Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing of a Proposed Rule Change To Use Cboe Exchange's Affiliate, Cboe Trading, as an Inbound and Outbound Router for Cboe Options, 31940-31944 [2019-14164]

Download as PDF 31940 Federal Register / Vol. 84, No. 128 / Wednesday, July 3, 2019 / Notices IV. Solicitation of Comments 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 proposed change does not impose a burden on competition because, as previously stated, it (i) is of a nonsubstantive nature, (ii) is intended to harmonize the structure of the Exchange’s rules with those of its Affiliated Exchanges, and (iii) is intended to organize the Rulebook in a way that it will ease the Members’, market participants’, and the general public’s navigation and reading of the rules. Consequently, the Exchange does not believe that the proposed changes implicate competition at all. 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 26 and subparagraph (f)(6) of Rule 19b–4 thereunder.27 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. jspears on DSK30JT082PROD with NOTICES 26 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, 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 VerDate Sep<11>2014 19:23 Jul 02, 2019 Jkt 247001 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 rule-comments@ sec.gov. Please include File Number SR– BX–2019–023 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–BX–2019–023. 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–BX–2019–023, and should be submitted on or before July 24, 2019. PO 00000 For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.28 Eduardo A. Aleman, Deputy Secretary. [FR Doc. 2019–14163 Filed 7–2–19; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–86224; File No. SR–CBOE– 2019–030] Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing of a Proposed Rule Change To Use Cboe Exchange’s Affiliate, Cboe Trading, as an Inbound and Outbound Router for Cboe Options June 27, 2019. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the ‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on June 25, 2019, Cboe Exchange, Inc. (the ‘‘Exchange’’ or ‘‘Cboe Options’’) filed with the Securities and Exchange Commission (the ‘‘Commission’’) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the Exchange. The 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 Exchange, Inc. (the ‘‘Exchange’’ or ‘‘Cboe Options’’) proposes to adopt rules related to the inbound and outbound router for Cboe Options, as well as seek approval from the Securities and Exchange Commission (‘‘Commission’’) for affiliate, [sic] Trading, Inc. (‘‘Cboe Trading’’), to become a Trading Permit Holder of the Exchange. 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/About CBOE/CBOELegalRegulatory Home.aspx), at the Exchange’s Office of the Secretary, and at the Commission’s Public Reference Room. 28 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 Frm 00109 Fmt 4703 Sfmt 4703 E:\FR\FM\03JYN1.SGM 03JYN1 Federal Register / Vol. 84, No. 128 / Wednesday, July 3, 2019 / Notices 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 (1) seek approval from the Commission pursuant to current Rule 3.32(b) for affiliate, Cboe Trading, to become a Trading Permit Holder of the Exchange; (2) relocate and amend Rule 3.32(b) related to exchange affiliations to Rule 3.11; (3) adopt Rule 3.12 to govern the Exchange’s use of Cboe Trading as an outbound router; (4) adopt Rule 3.13 to govern the Exchange’s receipt of inbound orders from Cboe Trading, on behalf of the Exchange’s affiliate options exchanges, Cboe EDGX Exchange, Inc. (‘‘EDGX’’), Cboe BZX Exchange, Inc. (‘‘BZX’’) and Cboe C2 Exchange, Inc. (‘‘C2’’); and (5) make non-substantive changes to Rule 6.14B regarding non-affiliated routing brokers. The Exchange notes that proposed Rules 3.11, 3.12 and 3.13 and current Rule 6.14B are substantively identical in all material respects to EDGX Rules 2.10, 2.11, 2.12, and 21.9(e), as well as C2 Rules 3.16, 3.17, 3.18 and 6.15(e). jspears on DSK30JT082PROD with NOTICES Commission Approval Under Current Rule 3.32(b) Current Rule 3.32(b) provides that without prior Commission approval, no Trading Permit Holder may be or become affiliated with the Exchange. The Exchange seeks Commission approval for Exchange affiliate Cboe Trading to become a Trading Permit Holder of the Exchange pursuant to Rule 3.32(b). The Exchange also seeks Commission approval to transfer and amend current Rule 3.32(b) to proposed Rule 3.11, as described below. Relocation and Amendment of Rule 3.32(b) The Exchange seeks the Commission’s approval to relocate Rule 3.32(b) 3 to proposed new Rule 3.11 and add to proposed Rule 3.11 similar exclusions from the affiliation prohibition contained in its affiliated options exchanges, EDGX Rule 2.10 and C2 Rule 3.16. Current Rule 3.32(b) prohibits the Exchange from acquiring or maintaining an ownership interest in a Trading Permit Holder, as well as prohibits Trading Permit Holder affiliations with the Exchange or an affiliate of the Exchange without prior Commission approval. Current exceptions include equity interests in CBSX LLC and the Exchange’s parent company, Cboe Global Markets, Inc., and affiliations with OneChicago, LLC. EDGX Rule 2.10 and C2 Rule 3.16 contain similar restrictions on Exchange affiliations with EDGX Members and C2 Trading Permit Holders, but also contains additional exceptions, including (a) affiliations solely by reason of a Member (or any officer, director, manager, managing member, partner, or affiliate of such Member) becoming a director of the Exchange or Cboe Global Markets, Inc., or (b) affiliations with Cboe Trading or of Cboe EDGA Exchange, Inc., Cboe EDGX Exchange, Inc., Cboe BZX Exchange, Inc., Cboe BYX Exchange, Inc., Cboe C2 Exchange, Inc., or Cboe Futures Exchange, LLC (each, a ‘‘Cboe Exchange’’). The Exchange proposes to include these two additional exceptions in proposed Rule 3.11 as the same affiliate restrictions apply to all three exchanges and are consistent with governing documents of Cboe Options and Cboe Global Markets, Inc., previously filed with the Commission. Proposed Rule 3.12 (Cboe Trading as Outbound Router) The proposed rule change also adopts Rule 3.12 to govern the Exchange’s use of Cboe Trading as an outbound router. Proposed Rule 3.12 is based on EDGX Rule 2.11 and C2 Rule 3.17. As long as Cboe Trading is affiliated with Cboe Options and is providing outbound routing of orders from Cboe Options to other securities exchanges, facilities of securities exchanges, automated trading systems, electronic communications networks or other brokers or dealers (‘‘Trading Centers’’ and, such function of Cboe Trading is referred to as the ‘‘Outbound Router’’), Cboe Trading’s outbound routing services would be 3 And, as a result, update the subsequent lettering under Rule 3.32. VerDate Sep<11>2014 19:23 Jul 02, 2019 Jkt 247001 PO 00000 Frm 00110 Fmt 4703 Sfmt 4703 31941 subject to the following conditions and limitations: • Cboe Options will regulate the Outbound Router function of Cboe Trading as a facility (subject to Section 6 of the Act), and will, among other things, be responsible for filing with the Commission rule changes and fees relating to the Cboe Trading Outbound Router function and Cboe Trading will be subject to exchange nondiscrimination requirements; • FINRA, a self-regulatory organization unaffiliated with the Exchange or any of its affiliates, will carry out oversight and enforcement responsibilities as the designated examining authority designated by the Commission pursuant to Rule 17d–1 of the Act with the responsibility for examining Cboe Trading for compliance with applicable financial responsibility rules. • A Trading Permit Holder’s use of Cboe Trading to route orders to another Trading Center will be optional. Any Trading Permit Holder that does not want to use Cboe Trading may use other routers to route orders to other Trading Centers. • Cboe Trading will not engage in any business other than (i) its Outbound Router function, (ii) its Inbound Router function as described in Rule 3.13, (iii) its usage of an error account in compliance with proposed paragraph (a)(7) (regarding Cboe Trading maintenance of an error account described below), and (iv) any other activities it may engage in as approved by the Commission. • The Exchange will establish and maintain procedures and internal controls reasonably designed to adequately restrict the flow of confidential and proprietary information between the Exchange and its facilities (including Cboe Trading), and any other entity, including any affiliate of Cboe Trading, and, if Cboe Trading or any of its affiliates engages in any other business activities other than providing routing services to the Exchange, between the segment of Cboe Trading or its affiliate that provides the other business activities and the routing services. • The Exchange or Cboe Trading may cancel orders as either deems to be necessary to maintain fair and orderly markets if a technical or systems issue occurs at the Exchange, Cboe Trading, or a routing destination. The Exchange or Cboe Trading will provide notice of the cancellation to affected Trading Permit Holders as soon as practicable. • Proposed Rule 3.12(a)(7) provides that Cboe Trading will maintain an error account for the purpose of addressing E:\FR\FM\03JYN1.SGM 03JYN1 31942 Federal Register / Vol. 84, No. 128 / Wednesday, July 3, 2019 / Notices jspears on DSK30JT082PROD with NOTICES positions that are the result of an execution or executions that are not clearly erroneous under Rule 6.25 and result from a technical or systems issue at Cboe Trading, the Exchange, a routing destination, or a non-affiliate third-party Routing Broker that affects one or more orders (‘‘Error Positions’’). • For purposes of proposed Rule 3.12(a)(7), an Error Position will not include any position that results from an order submitted by a Trading Permit Holder to the Exchange that is executed on the Exchange and automatically processed for clearance and settlement on a locked-in basis. • Except as provided in proposed subparagraph (7)(C) (described in the next bullet), Cboe Trading does not accept any positions in its error account of a Trading Permit Holder or permit any Trading Permit Holder to transfer any positions from the Trading Permit Holder’s account to Cboe Trading’s error account. • If a technical or systems issue results in the Exchange not having valid clearing instructions for a Trading Permit Holder to a trade, Cboe Trading may assume the Trading Permit Holder’s side of the trade so that the trade can be automatically processed for clearance and settlement on a locked-in basis. • In connection with a particular technical or systems issue, Cboe Trading or the Exchange will either assign all resulting Error Positions to the Trading Permit Holders in accordance with proposed subparagraph (D)(i),4 or have all resulting Error Positions liquidated in accordance with proposed subparagraph (D)(ii).5 Any 4 Proposed subparagraph (a)(7)(D)(i) states Cboe Trading or the Exchange will assign all Error Positions resulting from a particular technical or systems issue to the Trading Permit Holders affected by that technical or systems issue if Cboe Trading or the Exchange (a) determines it has accurate and sufficient information (including valid clearing information) to assign the positions to all of the Trading Permit Holders affected by that technical or systems issue; (b) determines it has sufficient time pursuant to normal clearance and settlement deadlines to evaluate the information necessary to assign the positions to all of the Trading Permit Holders affected by that technical or systems issue; and (c) has not determined to cancel all orders affected by that technical or systems issue in accordance with proposed subparagraph (a)(6). 5 Proposed subparagraph (a)(7)(D)(ii) states if Cboe Trading or the Exchange is unable to assign all Error Positions resulting from a particular technical or systems issue to all of the affected Trading Permit Holders in accordance with proposed subparagraph (D), or if Cboe Trading or the Exchange determines to cancel all orders affected by the technical or systems issue in accordance with proposed subparagraph (a)(6), then Cboe Trading will liquidate any applicable Error Positions as soon as practicable. In liquidating such Error Positions, Cboe Trading will (a) provide complete time and price discretion for the trading VerDate Sep<11>2014 19:23 Jul 02, 2019 Jkt 247001 determination to assign or liquidate Error Positions, as well as any resulting assignments, will be made in a nondiscriminatory fashion. • Cboe Trading and the Exchange will make and keep records to document all determinations to treat positions as Error Positions and all determinations for the assignment of Error Positions to Trading Permit Holders or the liquidation of Error Positions, as well as records associated with the liquidation of Error Positions through the thirdparty broker-dealer. • The books, records, premises, officers, agents, directors, and employees of Cboe Trading as a facility of the Exchange are deemed to be the books, records, premises, officers, agents, directors, and employees of the Exchange for purposes of, and subject to oversight pursuant to, the Exchange Act. The books and records of Cboe Trading as a facility of the Exchange are subject at all times to inspection and copying by the Exchange and the Commission. Nothing in the Rules precludes officers, agents, directors, or employees of the Exchange from also serving as officers, agents, directors, and employees of Cboe Trading. The Exchange will comply with the above-listed conditions prior to offering outbound routing from Cboe Trading. In meeting the conditions, the Exchange will have mechanisms in place to protect the independence of the Exchange’s regulatory responsibility with respect to Cboe Trading, as well as demonstrate the Cboe Trading cannot use any information that it may have because of its affiliation with the Exchange to its advantage. Current Rule 3.32(b) and proposed Rule 3.11 provide that without prior Commission approval, no Trading Permit Holder may be or become affiliated with the Exchange. Proposed Rule 3.13 (Cboe Trading as Inbound Router) The Exchange also proposes to adopt Rule 3.13, which is based on EDGX Rule 2.12 and C2 Rule 3.18. Pursuant to proposed Rule 3.13, Cboe Trading’s inbound routing services from EDGX Options, BZX Options and C2 to the Exchange would be subject to the following conditions and limitations: • The Exchange must enter into a plan pursuant to Rule 17d–2 under the to liquidate the Error Positions to a third-party broker-dealer and not attempt to exercise any influence or control over the timing or methods of such trading; and (b) establish and enforce policies and procedures that are reasonably designed to restrict the flow of confidential and proprietary information between the third-party broker-dealer and Cboe Trading/the Exchange associated with the liquidation of the Error Positions. PO 00000 Frm 00111 Fmt 4703 Sfmt 4703 Exchange Act with a non-affiliated selfregulatory organization and a regulatory services contract with a non-affiliated SRO to perform regulatory responsibilities for Cboe Trading for unique Exchange rules. • The regulatory services contract must require the Exchange to provide the non-affiliated self-regulatory organization with information, in an easily accessible manner, regarding all exception reports, alerts, complaints, trading errors, cancellations, investigations, and enforcement matters (collectively, ‘‘Exceptions’’) in which Cboe Trading is identified as a participant that has potentially violated Exchange or Commission rules, and shall require that the non-affiliated selfregulatory organization provide a report to the Exchange quantifying all such exception reports, alerts, complaints, trading errors, cancellations, investigations and enforcement matters on not less than a quarterly basis. • The Exchange, on behalf of its parent company, Cboe Global Markets, must establish and maintain procedures and internal controls reasonably designed to ensure that Cboe Trading does not develop or implement changes to its systems on the basis of nonpublic information obtained as a result of its affiliation with the Exchange until such information is available generally to similarly situated Trading Permit Holders of the Exchange. If the Exchange complies with the above-listed conditions and if Cboe Trading operates as an Outbound Router on behalf of each Cboe Exchange in accordance with the rules of each Cboe Exchange, Cboe Trading may provide inbound routing services to the Exchange from each Cboe Exchange. Proposed Change to Rule 6.14B Additionally, the Exchange proposes to amend Rule 6.14B to account for its use of affiliate Cboe Trading as an outbound router, as proposed, by specifying that the rule applies to the Exchange’s non-affiliated routing brokers. Current Rule 6.14B describes the procedures and requirements for routing brokers that automatically route intermarket sweep orders to other Exchanges (‘‘Routing Services’’). The introductory paragraph under Rule 6.14B states that the Exchange may automatically route intermarket sweep orders to other exchanges under certain circumstances, and that certain requirements (provided in subparagraphs (a) through (h)) apply in connection with such services. Current paragraph (a) states that Routing Services will be provided in conjunction with one or more routing E:\FR\FM\03JYN1.SGM 03JYN1 Federal Register / Vol. 84, No. 128 / Wednesday, July 3, 2019 / Notices brokers that are not affiliated with the Exchange. Therefore, this rule is currently applicable to non-affiliated routing brokers and the Exchange now proposes to merely provide additional clarity regarding its application to nonaffiliated routing brokers in light of proposed use of affiliate Cboe Trading as an outbound router. The Exchange proposes to move language in paragraph (a), stated above, to the introductory provision under 6.14B and amend such language to provide that Routing Services may be provided in conjunction with one or more routing brokers that are not affiliated with the Exchange. This proposed change accounts for proposed Rule 3.12 in which affiliate Cboe Trading may also provide outbound routing. The Exchange also proposes to specify in the introductory rule text under Rule 6.14B that the conditions in the following subparagraphs apply to non-affiliated routing brokers, as well as update the rule heading accordingly. The Exchange notes that this proposed change does not substantively alter any of the conditions listed which are already applicable to non-affiliated routing brokers and that C2 Rule 6.15(e) and EDGX Options Rule 21.9(e), provide the same conditions for their non-affiliated routing brokers.6 The Exchange also proposes to add the definition of ‘‘Cboe Trading’’ to mean Cboe Trading, Inc. to Rule 1.1. jspears on DSK30JT082PROD with NOTICES 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.7 Specifically, the Exchange believes the proposed rule change is consistent with the Section 6(b)(5) 8 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 6 The Exchange notes that the corresponding rules on EDGX Options and C2 treat their non-affiliated routing brokers as ‘‘back-up’’ routing brokers to their affiliate, Cboe Trading. The Exchange, however, does not propose to add that its nonaffiliated routing brokers will function as back-up routing brokers, as the Exchange currently has Routing Service agreements in place today with non-affiliated and such non-affiliated routing brokers will continue to function on the Exchange as they have prior to this proposed rule change. 7 15 U.S.C. 78f(b). 8 15 U.S.C. 78f(b)(5). VerDate Sep<11>2014 19:23 Jul 02, 2019 Jkt 247001 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) 9 requirement that the rules of an exchange not be designed to permit unfair discrimination between customers, issuers, brokers, or dealers. In particular, the Exchange believes proposed Rules 3.12 and 3.13 promote the maintenance of a fair and orderly market, the protection of investors and the public interest, and is in the best interests of the Exchange and its Trading Permit Holders as it will allow the routing of orders to and from Trading Centers (including affiliated exchanges BZX Options, EDGX Options and C2) and the Exchange in the same manner as each Cboe Exchange currently routes orders. Moreover, in meeting the requirements of Rule 3.13 (i.e., the 17d–2 plan, the regulatory services contract, and procedures and internal controls) the Exchange believes it will have mechanisms in place that protect the independence of the Exchange’s regulatory responsibility with respect to Cboe Trading, as well as demonstrates that Cboe Trading cannot use any information that it may have because of its affiliation with the Exchange to its advantage. Similarly, in meeting the requirements of Rule 3.12 (i.e., regulation as a facility, FINRA acting as the designated examining authority, optional use of Cboe Trading as an outbound router, restrictions on business of Cboe Trading, procedures and internal controls, cancellation of orders, maintenance of error account), the Exchange believes it will have mechanisms in place that protect the independence of the Exchange’s regulatory responsibility with respect to Cboe Trading. It also serves to ensure that Cboe Trading cannot use any information that it may have because of its affiliation with the Exchange to its advantage, thus preventing an unfair burden on competition and unfair discrimination between customers, issuers, brokers, or dealers. The Exchange also believes that the proposed definition of Cboe Trading will provide additional clarity of its Rules for investors. Additionally, proposed Rule 3.11 incorporates the provisions in current Rule 3.32(b) related to restrictions on Exchange affiliations with Trading Permit Holders. As noted above, the provisions related to Exchange affiliations with Trading Permit Holders PO 00000 9 Id. Frm 00112 (including exceptions to any restrictions in the Rules) are consistent with the governing documents of Cboe Options and Cboe Global Markets, Inc. Proposed Rule 3.11 also mirrors EDGX Rule 2.10 and C2 Rule 3.16. Further, the Exchange believes that the proposed changes to Rule 6.14B provide additional clarity of its Rules for investors, particularly in connection with the proposed use of affiliate Cboe Trading as an outbound router. The Exchange notes that Rule 6.14B is currently applicable to non-affiliated routing brokers and the proposed change merely seeks to provide specificity regarding its application. The Exchange also notes that it does not alter any of the conditions already applicable to non-affiliated routing brokers under Rule 6.14B, therefore the proposed change does not present any new obligations or novel issues for nonaffiliated routing brokers. The Exchange also notes that proposed Rules 3.11, 3.12, 3.13, and 6.14B are substantially similar to corresponding EDGX and C2 rules,10 previously approved or filed with the Exchange. Therefore, the proposed rule will provide consistent rules and functionality with that of its affiliated options exchange, thereby benefiting participants across the affiliated exchanges. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The Exchange does not believe the proposed rule change will impose any burden on intramarket competition that is not necessary or appropriate in furtherance of Act as the proposed rules are based on the corresponding rules of its affiliated exchanges which allow Cboe Trading to become a member of the Exchange. Additionally, the proposed rule change is based on EDGX Options Rule 2.12 and C2 Rule 3.18, which allow EDGX Options and C2 to receive options orders from affiliate Cboe Trading on behalf of affiliate exchanges. The Exchange notes that use of Cboe Trading as an outbound router is voluntary and available to all participants and also notes that the proposed changes to Rule 6.14B do not substantively alter any requirements for non-affiliated routing brokers. Further, the Exchange does not believe Cboe Trading as an inbound router will impose any burden on intramarket competition as it does not affect 10 See Fmt 4703 Sfmt 4703 31943 E:\FR\FM\03JYN1.SGM supra note 6. 03JYN1 31944 Federal Register / Vol. 84, No. 128 / Wednesday, July 3, 2019 / Notices incoming orders which will continue to be prioritized and allocated pursuant to Rule 6.45 (Order and Quote Priority Allocation). Moreover, the requirements of Rule 3.13 (i.e., the 17d–2 plan, the regulatory services contract, and procedures and internal controls) help to prevent an unfair burden on competition and unfair discrimination between customers, issuers, brokers, or dealers. The Exchange does not believe that the proposed change will impose any burden on intermarket competition that is not necessary or appropriate in furtherance of Act as the Exchange’s affiliated options exchanges have the same rules in place and already route orders using their affiliate, Cboe Trading, to and from Trading Centers. As stated above, the Exchange also notes that the proposed rule change ensures that Cboe Trading cannot use any information that it may have because of its affiliation with the Exchange to its advantage, thus preventing an unfair burden on competition. 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 Within 45 days of the date of publication of this notice in the Federal Register or within such longer period up to 90 days (i) as the Commission may designate if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the Exchange consents, the Commission will: A. By order approve or disapprove such proposed rule change, or B. institute proceedings to determine whether the proposed rule change should be disapproved. jspears on DSK30JT082PROD with NOTICES 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: • Send an email to rule-comments@ sec.gov. Please include File Number SR– CBOE–2019–030 on the subject line. SECURITIES AND EXCHANGE COMMISSION Paper Comments [Release No. 34–86214; File No. SR– CboeEDGX–2019–040] • 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–CBOE–2019–030. 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–CBOE–2019–030 and should be submitted on or before July 18, 2019. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.11 Eduardo A. Aleman, Deputy Secretary. [FR Doc. 2019–14164 Filed 7–2–19; 8:45 am] BILLING CODE 8011–01–P Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating to Amend the Trigger for Its Opening Rotation Process for Equity Options June 27, 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 24, 2019, 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. 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 the trigger for its opening rotation process for equity options. The text of the proposed rule change is also available on the Exchange’s website (https://markets.cboe.com/us/ options/regulation/rule_filings/edgx/), at the Exchange’s Office of the Secretary, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. Electronic Comments 1 15 • Use the Commission’s internet comment form (https://www.sec.gov/ rules/sro.shtml); or VerDate Sep<11>2014 19:23 Jul 02, 2019 Jkt 247001 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 11 17 PO 00000 CFR 200.30–3(a)(12). Frm 00113 Fmt 4703 Sfmt 4703 E:\FR\FM\03JYN1.SGM 03JYN1

Agencies

[Federal Register Volume 84, Number 128 (Wednesday, July 3, 2019)]
[Notices]
[Pages 31940-31944]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-14164]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-86224; File No. SR-CBOE-2019-030]


Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of 
Filing of a Proposed Rule Change To Use Cboe Exchange's Affiliate, Cboe 
Trading, as an Inbound and Outbound Router for Cboe Options

June 27, 2019.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on June 25, 2019, Cboe Exchange, Inc. (the ``Exchange'' or ``Cboe 
Options'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Cboe Exchange, Inc. (the ``Exchange'' or ``Cboe Options'') proposes 
to adopt rules related to the inbound and outbound router for Cboe 
Options, as well as seek approval from the Securities and Exchange 
Commission (``Commission'') for affiliate, [sic] Trading, Inc. (``Cboe 
Trading''), to become a Trading Permit Holder of the Exchange. 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 31941]]

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 (1) seek approval from the Commission 
pursuant to current Rule 3.32(b) for affiliate, Cboe Trading, to become 
a Trading Permit Holder of the Exchange; (2) relocate and amend Rule 
3.32(b) related to exchange affiliations to Rule 3.11; (3) adopt Rule 
3.12 to govern the Exchange's use of Cboe Trading as an outbound 
router; (4) adopt Rule 3.13 to govern the Exchange's receipt of inbound 
orders from Cboe Trading, on behalf of the Exchange's affiliate options 
exchanges, Cboe EDGX Exchange, Inc. (``EDGX''), Cboe BZX Exchange, Inc. 
(``BZX'') and Cboe C2 Exchange, Inc. (``C2''); and (5) make non-
substantive changes to Rule 6.14B regarding non-affiliated routing 
brokers. The Exchange notes that proposed Rules 3.11, 3.12 and 3.13 and 
current Rule 6.14B are substantively identical in all material respects 
to EDGX Rules 2.10, 2.11, 2.12, and 21.9(e), as well as C2 Rules 3.16, 
3.17, 3.18 and 6.15(e).
Commission Approval Under Current Rule 3.32(b)
    Current Rule 3.32(b) provides that without prior Commission 
approval, no Trading Permit Holder may be or become affiliated with the 
Exchange. The Exchange seeks Commission approval for Exchange affiliate 
Cboe Trading to become a Trading Permit Holder of the Exchange pursuant 
to Rule 3.32(b). The Exchange also seeks Commission approval to 
transfer and amend current Rule 3.32(b) to proposed Rule 3.11, as 
described below.
Relocation and Amendment of Rule 3.32(b)
    The Exchange seeks the Commission's approval to relocate Rule 
3.32(b) \3\ to proposed new Rule 3.11 and add to proposed Rule 3.11 
similar exclusions from the affiliation prohibition contained in its 
affiliated options exchanges, EDGX Rule 2.10 and C2 Rule 3.16. Current 
Rule 3.32(b) prohibits the Exchange from acquiring or maintaining an 
ownership interest in a Trading Permit Holder, as well as prohibits 
Trading Permit Holder affiliations with the Exchange or an affiliate of 
the Exchange without prior Commission approval. Current exceptions 
include equity interests in CBSX LLC and the Exchange's parent company, 
Cboe Global Markets, Inc., and affiliations with OneChicago, LLC. EDGX 
Rule 2.10 and C2 Rule 3.16 contain similar restrictions on Exchange 
affiliations with EDGX Members and C2 Trading Permit Holders, but also 
contains additional exceptions, including (a) affiliations solely by 
reason of a Member (or any officer, director, manager, managing member, 
partner, or affiliate of such Member) becoming a director of the 
Exchange or Cboe Global Markets, Inc., or (b) affiliations with Cboe 
Trading or of Cboe EDGA Exchange, Inc., Cboe EDGX Exchange, Inc., Cboe 
BZX Exchange, Inc., Cboe BYX Exchange, Inc., Cboe C2 Exchange, Inc., or 
Cboe Futures Exchange, LLC (each, a ``Cboe Exchange''). The Exchange 
proposes to include these two additional exceptions in proposed Rule 
3.11 as the same affiliate restrictions apply to all three exchanges 
and are consistent with governing documents of Cboe Options and Cboe 
Global Markets, Inc., previously filed with the Commission.
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    \3\ And, as a result, update the subsequent lettering under Rule 
3.32.
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Proposed Rule 3.12 (Cboe Trading as Outbound Router)
    The proposed rule change also adopts Rule 3.12 to govern the 
Exchange's use of Cboe Trading as an outbound router. Proposed Rule 
3.12 is based on EDGX Rule 2.11 and C2 Rule 3.17. As long as Cboe 
Trading is affiliated with Cboe Options and is providing outbound 
routing of orders from Cboe Options to other securities exchanges, 
facilities of securities exchanges, automated trading systems, 
electronic communications networks or other brokers or dealers 
(``Trading Centers'' and, such function of Cboe Trading is referred to 
as the ``Outbound Router''), Cboe Trading's outbound routing services 
would be subject to the following conditions and limitations:
     Cboe Options will regulate the Outbound Router function of 
Cboe Trading as a facility (subject to Section 6 of the Act), and will, 
among other things, be responsible for filing with the Commission rule 
changes and fees relating to the Cboe Trading Outbound Router function 
and Cboe Trading will be subject to exchange non-discrimination 
requirements;
     FINRA, a self-regulatory organization unaffiliated with 
the Exchange or any of its affiliates, will carry out oversight and 
enforcement responsibilities as the designated examining authority 
designated by the Commission pursuant to Rule 17d-1 of the Act with the 
responsibility for examining Cboe Trading for compliance with 
applicable financial responsibility rules.
     A Trading Permit Holder's use of Cboe Trading to route 
orders to another Trading Center will be optional. Any Trading Permit 
Holder that does not want to use Cboe Trading may use other routers to 
route orders to other Trading Centers.
     Cboe Trading will not engage in any business other than 
(i) its Outbound Router function, (ii) its Inbound Router function as 
described in Rule 3.13, (iii) its usage of an error account in 
compliance with proposed paragraph (a)(7) (regarding Cboe Trading 
maintenance of an error account described below), and (iv) any other 
activities it may engage in as approved by the Commission.
     The Exchange will establish and maintain procedures and 
internal controls reasonably designed to adequately restrict the flow 
of confidential and proprietary information between the Exchange and 
its facilities (including Cboe Trading), and any other entity, 
including any affiliate of Cboe Trading, and, if Cboe Trading or any of 
its affiliates engages in any other business activities other than 
providing routing services to the Exchange, between the segment of Cboe 
Trading or its affiliate that provides the other business activities 
and the routing services.
     The Exchange or Cboe Trading may cancel orders as either 
deems to be necessary to maintain fair and orderly markets if a 
technical or systems issue occurs at the Exchange, Cboe Trading, or a 
routing destination. The Exchange or Cboe Trading will provide notice 
of the cancellation to affected Trading Permit Holders as soon as 
practicable.
     Proposed Rule 3.12(a)(7) provides that Cboe Trading will 
maintain an error account for the purpose of addressing

[[Page 31942]]

positions that are the result of an execution or executions that are 
not clearly erroneous under Rule 6.25 and result from a technical or 
systems issue at Cboe Trading, the Exchange, a routing destination, or 
a non-affiliate third-party Routing Broker that affects one or more 
orders (``Error Positions'').
     For purposes of proposed Rule 3.12(a)(7), an Error 
Position will not include any position that results from an order 
submitted by a Trading Permit Holder to the Exchange that is executed 
on the Exchange and automatically processed for clearance and 
settlement on a locked-in basis.
     Except as provided in proposed subparagraph (7)(C) 
(described in the next bullet), Cboe Trading does not accept any 
positions in its error account of a Trading Permit Holder or permit any 
Trading Permit Holder to transfer any positions from the Trading Permit 
Holder's account to Cboe Trading's error account.
     If a technical or systems issue results in the Exchange 
not having valid clearing instructions for a Trading Permit Holder to a 
trade, Cboe Trading may assume the Trading Permit Holder's side of the 
trade so that the trade can be automatically processed for clearance 
and settlement on a locked-in basis.
     In connection with a particular technical or systems 
issue, Cboe Trading or the Exchange will either assign all resulting 
Error Positions to the Trading Permit Holders in accordance with 
proposed subparagraph (D)(i),\4\ or have all resulting Error Positions 
liquidated in accordance with proposed subparagraph (D)(ii).\5\ Any 
determination to assign or liquidate Error Positions, as well as any 
resulting assignments, will be made in a nondiscriminatory fashion.
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    \4\ Proposed subparagraph (a)(7)(D)(i) states Cboe Trading or 
the Exchange will assign all Error Positions resulting from a 
particular technical or systems issue to the Trading Permit Holders 
affected by that technical or systems issue if Cboe Trading or the 
Exchange (a) determines it has accurate and sufficient information 
(including valid clearing information) to assign the positions to 
all of the Trading Permit Holders affected by that technical or 
systems issue; (b) determines it has sufficient time pursuant to 
normal clearance and settlement deadlines to evaluate the 
information necessary to assign the positions to all of the Trading 
Permit Holders affected by that technical or systems issue; and (c) 
has not determined to cancel all orders affected by that technical 
or systems issue in accordance with proposed subparagraph (a)(6).
    \5\ Proposed subparagraph (a)(7)(D)(ii) states if Cboe Trading 
or the Exchange is unable to assign all Error Positions resulting 
from a particular technical or systems issue to all of the affected 
Trading Permit Holders in accordance with proposed subparagraph (D), 
or if Cboe Trading or the Exchange determines to cancel all orders 
affected by the technical or systems issue in accordance with 
proposed subparagraph (a)(6), then Cboe Trading will liquidate any 
applicable Error Positions as soon as practicable. In liquidating 
such Error Positions, Cboe Trading will (a) provide complete time 
and price discretion for the trading to liquidate the Error 
Positions to a third-party broker-dealer and not attempt to exercise 
any influence or control over the timing or methods of such trading; 
and (b) establish and enforce policies and procedures that are 
reasonably designed to restrict the flow of confidential and 
proprietary information between the third-party broker-dealer and 
Cboe Trading/the Exchange associated with the liquidation of the 
Error Positions.
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     Cboe Trading and the Exchange will make and keep records 
to document all determinations to treat positions as Error Positions 
and all determinations for the assignment of Error Positions to Trading 
Permit Holders or the liquidation of Error Positions, as well as 
records associated with the liquidation of Error Positions through the 
third-party broker-dealer.
     The books, records, premises, officers, agents, directors, 
and employees of Cboe Trading as a facility of the Exchange are deemed 
to be the books, records, premises, officers, agents, directors, and 
employees of the Exchange for purposes of, and subject to oversight 
pursuant to, the Exchange Act. The books and records of Cboe Trading as 
a facility of the Exchange are subject at all times to inspection and 
copying by the Exchange and the Commission. Nothing in the Rules 
precludes officers, agents, directors, or employees of the Exchange 
from also serving as officers, agents, directors, and employees of Cboe 
Trading.
    The Exchange will comply with the above-listed conditions prior to 
offering outbound routing from Cboe Trading. In meeting the conditions, 
the Exchange will have mechanisms in place to protect the independence 
of the Exchange's regulatory responsibility with respect to Cboe 
Trading, as well as demonstrate the Cboe Trading cannot use any 
information that it may have because of its affiliation with the 
Exchange to its advantage. Current Rule 3.32(b) and proposed Rule 3.11 
provide that without prior Commission approval, no Trading Permit 
Holder may be or become affiliated with the Exchange.
Proposed Rule 3.13 (Cboe Trading as Inbound Router)
    The Exchange also proposes to adopt Rule 3.13, which is based on 
EDGX Rule 2.12 and C2 Rule 3.18. Pursuant to proposed Rule 3.13, Cboe 
Trading's inbound routing services from EDGX Options, BZX Options and 
C2 to the Exchange would be subject to the following conditions and 
limitations:
     The Exchange must enter into a plan pursuant to Rule 17d-2 
under the Exchange Act with a non-affiliated self-regulatory 
organization and a regulatory services contract with a non-affiliated 
SRO to perform regulatory responsibilities for Cboe Trading for unique 
Exchange rules.
     The regulatory services contract must require the Exchange 
to provide the non-affiliated self-regulatory organization with 
information, in an easily accessible manner, regarding all exception 
reports, alerts, complaints, trading errors, cancellations, 
investigations, and enforcement matters (collectively, ``Exceptions'') 
in which Cboe Trading is identified as a participant that has 
potentially violated Exchange or Commission rules, and shall require 
that the non-affiliated self-regulatory organization provide a report 
to the Exchange quantifying all such exception reports, alerts, 
complaints, trading errors, cancellations, investigations and 
enforcement matters on not less than a quarterly basis.
     The Exchange, on behalf of its parent company, Cboe Global 
Markets, must establish and maintain procedures and internal controls 
reasonably designed to ensure that Cboe Trading does not develop or 
implement changes to its systems on the basis of nonpublic information 
obtained as a result of its affiliation with the Exchange until such 
information is available generally to similarly situated Trading Permit 
Holders of the Exchange.
    If the Exchange complies with the above-listed conditions and if 
Cboe Trading operates as an Outbound Router on behalf of each Cboe 
Exchange in accordance with the rules of each Cboe Exchange, Cboe 
Trading may provide inbound routing services to the Exchange from each 
Cboe Exchange.
Proposed Change to Rule 6.14B
    Additionally, the Exchange proposes to amend Rule 6.14B to account 
for its use of affiliate Cboe Trading as an outbound router, as 
proposed, by specifying that the rule applies to the Exchange's non-
affiliated routing brokers. Current Rule 6.14B describes the procedures 
and requirements for routing brokers that automatically route 
intermarket sweep orders to other Exchanges (``Routing Services''). The 
introductory paragraph under Rule 6.14B states that the Exchange may 
automatically route intermarket sweep orders to other exchanges under 
certain circumstances, and that certain requirements (provided in 
subparagraphs (a) through (h)) apply in connection with such services. 
Current paragraph (a) states that Routing Services will be provided in 
conjunction with one or more routing

[[Page 31943]]

brokers that are not affiliated with the Exchange. Therefore, this rule 
is currently applicable to non-affiliated routing brokers and the 
Exchange now proposes to merely provide additional clarity regarding 
its application to non-affiliated routing brokers in light of proposed 
use of affiliate Cboe Trading as an outbound router. The Exchange 
proposes to move language in paragraph (a), stated above, to the 
introductory provision under 6.14B and amend such language to provide 
that Routing Services may be provided in conjunction with one or more 
routing brokers that are not affiliated with the Exchange. This 
proposed change accounts for proposed Rule 3.12 in which affiliate Cboe 
Trading may also provide outbound routing. The Exchange also proposes 
to specify in the introductory rule text under Rule 6.14B that the 
conditions in the following subparagraphs apply to non-affiliated 
routing brokers, as well as update the rule heading accordingly. The 
Exchange notes that this proposed change does not substantively alter 
any of the conditions listed which are already applicable to non-
affiliated routing brokers and that C2 Rule 6.15(e) and EDGX Options 
Rule 21.9(e), provide the same conditions for their non-affiliated 
routing brokers.\6\
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    \6\ The Exchange notes that the corresponding rules on EDGX 
Options and C2 treat their non-affiliated routing brokers as ``back-
up'' routing brokers to their affiliate, Cboe Trading. The Exchange, 
however, does not propose to add that its non-affiliated routing 
brokers will function as back-up routing brokers, as the Exchange 
currently has Routing Service agreements in place today with non-
affiliated and such non-affiliated routing brokers will continue to 
function on the Exchange as they have prior to this proposed rule 
change.
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    The Exchange also proposes to add the definition of ``Cboe 
Trading'' to mean Cboe Trading, Inc. to Rule 1.1.
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.\7\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \8\ 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) \9\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
    \9\ Id.
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    In particular, the Exchange believes proposed Rules 3.12 and 3.13 
promote the maintenance of a fair and orderly market, the protection of 
investors and the public interest, and is in the best interests of the 
Exchange and its Trading Permit Holders as it will allow the routing of 
orders to and from Trading Centers (including affiliated exchanges BZX 
Options, EDGX Options and C2) and the Exchange in the same manner as 
each Cboe Exchange currently routes orders. Moreover, in meeting the 
requirements of Rule 3.13 (i.e., the 17d-2 plan, the regulatory 
services contract, and procedures and internal controls) the Exchange 
believes it will have mechanisms in place that protect the independence 
of the Exchange's regulatory responsibility with respect to Cboe 
Trading, as well as demonstrates that Cboe Trading cannot use any 
information that it may have because of its affiliation with the 
Exchange to its advantage. Similarly, in meeting the requirements of 
Rule 3.12 (i.e., regulation as a facility, FINRA acting as the 
designated examining authority, optional use of Cboe Trading as an 
outbound router, restrictions on business of Cboe Trading, procedures 
and internal controls, cancellation of orders, maintenance of error 
account), the Exchange believes it will have mechanisms in place that 
protect the independence of the Exchange's regulatory responsibility 
with respect to Cboe Trading. It also serves to ensure that Cboe 
Trading cannot use any information that it may have because of its 
affiliation with the Exchange to its advantage, thus preventing an 
unfair burden on competition and unfair discrimination between 
customers, issuers, brokers, or dealers. The Exchange also believes 
that the proposed definition of Cboe Trading will provide additional 
clarity of its Rules for investors.
    Additionally, proposed Rule 3.11 incorporates the provisions in 
current Rule 3.32(b) related to restrictions on Exchange affiliations 
with Trading Permit Holders. As noted above, the provisions related to 
Exchange affiliations with Trading Permit Holders (including exceptions 
to any restrictions in the Rules) are consistent with the governing 
documents of Cboe Options and Cboe Global Markets, Inc. Proposed Rule 
3.11 also mirrors EDGX Rule 2.10 and C2 Rule 3.16.
    Further, the Exchange believes that the proposed changes to Rule 
6.14B provide additional clarity of its Rules for investors, 
particularly in connection with the proposed use of affiliate Cboe 
Trading as an outbound router. The Exchange notes that Rule 6.14B is 
currently applicable to non-affiliated routing brokers and the proposed 
change merely seeks to provide specificity regarding its application. 
The Exchange also notes that it does not alter any of the conditions 
already applicable to non-affiliated routing brokers under Rule 6.14B, 
therefore the proposed change does not present any new obligations or 
novel issues for non-affiliated routing brokers. The Exchange also 
notes that proposed Rules 3.11, 3.12, 3.13, and 6.14B are substantially 
similar to corresponding EDGX and C2 rules,\10\ previously approved or 
filed with the Exchange. Therefore, the proposed rule will provide 
consistent rules and functionality with that of its affiliated options 
exchange, thereby benefiting participants across the affiliated 
exchanges.
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    \10\ See supra note 6.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The Exchange does not 
believe the proposed rule change will impose any burden on intramarket 
competition that is not necessary or appropriate in furtherance of Act 
as the proposed rules are based on the corresponding rules of its 
affiliated exchanges which allow Cboe Trading to become a member of the 
Exchange. Additionally, the proposed rule change is based on EDGX 
Options Rule 2.12 and C2 Rule 3.18, which allow EDGX Options and C2 to 
receive options orders from affiliate Cboe Trading on behalf of 
affiliate exchanges. The Exchange notes that use of Cboe Trading as an 
outbound router is voluntary and available to all participants and also 
notes that the proposed changes to Rule 6.14B do not substantively 
alter any requirements for non-affiliated routing brokers. Further, the 
Exchange does not believe Cboe Trading as an inbound router will impose 
any burden on intramarket competition as it does not affect

[[Page 31944]]

incoming orders which will continue to be prioritized and allocated 
pursuant to Rule 6.45 (Order and Quote Priority Allocation). Moreover, 
the requirements of Rule 3.13 (i.e., the 17d-2 plan, the regulatory 
services contract, and procedures and internal controls) help to 
prevent an unfair burden on competition and unfair discrimination 
between customers, issuers, brokers, or dealers.
    The Exchange does not believe that the proposed change will impose 
any burden on intermarket competition that is not necessary or 
appropriate in furtherance of Act as the Exchange's affiliated options 
exchanges have the same rules in place and already route orders using 
their affiliate, Cboe Trading, to and from Trading Centers. As stated 
above, the Exchange also notes that the proposed rule change ensures 
that Cboe Trading cannot use any information that it may have because 
of its affiliation with the Exchange to its advantage, thus preventing 
an unfair burden on competition.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission will:
    A. By order approve or disapprove such proposed rule change, or
    B. institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-CBOE-2019-030 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-CBOE-2019-030. 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-CBOE-2019-030 and should be submitted on 
or before July 18, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-14164 Filed 7-2-19; 8:45 am]
BILLING CODE 8011-01-P
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