Self-Regulatory Organizations; Cboe EDGX 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 Rules 8.15 and 25.3, 42943-42946 [2020-15209]
Download as PDF
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Federal Register / Vol. 85, No. 136 / Wednesday, July 15, 2020 / Notices
agents, have a wide range of choices of
where to route orders for execution’;
[and] ‘no exchange can afford to take its
market share percentages for granted’
because ‘no exchange possesses a
monopoly, regulatory or otherwise, in
the execution of order flow from broker
dealers’ . . . .’’ 16 Accordingly, the
Exchange does not believe its proposed
changes to the incentive programs
impose any burden on competition that
is not necessary or appropriate in
furtherance of the purposes of the Act.
The Exchange does not believe that
the proposed rule change in connection
with the waiver of certain designated
facility service fees will impose any
burden on intermarket competition that
is not necessary or appropriate in
furtherance of the purposes of the Act
because the proposed changes only
affect trading on the Exchange in
limited circumstances.
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
The foregoing rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act 17 and paragraph (f) of Rule
19b–4 18 thereunder. At any time within
60 days of the filing of the proposed rule
change, the Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission will institute proceedings
to determine whether the proposed rule
change should be approved or
disapproved.
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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:
16 NetCoalition
v. SEC, 615 F.3d 525, 539 (D.C.
Cir. 2010) (quoting Securities Exchange Act Release
No. 59039 (December 2, 2008), 73 FR 74770, 74782–
83 (December 9, 2008) (SR–NYSEArca–2006–21)).
17 15 U.S.C. 78s(b)(3)(A).
18 17 CFR 240.19b–4(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–
CBOE–2020–061 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–2020–061. 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. 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–
2020–061, and should be submitted on
or before August 5, 2020.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.19
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–15213 Filed 7–14–20; 8:45 am]
BILLING CODE 8011–01–P
PO 00000
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–89272; File No. SR–
CboeEDGX–2020–034]
Self-Regulatory Organizations; Cboe
EDGX 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
Rules 8.15 and 25.3
July 9, 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 8,
2020, Cboe EDGX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘EDGX’’) filed with the
Securities and Exchange Commission
(the ‘‘Commission’’) the proposed rule
change as described in Items I 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 EDGX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘EDGX’’) proposes to
add the Consolidated Audit Trail
(‘‘CAT’’) industry member compliance
rules (‘‘CAT Compliance Rules’’) to the
list of minor rule violations in Rules
8.15 and 25.3. The text of the proposed
rule change is provided in Exhibit 5.
The text of the proposed rule change
is also available on the Exchange’s
website (https://markets.cboe.com/us/
options/regulation/rule_filings/edgx/),
at the Exchange’s Office of the
Secretary, and at the Commission’s
Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
1 15
19 17
CFR 200.30–3(a)(12).
Frm 00125
Fmt 4703
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42943
2 17
E:\FR\FM\15JYN1.SGM
U.S.C. 78s(b)(1).
CFR 240.19b–4.
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A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
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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
Rules 4.5 through 4.16.3 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 4.5 through 4.16.
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 record and report timely
and accurate customer, order, and trade
information relating to activity in NMS
Securities and OTC Equity Securities.
Rule 8.15 provides for disposition of
certain violations through assessment of
fines in lieu of conducting a formal
disciplinary proceeding. Rule 8.15.01,
specifically, sets forth the list of specific
EDGX Equities Rules under which a any
Member, associated person of a
Member, or registered or non-registered
employee of a Member may be subject
to a fine for violations of such Rules.
Rule 25.3 provides the same for EDGX
Options Rule violations, under which
an Options Member, associated person
of an Options Member, or registered or
non-registered employee of an Options
Member may be subject to a fine for
violations of such Rules. The Exchange
proposes to amend Rule 8.15.01 and
Rule 25.3 to add the CAT Compliance
Rules in Rules 4.5 through 4.16 to the
list of rules in Rule 8.15.01 and Rule
25.3 eligible for disposition pursuant to
a minor fine; specifically, under
proposed Rule 8.15.01(i) and proposed
Rule 25.3(g).5 Proposed Rule 8.15.01(i)
3 See Securities Exchange Act Release No. 79949
(February 2, 2017), 82 FR 9765 (February 8, 2017)
(SR–BatsEDGX–2017–08); 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 4.5 through
4.16 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 4.5 through 4.16 in a regular
disciplinary proceeding or a letter of consent under
Chapter 8 as appropriate. Any fine imposed in
excess of $2,500 or not otherwise covered by Rule
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and proposed Rule 25.3(g) each provide
that for failures to comply with the
Consolidated Audit Trail Compliance
Rule requirements of Rules 4.5 through
4.16, the Exchange may impose a minor
rule violation fine of up to $2,500. The
Exchange may seek other disciplinary
action 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 EDGX 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
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.
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).
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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
(Rules 4.5 through 4.16) in proposed
Rules 8.15.01(i) and 25.3(g) 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
Members and/or Options Members of
the rule change and the specific factors
that will be considered in connection
with assessing minor rule fines
described above.
8 See
SR–NYSE–2020–51 (filed June 12, 2020).
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.
9 See
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Federal Register / Vol. 85, No. 136 / Wednesday, July 15, 2020 / Notices
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For the foregoing reasons, the
Exchange believes that the proposed
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
11 15
12 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
13 Id.
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17:59 Jul 14, 2020
Jkt 250001
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 4.5
through 4.16 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 Rules 8.15.01(i) and
25.3(g) to specifically provide that for
violations of the CAT Compliance Rules
in Rules 4.5 through 4.16 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 amendments to Rule 8.15.01
and Rule 25.3 are 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 (both EDGX Equities and
EDGX Options) the ability to sanction
minor or technical violations of Rules
4.5 through 4.16 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
14 Pursuant to Rule 8.15(a) and (e) and Rule 25.3,
the Exchange has the discretion to impose a fine in
lieu of commencing a disciplinary proceeding for a
violation that is minor in nature. Rule 8.15(e) states
specifically that nothing in Rule 8.15 requires the
Exchange to impose a fine pursuant to Rule 8.15
with respect to the violation of any Rule included
in any such listing. Rule 25.3 states specifically that
the Exchange is not required to proceed under said
Rules as to any rule violation and may, whenever
such action is deemed appropriate, commence a
disciplinary proceeding under Chapter VIII
(Discipline) rules as to any such violation.
15 15 U.S.C. 78f(b)(6).
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42945
Act.16 Rule 8.15 does not preclude a
Member, associated person of a
Member, or registered or non-registered
employee of a Member, and Rule 25.3
does not preclude an Options Member,
associated person of an Options
Member, or registered or non-registered
employee of an Options Member, from
contesting an alleged violation and
receiving a hearing on the matter with
the same procedural rights through a
litigated disciplinary proceeding.
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 4.5 through
4.16 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–
CboeEDGX–2020–034 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.
16 15
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U.S.C. 78f(b)(7) and 78f(d).
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Federal Register / Vol. 85, No. 136 / Wednesday, July 15, 2020 / Notices
All submissions should refer to File
Number SR–CboeEDGX–2020–034. This
file number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549 on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–CboeEDGX–2020–034 and
should be submitted on or before
August 5, 2020.
khammond on DSKJM1Z7X2PROD with NOTICES
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
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).
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17:59 Jul 14, 2020
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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
in Rules 8.15 and 25.3 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
U.S.C. 78f(b)(1) and 78f(b)(6).
CFR 240.19d–1(c)(2).
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).
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19 15
20 17
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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–CboeEDGX–
2020–034) 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. 2020–15209 Filed 7–14–20; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–89282; File No. SR–
CboeEDGX–2020–033]
Self-Regulatory Organizations; Cboe
EDGX Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of a
Proposed Rule Change Relating To
Amend Its Fees Schedule
July 9, 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 1,
2020, Cboe EDGX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘EDGX’’) filed with the
Securities and Exchange Commission
(the ‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of the Substance
of the Proposed Rule Change
Cboe EDGX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘EDGX Options’’) is
filing with the Securities and Exchange
Commission (‘‘Commission’’) a
proposed rule change to amend its Fees
Schedule. 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
24 15
U.S.C. 78s(b)(2).
CFR 240.19d–1(c)(2).
26 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
25 17
E:\FR\FM\15JYN1.SGM
15JYN1
]]>Agencies
[Federal Register Volume 85, Number 136 (Wednesday, July 15, 2020)]
[Notices]
[Pages 42943-42946]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-15209]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-89272; File No. SR-CboeEDGX-2020-034]
Self-Regulatory Organizations; Cboe EDGX 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 Rules 8.15 and 25.3
July 9, 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 8, 2020, Cboe EDGX Exchange, Inc. (the ``Exchange'' or
``EDGX'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I 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 EDGX Exchange, Inc. (the ``Exchange'' or ``EDGX'') proposes to
add the Consolidated Audit Trail (``CAT'') industry member compliance
rules (``CAT Compliance Rules'') to the list of minor rule violations
in Rules 8.15 and 25.3. The text of the proposed rule change is
provided in Exhibit 5.
The text of the proposed rule change is also available on the
Exchange's website (https://markets.cboe.com/us/options/regulation/rule_filings/edgx/), at the Exchange's Office of the Secretary, and at
the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
[[Page 42944]]
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 Rules 4.5 through
4.16.\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 4.5 through 4.16. 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 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 No. 79949 (February 2,
2017), 82 FR 9765 (February 8, 2017) (SR-BatsEDGX-2017-08); 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 8.15 provides for disposition of certain violations through
assessment of fines in lieu of conducting a formal disciplinary
proceeding. Rule 8.15.01, specifically, sets forth the list of specific
EDGX Equities Rules under which a any Member, associated person of a
Member, or registered or non-registered employee of a Member may be
subject to a fine for violations of such Rules. Rule 25.3 provides the
same for EDGX Options Rule violations, under which an Options Member,
associated person of an Options Member, or registered or non-registered
employee of an Options Member may be subject to a fine for violations
of such Rules. The Exchange proposes to amend Rule 8.15.01 and Rule
25.3 to add the CAT Compliance Rules in Rules 4.5 through 4.16 to the
list of rules in Rule 8.15.01 and Rule 25.3 eligible for disposition
pursuant to a minor fine; specifically, under proposed Rule 8.15.01(i)
and proposed Rule 25.3(g).\5\ Proposed Rule 8.15.01(i) and proposed
Rule 25.3(g) each provide that for failures to comply with the
Consolidated Audit Trail Compliance Rule requirements of Rules 4.5
through 4.16, the Exchange may impose a minor rule violation fine of up
to $2,500. The Exchange may seek other disciplinary action 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 4.5 through 4.16 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 4.5 through 4.16 in a regular disciplinary
proceeding or a letter of consent under Chapter 8 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 EDGX 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 (Rules 4.5 through
4.16) in proposed Rules 8.15.01(i) and 25.3(g) 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:
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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).
\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 Members and/or Options Members of the
rule change and the specific factors that will be considered in
connection with assessing minor rule fines described above.
[[Page 42945]]
For the foregoing reasons, the Exchange believes that the proposed
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 4.5 through 4.16 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 8.15(a) and (e) and Rule 25.3, the
Exchange has the discretion to impose a fine in lieu of commencing a
disciplinary proceeding for a violation that is minor in nature.
Rule 8.15(e) states specifically that nothing in Rule 8.15 requires
the Exchange to impose a fine pursuant to Rule 8.15 with respect to
the violation of any Rule included in any such listing. Rule 25.3
states specifically that the Exchange is not required to proceed
under said Rules as to any rule violation and may, whenever such
action is deemed appropriate, commence a disciplinary proceeding
under Chapter VIII (Discipline) rules as to any such violation.
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In connection with the fine level specified in the proposed rule
change, adding proposed Rules 8.15.01(i) and 25.3(g) to specifically
provide that for violations of the CAT Compliance Rules in Rules 4.5
through 4.16 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 amendments to Rule
8.15.01 and Rule 25.3 are 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 (both EDGX Equities and EDGX Options) the ability
to sanction minor or technical violations of Rules 4.5 through 4.16
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 8.15 does not preclude a Member,
associated person of a Member, or registered or non-registered employee
of a Member, and Rule 25.3 does not preclude an Options Member,
associated person of an Options Member, or registered or non-registered
employee of an Options Member, 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 4.5 through 4.16
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-CboeEDGX-2020-034 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.
[[Page 42946]]
All submissions should refer to File Number SR-CboeEDGX-2020-034. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549 on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-CboeEDGX-2020-034 and should be
submitted on or before August 5, 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 Rules 8.15 and 25.3 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-CboeEDGX-2020-034) 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. 2020-15209 Filed 7-14-20; 8:45 am]
BILLING CODE 8011-01-P
