Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating To Adopt Temporary Rules To Extend the Time by Which Trading Permit Holders must Complete Their Office Inspections for the Calendar Year 2020 and To Provide Temporary Remote Inspection Relief for Their Office Inspections for Calendar Years 2020 and 2021, 80207-80211 [2020-27202]
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Federal Register / Vol. 85, No. 239 / Friday, December 11, 2020 / Notices
comment letters on the proposed rule
change.
Section 19(b)(2) of the Act 8 provides
that, after initiating disapproval
proceedings, the Commission shall issue
an order approving or disapproving the
proposed rule change not later than 180
days after the date of publication of
notice of filing of the proposed rule
change. The Commission may extend
the period for issuing an order
approving or disapproving the proposed
rule change, however, by not more than
60 days if the Commission determines
that a longer period is appropriate and
publishes the reasons for such
determination. The date of publication
of notice of filing of the proposed rule
change was June 22, 2020. December 19,
2020, is 180 days from that date, and
February 17, 2021, is 240 days from that
date.
The Commission finds it appropriate
to designate a longer period within
which to issue an order approving or
disapproving the proposed rule change
so that it has sufficient time to consider
this proposed rule change. Accordingly,
the Commission, pursuant to Section
19(b)(2) of the Act,9 designates February
17, 2021, as the date by which the
Commission shall either approve or
disapprove the proposed rule change
(File No. SR–NYSEArca–2020–46).
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.10
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–27199 Filed 12–10–20; 8:45 am]
BILLING CODE 8011–01–P
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 adopt
temporary Rules to extend the time by
which Trading Permit Holders must
complete their office inspections for the
calendar year 2020 and to provide
temporary remote inspection relief for
their office inspections for calendar
years 2020 and 2021. 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
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–90583; File No. SR–CBOE–
2020–112]
Self-Regulatory Organizations; Cboe
Exchange, Inc.; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change Relating To Adopt
Temporary Rules To Extend the Time
by Which Trading Permit Holders must
Complete Their Office Inspections for
the Calendar Year 2020 and To Provide
Temporary Remote Inspection Relief
for Their Office Inspections for
Calendar Years 2020 and 2021
jbell on DSKJLSW7X2PROD with NOTICES
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on November
30, 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, II, and III below, which Items
have been prepared by the Exchange.
The Exchange filed the proposal as a
‘‘non-controversial’’ proposed rule
change pursuant to Section
19(b)(3)(A)(iii) of the Act 3 and Rule
19b–4(f)(6) thereunder.4 The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
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.
December 7, 2020.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
1 15
8 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A)(iii).
4 17 CFR 240.19b–4(f)(6).
2 17
U.S.C. 78s(b)(2).
9 Id.
10 17
CFR 200.30–3(a)(57).
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80207
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
In light of the operational challenges
that Trading Permit Holders are facing
due to the outbreak of the coronavirus
disease (COVID–19), the Exchange
proposes to extend the time by which
Trading Permit Holders must complete
their calendar year 2020 inspection
obligations under Rule 8.6(f) (Office
Inspections) and Rule 9.2(d) (Annual
Branch Inspections) to March 31, 2021,5
and to provide Trading Permit Holders
with the option to complete their
calendar year 2020 and calendar year
2021 inspection obligations under Rules
8.16(f) and 9.2(d) remotely, without an
on-site visit to the office or location.6
The Exchange has observed the
impact of the COVID–19 pandemic on
its Trading Permit Holders, investors,
and the industry generally and
recognizes that Trading Permit Holders
are experiencing operational challenges
with much of their personnel working
from home due to stay-at-home orders,
restrictions on businesses and social
activity imposed in various states, and
adherence to other social distancing
guidelines consistent with the
recommendations of public health
officials.7 In response, like many
employers across the United States,
Trading Permit Holder organizations
5 The proposed rule change will automatically
sunset on March 31, 2021. If the Exchange seeks to
provide additional temporary relief from the rule
requirement identified in this proposal beyond
March 31, 2021, it will submit a separate rule filing
to further extend the temporary extension of time.
6 The proposed rule change will automatically
sunset on December 31, 2021. If the Exchange seeks
to extend the duration of the temporary proposed
rule beyond December 31, 2021, it will submit a
separate rule filing to further renew the temporary
relief. The Exchange notes that SEC staff has stated
in guidance that inspections must include a
physical, on-site review component. See SEC
National Examination Risk Alert, Volume I, Issue 2
(November 30, 2011); SEC Division of Market
Regulation, Staff Legal Bulletin No. 17: Remote
Office Supervision (March 19, 2004) (stating, in
part, that broker-dealers that conduct business
through geographically dispersed offices have not
adequately discharged their supervisory obligations
where there are no on-site routine or ‘‘for cause’’
inspections of those offices).
7 See Centers for Disease Control and Prevention
(‘‘CDC’’), International Classification of Diseases,
Tenth Revision, Clinical Modification, https://
www.cdc.gov/nchs/data/icd/Announcement-NewICD-code-forcoronavirus-3-18-2020.pdf; WHO
Director-General, Opening Remarks at the Media
Briefing on COVID–19 (March 11, 2020), https://
www.who.int/dg/speeches/detail/who-directorgeneral-s-opening-remarksat-the-media-briefing-oncovid-19-11-march-2020; and Centers for Disease
Control and Prevention, How to Protect Yourself &
Others (last visited November 12, 2020) https://
www.cdc.gov/coronavirus/2019-ncov/preventgettingsick/prevention.html.
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closed their offices to the public,
transitioned their employees to telework
arrangements to comply with stay-athome orders, and implemented other
restrictive measures in an effort to slow
the spread of COVID–19, such as
curtailing or eliminating non-essential
business travel and significantly
limiting or canceling in-person
activities.8
Exchange Rules require Trading
Permit Holders 9 to conduct branch 10
and non-branch office and location
inspections pursuant to certain annual
cycles. Specifically, pursuant to Rule
8.16(f), each Trading Permit Holder
shall inspect every office or location of
the Trading Permit Holder at least once
every three calendar years, the cycle of
which is contingent on the nature and
complexity of the securities activities
for which the office or location is
responsible, the volume of business
done, and the number of associated
persons at each office or location. The
examination schedule and an
explanation of the factors considered in
determining the frequency of the
examinations in the cycle shall be set
forth in the Trading Permit Holder’s
written supervisory procedures. Such
inspection shall be reasonably designed
to assist in preventing and detecting
violations of, and achieving compliance
with, applicable securities laws and
regulations, and with applicable
Exchange rules, and each Trading
Permit Holder shall retain a written
record of the dates upon which each
inspection is conducted, the
participants in the inspection, and the
results thereof. Pursuant to Rule 9.2(d),
each branch office that supervises one
or more non-branch locations must be
inspected no less often than once each
calendar year, unless it qualifies for
certain exemptions.11 Every branch
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8 See
e.g., FINRA Regulatory Notice 20–16 (May
2020) (‘‘Notice 20–16’’) (describing practices
implemented by small, mid-sized and large firms to
transition to, and supervise in, remote work
environment during the COVID–19 pandemic).
9 The Exchange notes that the term Trading
Permit Holder includes Trading Permit Holder
organizations. See Eleventh Amended and Restated
Bylaws of Cboe Exchange, Inc., Section 1.1(f).
10 The Exchange notes that any location that is
responsible for supervising the activities of persons
associated with a Trading Permit Holder or TPH
organization at one or more non-branch locations of
such Trading Permit Holder or TPH organization is
considered to be a branch office. See Rule 3.40(c).
11 A Trading Permit Holder may demonstrate to
the satisfaction of the Exchange that because of
proximity, special reporting or supervisory practice,
other arrangements may satisfy this Rule’s
requirements for a particular branch office, or that,
based upon the written policies and procedures of
such Trading Permit Holder organization providing
for a systematic risk-based surveillance system, the
Trading Permit Holder organization submits a
proposal to the Exchange and receives, in writing,
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office, without exception, must be
inspected at least once every three
calendar-years. Trading Permit Holders
must maintain written reports of such
inspections.
As a result of the compelling health
and welfare concerns stemming from
the COVID–19 pandemic, Trading
Permit Holders are facing potentially
significant disruptions to their normal
business operations that include staff
absenteeism, the increased use of
remote offices or telework arrangements,
travel or transportation limitations, and
technology interruptions or slowdowns.
Pandemic-related operational changes
have made it impracticable for Trading
Permit Holders to conduct the on-site
inspections pursuant to Rules 8.16(f)
and 9.2(d) at many or most locations for
calendar year 2020 because this
compliance function requires firm
employees to travel to geographically
dispersed branch and non-branch office
locations. Such travel not only has been
restricted by government orders,12 but
also puts the health and safety of
employees at great risk of contracting
and spreading COVID–19.13 By midyear, with many restrictive measures
still in place, and in some instances
additional quarantine requirements
imposed on interstate travel, on-site
inspections of Trading Permit Holder
offices or locations scheduled for
calendar year 2020 remain pending. The
acute health and safety concerns related
to COVID–19 persist, with the number
of confirmed cases of COVID–19 in the
U.S. continuing to rise through the fall
of 2020.14 While Trading Permit Holders
have continued to supervise all offices
and locations by, among other things,
implementing remote supervisory
practices through novel uses of
technology as well as existing methods
an exemption from the requirement in 9.2(d),
pursuant to Rule 9.2(e).
12 See e.g., City of Chicago, Emergency Travel
Order (November 10, 2020) https://
www.chicago.gov/city/en/sites/covid-19/home/
emergency-travel-order.html (announcing certain
travel restrictions applicable to different states
based on the status of the outbreak in the states and
how the data compares to the situation in Chicago);
New York Department of Health, Interim Guidance
for Quarantine Restrictions on Travelers Arriving in
New York State Following Out of State Travel
(November 3, 2020).
13 See CDC, Travel During the COVID–19
Pandemic (updated October 21, 2020) https://
www.cdc.gov/coronavirus/2019-ncov/travelers/
travel-during-covid19.html (stating, in part, ‘‘[t]ravel
increases your chance of getting and spreading
COVID–19. Staying home is the best way to protect
yourself and others from COVID–19’’).
14 See CDC, COVIDView, Key Updates for Week
44, ending October 31, 2020 (November 5, 2020)
https://www.cdc.gov/coronavirus/2019-ncov/coviddata/pdf/covidview-11-06-2020.pdf (stating that
surveillance indicators tracking levels of SARSCoV–2 virus circulation and associated illnesses
have been increasing since September).
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of supervision (e.g., supervisory
checklists, surveillance tools, incident
trackers, email review, and trade
exception reports),15 they are still
experiencing logistical challenges
related to conducting the onsite portion
of their inspections due to continuing
business and governmental restrictions
and public health concerns.16 As a
result, the Exchange understands that
Trading Permit Holders have not yet
been able to conduct on-site inspections
scheduled for calendar year 2020, and,
with no certainty as to when pandemicrelated health concerns will subside and
restrictions recently re-implemented in
light of the resurgence of cases during
the fall of 2020,17 Trading Permit
Holders may have a considerable
backlog of 2020 inspections that may be
difficult, if not impossible, to overcome
on or before calendar year 2020 ends.
Additionally, the Exchange recognizes
that planning on-site inspections for
calendar year 2021 for Trading Permit
Holder branch and non-branch offices
and locations in the current
environment may be impacted as well.
In light of pandemic-related
developments and the approaching end
of calendar year 2020, the Exchange
believes it is appropriate to provide
tailored temporary relief for Trading
Permit Holders to meet their inspection
obligations under Rule 8.16(f) and Rule
9.2(d) for calendar years 2020 and 2021.
Specifically, the Exchange proposes to
adopt temporary language in Rule
8.16(f), and to adopt temporary Rule
9.2(d)(4), to provide that each Trading
Permit Holder obligated to complete an
office inspection pursuant to Rule
8.16(f) and Rule 9.2(d), respectively, in
calendar year 2020 will be deemed to
have satisfied such obligation if the
applicable inspection is completed on
or before March 31, 2021. The Exchange
believes that this proposed temporary
extension of time is tailored to address
the needs and constraints on a Trading
Permit Holder’s operations during the
COVID–19 pandemic, without
significantly compromising critical
investor protection, as potential risks
that may arise from providing firms
additional time to comply with their
inspection obligations due in calendar
year 2020 are mitigated by their ongoing
supervisory obligations, off-site
monitoring, and the temporary nature of
the extension. The proposed extension
will provide Trading Permit Holders
with an opportunity to better manage
the operational challenges resulting
from the COVID–19 pandemic and the
15 See
supra note 8.
supra note 12.
17 See supra note 14.
16 See
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resources needed to fulfill these
supervisory obligations during the
pandemic.
In addition to this, the Exchange
proposes to extend temporary remote
inspection relief for calendar year 2020
and 2021. In particular, the Exchange
proposes to adopt temporary Rule
9.2(d)(5), which provides that each
Trading Permit Holder obligated to
conduct an inspection of a branch office
or non-branch location in calendar year
2020 and calendar year 2021 pursuant
to Rule 8.16(f) 18 and Rule 9.2(d), as
applicable, may, subject to the
requirements of this Rule 9.2.(d)(5),
satisfy such obligation by conducting
the applicable inspection remotely,
without an on-site visit to the office or
location. In accordance with Rules
8.16(f) and 9.2(d)(4), inspections for
calendar year 2020 must be completed
on or before March 31, 2021.
Inspections for calendar year 2021 must
be completed on or before December 31,
2021. Notwithstanding proposed Rule
9.2(d)(5), a Trading Permit Holder
remains subject to the other
requirements of Rules 8.16(f) and 9.2(d).
The proposed rule change also adopts
written supervisory procedures for
remote inspections in proposed Rule
9.2(d)(5)(A), which provides that,
consistent with a Trading Permit
Holder’s obligations under Rule 8.16(f)
and Rule 9.2(d), a Trading Permit
Holder that elects to conduct each of its
calendar year 2020 or calendar year
2021 inspections remotely must amend
or supplement its written supervisory
procedures to provide for remote
inspections that are reasonably designed
to assist in detecting and preventing
violations of and achieving compliance
with applicable securities laws and
regulations, and with applicable
Exchange Rules. Reasonably designed
procedures for conducting remote
inspections of offices or locations
should include, among other things: (i)
A description of the methodology,
including technologies permitted by the
Trading Permit Holder, that may be
used to conduct remote inspections; and
(ii) the use of other risk-based systems
employed generally by the Trading
Permit Holder to identify and prioritize
for review those areas that pose the
greatest risk of potential violations of
applicable securities laws and
regulations, and of applicable Exchange
Rules. The Exchange believes the
proposed rule change is consistent with
18 The proposed rule change adds language to
Rule 8.16(f), which provides that the temporary
remote inspection relief provided in Rule 9.2(d)(5)
will apply to each Trading Permit Holder obligated
to complete an office inspection pursuant to Rule
8.16(f) in calendar year 2020 or calendar year 2021.
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a Trading Permit Holder’s existing
supervisory obligations to establish and
maintain written supervisory
procedures for branch office reviews 19
and reviews of non-branch offices and
locations.20
Proposed temporary Rule 9.2(d)(5)(B)
provides that the requirement to
conduct inspections of offices and
locations is one part of a Trading Permit
Holder’s overall obligation to have an
effective supervisory system and,
therefore, a Trading Permit Holder must
continue with its ongoing review of the
activities and functions occurring at all
offices and locations, whether or not the
Trading Permit Holder conducts
inspections remotely. A Trading Permit
Holder’s use of a remote inspection of
an office or location will be held to the
same standards for review as set forth
under Rule 8.16(f) and Rule 9.2(d).
Where a Trading Permit Holder’s remote
inspection of an office or location
identifies any indicators of irregularities
or misconduct (i.e., ‘‘red flags’’), 21 the
Trading Permit Holder may need to
impose additional supervisory
procedures for that office or location or
may need to provide for more frequent
monitoring or oversight of that office or
location, or both, including potentially
a subsequent physical, on-site visit on
an announced or unannounced basis
when the Trading Permit Holder’s
operational difficulties associated with
COVID–19 abate, nationally or locally as
relevant, and the challenges a Trading
Permit Holder is facing in light of the
public health and safety concerns make
such on-site visits feasible using
reasonable best efforts. The temporary
relief provided by this Rule 9.2(d)(5)
does not extend to a Trading Permit
Holder’s inspection requirements
beyond calendar year 2021 and such
19 See
Rule 3.40(f).
Rule 8.16(e).
21 Red flags that suggest the increased risk or
occurrence of violations may include, among other
events: customer complaints; an unexplained
increase or change in the types of investments or
trading concentration that a representative is
recommending or trading; an unexpected
improvement in a representative’s production,
lifestyle, or wealth; questionable or frequent
transfers of cash or securities between customer or
third party accounts, or to or from the
representative; a representative that serves as a
power of attorney, trustee or in a similar capacity
for a customer or has discretionary control over a
customer’s account(s); representative with
disciplinary records; customer investments in one
or a few securities or class of securities that is
inconsistent with firm policies related to such
investments; churning; trading that is inconsistent
with customer objectives; numerous trade
corrections, extensions, liquidations; or significant
switching activity of mutual funds or variable
products held for short time periods. See generally
SEC Division of Market Regulation, Staff Legal
Bulletin 17: Remote Office Supervision (March 19,
2004).
20 See
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80209
inspections must be conducted in
compliance with Rule 9.2(d)(1) through
(3). The Exchange believes that the
proposed rule is consistent with a
Trading Permit Holder’s existing
supervisory obligations to maintain
policies and procedures, and a system
for applying such procedures,
reasonably designed to achieve
compliance with, as well as assist in
preventing and detecting violations of,
applicable securities laws and
regulations and Exchange Rules.22
Finally, proposed temporary Rule
9.2(d)(5)(C) provides for a
documentation requirement and
specifically provides that a Trading
Permit Holder must maintain and
preserve a centralized record for each of
calendar year 2020 and calendar year
2021 that separately identifies: (i) All
offices or locations that had inspections
that were conducted remotely; and (ii)
any offices or locations for which the
Trading Permit Holder determined to
impose additional supervisory
procedures or more frequent
monitoring, as provided in Rule
9.2(d)(5)(B) above. A Trading Permit
Holder’s documentation of the results of
a remote inspection for an office or
location must identify any additional
supervisory procedures or more
frequent monitoring for that office or
location that were imposed as a result
of the remote inspection. The Exchange
believes that this documentation
requirement would help readily
distinguish the offices and locations that
underwent remote inspections and their
attendant supervisory procedures, and
their more frequent monitoring, as
applicable.
As noted above, even in the current
environment, Trading Permit Holders
have an ongoing obligation to establish
and maintain a system to supervise the
activities of their associated persons that
is reasonably designed to achieve
compliance with applicable securities
laws and regulations, and with
applicable Exchange Rules. The
proposed amendments to Rule 8.16(f)
and proposed Rule 9.2(d)(4) and (d)(5)
are not intended to lessen the
supervisory obligations prescribed
under the Exchange Rules. The
Exchange believes that the proposed
temporary rule changes, which address
the needs and constraints on a Trading
Permit Holder’s operations during the
COVID–19 pandemic by extending the
time to conduct inspections for calendar
year 2020 and permitting firms to
remotely inspect, subject to specified
requirements described above, their
22 See generally Rule 8.16; and see Rule
9.2(g)(5)(A).
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Federal Register / Vol. 85, No. 239 / Friday, December 11, 2020 / Notices
offices and locations for calendar years
2020 and 2021, would provide Trading
Permit Holders a way to comply with
Rules 8.16(f) and 9.2(d) that would not
materially diminish, and is reasonably
designed to achieve, the investor
protection objectives of the inspection
requirements under these unique
circumstances. The Exchange notes that
potential risks that may arise from
providing Trading Permit Holders
extended time to conduct their 2020
inspections and the option to conduct
their inspections remotely are mitigated
by their use of technology to meet their
supervisory obligations on an ongoing
basis, the unique circumstances under
which they are operating, and the
temporary nature of the proposed rules,
which would expire on March 31, 2021
and December 31, 2021, respectively.23
The Exchange notes that the proposed
temporary rules are substantively
identical to the temporary inspection
extension and remote relief rules
recently filed by the Financial Industry
Regulatory Authority (‘‘FINRA’’).24 The
Exchange notes too that it will continue
to monitor the situation and engage with
Trading Permit Holders, other financial
regulators, and governmental authorities
to determine whether further regulatory
relief or guidance related to Rules 8.16
and 9.2 may be appropriate.
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.25 Specifically,
the Exchange believes the proposed rule
change is consistent with the Section
6(b)(5) 26 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
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23 See
supra notes 5 and 6.
24 See FINRA Rule 3110.16; Securities and
Exchange Act Release No. 89188 (June 30, 2020), 85
FR 40713 (July 7, 2020) (SR–FINRA–2020–019); and
SR–FINRA–2020–040 (filed November 6, 2020)
available at https://www.finra.org/sites/default/
files/2020-11/SR-FINRA-2020-040.pdf.
25 15 U.S.C. 78f(b).
26 15 U.S.C. 78f(b)(5).
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proposed rule change is consistent with
the Section 6(b)(5) 27 requirement that
the rules of an exchange not be designed
to permit unfair discrimination between
customers, issuers, brokers, or dealers.
In particular, the Exchange believes
that, in light of the impact of COVID–
19 on the performance of on-site office
and location inspections pursuant to
Rules 8.16(f) and 9.2(d), the proposed
temporary rule changes are intended to
provide Trading Permit Holders
additional time to comply with their
Rule 8.16(f) and 9.2(d) inspection
obligations due in calendar year 2020
and a temporary regulatory option to
conduct inspections of offices and
locations remotely for calendar years
2020 and 2021. The proposed temporary
rule changes do not relieve firms from
meeting their existing regulatory
obligations to establish and maintain a
supervisory system that is reasonably
designed to achieve compliance with
applicable securities laws and
regulations, and with applicable
Exchange Rules, which directly serve
investor protection. In a time when
faced with unique challenges resulting
from the COVID–19 pandemic, the
Exchange believes that the proposed
temporary rule changes provide
appropriately tailored relief that will
afford Trading Permit Holders the
ability to observe the recommendations
of public health officials to provide for
the health and safety of their personnel,
while continuing to serve and promote
the protection of investors and the
public interest.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. The
Exchange does not believe the proposed
temporary rule changes will impose any
burden on intramarket competition that
is not necessary or appropriate in
furtherance of the Act, because the
extension for inspections and the
remote inspection relief will apply
equally to all Trading Permit Holders
required to conduct office and location
inspections in calendar year 2020 and
2021. The Exchange further does not
believe that the proposed temporary
rule changes will impose any burden on
intermarket competition because it
relates only to the extension of time for
2020 inspections and the manner in
which inspections for 2020 and 2021
may be conducted. Additionally, and as
stated above, FINRA has recently
submitted filings to adopt substantively
identical temporary inspection relief
rules for its members.
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:
A. Significantly affect the protection
of investors or the public interest;
B. impose any significant burden on
competition; and
C. 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 28 and Rule 19b–4(f)(6) 29
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.
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 rule-comments@
sec.gov. Please include File Number SR–
CBOE–2020–112 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-2020–112. This file
28 15
27 Id.
PO 00000
Frm 00221
29 17
Fmt 4703
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E:\FR\FM\11DEN1.SGM
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6).
11DEN1
Federal Register / Vol. 85, No. 239 / Friday, December 11, 2020 / Notices
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549 on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–CBOE2020–112 and should be submitted on
or before January 4, 2021.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.30
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–27202 Filed 12–10–20; 8:45 am]
BILLING CODE 8011–01–P
SMALL BUSINESS ADMINISTRATION
[Disaster Declaration # 16805 and # 16806;
North Carolina Disaster Number NC–00120]
Administrative Declaration of a
Disaster for the State of North Carolina
U.S. Small Business
Administration.
ACTION: Notice.
AGENCY:
This is a notice of an
Administrative declaration of a disaster
for the State of North Carolina dated 12/
4/2020.
Incident: Tropical Storm Eta.
Incident Period: 11/12/2020.
DATES: Issued on 12/04/2020.
Physical Loan Application Deadline
Date: 02/02/2021.
jbell on DSKJLSW7X2PROD with NOTICES
SUMMARY:
30 17
CFR 200.30–3(a)(12).
VerDate Sep<11>2014
23:25 Dec 10, 2020
Jkt 253001
Economic Injury (EIDL) Loan
Application Deadline Date: 09/07/2021.
Submit completed loan
applications to: U.S. Small Business
Administration, Processing and
Disbursement Center, 14925 Kingsport
Road, Fort Worth, TX 76155.
ADDRESSES:
FOR FURTHER INFORMATION CONTACT:
A. Escobar, Office of Disaster
Assistance, U.S. Small Business
Administration, 409 3rd Street SW,
Suite 6050, Washington, DC 20416,
(202) 205–6734.
80211
SOCIAL SECURITY ADMINISTRATION
[Docket No. SSA–2018–0012]
Privacy Act of 1974; System of
Records
Office of Analytics, Review,
and Oversight, Social Security
Administration (SSA).
ACTION: Notice of a modified system of
records.
AGENCY:
In accordance with the
Privacy Act, we are issuing public
notice of our intent to modify an
existing system of records entitled, AntiFraud Enterprise Solution (AFES) (60–
SUPPLEMENTARY INFORMATION: Notice is
0388), last published on May 3, 2018.
hereby given that as a result of the
This notice publishes details of the
Administrator’s disaster declaration,
modified system as set forth under the
applications for disaster loans may be
caption, SUPPLEMENTARY INFORMATION.
filed at the address listed above or other
DATES: The system of records notice
locally announced locations. The
(SORN) is applicable upon its
following areas have been determined to
publication in today’s Federal Register.
be adversely affected by the disaster:
We invite public comment on the
routine uses or other aspects of this
Primary Counties: Alexander
SORN. In accordance with 5 U.S.C.
Contiguous Counties:
552a(e)(4) and (e)(11), the public is
North Carolina: Caldwell, Catawba,
given a 30-day period in which to
Iredell, Wilkes
submit comments. Therefore, please
submit any comments by January 11,
The Interest Rates are:
2021.
Percednt ADDRESSES: The public, Office of
Management and Budget (OMB), and
For Physical Damage:
Congress may comment on this
Homeowners With Credit Availpublication by writing to the Executive
able Elsewhere ......................
2.250
Director, Office of Privacy and
Homeowners Without Credit
Available Elsewhere ..............
1.125 Disclosure, Office of the General
Counsel, SSA, Room G–401 West High
Businesses With Credit Available Elsewhere ......................
6.000 Rise, 6401 Security Boulevard,
Baltimore, Maryland 21235–6401, or
Businesses
Without
Credit
Available Elsewhere ..............
3.000 through the Federal e-Rulemaking Portal
at https://www.regulations.gov. Please
Non-Profit Organizations With
Credit Available Elsewhere ...
2.000 reference docket number SSA–2018–
Non-Profit Organizations With0012. All comments we receive will be
out Credit Available Elseavailable for public inspection at the
where .....................................
2.000 above address and we will post them to
For Economic Injury:
https://www.regulations.gov.
Businesses & Small Agricultural
FOR FURTHER INFORMATION CONTACT: Neil
Cooperatives Without Credit
Available Elsewhere ..............
3.000 Etter, Government Information
Specialist, Privacy Implementation
Non-Profit Organizations WithDivision, Office of Privacy and
out Credit Available Elsewhere .....................................
2.000 Disclosure, Office of the General
Counsel, SSA, Room G–401 West High
Rise, 6401 Security Boulevard,
The number assigned to this disaster
Baltimore, Maryland 21235–6401,
for physical damage is 16805 8 and for
telephone: (410) 966–5855, email:
economic injury is 16806 0.
Neil.Etter@ssa.gov.
The State which received an EIDL
SUPPLEMENTARY INFORMATION: We are
Declaration # is North Carolina.
modifying the system of records name
from ‘‘Anti-Fraud Enterprise Solution’’
(Catalog of Federal Domestic Assistance
to ‘‘Anti-Fraud (AF) System’’ to reflect
Number 59008)
the system accurately. The AF System is
Jovita Carranza,
an agency-wide and overarching system
Administrator.
that we use to detect, prevent, and
[FR Doc. 2020–27196 Filed 12–10–20; 8:45 am]
mitigate fraud in SSA’s programs. The
AF System collects and maintains
BILLING CODE 8026–03–P
personally identifiable information (PII)
PO 00000
Frm 00222
Fmt 4703
Sfmt 4703
SUMMARY:
E:\FR\FM\11DEN1.SGM
11DEN1
]]>Agencies
[Federal Register Volume 85, Number 239 (Friday, December 11, 2020)]
[Notices]
[Pages 80207-80211]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-27202]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-90583; File No. SR-CBOE-2020-112]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change Relating
To Adopt Temporary Rules To Extend the Time by Which Trading Permit
Holders must Complete Their Office Inspections for the Calendar Year
2020 and To Provide Temporary Remote Inspection Relief for Their Office
Inspections for Calendar Years 2020 and 2021
December 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 November 30, 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,
II, and III below, which Items have been prepared by the Exchange. The
Exchange filed the proposal as a ``non-controversial'' proposed rule
change pursuant to Section 19(b)(3)(A)(iii) of the Act \3\ and Rule
19b-4(f)(6) thereunder.\4\ The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A)(iii).
\4\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Cboe Exchange, Inc. (the ``Exchange'' or ``Cboe Options'') proposes
to adopt temporary Rules to extend the time by which Trading Permit
Holders must complete their office inspections for the calendar year
2020 and to provide temporary remote inspection relief for their office
inspections for calendar years 2020 and 2021. 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
In light of the operational challenges that Trading Permit Holders
are facing due to the outbreak of the coronavirus disease (COVID-19),
the Exchange proposes to extend the time by which Trading Permit
Holders must complete their calendar year 2020 inspection obligations
under Rule 8.6(f) (Office Inspections) and Rule 9.2(d) (Annual Branch
Inspections) to March 31, 2021,\5\ and to provide Trading Permit
Holders with the option to complete their calendar year 2020 and
calendar year 2021 inspection obligations under Rules 8.16(f) and
9.2(d) remotely, without an on-site visit to the office or location.\6\
---------------------------------------------------------------------------
\5\ The proposed rule change will automatically sunset on March
31, 2021. If the Exchange seeks to provide additional temporary
relief from the rule requirement identified in this proposal beyond
March 31, 2021, it will submit a separate rule filing to further
extend the temporary extension of time.
\6\ The proposed rule change will automatically sunset on
December 31, 2021. If the Exchange seeks to extend the duration of
the temporary proposed rule beyond December 31, 2021, it will submit
a separate rule filing to further renew the temporary relief. The
Exchange notes that SEC staff has stated in guidance that
inspections must include a physical, on-site review component. See
SEC National Examination Risk Alert, Volume I, Issue 2 (November 30,
2011); SEC Division of Market Regulation, Staff Legal Bulletin No.
17: Remote Office Supervision (March 19, 2004) (stating, in part,
that broker-dealers that conduct business through geographically
dispersed offices have not adequately discharged their supervisory
obligations where there are no on-site routine or ``for cause''
inspections of those offices).
---------------------------------------------------------------------------
The Exchange has observed the impact of the COVID-19 pandemic on
its Trading Permit Holders, investors, and the industry generally and
recognizes that Trading Permit Holders are experiencing operational
challenges with much of their personnel working from home due to stay-
at-home orders, restrictions on businesses and social activity imposed
in various states, and adherence to other social distancing guidelines
consistent with the recommendations of public health officials.\7\ In
response, like many employers across the United States, Trading Permit
Holder organizations
[[Page 80208]]
closed their offices to the public, transitioned their employees to
telework arrangements to comply with stay-at-home orders, and
implemented other restrictive measures in an effort to slow the spread
of COVID-19, such as curtailing or eliminating non-essential business
travel and significantly limiting or canceling in-person activities.\8\
---------------------------------------------------------------------------
\7\ See Centers for Disease Control and Prevention (``CDC''),
International Classification of Diseases, Tenth Revision, Clinical
Modification, https://www.cdc.gov/nchs/data/icd/Announcement-New-ICD-code-forcoronavirus-3-18-2020.pdf; WHO Director-General, Opening
Remarks at the Media Briefing on COVID-19 (March 11, 2020), https://www.who.int/dg/speeches/detail/who-director-general-s-opening-remarksat-the-media-briefing-on-covid-19-11-march-2020; and Centers
for Disease Control and Prevention, How to Protect Yourself & Others
(last visited November 12, 2020) https://www.cdc.gov/coronavirus/2019-ncov/prevent-gettingsick/prevention.html.
\8\ See e.g., FINRA Regulatory Notice 20-16 (May 2020) (``Notice
20-16'') (describing practices implemented by small, mid-sized and
large firms to transition to, and supervise in, remote work
environment during the COVID-19 pandemic).
---------------------------------------------------------------------------
Exchange Rules require Trading Permit Holders \9\ to conduct branch
\10\ and non-branch office and location inspections pursuant to certain
annual cycles. Specifically, pursuant to Rule 8.16(f), each Trading
Permit Holder shall inspect every office or location of the Trading
Permit Holder at least once every three calendar years, the cycle of
which is contingent on the nature and complexity of the securities
activities for which the office or location is responsible, the volume
of business done, and the number of associated persons at each office
or location. The examination schedule and an explanation of the factors
considered in determining the frequency of the examinations in the
cycle shall be set forth in the Trading Permit Holder's written
supervisory procedures. Such inspection shall be reasonably designed to
assist in preventing and detecting violations of, and achieving
compliance with, applicable securities laws and regulations, and with
applicable Exchange rules, and each Trading Permit Holder shall retain
a written record of the dates upon which each inspection is conducted,
the participants in the inspection, and the results thereof. Pursuant
to Rule 9.2(d), each branch office that supervises one or more non-
branch locations must be inspected no less often than once each
calendar year, unless it qualifies for certain exemptions.\11\ Every
branch office, without exception, must be inspected at least once every
three calendar-years. Trading Permit Holders must maintain written
reports of such inspections.
---------------------------------------------------------------------------
\9\ The Exchange notes that the term Trading Permit Holder
includes Trading Permit Holder organizations. See Eleventh Amended
and Restated Bylaws of Cboe Exchange, Inc., Section 1.1(f).
\10\ The Exchange notes that any location that is responsible
for supervising the activities of persons associated with a Trading
Permit Holder or TPH organization at one or more non-branch
locations of such Trading Permit Holder or TPH organization is
considered to be a branch office. See Rule 3.40(c).
\11\ A Trading Permit Holder may demonstrate to the satisfaction
of the Exchange that because of proximity, special reporting or
supervisory practice, other arrangements may satisfy this Rule's
requirements for a particular branch office, or that, based upon the
written policies and procedures of such Trading Permit Holder
organization providing for a systematic risk-based surveillance
system, the Trading Permit Holder organization submits a proposal to
the Exchange and receives, in writing, an exemption from the
requirement in 9.2(d), pursuant to Rule 9.2(e).
---------------------------------------------------------------------------
As a result of the compelling health and welfare concerns stemming
from the COVID-19 pandemic, Trading Permit Holders are facing
potentially significant disruptions to their normal business operations
that include staff absenteeism, the increased use of remote offices or
telework arrangements, travel or transportation limitations, and
technology interruptions or slowdowns. Pandemic-related operational
changes have made it impracticable for Trading Permit Holders to
conduct the on-site inspections pursuant to Rules 8.16(f) and 9.2(d) at
many or most locations for calendar year 2020 because this compliance
function requires firm employees to travel to geographically dispersed
branch and non-branch office locations. Such travel not only has been
restricted by government orders,\12\ but also puts the health and
safety of employees at great risk of contracting and spreading COVID-
19.\13\ By mid-year, with many restrictive measures still in place, and
in some instances additional quarantine requirements imposed on
interstate travel, on-site inspections of Trading Permit Holder offices
or locations scheduled for calendar year 2020 remain pending. The acute
health and safety concerns related to COVID-19 persist, with the number
of confirmed cases of COVID-19 in the U.S. continuing to rise through
the fall of 2020.\14\ While Trading Permit Holders have continued to
supervise all offices and locations by, among other things,
implementing remote supervisory practices through novel uses of
technology as well as existing methods of supervision (e.g.,
supervisory checklists, surveillance tools, incident trackers, email
review, and trade exception reports),\15\ they are still experiencing
logistical challenges related to conducting the onsite portion of their
inspections due to continuing business and governmental restrictions
and public health concerns.\16\ As a result, the Exchange understands
that Trading Permit Holders have not yet been able to conduct on-site
inspections scheduled for calendar year 2020, and, with no certainty as
to when pandemic-related health concerns will subside and restrictions
recently re-implemented in light of the resurgence of cases during the
fall of 2020,\17\ Trading Permit Holders may have a considerable
backlog of 2020 inspections that may be difficult, if not impossible,
to overcome on or before calendar year 2020 ends. Additionally, the
Exchange recognizes that planning on-site inspections for calendar year
2021 for Trading Permit Holder branch and non-branch offices and
locations in the current environment may be impacted as well. In light
of pandemic-related developments and the approaching end of calendar
year 2020, the Exchange believes it is appropriate to provide tailored
temporary relief for Trading Permit Holders to meet their inspection
obligations under Rule 8.16(f) and Rule 9.2(d) for calendar years 2020
and 2021.
---------------------------------------------------------------------------
\12\ See e.g., City of Chicago, Emergency Travel Order (November
10, 2020) https://www.chicago.gov/city/en/sites/covid-19/home/emergency-travel-order.html (announcing certain travel restrictions
applicable to different states based on the status of the outbreak
in the states and how the data compares to the situation in
Chicago); New York Department of Health, Interim Guidance for
Quarantine Restrictions on Travelers Arriving in New York State
Following Out of State Travel (November 3, 2020).
\13\ See CDC, Travel During the COVID-19 Pandemic (updated
October 21, 2020) https://www.cdc.gov/coronavirus/2019-ncov/travelers/travel-during-covid19.html (stating, in part, ``[t]ravel
increases your chance of getting and spreading COVID-19. Staying
home is the best way to protect yourself and others from COVID-
19'').
\14\ See CDC, COVIDView, Key Updates for Week 44, ending October
31, 2020 (November 5, 2020) https://www.cdc.gov/coronavirus/2019-ncov/covid-data/pdf/covidview-11-06-2020.pdf (stating that
surveillance indicators tracking levels of SARS-CoV-2 virus
circulation and associated illnesses have been increasing since
September).
\15\ See supra note 8.
\16\ See supra note 12.
\17\ See supra note 14.
---------------------------------------------------------------------------
Specifically, the Exchange proposes to adopt temporary language in
Rule 8.16(f), and to adopt temporary Rule 9.2(d)(4), to provide that
each Trading Permit Holder obligated to complete an office inspection
pursuant to Rule 8.16(f) and Rule 9.2(d), respectively, in calendar
year 2020 will be deemed to have satisfied such obligation if the
applicable inspection is completed on or before March 31, 2021. The
Exchange believes that this proposed temporary extension of time is
tailored to address the needs and constraints on a Trading Permit
Holder's operations during the COVID-19 pandemic, without significantly
compromising critical investor protection, as potential risks that may
arise from providing firms additional time to comply with their
inspection obligations due in calendar year 2020 are mitigated by their
ongoing supervisory obligations, off-site monitoring, and the temporary
nature of the extension. The proposed extension will provide Trading
Permit Holders with an opportunity to better manage the operational
challenges resulting from the COVID-19 pandemic and the
[[Page 80209]]
resources needed to fulfill these supervisory obligations during the
pandemic.
In addition to this, the Exchange proposes to extend temporary
remote inspection relief for calendar year 2020 and 2021. In
particular, the Exchange proposes to adopt temporary Rule 9.2(d)(5),
which provides that each Trading Permit Holder obligated to conduct an
inspection of a branch office or non-branch location in calendar year
2020 and calendar year 2021 pursuant to Rule 8.16(f) \18\ and Rule
9.2(d), as applicable, may, subject to the requirements of this Rule
9.2.(d)(5), satisfy such obligation by conducting the applicable
inspection remotely, without an on-site visit to the office or
location. In accordance with Rules 8.16(f) and 9.2(d)(4), inspections
for calendar year 2020 must be completed on or before March 31, 2021.
Inspections for calendar year 2021 must be completed on or before
December 31, 2021. Notwithstanding proposed Rule 9.2(d)(5), a Trading
Permit Holder remains subject to the other requirements of Rules
8.16(f) and 9.2(d).
---------------------------------------------------------------------------
\18\ The proposed rule change adds language to Rule 8.16(f),
which provides that the temporary remote inspection relief provided
in Rule 9.2(d)(5) will apply to each Trading Permit Holder obligated
to complete an office inspection pursuant to Rule 8.16(f) in
calendar year 2020 or calendar year 2021.
---------------------------------------------------------------------------
The proposed rule change also adopts written supervisory procedures
for remote inspections in proposed Rule 9.2(d)(5)(A), which provides
that, consistent with a Trading Permit Holder's obligations under Rule
8.16(f) and Rule 9.2(d), a Trading Permit Holder that elects to conduct
each of its calendar year 2020 or calendar year 2021 inspections
remotely must amend or supplement its written supervisory procedures to
provide for remote inspections that are reasonably designed to assist
in detecting and preventing violations of and achieving compliance with
applicable securities laws and regulations, and with applicable
Exchange Rules. Reasonably designed procedures for conducting remote
inspections of offices or locations should include, among other things:
(i) A description of the methodology, including technologies permitted
by the Trading Permit Holder, that may be used to conduct remote
inspections; and (ii) the use of other risk-based systems employed
generally by the Trading Permit Holder to identify and prioritize for
review those areas that pose the greatest risk of potential violations
of applicable securities laws and regulations, and of applicable
Exchange Rules. The Exchange believes the proposed rule change is
consistent with a Trading Permit Holder's existing supervisory
obligations to establish and maintain written supervisory procedures
for branch office reviews \19\ and reviews of non-branch offices and
locations.\20\
---------------------------------------------------------------------------
\19\ See Rule 3.40(f).
\20\ See Rule 8.16(e).
---------------------------------------------------------------------------
Proposed temporary Rule 9.2(d)(5)(B) provides that the requirement
to conduct inspections of offices and locations is one part of a
Trading Permit Holder's overall obligation to have an effective
supervisory system and, therefore, a Trading Permit Holder must
continue with its ongoing review of the activities and functions
occurring at all offices and locations, whether or not the Trading
Permit Holder conducts inspections remotely. A Trading Permit Holder's
use of a remote inspection of an office or location will be held to the
same standards for review as set forth under Rule 8.16(f) and Rule
9.2(d). Where a Trading Permit Holder's remote inspection of an office
or location identifies any indicators of irregularities or misconduct
(i.e., ``red flags''), \21\ the Trading Permit Holder may need to
impose additional supervisory procedures for that office or location or
may need to provide for more frequent monitoring or oversight of that
office or location, or both, including potentially a subsequent
physical, on-site visit on an announced or unannounced basis when the
Trading Permit Holder's operational difficulties associated with COVID-
19 abate, nationally or locally as relevant, and the challenges a
Trading Permit Holder is facing in light of the public health and
safety concerns make such on-site visits feasible using reasonable best
efforts. The temporary relief provided by this Rule 9.2(d)(5) does not
extend to a Trading Permit Holder's inspection requirements beyond
calendar year 2021 and such inspections must be conducted in compliance
with Rule 9.2(d)(1) through (3). The Exchange believes that the
proposed rule is consistent with a Trading Permit Holder's existing
supervisory obligations to maintain policies and procedures, and a
system for applying such procedures, reasonably designed to achieve
compliance with, as well as assist in preventing and detecting
violations of, applicable securities laws and regulations and Exchange
Rules.\22\
---------------------------------------------------------------------------
\21\ Red flags that suggest the increased risk or occurrence of
violations may include, among other events: customer complaints; an
unexplained increase or change in the types of investments or
trading concentration that a representative is recommending or
trading; an unexpected improvement in a representative's production,
lifestyle, or wealth; questionable or frequent transfers of cash or
securities between customer or third party accounts, or to or from
the representative; a representative that serves as a power of
attorney, trustee or in a similar capacity for a customer or has
discretionary control over a customer's account(s); representative
with disciplinary records; customer investments in one or a few
securities or class of securities that is inconsistent with firm
policies related to such investments; churning; trading that is
inconsistent with customer objectives; numerous trade corrections,
extensions, liquidations; or significant switching activity of
mutual funds or variable products held for short time periods. See
generally SEC Division of Market Regulation, Staff Legal Bulletin
17: Remote Office Supervision (March 19, 2004).
\22\ See generally Rule 8.16; and see Rule 9.2(g)(5)(A).
---------------------------------------------------------------------------
Finally, proposed temporary Rule 9.2(d)(5)(C) provides for a
documentation requirement and specifically provides that a Trading
Permit Holder must maintain and preserve a centralized record for each
of calendar year 2020 and calendar year 2021 that separately
identifies: (i) All offices or locations that had inspections that were
conducted remotely; and (ii) any offices or locations for which the
Trading Permit Holder determined to impose additional supervisory
procedures or more frequent monitoring, as provided in Rule
9.2(d)(5)(B) above. A Trading Permit Holder's documentation of the
results of a remote inspection for an office or location must identify
any additional supervisory procedures or more frequent monitoring for
that office or location that were imposed as a result of the remote
inspection. The Exchange believes that this documentation requirement
would help readily distinguish the offices and locations that underwent
remote inspections and their attendant supervisory procedures, and
their more frequent monitoring, as applicable.
As noted above, even in the current environment, Trading Permit
Holders have an ongoing obligation to establish and maintain a system
to supervise the activities of their associated persons that is
reasonably designed to achieve compliance with applicable securities
laws and regulations, and with applicable Exchange Rules. The proposed
amendments to Rule 8.16(f) and proposed Rule 9.2(d)(4) and (d)(5) are
not intended to lessen the supervisory obligations prescribed under the
Exchange Rules. The Exchange believes that the proposed temporary rule
changes, which address the needs and constraints on a Trading Permit
Holder's operations during the COVID-19 pandemic by extending the time
to conduct inspections for calendar year 2020 and permitting firms to
remotely inspect, subject to specified requirements described above,
their
[[Page 80210]]
offices and locations for calendar years 2020 and 2021, would provide
Trading Permit Holders a way to comply with Rules 8.16(f) and 9.2(d)
that would not materially diminish, and is reasonably designed to
achieve, the investor protection objectives of the inspection
requirements under these unique circumstances. The Exchange notes that
potential risks that may arise from providing Trading Permit Holders
extended time to conduct their 2020 inspections and the option to
conduct their inspections remotely are mitigated by their use of
technology to meet their supervisory obligations on an ongoing basis,
the unique circumstances under which they are operating, and the
temporary nature of the proposed rules, which would expire on March 31,
2021 and December 31, 2021, respectively.\23\
---------------------------------------------------------------------------
\23\ See supra notes 5 and 6.
---------------------------------------------------------------------------
The Exchange notes that the proposed temporary rules are
substantively identical to the temporary inspection extension and
remote relief rules recently filed by the Financial Industry Regulatory
Authority (``FINRA'').\24\ The Exchange notes too that it will continue
to monitor the situation and engage with Trading Permit Holders, other
financial regulators, and governmental authorities to determine whether
further regulatory relief or guidance related to Rules 8.16 and 9.2 may
be appropriate.
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\24\ See FINRA Rule 3110.16; Securities and Exchange Act Release
No. 89188 (June 30, 2020), 85 FR 40713 (July 7, 2020) (SR-FINRA-
2020-019); and SR-FINRA-2020-040 (filed November 6, 2020) available
at https://www.finra.org/sites/default/files/2020-11/SR-FINRA-2020-040.pdf.
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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.\25\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \26\ 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) \27\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
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\25\ 15 U.S.C. 78f(b).
\26\ 15 U.S.C. 78f(b)(5).
\27\ Id.
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In particular, the Exchange believes that, in light of the impact
of COVID-19 on the performance of on-site office and location
inspections pursuant to Rules 8.16(f) and 9.2(d), the proposed
temporary rule changes are intended to provide Trading Permit Holders
additional time to comply with their Rule 8.16(f) and 9.2(d) inspection
obligations due in calendar year 2020 and a temporary regulatory option
to conduct inspections of offices and locations remotely for calendar
years 2020 and 2021. The proposed temporary rule changes do not relieve
firms from meeting their existing regulatory obligations to establish
and maintain a supervisory system that is reasonably designed to
achieve compliance with applicable securities laws and regulations, and
with applicable Exchange Rules, which directly serve investor
protection. In a time when faced with unique challenges resulting from
the COVID-19 pandemic, the Exchange believes that the proposed
temporary rule changes provide appropriately tailored relief that will
afford Trading Permit Holders the ability to observe the
recommendations of public health officials to provide for the health
and safety of their personnel, while continuing to serve and promote
the protection of investors and the public interest.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The Exchange does not
believe the proposed temporary rule changes will impose any burden on
intramarket competition that is not necessary or appropriate in
furtherance of the Act, because the extension for inspections and the
remote inspection relief will apply equally to all Trading Permit
Holders required to conduct office and location inspections in calendar
year 2020 and 2021. The Exchange further does not believe that the
proposed temporary rule changes will impose any burden on intermarket
competition because it relates only to the extension of time for 2020
inspections and the manner in which inspections for 2020 and 2021 may
be conducted. Additionally, and as stated above, FINRA has recently
submitted filings to adopt substantively identical temporary inspection
relief rules for its members.
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:
A. Significantly affect the protection of investors or the public
interest;
B. impose any significant burden on competition; and
C. 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 \28\ and
Rule 19b-4(f)(6) \29\ 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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\28\ 15 U.S.C. 78s(b)(3)(A).
\29\ 17 CFR 240.19b-4(f)(6).
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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:
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-2020-112 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-2020-112. This file
[[Page 80211]]
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549 on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change; the Commission does not edit
personal identifying information from submissions. You should submit
only information that you wish to make available publicly. All
submissions should refer to File Number SR-CBOE-2020-112 and should be
submitted on or before January 4, 2021.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\30\
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\30\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-27202 Filed 12-10-20; 8:45 am]
BILLING CODE 8011-01-P
