of the 
Restricted OCC Numbers, which will be updated on a regular basis, 
and the Clearing Member's contact information to assist Members (to 
the extent they are not already Authorized Members) with requesting 
authorization for a Restricted OCC Number. The Exchange may utilize 
additional means to inform its members of such updates on a periodic 
basis.
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    Proposed Rule 707(b)(ii) will set forth the process for Members to 
Give Up a Clearing Member's Restricted OCC Number. Specifically, a 
Member desiring to Give Up a Restricted OCC Number must become an 
Authorized Member.\10\ The Clearing Member will be required to 
authorize a Member as described in subparagraph (i) or (iii) of Rule 
707(b) (i.e., through a Clearing Member Restriction Form), unless the 
Restricted OCC Number is already subject to a Letter of Guarantee that 
the Member is a party to, as set forth in Rule 707(d).
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    \10\ The Exchange will develop procedures for notifying Members 
that they are authorized or unauthorized by Clearing Members.
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    Pursuant to proposed Rule 707(b)(iii), a Clearing Member may amend 
the list of its Authorized Members or Restricted OCC Numbers by 
submitting a new Clearing Member Restriction Form to the Exchange's 
Membership Department indicating the amendment as described on the 
form. Once a Restricted OCC Number is effective within the System 
pursuant to Rule 707(b)(i), the Exchange may permit the Clearing Member 
to authorize, or remove authorization for, a Member to Give Up the 
Restricted OCC Number intra-day only in unusual circumstances, and on 
the next business day in all regular circumstances. The Exchange will 
promptly notify the

[[Page 27674]]

Members if they are no longer authorized to Give Up a Clearing Member's 
Restricted OCC Number. If a Clearing Member removes a Restricted OCC 
Number, any Member may Give Up that OCC clearing number once the 
removal has become effective on or before the next business day.
    Proposed Rule 707(c) will provide that the System will not allow an 
unauthorized Member to Give Up a Restricted OCC Number. Specifically, 
if an unauthorized Give Up with a Restricted OCC Number is submitted to 
the System, the System will process that transaction using the Member's 
default OCC clearing number.
    Furthermore, the Exchange proposes to adopt paragraph (d) to Rule 
707 to provide, as is the case today, that a clearing arrangement 
subject to a Letter of Guarantee would immediately permit the Give Up 
of a Restricted OCC Number by the Member that is party to the 
arrangement. Since there is an OCC clearing arrangement already 
established in this case, no further action is needed on the part of 
the Clearing Member or the Member.
    The Exchange also proposes to adopt paragraph (e) to Rule 707 to 
provide that an intentional misuse of this Rule is impermissible, and 
may be treated as a violation of Rule 400, titled ``Just and Equitable 
Principles of Trade,'' or Rule 401, titled ``Adherence to Law.'' This 
language will make clear that the Exchange will regulate an intentional 
misuse of this Rule (e.g., sending orders to a Clearing Member's OCC 
account without the Clearing Member's consent), and that such behavior 
would be a violation of Exchange rules.
    In light of the foregoing proposal, the Exchange also proposes to 
amend Rule 712(b), which addresses the Clearing Member's financial 
responsibility for the Exchange transactions of Members who give up the 
name of such Clearing Member pursuant to, for example, a letter of 
guarantee. In particular, the Exchange proposes to add that every 
Clearing Member shall be responsible for the clearance of the Exchange 
transactions of each Member who gives up such Clearing Member's name 
pursuant to a written authorization to become an Authorized Member 
under Rule 707. Lastly, the Exchange proposes the following technical 
changes in the same provision: (1) To capitalize Letter of Guarantee 
for consistency throughout its Rulebook, (2) to delete obsolete 
references to the letter of clearing authorization,\11\ and (3) to 
replace the phrase ``letter of clearing authorization or letter of 
guarantee'' with ``authorization'' to track the foregoing changes.
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    \11\ GEMX recently updated its forms to combine the Electronic 
Access Member letter of clearing authorization and Market Maker 
guarantee into one Letter of Guarantee applicable to all Members.
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Implementation
    The Exchange proposes to implement the proposed rule change no 
later than by the end of Q3 2019. The Exchange will announce the 
implementation date to its Members in an Options Trader Alert.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\12\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\13\ in particular, in that it is designed to 
promote just and equitable principles of trade, to foster cooperation 
and coordination with persons engaged in 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.
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    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(5).
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    Particularly, as discussed above, several clearing firms affiliated 
with SIFMA have recently expressed concerns relating to the current 
give up process, which permits Members to identify any Clearing Member 
as a designated give up for purposes of clearing particular 
transactions, and have identified the current give up process (i.e., a 
process that lacks authorization) as a significant source of risk for 
clearing firms.
    The Exchange believes that the proposed changes to Rule 707 help 
alleviate this risk by enabling Clearing Members to `Opt In' to 
restrict one or more of its OCC clearing numbers (i.e., Restricted OCC 
Numbers), and to specify which Authorized Members may Give Up those 
Restricted OCC Numbers. As described above, all other Members would be 
required to receive written authorization from the Clearing Member 
before they can Give Up that Clearing Member's Restricted OCC Number. 
The Exchange believes that this authorization provides proper 
safeguards and protections for Clearing Members as it provides controls 
for Clearing Members to restrict access to their OCC clearing numbers, 
allowing access only to those Authorized Members upon their request. 
The Exchange also believes that its proposed Clearing Member 
Restriction Form allows the Exchange to receive in a uniform fashion, 
written and transparent authorization from Clearing Members, which 
ensures seamless administration of the Rule.
    The Exchange believes that the proposed Opt In process strikes the 
right balance between the various views and interests across the 
industry. For example, although the proposed rule would require Members 
(other than Authorized Members) to seek authorization from Clearing 
Members in order to have the ability to give them up, each Member will 
still have the ability to Give Up a Restricted OCC Number that is 
subject to a Letter of Guarantee without obtaining any further 
authorization if that Member is party to that arrangement. The Exchange 
also notes that to the extent the executing Member has a clearing 
arrangement with a Clearing Member (i.e., through a Letter of 
Guarantee), a trade can be assigned to the executing Member's 
guarantor. Accordingly, the Exchange believes that the proposed rule 
change is reasonable and continues to provide certainty that a Clearing 
Member would be responsible for a trade, which protects investors and 
the public interest. Finally, the Exchange believes that adopting 
paragraph (e) of Rule 707 will make clear that an intentional misuse of 
this Rule (e.g., sending orders to a Clearing Member's OCC account 
without the Clearing Member's consent) will be a violation of the 
Exchange's rules, and that such behavior would subject a Member to 
disciplinary action.

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 not necessary or appropriate in 
furtherance of the purposes of the Act. The Exchange does not believe 
that the proposed rule change will impose an unnecessary burden on 
intramarket competition because it would apply equally to all similarly 
situated Members. The Exchange also notes that, should the proposed 
changes make GEMX more attractive for trading, market participants 
trading on other exchanges can always elect to become Members on GEMX 
to take advantage of the trading opportunities.
    Furthermore, the proposed rule change does not address any 
competitive issues and ultimately, the target of the Exchange's 
proposal is to reduce risk for Clearing Members under the current give 
up model. Clearing firms make financial decisions based on risk and 
reward, and while it is generally in their beneficial interest to clear 
transactions for market

[[Page 27675]]

participants in order to generate profit, it is the Exchange's 
understanding from SIFMA and clearing firms that the current process 
can create significant risk when the clearing firm can be given up on 
any market participant's transaction, even where there is no prior 
customer relationship or authorization for that designated transaction.
    In the absence of a mechanism that governs a market participant's 
use of a Clearing Member's services, the Exchange's proposal may 
indirectly facilitate the ability of a Clearing Member to manage their 
existing customer relationships while continuing to allow market 
participant choice in broker execution services. While Clearing Members 
may compete with executing brokers for order flow, the Exchange does 
not believe this proposal imposes an undue burden on competition. 
Rather, the Exchange believes that the proposed rule change balances 
the need for Clearing Members to manage risks and allows them to 
address outlier behavior from executing brokers while still allowing 
freedom of choice to select an executing broker.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A)(iii) of the Act \14\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\15\
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    \14\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \15\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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    At any time within 60 days of the filing of the proposed rule 
change, the 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 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-GEMX-2019-06 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-GEMX-2019-06. 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-GEMX-2019-06 and should be submitted on 
or before July 5, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-12448 Filed 6-12-19; 8:45 am]
 BILLING CODE 8011-01-P

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