Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Make Minor Updates and Consolidate Various Exchange Rules in Connection With the Post-Transaction Process on the Exchange, and Move Those Rules From the Current Rulebook to Proposed Chapter 6 of the Shell Rulebook, 54236-54239 [2019-22016]

Agencies

• SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 84, Number 196 (Wednesday, October 9, 2019)]
[Notices]
[Pages 54236-54239]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-22016]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87215; File No. SR-CBOE-2019-071]


Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Make 
Minor Updates and Consolidate Various Exchange Rules in Connection With 
the Post-Transaction Process on the Exchange, and Move Those Rules From 
the Current Rulebook to Proposed Chapter 6 of the Shell Rulebook

October 3, 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 September 26, 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 
and II below, which Items have been prepared by the Exchange. The 
Exchange filed the proposal as a ``non-controversial'' proposed rule 
change pursuant to Section 19(b)(3)(A)(iii) of the Act \3\ and Rule 
19b-4(f)(6) thereunder.\4\ The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Cboe Exchange, Inc. (the ``Exchange'' or ``Cboe Options'') proposes 
to make minor updates and consolidate various Exchange Rules in 
connection with the post-transaction process on the Exchange, and move 
those Rules from the currently effective Rulebook (``current 
Rulebook'') to proposed Chapter 6 of the shell structure for the 
Exchange's Rulebook that will become effective upon the migration of 
the Exchange's trading platform to the same system used by the Cboe 
Affiliated Exchanges (as defined below) (``shell Rulebook''). 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.

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
    In 2016, the Exchange's parent company, Cboe Global Markets, Inc. 
(formerly named CBOE Holdings, Inc.) (``Cboe Global''), which is also 
the parent company of Cboe C2 Exchange, Inc. (``C2''), acquired Cboe 
EDGA Exchange, Inc. (``EDGA''), Cboe EDGX Exchange, Inc. (``EDGX'' or 
``EDGX Options''), Cboe BZX Exchange, Inc. (``BZX'' or ``BZX 
Options''), and Cboe BYX Exchange, Inc. (``BYX'' and, together with 
Cboe Options, C2, EDGX, EDGA, and BZX, the ``Cboe Affiliated 
Exchanges''). The Cboe Affiliated Exchanges are working to align 
certain system functionality, retaining only intended differences, 
between the Cboe Affiliated Exchanges, in the context of a technology 
migration. Cboe Options intends to migrate its trading platform to the 
same system used by the Cboe Affiliated Exchanges, which the Exchange 
expects to complete on October 7, 2019. In connection with this 
technology migration, the Exchange has a shell Rulebook that resides 
alongside its current Rulebook, which shell Rulebook will contain the 
Rules that will be in place upon completion of the Cboe Options 
technology migration.

[[Page 54237]]

    The Exchange proposes to consolidate various rules in connection 
with the post-execution processes on the Exchange into sections of 
proposed Chapter 6 (Post-Transaction Matters) in the shell Rulebook. 
The Exchange notes that in addition to consolidating and moving the 
various post-transaction related rules to proposed Chapter 6, the 
proposed rule change deletes the rules from the current Rulebook. The 
proposed rule change moves and, where applicable, consolidates the 
rules as follows:

------------------------------------------------------------------------
             Proposed rule                         Current rule
------------------------------------------------------------------------
6.1 Report Transactions to the Exchange
    6.1(a), (b), (d), (e)..............  6.51 Reporting Duties.
    6.1(c).............................  6.51.01.
    6.1(f).............................  6.51.02.
    6.1(g).............................  6.51.03.
    6.1(h).............................  6.51.04.
    6.1(i).............................  6.51.04.
    6.1(j).............................  6.58 Submission of Trade
                                          Information to the Exchange.
    6.2 Transaction Reports; Users'      Cboe Rule N/A; copied from C2
     Identities.                          Rule 6.28, and substantively
                                          the same as EDGX Rule 21.10
                                          and BZX Rule 21.10.
6.3 Unmatched Trade Reports
    6.3(a).............................  6.60 Unmatched Trade Reports.
    6.3(b).............................  6.61 Reconciliation and
                                          Resolution of Unmatched
                                          Trades.
    6.3(b) and (b)(1)-(4)..............  6.61.01.
    6.3(c).............................  6.61.02.
    6.3(d).............................  6.61.03.
    6.3(e).............................  6.61.04.
    6.3(f).............................  6.61.05.
    6.3.(g)............................  10.1 Disagreement on Unmatched
                                          Trade.
    6.3(b)(3)(A).......................  21.16 Reconciliation of
                                          Unmatched Trades (Government
                                          securities options).
    6.3(b)(3)(A).......................  23.11 Reconciliation of
                                          Unmatched Trades (interest
                                          rate options).
6.4 Reporting of Trades to OCC
    6.4(a).............................  6.50 Submission for Clearance.
    6.4(b).............................  6.63 Reporting of Matched
                                          Trades to Clearing
                                          Corporation; conforms language
                                          to C2 Rule 6.27.
6.5 Nullification and Adjustment of      6.25 Nullification and
 Option Transactions Including Obvious    Adjustment of Options
 Errors.                                  Transactions including Obvious
                                          Errors.
    6.5.09.............................  29.15 Nullification and
                                          Adjustment of Credit Option
                                          Transactions.
6.20 Exercise of Option Contracts
    6.20(a)-(b)........................  11.1(a)-(b) Exercise of Option
                                          Contracts.
    6.20(c)............................  11.1(c)(1).
    6.20(d)............................  11.1(c)(2)-(3) and (d).
    6.20(e)............................  24.18 Exercise of American-
                                          Style Index Options.
    6.20(f)............................  20.11 Exercise of Range
                                          Options.
    6.20(g)............................  22.15 Automatic Exercise of
                                          Binary Option Contracts.
    6.20(h)............................  29.9 Determination of Credit
                                          Event, Automatic Exercise and
                                          Settlement (Credit Options).
    6.20.01-07.........................  11.1.01-.07.
6.21 Allocation of Exercise Notices
    6.21(a)-(c)........................  11.2 Allocation of Exercise
                                          Notices.
    6.21(d)............................  21.23 Allocation of Exercise
                                          Assignment Notices (Government
                                          security options).
    6.21(e)............................  28.14 Allocation of Exercise
                                          Assignment Notices (Corporate
                                          Debt Security options).
    6.21(f)............................  22.15 and 29.9 (last
                                          sentences).
6.22 Delivery and Payment
    6.22(a)............................  11.3 Delivery and Payment.
    6.22(b)............................  21.24 Delivery and Payment
                                          (Treasury Bonds and Notes)
                                          i.e., Government securities
                                          options.
    6.22(c)............................  28.15 Delivery and Payment
                                          (Corporate Debt Security
                                          options).
    6.21(d)............................  22.15 (last sentence).
------------------------------------------------------------------------

    The proposed rule changes, indicated in the table above, generally 
make only non-substantive changes to the rules (see below for a 
description of the one proposed additional rule, Rule 6.2). Overall, 
the proposed rule change makes only non-substantive rule changes in 
order to update headings, update references to other rule text that 
will be implemented upon migration, update certain technical text 
formatting that will be used in the Rules upon migration (specifically, 
changing all times to Eastern Time without time zone indication 
pursuant to Rule 1.1 in the shell Rulebook which states that unless 
otherwise specified, all times in the Rules are Eastern Time), 
incorporate defined terms, and reformat the paragraph lettering and/or 
numbering.
    The proposed rule change updates the language in current Rule 
6.51.01 (proposed Rule 6.1(c)(1)) to remove the language providing that 
a seller in each transaction (or buyer if designated by the Exchange) 
may submit a paper form copy of the transaction to the price reporting 
belt, which is no longer in existence, and instead provide that the 
seller (or buyer) may provide a paper copy form to the price reporting 
authority on the Exchange floor, the manner in which paper form copies 
are

[[Page 54238]]

currently submitted. This does not substantially alter the manner in 
which a participant reports paper form copies, but merely updates the 
provisions under proposed Rule 6.1 to reflect the current terms and 
process for paper form reporting, thereby providing additional clarity 
for market participants. The proposed rule change also deletes from 
current Rule 6.58 (proposed Rule 6.1(j)) the language that provides for 
the submission of trade information on a diskette or tape. These 
mediums are out-of-date and are no longer used by the Exchange or by 
its Trading Permit Holders (``TPHs''). Therefore, the removal of this 
language does not substantively alter the application of this rule but 
merely updates it to accurately reflect the manner in which trade 
information is currently submitted to the Exchange today.
    The Exchange also notes that proposed Rule 6.4(b) governs the 
Exchange's submission of trades to the Options Clearing Corporation 
(``OCC'') and is substantively the same as current Rule 6.63, it merely 
updates the rule language by means of conforming it to corresponding C2 
Rule 6.27. The proposed rule change also makes a non-substantive change 
in removing current Rule 15.2 which states that each TPH shall submit 
to the Exchange on each business day a report of all transactions made 
by it during said business day, and that the Exchange may, in its 
discretion, deem this requirement to be satisfied by the reports 
required to be filed under the provisions of (current) Rule 6.51(d). 
The proposed rule change deletes this provision because the Exchange 
does not administer separate requirements under this rule but instead 
deems the reports under current Rule 6.51(d) (proposed Rule 6.1(d)) 
satisfactory. Therefore, Rule 15.2 is redundant of proposed Rule 
6.1(d). The Exchange notes that current Rule 15.2 does not require or 
provide any additional transaction reporting information or instruction 
for TPHs. Instead, proposed Rule 6.1(d), unlike current Rule 15.2, 
specifically details the trade information required from TPHs in each 
business day's transaction report, thereby providing sufficiently clear 
and specific transaction reporting instructions for market 
participants. Likewise, the proposed rule change deletes current Rule 
24.15 as it is redundant of the current (and shell) rules governing 
automatic execution of options on the Exchange. Current Rule 24.15 
states that Rule 6.13 (shell Rules 5.8 and 5.32) governs the automatic 
execution of index options trading on the Hybrid System (or, the System 
as defined in shell Rule 1.1). Current Rule 6.13 (shell Rules 5.8 and 
5.32) already governs the automatic execution, including order priority 
and allocation, of all options trading on the System.
    Additionally, the proposed rule change adds proposed Rule 6.2, 
which is the same as C2 Rule 6.28. Proposed Rule 6.2 states the System 
sends to a User aggregated and individual transaction reports for the 
User's transactions, which reports include transaction details; the 
contra party's EFID, clearing TPH account number, and Capacity; and the 
name of any away exchange if an order was routed for execution. The 
Exchange reveals a User's identity when a registered clearing agency 
ceases to act for a participant, or the User's Clearing TPH, and the 
registered clearing agency determines not to guarantee the settlement 
of the User's trades, or for regulatory purposes or to comply with an 
order of an arbitrator or court. The Exchange currently sends out 
transaction reports containing similar information, and the Exchange 
believes including this information in the Rules will provide more 
transparency to market participants regarding these reports. As 
indicated above, the proposed rule is consistent with C2 Rule 6.28 and 
is substantively the same as EDGX Rule 21.10 and BZX Rule 21.10. The 
proposed rule change is consistent with current Exchange and options 
industry practices including the fact that clearing information 
available through OCC provides contra-party information, as well as the 
ability of a User to disclose its identity on orders.
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.\5\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \6\ 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) \7\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \5\ 15 U.S.C. 78f(b).
    \6\ 15 U.S.C. 78f(b)(5).
    \7\ Id.
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    The proposed rule change is generally intended to consolidate and 
update the Exchange's rules in anticipation of the technology migration 
on October 7, 2019. Generally, the proposed rule change does not make 
any substantive changes to the current Exchange Rules. The Exchange 
notes that the one proposed additional rule, proposed Rule 6.2, is an 
Exchange practice already in place and is designed to provide market 
participants with additional transparency in the Rules. Additionally, 
proposed Rule 6.2 is substantively the same as C2 Rule 6.28, EDGX Rule 
21.10, and BZX Rule 21.10. Likewise, proposed Rule 6.4(b) is 
substantially the same as current Rule 6.63 and merely conforms 
language to match that of corresponding C2 Rule 6.27. The proposed rule 
change seeks to provide greater harmonization between the rules of the 
Cboe Affiliated Exchanges, which would result in greater uniformity, 
less burdensome and more efficient regulatory compliance, and increase 
the understanding of the Exchange's operations for Exchange 
participants that are also participants on the Cboe Affiliated 
Exchanges. The Exchange believes that the non-substantive majority of 
the proposed changes, which update technical text and formatting (e.g., 
paragraph headings and time-related references), update rule cross-
references, consolidate, reorganize and make consistent rules and rule 
paragraphs and/or Interpretations and Policies, incorporate defined 
terms, and remove out-of-date processes and redundant rules that are 
already provided for under other rules in greater detail and clearer 
instruction, will also foster cooperation and coordination with those 
facilitating transactions in securities and remove impediments to and 
perfect the mechanism of a free and open market and national market 
system by simplifying the Exchange Rules and Rulebook as a whole, and 
making its Rules easier to follow and understand, likewise resulting in 
less burdensome and more efficient regulatory compliance.

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

[[Page 54239]]

necessary or appropriate in furtherance of the purposes of the Act. The 
Exchange reiterates that the proposed rule change is being proposed in 
the context of a technology migration of the Cboe Affiliated Exchanges, 
and not as a competitive filing. The Exchange does not believe that the 
proposed rule change will impose any burden on intramarket competition 
because, largely, it does not make any substantive changes to the 
current Exchange Rules, and the one additional rule proposed is already 
an Exchange practice and is consistent with the rules of the Cboe 
Affiliated Exchanges. The proposed rule change merely intends to 
provide consolidated rules upon migration and are consistent with the 
terms, rules, and formatting presented in the shell Rulebook that will 
be in place come October 7, 2019. The Exchange does not believe that 
the proposed rule change will impose any burden on intermarket 
competition because the proposed rules are the same as the Exchange's 
current rules, and the one proposed additional rule is consistent with 
the rules of the Cboe Affiliated Exchanges, all of which have all been 
previously filed with the Commission.

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

    The Exchange neither solicited nor received comments on the 
proposed rule change.

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

    Because the foregoing proposed rule change does not: (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 \8\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\9\
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    \8\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \9\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change, along 
with a brief description and text of the proposed rule change, at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act \10\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \11\ permits the 
Commission to designate a shorter time if such action is consistent 
with the protection of investors and the public interest. The Exchange 
has asked the Commission to waive the 30-day operative delay so that it 
may implement the proposed rule change in connection with the 
technology migration on October 7, 2019. According to the Exchange, 
waiver of the operative delay will help to avoid any potential 
confusion by providing investors with a complete Exchange Rulebook upon 
the completion of migration. The Commission believes that waiver of the 
operative delay is consistent with the protection of investors and the 
public interest because the proposed rule change raises no new or novel 
issues and makes only non-substantive changes to the rules. Therefore, 
the Commission hereby waives the operative delay and designates the 
proposal operative upon filing.\12\
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    \10\ 17 CFR 240.19b-4(f)(6).
    \11\ 17 CFR 240.19b-4(f)(6)(iii).
    \12\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission will institute proceedings to 
determine whether the proposed rule change should be approved or 
disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-CBOE-2019-071 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-2019-071. 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-2019-071 and should be submitted on 
or before October 30, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-22016 Filed 10-8-19; 8:45 am]
 BILLING CODE 8011-01-P