Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing and Order Granting Accelerated Approval of a Proposed Rule Change To Add the Consolidated Audit Trail Industry Member Compliance Rules to the List of Minor Rule Violations in Rule 13.15, 42449-42452 [2020-15113]
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Federal Register / Vol. 85, No. 135 / Tuesday, July 14, 2020 / Notices
subparagraph (f)(6) of Rule 19b–4
thereunder.22
A proposed rule change filed
pursuant to Rule 19b–4(f)(6) under the
Act 23 normally does not become
operative for 30 days after the date of its
filing. However, Rule 19b–4(f)(6)(iii) 24
permits the Commission to designate a
shorter time if such action is consistent
with the protection of investors and the
public interest. The Exchange has
requested that the Commission waive
the 30-day operative delay so that the
proposed rule change may become
operative upon filing. The Commission
notes that the proposed rule change
would allow the Exchange, in light of
the COVID–19 pandemic, to provide
temporary relief for members by
extending the deadlines in paragraphs
(g) and (h) of Exchange Rule 1308
(Supervision of Accounts) from June 30,
2020, to July 31, 2020. This is consistent
with extensions for certain supervisionrelated reports provided by other
exchanges.25 The Commission believes
that waiver of the 30-day operative
delay is consistent with the protection
of investors and the public interest.
Accordingly, the Commission hereby
waives the operative delay and
designates the proposed rule change
operative upon filing.26
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.
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:
22 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 Commission has waived this
requirement.
23 17 CFR 240.19b–4(f)(6).
24 17 CFR 240.19b–4(f)(6)(iii).
25 See Securities Exchange Act Release Nos.
89246 (July 8, 2020) (ISE–2020–28); 89247 (July 8,
2020) (SR–PHLX–2020–35); and 89248 (July 8,
2020) (SR–CBOE–2020–063).
26 For purposes only of waiving the 30-day
operative delay, the Commission also has
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
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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 rule-comments@
sec.gov. Please include File Number SR–
MIAX–2020–24 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–MIAX–2020–24. 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–MIAX–2020–24 and should
be submitted on or before August 4,
2020.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.27
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–15116 Filed 7–13–20; 8:45 am]
BILLING CODE 8011–01–P
PO 00000
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–89257; File No. SR–CBOE–
2020–065]
Self-Regulatory Organizations; Cboe
Exchange, Inc.; Notice of Filing and
Order Granting Accelerated Approval
of a Proposed Rule Change To Add the
Consolidated Audit Trail Industry
Member Compliance Rules to the List
of Minor Rule Violations in Rule 13.15
July 8, 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 July 2,
2020, Cboe Exchange, Inc. (the
‘‘Exchange’’ or ‘‘Cboe Options’’) filed
with the Securities and Exchange
Commission (the ‘‘Commission’’) the
proposed rule change as described in
Items I and II below, which Items have
been prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons and
approving the proposal on an
accelerated basis.
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 add the
Consolidated Audit Trail (‘‘CAT’’)
industry member compliance rules
(‘‘CAT Compliance Rules’’) to the list of
minor rule violations in Rule 13.15. 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
1 15
27 17
CFR 200.30–3(a)(12).
Frm 00104
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42449
2 17
E:\FR\FM\14JYN1.SGM
U.S.C. 78s(b)(1).
CFR 240.19b–4.
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Federal Register / Vol. 85, No. 135 / Tuesday, July 14, 2020 / Notices
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
In order to implement the National
Market System Plan Governing the
Consolidated Audit Trail (the ‘‘CAT
NMS Plan’’ or ‘‘Plan’’) the Exchange
codified the CAT Compliance Rules in
Chapter 7, Section B of the Cboe
Options Rulebook (specifically, Rules
7.20 through 7.31).3 The CAT NMS Plan
was filed by the Plan Participants to
comply with Rule 613 of Regulation
NMS under the Exchange Act,4 and
each Plan Participant accordingly has
adopted the same compliance rules as
the Exchange’s Rules 7.20 through 7.31
in Chapter 7, Section B of the Cboe
Options Rulebook. The common
compliance rules adopted by each Plan
Participant are designed to require
industry members to comply with the
provisions of the CAT NMS Plan, which
broadly calls for industry members to
timely and accurately record and report
timely and accurate customer, order,
and trade information relating to
activity in NMS Securities and OTC
Equity Securities.
Rule 13.15 provides for disposition of
specific violations through assessment
of fines in lieu of conducting a formal
disciplinary proceeding. Rule 13.15(g),
specifically, sets forth the list of specific
Exchange Rules under which a Trading
Permit Holder (‘‘TPH’’) or person
associated with or employed by a TPH
may be subject to a fine for violations
of such Rules. The Exchange proposes
to amend Rule 13.15 to add the CAT
Compliance Rules in Rules 7.20 through
7.31 to the list of rules in Rule 13.15(g)
eligible for disposition pursuant to a
minor fine specifically under proposed
Rule 13.15(g)(20).5 Proposed Rule
3 See Securities Exchange Act Release Nos. 79950
(February 2, 2017), 82 FR 9916 (February 8, 2017)
(SR–CBOE–2017–012); and 80256 (March 15, 2017),
82 FR 14526 (March 21, 2017) (Order Approving
Proposed Rule Changes To Adopt Consolidated
Audit Trail Compliance Rules).
4 17 CFR 242.613.
5 FINRA’s maximum fine for minor rule
violations under FINRA Rule 9216(b) is $2,500. The
Exchange will apply an identical maximum fine
amount for eligible violations of Rules 7.20 through
7.31 to achieve consistency with FINRA and also
amend its minor rule violation plan (‘‘MRVP’’) to
include such fines. Like FINRA, the Exchange
would be able to pursue a fine greater than $2,500
for violations of Rules 7.20 through 7.31 in a regular
disciplinary proceeding or a letter of consent under
Chapter 13 as appropriate. Any fine imposed in
excess of $2,500 or not otherwise covered by Rule
19d–1(c)(2) of the Act would be subject to prompt
notice to the Commission pursuant to Rule 19d–1
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13.15(g)(20) provides that for failures to
comply with the Consolidated Audit
Trail Compliance Rule requirements of
Rules 7.20 through 7.31, the Exchange
may impose a minor rule violation fine
of up to $2,500. The Exchange may seek
other disciplinary action for more
serious violations.
The Exchange is coordinating with
the Financial Industry Regulatory
Authority, Inc. (‘‘FINRA’’) and other
Plan Participants to promote
harmonized and consistent enforcement
of all the Plan Participants’ CAT
Compliance Rules. The Commission
recently approved a Rule 17d–2 Plan
under which the regulation of CAT
Compliance Rules will be allocated
among Plan Participants to reduce
regulatory duplication for industry
members that are members of more than
one Participant (‘‘common members’’).6
Under the Rule 17d–2 Plan, the
regulation of CAT Compliance Rules
with respect to common members that
are members of FINRA is allocated to
FINRA. Similarly, under the Rule 17d–
2 Plan, responsibility for common
members of multiple other Plan
Participants and not a member of FINRA
will be allocated among those other Plan
Participants, including to the Exchange.
For those non-common members who
are allocated to the Exchange pursuant
to the Rule 17d–2 Plan, the Exchange
and FINRA have entered into a
Regulatory Services Agreement (‘‘RSA’’)
pursuant to which FINRA will assist the
Exchange with conducting surveillance,
investigation, examination, and
enforcement activity in connection with
the CAT Compliance Rules on the
Exchange’s behalf. The Exchange
expects that the other exchanges will be
entering into similar RSAs.
The Exchange notes that this proposal
is based upon the FINRA filing to
amend FINRA Rule 9217 in order to add
FINRA’s corresponding CAT
Compliance Rules to FINRA’s list of
rules that are eligible for minor rule
violation plan treatment.7 The Exchange
also notes that the New York Stock
Exchange LLC (‘‘NYSE’’) submitted a
filing to amend its Minor Rule Violation
Plan (‘‘MRVP’’) to add its CAT
Compliance Rules in a manner
consistent with FINRA’s proposal,8 and
under the Act. As noted below, in assessing the
appropriateness of a minor rule fine with respect to
CAT Compliance Rules, the Exchange will be
guided by the same factors that FINRA utilizes. See
text accompanying notes 7–8 [sic], infra.
6 See Securities Exchange Act Release No. 88366
(March 12, 2020), 85 FR 15238 (March 17, 2020).
7 See Securities Exchange Act Release No. 88870
(May 14, 2020), 85 FR 30768 (May 20, 2020) (SR–
FINRA–2020–013).
8 See SR–NYSE–2020–51 (filed June 12, 2020).
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other Plan Participants intend to submit
the same. Thus, in order to achieve
consistency with FINRA and the other
Plan Participants, the Exchange
proposes to adopt fines up to $2,500 in
connection with minor rule fines for
violations of the CAT Compliance Rules
in Rules 7.20 through 7.31 in proposed
Rule 13.15(g)(20) under the Exchange’s
MRVP.
In connection with FINRA’s proposed
amendment to FINRA Rule 9217 to
make FINRA’s CAT Compliance Rules
MRVP eligible, FINRA has stated that it
will apply the minor fines for CAT
Compliance Rules in the same manner
that FINRA has for its similar existing
audit trail-related rules.9 Accordingly,
in order to promote regulatory
consistency, the Exchange plans to do
the same. Specifically, application of a
minor fine with respect to CAT
Compliance Rule violations will be
guided by the same factors that FINRA
references in its filing. However, more
formal disciplinary proceedings may be
warranted instead of minor rule
dispositions in certain circumstances
such as where violations prevent
regulatory users of the CAT from
performing their regulatory functions.
Where minor rule dispositions are
appropriate, the following factors help
guide the determination of fine
amounts:
• Total number of reports that are not
submitted or submitted late;
• The timeframe over which the
violations occur;
• Whether violations are batched;
• Whether the violations are the
result of the actions of one individual or
the result of faulty systems or
procedures;
• Whether the firm has taken
remedial measures to correct the
violations;
• Prior minor rule violations within
the past 24 months;
• Collateral effects that the failure has
on customers; and
• Collateral effects that the failure has
on the Exchange’s ability to perform its
regulatory function.10
Upon effectiveness of this rule
change, the Exchange will publish a
regulatory bulletin notifying its TPHs of
the rule change and the specific factors
that will be considered in connection
with assessing minor rule fines
described above.
For the foregoing reasons, the
Exchange believes that the proposed
9 See supra note 7; see also FINRA Notice to
Members 04–19 (March 2004) available at https://
www.finra.org/rules-guidance/notices/04-19
(providing specific factors used to inform
dispositions for violations of OATS reporting rules).
10 See id.
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Federal Register / Vol. 85, No. 135 / Tuesday, July 14, 2020 / Notices
rule change will result in a coordinated,
harmonized approach to CAT
Compliance Rule enforcement across
Plan Participants that will be consistent
with the approach FINRA has taken
with the CAT rules.
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.11 Specifically,
the Exchange believes the proposed rule
change is consistent with the Section
6(b)(5) 12 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) 13 requirement that
the rules of an exchange not be designed
to permit unfair discrimination between
customers, issuers, brokers, or dealers.
Minor rule fines provide a meaningful
sanction for minor or technical
violations of rules when the conduct at
issue does not warrant stronger,
immediately reportable disciplinary
sanctions. The inclusion of a rule in the
Exchange’s MRVP does not minimize
the importance of compliance with the
rule, nor does it preclude the Exchange
from choosing to pursue violations of
eligible rules through a letter of consent
if the nature of the violations or prior
disciplinary history warrants more
significant sanctions. Rather, the
Exchange believes that the proposed
rule change will strengthen the
Exchange’s ability to carry out its
oversight and enforcement
responsibilities in cases where full
disciplinary proceedings are
unwarranted in view of the minor
nature of the particular violation. The
Exchange believes the option to impose
a minor rule sanction gives the
Exchange additional flexibility to
administer its enforcement program in
the most effective and efficient manner
while still fully meeting the Exchange’s
11 15
12 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
13 Id.
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17:58 Jul 13, 2020
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remedial objectives in addressing
violative conduct.14 Specifically, the
proposed rule change is designed to
prevent fraudulent and manipulative
acts and practices because it will
provide the Exchange the ability to issue
a minor rule fine for violations of the
CAT Compliance Rules in Rules 7.20
through 7.31 where a more formal
disciplinary action may not be
warranted or appropriate consistent
with the approach of other Plan
Participants for the same conduct.
In connection with the fine level
specified in the proposed rule change,
adding proposed Rule 13.15(g)(20) to
specifically provide that for violations
of the CAT Compliance Rules in Rules
7.20 through 7.31 the Exchange may
impose a fine not to exceed $2,500
would further the goal of transparency
within the Exchange’s rules. Adopting
the same cap as FINRA for minor rule
fines in connection with the CAT
Compliance Rules would also promote
regulatory consistency across selfregulatory organizations.
The Exchange further believes that the
proposed amendment to Rule 13.15 is
consistent with Section 6(b)(6) of the
Act,15 which provides that members and
persons associated with members shall
be appropriately disciplined for
violation of the provisions of the rules
of the exchange, by expulsion,
suspension, limitation of activities,
functions, and operations, fine, censure,
being suspended or barred from being
associated with a member, or any other
fitting sanction. As noted, the proposed
rule change would provide the
Exchange ability to sanction minor or
technical violations of Rules 7.20
through 7.31 pursuant to the Exchange’s
rules.
Finally, the Exchange also believes
that the proposed change is designed to
provide a fair procedure for the
disciplining of members and persons
associated with members, consistent
with Sections 6(b)(7) and 6(d) of the
Act.16 Rule 13.15 does not preclude a
TPH or person associated with or
employed by a TPH from contesting an
alleged violation and receiving a hearing
on the matter with the same procedural
rights through a litigated disciplinary
proceeding.
14 Pursuant to Rule 13.15(a) and (f), the Exchange
has the discretion to impose a fine in lieu of
commencing a disciplinary proceeding for a
violation that is minor in nature. Under Rule
13.15(f), the Exchange may refer matters covered
under the MRVP for formal disciplinary action
whenever it determines that any violation is
intentional, egregious or otherwise not minor in
nature.
15 15 U.S.C. 78f(b)(6).
16 15 U.S.C. 78f(b)(7) and 78f(d).
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42451
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 intended to
address competitive issues but rather is
concerned solely with making the CAT
Compliance Rules in Rules 7.20 through
7.31 eligible for a minor rule fine
disposition, thereby strengthening the
Exchange’s ability to carry out its
oversight and enforcement functions
and deter potential violative conduct.
Also, as stated above, the proposed rule
change is consistent with similar
proposals recently filed by FINRA and
NYSE, and other Plan Participants
intend to submit the same.
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. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
CBOE–2020–065 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–2020–065. 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
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Federal Register / Vol. 85, No. 135 / Tuesday, July 14, 2020 / Notices
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549 on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–CBOE–2020–065 and
should be submitted on or before
August 4, 2020.
IV. Commission’s Findings and Order
Granting Accelerated Approval of
Proposed Rule Change
The Commission finds that the
proposed rule change is consistent with
the requirements of the Act and the
rules and regulations thereunder
applicable to a national securities
exchange.17 In particular, the
Commission finds that the proposed
rule change is consistent with Section
6(b)(5) of the Act,18 which requires that
the rules of an exchange be designed to
promote just and equitable principles of
trade, to remove impediments and to
perfect the mechanism of a free and
open market and a national market
system, and, in general, to protect
investors and the public interest. The
Commission also believes that the
proposal is consistent with Sections
6(b)(1) and 6(b)(6) of the Act 19 which
require that the rules of an exchange
enforce compliance with, and provide
appropriate discipline for, violations of
Commission and Exchange rules.
Finally, the Commission finds that the
proposal is consistent with the public
interest, the protection of investors, or
otherwise in furtherance of the purposes
of the Act, as required by Rule 19d–
1(c)(2) under the Act,20 which governs
minor rule violation plans.
As stated above, the Exchange
proposes to add the CAT Compliance
Rules to the list of minor rule violations
17 In approving this proposed rule change, the
Commission has considered the proposed rule’s
impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
18 15 U.S.C. 78f(b)(5).
19 15 U.S.C. 78f(b)(1) and 78f(b)(6).
20 17 CFR 240.19d–1(c)(2).
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17:58 Jul 13, 2020
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in Rule 13.15 to be consistent with the
approach FINRA has taken for minor
violations of its corresponding CAT
Compliance Rules.21 The Commission
has already approved FINRA’s treatment
of CAT Compliance Rules violations
when it approved the addition of CAT
Compliance Rules to FINRA’s MRVP.22
As noted in that order, and similarly
herein, the Commission believes that
Exchange’s treatment of CAT
Compliance Rules violations as part of
its MRVP provides a reasonable means
of addressing violations that do not rise
to the level of requiring formal
disciplinary proceedings, while
providing greater flexibility in handling
certain violations. However, the
Commission expects that, as with
FINRA, the Exchange will continue to
conduct surveillance with due diligence
and make determinations based on its
findings, on a case-by-case basis,
regarding whether a sanction under the
rule is appropriate, or whether a
violation requires formal disciplinary
action. Accordingly, the Commission
believes the proposal raises no novel or
significant issues.
For the same reasons discussed above,
the Commission finds good cause,
pursuant to Section 19(b)(2) of the
Act,23 for approving the proposed rule
change prior to the thirtieth day after
the date of publication of the notice of
the filing thereof in the Federal
Register. The proposal merely adds the
CAT Compliance Rules to the
Exchange’s MRVP and harmonizes its
application with FINRA’s application of
CAT Compliance Rules under its own
MRVP. Accordingly, the Commission
believes that a full notice-and-comment
period is not necessary before approving
the proposal.
V. Conclusion
It Is Therefore Ordered, pursuant to
Section 19(b)(2) of the Act 24 and Rule
19d–1(c)(2) thereunder,25 that the
proposed rule change (SR–CBOE–2020–
21 As discussed above, the Exchange has entered
into a Rule 17d–2 Plan and an RSA with FINRA
with respect to the CAT Compliance Rules. The
Commission notes that, unless relieved by the
Commission of its responsibility, as may be the case
under the Rule 17d–2 Plan, the Exchange continues
to bear the responsibility for self-regulatory conduct
and liability for self-regulatory failures, not the selfregulatory organization retained to perform
regulatory functions on the Exchange’s behalf
pursuant to an RSA. See Securities Exchange
Release No. 61419 (January 26, 2010), 75 FR 5157
(February 1, 2010) (SR–BATS–2009–031), note 93
and accompanying text.
22 See supra note 7.
23 15 U.S.C. 78s(b)(2).
24 15 U.S.C. 78s(b)(2).
25 17 CFR 240.19d–1(c)(2).
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065) be, and hereby is, approved on an
accelerated basis.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.26
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–15113 Filed 7–13–20; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–89258; File No. SR–
CboeEDGA–2020–003]
Self-Regulatory Organizations; Cboe
EDGA Exchange, Inc.; Notice of
Withdrawal of a Proposed Rule Change
To Amend Certain Rules Within Rules
4.5 Through 4.16, Which Contains the
Exchange’s Compliance Rule
Regarding the National Market System
Plan Governing the Consolidated Audit
Trail (‘‘CAT NMS Plan’’), To Be
Consistent With Certain Proposed
Amendments to and Exemptions From
the CAT NMS Plan as Well as To
Facilitate the Retirement of Certain
Existing Regulatory Systems
July 8, 2020.
On January 22, 2020, Cboe EDGA
Exchange, Inc. (‘‘Exchange’’ or ‘‘EDGA’’)
filed with the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’),1 and
Rule 19b–4 thereunder,2 a proposed rule
change to amend the Exchange’s
compliance rule regarding the National
Market System Plan Governing the
Consolidated Audit Trail. The proposed
rule change was published for comment
in the Federal Register on February 5,
2020.3 On March 20, 2020, the
Commission extended the time period
within which to approve the proposed
rule change, disapprove the proposed
rule change, or institute proceedings to
determine whether to approve or
disapprove the proposed rule change, to
May 5, 2020.4 On April 29, 2020, the
Commission issued an order instituting
proceedings under Section 19(b)(2)(B) of
the Act 5 to determine whether to
approve or disapprove the proposed
rule change.6 The Commission received
26 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 See Securities Exchange Act Release No. 88102
(January 30, 2020), 85 FR 6659.
4 See Securities Exchange Act Release No. 88446,
85 FR 17151 (March 26, 2020).
5 15 U.S.C. 78s(b)(2)(B).
6 See Securities Exchange Act Release No. 88772,
85 FR 26762 (May 5, 2020).
1 15
E:\FR\FM\14JYN1.SGM
14JYN1
]]>Agencies
[Federal Register Volume 85, Number 135 (Tuesday, July 14, 2020)]
[Notices]
[Pages 42449-42452]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-15113]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-89257; File No. SR-CBOE-2020-065]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of
Filing and Order Granting Accelerated Approval of a Proposed Rule
Change To Add the Consolidated Audit Trail Industry Member Compliance
Rules to the List of Minor Rule Violations in Rule 13.15
July 8, 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 July 2, 2020, Cboe Exchange, Inc. (the ``Exchange'' or ``Cboe
Options'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I and II
below, which Items have been prepared by the Exchange. The Commission
is publishing this notice to solicit comments on the proposed rule
change from interested persons and approving the proposal on an
accelerated basis.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Cboe Exchange, Inc. (the ``Exchange'' or ``Cboe Options'') proposes
to add the Consolidated Audit Trail (``CAT'') industry member
compliance rules (``CAT Compliance Rules'') to the list of minor rule
violations in Rule 13.15. 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
[[Page 42450]]
the most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
In order to implement the National Market System Plan Governing the
Consolidated Audit Trail (the ``CAT NMS Plan'' or ``Plan'') the
Exchange codified the CAT Compliance Rules in Chapter 7, Section B of
the Cboe Options Rulebook (specifically, Rules 7.20 through 7.31).\3\
The CAT NMS Plan was filed by the Plan Participants to comply with Rule
613 of Regulation NMS under the Exchange Act,\4\ and each Plan
Participant accordingly has adopted the same compliance rules as the
Exchange's Rules 7.20 through 7.31 in Chapter 7, Section B of the Cboe
Options Rulebook. The common compliance rules adopted by each Plan
Participant are designed to require industry members to comply with the
provisions of the CAT NMS Plan, which broadly calls for industry
members to timely and accurately record and report timely and accurate
customer, order, and trade information relating to activity in NMS
Securities and OTC Equity Securities.
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\3\ See Securities Exchange Act Release Nos. 79950 (February 2,
2017), 82 FR 9916 (February 8, 2017) (SR-CBOE-2017-012); and 80256
(March 15, 2017), 82 FR 14526 (March 21, 2017) (Order Approving
Proposed Rule Changes To Adopt Consolidated Audit Trail Compliance
Rules).
\4\ 17 CFR 242.613.
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Rule 13.15 provides for disposition of specific violations through
assessment of fines in lieu of conducting a formal disciplinary
proceeding. Rule 13.15(g), specifically, sets forth the list of
specific Exchange Rules under which a Trading Permit Holder (``TPH'')
or person associated with or employed by a TPH may be subject to a fine
for violations of such Rules. The Exchange proposes to amend Rule 13.15
to add the CAT Compliance Rules in Rules 7.20 through 7.31 to the list
of rules in Rule 13.15(g) eligible for disposition pursuant to a minor
fine specifically under proposed Rule 13.15(g)(20).\5\ Proposed Rule
13.15(g)(20) provides that for failures to comply with the Consolidated
Audit Trail Compliance Rule requirements of Rules 7.20 through 7.31,
the Exchange may impose a minor rule violation fine of up to $2,500.
The Exchange may seek other disciplinary action for more serious
violations.
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\5\ FINRA's maximum fine for minor rule violations under FINRA
Rule 9216(b) is $2,500. The Exchange will apply an identical maximum
fine amount for eligible violations of Rules 7.20 through 7.31 to
achieve consistency with FINRA and also amend its minor rule
violation plan (``MRVP'') to include such fines. Like FINRA, the
Exchange would be able to pursue a fine greater than $2,500 for
violations of Rules 7.20 through 7.31 in a regular disciplinary
proceeding or a letter of consent under Chapter 13 as appropriate.
Any fine imposed in excess of $2,500 or not otherwise covered by
Rule 19d-1(c)(2) of the Act would be subject to prompt notice to the
Commission pursuant to Rule 19d-1 under the Act. As noted below, in
assessing the appropriateness of a minor rule fine with respect to
CAT Compliance Rules, the Exchange will be guided by the same
factors that FINRA utilizes. See text accompanying notes 7-8 [sic],
infra.
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The Exchange is coordinating with the Financial Industry Regulatory
Authority, Inc. (``FINRA'') and other Plan Participants to promote
harmonized and consistent enforcement of all the Plan Participants' CAT
Compliance Rules. The Commission recently approved a Rule 17d-2 Plan
under which the regulation of CAT Compliance Rules will be allocated
among Plan Participants to reduce regulatory duplication for industry
members that are members of more than one Participant (``common
members'').\6\ Under the Rule 17d-2 Plan, the regulation of CAT
Compliance Rules with respect to common members that are members of
FINRA is allocated to FINRA. Similarly, under the Rule 17d-2 Plan,
responsibility for common members of multiple other Plan Participants
and not a member of FINRA will be allocated among those other Plan
Participants, including to the Exchange. For those non-common members
who are allocated to the Exchange pursuant to the Rule 17d-2 Plan, the
Exchange and FINRA have entered into a Regulatory Services Agreement
(``RSA'') pursuant to which FINRA will assist the Exchange with
conducting surveillance, investigation, examination, and enforcement
activity in connection with the CAT Compliance Rules on the Exchange's
behalf. The Exchange expects that the other exchanges will be entering
into similar RSAs.
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\6\ See Securities Exchange Act Release No. 88366 (March 12,
2020), 85 FR 15238 (March 17, 2020).
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The Exchange notes that this proposal is based upon the FINRA
filing to amend FINRA Rule 9217 in order to add FINRA's corresponding
CAT Compliance Rules to FINRA's list of rules that are eligible for
minor rule violation plan treatment.\7\ The Exchange also notes that
the New York Stock Exchange LLC (``NYSE'') submitted a filing to amend
its Minor Rule Violation Plan (``MRVP'') to add its CAT Compliance
Rules in a manner consistent with FINRA's proposal,\8\ and other Plan
Participants intend to submit the same. Thus, in order to achieve
consistency with FINRA and the other Plan Participants, the Exchange
proposes to adopt fines up to $2,500 in connection with minor rule
fines for violations of the CAT Compliance Rules in Rules 7.20 through
7.31 in proposed Rule 13.15(g)(20) under the Exchange's MRVP.
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\7\ See Securities Exchange Act Release No. 88870 (May 14,
2020), 85 FR 30768 (May 20, 2020) (SR-FINRA-2020-013).
\8\ See SR-NYSE-2020-51 (filed June 12, 2020).
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In connection with FINRA's proposed amendment to FINRA Rule 9217 to
make FINRA's CAT Compliance Rules MRVP eligible, FINRA has stated that
it will apply the minor fines for CAT Compliance Rules in the same
manner that FINRA has for its similar existing audit trail-related
rules.\9\ Accordingly, in order to promote regulatory consistency, the
Exchange plans to do the same. Specifically, application of a minor
fine with respect to CAT Compliance Rule violations will be guided by
the same factors that FINRA references in its filing. However, more
formal disciplinary proceedings may be warranted instead of minor rule
dispositions in certain circumstances such as where violations prevent
regulatory users of the CAT from performing their regulatory functions.
Where minor rule dispositions are appropriate, the following factors
help guide the determination of fine amounts:
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\9\ See supra note 7; see also FINRA Notice to Members 04-19
(March 2004) available at https://www.finra.org/rules-guidance/notices/04-19 (providing specific factors used to inform
dispositions for violations of OATS reporting rules).
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Total number of reports that are not submitted or
submitted late;
The timeframe over which the violations occur;
Whether violations are batched;
Whether the violations are the result of the actions of
one individual or the result of faulty systems or procedures;
Whether the firm has taken remedial measures to correct
the violations;
Prior minor rule violations within the past 24 months;
Collateral effects that the failure has on customers; and
Collateral effects that the failure has on the Exchange's
ability to perform its regulatory function.\10\
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\10\ See id.
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Upon effectiveness of this rule change, the Exchange will publish a
regulatory bulletin notifying its TPHs of the rule change and the
specific factors that will be considered in connection with assessing
minor rule fines described above.
For the foregoing reasons, the Exchange believes that the proposed
[[Page 42451]]
rule change will result in a coordinated, harmonized approach to CAT
Compliance Rule enforcement across Plan Participants that will be
consistent with the approach FINRA has taken with the CAT rules.
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.\11\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \12\ 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) \13\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
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\11\ 15 U.S.C. 78f(b).
\12\ 15 U.S.C. 78f(b)(5).
\13\ Id.
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Minor rule fines provide a meaningful sanction for minor or
technical violations of rules when the conduct at issue does not
warrant stronger, immediately reportable disciplinary sanctions. The
inclusion of a rule in the Exchange's MRVP does not minimize the
importance of compliance with the rule, nor does it preclude the
Exchange from choosing to pursue violations of eligible rules through a
letter of consent if the nature of the violations or prior disciplinary
history warrants more significant sanctions. Rather, the Exchange
believes that the proposed rule change will strengthen the Exchange's
ability to carry out its oversight and enforcement responsibilities in
cases where full disciplinary proceedings are unwarranted in view of
the minor nature of the particular violation. The Exchange believes the
option to impose a minor rule sanction gives the Exchange additional
flexibility to administer its enforcement program in the most effective
and efficient manner while still fully meeting the Exchange's remedial
objectives in addressing violative conduct.\14\ Specifically, the
proposed rule change is designed to prevent fraudulent and manipulative
acts and practices because it will provide the Exchange the ability to
issue a minor rule fine for violations of the CAT Compliance Rules in
Rules 7.20 through 7.31 where a more formal disciplinary action may not
be warranted or appropriate consistent with the approach of other Plan
Participants for the same conduct.
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\14\ Pursuant to Rule 13.15(a) and (f), the Exchange has the
discretion to impose a fine in lieu of commencing a disciplinary
proceeding for a violation that is minor in nature. Under Rule
13.15(f), the Exchange may refer matters covered under the MRVP for
formal disciplinary action whenever it determines that any violation
is intentional, egregious or otherwise not minor in nature.
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In connection with the fine level specified in the proposed rule
change, adding proposed Rule 13.15(g)(20) to specifically provide that
for violations of the CAT Compliance Rules in Rules 7.20 through 7.31
the Exchange may impose a fine not to exceed $2,500 would further the
goal of transparency within the Exchange's rules. Adopting the same cap
as FINRA for minor rule fines in connection with the CAT Compliance
Rules would also promote regulatory consistency across self-regulatory
organizations.
The Exchange further believes that the proposed amendment to Rule
13.15 is consistent with Section 6(b)(6) of the Act,\15\ which provides
that members and persons associated with members shall be appropriately
disciplined for violation of the provisions of the rules of the
exchange, by expulsion, suspension, limitation of activities,
functions, and operations, fine, censure, being suspended or barred
from being associated with a member, or any other fitting sanction. As
noted, the proposed rule change would provide the Exchange ability to
sanction minor or technical violations of Rules 7.20 through 7.31
pursuant to the Exchange's rules.
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\15\ 15 U.S.C. 78f(b)(6).
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Finally, the Exchange also believes that the proposed change is
designed to provide a fair procedure for the disciplining of members
and persons associated with members, consistent with Sections 6(b)(7)
and 6(d) of the Act.\16\ Rule 13.15 does not preclude a TPH or person
associated with or employed by a TPH from contesting an alleged
violation and receiving a hearing on the matter with the same
procedural rights through a litigated disciplinary proceeding.
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\16\ 15 U.S.C. 78f(b)(7) and 78f(d).
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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 intended to address competitive issues but rather is concerned
solely with making the CAT Compliance Rules in Rules 7.20 through 7.31
eligible for a minor rule fine disposition, thereby strengthening the
Exchange's ability to carry out its oversight and enforcement functions
and deter potential violative conduct. Also, as stated above, the
proposed rule change is consistent with similar proposals recently
filed by FINRA and NYSE, and other Plan Participants intend to submit
the same.
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. 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-2020-065 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-2020-065. 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
[[Page 42452]]
proposed rule change between the Commission and any person, other than
those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for website viewing and
printing in the Commission's Public Reference Room, 100 F Street NE,
Washington, DC 20549 on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change. Persons submitting
comments are cautioned that we do not redact or edit personal
identifying information from comment submissions. You should submit
only information that you wish to make available publicly. All
submissions should refer to File Number SR-CBOE-2020-065 and should be
submitted on or before August 4, 2020.
IV. Commission's Findings and Order Granting Accelerated Approval of
Proposed Rule Change
The Commission finds that the proposed rule change is consistent
with the requirements of the Act and the rules and regulations
thereunder applicable to a national securities exchange.\17\ In
particular, the Commission finds that the proposed rule change is
consistent with Section 6(b)(5) of the Act,\18\ which requires that the
rules of an exchange be designed to promote just and equitable
principles of trade, to remove impediments and to perfect the mechanism
of a free and open market and a national market system, and, in
general, to protect investors and the public interest. The Commission
also believes that the proposal is consistent with Sections 6(b)(1) and
6(b)(6) of the Act \19\ which require that the rules of an exchange
enforce compliance with, and provide appropriate discipline for,
violations of Commission and Exchange rules. Finally, the Commission
finds that the proposal is consistent with the public interest, the
protection of investors, or otherwise in furtherance of the purposes of
the Act, as required by Rule 19d-1(c)(2) under the Act,\20\ which
governs minor rule violation plans.
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\17\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
\18\ 15 U.S.C. 78f(b)(5).
\19\ 15 U.S.C. 78f(b)(1) and 78f(b)(6).
\20\ 17 CFR 240.19d-1(c)(2).
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As stated above, the Exchange proposes to add the CAT Compliance
Rules to the list of minor rule violations in Rule 13.15 to be
consistent with the approach FINRA has taken for minor violations of
its corresponding CAT Compliance Rules.\21\ The Commission has already
approved FINRA's treatment of CAT Compliance Rules violations when it
approved the addition of CAT Compliance Rules to FINRA's MRVP.\22\ As
noted in that order, and similarly herein, the Commission believes that
Exchange's treatment of CAT Compliance Rules violations as part of its
MRVP provides a reasonable means of addressing violations that do not
rise to the level of requiring formal disciplinary proceedings, while
providing greater flexibility in handling certain violations. However,
the Commission expects that, as with FINRA, the Exchange will continue
to conduct surveillance with due diligence and make determinations
based on its findings, on a case-by-case basis, regarding whether a
sanction under the rule is appropriate, or whether a violation requires
formal disciplinary action. Accordingly, the Commission believes the
proposal raises no novel or significant issues.
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\21\ As discussed above, the Exchange has entered into a Rule
17d-2 Plan and an RSA with FINRA with respect to the CAT Compliance
Rules. The Commission notes that, unless relieved by the Commission
of its responsibility, as may be the case under the Rule 17d-2 Plan,
the Exchange continues to bear the responsibility for self-
regulatory conduct and liability for self-regulatory failures, not
the self-regulatory organization retained to perform regulatory
functions on the Exchange's behalf pursuant to an RSA. See
Securities Exchange Release No. 61419 (January 26, 2010), 75 FR 5157
(February 1, 2010) (SR-BATS-2009-031), note 93 and accompanying
text.
\22\ See supra note 7.
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For the same reasons discussed above, the Commission finds good
cause, pursuant to Section 19(b)(2) of the Act,\23\ for approving the
proposed rule change prior to the thirtieth day after the date of
publication of the notice of the filing thereof in the Federal
Register. The proposal merely adds the CAT Compliance Rules to the
Exchange's MRVP and harmonizes its application with FINRA's application
of CAT Compliance Rules under its own MRVP. Accordingly, the Commission
believes that a full notice-and-comment period is not necessary before
approving the proposal.
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\23\ 15 U.S.C. 78s(b)(2).
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V. Conclusion
It Is Therefore Ordered, pursuant to Section 19(b)(2) of the Act
\24\ and Rule 19d-1(c)(2) thereunder,\25\ that the proposed rule change
(SR-CBOE-2020-065) be, and hereby is, approved on an accelerated basis.
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\24\ 15 U.S.C. 78s(b)(2).
\25\ 17 CFR 240.19d-1(c)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\26\
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\26\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-15113 Filed 7-13-20; 8:45 am]
BILLING CODE 8011-01-P
