Self-Regulatory Organizations; Cboe C2 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 Trading Permit Holder by a Trading Permit Holder on Exchange Transactions, 3951-3955 [2020-01035]
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Federal Register / Vol. 85, No. 15 / Thursday, January 23, 2020 / Notices
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.
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–87991; File No. SR–C2–
2020–001]
Self-Regulatory Organizations; Cboe
C2 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 Trading Permit Holder by a
Trading Permit Holder on Exchange
Transactions
January 16, 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 C2 Exchange, Inc. (the
‘‘Exchange’’ or ‘‘C2’’) filed with the
Securities and Exchange Commission
(the ‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared by the Exchange. The
Exchange filed the proposal as a ‘‘noncontroversial’’ proposed rule change
pursuant to Section 19(b)(3)(A)(iii) of
the Act 3 and Rule 19b–4(f)(6)
thereunder.4 The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Cboe C2 Exchange, Inc. (the
‘‘Exchange’’ or ‘‘C2 Options’’) proposes
to amend its rules governing the give up
of a Clearing Trading Permit Holder by
a Trading Permit Holder 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/ctwo/),
at the Exchange’s Office of the
Secretary, and at the Commission’s
Public Reference Room.
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II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A)(iii).
4 17 CFR 240.19b–4(f)(6).
2 17
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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 6.30, which governs the give up of
a Clearing Trading Permit Holder 5 by a
Trading Permit Holder 6 on Exchange
transactions, to substantially conform to
existing Cboe Exchange, Inc. (‘‘Cboe
Options’’) Rule 5.10, proposed Cboe
EDGX Exchange, Inc. (‘‘EDGX Options’’)
Rule 21.12, and proposed Cboe BZX
Exchange, Inc. (‘‘BZX Options’’) Rule
21.12.7
Background
By way of background, Exchange Rule
6.30 provides that when a Trading
Permit Holder executes a transaction on
the Exchange, it must give up the name
of the Clearing Trading Permit Holder
(the ‘‘Give Up’’) through which the
transaction will be cleared. Rule 6.30
also provides that a Trading Permit
Holder 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 Trading
Permit Holder refers to a Clearing
Trading Permit Holder identified to the
Exchange by that Trading Permit Holder
as a Clearing Trading Permit Holder the
Trading Permit Holder 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 Trading
Permit Holder (other than a MarketMaker) must submit written
notification, in a form and manner
prescribed by the Exchange.12
Specifically, the Exchange uses a
5 The term ‘‘Clearing Trading Permit Holder’’
means a Trading Permit Holder that has been
admitted to membership in the Clearing
Corporation pursuant to the provisions of the rules
of the Clearing Corporation and is self-clearing or
that clears transactions for other Trading Permit
Holders. See Exchange Rule 1.1.
6 The term ‘‘Trading Permit Holder’’ means an
Exchange-recognized holder of a Trading Permit. A
Trading Permit Holder is deemed a ‘‘member’’
under the Exchange Act. See Exchange Rule 1.1.
7 See SR–CboeEDGX–2020–001 (filed January 2,
2020) and SR–CboeBZX–2020–002 (filed January 2,
2020).
8 See Exchange Rule 6.30(b)(1).
9 See Exchange Rule 6.30(b)(2).
10 See Exchange Rule 6.30(c).
11 Supra note 7.
12 See Exchange Rule 6.30(b)(3).
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3951
standardized form (‘‘Notification Form’’)
that a Trading Permit Holder needs to
complete and submit to the Exchange’s
Membership Services Department
(‘‘MSD’’).13 The Exchange notes that a
Trading Permit Holder may currently
designate any Clearing Trading Permit
Holder as a Designated Give Up.14
Additionally, there is no minimum or
maximum number of Designated Give
Ups that a Trading Permit Holder must
identify. Paragraph (d) of Rule 6.30 also
requires that the Exchange notify a
Clearing Trading Permit Holder, in
writing and as soon as practicable, of
each Trading Permit Holder that has
identified it as a Designated Give Up.
The Exchange however, will not accept
any instructions from a Clearing Trading
Permit Holder to prohibit a Trading
Permit Holder from designating the
Clearing Trading Permit Holder as a
Designated Give Up. Additionally, there
is no subjective evaluation of a Trading
Permit Holder’s list of proposed
Designated Give Ups by the Exchange.
For purposes of Rule 6.30, a
‘‘Guarantor’’ of an executing Trading
Permit Holder refers to a Clearing
Trading Permit Holder that has issued a
Letter of Guarantee for the executing
Trading Permit Holder under the Rules
of the Exchange that are in effect at the
time of the execution of the applicable
trade.15 An executing Trading Permit
Holder 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
Beginning in early 2018, certain
Clearing Trading Permit Holders (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 Trading
Permit Holders have recently identified
the current give up process as a
significant source of risk for clearing
firms. SIFMA-affiliated Clearing Trading
Permit Holders subsequently requested
13 Id.
14 Id.
15 Supra
note 8.
Exchange already knows each Trading
Permit Holder’s Guarantor and as such, no further
designation or identification is required of Trading
Permit Holders to enable their respective
Guarantors. See Exchange Rule 6.30(b)(6).
17 See Exchange Rule 6.30(b)(5).
16 The
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that the Exchanges alleviate this risk by
amending Exchange rules governing the
give up process.18
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Proposed Rule Change
Based on the above, the Exchange
now seeks to amend its rules regarding
the current give up process in order to
allow a Clearing Trading Permit Holder
to ‘‘opt in’’, at the Options Clearing
Corporation (‘‘OCC’’) clearing number
level, to a feature that, if enabled by the
Clearing Trading Permit Holder, will
allow the Clearing Trading Permit
Holder to specify which Trading Permit
Holders are authorized to give up that
OCC clearing number. As proposed,
Rule 6.30 will continue to require that
Trading Permit Holders identify to the
Exchange, via the Notification Form, all
Clearing Trading Permit Holders that
the Trading Permit Holder 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 Trading Permit Holder may indicate,
at the time of the trade or through post
trade allocation, any OCC number of the
Clearing Trading Permit Holder through
which the transaction will be cleared.20
The Exchange proposes to also add to
Rule 6.30(a) that Clearing Trading
Permit Holders may elect to ‘‘Opt In,’’
as defined in paragraph (c) of the
proposed Rule and described further
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 Trading Permit Holder’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.
20 The Exchange notes that Cboe Options plans to
amend paragraph (a) of Rule 5.10 to conform to
proposed paragraph (a) of C2 Options Rule 6.30 and
EDGX Options Rule 21.12 with a slight
modification as it relates to floor trading on Cboe
Options.
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below, and restrict one or more of its
OCC number(s) (‘‘Restricted OCC
Number’’).21 A Trading Permit Holder
may Give Up a Restricted OCC Number
provided the Trading Permit Holder has
written authorization as described in
paragraph (c)(2) (‘‘Authorized Trading
Permit Holder’’).22 The Exchange notes
that if a Trading Permit Holder
identifies a particular Clearing Trading
Permit Holder as a Designated Give Up,
but that Clearing Trading Permit Holder
has restricted its OCC number(s) and
has not authorized the Trading Permit
Holder to give it up, then the Exchange
will not give effect to the designation on
the Notification Form (i.e., the Trading
Permit Holder will not be able to give
up that Clearing Trading Permit Holder
even though it was identified as a
Designated Give Up). Similarly, if a
Clearing Trading Permit Holder
authorizes a Trading Permit Holder to
give up its Restricted OCC Number(s),
the Exchange will not enable that
Clearing Trading Permit Holder as a give
up for that Trading Permit Holder until
and unless the Trading Permit Holder
identifies that Clearing Trading Permit
Holder as a Designated Give Up on a
Notification Form. In light of Clearing
Trading Permit Holders having the
ability to restrict their OCC numbers
from being given up by unauthorized
Trading Permit Holders, the Exchange
also proposes to eliminate the process
for Clearing Trading Permit Holders to
‘‘reject’’ trades. As such, the Exchange
proposes to eliminate subparagraphs (e)
and (f) of Rule 6.30 and any other
references to the process in Rule 6.30.23
Proposed Rule 6.30(c) provides that
Clearing Trading Permit Holders 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
Trading Permit Holder Opts In, the
Exchange will require written
authorization from the Clearing Trading
Permit Holder permitting a Trading
Permit Holder to give up a Clearing
Trading Permit Holder’s Restricted OCC
Number.25 An Opt In would remain in
effect until the Clearing Trading Permit
Holder terminates the Opt In as
described in proposed subparagraph
(3).26 If a Clearing Trading Permit
21 See proposed Exchange Rule 6.30(a); see also
Cboe Options Rule 5.10(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 6.30(c); see also
Cboe Options Rule 5.10(c).
25 Id.
26 Id.
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Holder does not Opt In, that Clearing
Trading Permit Holder’s OCC number
may be subject to being given up by any
Trading Permit Holder that has
designated it as a Designated Give Up.27
Proposed Rule 6.30(c)(1) will set forth
the process by which a Clearing Trading
Permit Holder may Opt In.28
Specifically, a Clearing Trading Permit
Holder may Opt In by sending a
completed ‘‘Clearing Trading Permit
Holder Restriction Form’’ listing all
Restricted OCC Numbers and
Authorized Trading Permit Holders.29 A
copy of the proposed form is included
in Exhibit 3. A Clearing Trading Permit
Holder may elect to restrict one or more
OCC clearing numbers that are
registered in its name at OCC.30 The
Clearing Trading Permit Holder would
be required to submit the Clearing
Trading Permit Holder 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 Trading
Permit Holders of that Restricted OCC
Number who are not initially specified
by the Clearing Trading Permit Holder
as Authorized Trading Permit Holders
to obtain the required written
authorization from the Clearing Trading
Permit Holder for that Restricted OCC
Number. Such Trading Permit Holders
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 6.30(c)(2) will set forth
the process for Trading Permit Holders
to give up a Clearing Trading Permit
Holder’s Restricted OCC Number.33
Specifically, a Trading Permit Holder
desiring to give up a Restricted OCC
Number must become an Authorized
Trading Permit Holder.34 The Clearing
Trading Permit Holder will be required
to authorize a Trading Permit Holder as
described in subparagraph (1) or (3) of
27 Id.
28 See proposed Exchange Rule 6.30(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 Trading Permit Holder’s contact
information to assist Trading Permit Holders (to the
extent they are not already Authorized Trading
Permit Holders) with requesting authorization for a
Restricted OCC Number. The Exchange may utilize
additional means to inform its Trading Permit
Holders of such updates on a periodic basis.
30 Id.
31 Id.
32 Id.
33 See proposed Exchange Rule 6.30(c)(2); see also
Cboe Option Rule 5.10(c)(2).
34 Id.
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Rule 6.30(c) (i.e., through a Clearing
Trading Permit Holder Restriction
Form), unless the Restricted OCC
Number is already subject to a Letter of
Guarantee that the Trading Permit
Holder is a party to, as set forth in Rule
6.30(b)(6).35 Pursuant to proposed Rule
6.30(c)(3), a Clearing Trading Permit
Holder may amend the list of its
Authorized Trading Permit Holders or
Restricted OCC Numbers by submitting
a new Clearing Trading Permit Holder
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 6.30(c)(1), the
Exchange may permit the Clearing
Trading Permit Holder to authorize, or
remove authorization for, a Trading
Permit Holder 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 Trading
Permit Holders if they are no longer
authorized to give up a Clearing Trading
Permit Holder’s Restricted OCC
Number.38 If a Clearing Trading Permit
Holder removes a Restricted OCC
Number, any Trading Permit Holder
may give up that OCC clearing number
once the removal has become effective
on or before the next business day,
provided that Clearing Trading Permit
Holder 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 6.30
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 Trading
Permit Holder is not an Authorized
Trading Permit Holder.40
The Exchange proposes to amend
current paragraph (d) (Notice to Clearing
Trading Permit Holders) (to be relettered
to paragraph (e)) of Rule 6.30 to provide
that the Exchange will provide notice to
Trading Permit Holders that they are
authorized or unauthorized by Clearing
Trading Permit Holders.41
The Exchange also proposes to amend
current paragraph (g) (Other Give Up
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35 Id.
36 See proposed Exchange Rule 6.30(c)(3); see also
Cboe Options Rule 5.10(c)(3).
37 Id.
38 Id.
39 Id.
40 See proposed Exchange Rule 6.30(d); see also
Cboe Options Rule 5.10(d).
41 See proposed Exchange Rule 6.30(e); see also
Cboe Options Rule 5.10(e).
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Changes) (to be relettered to
subparagraph (f)) of Rule 6.30 to provide
that a Trading Permit Holder may
change the give up on the trade to
another Designated Give Up, provided
it’s an Authorized Trading Permit
Holder 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
Cutoff Time’’ in the rule text of
proposed paragraph (f).44
The Exchange proposes to amend
current paragraph (h) (Responsibility)
(to be relettered to paragraph (g)) of Rule
6.30 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 6.30 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 Trading Permit Holders.’’ 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 Trading Permit
Holder 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.
42 See proposed Exchange Rule 6.30(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 6.30(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
6.30(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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3953
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.
Particularly, as discussed above,
several clearing firms affiliated with
SIFMA have recently expressed
concerns relating to the current give up
process, which permits Trading Permit
Holders to identify any Clearing Trading
Permit Holder 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 6.30 help alleviate this
risk by enabling Clearing Trading Permit
Holders to ‘Opt In’ to restrict one or
more of its OCC clearing numbers (i.e.,
Restricted OCC Numbers), and to
specify which Authorized Trading
Permit Holders may give up those
Restricted OCC Numbers. As described
above, all other Trading Permit Holders
would be required to receive written
authorization from the Clearing Trading
Permit Holder before they can give up
that Clearing Trading Permit Holder’s
47 15
48 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
49 Id.
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Restricted OCC Number. The Exchange
believes that this authorization provides
proper safeguards and protections for
Clearing Trading Permit Holders as it
provides controls for Clearing Trading
Permit Holders to restrict access to their
OCC clearing numbers, allowing access
only to those Authorized Trading Permit
Holders upon their request. The
Exchange also believes that its proposed
Clearing Trading Permit Holder
Restriction Form allows the Exchange to
receive in a uniform fashion, written
and transparent authorization from
Clearing Trading Permit Holders, 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 Trading Permit Holders
(other than Authorized Trading Permit
Holders) to seek authorization from
Clearing Trading Permit Holders in
order to have the ability to give them
up, each Trading Permit Holder 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 Trading Permit Holder is party to
that arrangement. The Exchange also
notes that to the extent the executing
Trading Permit Holder has a clearing
arrangement with a Clearing Trading
Permit Holder (i.e., through a Letter of
Guarantee), a trade can be assigned to
the executing Trading Permit Holder’s
guarantor. Accordingly, the Exchange
believes that the proposed rule change
is reasonable and continues to provide
certainty that a Clearing Trading Permit
Holder would be responsible for a trade,
which protects investors and the public
interest.
any competitive issues and ultimately,
the target of the Exchange’s proposal is
to reduce risk for Clearing Trading
Permit Holders 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
Trading Permit Holder’s services, the
Exchange’s proposal may indirectly
facilitate the ability of a Clearing
Trading Permit Holder to manage their
existing customer relationships while
continuing to allow market participant
choice in broker execution services.
While Clearing Trading Permit Holders
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 Trading Permit Holders to
manage risks and allows them to
address outlier behavior from executing
brokers while still allowing freedom of
choice to select an executing broker.
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 Trading
Permit Holders. 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 Trading Permit Holders on the
Exchange to take advantage of the
trading opportunities. Furthermore, the
proposed rule change does not address
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
VerDate Sep<11>2014
17:13 Jan 22, 2020
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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.
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.
50 15
U.S.C. 78s(b)(3)(A).
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
51 17
PO 00000
Frm 00064
Fmt 4703
Sfmt 4703
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
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,
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
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).
E:\FR\FM\23JAN1.SGM
23JAN1
Federal Register / Vol. 85, No. 15 / Thursday, January 23, 2020 / Notices
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–
C2–2020–001 on the subject line.
jbell on DSKJLSW7X2PROD with NOTICES
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–C2–2020–001. 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–C2–2020–001 and should
be submitted on or before February 13,
2020.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.55
J. Matthew DeLesDernier,
Assistant Secretary.
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–87994; File No. SR–
NYSEArca–2020–05]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Amend the NYSE Arca
Equities Fees and Charges To
Introduce Two New Pricing Tiers,
Retail Order Step-Up Tier 3 and Retail
Order Step-Up Tier 4
January 16, 2020.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (the
‘‘Act’’),2 and Rule 19b–4 thereunder,3
notice is hereby given that on January 9,
2020, NYSE Arca, Inc. (‘‘NYSE Arca’’ or
the ‘‘Exchange’’) 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 self-regulatory
organization. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of the Substance
of the Proposed Rule Change
The Exchange proposes to amend the
NYSE Arca Equities Fees and Charges
(‘‘Fee Schedule’’) to introduce two new
pricing tiers, Retail Order Step-Up Tier
3 and Retail Order Step-Up Tier 4. The
proposed rule change is available on the
Exchange’s website at www.nyse.com, at
the principal office of the Exchange, and
at the Commission’s Public Reference
Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization 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 those 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 parts of such
statements.
[FR Doc. 2020–01035 Filed 1–22–20; 8:45 am]
BILLING CODE 8011–01–P
1 15
U.S.C. 78s(b)(1).
U.S.C. 78a.
3 17 CFR 240.19b–4.
2 15
55 17
CFR 200.30–3(a)(12).
VerDate Sep<11>2014
17:13 Jan 22, 2020
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3955
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 the
Fee Schedule to introduce two new
pricing tiers, Retail Order Step-Up Tier
3 and Retail Order Step-Up Tier 4. The
proposed changes respond to the
current competitive environment where
order flow providers have a choice of
where to direct liquidity-providing
orders by offering further incentives for
ETP Holders 4 to send additional
displayed liquidity to the Exchange.
The Exchange proposes to implement
the fee changes effective January 9,
2020.5
Background
The Commission has repeatedly
expressed its preference for competition
over regulatory intervention in
determining prices, products, and
services in the securities markets. In
Regulation NMS, the Commission
highlighted the importance of market
forces in determining prices and SRO
revenues and, also, recognized that
current regulation of the market system
‘‘has been remarkably successful in
promoting market competition in its
broader forms that are most important to
investors and listed companies.’’ 6
As the Commission itself recognized,
the market for trading services in NMS
stocks has become ‘‘more fragmented
and competitive.’’ 7 Indeed, equity
trading is currently dispersed across 13
exchanges,8 31 alternative trading
systems,9 and numerous broker-dealer
internalizers and wholesalers, all
competing for order flow. Based on
publicly-available information for
November 2019, no single exchange has
more than 18% market share (whether
including or excluding auction
4 All references to ETP Holders in connection
with this proposed fee change include Market
Makers.
5 The Exchange originally filed to amend the Fee
Schedule on January 2, 2020 (SR–NYSArca–2020–
02). SR–NYSEArca–2020–02 was subsequently
withdrawn and replaced by this filing.
6 See Securities Exchange Act Release No. 51808
(June 9, 2005), 70 FR 37496, 37499 (June 29, 2005).
7 See Securities Exchange Act Release No. 51808,
84 FR 5202, 5253 (February 20, 2019) (File No. S7–
05–18) (Final Rule).
8 See Cboe U.S Equities Market Volume
Summary, available at https://markets.cboe.com/us/
equities/market_share. See generally https://
www.sec.gov/fast-answers/
divisionsmarketregmrexchangesshtml.html.
9 See FINRA ATS Transparency Data, available at
https://otctransparency.finra.org/otctransparency/
AtsIssueData. A list of alternative trading systems
registered with the Commission is available at
https://www.sec.gov/foia/docs/atslist.htm.
E:\FR\FM\23JAN1.SGM
23JAN1
]]>Agencies
[Federal Register Volume 85, Number 15 (Thursday, January 23, 2020)]
[Notices]
[Pages 3951-3955]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-01035]
[[Page 3951]]
=======================================================================
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-87991; File No. SR-C2-2020-001]
Self-Regulatory Organizations; Cboe C2 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 Trading Permit
Holder by a Trading Permit Holder on Exchange Transactions
January 16, 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 C2 Exchange, Inc. (the ``Exchange'' or
``C2'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I, 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).
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Cboe C2 Exchange, Inc. (the ``Exchange'' or ``C2 Options'')
proposes to amend its rules governing the give up of a Clearing Trading
Permit Holder by a Trading Permit Holder 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/ctwo/), 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 6.30, which governs the give up
of a Clearing Trading Permit Holder \5\ by a Trading Permit Holder \6\
on Exchange transactions, to substantially conform to existing Cboe
Exchange, Inc. (``Cboe Options'') Rule 5.10, proposed Cboe EDGX
Exchange, Inc. (``EDGX Options'') Rule 21.12, and proposed Cboe BZX
Exchange, Inc. (``BZX Options'') Rule 21.12.\7\
---------------------------------------------------------------------------
\5\ The term ``Clearing Trading Permit Holder'' means a Trading
Permit Holder that has been admitted to membership in the Clearing
Corporation pursuant to the provisions of the rules of the Clearing
Corporation and is self-clearing or that clears transactions for
other Trading Permit Holders. See Exchange Rule 1.1.
\6\ The term ``Trading Permit Holder'' means an Exchange-
recognized holder of a Trading Permit. A Trading Permit Holder is
deemed a ``member'' under the Exchange Act. See Exchange Rule 1.1.
\7\ See SR-CboeEDGX-2020-001 (filed January 2, 2020) and SR-
CboeBZX-2020-002 (filed January 2, 2020).
---------------------------------------------------------------------------
Background
By way of background, Exchange Rule 6.30 provides that when a
Trading Permit Holder executes a transaction on the Exchange, it must
give up the name of the Clearing Trading Permit Holder (the ``Give
Up'') through which the transaction will be cleared. Rule 6.30 also
provides that a Trading Permit Holder 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 6.30(b)(1).
\9\ See Exchange Rule 6.30(b)(2).
\10\ See Exchange Rule 6.30(c).
---------------------------------------------------------------------------
A ``Designated Give Up'' of a Trading Permit Holder refers to a
Clearing Trading Permit Holder identified to the Exchange by that
Trading Permit Holder as a Clearing Trading Permit Holder the Trading
Permit Holder 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 Trading Permit Holder (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 Trading Permit Holder
needs to complete and submit to the Exchange's Membership Services
Department (``MSD'').\13\ The Exchange notes that a Trading Permit
Holder may currently designate any Clearing Trading Permit Holder as a
Designated Give Up.\14\ Additionally, there is no minimum or maximum
number of Designated Give Ups that a Trading Permit Holder must
identify. Paragraph (d) of Rule 6.30 also requires that the Exchange
notify a Clearing Trading Permit Holder, in writing and as soon as
practicable, of each Trading Permit Holder that has identified it as a
Designated Give Up. The Exchange however, will not accept any
instructions from a Clearing Trading Permit Holder to prohibit a
Trading Permit Holder from designating the Clearing Trading Permit
Holder as a Designated Give Up. Additionally, there is no subjective
evaluation of a Trading Permit Holder's list of proposed Designated
Give Ups by the Exchange.
---------------------------------------------------------------------------
\11\ Supra note 7.
\12\ See Exchange Rule 6.30(b)(3).
\13\ Id.
\14\ Id.
---------------------------------------------------------------------------
For purposes of Rule 6.30, a ``Guarantor'' of an executing Trading
Permit Holder refers to a Clearing Trading Permit Holder that has
issued a Letter of Guarantee for the executing Trading Permit Holder
under the Rules of the Exchange that are in effect at the time of the
execution of the applicable trade.\15\ An executing Trading Permit
Holder 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 Trading Permit Holder's
Guarantor and as such, no further designation or identification is
required of Trading Permit Holders to enable their respective
Guarantors. See Exchange Rule 6.30(b)(6).
\17\ See Exchange Rule 6.30(b)(5).
---------------------------------------------------------------------------
Beginning in early 2018, certain Clearing Trading Permit Holders
(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 Trading
Permit Holders have recently identified the current give up process as
a significant source of risk for clearing firms. SIFMA-affiliated
Clearing Trading Permit Holders subsequently requested
[[Page 3952]]
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 Trading Permit Holder'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
Trading Permit Holder to ``opt in'', at the Options Clearing
Corporation (``OCC'') clearing number level, to a feature that, if
enabled by the Clearing Trading Permit Holder, will allow the Clearing
Trading Permit Holder to specify which Trading Permit Holders are
authorized to give up that OCC clearing number. As proposed, Rule 6.30
will continue to require that Trading Permit Holders identify to the
Exchange, via the Notification Form, all Clearing Trading Permit
Holders that the Trading Permit Holder 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
Trading Permit Holder may indicate, at the time of the trade or through
post trade allocation, any OCC number of the Clearing Trading Permit
Holder through which the transaction will be cleared.\20\ The Exchange
proposes to also add to Rule 6.30(a) that Clearing Trading Permit
Holders 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 Trading Permit
Holder may Give Up a Restricted OCC Number provided the Trading Permit
Holder has written authorization as described in paragraph (c)(2)
(``Authorized Trading Permit Holder'').\22\ The Exchange notes that if
a Trading Permit Holder identifies a particular Clearing Trading Permit
Holder as a Designated Give Up, but that Clearing Trading Permit Holder
has restricted its OCC number(s) and has not authorized the Trading
Permit Holder to give it up, then the Exchange will not give effect to
the designation on the Notification Form (i.e., the Trading Permit
Holder will not be able to give up that Clearing Trading Permit Holder
even though it was identified as a Designated Give Up). Similarly, if a
Clearing Trading Permit Holder authorizes a Trading Permit Holder to
give up its Restricted OCC Number(s), the Exchange will not enable that
Clearing Trading Permit Holder as a give up for that Trading Permit
Holder until and unless the Trading Permit Holder identifies that
Clearing Trading Permit Holder as a Designated Give Up on a
Notification Form. In light of Clearing Trading Permit Holders having
the ability to restrict their OCC numbers from being given up by
unauthorized Trading Permit Holders, the Exchange also proposes to
eliminate the process for Clearing Trading Permit Holders to ``reject''
trades. As such, the Exchange proposes to eliminate subparagraphs (e)
and (f) of Rule 6.30 and any other references to the process in Rule
6.30.\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
C2 Options Rule 6.30 and EDGX Options Rule 21.12 with a slight
modification as it relates to floor trading on Cboe Options.
\21\ See proposed Exchange Rule 6.30(a); see also Cboe Options
Rule 5.10(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 6.30(c) provides that Clearing Trading Permit Holders
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 Trading Permit Holder Opts In, the
Exchange will require written authorization from the Clearing Trading
Permit Holder permitting a Trading Permit Holder to give up a Clearing
Trading Permit Holder's Restricted OCC Number.\25\ An Opt In would
remain in effect until the Clearing Trading Permit Holder terminates
the Opt In as described in proposed subparagraph (3).\26\ If a Clearing
Trading Permit Holder does not Opt In, that Clearing Trading Permit
Holder's OCC number may be subject to being given up by any Trading
Permit Holder that has designated it as a Designated Give Up.\27\
Proposed Rule 6.30(c)(1) will set forth the process by which a Clearing
Trading Permit Holder may Opt In.\28\ Specifically, a Clearing Trading
Permit Holder may Opt In by sending a completed ``Clearing Trading
Permit Holder Restriction Form'' listing all Restricted OCC Numbers and
Authorized Trading Permit Holders.\29\ A copy of the proposed form is
included in Exhibit 3. A Clearing Trading Permit Holder may elect to
restrict one or more OCC clearing numbers that are registered in its
name at OCC.\30\ The Clearing Trading Permit Holder would be required
to submit the Clearing Trading Permit Holder 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 Trading Permit Holders of that Restricted OCC
Number who are not initially specified by the Clearing Trading Permit
Holder as Authorized Trading Permit Holders to obtain the required
written authorization from the Clearing Trading Permit Holder for that
Restricted OCC Number. Such Trading Permit Holders 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 6.30(c); see also Cboe Options
Rule 5.10(c).
\25\ Id.
\26\ Id.
\27\ Id.
\28\ See proposed Exchange Rule 6.30(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 Trading Permit Holder's contact information to
assist Trading Permit Holders (to the extent they are not already
Authorized Trading Permit Holders) with requesting authorization for
a Restricted OCC Number. The Exchange may utilize additional means
to inform its Trading Permit Holders of such updates on a periodic
basis.
\30\ Id.
\31\ Id.
\32\ Id.
---------------------------------------------------------------------------
Proposed Rule 6.30(c)(2) will set forth the process for Trading
Permit Holders to give up a Clearing Trading Permit Holder's Restricted
OCC Number.\33\ Specifically, a Trading Permit Holder desiring to give
up a Restricted OCC Number must become an Authorized Trading Permit
Holder.\34\ The Clearing Trading Permit Holder will be required to
authorize a Trading Permit Holder as described in subparagraph (1) or
(3) of
[[Page 3953]]
Rule 6.30(c) (i.e., through a Clearing Trading Permit Holder
Restriction Form), unless the Restricted OCC Number is already subject
to a Letter of Guarantee that the Trading Permit Holder is a party to,
as set forth in Rule 6.30(b)(6).\35\ Pursuant to proposed Rule
6.30(c)(3), a Clearing Trading Permit Holder may amend the list of its
Authorized Trading Permit Holders or Restricted OCC Numbers by
submitting a new Clearing Trading Permit Holder 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 6.30(c)(1), the Exchange may permit the Clearing Trading Permit
Holder to authorize, or remove authorization for, a Trading Permit
Holder 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 Trading Permit
Holders if they are no longer authorized to give up a Clearing Trading
Permit Holder's Restricted OCC Number.\38\ If a Clearing Trading Permit
Holder removes a Restricted OCC Number, any Trading Permit Holder may
give up that OCC clearing number once the removal has become effective
on or before the next business day, provided that Clearing Trading
Permit Holder has been designated as a Designated Give Up.\39\
---------------------------------------------------------------------------
\33\ See proposed Exchange Rule 6.30(c)(2); see also Cboe Option
Rule 5.10(c)(2).
\34\ Id.
\35\ Id.
\36\ See proposed Exchange Rule 6.30(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 6.30 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 Trading Permit Holder is not an
Authorized Trading Permit Holder.\40\
---------------------------------------------------------------------------
\40\ See proposed Exchange Rule 6.30(d); see also Cboe Options
Rule 5.10(d).
---------------------------------------------------------------------------
The Exchange proposes to amend current paragraph (d) (Notice to
Clearing Trading Permit Holders) (to be relettered to paragraph (e)) of
Rule 6.30 to provide that the Exchange will provide notice to Trading
Permit Holders that they are authorized or unauthorized by Clearing
Trading Permit Holders.\41\
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\41\ See proposed Exchange Rule 6.30(e); see also Cboe Options
Rule 5.10(e).
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The Exchange also proposes to amend current paragraph (g) (Other
Give Up Changes) (to be relettered to subparagraph (f)) of Rule 6.30 to
provide that a Trading Permit Holder may change the give up on the
trade to another Designated Give Up, provided it's an Authorized
Trading Permit Holder 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 Cutoff Time'' in the rule
text of proposed paragraph (f).\44\
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\42\ See proposed Exchange Rule 6.30(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 6.30(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 6.30(f)(3); see also Cboe Options Rule
5.10(f)(3) (which provides a cutoff time of 12:00 p.m. Central
Time).
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The Exchange proposes to amend current paragraph (h)
(Responsibility) (to be relettered to paragraph (g)) of Rule 6.30 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 6.30
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 Trading Permit Holders.'' \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 Trading Permit
Holder 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 Trading Permit Holders to identify any
Clearing Trading Permit Holder 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 6.30 help alleviate this risk by enabling
Clearing Trading Permit Holders to `Opt In' to restrict one or more of
its OCC clearing numbers (i.e., Restricted OCC Numbers), and to specify
which Authorized Trading Permit Holders may give up those Restricted
OCC Numbers. As described above, all other Trading Permit Holders would
be required to receive written authorization from the Clearing Trading
Permit Holder before they can give up that Clearing Trading Permit
Holder's
[[Page 3954]]
Restricted OCC Number. The Exchange believes that this authorization
provides proper safeguards and protections for Clearing Trading Permit
Holders as it provides controls for Clearing Trading Permit Holders to
restrict access to their OCC clearing numbers, allowing access only to
those Authorized Trading Permit Holders upon their request. The
Exchange also believes that its proposed Clearing Trading Permit Holder
Restriction Form allows the Exchange to receive in a uniform fashion,
written and transparent authorization from Clearing Trading Permit
Holders, 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 Trading
Permit Holders (other than Authorized Trading Permit Holders) to seek
authorization from Clearing Trading Permit Holders in order to have the
ability to give them up, each Trading Permit Holder 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
Trading Permit Holder is party to that arrangement. The Exchange also
notes that to the extent the executing Trading Permit Holder has a
clearing arrangement with a Clearing Trading Permit Holder (i.e.,
through a Letter of Guarantee), a trade can be assigned to the
executing Trading Permit Holder's guarantor. Accordingly, the Exchange
believes that the proposed rule change is reasonable and continues to
provide certainty that a Clearing Trading Permit Holder 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 Trading Permit Holders. 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 Trading Permit Holders 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 Trading Permit
Holders 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 Trading
Permit Holder's services, the Exchange's proposal may indirectly
facilitate the ability of a Clearing Trading Permit Holder to manage
their existing customer relationships while continuing to allow market
participant choice in broker execution services. While Clearing Trading
Permit Holders 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 Trading Permit Holders 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,
[[Page 3955]]
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-C2-2020-001 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-C2-2020-001. 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-C2-2020-001 and should be submitted on
or before February 13, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\55\
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\55\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-01035 Filed 1-22-20; 8:45 am]
BILLING CODE 8011-01-P
