Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Remove Its Optional Daily Risk Limits Pursuant to Rule 5.34, 23557-23560 [2020-08934]
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Federal Register / Vol. 85, No. 82 / Tuesday, April 28, 2020 / Notices
transaction of the proposed Follow-On
Investment at the earliest practical time;
and
(ii) formulate a recommendation as to
the proposed participation, including
the amount of the proposed Follow-On
Investment, by each Regulated Fund.
(b) A Regulated Fund may participate
in such Follow-On Investment without
obtaining prior approval of the Required
Majority if: (i) The proposed
participation of each Regulated Fund
and each Affiliated Fund in such
investment is proportionate to its
outstanding investments in the issuer
immediately preceding the Follow-On
Investment; and (ii) the Board of the
Regulated Fund has approved as being
in the best interests of the Regulated
Fund the ability to participate in
Follow-On Investments on a pro rata
basis (as described in greater detail in
the application). In all other cases, the
Adviser will provide its written
recommendation as to the Regulated
Fund’s participation to the Eligible
Trustees, and the Regulated Fund will
participate in such Follow-On
Investment solely to the extent that a
Required Majority determines that it is
in the Regulated Fund’s best interests.
(c) If, with respect to any Follow-On
Investment:
(i) The amount of the opportunity is
not based on the Regulated Funds’ and
the Affiliated Funds’ outstanding
investments immediately preceding the
Follow-On Investment; and
(ii) the aggregate amount
recommended by the applicable GTAM
Adviser to be invested by the applicable
Regulated Fund in the Follow-On
Investment, together with the amount
proposed to be invested by other
participating Regulated Funds and
Affiliated Funds, collectively, in the
same transaction, exceeds the amount of
the investment opportunity, then the
investment opportunity will be
allocated among them pro rata based on
each participant’s Available Capital, up
to the amount proposed to be invested
by each.
(d) The acquisition of Follow-On
Investments as permitted by this
condition will be considered a CoInvestment Transaction for all purposes
and subject to the other conditions set
forth in the application.
9. The Non-Interested Trustees of
each Regulated Fund will be provided
quarterly for review all information
concerning Potential Co-Investment
Transactions and Co-Investment
Transactions, including investments
made by any other Regulated Funds or
Affiliated Funds that the Regulated
Fund considered but declined to
participate in, so that the Non-Interested
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Trustees may determine whether all
investments made during the preceding
quarter, including those investments
that the Regulated Fund considered but
declined to participate in, comply with
the conditions of the Order. In addition,
the Non-Interested Trustees will
consider at least annually the continued
appropriateness for the Regulated Fund
of participating in new and existing CoInvestment Transactions.
10. Each Regulated Fund will
maintain the records required by section
57(f)(3) of the Act as if each of the
Regulated Funds were a BDC and each
of the investments permitted under
these conditions were approved by the
Required Majority under section 57(f) of
the Act.
11. No Non-Interested Trustee of a
Regulated Fund will also be a director,
general partner, managing member or
principal, or otherwise an ‘‘affiliated
person’’ (as defined in the Act) of an
Affiliated Fund.
12. The expenses, if any, associated
with acquiring, holding or disposing of
any securities acquired in a CoInvestment Transaction (including,
without limitation, the expenses of the
distribution of any such securities
registered for sale under the 1933 Act)
will, to the extent not payable by the
Advisers under their respective
investment advisory agreements with
Affiliated Funds and the Regulated
Funds, be shared by the Regulated
Funds and the Affiliated Funds in
proportion to the relative amounts of the
securities held or to be acquired or
disposed of, as the case may be.
13. Any transaction fee 10 (including
break-up or commitment fees but
excluding broker’s fees contemplated
section 17(e) of the Act) received in
connection with a Co-Investment
Transaction will be distributed to the
participating Regulated Funds and
Affiliated Funds on a pro rata basis
based on the amounts they invested or
committed, as the case may be, in such
Co-Investment Transaction. If any
transaction fee is to be held by an
Adviser pending consummation of the
Co-Investment Transaction, the fee will
be deposited into an account
maintained by such Adviser at a bank or
banks having the qualifications
prescribed in section 26(a)(1) of the Act,
and the account will earn a competitive
rate of interest that will also be divided
pro rata among the participating
Regulated Funds and Affiliated Funds
based on the amounts they invest in
10 The Applicants are not requesting, and the staff
is not providing, any relief for transaction fees
received in connection with any Co-Investment
Transaction.
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such Co-Investment Transaction. None
of the Affiliated Funds, the Advisers,
the other Regulated Funds, or any
affiliated person of the Regulated Funds
or Affiliated Funds will receive
additional compensation or
remuneration of any kind as a result of
or in connection with a Co-Investment
Transaction (other than (a) in the case
of the Regulated Funds and the
Affiliated Funds, the pro rata
transaction fees described above and
fees or other compensation described in
condition 2(c)(iii)(C); and (b) in the case
of an Adviser, investment advisory fees
paid in accordance with the investment
advisory agreements between such
Adviser and the Regulated Fund or
Affiliated Fund).
14. If the Holders own in the aggregate
more than 25% of the Shares of a
Regulated Fund, then the Holders will
vote such Shares as directed by an
independent third party when voting on
(1) the election of directors; (2) the
removal of one or more directors; or (3)
any other matter under either the Act or
applicable state law affecting the
Board’s composition, size or manner of
election.
15. Each Regulated Fund’s chief
compliance officer, as defined in rule
38a–1(a)(4) under the Act, will prepare
an annual report for the Board of such
Regulated Fund that evaluates (and
documents the basis of that evaluation)
the Regulated Fund’s compliance with
the terms and conditions of the
application and procedures established
to achieve such compliance.
For the Commission, by the Division of
Investment Management, under delegated
authority.
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–08942 Filed 4–27–20; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–88722; File No. SR–CBOE–
2020–037]
Self-Regulatory Organizations; Cboe
Exchange, Inc.; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Remove Its Optional
Daily Risk Limits Pursuant to Rule 5.34
April 22, 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 April 13,
2020, Cboe Exchange, Inc. (the
1 15
2 17
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U.S.C. 78s(b)(1).
CFR 240.19b–4.
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Federal Register / Vol. 85, No. 82 / Tuesday, April 28, 2020 / Notices
‘‘Exchange’’ or ‘‘Cboe Options’’) filed
with the Securities and Exchange
Commission (the ‘‘Commission’’) the
proposed rule change as described in
Items I and II below, which Items have
been prepared by the Exchange. The
Exchange filed the proposal as a ‘‘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 Exchange, Inc. (the ‘‘Exchange’’
or ‘‘Cboe Options’’) proposes to remove
its optional daily risk limits pursuant to
Rule 5.34. The text of the proposed rule
change is provided in Exhibit 5.
The text of the proposed rule change
is also available on the Exchange’s
website (https://www.cboe.com/
AboutCBOE/CBOELegalRegulatory
Home.aspx), at the Exchange’s Office of
the Secretary, and at the Commission’s
Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
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1. Purpose
The Exchange proposes to remove the
optional daily risk limit settings for
Users in Rule 5.34(c)(4).5 The daily risk
limits are voluntary functionality.
Pursuant to current Rule 5.34(c)(4), if a
User enables this functionality they may
establish one or more of the following
values for each of its ports, which the
System aggregates (for simple and
3 15
U.S.C. 78s(b)(3)(A)(iii).
CFR 240.19b–4(f)(6).
5 As a result of the proposed rule change, the
Exchange also updates the subsequent paragraph
numbering in current subparagraphs (c)(5) through
(c)(11).
4 17
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complex orders) across all of a User’s
ports (i.e., applies on a firm basis): (i)
Cumulative notional booked bid value
(‘‘CBB’’); (ii) cumulative notional
booked offer value (‘‘CBO’’); (iii)
cumulative notional executed bid value
(‘‘CEB’’); and (iv) cumulative notional
executed offer value (‘‘CEO’’). The User
may then establish a limit order
notional cutoff, a market order notional
cutoff, or both, each of which it may
establish on a net basis, gross basis, or
both. If a User exceeds a cutoff value,
the System cancels or rejects all
incoming limit orders or market orders,
respectively. If a User establishes a limit
order notional cutoff but does not
establish (or sets as zero) the market
order notional cutoff, the System
cancels or rejects all market orders. The
System calculates a notional cutoff on a
gross basis by summing CBB, CBO, CEB,
and CEO. The System calculates a
notional cutoff on a net basis by
summing CEO and CBO, then
subtracting the sum of CEB and CBB,
and then taking the absolute value of the
resulting amount. This functionality
does not apply to bulk messages.
The Exchange proposes to remove the
daily limit risk mechanism because use
of this mechanism on Users’ ports is
infrequent. Indeed, no Users currently
have the daily risk limit enabled on a
port connected to the Exchange.
Because so few Users enable this
functionality for their ports, the
Exchange believes the current demand
does not warrant the Exchange
resources necessary for ongoing System
support for the risk mechanism (e.g., the
System must maintain and apply
algorithms that track and calculate gross
and net notional exposure). The
Exchange again notes that the use of the
daily risk limit is voluntary. The
Exchange will continue to offer to Users
a full suite of price protection
mechanisms and risk controls which
sufficiently mitigate risks associated
with Users entering orders and quotes at
unintended prices, and risks associated
with orders and quotes trading at prices
that are extreme and potentially
erroneous, as a likely result of human or
operational error. This includes other
price protections and risk controls
associated with notional value of a
User’s orders and quotes. For example,
Rule 5.34(c)(3) provides for a voluntary
functionality in which the System
cancels or rejects an incoming order or
quote with a notional value that exceeds
the maximum notional value a User
establishes for each of its ports, and
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Rule 5.34(c)(5) 6 provides for a voluntary
functionality in which a User may
establish risk limits within a class or
across classes 7 defined by certain
parameters, of which the notional value
of executions is an parameter option.
Once a risk parameter is reached, no
new trades are executed and any orders
or quotes in route are System-rejected.
2. Statutory Basis
The Exchange believes the proposed
rule change is consistent with the
Securities Exchange Act of 1934 (the
‘‘Act’’) and the rules and regulations
thereunder applicable to the Exchange
and, in particular, the requirements of
Section 6(b) of the Act.8 Specifically,
the Exchange believes the proposed rule
change is consistent with the Section
6(b)(5) 9 requirements that the rules of
an exchange be designed to prevent
fraudulent and manipulative acts and
practices, to promote just and equitable
principles of trade, to foster cooperation
and coordination with persons engaged
in regulating, clearing, settling,
processing information with respect to,
and facilitating transactions in
securities, to remove impediments to
and perfect the mechanism of a free and
open market and a national market
system, and, in general, to protect
investors and the public interest.
Additionally, the Exchange believes the
proposed rule change is consistent with
the Section 6(b)(5) 10 requirement that
the rules of an exchange not be designed
to permit unfair discrimination between
customers, issuers, brokers, or dealers.
In particular, the proposed rule
change will remove impediments to and
perfect the mechanism of a free and
open market and national market system
and benefit investors, because it will
delete from the Rules a risk control that
the Exchange will no longer offer,
thereby promoting transparency in its
Rules. The Exchange notes, too, that
other options exchange do not offer
daily risk limits, or other risk controls,
associated with notional value of their
users’ order or quotes.11 The Exchange
6 The Exchange notes that as a result of the
proposed removal of Rule 5.34(c)(4), current Rule
5.34(c)(5) will become new Rule 5.34(c)(4).
7 And for one Executing Firm ID (‘‘EFID’’) or a
group of EFIDs.
8 15 U.S.C. 78f(b).
9 15 U.S.C. 78f(b)(5).
10 Id.
11 See NYSE CGW FIX Gateway Specification for
NYSE American Options and NYSE Arca Options
(last updated February 27, 2020) available at
https://www.nyse.com/publicdocs/nyse/markets/
nyse/FIX_Specification_and_API.pdf, which
provides for various User-defined risk controls, like
those of the Exchange, but does not offer parameter
settings in connection with aggregate notional
values. NYSE American Options and NYSE Arca
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does not believe that the proposed rule
change will affect the protection of
investors or the public interest or the
maintenance of a fair and orderly
market because this risk control is so
infrequently implemented, and
currently, no User has this risk control
established in any port connected to the
Exchange. In addition to this, the
Exchange notes that the use of this risk
control is voluntary and the Exchange
will continue to offer a full suite of price
protection mechanisms and risk
controls, including those associated
with notional value of a Users’ orders
and quotes, which sufficiently mitigate
risks associated with Users entering
orders and quotes at unintended prices,
and risks associated with orders and
quotes trading at prices that are extreme
and potentially erroneous, as a likely
result of human or operational error.
Also, the Exchange believes the low
usage rate for the daily risk limits does
not warrant the continued resources
necessary for System support of such
controls. As a result, the Exchange
believes the proposed rule change will
also remove impediments to and perfect
the mechanism of a free and open
market and national market system by
allowing the Exchange to reallocate
System capacity and resources to more
frequently elected System functionality,
including other price protection and
risk control functionality.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. The
proposed rule change is not competitive
in nature, but rather is intended to
remove a risk control that is rarely used
on the Exchange. The Exchange does
not believe that the proposed rule
change would impose a burden on
intramarket competition that is not
necessary or appropriate in furtherance
of the purposes of the Act because it
will remove the option to use this risk
control for all Users on the Exchange. In
addition to this, and as stated above, the
use of the daily risk limit is voluntary
and the Exchange will continue to offer
various other price protections and risk
controls that sufficiently mitigate risks
associated with market participants
entering and/or trading orders and
quotes at unintended or extreme prices.
Further, the Exchange does not believe
that the proposed rule change would
impose a burden on intermarket
Options also do not offer such settings in their
rules.
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competition that is not necessary or
appropriate in furtherance of the
purposes of the Act because the
proposed rule change reflects the
current risk control offerings on other
options exchanges.12
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.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
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:
The Exchange neither solicited nor
received comments on the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule
change does not: (i) Significantly affect
the protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days after the date of
the filing, or such shorter time as the
Commission may designate, it has
become effective pursuant to Section
19(b)(3)(A) of the Act 13 and Rule 19b–
4(f)(6) 14 thereunder.
The Exchange has asked the
Commission to waive the 30-day
operative delay.15 The Commission
finds that waiving the 30-day operative
delay is consistent with the protection
of investors and the public interest. The
Exchange represents that generally the
Daily Risk Limits are utilized
infrequently by its Users and that
currently the functionality is not being
used at all. The Exchange also indicates
that eliminating Daily Risk Limits will
enable the efficient allocation of
technical resources and the Exchange
will continue to offer an effective suite
of risk management options to its Users
pursuant to Rule 5.34. Accordingly, the
Commission designates the proposal
operative upon filing.16
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
12 See
supra note 11.
U.S.C. 78s(b)(3)(A).
14 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.
15 17 CFR 240.19b–4(f)(6)(iii).
16 For purposes only of waiving the 30-day
operative delay, the Commission has considered the
proposed rule change’s impact on efficiency,
competition, and capital formation. 15 U.S.C. 78c(f).
13 15
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Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rulecomments@sec.gov. Please include File
Number SR–CBOE–2020–037 on the
subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–CBOE–2020–037. 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;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–CBOE–
2020–037 and should be submitted on
or before May 19, 2020.
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Federal Register / Vol. 85, No. 82 / Tuesday, April 28, 2020 / Notices
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.17
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–08934 Filed 4–27–20; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–88727; File No. SR–
CboeEDGA–2020–012]
Self-Regulatory Organizations; Cboe
EDGA Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of a
Proposed Rule Change To Provide
Members Certain Optional Risk
Settings Under Proposed
Interpretation and Policy .03 of Rule
11.10
April 22, 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 April 16,
2020, Cboe EDGA Exchange, Inc. (the
‘‘Exchange’’) filed with the Securities
and Exchange Commission (the
‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the Exchange. The Exchange filed the
proposal as a ‘‘non-controversial’’
proposed rule change pursuant to
Section 19(b)(3)(A)(iii) of the Act 3 and
Rule 19b–4(f)(6) thereunder.4 The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
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I. Self-Regulatory Organization’s
Statement of the Terms of the Substance
of the Proposed Rule Change
Cboe EDGA Exchange, Inc. (‘‘EDGA’’
or the ‘‘Exchange’’) proposes to provide
Members certain optional risk settings
under proposed Interpretation and
Policy .03 of Rule 11.10. 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/
equities/regulation/rule_filings/edga/),
at the Exchange’s Office of the
Secretary, and at the Commission’s
Public Reference Room.
1. Purpose
The purpose of the proposed rule
change is to provide Members 5 the
option to utilize certain risk settings
under proposed Interpretation and
Policy .03 of Rule 11.10.6 In order to
help Members manage their risk, the
Exchange proposes to offer optional risk
settings that would authorize the
Exchange to take automated action if a
designated limit for a Member is
breached. Such risk settings would
provide Members with enhanced
abilities to manage their risk with
respect to orders on the Exchange.
Paragraph (a) of proposed Interpretation
and Policy .03 of Rule 11.10 sets forth
the specific risk controls the Exchange
proposes to offer. Specifically, the
Exchange proposes to offer two credit
risk settings as follows:
• The ‘‘Gross Credit Risk Limit’’,
which refers to a pre-established
maximum daily dollar amount for
purchases and sales across all symbols,
where both purchases and sales are
counted as positive values. For purposes
of calculating the Gross Credit Risk
Limit, only executed orders are
included; and
• The ‘‘Net Credit Risk Limit’’, which
refers to a pre-established maximum
daily dollar amount for purchases and
sales across all symbols, where
purchases are counted as positive values
and sales are counted as negative
values. For purposes of calculating the
Net Credit Risk Limit, only executed
orders are included.
The Gross Credit and Net Credit risk
settings are similar to credit controls
Exchange Rule 1.5(n).
proposed rule changes are substantially
similar to a recent rule amendment by Cboe BZX
Exchange, Inc. (‘‘BZX’’). See Securities Exchange
Act No. 88599 (April 8, 2020) 85 FR 20793 (April
14, 2020) (the ‘‘BZX Approval’’).
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).
6 The
1 15
18:43 Apr 27, 2020
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
5 See
17 17
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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
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.
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measuring both gross and net exposure
provided for in paragraph (h) of
Interpretation and Policy .01 of Rule
11.10, but with certain notable
differences. Importantly, the proposed
risk settings would be applied at a
Market Participant Identifier (‘‘MPID’’)
level, while the controls noted in
paragraph (h) of Interpretation and
Policy .01 are applied at the logical port
level.7 Therefore, the proposed risk
management functionality would allow
a Member to manage its risk more
comprehensively, instead of relying on
the more limited port level functionality
offered today. Further, the proposed risk
settings would be based on a notional
execution value, while the controls
noted in paragraph (h) of Interpretation
and Policy .03 are applied based on a
combination of outstanding orders on
the Exchange’s book and notional
execution value. The Exchange notes
that the current gross and net notional
controls noted in paragraph (h) of
Interpretation and Policy .03 will
continue to be available in addition to
the proposed risk settings.
Paragraph (c) of proposed
Interpretation and Policy .03 of Rule
11.10 provides that a Member that does
not self-clear may allocate and revoke 8
the responsibility of establishing and
adjusting the risk settings identified in
proposed paragraph (a) to a Clearing
Member that clears transactions on
behalf of the Member, if designated in
a manner prescribed by the Exchange.
The Exchange proposes to harmonize
Exchange Rule 11.13(a) with BZX and
Cboe BYX Exchange, Inc. (‘‘BYX’’) Rules
11.15(a). Specifically, in proposed Rule
11.13(a), the Exchange proposes to (i)
define the term ‘‘Clearing Member’’; 9
(ii) memorialize in its rules the process
by which a Clearing Member shall
affirm its responsibility for clearing any
and all trades executed by the Member
designating it as its Clearing Firm; and
(iii) memorialize the fact that the rules
of a Qualified Clearing Agency shall
govern with respect to the clearance and
settlement of any transactions executed
by the Member on the Exchange. While
the foregoing proposed changes to Rule
7 A logical port represents a port established by
the Exchange within the Exchange’s System for
trading and billing purposes. Each logical port
established is specific to a Member or non-Member
and grants that Member or non-Member the ability
to accomplish a specific function, such as order
entry, order cancellation, or data receipt.
8 As discussed below, if a Member revokes the
responsibility of establishing and adjusting the risk
settings identified in proposed paragraph (a), the
settings applied by the Member would be
applicable.
9 As proposed, the term ‘‘Clearing Member’’ refers
to a Member that is a member of a Qualified
Clearing Agency and clears transactions on behalf
of another Member. See proposed Rule 11.13(a).
E:\FR\FM\28APN1.SGM
28APN1
]]>Agencies
[Federal Register Volume 85, Number 82 (Tuesday, April 28, 2020)]
[Notices]
[Pages 23557-23560]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-08934]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-88722; File No. SR-CBOE-2020-037]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Remove
Its Optional Daily Risk Limits Pursuant to Rule 5.34
April 22, 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 April 13, 2020, Cboe Exchange, Inc. (the
[[Page 23558]]
``Exchange'' or ``Cboe Options'') filed with the Securities and
Exchange Commission (the ``Commission'') the proposed rule change as
described in Items I and II below, which Items have been prepared by
the Exchange. The Exchange filed the proposal as a ``non-
controversial'' proposed rule change pursuant to Section
19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-4(f)(6) thereunder.\4\ The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A)(iii).
\4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Cboe Exchange, Inc. (the ``Exchange'' or ``Cboe Options'') proposes
to remove its optional daily risk limits pursuant to Rule 5.34. The
text of the proposed rule change is provided in Exhibit 5.
The text of the proposed rule change is also available on the
Exchange's website (https://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx), at the Exchange's Office of the
Secretary, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to remove the optional daily risk limit
settings for Users in Rule 5.34(c)(4).\5\ The daily risk limits are
voluntary functionality. Pursuant to current Rule 5.34(c)(4), if a User
enables this functionality they may establish one or more of the
following values for each of its ports, which the System aggregates
(for simple and complex orders) across all of a User's ports (i.e.,
applies on a firm basis): (i) Cumulative notional booked bid value
(``CBB''); (ii) cumulative notional booked offer value (``CBO''); (iii)
cumulative notional executed bid value (``CEB''); and (iv) cumulative
notional executed offer value (``CEO''). The User may then establish a
limit order notional cutoff, a market order notional cutoff, or both,
each of which it may establish on a net basis, gross basis, or both. If
a User exceeds a cutoff value, the System cancels or rejects all
incoming limit orders or market orders, respectively. If a User
establishes a limit order notional cutoff but does not establish (or
sets as zero) the market order notional cutoff, the System cancels or
rejects all market orders. The System calculates a notional cutoff on a
gross basis by summing CBB, CBO, CEB, and CEO. The System calculates a
notional cutoff on a net basis by summing CEO and CBO, then subtracting
the sum of CEB and CBB, and then taking the absolute value of the
resulting amount. This functionality does not apply to bulk messages.
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\5\ As a result of the proposed rule change, the Exchange also
updates the subsequent paragraph numbering in current subparagraphs
(c)(5) through (c)(11).
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The Exchange proposes to remove the daily limit risk mechanism
because use of this mechanism on Users' ports is infrequent. Indeed, no
Users currently have the daily risk limit enabled on a port connected
to the Exchange. Because so few Users enable this functionality for
their ports, the Exchange believes the current demand does not warrant
the Exchange resources necessary for ongoing System support for the
risk mechanism (e.g., the System must maintain and apply algorithms
that track and calculate gross and net notional exposure). The Exchange
again notes that the use of the daily risk limit is voluntary. The
Exchange will continue to offer to Users a full suite of price
protection mechanisms and risk controls which sufficiently mitigate
risks associated with Users entering orders and quotes at unintended
prices, and risks associated with orders and quotes trading at prices
that are extreme and potentially erroneous, as a likely result of human
or operational error. This includes other price protections and risk
controls associated with notional value of a User's orders and quotes.
For example, Rule 5.34(c)(3) provides for a voluntary functionality in
which the System cancels or rejects an incoming order or quote with a
notional value that exceeds the maximum notional value a User
establishes for each of its ports, and Rule 5.34(c)(5) \6\ provides for
a voluntary functionality in which a User may establish risk limits
within a class or across classes \7\ defined by certain parameters, of
which the notional value of executions is an parameter option. Once a
risk parameter is reached, no new trades are executed and any orders or
quotes in route are System-rejected.
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\6\ The Exchange notes that as a result of the proposed removal
of Rule 5.34(c)(4), current Rule 5.34(c)(5) will become new Rule
5.34(c)(4).
\7\ And for one Executing Firm ID (``EFID'') or a group of
EFIDs.
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2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Securities Exchange Act of 1934 (the ``Act'') and the rules and
regulations thereunder applicable to the Exchange and, in particular,
the requirements of Section 6(b) of the Act.\8\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \9\ requirements that the rules of an exchange be
designed to prevent fraudulent and manipulative acts and practices, to
promote just and equitable principles of trade, to foster cooperation
and coordination with persons engaged in regulating, clearing,
settling, processing information with respect to, and facilitating
transactions in securities, to remove impediments to and perfect the
mechanism of a free and open market and a national market system, and,
in general, to protect investors and the public interest. Additionally,
the Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \10\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
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\8\ 15 U.S.C. 78f(b).
\9\ 15 U.S.C. 78f(b)(5).
\10\ Id.
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In particular, the proposed rule change will remove impediments to
and perfect the mechanism of a free and open market and national market
system and benefit investors, because it will delete from the Rules a
risk control that the Exchange will no longer offer, thereby promoting
transparency in its Rules. The Exchange notes, too, that other options
exchange do not offer daily risk limits, or other risk controls,
associated with notional value of their users' order or quotes.\11\ The
Exchange
[[Page 23559]]
does not believe that the proposed rule change will affect the
protection of investors or the public interest or the maintenance of a
fair and orderly market because this risk control is so infrequently
implemented, and currently, no User has this risk control established
in any port connected to the Exchange. In addition to this, the
Exchange notes that the use of this risk control is voluntary and the
Exchange will continue to offer a full suite of price protection
mechanisms and risk controls, including those associated with notional
value of a Users' orders and quotes, which sufficiently mitigate risks
associated with Users entering orders and quotes at unintended prices,
and risks associated with orders and quotes trading at prices that are
extreme and potentially erroneous, as a likely result of human or
operational error. Also, the Exchange believes the low usage rate for
the daily risk limits does not warrant the continued resources
necessary for System support of such controls. As a result, the
Exchange believes the proposed rule change will also remove impediments
to and perfect the mechanism of a free and open market and national
market system by allowing the Exchange to reallocate System capacity
and resources to more frequently elected System functionality,
including other price protection and risk control functionality.
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\11\ See NYSE CGW FIX Gateway Specification for NYSE American
Options and NYSE Arca Options (last updated February 27, 2020)
available at https://www.nyse.com/publicdocs/nyse/markets/nyse/FIX_Specification_and_API.pdf, which provides for various User-
defined risk controls, like those of the Exchange, but does not
offer parameter settings in connection with aggregate notional
values. NYSE American Options and NYSE Arca Options also do not
offer such settings in their rules.
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The proposed rule change is
not competitive in nature, but rather is intended to remove a risk
control that is rarely used on the Exchange. The Exchange does not
believe that the proposed rule change would impose a burden on
intramarket competition that is not necessary or appropriate in
furtherance of the purposes of the Act because it will remove the
option to use this risk control for all Users on the Exchange. In
addition to this, and as stated above, the use of the daily risk limit
is voluntary and the Exchange will continue to offer various other
price protections and risk controls that sufficiently mitigate risks
associated with market participants entering and/or trading orders and
quotes at unintended or extreme prices. Further, the Exchange does not
believe that the proposed rule change would impose a burden on
intermarket competition that is not necessary or appropriate in
furtherance of the purposes of the Act because the proposed rule change
reflects the current risk control offerings on other options
exchanges.\12\
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\12\ See supra note 11.
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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 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 Section 19(b)(3)(A) of the Act \13\ and Rule 19b-4(f)(6)
\14\ thereunder.
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\13\ 15 U.S.C. 78s(b)(3)(A).
\14\ 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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The Exchange has asked the Commission to waive the 30-day operative
delay.\15\ The Commission finds that waiving the 30-day operative delay
is consistent with the protection of investors and the public interest.
The Exchange represents that generally the Daily Risk Limits are
utilized infrequently by its Users and that currently the functionality
is not being used at all. The Exchange also indicates that eliminating
Daily Risk Limits will enable the efficient allocation of technical
resources and the Exchange will continue to offer an effective suite of
risk management options to its Users pursuant to Rule 5.34.
Accordingly, the Commission designates the proposal operative upon
filing.\16\
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\15\ 17 CFR 240.19b-4(f)(6)(iii).
\16\ For purposes only of waiving the 30-day operative delay,
the Commission has considered the proposed rule change's impact on
efficiency, competition, and capital formation. 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-CBOE-2020-037 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-CBOE-2020-037. 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; the Commission does not edit
personal identifying information from submissions. You should submit
only information that you wish to make available publicly. All
submissions should refer to File Number SR-CBOE-2020-037 and should be
submitted on or before May 19, 2020.
[[Page 23560]]
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
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\17\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-08934 Filed 4-27-20; 8:45 am]
BILLING CODE 8011-01-P
