Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Rules 5.87 and 8.21, 66526-66533 [2023-20961]
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Federal Register / Vol. 88, No. 186 / Wednesday, September 27, 2023 / Notices
market of significant size, and that on
the whole the manipulation concerns
previously articulated by the
Commission are sufficiently mitigated to
the point that they are outweighed by
investor protection issues that would be
resolved by approving this proposal.
The Exchange believes that the
proposal is, in particular, designed to
protect investors and the public interest.
The investor protection issues for U.S.
investors has grown significantly over
the last several years, through roll costs
for ether Futures ETFs and premium/
discount volatility and management fees
for OTC Ether Funds. As discussed
throughout, this growth investor
protection concerns need to be reevaluated and rebalanced with the
prevention of fraudulent and
manipulative acts and practices
concerns that previous disapproval
orders have relied upon. Finally, the
Exchange notes that in addition to all of
the arguments herein which it believes
sufficiently establish the CME Ether
Futures market as a regulated market of
significant size, it is logically
inconsistent to find that the CME Ether
Futures market is a significant market as
it relates to the CME Ether Futures
market, but not a significant market as
it relates to the ether spot market for the
numerous reasons laid out above.
For the above reasons, the Exchange
believes that the proposed rule change
is consistent with the requirements of
Section 6(b)(5) of the Act.
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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 purpose of the Act. The Exchange
notes that the proposed rule change,
rather will facilitate the listing and
trading of an additional exchange-traded
product that will enhance competition
among both market participants and
listing venues, to the benefit of investors
and the marketplace.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
The Exchange has neither solicited
nor received written comments on the
proposed rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period
up to 90 days (i) as the Commission may
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designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding or (ii) as to which
the Exchange consents, the Commission
will:
A. by order approve or disapprove
such proposed rule change, or
B. institute proceedings to determine
whether the proposed rule change
should be disapproved.
subject to copyright protection. All
submissions should refer to file number
SR-CboeBZX–2023–070 and should be
submitted on or before October 18,
2023.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.54
Sherry R. Haywood,
Assistant Secretary.
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:
[FR Doc. 2023–20959 Filed 9–26–23; 8:45 am]
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–
CboeBZX–2023–070 on the subject line.
Self-Regulatory Organizations; Cboe
Exchange, Inc.; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Amend Rules 5.87 and
8.21
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–CboeBZX–2023–070. 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
a.m. and 3 p.m. Copies of the filing also
will be available for inspection and
copying at the principal office of the
Exchange. Do not include personal
identifiable information in submissions;
you should submit only information
that you wish to make available
publicly. We may redact in part or
withhold entirely from publication
submitted material that is obscene or
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BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–98474; File No. SR–CBOE–
2023–048]
September 21, 2023.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on
September 14, 2023, Cboe Exchange,
Inc. (‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘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.
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
Rules 5.87 and 8.21. 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
54 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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Federal Register / Vol. 88, No. 186 / Wednesday, September 27, 2023 / Notices
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
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1. Purpose
The Exchange is proposing to amend
certain open outcry trading procedures,
set forth in the Exchange Rulebook.
Rule 8.21 (Multiple Representation
Prohibited) generally prohibits multiple
representation in open outcry trading
crowds by a Trading Permit Holder
(‘‘TPH’’) for any account in which a
TPH has an interest or on behalf of a
customer. The rule provides in relevant
part that, except in accordance with
procedures established by the Exchange
or with the Exchange’s permission in
individual cases, no individual MarketMaker shall enter or be present in a
trading crowd while a Floor Broker
present in the trading crowd is holding
an order on behalf of the MarketMaker’s individual account or an order
initiated by the Market-Maker for an
account in which the Market-Maker has
an interest.3 Further, the rule provides
that no TPH, for any account in which
the TPH has an interest or on behalf of
a customer, shall maintain with more
than one broker orders for the purchase
or sale of the same option contract or
other security, or the same combination
of option contracts or other securities,
with the knowledge that such orders are
for the account of the same principal.4
Interpretations and Policies .01 and
.02 to Rule 8.21 set forth exception
procedures that would permit multiple
representation for individual MarketMakers in certain circumstances, with
Interpretation .01 including exception
procedures related to an individual
Market-Maker placing orders with a
Floor Broker and Interpretation .02
including exception procedures related
to the simultaneous representation of
Market-Maker joint accounts.
Specifically, Interpretation and Policy
.02 to Rule 8.21 sets out various
procedures that, if followed, would
permit the simultaneous presence in a
trading crowd of participants in and
orders for the same Market-Maker joint
account. These procedures are intended
3 See
4 See
Rule 8.21(b).
Rule 8.21(a).
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to ensure that Market-Makers who
choose to employ a joint account for
their Exchange trading are not
disadvantaged in participating in trades
versus those Market-Makers that choose
to employ individual accounts.5 These
exception procedures apply only to
individual Market-Makers. Currently,
the Exchange has interpreted the term
‘‘individual Market-Maker’’ to mean a
person who is registered with the
Exchange as an individual TPH and
holds a Market-Maker Floor Permit,
which entitles the holder to act as a
Market-Maker on the floor of the
Exchange.6 The current exception
procedures and requirements are as
follows:
• Joint accounts may be simultaneously
represented in a trading crowd by
participants trading in-person for the joint
account. (See Rule 8.21.02(a).)
• Joint account participants who are not
trading in-person in a trading crowd may
enter orders for the joint account with Floor
Brokers even if other participants are trading
the same joint account in-person. (See Rule
8.21.02(b).)
• When series are simultaneously opened
during rotation, joint account participants
trading the joint account in-person may enter
orders for the joint account with Floor
Brokers in series where they are unable to
trade the joint account in-person. (See Rule
8.21.02(c).)
• There is no restriction on the number of
joint account participants that may
participate on behalf of the joint account on
the same trade. (See Rule 8.21.02(d).)
• When joint account participants are
trading in-person in a trading crowd for their
individual account or as a Floor Broker,
another participant of the joint account may
trade for the joint account in-person or enter
orders for the joint account with Floor
Brokers. (See Rule 8.21.02(e).)
• Except as otherwise permitted under this
Rule 8.21, TPHs are prohibited from entering
orders for their individual or joint accounts
while they are trading in-person in a trading
crowd even if the orders are for an account
they are not then actively trading. (See Rule
8.21.02(f).)
• TPHs must ensure that they do not trade
in-person or by orders such that (1) a trade
occurs between a joint account participant’s
individual market-maker account and the
joint account of which he or she is a
participant, or (2) a trade occurs in which the
buyer and seller are representing the same
joint account and are on opposite sides of a
transaction. It is the responsibility of a joint
account participant to ascertain whether joint
account orders have been entered in a crowd
prior to trading the joint account in-person.
(See Rule 8.21.02(g).)
• Joint account participants may not act as
a Floor Broker for the joint account of which
they are a participant. (See Rule 8.21.02(h).)
5 See Securities Exchange Act Release No. 34–
61715 (May 16, 2010), 75 FR 13626 (March 22,
2010) (SR–CBOE–2010–028).
6 See Cboe Regulatory Circular 23–006, dated July
21, 2023.
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• TPHs may alternate trading in-person for
their individual account and their joint
account while in a trading crowd. (See Rule
8.21.02(i) 7.)
• When completing a trade ticket for
Market-Maker joint account transactions, it
must contain such information as may be
required by the Exchange under Rule 6.1(e).
All procedures and requirements
contained in Interpretation and Policy
.02 must be satisfied, and each
individual Market-Maker must also
separately satisfy the procedures and
requirements of Interpretation and
Policy .01. These joint account
requirements also remain subject to
other applicable open outcry trading
procedures, such as open outcry priority
and facilitation/solicitation
requirements, including Rule 5.86
(Facilitated and Solicited Transactions)
and Rule 5.87 (Crossing Orders), as
applicable.
Since the enactment of these rules,
changes have occurred in the trading
environment. First, the Exchange
migrated from a floor-based market,
where individuals traded in-person as a
Floor Broker or a Market-Maker, to a
hybrid environment, whereby
individuals can trade in-person on the
floor, or remotely. Further, the capacity
in which individual Market-Makers
trade has shifted. Historically, Trading
Permits were most commonly held by
individuals. While current Exchange
rules still allow for an individual to be
an individual Trading Permit Holder, it
has become far more common for a
Trading Permit Holder organization to
become a Trading Permit Holder,
purchase Trading Permits, and, under
Rule 3.9(b), designate individual
nominees to represent the organization
with respect to each Floor Broker
Trading Permit or Market-Maker Floor
Trading Permit or, under Rule 3.9(a),
designate at least one individual as the
Responsible Person for that TPH
organization, with respect to the TPH
organization’s electronic Trading
Permit(s). Thus, it is common practice
that a TPH organization has, at any
given time, designated numerous
individuals to be nominees and perform
trading functions on behalf of the TPH
organization, either on the floor or
electronically, with respect to any
Trading Permit which the organization
holds. As a result, instead of
participating in joint accounts, MarketMakers often trade for the accounts of
those TPH organizations.
Under the current exception
procedures in Interpretation and Policy
7 Current Rule 8.21.02(j) erroneously refers to
Rule 6.1(d); as part of the proposed rule change, the
Exchange proposes to update the rule to refer to
Rule 6.1(e).
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.02, because an individual MarketMaker only contemplates an individual
with a Market-Maker Floor Permit, an
individual Market-Maker trading inperson on the trading floor may
participate on the same trade as a Floor
Broker who holds a solicited order from
the same TPH organization only if
initiated by someone who also meets the
definition of an individual MarketMaker (i.e., an individual with a MarketMaker Floor Permit). As noted above,
Market-Makers are currently nominees
of TPH organizations as opposed to
individual TPHs and trade for the
accounts of their TPH organizations as
opposed to joint accounts. Therefore,
few Market-Makers may take advantage
of the current exception procedures
intended to not disadvantage MarketMakers from participating in trades
versus those Market-Makers that choose
to employ individual accounts, because
many individuals trading off the floor
(who may solicited) likely no longer
have floor permits. Currently, there are
no exceptions to the multiple
representation prohibition for TPH
organizations’ associated persons who
are not registered as individual MarketMakers (and thus do not have a MarketMaker Floor Trading Permit) and place
solicited orders on behalf of their
associated TPH organizations with Floor
Brokers. Therefore, an individual
Market-Maker trading in-person on the
trading floor currently may not
participate on the same trade as a Floor
Broker who holds a solicited order
initiated by an associated person of the
same TPH organization (that is not also
an individual Market-Maker) as the
individual Market-Maker.
The Exchange now proposes changes
to Rules 8.21 and 5.87.
First, the Exchange proposes to
amend Rule 8.21(b) to the definition of
‘‘individual Market-Maker’’ and update
this definition in the Rules. The
Exchange proposes to add a
parenthetical to the rule to define
explicitly an individual Market-Maker
as an individual nominee 8 of a TPH
organization or an individual Trading
Permit Holder, either of which holds a
Market-Maker Floor Trading Permit.9
8 The term ‘‘nominee’’ means an individual who
is authorized by a TPH organization, in accordance
with Rule 3.9, to represent such TPH organization
in all matters relating to the Exchange with respect
to a Floor Broker or Market-Maker Floor Trading
Permit. See Rule 1.1 (definition of ‘‘nominee’’).
Pursuant to Rule 3.9, each TPH organization must
designate an individual nominee to represent the
organization with respect to each Market-Maker
Floor Trading Permit in all matters relating to the
Exchange.
9 The Exchange currently maintains five types of
Trading Permits: a Market-Maker Electronic Access
Permit, an Electronic Access Permit, a Clearing TPH
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This change merely updates this
definition to reflect current rule
terminology and industry changes,
pursuant to which most (if not all)
individual Market-Makers are part of
larger TPH organizations.
Similarly, the Exchange proposes to
amend Rule 8.21, Interpretation and
Policy .02 to clarify the applicability of
the exception procedures. As noted
above, Rule 8.21.02 provides exception
procedures related to the simultaneous
representation of Market-Maker joint
accounts. The Exchange proposes to
delete reference to ‘‘participants’’ from
the introduction in Interpretation .02, as
well as Interpretation .02(a), (b), (c), and
(d), and proposes to instead refer to an
‘‘individual Market-Maker.’’ Likewise,
the Exchange proposes to delete
references to ‘‘joint account
participants’’ from Interpretation .02(b),
(e), and (h), and proposes to instead
refer to an ‘‘individual Market-Maker.’’
Finally, the Exchange proposes to delete
‘‘Trading Permit Holders’’ from
Interpretation Rule .02(i) and (f) and
replace with ‘‘Individual MarketMakers.’’ 10 The Exchange notes that the
application of the rule is not changing
per these proposed replacements, but
rather the Exchange seeks to simplify
the multiple representation rule using
clearer and more unified terminology.
These terminology changes are
consistent with who may participate in
joint accounts (and thus who may take
advantage of the exception procedures
in this rule).
The Exchange also proposes to add a
new Interpretation .03 to Rule 8.21 to
provide an additional exception to the
prohibition on multiple representation
to incorporate the market changes
described above to, similar to the
exception in Interpretation and Policy
.02, ensure that Market-Makers on the
floor who choose to be part of a larger
TPH organization and trade for the
account of that TPH organization
(similar to the concept of trading for a
joint account) are not disadvantaged in
participating in trades versus those
Market-Makers that choose to employ
individual accounts. Under the current
exception, as noted above, while a Floor
Broker may represent an order initiated
by a nominee of a TPH organization
who is not an individual Market-Maker
(and thus has a Trading Permit other
than a Market-Maker Floor Permit), the
in-crowd Market-Makers from the same
TPH organization are unable to
Permit, a Market-Maker Floor Trading Permit and
a Floor Broker Trading Permit.
10 There are no changes to Rule 8.21(g) as part of
the proposed rule change, as the provision, and
responsibilities described therein, continue to apply
to Trading Permit Holders.
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participate on the trade.11 The Exchange
proposes to add Interpretation .03 to
provide that, subject to the requirements
of Rule 5.87(f), as applicable, an
individual Market-Maker trading inperson in a trading crowd and not
through orders placed with a Floor
Broker may participate on the same
trade as a Floor Broker who holds a
solicited order on behalf of the same
TPH Organization, provided the
individual Market-Maker did not
initiate the solicited order. As
individual Market-Makers are generally
part of larger TPH organizations and
trade for the accounts of those
organizations, which have multiple
individuals functioning as MarketMakers on the trading floor (i.e., with
Market-Maker Floor Permits) or through
electronic trading from off the trading
floor (i.e., with Electronic Access
Permits), the Exchange believes this
proposed exception is appropriate to
reflect current organizational structures
within the industry. This proposed
exception aligns in purpose with the
current exception in Interpretation and
Policy .02 and will further ensure that
Market-Makers trading on the
Exchange’s floor are not prevented from
participating in trades that include
solicited interest merely because the
solicited party happens to be trading for
the same account (TPH organization
account instead of joint account).
The proposed Rule 8.21.03 also
provides that the last sentence of
Interpretation .02(g) to this Rule 8.21,
which states that it is the responsibility
of a joint account participant to
ascertain whether joint account orders
have been entered in a crowd prior to
trading the joint account in-person, does
not apply to this new Interpretation
.03.12 Under the proposed changes, as
further detailed below, there would be
no obligation on behalf of the individual
Market-Maker to ascertain whether
someone from his or her firm initiated
the solicited order or had knowledge of
the solicited order, prior to trading inperson in a trading crowd.13
11 As noted above, the current exception
procedures would permit in-crowd Market-Makers
to participate on a trade only if the Floor Broker
was representing an order initiated by another
individual Market-Maker from the same TPH
organization.
12 For the avoidance of doubt, all other
procedures and requirements contained in
Interpretation and Policy .02, including all
provisions in Interpretation .02(g) except the last
sentence, must be satisfied and each individual
Market-Maker must also separately satisfy the
procedures and requirements of Interpretation and
Policy .01.
13 If a TPH organization were to enter an order
with a Floor Broker, in addition to the solicited
order, then the TPH organization (not the Floor
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The Exchange proposes to amend
Rule 5.87(f), which contains procedures
and requirements related to open outcry
crossing entitlement for solicitations
and facilitations.14 Under current rules,
in the event a Floor Broker represents an
order that is of the eligible order size or
greater (‘‘original order’’) and is also
holding a facilitation order or a solicited
order, the Floor Broker may proceed
under the provisions of Rule 5.87(f) to
obtain a crossing participation
entitlement.15 The crossing
participation entitlement permits the
Floor Broker to transact either 20% or
40% (currently 40% for all classes), of
the remainder of the original order
against the facilitation or solicited order.
Further, if an On-Floor DPM or OnFloor LMM is granted participation
rights under Rule 5.85, Rule 5.87(f)(5)
provides that the On-Floor DPM or OnFloor LMM participation entitlement is
applied if the trade occurs at the OnFloor DPM’s/LMM’s principal bid or
offer, provided that the On-Floor DPM/
LMM participation entitlement will be
limited to a percentage of contracts that,
when combined with the percentage the
originating firm crossed, may not exceed
40% of the original order size. After the
applicable public customer orders and
participation entitlements have been
satisfied, Rule 5.87(f)(6) provides that
the remaining balance of the order will
be allocated among the In-Crowd Market
Participants (‘‘ICMPs’’) 16 who
established the market.17 Rule
5.87(f)(6)(B) further provides that
priority to trade the remaining portion
of the order shall be afforded to bids
(offers) made by ICMPs in the sequence
in which they are made. If bids (offers)
were made at the same time, or in the
event that the sequence cannot be
reasonably determined, priority shall be
apportioned equally among the ICMPs
who established the market.
In light of the proposed changes to
Rule 8.21, the Exchange proposes to
Broker) would be in violation of the multiple
representation rule.
14 As part of this proposed rule change, the
Exchange proposes to make a non-substantive
change to correct the cross-reference in Rule
5.87(f)(4), to refer to paragraph (f) of the Rule rather
than paragraph (d).
15 Pursuant to Rule 5.87(f)(2), the Floor Broker
crossing entitlement takes effect after all public
customer orders that were on the limit order book
and then represented in the trading crowd at the
time the market was established have been satisfied.
16 See Rule 1.1 for definition of In-Crowd Market
Participant.
17 Rule 5.87(f)(6) currently provides in relevant
part that the ‘‘the ICMPs who established the
market will have priority over all other orders that
were not represented in the trading crowd at the
time the market was established (but not over
Priority Customer orders on the Book) and will
maintain priority over such orders except for orders
that improve upon the market.’’
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update Rule 5.87(f) to modify the
priority of members in the trading
crowd after the crossing participation
entitlement and other applicable
participation entitlements have been
satisfied. Specifically, the Exchange
proposes to update Rule 5.87(f)(6) 18 to
state that priority to trade the remaining
portion of the order shall be
apportioned equally among ICMPs who
established the market, as is the case
currently if bid (offers) were made at the
same time, or in the event that the
sequence cannot be reasonably
determined. As under the current rule,
in the event an ICMP declines to accept
any portion of the available contracts,
any remaining contracts shall be
apportioned equally among the other
ICMPs who established the market until
all contracts have been apportioned.
The Exchange also proposes to amend
Rule 5.87(f)(7). Current Rule 5.87(f)(7)
states nothing in that paragraph is
intended to prohibit a Floor Broker, an
On-Floor DPM, or an On-Floor LMM
from trading more than his or her
percentage entitlement if the other
ICMPs do not choose to trade the
remaining portion of the order. The
Exchange proposes to add that it is also
not intended to prohibit these parties
from trading more than his or her
percentage entitlement if such trades are
permissible under the proposed
Interpretation .03 of Rule 8.21. This is
consistent with the proposed rule
change above, which would make it
possible for the TPH organization of
which the applicable party is a part to,
as a whole, trade more than 40%
participation entitlement).
Finally, the Exchange proposes to
amend Interpretation .06 to Rule 5.87,
which currently provides that Rule
5.87(f) supersedes the priority provision
of Rule 5.86(d) in those situations where
the Floor Broker representing an eligible
order determines to take advantage of
the crossing provisions of paragraph (f)
of this Rule. The Exchange proposes
adding language regarding an order
being represented by the Floor Broker
using the crossing provision, to clarify
that paragraph (f) of Rule 5.87 provides
the solicited person or order being
represented by the Floor Broker using
the crossing provision with priority over
all other parties (other than certain
Public Customer orders) for either 20%
or 40% of the contracts remaining in the
order, as determined by the Exchange,
after those certain Public Customer
orders have been satisfied. This is
18 The proposed rule change deletes Rule
5.87(f)(6)(A) and (B), as they are no longer
applicable, and moves language from current
5.87(f)(6)(C) to be included in 5.87(f)(6).
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66529
merely a clarifying change and has no
impact on what orders may be eligible
for the entitlement pursuant to Rule
5.87(f).
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.19 Specifically,
the Exchange believes the proposed rule
change is consistent with the Section
6(b)(5) 20 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) 21 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
the proposed rule change to add an
exception to the multiple representation
prohibition will promote just and
equitable principles of trade, remove
impediments to and perfect the
mechanism of a free and open market
and a national market system, and, in
general, protect investors. The purpose
of this proposed change, similar to the
purpose of the current exception to the
multiple representation prohibition in
Rule 8.21, Interpretation and Policy .02,
is to ensure that an individual MarketMaker trading in-person on behalf of the
TPH organization is not disadvantaged
in participating in a solicited trade
solely because the trade was initiated off
the floor by an individual trading for the
same account. This proposed exception
expands the current exception to permit
Market-Makers to participate in trades if
they are for TPH organization accounts
(as is current common practice) instead
of joint accounts and if the solicited
party is from his or her same TPH
organization, regardless of the type of
trading permit the solicited party is
using (as opposed to the current
exception that permits this only if the
19 15
20 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
21 Id.
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solicited party has a Market-Maker Floor
Trading Permit, which is uncommon in
current practice).
Specifically, under the current rules,
an individual Market-Maker trading inperson on the trading floor may
participate on the same trade as a Floor
Broker who holds a solicited order from
the same TPH organization, but only if
initiated by another individual MarketMaker. However, currently, there are no
exceptions to the multiple
representation prohibition for TPH
organizations’ associated persons who
are not registered as individual MarketMakers (and thus do not have a MarketMaker Floor Trading Permit) and place
solicited orders for joint accounts with
Floor Brokers. Therefore, an individual
Market-Maker trading in-person on the
trading floor currently may not
participate on the same trade as a Floor
Broker who holds a solicited order
initiated by an associated person of the
same TPH organization as the
individual Market-Maker.
As discussed above, since the
enactment of these rules, changes have
occurred in the trading environment. As
a result of those changes, it is common
practice that a TPH organization has, at
any given time, designated numerous
individuals to perform trading functions
on behalf of the TPH organization,
either on the floor or electronically,
with respect to any Trading Permit
which the organization holds. As a
result, instead of participating in joint
accounts, Market-Makers trade for the
accounts of those TPH organizations.
The proposed rule changes
incorporate these advancements in the
modern trading environment into the
current exceptions to Rule 8.21 by
expanding on the current exception
procedures in current Interpretation and
Policy .02 to permit an individual
Market-Maker trading in-person may
participate on a solicited trade that is
initiated by an individual from the same
TPH organization, regardless of whether
the individual initiating the solicited
trade is an individual Market-Maker.
The proposed exception essentially
permits Market-Makers trading in
person on the floor on behalf of a TPH
organization (as opposed to for a joint
account) to participate on a trade if
solicited interest was initiated by
another Market-Maker from that TPH
organization (for the same account).
Like the current exception in
Interpretation and Policy .02, the
purpose of this exception is to ensure
that Market-Makers on the floor who
choose to be part of a larger TPH
organization and trade for an account of
that TPH organization (similar to the
concept of a joint account) are not
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disadvantaged in participating in trades
versus those Market-Makers that choose
to employ individual accounts. It is
common practice for off-floor liquidity
providers, including Market-Makers
with Electronic Access Permits, to be
solicited to provide liquidity to trade
against customer orders that are
ultimately crossed on the Exchange’s
trading floor. Therefore, given the
changes to the market as described
above, the Exchange believes the
proposed rule change further removes
impediments to and perfects the
mechanism of a free and open market
and a national market system, as the
proposed changes ensure that an
individual Market-Maker that trading
in-person that chooses to be part of a
larger TPH organization and trade for an
account of that TPH organization
(similar to the concept of a joint
account) is not disadvantaged in
participating in a solicited trade versus
a Market-Maker that chooses to employ
an individual account.
The Exchange further believes the
proposed rule change will not permit
unfair discrimination between
customers, issuers, brokers, or dealers,
because it will eliminate a disparity that
exists under current Rules. As noted
above, because it is common for MarketMakers to trade on behalf of TPH
organizations as opposed to trade as
individual TPHs, and thus trade for TPH
organization accounts as opposed to for
joint accounts, there are few MarketMakers on the trading floor that can take
advantage of the current exception to
the multiple representation prohibition
in current Rule 8.21, Interpretation and
Policy .02. The Exchange believes this
may disadvantage Market-Makers from
participating in trades versus those that
choose to employ individual accounts,
because Market-Makers trading on
behalf of TPH organizations (as most do)
are not permitted to take advantage of
the current exception if the solicited
interested was initiated off the floor by
an individual who does not hold a
Market-Maker Floor Trading Permit, but
rather another eligible trading permit
offered by the Exchange (for example,
acting as a Market-Maker with an
Electronic Access Permit), thus
removing a potential disparity that
exists under current Rules. Therefore,
these Market-Makers are losing trading
opportunities because of the type of
permit held by the solicited party.
Additionally, the Exchange believes
the proposed rule change is consistent
with the requirement that the rules of an
exchange not be designed to permit
unfair discrimination between
customers, issuers, brokers, or dealers,
as the Exchange believes the proposed
PO 00000
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Fmt 4703
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rule change may reduce any inadvertent
unfair discrimination to which current
individual Market-Makers are subject.
As discussed above, the Exchange
believes many individual MarketMakers on the trading floor that trade
for the account of the TPH organizations
on behalf of which they trade may be at
a disadvantage compared to individual
Market-Makers that trade for an
individual account. This is due to the
fact that currently Market-Makers act as
nominees of TPH organizations, trading
for the accounts of those TPH
organizations, and trade upstairs with
EAPs rather than Market-Maker Floor
Permits, as opposed to being and
individual TPH as was the case
historically. Under the proposed rule
change, a Market-Maker acting as
nominee of a TPH organization would
have the opportunity to participate in
trades for which members of their TPH
organizations provide solicited
liquidity, regardless of the type of
trading permit those members have.
Currently, individual Market-Makers
have this opportunity only if that other
member of the same TPH organization
happens to have a Market-Maker Floor
Trading Permit. As proposed, no ICMP
would be prohibited from participating
on a trade solely because he or she is
from the same TPH organization as the
individual that initiated the solicited
order. The Exchange believes that the
changes will create an opportunity for
increased participation on such open
outcry trades, which could potentially
lead to increased execution
opportunities. The Exchange believes
that this in turn may lead to greater
competition and price improvement for
orders, thus creating a more robust open
outcry market, which may ultimately
benefit investors who choose to send
orders to the Exchange.
Further, the Exchange believes the
proposed rule changes promote just and
equitable principles of trade, as the
amended rule preserves the intended
prohibitions around multiple
representation,22 while ensuring that
Market-Makers who are employed by
TPH organizations represented by
multiple individuals (as is generally the
case in today’s trading environment)
trading on and off the floor under a
variety of eligible trading permits are
not unfairly disadvantaged from
participating in trades. As noted above,
there is a current exception to the
multiple representation prohibition that
permits a Market-Maker on the trading
floor to participate on a trade for which
22 Rule 8.21 is designed to ensure that a MarketMaker present in the trading crowd is not
disproportionately represented.
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another Market-Maker with a MarketMaker Floor Trading Permit from the
same TPH organization was solicited.
The proposed exception essentially just
expands this exception to permit
Market-Makers on the trading floor to
participate in trades for which any other
individual trading on behalf of the same
TPH organization provided liquidity in
the form of a solicited order, regardless
of the type of permit such individual
holds. Like the current exceptions, the
proposed Rule 8.21, Interpretation .03
requires an individual Market-Maker
participating on a trade for which the
solicited order was initiated by another
individual from the same TPH
organization to be trading in-person in
a trading crowd and not through orders
placed with a Floor Broker.
Additionally, the proposed exception
would not apply if the individual
Market-Maker trading in-person
initiated the solicited order. Finally, all
requirements set forth in Rule 8.21 and
its Interpretations and Policies, with the
exception of the last sentence of
Interpretation .02(g) (as discussed
below), continue to apply with respect
to multiple representation prohibitions
and solicited orders. Thus, the proposed
changes continue to preserve the intent
of the multiple representation rule to
ensure that a Market-Maker present in
the trading crowd is not
disproportionately represented, and just
expands exceptions under the current
rule to permit Market-Makers on the
trading floor to participate in trades for
which any other individual trading on
behalf of the same TPH organization
provided liquidity in the form of a
solicited order, regardless of the type of
permit such individual holds.
Similarly, the Exchange believes the
proposed changes to exclude the last
sentence of Rule 8.21.02(g) from the
proposed exception and to Rule 5.87(f)
to revise the priority afforded to incrowd participants with respect to
facilitated and solicited orders in open
outcry trading, after the crossing
participation entitlement and other
applicable participation entitlements
have been satisfied, are consistent with
the Act and promote just and equitable
principles of trade. In today’s hybrid
trading environment, it may be difficult
and unduly onerous for individuals on
the trading floor to ascertain (at all or in
a timely manner) which TPH
organization has been solicited on an
initiating trade, and thus, difficult,
under current rules, to determine which
ICMP(s) would have priority. Further,
the Exchange believes the current rules
may discourage a TPH organization
from submitting solicited orders to trade
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against customer orders in open outcry,
as the TPH that submitted a solicited
order may ultimately end up trading
against a lesser portion of the initiating
order if there are a small number of
ICMPs who want to trade against the
order, as such ICMPs would have
priority over any ICMP from the same
TPH organization that submitted the
solicited order. This may reduce
execution opportunities or competition
for customer orders. Under the proposed
changes, priority to trade the remaining
portion of the solicited order shall be
apportioned equally among ICMPs who
established the market; this would
include ICMPs from all TPH
organizations, including the one on
behalf of which the solicited order was
submitted. The Exchange notes that the
proposed changes align with current
floor behavior, since, as stated above, in
today’s trading environment it is
difficult to reasonably determine which
ICMP(s) have priority. The Exchange
further notes that priority is not always
time determinative (e.g., pro rata),23 and
believes the proposed rules will
streamline the open outcry execution
process for crossing transactions, while
continuing to provide such solicited
orders with meaningful execution and
price improvement opportunities.
Further, under the proposed rules, an
individual Market-Maker would not be
required to ascertain whether the
solicited order was initiated on behalf of
the same TPH organization, nor would
the TPH organization firm be required to
inform their Market-Makers trading in
person if a solicited order had been
initiated. The Exchange believes the
proposed changes will reduce
unnecessary complexity and confusion
in its open outcry procedures, and
simplify handling of solicited orders on
the Exchange’s trading floor, to the
benefit and protection of investors.
Finally, the Exchange believes the
proposed changes to clarify certain
Rules will remove impediments to and
perfect the mechanism of a free and
open market and a national market
system, and, in general, will protect
investors and the public interest.
Specifically, by amending Rule 8.21(b)
and Interpretation and Policies .02 to
clarify the definition of ‘‘individual
Market-Maker’’ and the applicability of
the current exception procedures, the
proposed rule change may mitigate any
potential confusion for TPHs. Further,
the Exchange believes the proposed
change to Interpretation .06 to Rule 5.87
to add language to clarify that paragraph
(f) of Rule 5.87 provides the solicited
person or order being represented by the
23 See,
PO 00000
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Frm 00171
Fmt 4703
Sfmt 4703
66531
Floor Broker using the crossing
provision with priority over all other
parties (other than certain Public
Customer orders) for either 20% or 40%
of the contracts remaining in the order,
as determined by the Exchange, after
those certain Public Customer orders
have been satisfied may mitigate any
potential confusion as a result of the
proposed rule changes, which protects
investors and perfects the mechanism of
a free and open market. Such changes
are not unfairly discriminatory as they
are not instituting a new policy, but
rather providing clarification as to a
current rule, which provides for
participation entitlement consistent
with other exchanges.24
Additionally, the Exchange believes
the proposed change to Rule 5.87(f) to
state that nothing in the rule paragraph
is intended to prohibit an Floor Broker,
an On-Floor DPM, or an On-Floor LMM
from trading more than his or her
percentage entitlement if such trades are
permissible under proposed
Interpretation .03 of Rule 8.21 (as under
proposed rule a TPH organization as a
whole may trade more than 40%
participation entitlement) provides
further transparency into the potential
allocations as related to solicited orders,
which protects investors and perfects
the mechanism of a free and open
market by eliminating any potential
confusion as a result of the proposed
rule changes.
The Exchange also believes the
proposed changes to clarify certain
Rules is consistent with Section 6(b)(1)
of the Act,25 which provides that the
Exchange be organized and have the
capacity to be able to carry out the
purposes of the Act and to enforce
compliance by the Exchange’s Trading
Permit Holders and persons associated
with its Trading Permit Holders with
the Act, the rules and regulations
thereunder, and the rules of the
Exchange. As noted above, the Exchange
believes the proposed changes to Rule
8.21(b) and Interpretation and Policies
.02 to clarify the definition of
‘‘individual Market-Maker’’ and the
applicability of the current exception
procedures, as well as the proposed
change to Interpretation .06 to Rule
5.87, may mitigate any potential
confusion for TPHs and thus facilitate
compliance with Exchange rules.
Similarly, the proposed change to Rule
5.87(f) provides further transparency
into the potential allocations as related
to solicited orders. The Exchange
believes these changes and transparency
24 See, e.g., NYSE American Rule 934.1NY
(Facilitation Cross Transactions).
25 15 U.S.C. 78f(b)(1).
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will protect investors and assist TPHs in
complying with Exchange rules, as they
provide more clarity and reduce
complexity within the rules.
ddrumheller on DSK120RN23PROD with NOTICES1
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. The
Exchange does not believe that the
proposed rule change will impose any
burden on intramarket competition that
is not necessary or appropriate in
furtherance of the purposes of the Act
because it will apply in the same
manner to all TPH organizations. The
proposed exception to the multiple
representation prohibition is similar to
exceptions currently in place today. The
Exchange believes the proposed rule
change will put all individual MarketMakers on equal footing with respect to
the ability to participate on crossing
transactions. As discussed, above, the
Exchange believes the proposed
exception removes a potential disparity
under current Rules that may
disadvantage an individual MarketMaker trading in-person from
participating in trades solely because
the trade was initiated off the floor by
an individual from his or her same TPH
organization who holds a permit other
than a Market-Maker Floor Trading
Permit. Further, the proposed changes
to the priority afforded to ICMPs with
respect to facilitated and solicited
orders in open outcry trading, after the
crossing participation entitlement and
other applicable participation
entitlements have been satisfied, will
apply equally to all ICMPs.
The Exchange does not believe that
the proposed change will impose an
unnecessary or inappropriate burden on
intermarket competition because it only
applies to the execution of orders on the
Exchange’s trading floor. As discussed
above, the proposed rule change is
intended to modernize and streamline
the Exchange’s open outcry procedures
regarding crossing transactions, which
changes the Exchange believes may lead
to greater competition and price
improvement for orders, thus creating a
more robust open outcry market.
Finally, the proposed clarifying
changes are not intended to have any
impact on competition, but rather add
transparency to the Rules and eliminate
potential confusion of investors.
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C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
The Exchange neither solicited nor
received comments on the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule
change does not: (i) significantly affect
the protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days from the date on
which it was filed, or such shorter time
as the Commission may designate, it has
become effective pursuant to Section
19(b)(3)(A) of the Act 26 and Rule 19b–
4(f)(6) thereunder.27
A proposed rule change filed under
Rule 19b–4(f)(6) 28 normally does not
become operative prior to 30 days after
the date of the filing. However, Rule
19b–4(f)(6)(iii) 29 permits the
Commission to designate a shorter time
if such action is consistent with the
protection of investors and the public
interest. The Exchange has asked the
Commission to waive the 30-day
operative delay so that the Exchange
may implement the proposed change as
soon as possible. The Exchange states
that waiver of the operative delay will
protect investors by ensuring that an
individual Market-Maker trading inperson is not disadvantaged in
participating in a solicited trade solely
because the trade was initiated off the
floor by an individual from his or her
same TPH organization who does not
hold a Market-Maker Floor Trading
Permit, thus removing a potential
disparity that exists under current
Rules. With respect to the proposed
changes to exclude the last sentence of
Rule 8.21.02(g) from the proposed
exception and to revise the priority
described in Rule 5.87(f), the Exchange
states that waiver of the operative delay
will promptly reduce unnecessary
complexity and confusion regarding
open outcry procedures, and simplify
handling of solicited orders on the
trading floor. Additionally, the
26 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6)(iii) requires a self-regulatory organization to
give the Commission written notice of its intent to
file the proposed rule change, along with a brief
description and text of the proposed rule change,
at least five business days prior to the date of filing
of the proposed rule change, or such shorter time
as designated by the Commission. The Exchange
has satisfied this requirement.
28 17 CFR 240.19b–4(f)(6).
29 17 CFR 240.19b–4(f)(6)(iii).
27 17
PO 00000
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Fmt 4703
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Exchange states that, with respect to
proposed changes to clarify definitions
and the applicability of current
exception procedures, waiver of the
operative delay will allow the Exchange
to provide further transparency as soon
as possible. The Commission believes
that waiver of the 30-day operative
delay is consistent with the protection
of investors and the public interest
because the proposed rule change does
not raise any new or novel issues.
Accordingly, the Commission hereby
waives the 30-day operative delay and
designates the proposed rule change as
operative upon filing.30
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include file number SR–
CBOE–2023–048 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–2023–048. 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
30 For purposes only of waiving the 30-day
operative delay, the Commission has also
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
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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
a.m. and 3 p.m. Copies of the filing also
will be available for inspection and
copying at the principal office of the
Exchange. Do not include personal
identifiable information in submissions;
you should submit only information
that you wish to make available
publicly. We may redact in part or
withhold entirely from publication
submitted material that is obscene or
subject to copyright protection. All
submissions should refer to file number
SR–CBOE–2023–048 and should be
submitted on or before October 18,
2023.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.31
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023–20961 Filed 9–26–23; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–98472; File No. SR–
PEARL–2023–45]
Self-Regulatory Organizations; MIAX
PEARL, LLC; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Amend the MIAX Pearl
Equities Fee Schedule To Adopt the
NBBO Setter Plus Program and
Eliminate Certain Other Rebates
ddrumheller on DSK120RN23PROD with NOTICES1
September 21, 2023.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on
September 11, 2023, MIAX PEARL, LLC
(‘‘MIAX Pearl’’ or ‘‘Exchange’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’) a
proposed rule change as described in
Items I, II, and III below, which Items
have been prepared by the Exchange.
The Commission is publishing this
31 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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notice to solicit comments on the
proposed rule change from interested
persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange is filing a proposal to
amend the fee schedule (the ‘‘Fee
Schedule’’) applicable to MIAX Pearl
Equities, an equities trading facility of
the Exchange.
The text of the proposed rule change
is available on the Exchange’s website at
https://www.miaxglobal.com/markets/
us-equities/pearl-equities/rule-filings, at
MIAX Pearl’s principal office, and at the
Commission’s Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend the
Fee Schedule to: (i) adopt a new
incentive program called the ‘‘NBBO
Setter Plus Program’’ (referred to in this
filing as the ‘‘NBBO Program’’) that, in
general, provides enhanced rebates for
Equity Members’ 3 added displayed
liquidity (‘‘Added Displayed Volume’’)
in securities priced at or above $1.00 per
share in all Tapes based on increasing
volume thresholds and increasing
market quality levels (described below),
as well as an additive rebate applied to
orders that set the NBBO 4 upon entry;
(ii) reduce the standard rebate for
executions of orders in securities priced
at or above $1.00 per share for Added
Displayed Volume in all Tapes and
make the corresponding changes to the
Liquidity Indicator Codes and
3 The term ‘‘Equity Member’’ is a Member
authorized by the Exchange to transact business on
MIAX Pearl Equities. See Exchange Rule 1901.
4 With respect to the trading of equity securities,
the term ‘‘NBB’’ shall mean the national best bid,
the term ‘‘NBO’’ shall mean the national best offer,
and the term ‘‘NBBO’’ shall mean the national best
bid and offer. See Exchange Rule 1901.
PO 00000
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66533
Associated Fees table 5; (iii) eliminate
the Add Volume Tiers table 6 and
associated rebates and make
corresponding changes to rename
Section 1)c) to now be titled ‘‘NBBO
Setter Plus Program’’; (iv) eliminate the
Market Quality Tiers table 7 and
associated rebates; (v) renumber Section
1)g), Step-Up Added Liquidity Rebate,
to now be Section 1)f), Step-Up Added
Liquidity Rebate; and (vi) amend the
Definitions section to include a
definition for the term ‘‘NBBO Set
Volume’’ (described below). All of the
proposed changes relate to the adoption
of the proposed NBBO Program, which
incorporates certain concepts from the
current Add Volume Tiers and Market
Quality Tiers programs.
The Exchange originally filed this
proposal on August 31, 2023 (SR–
PEARL–2023–42). On September 11,
2023, the Exchange withdrew SR–
PEARL–2023–42 and refiled this
proposal.
Background of Current Rebate Programs
Impacted by This Proposal
Section 1)a) of the Fee Schedule sets
forth the Exchange’s standard rebates
and fees for adding, removing or routing
orders (displayed and non-displayed) in
all Tapes. The Exchange provides
different rebates and fees depending on
whether (i) the execution is for an order
where the securities are priced at or
above $1.00 per share, or (ii) the
execution is for an order where the
securities are priced below $1.00 per
share. Relevant for the purposes of this
proposal, the Exchange currently
provides a standard rebate of ($0.0027) 8
per share for executions of orders in
securities priced at or above $1.00 per
share for Added Displayed Volume
across all Tapes.9
Section 1)b) of the Fee Schedules
provides a list of the liquidity indicator
codes and associated rebates or fees that
are applied to a transaction so that each
Equity Member that enters an order is
able to understand the fee or rebate that
is applied to the execution. Each side of
a trade is assigned a liquidity indicator
code in order to identify the scenario
under which the trade occurred.
Section 1)c) of the Fee Schedule
provides a volume-based tier structure,
referred to as the Add Volume Tiers, in
5 See Fee Schedule, Section 1)b), Liquidity
Indicator Codes AA, AB and AC.
6 See Fee Schedule, Section 1)c).
7 See Fee Schedule, Section 1)f).
8 The Exchange indicates rebates in parentheses
in the Fee Schedule. See the General Notes Section
of the Fee Schedule.
9 See Fee Schedule, Section 1)a). See also Fee
Schedule, Section 1)b), Liquidity Indicator Codes
AA, AB, and AC.
E:\FR\FM\27SEN1.SGM
27SEN1
]]>Agencies
[Federal Register Volume 88, Number 186 (Wednesday, September 27, 2023)]
[Notices]
[Pages 66526-66533]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-20961]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-98474; File No. SR-CBOE-2023-048]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
Rules 5.87 and 8.21
September 21, 2023.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on September 14, 2023, Cboe Exchange, Inc. (``Exchange'') filed with
the Securities and Exchange Commission (``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.
---------------------------------------------------------------------------
\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 Rules 5.87 and 8.21. 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
[[Page 66527]]
the proposed rule change and discussed any comments it received on the
proposed rule change. The text of these statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange is proposing to amend certain open outcry trading
procedures, set forth in the Exchange Rulebook.
Rule 8.21 (Multiple Representation Prohibited) generally prohibits
multiple representation in open outcry trading crowds by a Trading
Permit Holder (``TPH'') for any account in which a TPH has an interest
or on behalf of a customer. The rule provides in relevant part that,
except in accordance with procedures established by the Exchange or
with the Exchange's permission in individual cases, no individual
Market-Maker shall enter or be present in a trading crowd while a Floor
Broker present in the trading crowd is holding an order on behalf of
the Market-Maker's individual account or an order initiated by the
Market-Maker for an account in which the Market-Maker has an
interest.\3\ Further, the rule provides that no TPH, for any account in
which the TPH has an interest or on behalf of a customer, shall
maintain with more than one broker orders for the purchase or sale of
the same option contract or other security, or the same combination of
option contracts or other securities, with the knowledge that such
orders are for the account of the same principal.\4\
---------------------------------------------------------------------------
\3\ See Rule 8.21(b).
\4\ See Rule 8.21(a).
---------------------------------------------------------------------------
Interpretations and Policies .01 and .02 to Rule 8.21 set forth
exception procedures that would permit multiple representation for
individual Market-Makers in certain circumstances, with Interpretation
.01 including exception procedures related to an individual Market-
Maker placing orders with a Floor Broker and Interpretation .02
including exception procedures related to the simultaneous
representation of Market-Maker joint accounts.
Specifically, Interpretation and Policy .02 to Rule 8.21 sets out
various procedures that, if followed, would permit the simultaneous
presence in a trading crowd of participants in and orders for the same
Market-Maker joint account. These procedures are intended to ensure
that Market-Makers who choose to employ a joint account for their
Exchange trading are not disadvantaged in participating in trades
versus those Market-Makers that choose to employ individual
accounts.\5\ These exception procedures apply only to individual
Market-Makers. Currently, the Exchange has interpreted the term
``individual Market-Maker'' to mean a person who is registered with the
Exchange as an individual TPH and holds a Market-Maker Floor Permit,
which entitles the holder to act as a Market-Maker on the floor of the
Exchange.\6\ The current exception procedures and requirements are as
follows:
---------------------------------------------------------------------------
\5\ See Securities Exchange Act Release No. 34-61715 (May 16,
2010), 75 FR 13626 (March 22, 2010) (SR-CBOE-2010-028).
\6\ See Cboe Regulatory Circular 23-006, dated July 21, 2023.
Joint accounts may be simultaneously represented in a
trading crowd by participants trading in-person for the joint
account. (See Rule 8.21.02(a).)
Joint account participants who are not trading in-
person in a trading crowd may enter orders for the joint account
with Floor Brokers even if other participants are trading the same
joint account in-person. (See Rule 8.21.02(b).)
When series are simultaneously opened during rotation,
joint account participants trading the joint account in-person may
enter orders for the joint account with Floor Brokers in series
where they are unable to trade the joint account in-person. (See
Rule 8.21.02(c).)
There is no restriction on the number of joint account
participants that may participate on behalf of the joint account on
the same trade. (See Rule 8.21.02(d).)
When joint account participants are trading in-person
in a trading crowd for their individual account or as a Floor
Broker, another participant of the joint account may trade for the
joint account in-person or enter orders for the joint account with
Floor Brokers. (See Rule 8.21.02(e).)
Except as otherwise permitted under this Rule 8.21,
TPHs are prohibited from entering orders for their individual or
joint accounts while they are trading in-person in a trading crowd
even if the orders are for an account they are not then actively
trading. (See Rule 8.21.02(f).)
TPHs must ensure that they do not trade in-person or by
orders such that (1) a trade occurs between a joint account
participant's individual market-maker account and the joint account
of which he or she is a participant, or (2) a trade occurs in which
the buyer and seller are representing the same joint account and are
on opposite sides of a transaction. It is the responsibility of a
joint account participant to ascertain whether joint account orders
have been entered in a crowd prior to trading the joint account in-
person. (See Rule 8.21.02(g).)
Joint account participants may not act as a Floor
Broker for the joint account of which they are a participant. (See
Rule 8.21.02(h).)
TPHs may alternate trading in-person for their
individual account and their joint account while in a trading crowd.
(See Rule 8.21.02(i) \7\.)
---------------------------------------------------------------------------
\7\ Current Rule 8.21.02(j) erroneously refers to Rule 6.1(d);
as part of the proposed rule change, the Exchange proposes to update
the rule to refer to Rule 6.1(e).
---------------------------------------------------------------------------
When completing a trade ticket for Market-Maker joint
account transactions, it must contain such information as may be
required by the Exchange under Rule 6.1(e).
All procedures and requirements contained in Interpretation and
Policy .02 must be satisfied, and each individual Market-Maker must
also separately satisfy the procedures and requirements of
Interpretation and Policy .01. These joint account requirements also
remain subject to other applicable open outcry trading procedures, such
as open outcry priority and facilitation/solicitation requirements,
including Rule 5.86 (Facilitated and Solicited Transactions) and Rule
5.87 (Crossing Orders), as applicable.
Since the enactment of these rules, changes have occurred in the
trading environment. First, the Exchange migrated from a floor-based
market, where individuals traded in-person as a Floor Broker or a
Market-Maker, to a hybrid environment, whereby individuals can trade
in-person on the floor, or remotely. Further, the capacity in which
individual Market-Makers trade has shifted. Historically, Trading
Permits were most commonly held by individuals. While current Exchange
rules still allow for an individual to be an individual Trading Permit
Holder, it has become far more common for a Trading Permit Holder
organization to become a Trading Permit Holder, purchase Trading
Permits, and, under Rule 3.9(b), designate individual nominees to
represent the organization with respect to each Floor Broker Trading
Permit or Market-Maker Floor Trading Permit or, under Rule 3.9(a),
designate at least one individual as the Responsible Person for that
TPH organization, with respect to the TPH organization's electronic
Trading Permit(s). Thus, it is common practice that a TPH organization
has, at any given time, designated numerous individuals to be nominees
and perform trading functions on behalf of the TPH organization, either
on the floor or electronically, with respect to any Trading Permit
which the organization holds. As a result, instead of participating in
joint accounts, Market-Makers often trade for the accounts of those TPH
organizations.
Under the current exception procedures in Interpretation and Policy
[[Page 66528]]
.02, because an individual Market-Maker only contemplates an individual
with a Market-Maker Floor Permit, an individual Market-Maker trading
in-person on the trading floor may participate on the same trade as a
Floor Broker who holds a solicited order from the same TPH organization
only if initiated by someone who also meets the definition of an
individual Market-Maker (i.e., an individual with a Market-Maker Floor
Permit). As noted above, Market-Makers are currently nominees of TPH
organizations as opposed to individual TPHs and trade for the accounts
of their TPH organizations as opposed to joint accounts. Therefore, few
Market-Makers may take advantage of the current exception procedures
intended to not disadvantage Market-Makers from participating in trades
versus those Market-Makers that choose to employ individual accounts,
because many individuals trading off the floor (who may solicited)
likely no longer have floor permits. Currently, there are no exceptions
to the multiple representation prohibition for TPH organizations'
associated persons who are not registered as individual Market-Makers
(and thus do not have a Market-Maker Floor Trading Permit) and place
solicited orders on behalf of their associated TPH organizations with
Floor Brokers. Therefore, an individual Market-Maker trading in-person
on the trading floor currently may not participate on the same trade as
a Floor Broker who holds a solicited order initiated by an associated
person of the same TPH organization (that is not also an individual
Market-Maker) as the individual Market-Maker.
The Exchange now proposes changes to Rules 8.21 and 5.87.
First, the Exchange proposes to amend Rule 8.21(b) to the
definition of ``individual Market-Maker'' and update this definition in
the Rules. The Exchange proposes to add a parenthetical to the rule to
define explicitly an individual Market-Maker as an individual nominee
\8\ of a TPH organization or an individual Trading Permit Holder,
either of which holds a Market-Maker Floor Trading Permit.\9\ This
change merely updates this definition to reflect current rule
terminology and industry changes, pursuant to which most (if not all)
individual Market-Makers are part of larger TPH organizations.
---------------------------------------------------------------------------
\8\ The term ``nominee'' means an individual who is authorized
by a TPH organization, in accordance with Rule 3.9, to represent
such TPH organization in all matters relating to the Exchange with
respect to a Floor Broker or Market-Maker Floor Trading Permit. See
Rule 1.1 (definition of ``nominee''). Pursuant to Rule 3.9, each TPH
organization must designate an individual nominee to represent the
organization with respect to each Market-Maker Floor Trading Permit
in all matters relating to the Exchange.
\9\ The Exchange currently maintains five types of Trading
Permits: a Market-Maker Electronic Access Permit, an Electronic
Access Permit, a Clearing TPH Permit, a Market-Maker Floor Trading
Permit and a Floor Broker Trading Permit.
---------------------------------------------------------------------------
Similarly, the Exchange proposes to amend Rule 8.21, Interpretation
and Policy .02 to clarify the applicability of the exception
procedures. As noted above, Rule 8.21.02 provides exception procedures
related to the simultaneous representation of Market-Maker joint
accounts. The Exchange proposes to delete reference to ``participants''
from the introduction in Interpretation .02, as well as Interpretation
.02(a), (b), (c), and (d), and proposes to instead refer to an
``individual Market-Maker.'' Likewise, the Exchange proposes to delete
references to ``joint account participants'' from Interpretation
.02(b), (e), and (h), and proposes to instead refer to an ``individual
Market-Maker.'' Finally, the Exchange proposes to delete ``Trading
Permit Holders'' from Interpretation Rule .02(i) and (f) and replace
with ``Individual Market-Makers.'' \10\ The Exchange notes that the
application of the rule is not changing per these proposed
replacements, but rather the Exchange seeks to simplify the multiple
representation rule using clearer and more unified terminology. These
terminology changes are consistent with who may participate in joint
accounts (and thus who may take advantage of the exception procedures
in this rule).
---------------------------------------------------------------------------
\10\ There are no changes to Rule 8.21(g) as part of the
proposed rule change, as the provision, and responsibilities
described therein, continue to apply to Trading Permit Holders.
---------------------------------------------------------------------------
The Exchange also proposes to add a new Interpretation .03 to Rule
8.21 to provide an additional exception to the prohibition on multiple
representation to incorporate the market changes described above to,
similar to the exception in Interpretation and Policy .02, ensure that
Market-Makers on the floor who choose to be part of a larger TPH
organization and trade for the account of that TPH organization
(similar to the concept of trading for a joint account) are not
disadvantaged in participating in trades versus those Market-Makers
that choose to employ individual accounts. Under the current exception,
as noted above, while a Floor Broker may represent an order initiated
by a nominee of a TPH organization who is not an individual Market-
Maker (and thus has a Trading Permit other than a Market-Maker Floor
Permit), the in-crowd Market-Makers from the same TPH organization are
unable to participate on the trade.\11\ The Exchange proposes to add
Interpretation .03 to provide that, subject to the requirements of Rule
5.87(f), as applicable, an individual Market-Maker trading in-person in
a trading crowd and not through orders placed with a Floor Broker may
participate on the same trade as a Floor Broker who holds a solicited
order on behalf of the same TPH Organization, provided the individual
Market-Maker did not initiate the solicited order. As individual
Market-Makers are generally part of larger TPH organizations and trade
for the accounts of those organizations, which have multiple
individuals functioning as Market-Makers on the trading floor (i.e.,
with Market-Maker Floor Permits) or through electronic trading from off
the trading floor (i.e., with Electronic Access Permits), the Exchange
believes this proposed exception is appropriate to reflect current
organizational structures within the industry. This proposed exception
aligns in purpose with the current exception in Interpretation and
Policy .02 and will further ensure that Market-Makers trading on the
Exchange's floor are not prevented from participating in trades that
include solicited interest merely because the solicited party happens
to be trading for the same account (TPH organization account instead of
joint account).
---------------------------------------------------------------------------
\11\ As noted above, the current exception procedures would
permit in-crowd Market-Makers to participate on a trade only if the
Floor Broker was representing an order initiated by another
individual Market-Maker from the same TPH organization.
---------------------------------------------------------------------------
The proposed Rule 8.21.03 also provides that the last sentence of
Interpretation .02(g) to this Rule 8.21, which states that it is the
responsibility of a joint account participant to ascertain whether
joint account orders have been entered in a crowd prior to trading the
joint account in-person, does not apply to this new Interpretation
.03.\12\ Under the proposed changes, as further detailed below, there
would be no obligation on behalf of the individual Market-Maker to
ascertain whether someone from his or her firm initiated the solicited
order or had knowledge of the solicited order, prior to trading in-
person in a trading crowd.\13\
---------------------------------------------------------------------------
\12\ For the avoidance of doubt, all other procedures and
requirements contained in Interpretation and Policy .02, including
all provisions in Interpretation .02(g) except the last sentence,
must be satisfied and each individual Market-Maker must also
separately satisfy the procedures and requirements of Interpretation
and Policy .01.
\13\ If a TPH organization were to enter an order with a Floor
Broker, in addition to the solicited order, then the TPH
organization (not the Floor Broker) would be in violation of the
multiple representation rule.
---------------------------------------------------------------------------
[[Page 66529]]
The Exchange proposes to amend Rule 5.87(f), which contains
procedures and requirements related to open outcry crossing entitlement
for solicitations and facilitations.\14\ Under current rules, in the
event a Floor Broker represents an order that is of the eligible order
size or greater (``original order'') and is also holding a facilitation
order or a solicited order, the Floor Broker may proceed under the
provisions of Rule 5.87(f) to obtain a crossing participation
entitlement.\15\ The crossing participation entitlement permits the
Floor Broker to transact either 20% or 40% (currently 40% for all
classes), of the remainder of the original order against the
facilitation or solicited order. Further, if an On-Floor DPM or On-
Floor LMM is granted participation rights under Rule 5.85, Rule
5.87(f)(5) provides that the On-Floor DPM or On-Floor LMM participation
entitlement is applied if the trade occurs at the On-Floor DPM's/LMM's
principal bid or offer, provided that the On-Floor DPM/LMM
participation entitlement will be limited to a percentage of contracts
that, when combined with the percentage the originating firm crossed,
may not exceed 40% of the original order size. After the applicable
public customer orders and participation entitlements have been
satisfied, Rule 5.87(f)(6) provides that the remaining balance of the
order will be allocated among the In-Crowd Market Participants
(``ICMPs'') \16\ who established the market.\17\ Rule 5.87(f)(6)(B)
further provides that priority to trade the remaining portion of the
order shall be afforded to bids (offers) made by ICMPs in the sequence
in which they are made. If bids (offers) were made at the same time, or
in the event that the sequence cannot be reasonably determined,
priority shall be apportioned equally among the ICMPs who established
the market.
---------------------------------------------------------------------------
\14\ As part of this proposed rule change, the Exchange proposes
to make a non-substantive change to correct the cross-reference in
Rule 5.87(f)(4), to refer to paragraph (f) of the Rule rather than
paragraph (d).
\15\ Pursuant to Rule 5.87(f)(2), the Floor Broker crossing
entitlement takes effect after all public customer orders that were
on the limit order book and then represented in the trading crowd at
the time the market was established have been satisfied.
\16\ See Rule 1.1 for definition of In-Crowd Market Participant.
\17\ Rule 5.87(f)(6) currently provides in relevant part that
the ``the ICMPs who established the market will have priority over
all other orders that were not represented in the trading crowd at
the time the market was established (but not over Priority Customer
orders on the Book) and will maintain priority over such orders
except for orders that improve upon the market.''
---------------------------------------------------------------------------
In light of the proposed changes to Rule 8.21, the Exchange
proposes to update Rule 5.87(f) to modify the priority of members in
the trading crowd after the crossing participation entitlement and
other applicable participation entitlements have been satisfied.
Specifically, the Exchange proposes to update Rule 5.87(f)(6) \18\ to
state that priority to trade the remaining portion of the order shall
be apportioned equally among ICMPs who established the market, as is
the case currently if bid (offers) were made at the same time, or in
the event that the sequence cannot be reasonably determined. As under
the current rule, in the event an ICMP declines to accept any portion
of the available contracts, any remaining contracts shall be
apportioned equally among the other ICMPs who established the market
until all contracts have been apportioned. The Exchange also proposes
to amend Rule 5.87(f)(7). Current Rule 5.87(f)(7) states nothing in
that paragraph is intended to prohibit a Floor Broker, an On-Floor DPM,
or an On-Floor LMM from trading more than his or her percentage
entitlement if the other ICMPs do not choose to trade the remaining
portion of the order. The Exchange proposes to add that it is also not
intended to prohibit these parties from trading more than his or her
percentage entitlement if such trades are permissible under the
proposed Interpretation .03 of Rule 8.21. This is consistent with the
proposed rule change above, which would make it possible for the TPH
organization of which the applicable party is a part to, as a whole,
trade more than 40% participation entitlement).
---------------------------------------------------------------------------
\18\ The proposed rule change deletes Rule 5.87(f)(6)(A) and
(B), as they are no longer applicable, and moves language from
current 5.87(f)(6)(C) to be included in 5.87(f)(6).
---------------------------------------------------------------------------
Finally, the Exchange proposes to amend Interpretation .06 to Rule
5.87, which currently provides that Rule 5.87(f) supersedes the
priority provision of Rule 5.86(d) in those situations where the Floor
Broker representing an eligible order determines to take advantage of
the crossing provisions of paragraph (f) of this Rule. The Exchange
proposes adding language regarding an order being represented by the
Floor Broker using the crossing provision, to clarify that paragraph
(f) of Rule 5.87 provides the solicited person or order being
represented by the Floor Broker using the crossing provision with
priority over all other parties (other than certain Public Customer
orders) for either 20% or 40% of the contracts remaining in the order,
as determined by the Exchange, after those certain Public Customer
orders have been satisfied. This is merely a clarifying change and has
no impact on what orders may be eligible for the entitlement pursuant
to Rule 5.87(f).
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.\19\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \20\ 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) \21\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
---------------------------------------------------------------------------
\19\ 15 U.S.C. 78f(b).
\20\ 15 U.S.C. 78f(b)(5).
\21\ Id.
---------------------------------------------------------------------------
In particular, the Exchange believes the proposed rule change to
add an exception to the multiple representation prohibition will
promote just and equitable principles of trade, remove impediments to
and perfect the mechanism of a free and open market and a national
market system, and, in general, protect investors. The purpose of this
proposed change, similar to the purpose of the current exception to the
multiple representation prohibition in Rule 8.21, Interpretation and
Policy .02, is to ensure that an individual Market-Maker trading in-
person on behalf of the TPH organization is not disadvantaged in
participating in a solicited trade solely because the trade was
initiated off the floor by an individual trading for the same account.
This proposed exception expands the current exception to permit Market-
Makers to participate in trades if they are for TPH organization
accounts (as is current common practice) instead of joint accounts and
if the solicited party is from his or her same TPH organization,
regardless of the type of trading permit the solicited party is using
(as opposed to the current exception that permits this only if the
[[Page 66530]]
solicited party has a Market-Maker Floor Trading Permit, which is
uncommon in current practice).
Specifically, under the current rules, an individual Market-Maker
trading in-person on the trading floor may participate on the same
trade as a Floor Broker who holds a solicited order from the same TPH
organization, but only if initiated by another individual Market-Maker.
However, currently, there are no exceptions to the multiple
representation prohibition for TPH organizations' associated persons
who are not registered as individual Market-Makers (and thus do not
have a Market-Maker Floor Trading Permit) and place solicited orders
for joint accounts with Floor Brokers. Therefore, an individual Market-
Maker trading in-person on the trading floor currently may not
participate on the same trade as a Floor Broker who holds a solicited
order initiated by an associated person of the same TPH organization as
the individual Market-Maker.
As discussed above, since the enactment of these rules, changes
have occurred in the trading environment. As a result of those changes,
it is common practice that a TPH organization has, at any given time,
designated numerous individuals to perform trading functions on behalf
of the TPH organization, either on the floor or electronically, with
respect to any Trading Permit which the organization holds. As a
result, instead of participating in joint accounts, Market-Makers trade
for the accounts of those TPH organizations.
The proposed rule changes incorporate these advancements in the
modern trading environment into the current exceptions to Rule 8.21 by
expanding on the current exception procedures in current Interpretation
and Policy .02 to permit an individual Market-Maker trading in-person
may participate on a solicited trade that is initiated by an individual
from the same TPH organization, regardless of whether the individual
initiating the solicited trade is an individual Market-Maker. The
proposed exception essentially permits Market-Makers trading in person
on the floor on behalf of a TPH organization (as opposed to for a joint
account) to participate on a trade if solicited interest was initiated
by another Market-Maker from that TPH organization (for the same
account). Like the current exception in Interpretation and Policy .02,
the purpose of this exception is to ensure that Market-Makers on the
floor who choose to be part of a larger TPH organization and trade for
an account of that TPH organization (similar to the concept of a joint
account) are not disadvantaged in participating in trades versus those
Market-Makers that choose to employ individual accounts. It is common
practice for off-floor liquidity providers, including Market-Makers
with Electronic Access Permits, to be solicited to provide liquidity to
trade against customer orders that are ultimately crossed on the
Exchange's trading floor. Therefore, given the changes to the market as
described above, the Exchange believes the proposed rule change further
removes impediments to and perfects the mechanism of a free and open
market and a national market system, as the proposed changes ensure
that an individual Market-Maker that trading in-person that chooses to
be part of a larger TPH organization and trade for an account of that
TPH organization (similar to the concept of a joint account) is not
disadvantaged in participating in a solicited trade versus a Market-
Maker that chooses to employ an individual account.
The Exchange further believes the proposed rule change will not
permit unfair discrimination between customers, issuers, brokers, or
dealers, because it will eliminate a disparity that exists under
current Rules. As noted above, because it is common for Market-Makers
to trade on behalf of TPH organizations as opposed to trade as
individual TPHs, and thus trade for TPH organization accounts as
opposed to for joint accounts, there are few Market-Makers on the
trading floor that can take advantage of the current exception to the
multiple representation prohibition in current Rule 8.21,
Interpretation and Policy .02. The Exchange believes this may
disadvantage Market-Makers from participating in trades versus those
that choose to employ individual accounts, because Market-Makers
trading on behalf of TPH organizations (as most do) are not permitted
to take advantage of the current exception if the solicited interested
was initiated off the floor by an individual who does not hold a
Market-Maker Floor Trading Permit, but rather another eligible trading
permit offered by the Exchange (for example, acting as a Market-Maker
with an Electronic Access Permit), thus removing a potential disparity
that exists under current Rules. Therefore, these Market-Makers are
losing trading opportunities because of the type of permit held by the
solicited party.
Additionally, the Exchange believes the proposed rule change is
consistent with the requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers, as the Exchange believes the proposed rule change
may reduce any inadvertent unfair discrimination to which current
individual Market-Makers are subject. As discussed above, the Exchange
believes many individual Market-Makers on the trading floor that trade
for the account of the TPH organizations on behalf of which they trade
may be at a disadvantage compared to individual Market-Makers that
trade for an individual account. This is due to the fact that currently
Market-Makers act as nominees of TPH organizations, trading for the
accounts of those TPH organizations, and trade upstairs with EAPs
rather than Market-Maker Floor Permits, as opposed to being and
individual TPH as was the case historically. Under the proposed rule
change, a Market-Maker acting as nominee of a TPH organization would
have the opportunity to participate in trades for which members of
their TPH organizations provide solicited liquidity, regardless of the
type of trading permit those members have. Currently, individual
Market-Makers have this opportunity only if that other member of the
same TPH organization happens to have a Market-Maker Floor Trading
Permit. As proposed, no ICMP would be prohibited from participating on
a trade solely because he or she is from the same TPH organization as
the individual that initiated the solicited order. The Exchange
believes that the changes will create an opportunity for increased
participation on such open outcry trades, which could potentially lead
to increased execution opportunities. The Exchange believes that this
in turn may lead to greater competition and price improvement for
orders, thus creating a more robust open outcry market, which may
ultimately benefit investors who choose to send orders to the Exchange.
Further, the Exchange believes the proposed rule changes promote
just and equitable principles of trade, as the amended rule preserves
the intended prohibitions around multiple representation,\22\ while
ensuring that Market-Makers who are employed by TPH organizations
represented by multiple individuals (as is generally the case in
today's trading environment) trading on and off the floor under a
variety of eligible trading permits are not unfairly disadvantaged from
participating in trades. As noted above, there is a current exception
to the multiple representation prohibition that permits a Market-Maker
on the trading floor to participate on a trade for which
[[Page 66531]]
another Market-Maker with a Market-Maker Floor Trading Permit from the
same TPH organization was solicited. The proposed exception essentially
just expands this exception to permit Market-Makers on the trading
floor to participate in trades for which any other individual trading
on behalf of the same TPH organization provided liquidity in the form
of a solicited order, regardless of the type of permit such individual
holds. Like the current exceptions, the proposed Rule 8.21,
Interpretation .03 requires an individual Market-Maker participating on
a trade for which the solicited order was initiated by another
individual from the same TPH organization to be trading in-person in a
trading crowd and not through orders placed with a Floor Broker.
Additionally, the proposed exception would not apply if the individual
Market-Maker trading in-person initiated the solicited order. Finally,
all requirements set forth in Rule 8.21 and its Interpretations and
Policies, with the exception of the last sentence of Interpretation
.02(g) (as discussed below), continue to apply with respect to multiple
representation prohibitions and solicited orders. Thus, the proposed
changes continue to preserve the intent of the multiple representation
rule to ensure that a Market-Maker present in the trading crowd is not
disproportionately represented, and just expands exceptions under the
current rule to permit Market-Makers on the trading floor to
participate in trades for which any other individual trading on behalf
of the same TPH organization provided liquidity in the form of a
solicited order, regardless of the type of permit such individual
holds.
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\22\ Rule 8.21 is designed to ensure that a Market-Maker present
in the trading crowd is not disproportionately represented.
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Similarly, the Exchange believes the proposed changes to exclude
the last sentence of Rule 8.21.02(g) from the proposed exception and to
Rule 5.87(f) to revise the priority afforded to in-crowd participants
with respect to facilitated and solicited orders in open outcry
trading, after the crossing participation entitlement and other
applicable participation entitlements have been satisfied, are
consistent with the Act and promote just and equitable principles of
trade. In today's hybrid trading environment, it may be difficult and
unduly onerous for individuals on the trading floor to ascertain (at
all or in a timely manner) which TPH organization has been solicited on
an initiating trade, and thus, difficult, under current rules, to
determine which ICMP(s) would have priority. Further, the Exchange
believes the current rules may discourage a TPH organization from
submitting solicited orders to trade against customer orders in open
outcry, as the TPH that submitted a solicited order may ultimately end
up trading against a lesser portion of the initiating order if there
are a small number of ICMPs who want to trade against the order, as
such ICMPs would have priority over any ICMP from the same TPH
organization that submitted the solicited order. This may reduce
execution opportunities or competition for customer orders. Under the
proposed changes, priority to trade the remaining portion of the
solicited order shall be apportioned equally among ICMPs who
established the market; this would include ICMPs from all TPH
organizations, including the one on behalf of which the solicited order
was submitted. The Exchange notes that the proposed changes align with
current floor behavior, since, as stated above, in today's trading
environment it is difficult to reasonably determine which ICMP(s) have
priority. The Exchange further notes that priority is not always time
determinative (e.g., pro rata),\23\ and believes the proposed rules
will streamline the open outcry execution process for crossing
transactions, while continuing to provide such solicited orders with
meaningful execution and price improvement opportunities.
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\23\ See, e.g., Rule 5.32(a)(1)(B).
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Further, under the proposed rules, an individual Market-Maker would
not be required to ascertain whether the solicited order was initiated
on behalf of the same TPH organization, nor would the TPH organization
firm be required to inform their Market-Makers trading in person if a
solicited order had been initiated. The Exchange believes the proposed
changes will reduce unnecessary complexity and confusion in its open
outcry procedures, and simplify handling of solicited orders on the
Exchange's trading floor, to the benefit and protection of investors.
Finally, the Exchange believes the proposed changes to clarify
certain Rules will remove impediments to and perfect the mechanism of a
free and open market and a national market system, and, in general,
will protect investors and the public interest. Specifically, by
amending Rule 8.21(b) and Interpretation and Policies .02 to clarify
the definition of ``individual Market-Maker'' and the applicability of
the current exception procedures, the proposed rule change may mitigate
any potential confusion for TPHs. Further, the Exchange believes the
proposed change to Interpretation .06 to Rule 5.87 to add language to
clarify that paragraph (f) of Rule 5.87 provides the solicited person
or order being represented by the Floor Broker using the crossing
provision with priority over all other parties (other than certain
Public Customer orders) for either 20% or 40% of the contracts
remaining in the order, as determined by the Exchange, after those
certain Public Customer orders have been satisfied may mitigate any
potential confusion as a result of the proposed rule changes, which
protects investors and perfects the mechanism of a free and open
market. Such changes are not unfairly discriminatory as they are not
instituting a new policy, but rather providing clarification as to a
current rule, which provides for participation entitlement consistent
with other exchanges.\24\
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\24\ See, e.g., NYSE American Rule 934.1NY (Facilitation Cross
Transactions).
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Additionally, the Exchange believes the proposed change to Rule
5.87(f) to state that nothing in the rule paragraph is intended to
prohibit an Floor Broker, an On-Floor DPM, or an On-Floor LMM from
trading more than his or her percentage entitlement if such trades are
permissible under proposed Interpretation .03 of Rule 8.21 (as under
proposed rule a TPH organization as a whole may trade more than 40%
participation entitlement) provides further transparency into the
potential allocations as related to solicited orders, which protects
investors and perfects the mechanism of a free and open market by
eliminating any potential confusion as a result of the proposed rule
changes.
The Exchange also believes the proposed changes to clarify certain
Rules is consistent with Section 6(b)(1) of the Act,\25\ which provides
that the Exchange be organized and have the capacity to be able to
carry out the purposes of the Act and to enforce compliance by the
Exchange's Trading Permit Holders and persons associated with its
Trading Permit Holders with the Act, the rules and regulations
thereunder, and the rules of the Exchange. As noted above, the Exchange
believes the proposed changes to Rule 8.21(b) and Interpretation and
Policies .02 to clarify the definition of ``individual Market-Maker''
and the applicability of the current exception procedures, as well as
the proposed change to Interpretation .06 to Rule 5.87, may mitigate
any potential confusion for TPHs and thus facilitate compliance with
Exchange rules. Similarly, the proposed change to Rule 5.87(f) provides
further transparency into the potential allocations as related to
solicited orders. The Exchange believes these changes and transparency
[[Page 66532]]
will protect investors and assist TPHs in complying with Exchange
rules, as they provide more clarity and reduce complexity within the
rules.
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\25\ 15 U.S.C. 78f(b)(1).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The Exchange does not
believe that the proposed rule change will impose any burden on
intramarket competition that is not necessary or appropriate in
furtherance of the purposes of the Act because it will apply in the
same manner to all TPH organizations. The proposed exception to the
multiple representation prohibition is similar to exceptions currently
in place today. The Exchange believes the proposed rule change will put
all individual Market-Makers on equal footing with respect to the
ability to participate on crossing transactions. As discussed, above,
the Exchange believes the proposed exception removes a potential
disparity under current Rules that may disadvantage an individual
Market-Maker trading in-person from participating in trades solely
because the trade was initiated off the floor by an individual from his
or her same TPH organization who holds a permit other than a Market-
Maker Floor Trading Permit. Further, the proposed changes to the
priority afforded to ICMPs with respect to facilitated and solicited
orders in open outcry trading, after the crossing participation
entitlement and other applicable participation entitlements have been
satisfied, will apply equally to all ICMPs.
The Exchange does not believe that the proposed change will impose
an unnecessary or inappropriate burden on intermarket competition
because it only applies to the execution of orders on the Exchange's
trading floor. As discussed above, the proposed rule change is intended
to modernize and streamline the Exchange's open outcry procedures
regarding crossing transactions, which changes the Exchange believes
may lead to greater competition and price improvement for orders, thus
creating a more robust open outcry market.
Finally, the proposed clarifying changes are not intended to have
any impact on competition, but rather add transparency to the Rules and
eliminate potential confusion of investors.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received comments on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (i)
significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A) of the Act \26\ and Rule 19b-
4(f)(6) thereunder.\27\
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\26\ 15 U.S.C. 78s(b)(3)(A).
\27\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change, along
with a brief description and text of the proposed rule change, at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
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A proposed rule change filed under Rule 19b-4(f)(6) \28\ normally
does not become operative prior to 30 days after the date of the
filing. However, Rule 19b-4(f)(6)(iii) \29\ permits the Commission to
designate a shorter time if such action is consistent with the
protection of investors and the public interest. The Exchange has asked
the Commission to waive the 30-day operative delay so that the Exchange
may implement the proposed change as soon as possible. The Exchange
states that waiver of the operative delay will protect investors by
ensuring that an individual Market-Maker trading in-person is not
disadvantaged in participating in a solicited trade solely because the
trade was initiated off the floor by an individual from his or her same
TPH organization who does not hold a Market-Maker Floor Trading Permit,
thus removing a potential disparity that exists under current Rules.
With respect to the proposed changes to exclude the last sentence of
Rule 8.21.02(g) from the proposed exception and to revise the priority
described in Rule 5.87(f), the Exchange states that waiver of the
operative delay will promptly reduce unnecessary complexity and
confusion regarding open outcry procedures, and simplify handling of
solicited orders on the trading floor. Additionally, the Exchange
states that, with respect to proposed changes to clarify definitions
and the applicability of current exception procedures, waiver of the
operative delay will allow the Exchange to provide further transparency
as soon as possible. The Commission believes that waiver of the 30-day
operative delay is consistent with the protection of investors and the
public interest because the proposed rule change does not raise any new
or novel issues. Accordingly, the Commission hereby waives the 30-day
operative delay and designates the proposed rule change as operative
upon filing.\30\
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\28\ 17 CFR 240.19b-4(f)(6).
\29\ 17 CFR 240.19b-4(f)(6)(iii).
\30\ For purposes only of waiving the 30-day operative delay,
the Commission has also considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
file number SR-CBOE-2023-048 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-2023-048. 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
[[Page 66533]]
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 a.m. and 3 p.m. Copies of the
filing also will be available for inspection and copying at the
principal office of the Exchange. Do not include personal identifiable
information in submissions; you should submit only information that you
wish to make available publicly. We may redact in part or withhold
entirely from publication submitted material that is obscene or subject
to copyright protection. All submissions should refer to file number
SR-CBOE-2023-048 and should be submitted on or before October 18, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\31\
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\31\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-20961 Filed 9-26-23; 8:45 am]
BILLING CODE 8011-01-P
