Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Rule 5.34 (Order and Quote Price Protection Mechanisms and Risk Controls) in Connection With Sell Market Orders in No-Bid Series, 49403-49405 [2020-17669]

Agencies

• SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 85, Number 157 (Thursday, August 13, 2020)]
[Notices]
[Pages 49403-49405]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-17669]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-89507; File No. SR-CBOE-2020-077]


Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
Rule 5.34 (Order and Quote Price Protection Mechanisms and Risk 
Controls) in Connection With Sell Market Orders in No-Bid Series

August 7, 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 August 5, 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 Exchange 
filed the proposal as a ``non-controversial'' proposed rule change 
pursuant to Section 19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-
4(f)(6) thereunder.\4\ The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Cboe Exchange, Inc. (the ``Exchange'' or ``Cboe Options'') proposes 
to amend Rule 5.34 (Order and Quote Price Protection Mechanisms and 
Risk Controls) in connection with sell market orders in no-bid series. 
The text of the proposed rule change is provided in Exhibit 5.
    The text of the proposed rule change is also available on the 
Exchange's website (https://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx), at the Exchange's Office of the 
Secretary, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend Rule 5.34(a)(1) in connection with 
the System's handling of a sell market orders in no-bid series. 
Specifically, if the System receives a sell market order in a series 
after it is open for trading with a national best bid (``NBB'') of 
zero, current Rule 5.34(a)(1)(A)(ii) provides that if the NBO in the 
series is greater than $0.50, then the System cancels or rejects the 
market order. The proposed rule change adds to Rule 5.34(a)(1)(A)(ii) 
that if the NBO in the series is greater than $0.50, then the System 
cancels or rejects the market order or routes the market order to PAR 
for manual handling, subject to a User's instructions. This proposed 
handling in consistent with order instructions a User may choose to 
apply to an order wherein, if the order is not eligible for electronic 
handling, the order routes to PAR for manual handling.\5\ Current Rule 
5.34(a)(1)(A)(ii), as written, does not specifically consider the case 
in which a User's order instructions would route an order to PAR when 
such order is not eligible for electronic processing because the NBO in 
the series is greater than $0.50.
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    \5\ See e.g. Rule 5.6(c), a ``Default'' order is an order a User 
designates for electronic processing, and which order (or unexecuted 
portion) routes to PAR for manual handling if not eligible for 
electronic processing.
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    The System, however, currently handles orders under these 
circumstances in accordance with the User instruction to route such an 
order for manual handling.\6\ The proposed rule change codifies this 
behavior. The Exchange notes that Rule 5.34 was recently revised in 
connection with a technology migration. The rule filing that revised 
Rule 5.34 consolidated all order and quote price protection mechanisms 
and risk controls provisions from the pre-migration Exchange Rulebook 
into one single rule (current Rule 5.34) as well as harmonized Rule 
5.34 with the corresponding rules of the Exchange's affiliated 
exchanges, Cboe EDGX Exchange, Inc. (``EDGX Options'') and Cboe C2 
Exchange, Inc. (``C2'').\7\ The Exchange's former rule provision 
regarding market orders in no-bid (offer) series provided that if the 
Exchange's best offer (i.e., NBO) was greater than $0.50, the order 
would route to PAR if so instructed by the submitting firm.\8\ The 
Exchange inadvertently omitted this specific handling process when it 
amended current Rule 5.34 in connection with the technology migration.
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    \6\ See Cboe U.S. Options FIX Specification (July 13, 2020) at 
12, available at https://cdn.cboe.com/resources/membership/US_Options_FIX_Specification.pdf.
    \7\ See Securities Exchange Release No. 86923 (September 10, 
2019), 84 FR 48664 (September 16, 2019) (SR-CBOE-2019-057).
    \8\ Former Rule 6.13(b)(vi)(B) provided that if the Exchange 
best offer in a no-bid series is greater than $0.50, then the order 
entry firm has the discretion to have the market order to sell via 
the order handling system pursuant to Rule 6.12 (which permitted a 
submitting firm to opt to route orders not eligible for electronic 
processing to a designated order management terminal or PAR 
Workstation).
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2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Securities Exchange Act of 1934 (the ``Act'') and the rules and 
regulations thereunder applicable to the Exchange and, in particular, 
the requirements of Section 6(b) of the Act.\9\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section

[[Page 49404]]

6(b)(5) \10\ 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) \11\ requirement that the rules of an exchange not be designed 
to permit unfair discrimination between customers, issuers, brokers, or 
dealers.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
    \11\ Id.
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    In particular, the proposed rule change will remove impediments to 
and perfect the mechanism of a free and open market and national market 
system, as well as protect investors, because it will allow the System 
to handle orders in a manner that is consistent with the intent of a 
User's order instruction to route orders to PAR for manual handling 
that are not eligible for electronic processing, including when the NBO 
is greater than $0.50 in a no-bid (offer) series. Manual handling 
rather than cancellation of orders in these circumstances may provide 
these orders with additional execution opportunities. Additionally, the 
Exchange does not believe that the proposed rule change raises any new 
or novel issues for, nor will affect the protection of investors, 
because, less than a year ago, the Exchange's effective rules at the 
time included the same order handling provision.\12\ The proposed rule 
change codifies current functionality in the Rules, which was 
inadvertently omitted in a previous rule filing, which additional 
transparency benefits investors.
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    \12\ See supra note 7.
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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 Exchange does not 
believe that the proposed rule change will impose any burden on 
intramarket competition that is not necessary or appropriate in 
furtherance of the purposes of the Act because it will allow orders to 
route in accordance with a User's intended order instruction, and will 
apply equally to all Users' orders that are designated to route to PAR 
when ineligible for electronic processing.
    The Exchange does not believe that the proposed rule change will 
impose any burden on intermarket competition that is not necessary or 
appropriate in furtherance of the purposes of the Act because the 
proposed rule change is not intended to address competitive issues, but 
rather conforms the Rules to current System functionality in a manner 
that is consistent with order instructions already available to Users. 
The Exchange additionally notes that the proposed rule change readopts 
rule language that had prior been in the Exchange's Rules up until less 
than a year ago.\13\
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    \13\ See id.
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C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange neither solicited nor received comments on the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \14\ and Rule 19b-
4(f)(6) thereunder.\15\
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    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change, along 
with a brief description and text of the proposed rule change, at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act \16\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \17\ 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 asked the Commission to waive the 30-day operative delay. The 
Exchange believes that waiver of the operative delay is consistent with 
the protection of investors and the public interest because the 
proposed rule change does not raise any new or novel issue as the 
proposed rule is merely restating rule language that had previously 
been approved by the Commission in the Exchange Rules up until less 
than a year ago.\18\ The Commission believes that waiver of the 30-day 
operative delay is consistent with the protection of investors and the 
public interest because the proposal does not raise any new issues and 
will allow the Exchange to remedy its recent inadvertent omission 
without delay. Therefore, the Commission hereby waives the operative 
delay and designates the proposal as operative upon filing.\19\
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    \16\ 17 CFR 240.19b-4(f)(6).
    \17\ 17 CFR 240.19b-4(f)(6)(iii).
    \18\ See supra note 7.
    \19\ 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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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule change should be approved or 
disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please 
include File Number SR-CBOE-2020-077 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-2020-077. 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

[[Page 49405]]

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-CBOE-2020-077 and should be submitted on 
or before September 3, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-17669 Filed 8-12-20; 8:45 am]
BILLING CODE 8011-01-P