Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating To Amend Its Rules Governing the Give Up of a Clearing Member by a User on Exchange Transactions, 3732-3736 [2020-00914]
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Federal Register / Vol. 85, No. 14 / Wednesday, January 22, 2020 / Notices
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liquidity benefits all market participants
on the Exchange by providing more
trading opportunities and encourages
LMMs, to send orders to the Exchange,
thereby contributing to robust levels of
liquidity, which benefits all market
participants. The proposed new
incremental credit would be applicable
to all similarly-situated market
participants, and, as such, the proposed
change would not impose a disparate
burden on competition among market
participants on the Exchange. The
Exchange believes the proposed EIP
Program would enhance competition as
it is intended to increase the Exchange’s
competitiveness in NYSE Arca-listed
ETPs, and all ETP Holders would be
able to participate in the program
uniformly. Accordingly, the Exchange
does not believe that the proposed
change will impair the ability of ETP
Holders to maintain their competitive
standing.
Intermarket Competition. The
Exchange operates in a highly
competitive market in which market
participants can readily choose to send
their orders to other exchange and offexchange venues if they deem fee levels
at those other venues to be more
favorable. As noted above, the
Exchange’s market share of intraday
trading (i.e., excluding auctions) was
7.6% in November 2019. In such an
environment, the Exchange must
continually adjust its fees and rebates to
remain competitive with other
exchanges and with off-exchange
venues. Because competitors are free to
modify their own fees and credits in
response, and because market
participants may readily adjust their
order routing practices, the Exchange
does not believe its proposed fee change
can impose any burden on intermarket
competition.
The Exchange believes that the
proposed change could promote
competition between the Exchange and
other execution venues, including those
that currently offer similar order types
and comparable transaction pricing, by
encouraging additional orders to be sent
to the Exchange for execution.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were solicited
or received with respect to the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change is effective
upon filing pursuant to Section
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19(b)(3)(A) 26 of the Act and
subparagraph (f)(2) of Rule 19b–4 27
thereunder, because it establishes a due,
fee, or other charge imposed by the
Exchange.
At any time within 60 days of the
filing of such 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
under Section 19(b)(2)(B) 28 of the Act 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 rule-comments@
sec.gov. Please include File Number SR–
NYSEArca–2020–03 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–NYSEArca–2020–03. 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–NYSEArca–2020–03, and
should be submitted on or before
February 12, 2020.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.29
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–00918 Filed 1–21–20; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
Release No. 34–87976; File No. SR–
CboeEDGX–2020–001]
Self-Regulatory Organizations; Cboe
EDGX Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of a
Proposed Rule Change Relating To
Amend Its Rules Governing the Give
Up of a Clearing Member by a User on
Exchange Transactions
January 15, 2020.
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 January 2,
2020, 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, II, and III 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.
29 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A)(iii).
4 17 CFR 240.19b–4(f)(6).
1 15
26 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(2).
28 15 U.S.C. 78s(b)(2)(B).
27 17
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Federal Register / Vol. 85, No. 14 / Wednesday, January 22, 2020 / Notices
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Cboe EDGX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘EDGX Options’’)
proposes to amend its rules governing
the give up of a Clearing Member by a
User on Exchange transactions. 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://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.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend
Rule 21.12, which governs the give up
of a Clearing Member 5 by a User 6 on
Exchange transactions, to substantially
conform to existing Cboe Exchange, Inc.
(‘‘Cboe Options’’) Rule 5.10, proposed
Cboe C2 Exchange, Inc. (‘‘C2 Options’’)
Rule 6.30, and proposed Cboe BZX
Exchange, Inc. (‘‘BZX Options’’) Rule
21.12.7
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Background
By way of background, Exchange Rule
21.12 provides that when a User
executes a transaction on the Exchange,
it must give up the name of the Clearing
Member (the ‘‘Give Up’’) through which
the transaction will be cleared. Rule
5 The term ‘‘Clearing Member’’ means an Options
Member that is self-clearing or an Options Member
that clears EDGX Options Transactions for other
Members of EDGX Options. See Exchange Rule
16.1.
6 The term ‘‘User’’ means any Options Member or
Sponsored Participant who is authorized to obtain
access to the System pursuant to Rule 11.3 (Access).
See Exchange Rule 16.1.
7 See SR–C2–2020–001 (filed January 2, 2020) and
SR-CboeBZX–2020–002 (filed January 2, 2020).
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21.12 also provides that a User may only
give up a ‘‘Designated Give Up’’ 8 or its
‘‘Guarantor.’’ 9 This limitation is
enforced by the Exchange’s trading
systems.10
A ‘‘Designated Give Up’’ of a User
refers to a Clearing Member identified to
the Exchange by that User as a Clearing
Member the User requests the ability to
give up and that has been processed by
the Exchange as a Designated Give Up.11
To designate a ‘‘Designated Give Up’’
every User (other than a Market-Maker)
must submit written notification, in a
form and manner prescribed by the
Exchange.12 Specifically, the Exchange
uses a standardized form (‘‘Notification
Form’’) that a User needs to complete
and submit to the Exchange’s
Membership Services Department
(‘‘MSD’’).13 The Exchange notes that a
User may currently designate any
Clearing Member as a Designated Give
Up.14 Additionally, there is no
minimum or maximum number of
Designated Give Ups that a User must
identify. Paragraph (d) of Rule 21.12
also requires that the Exchange notify a
Clearing Member, in writing and as soon
as practicable, of each User that has
identified it as a Designated Give Up.
The Exchange however, will not accept
any instructions from a Clearing
Member to prohibit a User from
designating the Clearing Member as a
Designated Give Up. Additionally, there
is no subjective evaluation of a User’s
list of proposed Designated Give Ups by
the Exchange.
For purposes of Rule 21.12, a
‘‘Guarantor’’ of an executing User refers
to a Clearing Member that has issued a
Letter of Guarantee for the executing
User under the Rules of the Exchange
that are in effect at the time of the
execution of the applicable trade.15 An
executing User may give up its
Guarantor without having to first
designate it to the Exchange as a
‘‘Designated Give Up.’’ 16 Additionally,
the Exchange notes that a Market-Maker
is only enabled to give up the Guarantor
of the Market-Maker pursuant to
Exchange Rule 22.8 and also does not
need to identify any Designated Give
Ups.17
8 See
Exchange Rule 21.12(b)(1).
Exchange Rule 21.12(b)(2).
10 See Exchange Rule 21.12(c).
11 Supra note 7.
12 See Exchange Rule 21.12(b)(3).
13 Id.
14 Id.
15 Supra note 8.
16 The Exchange already knows each User’s
Guarantor and as such, no further designation or
identification is required of Users to enable their
respective Guarantors. See Exchange Rule
21.12(b)(6).
17 See Exchange Rule 21.12(b)(5).
9 See
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Beginning in early 2018, certain
Clearing Members (in conjunction with
the Securities Industry and Financial
Markets Association (‘‘SIFMA’’))
expressed concerns related to the
process by which executing brokers on
U.S. options exchanges (the
‘‘Exchanges’’) are allowed to designate
or ‘give up’ a clearing firm for purposes
of clearing particular transactions. The
SIFMA-affiliated Clearing Members
have recently identified the current give
up process as a significant source of risk
for clearing firms. SIFMA-affiliated
Clearing Members subsequently
requested that the Exchanges alleviate
this risk by amending Exchange rules
governing the give up process.18
Proposed Rule Change
Based on the above, the Exchange
now seeks to amend its rules regarding
the current give up process in order to
allow a Clearing Member to ‘‘opt in’’, at
the Options Clearing Corporation
(‘‘OCC’’) clearing number level, to a
feature that, if enabled by the Clearing
Member, will allow the Clearing
Member to specify which Users are
authorized to give up that OCC clearing
number. As proposed, Rule 21.12 will
continue to require that Users identify
to the Exchange, via the Notification
Form, all Clearing Members that the
User would like to have the ability to
give up (i.e., Designated Give Ups).19
However, the Exchange proposes to
modify the language of paragraph (a) to
provide that a User may indicate, at the
time of the trade or through post trade
allocation, any OCC number of the
18 Cboe Options recently modified its give up
procedure under rule 5.10 to allow clearing trading
permit holders to ‘‘Opt In’’ such that the clearing
trading permit holder (‘‘TPH’’) may specify which
Cboe Options TPH organizations are authorized to
give up that clearing trading permit holder. See
Securities and Exchange Act Release No. 86401
(July 17, 2019), 84 FR 35433 (July 23, 2019) (SR–
CBOE–19–036) (‘‘Cboe Options Rule 5.10
Amendment’’). Nasdaq PHLX LLC (‘‘PHLX’’), NYSE
Arca, Inc., (‘‘NYSE Arca’’), and NYSE American
LLC (‘‘NYSE American’’) also recently modified
their respect give up rules to adopt an ‘‘Opt In’’
process. See also Securities and Exchange Act
Release No. 85136 (February 14, 2019), 84 FR 5526
(February 21, 2019) (SR–PHLX–2018–72), Securities
and Exchange Act Release No. 85871 (May 16,
2019), 84 FR 23613 (May 22, 2019) (SR–NYSEArca
2019–32) and Securities and Exchange Act Release
85875 (May 16, 2019), 84 FR 23591 (May 22, 2019)
(SR–NYSEAMER–2019–17). The Exchange’s
proposal leads to the same result of providing its
Clearing Member’s the ability to control risk and
includes PHLX’s, NYSE Arca’s and NYSE
American’s ‘‘Opt In’’ process, but it otherwise
differs slightly in process from their give up rules.
For example, the Exchange intends to maintain its
provisions relating to Designated Give Ups and
eliminate its provisions relating to the rejection of
a trade. The Exchange’s proposal is substantially
the same as the existing give up process on Cboe
Options.
19 Id.
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Clearing Member through which the
transaction will be cleared.20 The
Exchange proposes to also add to Rule
21.12(a) that Clearing Members may
elect to ‘‘Opt In,’’ as defined in
paragraph (c) of the proposed Rule and
described further below, and restrict one
or more of its OCC number(s)
(‘‘Restricted OCC Number’’).21 A User
may Give Up a Restricted OCC Number
provided the User has written
authorization as described in paragraph
(c)(2) (‘‘Authorized User’’).22 The
Exchange notes that if a User identifies
a particular Clearing Member as a
Designated Give Up, but that Clearing
Member has restricted its OCC
number(s) and has not authorized the
User to give it up, then the Exchange
will not give effect to the designation on
the Notification Form (i.e., the User will
not be able to give up that Clearing
Member even though it was identified
as a Designated Give Up). Similarly, if
a Clearing Member authorizes a User to
give up its Restricted OCC Number(s),
the Exchange will not enable that
Clearing Member as a give up for that
User until and unless the User identifies
that Clearing Member as a Designated
Give Up on a Notification Form. In light
of Clearing Members having the ability
to restrict their OCC numbers from
being given up by unauthorized Users,
the Exchange also proposes to eliminate
the process for Clearing Members to
‘‘reject’’ trades. As such, the Exchange
proposes to eliminate subparagraphs (e)
and (f) of Rule 21.12 and any other
references to the process in Rule
21.12.23
Proposed Rule 21.12(c) provides that
Clearing Members may request the
Exchange restrict one or more of their
OCC clearing numbers (‘‘Opt In’’) from
being given up unless otherwise
authorized.24 If a Clearing Member Opts
In, the Exchange will require written
authorization from the Clearing Member
permitting a User to give up a Clearing
Member’s Restricted OCC Number.25 An
Opt In would remain in effect until the
Clearing Member terminates the Opt In
as described in proposed subparagraph
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20 The
Exchange notes that Cboe Options plans to
amend paragraph (a) of Rule 5.10 to conform to
proposed paragraph (a) of EDGX Options Rule 21.12
and C2 Options Rule 6.30 with a slight modification
as it relates to floor trading on Cboe Options.
21 See proposed Exchange Rule 21.12(a); see also
Cboe Options Rule 21.12(a).
22 Id.
23 The Exchange notes that Cboe Options
similarly eliminated the process for which Clearing
Trading Permit Holders may ‘‘reject’’ trades in Rule
5.10. See the Cboe Options Rule 5.10 Amendment.
24 See proposed Exchange Rule 21.12(c); see also
Cboe Options Rule 5.10(c).
25 Id.
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(3).26 If a Clearing Member does not Opt
In, that Clearing Member’s OCC number
may be subject to being given up by any
User that has designated it as a
Designated Give Up.27 Proposed Rule
21.12(c)(1) will set forth the process by
which a Clearing Member may Opt In.28
Specifically, a Clearing Member may
Opt In by sending a completed
‘‘Clearing Member Restriction Form’’
listing all Restricted OCC Numbers and
Authorized Users.29 A copy of the
proposed form is included in Exhibit 3.
A Clearing Member may elect to restrict
one or more OCC clearing numbers that
are registered in its name at OCC.30 The
Clearing Member would be required to
submit the Clearing Member Restriction
Form to the Exchange’s MSD as
described on the form.31 Once
submitted, the Exchange requires ninety
days before a Restricted OCC Number is
effective within the System.32 This time
period is to provide adequate time for
the Users of that Restricted OCC
Number who are not initially specified
by the Clearing Member as Authorized
Users to obtain the required written
authorization from the Clearing Member
for that Restricted OCC Number. Such
Users would still be able to give up that
Restricted OCC Number during this
ninety day period (i.e., until the number
becomes restricted within the System).
Proposed Rule 21.12(c)(2) will set
forth the process for Users to give up a
Clearing Member’s Restricted OCC
Number.33 Specifically, a User desiring
to give up a Restricted OCC Number
must become an Authorized User.34 The
Clearing Member will be required to
authorize a User as described in
subparagraph (1) or (3) of Rule 21.12(c)
(i.e., through a Clearing Member
Restriction Form), unless the Restricted
OCC Number is already subject to a
Letter of Guarantee that the User is a
party to, as set forth in Rule
21.12(b)(6).35 Pursuant to proposed Rule
21.12(c)(3), a Clearing Member may
26 Id.
27 Id.
28 See proposed Exchange Rule 21.12(c)(1); see
also Cboe Options Rule 5.10(c)(1).
29 This form will be available on the Exchange’s
website. The Exchange will also maintain, on its
website, a list of the Restricted OCC Numbers,
which will be updated on a regular basis, and the
Clearing Member’s contact information to assist
Users (to the extent they are not already Authorized
Users) with requesting authorization for a Restricted
OCC Number. The Exchange may utilize additional
means to inform its Members of such updates on
a periodic basis.
30 Supra note 29.
31 Id.
32 Id.
33 See proposed Exchange Rule 21.12(c)(2); see
also Cboe Option Rule 5.10(c)(2).
34 Id.
35 Id.
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amend the list of its Authorized Users
or Restricted OCC Numbers by
submitting a new Clearing Member
Restriction Form to the Exchange’s MSD
indicating the amendment as described
on the form.36 Once a Restricted OCC
Number is effective within the System
pursuant to Rule 21.12(c)(1), the
Exchange may permit the Clearing
Member to authorize, or remove
authorization for, a User to give up the
Restricted OCC Number intra-day only
in unusual circumstances, and on the
next business day in all regular
circumstances.37 The Exchange will
promptly notify Users if they are no
longer authorized to give up a Clearing
Member’s Restricted OCC Number.38 If
a Clearing Member removes a Restricted
OCC Number, any User may give up that
OCC clearing number once the removal
has become effective on or before the
next business day, provided that
Clearing Member has been designated as
a Designated Give Up.39
The Exchange also proposes to amend
current subparagraph (c) (System) (to be
relettered to paragraph (d)) of Rule 21.12
to clarify that in addition to the
Exchange’s system not accepting orders
that identify a give up that is not at the
time a Designated Give Up or a
Guarantor, the System will also reject
any order that designates a Restricted
OCC Number for which the User is not
an Authorized User.40
The Exchange proposes to amend
current paragraph (d) (Notice to Clearing
Members) (to be relettered to paragraph
(e)) of Rule 21.12 to provide that the
Exchange will provide notice to Users
that they are authorized or unauthorized
by Clearing Members.41
The Exchange also proposes to amend
current paragraph (g) (Other Give Up
Changes) (to be relettered to
subparagraph (f)) of Rule 21.12 to
provide that a User may change the give
up on the trade to another Designated
Give Up, provided it’s an Authorized
User for any Restricted OCC Number, or
to its Grantor.42 Additionally, the
Exchange seeks to define a specific
‘‘Trade Date Cutoff Time’’ 43 and ‘‘T+1
36 See proposed Exchange Rule 21.12(c)(3); see
also Cboe Options Rule 5.10(c)(3).
37 Id.
38 Id.
39 Id.
40 See proposed Exchange Rule 21.12(d); see also
Cboe Options Rule 5.10(d).
41 See proposed Exchange Rule 21.12(e); see also
Cboe Options Rule 5.10(e).
42 See proposed Exchange Rule 21.12(f); see also
Cboe Options Rule 5.10(f).
43 The ‘‘Trade Date Cutoff Time’’ is established by
the Clearing Corporation (or 15 minutes thereafter
if the Exchange receives and is able to process a
request to extend its time of final trade submission
to the Clearing Corporation). See proposed
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Cutoff Time’’ in the rule text of
proposed paragraph (f).44
The Exchange proses to amend
current paragraph (h) (Responsibility)
(to be relettered to paragraph (g)) of Rule
21.12 to eliminate any applicable
reference to current paragraph (e) or (f)
of the Rule and to conform with Cboe
Options Rule 5.10(g).
The Exchange also proposes to adopt
subparagraph (h) of Rule 21.12 to
provide that an intentional misuse of
this Rule is impermissible, and may be
treated as a violation of Rule 3.1, titled
‘‘Business Conduct of Members.’’ 45 This
language will make clear that the
Exchange will regulate an intentional
misuse of this Rule, and that such
behavior would be a violation of
Exchange rules. The proposed language
is similar to corresponding provisions in
other exchanges’ give up rules.46
Lastly, the Exchange proposes to
amend its current Member Notification
of Designated Give Ups Form
(‘‘Designated Give Ups Form’’). As of
October 7, 2019 the Exchange and each
of its affiliated options exchanges (i.e.,
C2 Options, BZX Options, and Cboe
Options (collectively, ‘‘Cboe Markets’’))
are on the same technology platform. To
provide further harmonization across
the Cboe Markets and provide more
seamless administration of the Give up
rule, the Exchange proposes to eliminate
the current Designated Give Ups Form
and adopt a new form which would be
applicable to all Cboe Markets going
forward. The proposed Designated Give
Ups Form is included in Exhibit 3.
Implementation Date
The Exchange proposes to announce
the implementation date of the
proposed rule change in an Exchange
Notice, to be published no later than
thirty (30) days following the operative
date. The implementation date will be
no later than sixty (60) days following
the operative date.
2. Statutory Basis
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The Exchange believes the proposed
rule change is consistent with the Act
and the rules and regulations
thereunder applicable to the Exchange
and, in particular, the requirements of
Exchange Rule 21.12(f)(1); see also Cboe Options
Rule 5.10(f)(1).
44 The ‘‘T+1 Cutoff Time’’ is 1:00 p.m. Eastern
Time on T+1; see proposed Exchange Rule
21.12(f)(3); see also Cboe Options Rule 5.10(f)(3)
(which provides a cutoff time of 12:00 p.m. Central
Time).
45 See Cboe Options Rule 5.10(h), which states
that intentional misuse of Rule 5.10 may be treated
as a violation of Rule 8.1 (Just and Equitable
Principles of Trade).
46 See, e.g., Cboe Options Rule 5.10(h).
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Section 6(b) of the Act.47 Specifically,
the Exchange believes the proposed rule
change is consistent with the Section
6(b)(5) 48 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 facilitation 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) 49 requirement that
the rules of an exchange not be designed
to permit unfair discrimination between
customers, issuers, brokers, or dealers.
Particularly, as discussed above,
several clearing firms affiliated with
SIFMA have recently expressed
concerns relating to the current give up
process, which permits Users to identify
any Clearing Member as a Designated
Give Up for purposes of clearing
particular transactions, and have
identified the current give up process
(i.e., a process that lacks authorization)
as a significant source of risk for
clearing firms. The Exchange believes
that the proposed changes to Rule 21.12
help alleviate this risk by enabling
Clearing Members to ‘Opt In’ to restrict
one or more of its OCC clearing numbers
(i.e., Restricted OCC Numbers), and to
specify which Authorized Users may
give up those Restricted OCC Numbers.
As described above, all other Users
would be required to receive written
authorization from the Clearing Member
before they can give up that Clearing
Member’s Restricted OCC Number. The
Exchange believes that this
authorization provides proper
safeguards and protections for Clearing
Members as it provides controls for
Clearing Members to restrict access to
their OCC clearing numbers, allowing
access only to those Authorized Users
upon their request. The Exchange also
believes that its proposed Clearing
Member Restriction Form allows the
Exchange to receive in a uniform
fashion, written and transparent
authorization from Clearing Members,
which ensures seamless administration
of the Rule.
The Exchange believes that the
proposed Opt In process strikes the right
balance between the various views and
47 15
48 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
49 Id.
PO 00000
Frm 00132
Fmt 4703
Sfmt 4703
3735
interests across the industry. For
example, although the proposed rule
would require Users (other than
Authorized Users) to seek authorization
from Clearing Members in order to have
the ability to give them up, each User
will still have the ability to give up a
Restricted OCC Number that is subject
to a Letter of Guarantee without
obtaining any further authorization if
that User is party to that arrangement.
The Exchange also notes that to the
extent the executing User has a clearing
arrangement with a Clearing Member
(i.e., through a Letter of Guarantee), a
trade can be assigned to the executing
User’s guarantor. Accordingly, the
Exchange believes that the proposed
rule change is reasonable and continues
to provide certainty that a Clearing
Member would be responsible for a
trade, which protects investors and the
public interest.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition not
necessary or appropriate in furtherance
of the purposes of the Act. The
Exchange does not believe that the
proposed rule change will impose an
unnecessary burden on intramarket
competition because it would apply
equally to all similarly situated
Members. The Exchange also notes that,
should the proposed changes make the
Exchange more attractive for trading,
market participants trading on other
exchanges can always elect to become
Members on the Exchange to take
advantage of the trading opportunities.
Furthermore, the proposed rule change
does not address any competitive issues
and ultimately, the target of the
Exchange’s proposal is to reduce risk for
Clearing Members under the current
give up model. Clearing firms make
financial decisions based on risk and
reward, and while it is generally in their
beneficial interest to clear transactions
for market participants in order to
generate profit, it is the Exchange’s
understanding from SIFMA and clearing
firms that the current process can create
significant risk when the clearing firm
can be given up on any market
participant’s transaction, even where
there is no prior customer relationship
or authorization for that designated
transaction. In the absence of a
mechanism that governs a market
participant’s use of a Clearing Member’s
services, the Exchange’s proposal may
indirectly facilitate the ability of a
Clearing Member to manage their
existing customer relationships while
continuing to allow market participant
E:\FR\FM\22JAN1.SGM
22JAN1
3736
Federal Register / Vol. 85, No. 14 / Wednesday, January 22, 2020 / Notices
choice in broker execution services.
While Clearing Members may compete
with executing brokers for order flow,
the Exchange does not believe this
proposal imposes an undue burden on
competition. Rather, the Exchange
believes that the proposed rule change
balances the need for Clearing Members
to manage risks and allows them to
address outlier behavior from executing
brokers while still allowing freedom of
choice to select an executing broker.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
The Exchange neither solicited nor
received written comments on the
proposed rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
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 after the date of
the filing, or such shorter time as the
Commission may designate, it has
become effective pursuant to 19(b)(3)(A)
of the Act 50 and Rule 19b–4(f)(6) 51
thereunder.
A proposed rule change filed under
Rule 19b–4(f)(6) normally does not
become operative for 30 days after the
date of the filing. However, Rule 19b–
4(f)(6)(iii) 52 permits the Commission to
designate a shorter time if such action
is consistent with the protection of
investors and the public interest. In its
filing, the Exchange requested that the
Commission waive the 30-day operative
delay. The Exchange represented that
the proposal establishes a rule regarding
the give up of a Clearing Member in
order to help clearing firms manage risk
while continuing to allow market
participants choice in broker execution
services. The Commission notes that it
recently approved a substantially
similar proposed rule change from Phlx,
after which other options exchanges
subsequently adopted subatantially
similarly rules.53 The Commission
khammond on DSKJM1Z7X2PROD with NOTICES
50 15
U.S.C. 78s(b)(3)(A).
51 17 CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6) requires a self-regulatory organization to give
the Commission written notice of its intent to file
the proposed rule change at least five business days
prior to the date of filing of the proposed rule
change, or such shorter time as designated by the
Commission. The Exchange has satisfied this
requirement.
52 17 CFR 240.19b–4(f)(6)(iii).
53 See Securities Exchange Act Release No. 85136
(February 14, 2019), 84 FR 5526 (February 21, 2019)
(Phlx–2018–72) (order approving a proposed rule
VerDate Sep<11>2014
16:42 Jan 21, 2020
Jkt 250001
believes that waiver of the 30-day
operative delay is consistent with the
protection of investors and the public
interest, because the Exchange’s
proposal raises no new issues. Further,
such waiver will permit the Exchange,
without further delay, to begin
implementing the new standardized
give up process, thus aligning its give
up process with that of the other option
exchanges. Accordingly, the
Commission waives the 30-day
operative delay and designates the
proposed rule change operative upon
filing.54
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
CboeEDGX–2020–001 on the subject
line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–CboeEDGX–2020–001. 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
change to establish rules governing give ups). See
also supra note 18 (citing the filings in which other
options exchanges adopted substantially similar
rules).
54 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).
PO 00000
Frm 00133
Fmt 4703
Sfmt 4703
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549 on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–CboeEDGX–2020–001 and
should besubmitted on or before
February 12, 2020.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.55
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–00914 Filed 1–21–20; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–87982; File No. SR–
NASDAQ–2020–001]
Self-Regulatory Organizations; The
Nasdaq Stock Market LLC; Notice of
Filing of Proposed Rule Change To
Modify the Delisting Process for
Securities With a Bid Price Below $0.10
and for Securities That Have Had One
or More Reverse Stock Splits With a
Cumulative Ratio of 250 or More to
One Over the Prior Two Year Period
January 15, 2020.
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 January 2,
2020, The Nasdaq Stock Market LLC
(‘‘Nasdaq’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
55 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
E:\FR\FM\22JAN1.SGM
22JAN1
]]>Agencies
- SECURITIES AND EXCHANGE COMMISSION
- Release No. 34-87976; File No. SR-CboeEDGX-2020-001]
[Federal Register Volume 85, Number 14 (Wednesday, January 22, 2020)]
[Notices]
[Pages 3732-3736]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-00914]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Release No. 34-87976; File No. SR-CboeEDGX-2020-001]
Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice
of Filing and Immediate Effectiveness of a Proposed Rule Change
Relating To Amend Its Rules Governing the Give Up of a Clearing Member
by a User on Exchange Transactions
January 15, 2020.
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 January 2, 2020, 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, II,
and III below, which Items have been prepared by the Exchange. The
Exchange filed the proposal as a ``non-controversial'' proposed rule
change pursuant to Section 19(b)(3)(A)(iii) of the Act \3\ and Rule
19b-4(f)(6) thereunder.\4\ The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A)(iii).
\4\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------
[[Page 3733]]
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Cboe EDGX Exchange, Inc. (the ``Exchange'' or ``EDGX Options'')
proposes to amend its rules governing the give up of a Clearing Member
by a User on Exchange transactions. 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://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.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend Rule 21.12, which governs the give
up of a Clearing Member \5\ by a User \6\ on Exchange transactions, to
substantially conform to existing Cboe Exchange, Inc. (``Cboe
Options'') Rule 5.10, proposed Cboe C2 Exchange, Inc. (``C2 Options'')
Rule 6.30, and proposed Cboe BZX Exchange, Inc. (``BZX Options'') Rule
21.12.\7\
---------------------------------------------------------------------------
\5\ The term ``Clearing Member'' means an Options Member that is
self-clearing or an Options Member that clears EDGX Options
Transactions for other Members of EDGX Options. See Exchange Rule
16.1.
\6\ The term ``User'' means any Options Member or Sponsored
Participant who is authorized to obtain access to the System
pursuant to Rule 11.3 (Access). See Exchange Rule 16.1.
\7\ See SR-C2-2020-001 (filed January 2, 2020) and SR-CboeBZX-
2020-002 (filed January 2, 2020).
---------------------------------------------------------------------------
Background
By way of background, Exchange Rule 21.12 provides that when a User
executes a transaction on the Exchange, it must give up the name of the
Clearing Member (the ``Give Up'') through which the transaction will be
cleared. Rule 21.12 also provides that a User may only give up a
``Designated Give Up'' \8\ or its ``Guarantor.'' \9\ This limitation is
enforced by the Exchange's trading systems.\10\
---------------------------------------------------------------------------
\8\ See Exchange Rule 21.12(b)(1).
\9\ See Exchange Rule 21.12(b)(2).
\10\ See Exchange Rule 21.12(c).
---------------------------------------------------------------------------
A ``Designated Give Up'' of a User refers to a Clearing Member
identified to the Exchange by that User as a Clearing Member the User
requests the ability to give up and that has been processed by the
Exchange as a Designated Give Up.\11\ To designate a ``Designated Give
Up'' every User (other than a Market-Maker) must submit written
notification, in a form and manner prescribed by the Exchange.\12\
Specifically, the Exchange uses a standardized form (``Notification
Form'') that a User needs to complete and submit to the Exchange's
Membership Services Department (``MSD'').\13\ The Exchange notes that a
User may currently designate any Clearing Member as a Designated Give
Up.\14\ Additionally, there is no minimum or maximum number of
Designated Give Ups that a User must identify. Paragraph (d) of Rule
21.12 also requires that the Exchange notify a Clearing Member, in
writing and as soon as practicable, of each User that has identified it
as a Designated Give Up. The Exchange however, will not accept any
instructions from a Clearing Member to prohibit a User from designating
the Clearing Member as a Designated Give Up. Additionally, there is no
subjective evaluation of a User's list of proposed Designated Give Ups
by the Exchange.
---------------------------------------------------------------------------
\11\ Supra note 7.
\12\ See Exchange Rule 21.12(b)(3).
\13\ Id.
\14\ Id.
---------------------------------------------------------------------------
For purposes of Rule 21.12, a ``Guarantor'' of an executing User
refers to a Clearing Member that has issued a Letter of Guarantee for
the executing User under the Rules of the Exchange that are in effect
at the time of the execution of the applicable trade.\15\ An executing
User may give up its Guarantor without having to first designate it to
the Exchange as a ``Designated Give Up.'' \16\ Additionally, the
Exchange notes that a Market-Maker is only enabled to give up the
Guarantor of the Market-Maker pursuant to Exchange Rule 22.8 and also
does not need to identify any Designated Give Ups.\17\
---------------------------------------------------------------------------
\15\ Supra note 8.
\16\ The Exchange already knows each User's Guarantor and as
such, no further designation or identification is required of Users
to enable their respective Guarantors. See Exchange Rule
21.12(b)(6).
\17\ See Exchange Rule 21.12(b)(5).
---------------------------------------------------------------------------
Beginning in early 2018, certain Clearing Members (in conjunction
with the Securities Industry and Financial Markets Association
(``SIFMA'')) expressed concerns related to the process by which
executing brokers on U.S. options exchanges (the ``Exchanges'') are
allowed to designate or `give up' a clearing firm for purposes of
clearing particular transactions. The SIFMA-affiliated Clearing Members
have recently identified the current give up process as a significant
source of risk for clearing firms. SIFMA-affiliated Clearing Members
subsequently requested that the Exchanges alleviate this risk by
amending Exchange rules governing the give up process.\18\
---------------------------------------------------------------------------
\18\ Cboe Options recently modified its give up procedure under
rule 5.10 to allow clearing trading permit holders to ``Opt In''
such that the clearing trading permit holder (``TPH'') may specify
which Cboe Options TPH organizations are authorized to give up that
clearing trading permit holder. See Securities and Exchange Act
Release No. 86401 (July 17, 2019), 84 FR 35433 (July 23, 2019) (SR-
CBOE-19-036) (``Cboe Options Rule 5.10 Amendment''). Nasdaq PHLX LLC
(``PHLX''), NYSE Arca, Inc., (``NYSE Arca''), and NYSE American LLC
(``NYSE American'') also recently modified their respect give up
rules to adopt an ``Opt In'' process. See also Securities and
Exchange Act Release No. 85136 (February 14, 2019), 84 FR 5526
(February 21, 2019) (SR-PHLX-2018-72), Securities and Exchange Act
Release No. 85871 (May 16, 2019), 84 FR 23613 (May 22, 2019) (SR-
NYSEArca 2019-32) and Securities and Exchange Act Release 85875 (May
16, 2019), 84 FR 23591 (May 22, 2019) (SR-NYSEAMER-2019-17). The
Exchange's proposal leads to the same result of providing its
Clearing Member's the ability to control risk and includes PHLX's,
NYSE Arca's and NYSE American's ``Opt In'' process, but it otherwise
differs slightly in process from their give up rules. For example,
the Exchange intends to maintain its provisions relating to
Designated Give Ups and eliminate its provisions relating to the
rejection of a trade. The Exchange's proposal is substantially the
same as the existing give up process on Cboe Options.
---------------------------------------------------------------------------
Proposed Rule Change
Based on the above, the Exchange now seeks to amend its rules
regarding the current give up process in order to allow a Clearing
Member to ``opt in'', at the Options Clearing Corporation (``OCC'')
clearing number level, to a feature that, if enabled by the Clearing
Member, will allow the Clearing Member to specify which Users are
authorized to give up that OCC clearing number. As proposed, Rule 21.12
will continue to require that Users identify to the Exchange, via the
Notification Form, all Clearing Members that the User would like to
have the ability to give up (i.e., Designated Give Ups).\19\ However,
the Exchange proposes to modify the language of paragraph (a) to
provide that a User may indicate, at the time of the trade or through
post trade allocation, any OCC number of the
[[Page 3734]]
Clearing Member through which the transaction will be cleared.\20\ The
Exchange proposes to also add to Rule 21.12(a) that Clearing Members
may elect to ``Opt In,'' as defined in paragraph (c) of the proposed
Rule and described further below, and restrict one or more of its OCC
number(s) (``Restricted OCC Number'').\21\ A User may Give Up a
Restricted OCC Number provided the User has written authorization as
described in paragraph (c)(2) (``Authorized User'').\22\ The Exchange
notes that if a User identifies a particular Clearing Member as a
Designated Give Up, but that Clearing Member has restricted its OCC
number(s) and has not authorized the User to give it up, then the
Exchange will not give effect to the designation on the Notification
Form (i.e., the User will not be able to give up that Clearing Member
even though it was identified as a Designated Give Up). Similarly, if a
Clearing Member authorizes a User to give up its Restricted OCC
Number(s), the Exchange will not enable that Clearing Member as a give
up for that User until and unless the User identifies that Clearing
Member as a Designated Give Up on a Notification Form. In light of
Clearing Members having the ability to restrict their OCC numbers from
being given up by unauthorized Users, the Exchange also proposes to
eliminate the process for Clearing Members to ``reject'' trades. As
such, the Exchange proposes to eliminate subparagraphs (e) and (f) of
Rule 21.12 and any other references to the process in Rule 21.12.\23\
---------------------------------------------------------------------------
\19\ Id.
\20\ The Exchange notes that Cboe Options plans to amend
paragraph (a) of Rule 5.10 to conform to proposed paragraph (a) of
EDGX Options Rule 21.12 and C2 Options Rule 6.30 with a slight
modification as it relates to floor trading on Cboe Options.
\21\ See proposed Exchange Rule 21.12(a); see also Cboe Options
Rule 21.12(a).
\22\ Id.
\23\ The Exchange notes that Cboe Options similarly eliminated
the process for which Clearing Trading Permit Holders may ``reject''
trades in Rule 5.10. See the Cboe Options Rule 5.10 Amendment.
---------------------------------------------------------------------------
Proposed Rule 21.12(c) provides that Clearing Members may request
the Exchange restrict one or more of their OCC clearing numbers (``Opt
In'') from being given up unless otherwise authorized.\24\ If a
Clearing Member Opts In, the Exchange will require written
authorization from the Clearing Member permitting a User to give up a
Clearing Member's Restricted OCC Number.\25\ An Opt In would remain in
effect until the Clearing Member terminates the Opt In as described in
proposed subparagraph (3).\26\ If a Clearing Member does not Opt In,
that Clearing Member's OCC number may be subject to being given up by
any User that has designated it as a Designated Give Up.\27\ Proposed
Rule 21.12(c)(1) will set forth the process by which a Clearing Member
may Opt In.\28\ Specifically, a Clearing Member may Opt In by sending a
completed ``Clearing Member Restriction Form'' listing all Restricted
OCC Numbers and Authorized Users.\29\ A copy of the proposed form is
included in Exhibit 3. A Clearing Member may elect to restrict one or
more OCC clearing numbers that are registered in its name at OCC.\30\
The Clearing Member would be required to submit the Clearing Member
Restriction Form to the Exchange's MSD as described on the form.\31\
Once submitted, the Exchange requires ninety days before a Restricted
OCC Number is effective within the System.\32\ This time period is to
provide adequate time for the Users of that Restricted OCC Number who
are not initially specified by the Clearing Member as Authorized Users
to obtain the required written authorization from the Clearing Member
for that Restricted OCC Number. Such Users would still be able to give
up that Restricted OCC Number during this ninety day period (i.e.,
until the number becomes restricted within the System).
---------------------------------------------------------------------------
\24\ See proposed Exchange Rule 21.12(c); see also Cboe Options
Rule 5.10(c).
\25\ Id.
\26\ Id.
\27\ Id.
\28\ See proposed Exchange Rule 21.12(c)(1); see also Cboe
Options Rule 5.10(c)(1).
\29\ This form will be available on the Exchange's website. The
Exchange will also maintain, on its website, a list of the
Restricted OCC Numbers, which will be updated on a regular basis,
and the Clearing Member's contact information to assist Users (to
the extent they are not already Authorized Users) with requesting
authorization for a Restricted OCC Number. The Exchange may utilize
additional means to inform its Members of such updates on a periodic
basis.
\30\ Supra note 29.
\31\ Id.
\32\ Id.
---------------------------------------------------------------------------
Proposed Rule 21.12(c)(2) will set forth the process for Users to
give up a Clearing Member's Restricted OCC Number.\33\ Specifically, a
User desiring to give up a Restricted OCC Number must become an
Authorized User.\34\ The Clearing Member will be required to authorize
a User as described in subparagraph (1) or (3) of Rule 21.12(c) (i.e.,
through a Clearing Member Restriction Form), unless the Restricted OCC
Number is already subject to a Letter of Guarantee that the User is a
party to, as set forth in Rule 21.12(b)(6).\35\ Pursuant to proposed
Rule 21.12(c)(3), a Clearing Member may amend the list of its
Authorized Users or Restricted OCC Numbers by submitting a new Clearing
Member Restriction Form to the Exchange's MSD indicating the amendment
as described on the form.\36\ Once a Restricted OCC Number is effective
within the System pursuant to Rule 21.12(c)(1), the Exchange may permit
the Clearing Member to authorize, or remove authorization for, a User
to give up the Restricted OCC Number intra-day only in unusual
circumstances, and on the next business day in all regular
circumstances.\37\ The Exchange will promptly notify Users if they are
no longer authorized to give up a Clearing Member's Restricted OCC
Number.\38\ If a Clearing Member removes a Restricted OCC Number, any
User may give up that OCC clearing number once the removal has become
effective on or before the next business day, provided that Clearing
Member has been designated as a Designated Give Up.\39\
---------------------------------------------------------------------------
\33\ See proposed Exchange Rule 21.12(c)(2); see also Cboe
Option Rule 5.10(c)(2).
\34\ Id.
\35\ Id.
\36\ See proposed Exchange Rule 21.12(c)(3); see also Cboe
Options Rule 5.10(c)(3).
\37\ Id.
\38\ Id.
\39\ Id.
---------------------------------------------------------------------------
The Exchange also proposes to amend current subparagraph (c)
(System) (to be relettered to paragraph (d)) of Rule 21.12 to clarify
that in addition to the Exchange's system not accepting orders that
identify a give up that is not at the time a Designated Give Up or a
Guarantor, the System will also reject any order that designates a
Restricted OCC Number for which the User is not an Authorized User.\40\
---------------------------------------------------------------------------
\40\ See proposed Exchange Rule 21.12(d); see also Cboe Options
Rule 5.10(d).
---------------------------------------------------------------------------
The Exchange proposes to amend current paragraph (d) (Notice to
Clearing Members) (to be relettered to paragraph (e)) of Rule 21.12 to
provide that the Exchange will provide notice to Users that they are
authorized or unauthorized by Clearing Members.\41\
---------------------------------------------------------------------------
\41\ See proposed Exchange Rule 21.12(e); see also Cboe Options
Rule 5.10(e).
---------------------------------------------------------------------------
The Exchange also proposes to amend current paragraph (g) (Other
Give Up Changes) (to be relettered to subparagraph (f)) of Rule 21.12
to provide that a User may change the give up on the trade to another
Designated Give Up, provided it's an Authorized User for any Restricted
OCC Number, or to its Grantor.\42\ Additionally, the Exchange seeks to
define a specific ``Trade Date Cutoff Time'' \43\ and ``T+1
[[Page 3735]]
Cutoff Time'' in the rule text of proposed paragraph (f).\44\
---------------------------------------------------------------------------
\42\ See proposed Exchange Rule 21.12(f); see also Cboe Options
Rule 5.10(f).
\43\ The ``Trade Date Cutoff Time'' is established by the
Clearing Corporation (or 15 minutes thereafter if the Exchange
receives and is able to process a request to extend its time of
final trade submission to the Clearing Corporation). See proposed
Exchange Rule 21.12(f)(1); see also Cboe Options Rule 5.10(f)(1).
\44\ The ``T+1 Cutoff Time'' is 1:00 p.m. Eastern Time on T+1;
see proposed Exchange Rule 21.12(f)(3); see also Cboe Options Rule
5.10(f)(3) (which provides a cutoff time of 12:00 p.m. Central
Time).
---------------------------------------------------------------------------
The Exchange proses to amend current paragraph (h) (Responsibility)
(to be relettered to paragraph (g)) of Rule 21.12 to eliminate any
applicable reference to current paragraph (e) or (f) of the Rule and to
conform with Cboe Options Rule 5.10(g).
The Exchange also proposes to adopt subparagraph (h) of Rule 21.12
to provide that an intentional misuse of this Rule is impermissible,
and may be treated as a violation of Rule 3.1, titled ``Business
Conduct of Members.'' \45\ This language will make clear that the
Exchange will regulate an intentional misuse of this Rule, and that
such behavior would be a violation of Exchange rules. The proposed
language is similar to corresponding provisions in other exchanges'
give up rules.\46\
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\45\ See Cboe Options Rule 5.10(h), which states that
intentional misuse of Rule 5.10 may be treated as a violation of
Rule 8.1 (Just and Equitable Principles of Trade).
\46\ See, e.g., Cboe Options Rule 5.10(h).
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Lastly, the Exchange proposes to amend its current Member
Notification of Designated Give Ups Form (``Designated Give Ups
Form''). As of October 7, 2019 the Exchange and each of its affiliated
options exchanges (i.e., C2 Options, BZX Options, and Cboe Options
(collectively, ``Cboe Markets'')) are on the same technology platform.
To provide further harmonization across the Cboe Markets and provide
more seamless administration of the Give up rule, the Exchange proposes
to eliminate the current Designated Give Ups Form and adopt a new form
which would be applicable to all Cboe Markets going forward. The
proposed Designated Give Ups Form is included in Exhibit 3.
Implementation Date
The Exchange proposes to announce the implementation date of the
proposed rule change in an Exchange Notice, to be published no later
than thirty (30) days following the operative date. The implementation
date will be no later than sixty (60) days following the operative
date.
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Act and the rules and regulations thereunder applicable to the
Exchange and, in particular, the requirements of Section 6(b) of the
Act.\47\ Specifically, the Exchange believes the proposed rule change
is consistent with the Section 6(b)(5) \48\ 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
facilitation 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) \49\ requirement that the rules of
an exchange not be designed to permit unfair discrimination between
customers, issuers, brokers, or dealers.
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\47\ 15 U.S.C. 78f(b).
\48\ 15 U.S.C. 78f(b)(5).
\49\ Id.
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Particularly, as discussed above, several clearing firms affiliated
with SIFMA have recently expressed concerns relating to the current
give up process, which permits Users to identify any Clearing Member as
a Designated Give Up for purposes of clearing particular transactions,
and have identified the current give up process (i.e., a process that
lacks authorization) as a significant source of risk for clearing
firms. The Exchange believes that the proposed changes to Rule 21.12
help alleviate this risk by enabling Clearing Members to `Opt In' to
restrict one or more of its OCC clearing numbers (i.e., Restricted OCC
Numbers), and to specify which Authorized Users may give up those
Restricted OCC Numbers. As described above, all other Users would be
required to receive written authorization from the Clearing Member
before they can give up that Clearing Member's Restricted OCC Number.
The Exchange believes that this authorization provides proper
safeguards and protections for Clearing Members as it provides controls
for Clearing Members to restrict access to their OCC clearing numbers,
allowing access only to those Authorized Users upon their request. The
Exchange also believes that its proposed Clearing Member Restriction
Form allows the Exchange to receive in a uniform fashion, written and
transparent authorization from Clearing Members, which ensures seamless
administration of the Rule.
The Exchange believes that the proposed Opt In process strikes the
right balance between the various views and interests across the
industry. For example, although the proposed rule would require Users
(other than Authorized Users) to seek authorization from Clearing
Members in order to have the ability to give them up, each User will
still have the ability to give up a Restricted OCC Number that is
subject to a Letter of Guarantee without obtaining any further
authorization if that User is party to that arrangement. The Exchange
also notes that to the extent the executing User has a clearing
arrangement with a Clearing Member (i.e., through a Letter of
Guarantee), a trade can be assigned to the executing User's guarantor.
Accordingly, the Exchange believes that the proposed rule change is
reasonable and continues to provide certainty that a Clearing Member
would be responsible for a trade, which protects investors and the
public interest.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. The Exchange does not believe
that the proposed rule change will impose an unnecessary burden on
intramarket competition because it would apply equally to all similarly
situated Members. The Exchange also notes that, should the proposed
changes make the Exchange more attractive for trading, market
participants trading on other exchanges can always elect to become
Members on the Exchange to take advantage of the trading opportunities.
Furthermore, the proposed rule change does not address any competitive
issues and ultimately, the target of the Exchange's proposal is to
reduce risk for Clearing Members under the current give up model.
Clearing firms make financial decisions based on risk and reward, and
while it is generally in their beneficial interest to clear
transactions for market participants in order to generate profit, it is
the Exchange's understanding from SIFMA and clearing firms that the
current process can create significant risk when the clearing firm can
be given up on any market participant's transaction, even where there
is no prior customer relationship or authorization for that designated
transaction. In the absence of a mechanism that governs a market
participant's use of a Clearing Member's services, the Exchange's
proposal may indirectly facilitate the ability of a Clearing Member to
manage their existing customer relationships while continuing to allow
market participant
[[Page 3736]]
choice in broker execution services. While Clearing Members may compete
with executing brokers for order flow, the Exchange does not believe
this proposal imposes an undue burden on competition. Rather, the
Exchange believes that the proposed rule change balances the need for
Clearing Members to manage risks and allows them to address outlier
behavior from executing brokers while still allowing freedom of choice
to select an executing broker.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received written comments on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
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 after the date of the filing, or such
shorter time as the Commission may designate, it has become effective
pursuant to 19(b)(3)(A) of the Act \50\ and Rule 19b-4(f)(6) \51\
thereunder.
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\50\ 15 U.S.C. 78s(b)(3)(A).
\51\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
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A proposed rule change filed under Rule 19b-4(f)(6) normally does
not become operative for 30 days after the date of the filing. However,
Rule 19b-4(f)(6)(iii) \52\ permits the Commission to designate a
shorter time if such action is consistent with the protection of
investors and the public interest. In its filing, the Exchange
requested that the Commission waive the 30-day operative delay. The
Exchange represented that the proposal establishes a rule regarding the
give up of a Clearing Member in order to help clearing firms manage
risk while continuing to allow market participants choice in broker
execution services. The Commission notes that it recently approved a
substantially similar proposed rule change from Phlx, after which other
options exchanges subsequently adopted subatantially similarly
rules.\53\ The Commission believes that waiver of the 30-day operative
delay is consistent with the protection of investors and the public
interest, because the Exchange's proposal raises no new issues.
Further, such waiver will permit the Exchange, without further delay,
to begin implementing the new standardized give up process, thus
aligning its give up process with that of the other option exchanges.
Accordingly, the Commission waives the 30-day operative delay and
designates the proposed rule change operative upon filing.\54\
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\52\ 17 CFR 240.19b-4(f)(6)(iii).
\53\ See Securities Exchange Act Release No. 85136 (February 14,
2019), 84 FR 5526 (February 21, 2019) (Phlx-2018-72) (order
approving a proposed rule change to establish rules governing give
ups). See also supra note 18 (citing the filings in which other
options exchanges adopted substantially similar rules).
\54\ 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 shall institute proceedings to
determine whether the proposed rule should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-CboeEDGX-2020-001 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-CboeEDGX-2020-001. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549 on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-CboeEDGX-2020-001 and should be
submitted on or before February 12, 2020.
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\55\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\55\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-00914 Filed 1-21-20; 8:45 am]
BILLING CODE 8011-01-P
