Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing and Order Granting Accelerated Approval of a Proposed Rule Change To Amend Rule 13.15, Which Governs the Exchange's Minor Rule Violation Plan, 47346-47350 [2021-18123]
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Federal Register / Vol. 86, No. 161 / Tuesday, August 24, 2021 / Notices
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 III below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
David Bottom, Director/Chief
Information Officer, Securities and
Exchange Commission, c/o Cynthia
Roscoe, 100 F Street NE, Washington,
DC 20549, or by sending an email to:
PRA_Mailbox@sec.gov.
Dated: August 18, 2021.
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2021–18105 Filed 8–23–21; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–92702; File No. SR–CBOE–
2021–045]
Self-Regulatory Organizations; Cboe
Exchange, Inc.; Notice of Filing and
Order Granting Accelerated Approval
of a Proposed Rule Change To Amend
Rule 13.15, Which Governs the
Exchange’s Minor Rule Violation Plan
August 18, 2021.
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 3,
2021, Cboe Exchange, Inc. 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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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 13.15, which governs the
Exchange’s Minor Rule Violation Plan
(‘‘MRVP’’), in connection with certain
minor rule violations, applicable fines,
as well as other clarifying,
nonsubstantive changes. 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.
1 15
2 17
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
1. Purpose
The Exchange proposes to amend its
MRVP in Rule 13.15 in connection with
certain minor rule violations, applicable
fines, as well as other clarifying,
nonsubstantive changes. Rule 13.15
provides for disposition of specific
violations through assessment of fines
in lieu of conducting a formal
disciplinary proceeding. Rule 13.15(g)
sets forth the list of specific Exchange
Rules under which a Trading Permit
Holder (‘‘TPH’’) or person associated
with or employed by a TPH may be
subject to a fine for violations of such
Rules and the applicable fines that may
be imposed by the Exchange.
Specifically, the proposed rule change
amends Rule 13.15(g) by: (1)
Eliminating certain rule violations that
the Exchange no longer believes to be
minor in nature; (2) updating the fine
schedule applicable to minor rule
violations related to a Market-Maker’s
failure to meet Exchange quoting
obligations; and (3) making other
nonsubstantive changes.
First, the proposed rule change
removes the following rule violations
and applicable fines from Rule
13.15(g): 3
• Rule 13.15(g)(4), which currently
imposes certain fines for failure to
submit trade information on time and
failure to submit trade information to
the Price Reporter pursuant to Rule 6.1
(Report Transactions to the Exchange); 4
3 As a result of the proposed elimination of
certain rule violations listed under Rule 13.15(g),
the proposed rule change subsequently renumbers
current Rules 13.15(g)(6), (8), (9), (11), (13), (14),
(15), (16), (17), (18), (19) and (20), to Rules
13.15(g)(4), (5), (6), (7), (8), (9), (10), (11), (12), (13),
(14) and (15), respectively.
4 See Rule 6.1(a), which provides that a
participant in each transaction to be designated by
the Exchange must report or ensure the transaction
is reported to the Exchange within 90 seconds of
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• Rule 13.15(g)(5), which currently
imposes certain fines for failure to
honor the firm quote requirements of
Rules 5.52 (Market-Maker Quotes) 5 and
5.59 (Firm Disseminated Market
Quotes), to honor the priority of
marketable priority customer orders
pursuant to Rules 5.32 and 5.85 (which
among other things, govern customer
priority on the Exchange’s trading
floor),6, and to use due diligence in the
execution of orders for which the floor
Trading Permit Holder maintains an
agency obligation pursuant to Rule 5.91
(Floor Broker Responsibilities); 7
• Rule 13.15(g)(7), which currently
imposes certain fines for any individual
Trading Permit Holder who fails for
more than 5% of the Trading Permit
Holder’s transactions in any month to
submit on the date that a transaction is
the execution in a form and manner prescribed by
the Exchange so that the trade information may be
reported to time and sales reports; and Rule 6.1(c),
which provides the Exchange-established procedure
for reporting transactions pursuant to Rule 6.1(a).
5 See Rule 5.52(a), which provides, in relevant
part, that Market-Maker bids and offers are firm for
all orders under this Rule and Rule 602 of
Regulation NMS under the Exchange Act (‘‘Rule
602’’) for the number of contracts specified in the
bid or offer, except if: (1) A system malfunction or
other circumstance impairs the Exchange’s ability
to disseminate or update market bids and offers in
a timely and accurate manner; (2) the level of
trading activities or the existence of unusual market
conditions is such that the Exchange is incapable
of collecting, processing, and making available to
quotation vendors the data for the option in a
manner that accurately reflects the current state of
the market on the Exchange; (3) prior to the
conclusion of the Opening Auction Process; or (4)
any of the circumstances provided in Rule 602(c)(4)
exist.
6 Rule 5.85(a)(2)(A), which provides that Priority
Customer orders in the Book have first priority. If
there are two or more Priority Customer orders in
the Book at the same price, the System prioritizes
them in the order in which the System received
them (i.e., in time priority). The Exchange notes that
customer priority for electronic executions is
systematically enforced. See Rule 5.32(a)(2)(A).
7 See Rule 5.91(a), which provides that a Floor
Broker handling an order must use due diligence to
execute the order at the best price or prices
available to him or, in accordance with the Rules.
Use of due diligence in handling and executing an
order includes: (1) Announcing to the trading
crowd a request for quotes; (2) taking the necessary
measures to ensure the proper execution of an order
in accordance with firm quote obligations in Rule
5.52, including the executable quantity of a quote
from the trading crowd; (3) the immediate and
continuous representation at the trading station
where the applicable class trades of the following
types of orders: (A) Market orders; (B) limit orders
to sell where the specified price is at or below the
current offer or; and (C) limit orders to buy where
the specified price is at or above the current bid;
(4) subject to the requirement to systematize orders
prior to representation pursuant to Rule 5.7(f),
electronically recording the time via a PAR
workstation at which the Floor Broker initially
represents the order to the trading crowd; and (5)
prioritizing the Floor Broker’s agency business over
the Floor Broker’s liquidation orders (which
liquidation orders are described in Rule 5.91(d)).
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executed the trade information required
by Rule 6.1; 8
• Rule 13.15(g)(10), which currently
imposes certain fines for violations of
Rule 8.14 (Communications to the
Exchange or the Clearing Corporation); 9
and
• Rule 13.15(g)(12), which currently
imposes certain fines for trade-through
violations pursuant to Rule 5.66 (Order
Protection).10
Additionally, as a result of the
proposed deletion of Rule 13.15(g)(4)
and (g)(5), the proposed rule change also
deletes Interpretations and Policies .01
and .02 to Rule 13.15, as Interpretation
and Policy .01 exclusively relates to
Rule 13.15(g)(5), and Interpretation and
Policy .02 exclusively relates to Rule
13.15(g)(4). The proposed rule change
also moves the entirety of the rule text
in Interpretation and Policy .03, which
exclusively corresponds to current Rule
13.15(g)(6), into Rule 13.15(g)(6) itself.
Additionally, the proposed rule change
moves the language currently in
footnote 1 into current Rule 13.15(g)(6).
Footnote 1 provides that Minor Rule
Violation Fines imposed under this
provision may be issued by Exchange
Floor Officials. The Exchange notes that,
while footnote 1 is currently appended
to Rule 13.15(g)(5), which is being
deleted as proposed herein, it more
appropriately applies to current Rule
13.15(g)(6) (Violations of Trading
Conduct and Decorum Policies), as fines
for violations of which are currently
issued by Exchange Floor Officials
pursuant to Rule 5.80(c). Rule
5.80(c)(1)(A) specifically provides that
Exchange Floor Officials may fine TPHs
and persons employed by or associated
8 See Rule 6.1(b), which requires parties to a trade
to immediately record on a card or ticket, or enter
in an electronic data storage medium acceptable to
the Exchange, (1) the assigned broker initial code
and clearing firm (if a Market-Maker); (2) the
symbol of the underlying security or index; (3) the
type, expiration month, and exercise price of the
option contract; (4) the transaction price; (5) the
number of contract units comprising the
transaction; (6) the time of the transaction obtained
from a source designated by the Exchange; (7) the
name of the contra Clearing Trading Permit Holder;
and (8) the assigned broker initial code of the contra
Trading Permit Holder.
9 See Rule 8.14, which provides that no Trading
Permit Holder, person associated with a Trading
Permit Holder or applicant to be a Trading Permit
Holder shall make any misrepresentation or
omission in any application, report or other
communication to the Exchange, or to the Clearing
Corporation with respect to the reporting or
clearance of any Exchange transaction, or adjust any
position at the Clearing Corporation in any class of
options traded on the Exchange except for the
purpose of correcting a bona fide error in recording
or of transferring the position to another account.
10 See Rule 5.66(a), which provides that, except
as provided in paragraph (b), Trading Permit
Holders shall not effect Trade-Throughs. The
Exchange notes that trade-through compliance for
electronic executions are systematically enforced.
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with TPHs pursuant to Rule 13.15 for
trading conduct and decorum violations
which are subject to fine under such
fine schedules. As such, the proposed
relocation of the language in footnote 1
merely provides additional clarity in the
MRVP fine schedule regarding the
issuance of Minor Rule Violation fines
for trading conduct and decorum
violations.
The Exchange no longer believes
violations of the above-listed rules to be
minor in nature and therefore proposes
to remove them from the list of rules in
Rule 13.15(g) eligible for a minor rule
fine disposition. Particularly, the
Exchange believes that violations of
each of the rules listed above may
directly impact trading on the Exchange,
maintenance of a fair and orderly
market, and/or customer protections.
For example, the Exchange believes that
the requirement to submit trade
information on time, to the Price
Reporter and consistently on an order’s
transaction date, as well as the
requirement to truthfully and accurately
represent information in
communications to the Exchange and
the Clearing Corporation allows the
Exchange (and the Clearing Corporation)
to maintain an accurate audit trail and
trade information. Likewise, honoring
firm quotations is vital in promoting
efficient functioning of intermarket
price priority and trading in general.
Timely and accurate representation of
both trade information and quotations
protects investors by providing them
with accurate information essential to
their trading activities and participation
in the markets. Upholding due diligence
to honor the priority of customer orders
and obligations as a principal, as well as
the prohibition against the execution of
trades at prices inferior to protected
quotations (trade-throughs), all provide
important customer protections.
Pursuant to Rule 13.15(f), the Exchange
is not required to impose a fine
pursuant to its MRVP with respect to
the violation of any rule listed under
Rule 13.15. If the Exchange determines
that any violation is intentional,
egregious, or otherwise not minor in
nature, it may proceed under its formal
disciplinary rules. As such, the
Exchange has increasingly chosen to
handle such violations in recent years
under the Exchange’s formal
disciplinary rules, rather than imposing
a fine pursuant to its MRVP.
The proposed rule change next
amends the fine schedule applicable to
Maker-Makers for failure to meet
Exchange quoting obligations.
Specifically, Rule 13.15(g)(14) ((g)(9), as
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47347
amended) 11 provides that a fine shall be
imposed upon a Market-Maker,
Designated Primary Market-Maker or
Lead Market Maker (as applicable) in
accordance with the fine schedule set
forth below for the following conduct: 12
• Failure to meet the continuous
quoting obligation (Rule 5.52, 5.55, and
5.54);
• Failure to meet the initial quote
volume requirements (Rule 5.52); and
• Failure of a Lead Market-Maker or
Designated Primary Market-Maker to
enter opening quotes within one minute
following the initiation of an opening
rotation (e.g., 9:31 a.m.) in a series in its
appointed or allocated class,
respectively, that is not open due to the
lack of a quote (see Rule 5.31(e)(2) or
(j)(5)(B), as applicable) (Rules 5.55 and
5.54), respectively.
For the first offense during any rolling
24-month period, the fine schedule
imposed by Rule 13.15(g)(14) currently
permits the Exchange to apply a fine
ranging between $2,000 and $4,000. For
subsequent offenses during the same
period, the fine schedule currently
permits the Exchange to apply a fine
ranging between $4,000 and $5,000. The
proposed rule change updates the fine
schedule to provide that, during any
rolling 24-month period, the Exchange
may give a Letter of Caution for a first
offense, may apply a fine of $1,500 for
a second offense, may apply a fine of
$3,000 for a third offense,13 and may
proceed with formal disciplinary action
for subsequent offenses. As described
above, and as is the case for all rule
violations covered under Rule 13.15(g),
the Exchange may determine that a
violation of Market-Maker quoting
obligations is intentional, egregious, or
otherwise not minor in nature and
choose to proceed under the Exchange’s
formal disciplinary rules rather than its
MRVP.14 The Exchange may continue to
aggregate individual violations of
11 See
supra note 3.
proposed rule change also makes
nonsubstantive clarifying updates to Rule
13.15(g)(14), by removing the conduct listed in
subparagraph (g)(14)(B) and updating the format in
which time is reflected. These nonsubstantive
amendments are described in further detail herein
this proposal below.
13 The Exchange notes that Rule 13.15(a)
authorizes the Exchange to impose a fine, not to
exceed $5,000, for minor rule violations in lieu of
commencing a disciplinary proceeding.
Additionally, any fine imposed pursuant to Rule
13.15 that (1) does not exceed $2,500 and (2) is not
contested, shall be reported by the Exchange to the
Commission on a periodic, rather than a current,
basis, except as may otherwise be required by
Exchange Act Rule 19d–1 and by any other
regulatory authority.
14 See Rule 13.15(f).
12 The
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particular rules and treat such violations
as a single offense.15
The Exchange believes it is
appropriate to remove the range of fines
imposed for first and subsequent
offenses and, instead, apply a letter of
caution for a first offense, a specified
fine amount for a second and a third
offense, and formal disciplinary
proceedings for subsequent offenses.
Particularly, the Exchange believes that
applying a lesser penalty (Letter of
Caution) for a first offense and then
providing a higher, itemized fine per
second and third offenses and,
ultimately, formal disciplinary
proceedings for any subsequent offenses
during a rolling 24-month period, will
allow the Exchange to levy
progressively larger fines and greater
penalties against repeat-offenders (as
opposed to a fine range for any offenses
that may come after a first offense). The
Exchange believes this fine structure
may serve to more effectively deter
repeat-offenders while providing
reasonable warning for a first offense
during a rolling 24-month period. The
Exchange notes that a lesser penalty in
the form of a warning letter for a first
offense paired with a greater penalty in
the form of formal disciplinary
proceedings after a finite number of
following offenses is consistent with the
minor rule violation fine schedules
applicable to minor rule violations of
substantially the same market maker
quoting obligations on the Exchange’s
affiliated options exchanges, EDGX and
BZX,16 as well as substantially similar
market maker quoting obligations on
another options exchange.17 The
Exchange notes that the proposed
change is intended to provide for
consistency across the Exchange’s
MRVP and the MRVPs of its affiliated
options exchanges. Additionally, EDGX
and BZX also intend to file proposals to
update their minor rule violation fines
so that second, third, and subsequent
offenses for violating market maker
quoting obligations will receive the
same sanctions,18 as proposed herein.
The proposed rule change also makes
nonsubstantive clarifying changes to
certain provisions in Rule 13.15(g). The
proposed rule change makes a clean-up
revision by removing the conduct listed
in subparagraph (g)(14)(B), ‘‘failure to
meet the applicable quote width
15 See
Rule 13.15(a).
BZX Rule 25.3(d); and EDGX Rule 25.3(d).
17 See e.g., MIAX Options Rule 1014(d)(7).
18 The Exchange again notes that pursuant to the
BZX and EDGX MRVPs, first offenses regarding
market maker quoting obligations already receive a
Letter of Caution and the highest/last range of
offenses (currently 5 or more) are already subject to
formal disciplinary action. See supra note 16.
16 See
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requirements (Rule 5.52),’’ because, as
of 2019, Market-Makers are no longer
subject to a quote width requirement.19
The proposed rule change amends the
subsequent lettering in subparagraph
(g)(14) as a result of this revision. The
proposed rule change corrects a typo in
the fine amounts that inadvertently
contain an additional digit in
subparagraph (g)(8). The proposed rule
change also updates the time format in
the example provided in subparagraph
(g)(14)(D), which is currently reflected
in Central Time, to instead reflect
Eastern Time without time zone
indication. This proposed change is
consistent with Rule 1.6, which states
that unless otherwise specified, all
times in the Rules are Eastern Time, and
conforms the time reflected in (g)(14)(D)
to the time format reflected throughout
the Rules. The proposed rule change
corrects the cross-reference to Rule
5.24(e) in Rule 13.15(g)(19) to, instead,
correctly reflect Rule 5.5(d). The
Exchange previously restructured its
Rulebook in connection with a 2019
technology migration and, prior to this
restructuring, the provision in current
Rule 13.15(g)(19) referred to what is
now Rule 5.5(d) (former Rule
6.23A(f)),20 instead of what is now Rule
5.24(e) (former Rule 6.18). Upon
restructuring Chapter 13,21 the
Exchange inadvertently changed the
cross-reference in Rule 13.15(g)(19) to
reflect the incorrect rule and now
proposes to update this cross-reference
to reflect the correct and originally
intended cross-reference to Rule 5.5(d).
Likewise, the Exchange updates a crossreference to prior Rule 5.25 to current
Rule 5.5 in subparagraph (g)(19).
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.22 Specifically,
the Exchange believes the proposed rule
change is consistent with the Section
6(b)(5) 23 requirements that the rules of
an exchange be designed to prevent
fraudulent and manipulative acts and
practices, to promote just and equitable
19 See Securities Exchange Act Release No. 87024
(September 19, 2019), 84 FR 50545 (September 25,
2019) (SR–CBOE–2019–059).
20 See Securities Exchange Act Release No. 87320
(October 16, 2019), 84 FR 56501 (October 22, 2019)
(SR–CBOE–2019–095).
21 See Securities Exchange Act Release No. 87210
(October 3, 2019), 84 FR 54190 (October 9, 2019)
(SR–CBOE–2019–068).
22 15 U.S.C. 78f(b).
23 15 U.S.C. 78f(b)(5).
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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. The
Exchange believes the proposed rule
change is consistent with the Section
6(b)(5) 24 requirement that the rules of
an exchange not be designed to permit
unfair discrimination between
customers, issuers, brokers, or dealers.
The Exchange believes that the
proposed rule change to remove certain
rules listed as eligible for a minor rule
fine disposition under its MRVP, which
it no longer considers violations of
which to be minor in nature, will assist
the Exchange in preventing fraudulent
and manipulative acts and practices and
promoting just and equitable principles
of trade, and will serve to remove
impediments to and perfect the
mechanism of a free and open market
and a national market system, and, in
general, protect investors and the public
interest. Particularly, the Exchange
believes that violations of each of the
rules proposed to be removed from its
MRVP may directly impact trading on
the Exchange, maintenance of a fair and
orderly market, and/or customer
protection. As such, the Exchange does
not believe violations of these rules to
be minor in nature and, instead, should
continue to be handled under its formal
disciplinary rules, as the Exchange has
chosen to handle the majority of all
such violations in recent years, rather
than imposing fines pursuant to its
MRVP.
The Exchange also believes that the
proposed rule change to remove the
range of fines imposed for first and
subsequent Market-Maker quoting
offenses and, instead, apply a letter of
caution for a first offense, a specified
fine amount for a second and a third
offense, and formal disciplinary
proceedings for subsequent offenses will
assist the Exchange in preventing
fraudulent and manipulative acts and
practices and promoting just and
equitable principles of trade, and will
serve to remove impediments to and
perfect the mechanism of a free and
open market and a national market
system, and, in general, protect
investors and the public interest.
Particularly, the Exchange believes that
applying a lesser penalty (Letter of
Caution) for a first offense and then
providing an itemized fine per second
24 Id.
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and third offenses and, ultimately,
formal disciplinary proceedings for any
subsequent offenses during a rolling 24month period, will allow the Exchange
to levy greater penalties (i.e., formal
disciplinary proceedings) against repeatoffenders (as opposed to a fine range for
any offenses that may come after a first
offense) which may serve to more
effectively deter repeat-offenders while
providing reasonable warning for a first
offense during a rolling 24-month
period. The Exchange believes that more
effectively deterring repeat-offenders
and making first instance offenders
aware of their quoting obligation
violations and the subsequent
consequences for continued failure,
will, in turn, further motivate MarketMakers to continue to uphold their
quoting obligations, providing liquid
markets to the benefit of all investors.
The Exchange again notes that a lesser
penalty in the form of a warning letter
for a first offense paired with greater
penalties in the form of eventual formal
disciplinary proceedings following a
finite number of offenses is consistent
with the minor rule violation fine
schedules applicable to minor rule
violations of substantially the same
market maker quoting obligations on the
Exchange’s affiliated options exchanges,
EDGX and BZX.25 As such, the
proposed rule change is also designed to
benefit investors by providing from
consistent penalties across the MRVPs
of the Exchange and its affiliated
options exchanges. As described above,
EDGX and BZX intend to file proposals
to update their minor rule violation
fines so that second, third, and
subsequent offenses for violating market
maker quoting obligations will receive
the same sanctions,26 as proposed
herein.
Additionally, the proposed
clarifications and corrections, as
applicable, in connection with footnote
1 of Rule 13.15, Interpretation and
Policy .03 to Rule 13.15, and Rules
13.15(g)(8), (14) and (19) will benefit
investors by adding clarity to the Rules.
The Exchange further believes that the
proposed rule changes to Rule 13.15(g)
are consistent with Section 6(b)(6) of the
Act,27 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
25 See
supra note 16.
supra note 18.
27 15 U.S.C. 78f(b)(6).
fitting sanction. As noted, the proposed
rule change removes certain Rules listed
as eligible for a minor rule fine
disposition under the Exchange’s MRVP
that the Exchange no longer believes
violations of which are minor in nature
and are more appropriately disciplined
through the Exchange’s formal
disciplinary procedures, and amends
the fine schedule applicable to MarketMaker failures to meet their quoting
obligations in a manner that
appropriately sanctions such failures.
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.28 Rule 13.15,
currently and as amended, does not
preclude a TPH or person associated
with or employed by a TPH from
contesting an alleged violation and
receiving a hearing on the matter with
the same procedural rights through a
litigated disciplinary proceeding.
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 amending its
MRVP in connection with rules eligible
for a minor rule fine disposition and
with the fine schedule for Market-Maker
failures to meet quoting obligations. The
Exchange believes the proposed rule
changes, overall, will strengthen the
Exchange’s ability to carry out its
oversight and enforcement functions
and deter potential violative conduct.
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:
26 See
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28 15
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Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
CBOE–2021–045 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–2021–045. 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–CBOE–2021–045 and
should be submitted on or before
September 14, 2021.
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.29 In particular, the
29 In approving this proposed rule change, the
Commission has considered the proposed rule’s
U.S.C. 78f(b)(7) and 78f(d).
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Federal Register / Vol. 86, No. 161 / Tuesday, August 24, 2021 / Notices
Commission finds that the proposed
rule change is consistent with Section
6(b)(5) of the Act,30 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 31 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,32 which governs
minor rule violation plans.
As stated above, the Exchange
proposes to amend Rule 13.15(g) by: (1)
Eliminating certain rule violations that
the Exchange no longer believes to be
minor in nature; (2) updating the fine
schedule applicable to minor rule
violations related to a Market-Maker’s
failure to meet Exchange quoting
obligations; and (3) making other nonsubstantive changes.
The Commission believes that Rule
13.15 is an effective way to discipline a
member for a minor violation of a rule.
The Commission finds that the
Exchange’s proposal to eliminate rules
that the Exchange no longer believes to
be minor in nature from the MRVP and
amending the fee schedule related to a
Market-Maker’s failure to meet the
Exchange’s quoting obligations is
consistent with the Act because it may
help the Exchange’s ability to better
carry out its oversight and enforcement
responsibilities. Lastly, the Commission
also believes that the Exchange’s
proposal to make non-substantive
changes are consistent with the Act
because they add clarity to the
Exchange’s rules.
In approving the propose rule change,
the Commission in no way minimizes
the importance of compliance with the
Exchange’s rules and all other rules
subject to fines under Rule 13.15. The
Commission believes that a violation of
any self-regulatory organization’s rules,
as well as Commission rules, is a serious
matter. However, Rule 13.15 provides a
reasonable means of addressing rule
violations that may not rise to the level
of requiring formal disciplinary
proceedings, while providing greater
flexibility in handling certain violations.
The Commission expects that the
Exchange will continue to conduct
surveillance with due diligence and
make a determination based on its
findings, on a case-by-case basis,
whether a fine of more or less than the
recommended amount is appropriate for
a violation under Rule 13.15 or whether
a violation requires formal disciplinary
action.
For the same reasons discussed above,
the Commission finds good cause,
pursuant to Section 19(b)(2) of the
Act,33 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 will assist the
Exchange in preventing fraudulent and
manipulative practices by allowing the
Exchange to adequately enforce
compliance with, and provide
appropriate discipline for, violations of
Exchange rules. Accordingly, the
Commission believes that a full noticeand-comment period is not necessary
before approving the proposal.
V. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act 34 and Rule
19d–1(c)(2) thereunder,35 that the
proposed rule change (SR–CBOE–2021–
045) be, and hereby is, approved on an
accelerated basis.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.36
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2021–18123 Filed 8–23–21; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–92696; File No. SR–
NYSEArca–2021–47]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Designation of a
Longer Period for Commission Action
on a Proposed Rule Change for New
Rules 6.1P–O, 6.37AP–O, 6.40P–O,
6.41P–O, 6.62P–O, 6.64P–O, 6.76P–O,
and 6.76AP–O and Amendments to
Rules 1.1, 6.1–O, 6.1A–O, 6.37–O,
6.65A–O and 6.96–O
August 18, 2021.
On June 21, 2021, NYSE Arca, Inc.
(‘‘NYSE Arca’’ or ‘‘Exchange’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’) 1 and Rule
19b–4 thereunder,2 a proposed rule
change for new NYSE Arca Rules 6.1P–
O, 6.37AP–O, 6.40P–O, 6.41P–O, 6.62P–
O, 6.64P–O, 6.76P–O, and 6.76AP–O
and amendments to NYSE Arca Rules
1.1, 6.1–O, 6.1A–O, 6.37–O, 6.65A–O
and 6.96–O. The proposed rule change
was published for comment in the
Federal Register on July 9, 2021.3 The
Commission has received no comment
letters on the proposed rule change.
Section 19(b)(2) of the Act 4 provides
that within 45 days of the publication of
notice of the filing of a proposed rule
change, or within such longer period up
to 90 days as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding, or as to which the
self-regulatory organization consents,
the Commission shall either approve the
proposed rule change, disapprove the
proposed rule change, or institute
proceedings to determine whether the
proposed rule change should be
disapproved. The 45th day after
publication of the notice for this
proposed rule change is August 23,
2021. The Commission is extending this
45-day time period.
The Commission finds it appropriate
to designate a longer period within
which to take action on the proposed
rule change so that it has sufficient time
to consider the proposed rule change.
Accordingly, the Commission, pursuant
to Section 19(b)(2) of the Act,5
designates October 7, 2021 as the date
by which the Commission shall either
approve or disapprove, or institute
1 15
impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
30 15 U.S.C. 78f(b)(5).
31 15 U.S.C. 78f(b)(1) and 78f(b)(6).
32 17 CFR 240.19d–1(c)(2).
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33 15
U.S.C. 78s(b)(2).
U.S.C. 78s(b)(2).
35 17 CFR 240.19d–1(c)(2).
36 17 CFR 200.30–3(a)(12).
34 15
PO 00000
Frm 00070
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Sfmt 4703
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 92304
(June 30, 2021), 86 FR 36440 (July 9, 2021).
4 15 U.S.C. 78s(b)(2).
5 Id.
2 17
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]]>Agencies
[Federal Register Volume 86, Number 161 (Tuesday, August 24, 2021)]
[Notices]
[Pages 47346-47350]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-18123]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-92702; File No. SR-CBOE-2021-045]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of
Filing and Order Granting Accelerated Approval of a Proposed Rule
Change To Amend Rule 13.15, Which Governs the Exchange's Minor Rule
Violation Plan
August 18, 2021.
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 3, 2021, Cboe Exchange, Inc. 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.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
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 13.15, which governs the Exchange's Minor Rule Violation
Plan (``MRVP''), in connection with certain minor rule violations,
applicable fines, as well as other clarifying, nonsubstantive changes.
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 III 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 its MRVP in Rule 13.15 in connection
with certain minor rule violations, applicable fines, as well as other
clarifying, nonsubstantive changes. Rule 13.15 provides for disposition
of specific violations through assessment of fines in lieu of
conducting a formal disciplinary proceeding. Rule 13.15(g) sets forth
the list of specific Exchange Rules under which a Trading Permit Holder
(``TPH'') or person associated with or employed by a TPH may be subject
to a fine for violations of such Rules and the applicable fines that
may be imposed by the Exchange. Specifically, the proposed rule change
amends Rule 13.15(g) by: (1) Eliminating certain rule violations that
the Exchange no longer believes to be minor in nature; (2) updating the
fine schedule applicable to minor rule violations related to a Market-
Maker's failure to meet Exchange quoting obligations; and (3) making
other nonsubstantive changes.
First, the proposed rule change removes the following rule
violations and applicable fines from Rule 13.15(g): \3\
---------------------------------------------------------------------------
\3\ As a result of the proposed elimination of certain rule
violations listed under Rule 13.15(g), the proposed rule change
subsequently renumbers current Rules 13.15(g)(6), (8), (9), (11),
(13), (14), (15), (16), (17), (18), (19) and (20), to Rules
13.15(g)(4), (5), (6), (7), (8), (9), (10), (11), (12), (13), (14)
and (15), respectively.
---------------------------------------------------------------------------
Rule 13.15(g)(4), which currently imposes certain fines
for failure to submit trade information on time and failure to submit
trade information to the Price Reporter pursuant to Rule 6.1 (Report
Transactions to the Exchange); \4\
---------------------------------------------------------------------------
\4\ See Rule 6.1(a), which provides that a participant in each
transaction to be designated by the Exchange must report or ensure
the transaction is reported to the Exchange within 90 seconds of the
execution in a form and manner prescribed by the Exchange so that
the trade information may be reported to time and sales reports; and
Rule 6.1(c), which provides the Exchange-established procedure for
reporting transactions pursuant to Rule 6.1(a).
---------------------------------------------------------------------------
Rule 13.15(g)(5), which currently imposes certain fines
for failure to honor the firm quote requirements of Rules 5.52 (Market-
Maker Quotes) \5\ and 5.59 (Firm Disseminated Market Quotes), to honor
the priority of marketable priority customer orders pursuant to Rules
5.32 and 5.85 (which among other things, govern customer priority on
the Exchange's trading floor),\6\, and to use due diligence in the
execution of orders for which the floor Trading Permit Holder maintains
an agency obligation pursuant to Rule 5.91 (Floor Broker
Responsibilities); \7\
---------------------------------------------------------------------------
\5\ See Rule 5.52(a), which provides, in relevant part, that
Market-Maker bids and offers are firm for all orders under this Rule
and Rule 602 of Regulation NMS under the Exchange Act (``Rule 602'')
for the number of contracts specified in the bid or offer, except
if: (1) A system malfunction or other circumstance impairs the
Exchange's ability to disseminate or update market bids and offers
in a timely and accurate manner; (2) the level of trading activities
or the existence of unusual market conditions is such that the
Exchange is incapable of collecting, processing, and making
available to quotation vendors the data for the option in a manner
that accurately reflects the current state of the market on the
Exchange; (3) prior to the conclusion of the Opening Auction
Process; or (4) any of the circumstances provided in Rule 602(c)(4)
exist.
\6\ Rule 5.85(a)(2)(A), which provides that Priority Customer
orders in the Book have first priority. If there are two or more
Priority Customer orders in the Book at the same price, the System
prioritizes them in the order in which the System received them
(i.e., in time priority). The Exchange notes that customer priority
for electronic executions is systematically enforced. See Rule
5.32(a)(2)(A).
\7\ See Rule 5.91(a), which provides that a Floor Broker
handling an order must use due diligence to execute the order at the
best price or prices available to him or, in accordance with the
Rules. Use of due diligence in handling and executing an order
includes: (1) Announcing to the trading crowd a request for quotes;
(2) taking the necessary measures to ensure the proper execution of
an order in accordance with firm quote obligations in Rule 5.52,
including the executable quantity of a quote from the trading crowd;
(3) the immediate and continuous representation at the trading
station where the applicable class trades of the following types of
orders: (A) Market orders; (B) limit orders to sell where the
specified price is at or below the current offer or; and (C) limit
orders to buy where the specified price is at or above the current
bid; (4) subject to the requirement to systematize orders prior to
representation pursuant to Rule 5.7(f), electronically recording the
time via a PAR workstation at which the Floor Broker initially
represents the order to the trading crowd; and (5) prioritizing the
Floor Broker's agency business over the Floor Broker's liquidation
orders (which liquidation orders are described in Rule 5.91(d)).
---------------------------------------------------------------------------
Rule 13.15(g)(7), which currently imposes certain fines
for any individual Trading Permit Holder who fails for more than 5% of
the Trading Permit Holder's transactions in any month to submit on the
date that a transaction is
[[Page 47347]]
executed the trade information required by Rule 6.1; \8\
---------------------------------------------------------------------------
\8\ See Rule 6.1(b), which requires parties to a trade to
immediately record on a card or ticket, or enter in an electronic
data storage medium acceptable to the Exchange, (1) the assigned
broker initial code and clearing firm (if a Market-Maker); (2) the
symbol of the underlying security or index; (3) the type, expiration
month, and exercise price of the option contract; (4) the
transaction price; (5) the number of contract units comprising the
transaction; (6) the time of the transaction obtained from a source
designated by the Exchange; (7) the name of the contra Clearing
Trading Permit Holder; and (8) the assigned broker initial code of
the contra Trading Permit Holder.
---------------------------------------------------------------------------
Rule 13.15(g)(10), which currently imposes certain fines
for violations of Rule 8.14 (Communications to the Exchange or the
Clearing Corporation); \9\ and
---------------------------------------------------------------------------
\9\ See Rule 8.14, which provides that no Trading Permit Holder,
person associated with a Trading Permit Holder or applicant to be a
Trading Permit Holder shall make any misrepresentation or omission
in any application, report or other communication to the Exchange,
or to the Clearing Corporation with respect to the reporting or
clearance of any Exchange transaction, or adjust any position at the
Clearing Corporation in any class of options traded on the Exchange
except for the purpose of correcting a bona fide error in recording
or of transferring the position to another account.
---------------------------------------------------------------------------
Rule 13.15(g)(12), which currently imposes certain fines
for trade-through violations pursuant to Rule 5.66 (Order
Protection).\10\
---------------------------------------------------------------------------
\10\ See Rule 5.66(a), which provides that, except as provided
in paragraph (b), Trading Permit Holders shall not effect Trade-
Throughs. The Exchange notes that trade-through compliance for
electronic executions are systematically enforced.
---------------------------------------------------------------------------
Additionally, as a result of the proposed deletion of Rule
13.15(g)(4) and (g)(5), the proposed rule change also deletes
Interpretations and Policies .01 and .02 to Rule 13.15, as
Interpretation and Policy .01 exclusively relates to Rule 13.15(g)(5),
and Interpretation and Policy .02 exclusively relates to Rule
13.15(g)(4). The proposed rule change also moves the entirety of the
rule text in Interpretation and Policy .03, which exclusively
corresponds to current Rule 13.15(g)(6), into Rule 13.15(g)(6) itself.
Additionally, the proposed rule change moves the language currently in
footnote 1 into current Rule 13.15(g)(6). Footnote 1 provides that
Minor Rule Violation Fines imposed under this provision may be issued
by Exchange Floor Officials. The Exchange notes that, while footnote 1
is currently appended to Rule 13.15(g)(5), which is being deleted as
proposed herein, it more appropriately applies to current Rule
13.15(g)(6) (Violations of Trading Conduct and Decorum Policies), as
fines for violations of which are currently issued by Exchange Floor
Officials pursuant to Rule 5.80(c). Rule 5.80(c)(1)(A) specifically
provides that Exchange Floor Officials may fine TPHs and persons
employed by or associated with TPHs pursuant to Rule 13.15 for trading
conduct and decorum violations which are subject to fine under such
fine schedules. As such, the proposed relocation of the language in
footnote 1 merely provides additional clarity in the MRVP fine schedule
regarding the issuance of Minor Rule Violation fines for trading
conduct and decorum violations.
The Exchange no longer believes violations of the above-listed
rules to be minor in nature and therefore proposes to remove them from
the list of rules in Rule 13.15(g) eligible for a minor rule fine
disposition. Particularly, the Exchange believes that violations of
each of the rules listed above may directly impact trading on the
Exchange, maintenance of a fair and orderly market, and/or customer
protections. For example, the Exchange believes that the requirement to
submit trade information on time, to the Price Reporter and
consistently on an order's transaction date, as well as the requirement
to truthfully and accurately represent information in communications to
the Exchange and the Clearing Corporation allows the Exchange (and the
Clearing Corporation) to maintain an accurate audit trail and trade
information. Likewise, honoring firm quotations is vital in promoting
efficient functioning of intermarket price priority and trading in
general. Timely and accurate representation of both trade information
and quotations protects investors by providing them with accurate
information essential to their trading activities and participation in
the markets. Upholding due diligence to honor the priority of customer
orders and obligations as a principal, as well as the prohibition
against the execution of trades at prices inferior to protected
quotations (trade-throughs), all provide important customer
protections. Pursuant to Rule 13.15(f), the Exchange is not required to
impose a fine pursuant to its MRVP with respect to the violation of any
rule listed under Rule 13.15. If the Exchange determines that any
violation is intentional, egregious, or otherwise not minor in nature,
it may proceed under its formal disciplinary rules. As such, the
Exchange has increasingly chosen to handle such violations in recent
years under the Exchange's formal disciplinary rules, rather than
imposing a fine pursuant to its MRVP.
The proposed rule change next amends the fine schedule applicable
to Maker-Makers for failure to meet Exchange quoting obligations.
Specifically, Rule 13.15(g)(14) ((g)(9), as amended) \11\ provides that
a fine shall be imposed upon a Market-Maker, Designated Primary Market-
Maker or Lead Market Maker (as applicable) in accordance with the fine
schedule set forth below for the following conduct: \12\
---------------------------------------------------------------------------
\11\ See supra note 3.
\12\ The proposed rule change also makes nonsubstantive
clarifying updates to Rule 13.15(g)(14), by removing the conduct
listed in subparagraph (g)(14)(B) and updating the format in which
time is reflected. These nonsubstantive amendments are described in
further detail herein this proposal below.
---------------------------------------------------------------------------
Failure to meet the continuous quoting obligation (Rule
5.52, 5.55, and 5.54);
Failure to meet the initial quote volume requirements
(Rule 5.52); and
Failure of a Lead Market-Maker or Designated Primary
Market-Maker to enter opening quotes within one minute following the
initiation of an opening rotation (e.g., 9:31 a.m.) in a series in its
appointed or allocated class, respectively, that is not open due to the
lack of a quote (see Rule 5.31(e)(2) or (j)(5)(B), as applicable)
(Rules 5.55 and 5.54), respectively.
For the first offense during any rolling 24-month period, the fine
schedule imposed by Rule 13.15(g)(14) currently permits the Exchange to
apply a fine ranging between $2,000 and $4,000. For subsequent offenses
during the same period, the fine schedule currently permits the
Exchange to apply a fine ranging between $4,000 and $5,000. The
proposed rule change updates the fine schedule to provide that, during
any rolling 24-month period, the Exchange may give a Letter of Caution
for a first offense, may apply a fine of $1,500 for a second offense,
may apply a fine of $3,000 for a third offense,\13\ and may proceed
with formal disciplinary action for subsequent offenses. As described
above, and as is the case for all rule violations covered under Rule
13.15(g), the Exchange may determine that a violation of Market-Maker
quoting obligations is intentional, egregious, or otherwise not minor
in nature and choose to proceed under the Exchange's formal
disciplinary rules rather than its MRVP.\14\ The Exchange may continue
to aggregate individual violations of
[[Page 47348]]
particular rules and treat such violations as a single offense.\15\
---------------------------------------------------------------------------
\13\ The Exchange notes that Rule 13.15(a) authorizes the
Exchange to impose a fine, not to exceed $5,000, for minor rule
violations in lieu of commencing a disciplinary proceeding.
Additionally, any fine imposed pursuant to Rule 13.15 that (1) does
not exceed $2,500 and (2) is not contested, shall be reported by the
Exchange to the Commission on a periodic, rather than a current,
basis, except as may otherwise be required by Exchange Act Rule 19d-
1 and by any other regulatory authority.
\14\ See Rule 13.15(f).
\15\ See Rule 13.15(a).
---------------------------------------------------------------------------
The Exchange believes it is appropriate to remove the range of
fines imposed for first and subsequent offenses and, instead, apply a
letter of caution for a first offense, a specified fine amount for a
second and a third offense, and formal disciplinary proceedings for
subsequent offenses. Particularly, the Exchange believes that applying
a lesser penalty (Letter of Caution) for a first offense and then
providing a higher, itemized fine per second and third offenses and,
ultimately, formal disciplinary proceedings for any subsequent offenses
during a rolling 24-month period, will allow the Exchange to levy
progressively larger fines and greater penalties against repeat-
offenders (as opposed to a fine range for any offenses that may come
after a first offense). The Exchange believes this fine structure may
serve to more effectively deter repeat-offenders while providing
reasonable warning for a first offense during a rolling 24-month
period. The Exchange notes that a lesser penalty in the form of a
warning letter for a first offense paired with a greater penalty in the
form of formal disciplinary proceedings after a finite number of
following offenses is consistent with the minor rule violation fine
schedules applicable to minor rule violations of substantially the same
market maker quoting obligations on the Exchange's affiliated options
exchanges, EDGX and BZX,\16\ as well as substantially similar market
maker quoting obligations on another options exchange.\17\ The Exchange
notes that the proposed change is intended to provide for consistency
across the Exchange's MRVP and the MRVPs of its affiliated options
exchanges. Additionally, EDGX and BZX also intend to file proposals to
update their minor rule violation fines so that second, third, and
subsequent offenses for violating market maker quoting obligations will
receive the same sanctions,\18\ as proposed herein.
---------------------------------------------------------------------------
\16\ See BZX Rule 25.3(d); and EDGX Rule 25.3(d).
\17\ See e.g., MIAX Options Rule 1014(d)(7).
\18\ The Exchange again notes that pursuant to the BZX and EDGX
MRVPs, first offenses regarding market maker quoting obligations
already receive a Letter of Caution and the highest/last range of
offenses (currently 5 or more) are already subject to formal
disciplinary action. See supra note 16.
---------------------------------------------------------------------------
The proposed rule change also makes nonsubstantive clarifying
changes to certain provisions in Rule 13.15(g). The proposed rule
change makes a clean-up revision by removing the conduct listed in
subparagraph (g)(14)(B), ``failure to meet the applicable quote width
requirements (Rule 5.52),'' because, as of 2019, Market-Makers are no
longer subject to a quote width requirement.\19\ The proposed rule
change amends the subsequent lettering in subparagraph (g)(14) as a
result of this revision. The proposed rule change corrects a typo in
the fine amounts that inadvertently contain an additional digit in
subparagraph (g)(8). The proposed rule change also updates the time
format in the example provided in subparagraph (g)(14)(D), which is
currently reflected in Central Time, to instead reflect Eastern Time
without time zone indication. This proposed change is consistent with
Rule 1.6, which states that unless otherwise specified, all times in
the Rules are Eastern Time, and conforms the time reflected in
(g)(14)(D) to the time format reflected throughout the Rules. The
proposed rule change corrects the cross-reference to Rule 5.24(e) in
Rule 13.15(g)(19) to, instead, correctly reflect Rule 5.5(d). The
Exchange previously restructured its Rulebook in connection with a 2019
technology migration and, prior to this restructuring, the provision in
current Rule 13.15(g)(19) referred to what is now Rule 5.5(d) (former
Rule 6.23A(f)),\20\ instead of what is now Rule 5.24(e) (former Rule
6.18). Upon restructuring Chapter 13,\21\ the Exchange inadvertently
changed the cross-reference in Rule 13.15(g)(19) to reflect the
incorrect rule and now proposes to update this cross-reference to
reflect the correct and originally intended cross-reference to Rule
5.5(d). Likewise, the Exchange updates a cross-reference to prior Rule
5.25 to current Rule 5.5 in subparagraph (g)(19).
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\19\ See Securities Exchange Act Release No. 87024 (September
19, 2019), 84 FR 50545 (September 25, 2019) (SR-CBOE-2019-059).
\20\ See Securities Exchange Act Release No. 87320 (October 16,
2019), 84 FR 56501 (October 22, 2019) (SR-CBOE-2019-095).
\21\ See Securities Exchange Act Release No. 87210 (October 3,
2019), 84 FR 54190 (October 9, 2019) (SR-CBOE-2019-068).
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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.\22\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \23\ 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. The Exchange
believes the proposed rule change is consistent with the Section
6(b)(5) \24\ requirement that the rules of an exchange not be designed
to permit unfair discrimination between customers, issuers, brokers, or
dealers.
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\22\ 15 U.S.C. 78f(b).
\23\ 15 U.S.C. 78f(b)(5).
\24\ Id.
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The Exchange believes that the proposed rule change to remove
certain rules listed as eligible for a minor rule fine disposition
under its MRVP, which it no longer considers violations of which to be
minor in nature, will assist the Exchange in preventing fraudulent and
manipulative acts and practices and promoting just and equitable
principles of trade, and will serve to remove impediments to and
perfect the mechanism of a free and open market and a national market
system, and, in general, protect investors and the public interest.
Particularly, the Exchange believes that violations of each of the
rules proposed to be removed from its MRVP may directly impact trading
on the Exchange, maintenance of a fair and orderly market, and/or
customer protection. As such, the Exchange does not believe violations
of these rules to be minor in nature and, instead, should continue to
be handled under its formal disciplinary rules, as the Exchange has
chosen to handle the majority of all such violations in recent years,
rather than imposing fines pursuant to its MRVP.
The Exchange also believes that the proposed rule change to remove
the range of fines imposed for first and subsequent Market-Maker
quoting offenses and, instead, apply a letter of caution for a first
offense, a specified fine amount for a second and a third offense, and
formal disciplinary proceedings for subsequent offenses will assist the
Exchange in preventing fraudulent and manipulative acts and practices
and promoting just and equitable principles of trade, and will serve to
remove impediments to and perfect the mechanism of a free and open
market and a national market system, and, in general, protect investors
and the public interest. Particularly, the Exchange believes that
applying a lesser penalty (Letter of Caution) for a first offense and
then providing an itemized fine per second
[[Page 47349]]
and third offenses and, ultimately, formal disciplinary proceedings for
any subsequent offenses during a rolling 24-month period, will allow
the Exchange to levy greater penalties (i.e., formal disciplinary
proceedings) against repeat-offenders (as opposed to a fine range for
any offenses that may come after a first offense) which may serve to
more effectively deter repeat-offenders while providing reasonable
warning for a first offense during a rolling 24-month period. The
Exchange believes that more effectively deterring repeat-offenders and
making first instance offenders aware of their quoting obligation
violations and the subsequent consequences for continued failure, will,
in turn, further motivate Market-Makers to continue to uphold their
quoting obligations, providing liquid markets to the benefit of all
investors. The Exchange again notes that a lesser penalty in the form
of a warning letter for a first offense paired with greater penalties
in the form of eventual formal disciplinary proceedings following a
finite number of offenses is consistent with the minor rule violation
fine schedules applicable to minor rule violations of substantially the
same market maker quoting obligations on the Exchange's affiliated
options exchanges, EDGX and BZX.\25\ As such, the proposed rule change
is also designed to benefit investors by providing from consistent
penalties across the MRVPs of the Exchange and its affiliated options
exchanges. As described above, EDGX and BZX intend to file proposals to
update their minor rule violation fines so that second, third, and
subsequent offenses for violating market maker quoting obligations will
receive the same sanctions,\26\ as proposed herein.
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\25\ See supra note 16.
\26\ See supra note 18.
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Additionally, the proposed clarifications and corrections, as
applicable, in connection with footnote 1 of Rule 13.15, Interpretation
and Policy .03 to Rule 13.15, and Rules 13.15(g)(8), (14) and (19) will
benefit investors by adding clarity to the Rules.
The Exchange further believes that the proposed rule changes to
Rule 13.15(g) are consistent with Section 6(b)(6) of the Act,\27\ 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 removes certain Rules listed as
eligible for a minor rule fine disposition under the Exchange's MRVP
that the Exchange no longer believes violations of which are minor in
nature and are more appropriately disciplined through the Exchange's
formal disciplinary procedures, and amends the fine schedule applicable
to Market-Maker failures to meet their quoting obligations in a manner
that appropriately sanctions such failures.
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\27\ 15 U.S.C. 78f(b)(6).
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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.\28\ Rule 13.15, currently and as amended, does not preclude a
TPH or person associated with or employed by a TPH from contesting an
alleged violation and receiving a hearing on the matter with the same
procedural rights through a litigated disciplinary proceeding.
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\28\ 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 amending its MRVP in connection with rules eligible for a
minor rule fine disposition and with the fine schedule for Market-Maker
failures to meet quoting obligations. The Exchange believes the
proposed rule changes, overall, will strengthen the Exchange's ability
to carry out its oversight and enforcement functions and deter
potential violative conduct.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received comments on the
proposed rule change.
III. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-CBOE-2021-045 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-2021-045. 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-CBOE-2021-045 and should be submitted on
or before September 14, 2021.
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.\29\ In
particular, the
[[Page 47350]]
Commission finds that the proposed rule change is consistent with
Section 6(b)(5) of the Act,\30\ 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
\31\ 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,\32\ which governs minor rule violation
plans.
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\29\ 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).
\30\ 15 U.S.C. 78f(b)(5).
\31\ 15 U.S.C. 78f(b)(1) and 78f(b)(6).
\32\ 17 CFR 240.19d-1(c)(2).
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As stated above, the Exchange proposes to amend Rule 13.15(g) by:
(1) Eliminating certain rule violations that the Exchange no longer
believes to be minor in nature; (2) updating the fine schedule
applicable to minor rule violations related to a Market-Maker's failure
to meet Exchange quoting obligations; and (3) making other non-
substantive changes.
The Commission believes that Rule 13.15 is an effective way to
discipline a member for a minor violation of a rule. The Commission
finds that the Exchange's proposal to eliminate rules that the Exchange
no longer believes to be minor in nature from the MRVP and amending the
fee schedule related to a Market-Maker's failure to meet the Exchange's
quoting obligations is consistent with the Act because it may help the
Exchange's ability to better carry out its oversight and enforcement
responsibilities. Lastly, the Commission also believes that the
Exchange's proposal to make non-substantive changes are consistent with
the Act because they add clarity to the Exchange's rules.
In approving the propose rule change, the Commission in no way
minimizes the importance of compliance with the Exchange's rules and
all other rules subject to fines under Rule 13.15. The Commission
believes that a violation of any self-regulatory organization's rules,
as well as Commission rules, is a serious matter. However, Rule 13.15
provides a reasonable means of addressing rule violations that may not
rise to the level of requiring formal disciplinary proceedings, while
providing greater flexibility in handling certain violations. The
Commission expects that the Exchange will continue to conduct
surveillance with due diligence and make a determination based on its
findings, on a case-by-case basis, whether a fine of more or less than
the recommended amount is appropriate for a violation under Rule 13.15
or whether a violation requires formal disciplinary action.
For the same reasons discussed above, the Commission finds good
cause, pursuant to Section 19(b)(2) of the Act,\33\ 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 will assist the Exchange in preventing
fraudulent and manipulative practices by allowing the Exchange to
adequately enforce compliance with, and provide appropriate discipline
for, violations of Exchange rules. Accordingly, the Commission believes
that a full notice-and-comment period is not necessary before approving
the proposal.
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\33\ 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
\34\ and Rule 19d-1(c)(2) thereunder,\35\ that the proposed rule change
(SR-CBOE-2021-045) be, and hereby is, approved on an accelerated basis.
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\34\ 15 U.S.C. 78s(b)(2).
\35\ 17 CFR 240.19d-1(c)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\36\
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\36\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2021-18123 Filed 8-23-21; 8:45 am]
BILLING CODE 8011-01-P
