Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Rule 5.34, 4642-4645 [2024-01304]
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Federal Register / Vol. 89, No. 16 / Wednesday, January 24, 2024 / Notices
Management and Budget (‘‘OMB’’) for
extension and approval.
Rule 18f–4 (17 CFR 270.18f–4) under
the Investment Company Act of 1940
(15 U.S.C. 80a–1 et seq.) (the
‘‘Investment Company Act’’) permits a
fund to enter into derivatives
transactions, notwithstanding the
prohibitions and restrictions on the
issuance of senior securities under
section 18 of the Investment Company
Act. A fund that relies on rule 18f–4 to
enter into derivatives transactions
generally is required to: adopt a
derivatives risk management program;
have its board of directors approve the
fund’s designation of a derivatives risk
manager and receive direct reports from
the derivatives risk manager about the
derivatives risk management program;
and comply with a VaR-based test
designed to limit a fund’s leverage risk
consistent with the investor protection
purposes underlying section 18 of the
Investment Company Act. Rule 18f–4
includes an exception from the
derivatives risk management program
requirement and limit on fund leverage
risk if a fund limits its derivatives
exposure to 10% of its net assets (the
fund may exclude from this calculation
derivatives transactions that it uses to
hedge certain currency and interest rate
risks). A fund relying on this exception
will be required to adopt policies and
procedures that are reasonably designed
to manage its derivatives risks.
Rule 18f–4 also includes an exception
from the VaR-based limit on leverage
risk for a leveraged/inverse fund that
cannot comply with rule 18f–4’s limit
on fund leverage risk and that, as of
October 28, 2020, is: (1) in operation, (2)
has outstanding shares issued in one or
more public offerings to investors, and
(3) discloses in its prospectus that it has
a leverage multiple or inverse multiple
that exceeds 200% of the performance
or the inverse of the performance of the
underlying index (for purposes of this
Supporting Statement, such a fund is an
‘‘over-200% leveraged/inverse fund’’). A
fund relying on this exception must
disclose in its prospectus that it is not
subject to rule 18f–4’s limit on fund
leverage risk.
Finally, rule 18f–4 permits funds to
enter into reverse repurchase
agreements (and similar financing
transactions) and ‘‘unfunded
commitments’’ to make certain loans or
investments, and to invest in securities
on a when-issued or forward-settling
basis, or with a non-standard settlement
cycle, subject to conditions tailored to
these transactions.
The respondents to rule 18f–4 are
registered open- and closed-end
management investment companies and
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BDCs. Compliance with rule 18f–4 is
mandatory for all funds that seek to
engage, in reliance on the rule, in
derivatives transactions and certain
other transactions that the rule
addresses, which would otherwise be
subject to the restrictions of section 18
of the Investment Company Act.
The information collection
requirements of rule 18f–4 are designed
to ensure that funds maintain the
required written derivatives risk
management programs that promote
compliance with the federal securities
laws and protect investors, and
otherwise comply with the requirements
of the rule. The information collections
also assist the Commission’s
examination staff in assessing the
adequacy of funds’ derivatives risk
management programs and their
compliance with the other requirements
of the rule, and identifying weaknesses
in a fund’s derivatives risk management
if violations occur or are uncorrected.
The respondents to rule 18f–4 are
registered open- and closed-end
management investment companies and
BDCs. Compliance with rule 18f–4 is
mandatory for all funds that seek to
engage, in reliance on the rule, in
derivatives transactions and certain
other transactions that the rule
addresses, which would otherwise be
subject to the restrictions of section 18
of the Investment Company Act. To the
extent that records required to be
created and maintained by funds under
the rule are provided to the Commission
in connection with examinations or
investigations, such information will be
kept confidential subject to the
provisions of applicable law.
Written comments are invited on: (a)
whether the proposed collection of
information is necessary for the proper
performance of the functions of the
Commission, including whether the
information shall have practical utility;
(b) the accuracy of the Commission’s
estimate of the burden of the collection
of information; (c) ways to enhance the
quality, utility, and clarity of the
information collected; and (d) ways to
minimize the burden of the collection of
information on respondents, including
through the use of automated collection
techniques or other forms of information
technology. Consideration will be given
to comments and suggestions submitted
by March 25, 2024.
An agency may not conduct or
sponsor, and a person is not required to
respond to, a collection of information
under the PRA unless it displays a
currently valid OMB control number.
Please direct your written comments
to: David Bottom, Chief Information
Officer, Securities and Exchange
PO 00000
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Commission, c/o John Pezzullo, 100 F
Street NE, Washington, DC 20549 or
send an email to: PRA_Mailbox@
sec.gov.
Dated: January 18, 2024.
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024–01282 Filed 1–23–24; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–99385; File No. SR–CBOE–
2024–004]
Self-Regulatory Organizations; Cboe
Exchange, Inc.; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Amend Rule 5.34
January 18, 2024.
Pursuant to section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on January 3,
2024, Cboe Exchange, Inc. (the
‘‘Exchange’’ or ‘‘Cboe Options’’) filed
with the Securities and Exchange
Commission (the ‘‘Commission’’) the
proposed rule change as described in
Items I, II, and III below, which Items
have been prepared by the Exchange.
The Exchange filed the proposal as a
‘‘non-controversial’’ proposed rule
change pursuant to section
19(b)(3)(A)(iii) of the Act 3 and Rule
19b–4(f)(6) thereunder.4 The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Cboe Exchange, Inc. (the ‘‘Exchange’’
or ‘‘Cboe Options’’) proposes to amend
Rule 5.34. The text of the proposed rule
change is provided below.
(additions are italicized; deletions are
[bracketed])
*
*
*
*
*
Rules of Cboe Exchange, Inc.
*
*
*
*
*
Rule 5.34. Order and Quote Price
Protection Mechanisms and Risk
Controls
The System’s acceptance and
execution of orders, quotes, and bulk
messages, as applicable, pursuant to the
Rules, including Rules 5.31 through
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A)(iii).
4 17 CFR 240.19b–4(f)(6).
2 17
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5.33, and orders routed to PAR pursuant
to Rule 5.82 are subject to the following
price protection mechanisms and risk
controls, as applicable.
(a) Simple Orders.
(1)–(3) No change.
(4) Drill-Through Price Protection.
(A)–(B) No change.
(C) The System enters a market order
with a Time-in-Force of Day or limit
order with a Time-in-Force of Day, GTC,
or GTD (or unexecuted portion) not
executed pursuant to subparagraph (A)
in the Book with a displayed price equal
to the drill-through price.
(i)–(vii) No change.
(D) This protection does not apply to
bulk messages or ISOs.
*
*
*
*
*
The text of the proposed rule change
is also available on the Exchange’s
website (https://www.cboe.com/
AboutCBOE/
CBOELegalRegulatoryHome.aspx), at
the Exchange’s Office of the Secretary,
and at the Commission’s Public
Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
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A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend
Rule 5.34. Specifically, the Exchange
proposes to exclude Intermarket Sweep
Orders (‘‘ISOs’’) from its drill-through
protection. Pursuant to Rule
5.34(a)(4)(A), if a buy (sell) order enters
the book at the conclusion of the
opening auction process or would
execute or post to the book when it
enters the book, the Exchange’s system
executes the order up to an Exchangedetermined buffer amount (determined
on a class and premium basis) above
(below) the offer (bid) limit of the
Opening Collar 5 or the National Best
Offer (‘‘NBO’’) (National Best Bid
5 See Rule 5.31(a) for the definition of Opening
Collars.
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(‘‘NBB’’)) that existed at the time of
order entry, respectively (the ‘‘drillthrough price’’). The System cancels or
rejects any market order with a time-inforce of immediate-or-cancel (‘‘IOC’’) (or
unexecuted portion or limit order with
time-in-force of IOC or fill-or-kill
(‘‘FOK’’) (or unexecuted portion not
executed pursuant to the previous
sentence.6 Rule 5.34(a)(4)(C) establishes
an iterative drill-through process,
whereby the Exchange permits orders to
rest in the book for multiple time
periods and at more aggressive
displayed prices during each time
period. Specifically, the Exchange
system enters a market order with a
time-in-force of day or limit order with
a time-in-force of day, good-til-cancelled
(‘‘GTC’’), or good-til-gate (‘‘GTD’’) (or
unexecuted portion) in the book with a
displayed price equal to the drillthrough price. The order (or unexecuted
portion) will rest in the book at the drillthrough price for the duration of
consecutive time periods (the Exchange
determines on a class-by-class basis the
length of the time period in
milliseconds, which may not exceed
three seconds), which are referred to as
‘‘iterations.’’ Following the end of each
period, the Exchange system adds (if a
buy order) or subtracts (if a sell order)
one buffer amount (the Exchange
determines the buffer amount on a classby-class basis) to the drill-through price
displayed during the immediately
preceding period (each new price
becomes the ‘‘drill-through price’’). The
order (or unexecuted portion) rests in
the book at that new drill-through price
for the duration of the subsequent
period. The Exchange system applies a
timestamp to the order (or unexecuted
portion) based on the time it enters or
is re-priced in the book for priority
reasons. The order continues through
this iterative process until the earliest of
the following to occur: (a) the order
fully executes; (b) the user cancels the
order; and (c) the buy (sell) order’s limit
price equals or is less (greater) than the
drill-through price at any time during
application of the drill-through
mechanism, in which case the order
rests in the book at its limit price.
Currently, the drill-through protection
applies to ISOs. An ISO is a limit order
for an options series that meets the
following requirements: (1) when routed
to an Eligible Exchange,7 the order is
6 See
Rule 5.34(a)(4)(B).
‘‘Eligible Exchange’’ means a national
securities exchange registered with the SEC in
accordance with section 6(a) of the Securities
Exchange Act of 1934 (the ‘‘Act’’) that: (a) is a
Participant Exchange in OCC (as that term is
defined in Section VII of the OCC by-laws); (b) is
a party to the OPRA Plan (as that term is described
7 An
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identified as an ISO; and (2)
simultaneously with the routing of the
order, one or more additional ISOs, as
necessary, are routed to execute against
the full displayed size of any Protected
Bid, in the case of a limit order to sell,
or any Protected Offer, in the case of a
limit order to buy, for the options series
with a price that is superior to the limit
price of the ISO, with such additional
orders also marked as ISOs.8
The Exchange proposes to exclude
ISOs from the drill-through protection.9
The primary purpose of the drillthrough price protection is to prevent
orders from executing at prices ‘‘too far
away’’ from the market when they enter
the book for potential execution. This is
inconsistent with the primary purpose
of ISOs, which is to permit orders to
trade at prices outside of the market.
The Exchange believes excluding ISOs
from the drill-through is consistent with
the purpose of each type of
functionality.
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.10 Specifically,
the Exchange believes the proposed rule
change is consistent with the section
6(b)(5) 11 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
in Section I of the OPRA Plan); and (c) if the
national securities exchange chooses not to become
a party to this Plan, is a participant in another plan
approved by the Securities and Exchange
Commission (the ‘‘Commission’’) providing for
comparable Trade-Through and Locked and
Crossed Market protection. The term ‘‘TradeThrough’’ means a transaction in an options series
at a price that is lower than a Protected Bid or
higher than a Protected Offer. A ‘‘Protected Bid’’ or
‘‘Protected Offer’’ means a bid or offer in an options
series, respectively, that (a) is disseminated
pursuant to the OPRA Plan; and (b) is the best bid
or best offer, respectively, displayed by an Eligible
Exchange. A ‘‘Locked Market’’ means a quoted
market in which a Protected Bid is equal to a
Protected Offer in a series of an options class, and
a ‘‘Crossed Market’’ means a quoted market in
which a Protected bid is higher than a Protected
Offer in a series of an options class. See Rule
5.65(e), (g), (i), (o), and (q).
8 See Rules 5.6(c) (definition of ISO) and 5.65(h).
9 See proposed Rule 5.34(a)(4)(D).
10 15 U.S.C. 78f(b).
11 15 U.S.C. 78f(b)(5).
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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) 12 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 will promote
just and equitable principles of trade,
remove impediments to and perfect the
mechanism of a national market system,
and protect investors and the public
interest, because it will increase
instances in which ISOs receive
executions up to their limit prices,
including outside of the market prices
when the ISOs were submitted to the
Exchange, which the Exchange believes
is consistent with the expectations of
users that submit those orders. As noted
above, the primary purpose of ISOs is to
permit orders to trade at prices outside
of the market. The primary purpose of
the drill-through price protection is to
prevent orders from executing at prices
‘‘too far away’’ from the market when
they enter the book for potential
execution. The Exchange believes
excluding ISOs from the drill-through is
consistent with the purpose of each type
of functionality. Therefore, the
Exchange believes the proposed rule
change will enhance the Exchange
system by aligning its drill-through
protection with the intended purpose of
ISOs.13 The Exchange believes the
proposed rule change may ultimately
result in additional executions
consistent with the expectations of users
that submit ISOs, which ultimately
benefits investors. The Exchange further
believes the proposed rule change is not
designed to permit unfair
discrimination between customers,
issuers, brokers, or dealers, as it will
apply to ISOs of all users.
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 ISOs of all Trading Permit
12 Id.
13 The Exchange notes ISOs will continue to
receive price protection, such as from the limit
order fat finger check. See Rule 5.34(c)(1).
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Holders. The Exchange does not believe
that the proposed rule change will
impose any burden on intermarket
competition that is not necessary or
appropriate in furtherance of the
purposes of the Act, because it relates
solely to the application of one of the
Exchange’s price protection
mechanisms to ISOs. Additionally, the
proposed rule change substantively
identical to a recent rule change by Cboe
EDGX Exchange, Inc. (‘‘EDGX
Options’’).14 The Exchange also notes at
least one other options exchange
excludes ISOs from certain of its price
protection measures.15
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
The Exchange neither solicited nor
received comments on the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule
change does not:
A. significantly affect the protection
of investors or the public interest;
B. impose any significant burden on
competition; and
C. become operative for 30 days from
the date on which it was filed, or such
shorter time as the Commission may
designate, it has become effective
pursuant to section 19(b)(3)(A) of the
Act 16 and Rule 19b–4(f)(6) 17
thereunder.18 At any time within 60
days of the filing of the proposed rule
change, the Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission will institute proceedings
14 See SR–CboeEDGX–2023–082 (December 21,
2023).
15 See Miami International Securities Exchange,
LLC (‘‘MIAX’’) Rule 515(c)(1) (ISOs excluded from
MIAX’s price protection on non-market maker
orders in non-proprietary products, which prevents
orders from executing more than a specified
number of increments away from the national best
bid or offer (‘‘NBBO’’) at the time the order is
received).
16 15 U.S.C. 78s(b)(3)(A).
17 17 CFR 240.19b–4(f)(6).
18 17 CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6) requires a self-regulatory organization to give
the Commission written notice of its intent to file
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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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–2024–004 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–2024–004. 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
subject to copyright protection. All
submissions should refer to file number
SR–CBOE–2024–004 and should be
submitted on or before February 14,
2024.
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For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.19
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024–01304 Filed 1–23–24; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[SEC File No. 3235–0346, File No. 270–305]
ddrumheller on DSK120RN23PROD with NOTICES1
Proposed Collection; Comment
Request; Extension: Rule 34b–1
Upon Written Request, Copies Available
From: Securities and Exchange
Commission, Office of FOIA Services,
100 F Street NE, Washington, DC
20549–2736.
Notice is hereby given that, pursuant
to the Paperwork Reduction Act of 1995
(44 U.S.C. 3501 et seq.) the Securities
and Exchange Commission (the
‘‘Commission’’) is soliciting comments
on the collection of information
summarized below. The Commission
plans to submit this existing collection
of information to the Office of
Management and Budget for extension
and approval.
Rule 34b–1 under the Investment
Company Act (17 CFR 270.34b–1)
governs sales material that accompanies
or follows the delivery of a statutory
prospectus (‘‘sales literature’’). Rule
34b–1 deems to be materially
misleading any investment company
(‘‘fund’’) sales literature required to be
filed with the Securities and Exchange
Commission (‘‘Commission’’) by Section
24(b) of the Investment Company Act
(15 U.S.C. 80a–24(b)) that includes
performance data, unless the sales
literature also includes the appropriate
uniformly computed data and the
legend disclosure required in
investment company advertisements by
rule 482 under the Securities Act of
1933 (17 CFR 230.482) (‘‘rule 482’’).
Additionally, rule 34b–1 deems to be
materially misleading any fund sales
literature intended for distribution to
prospective investors that includes fee
and expense information, unless that
sales literature complies with the
disclosure and timeliness requirements
of rule 482.1 These requirements are
designed to prevent misleading
performance claims by funds and to
19 17
CFR 200.30–3(a)(12).
provisions of rule 34b–1 apply to any
registered investment company or business
development company advertisement, pamphlet,
circular, form letter, or other sales literature
addressed to or intended for distribution to
prospective investors in connection with a public
offering. See rule 34b–1(c).
1 These
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enable investors to make meaningful
comparisons among funds.
The Commission estimates that on
average approximately 8,289 2 responses
that include the information required by
rule 34b–1 each year. The burden
resulting from the collection of
information requirements of rule 34b–1
is estimated to be 11 hours per
response.3 The total hourly burden for
rule 34b–1 is approximately 91,179
hours per year in the aggregate.4
The collection of information under
rule 34b–1 is mandatory. The
information provided under rule 34b–1
is not kept confidential. The
Commission may not conduct or
sponsor, and a person is not required to
respond to, a collection of information
unless it displays a currently valid OMB
control number.
Written comments are invited on: (a)
whether the proposed collection of
information is necessary for the proper
performance of the functions of the
Commission, including whether the
information shall have practical utility;
(b) the accuracy of the Commission’s
estimate of the burden of the collection
of information; (c) ways to enhance the
quality, utility, and clarity of the
information collected; and (d) ways to
minimize the burden of the collection of
information on respondents, including
through the use of automated collection
techniques or other forms of information
technology. Consideration will be given
to comments and suggestions submitted
by March 25, 2024.
An agency may not conduct or
sponsor, and a person is not required to
respond to, a collection of information
under the PRA unless it displays a
currently valid OMB control number.
Please direct your written comments
to: David Bottom, Chief Information
Officer, Securities and Exchange
Commission, c/o John Pezzullo, 100 F
Street NE, Washington, DC 20549 or
send an email to: PRA_Mailbox@
sec.gov.
2 The estimated average number of responses to
rule 34b–1 for the two-year period from October 1,
2021, to November 30, 2023, comprises 7,912 filings
submitted to FINRA and 377 filings submitted to
the Commission.
3 Previous PRA extensions for rule 34b–1
assumed an estimated annual burden of 6 hours per
response in complying with paragraphs a and b of
rule 34b–1, 3 hours per response in complying with
the fee and expense figure disclosure requirements
of paragraph c, and 2 hours for the fee waivers/
expense reimbursement arrangements disclosure
requirements of paragraph c, while estimating that
only 96% of relevant responses would need to
comply with all of the paragraph c requirements.
For purposes of this extension, we are assuming
that 100% of the responsive filings identified will
incur burdens for all of the rule’s requirements,
such that a total of 11 hours per response per year
(6 + 3 + 2 = 11). We recognize that this might
overstate the total burden.
4 8,289 responses × 11 hours per response =
91,179 hours.
(additions are italicized; deletions are
[bracketed])
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Dated: January 19, 2024.
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024–01349 Filed 1–23–24; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–99387; File No. SR–
CboeBZX–2024–005]
Self-Regulatory Organizations; Cboe
BZX Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of a
Proposed Rule Change To Amend Rule
21.17
January 18, 2024.
Pursuant to section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on January 3,
2024, Cboe BZX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘BZX’’) filed with the
Securities and Exchange Commission
(the ‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared by the Exchange. The
Exchange filed the proposal as a ‘‘noncontroversial’’ proposed rule change
pursuant to section 19(b)(3)(A)(iii) of the
Act 3 and Rule 19b–4(f)(6) thereunder.4
The Commission is publishing this
notice to solicit comments on the
proposed rule change from interested
persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Cboe BZX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘BZX’’) proposes to
amend Rule 21.17. The text of the
proposed rule change is provided
below.
*
*
*
*
*
Rules of Cboe BZX Exchange, Inc.
*
*
*
*
*
Rule 21.17. Additional Price Protection
Mechanisms and Risk Controls
The System’s acceptance and execution of
orders, quotes, and bulk messages, as
applicable, are subject to the price protection
mechanisms and risk controls in Rule 21.16,
this Rule 21.17 and as otherwise set forth in
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A)(iii).
4 17 CFR 240.19b–4(f)(6).
2 17
E:\FR\FM\24JAN1.SGM
24JAN1
]]>Agencies
[Federal Register Volume 89, Number 16 (Wednesday, January 24, 2024)]
[Notices]
[Pages 4642-4645]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-01304]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-99385; File No. SR-CBOE-2024-004]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
Rule 5.34
January 18, 2024.
Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on January 3, 2024, Cboe Exchange, Inc. (the ``Exchange'' or
``Cboe Options'') filed with the Securities and Exchange Commission
(the ``Commission'') the proposed rule change as described in Items I,
II, and III below, which Items have been prepared by the Exchange. The
Exchange filed the proposal as a ``non-controversial'' proposed rule
change pursuant to section 19(b)(3)(A)(iii) of the Act \3\ and Rule
19b-4(f)(6) thereunder.\4\ The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A)(iii).
\4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Cboe Exchange, Inc. (the ``Exchange'' or ``Cboe Options'') proposes
to amend Rule 5.34. The text of the proposed rule change is provided
below.
(additions are italicized; deletions are [bracketed])
* * * * *
Rules of Cboe Exchange, Inc.
* * * * *
Rule 5.34. Order and Quote Price Protection Mechanisms and Risk
Controls
The System's acceptance and execution of orders, quotes, and bulk
messages, as applicable, pursuant to the Rules, including Rules 5.31
through
[[Page 4643]]
5.33, and orders routed to PAR pursuant to Rule 5.82 are subject to the
following price protection mechanisms and risk controls, as applicable.
(a) Simple Orders.
(1)-(3) No change.
(4) Drill-Through Price Protection.
(A)-(B) No change.
(C) The System enters a market order with a Time-in-Force of Day or
limit order with a Time-in-Force of Day, GTC, or GTD (or unexecuted
portion) not executed pursuant to subparagraph (A) in the Book with a
displayed price equal to the drill-through price.
(i)-(vii) No change.
(D) This protection does not apply to bulk messages or ISOs.
* * * * *
The text of the proposed rule change is also available on the
Exchange's website (https://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx), at the Exchange's Office of the
Secretary, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend Rule 5.34. Specifically, the
Exchange proposes to exclude Intermarket Sweep Orders (``ISOs'') from
its drill-through protection. Pursuant to Rule 5.34(a)(4)(A), if a buy
(sell) order enters the book at the conclusion of the opening auction
process or would execute or post to the book when it enters the book,
the Exchange's system executes the order up to an Exchange-determined
buffer amount (determined on a class and premium basis) above (below)
the offer (bid) limit of the Opening Collar \5\ or the National Best
Offer (``NBO'') (National Best Bid (``NBB'')) that existed at the time
of order entry, respectively (the ``drill-through price''). The System
cancels or rejects any market order with a time-in-force of immediate-
or-cancel (``IOC'') (or unexecuted portion or limit order with time-in-
force of IOC or fill-or-kill (``FOK'') (or unexecuted portion not
executed pursuant to the previous sentence.\6\ Rule 5.34(a)(4)(C)
establishes an iterative drill-through process, whereby the Exchange
permits orders to rest in the book for multiple time periods and at
more aggressive displayed prices during each time period. Specifically,
the Exchange system enters a market order with a time-in-force of day
or limit order with a time-in-force of day, good-til-cancelled
(``GTC''), or good-til-gate (``GTD'') (or unexecuted portion) in the
book with a displayed price equal to the drill-through price. The order
(or unexecuted portion) will rest in the book at the drill-through
price for the duration of consecutive time periods (the Exchange
determines on a class-by-class basis the length of the time period in
milliseconds, which may not exceed three seconds), which are referred
to as ``iterations.'' Following the end of each period, the Exchange
system adds (if a buy order) or subtracts (if a sell order) one buffer
amount (the Exchange determines the buffer amount on a class-by-class
basis) to the drill-through price displayed during the immediately
preceding period (each new price becomes the ``drill-through price'').
The order (or unexecuted portion) rests in the book at that new drill-
through price for the duration of the subsequent period. The Exchange
system applies a timestamp to the order (or unexecuted portion) based
on the time it enters or is re-priced in the book for priority reasons.
The order continues through this iterative process until the earliest
of the following to occur: (a) the order fully executes; (b) the user
cancels the order; and (c) the buy (sell) order's limit price equals or
is less (greater) than the drill-through price at any time during
application of the drill-through mechanism, in which case the order
rests in the book at its limit price.
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\5\ See Rule 5.31(a) for the definition of Opening Collars.
\6\ See Rule 5.34(a)(4)(B).
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Currently, the drill-through protection applies to ISOs. An ISO is
a limit order for an options series that meets the following
requirements: (1) when routed to an Eligible Exchange,\7\ the order is
identified as an ISO; and (2) simultaneously with the routing of the
order, one or more additional ISOs, as necessary, are routed to execute
against the full displayed size of any Protected Bid, in the case of a
limit order to sell, or any Protected Offer, in the case of a limit
order to buy, for the options series with a price that is superior to
the limit price of the ISO, with such additional orders also marked as
ISOs.\8\
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\7\ An ``Eligible Exchange'' means a national securities
exchange registered with the SEC in accordance with section 6(a) of
the Securities Exchange Act of 1934 (the ``Act'') that: (a) is a
Participant Exchange in OCC (as that term is defined in Section VII
of the OCC by-laws); (b) is a party to the OPRA Plan (as that term
is described in Section I of the OPRA Plan); and (c) if the national
securities exchange chooses not to become a party to this Plan, is a
participant in another plan approved by the Securities and Exchange
Commission (the ``Commission'') providing for comparable Trade-
Through and Locked and Crossed Market protection. The term ``Trade-
Through'' means a transaction in an options series at a price that
is lower than a Protected Bid or higher than a Protected Offer. A
``Protected Bid'' or ``Protected Offer'' means a bid or offer in an
options series, respectively, that (a) is disseminated pursuant to
the OPRA Plan; and (b) is the best bid or best offer, respectively,
displayed by an Eligible Exchange. A ``Locked Market'' means a
quoted market in which a Protected Bid is equal to a Protected Offer
in a series of an options class, and a ``Crossed Market'' means a
quoted market in which a Protected bid is higher than a Protected
Offer in a series of an options class. See Rule 5.65(e), (g), (i),
(o), and (q).
\8\ See Rules 5.6(c) (definition of ISO) and 5.65(h).
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The Exchange proposes to exclude ISOs from the drill-through
protection.\9\ The primary purpose of the drill-through price
protection is to prevent orders from executing at prices ``too far
away'' from the market when they enter the book for potential
execution. This is inconsistent with the primary purpose of ISOs, which
is to permit orders to trade at prices outside of the market. The
Exchange believes excluding ISOs from the drill-through is consistent
with the purpose of each type of functionality.
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\9\ See proposed Rule 5.34(a)(4)(D).
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2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Securities Exchange Act of 1934 (the ``Act'') and the rules and
regulations thereunder applicable to the Exchange and, in particular,
the requirements of section 6(b) of the Act.\10\ Specifically, the
Exchange believes the proposed rule change is consistent with the
section 6(b)(5) \11\ 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
[[Page 4644]]
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) \12\
requirement that the rules of an exchange not be designed to permit
unfair discrimination between customers, issuers, brokers, or dealers.
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\10\ 15 U.S.C. 78f(b).
\11\ 15 U.S.C. 78f(b)(5).
\12\ Id.
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In particular, the Exchange believes the proposed rule change will
promote just and equitable principles of trade, remove impediments to
and perfect the mechanism of a national market system, and protect
investors and the public interest, because it will increase instances
in which ISOs receive executions up to their limit prices, including
outside of the market prices when the ISOs were submitted to the
Exchange, which the Exchange believes is consistent with the
expectations of users that submit those orders. As noted above, the
primary purpose of ISOs is to permit orders to trade at prices outside
of the market. The primary purpose of the drill-through price
protection is to prevent orders from executing at prices ``too far
away'' from the market when they enter the book for potential
execution. The Exchange believes excluding ISOs from the drill-through
is consistent with the purpose of each type of functionality.
Therefore, the Exchange believes the proposed rule change will enhance
the Exchange system by aligning its drill-through protection with the
intended purpose of ISOs.\13\ The Exchange believes the proposed rule
change may ultimately result in additional executions consistent with
the expectations of users that submit ISOs, which ultimately benefits
investors. The Exchange further believes the proposed rule change is
not designed to permit unfair discrimination between customers,
issuers, brokers, or dealers, as it will apply to ISOs of all users.
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\13\ The Exchange notes ISOs will continue to receive price
protection, such as from the limit order fat finger check. See Rule
5.34(c)(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 ISOs of all Trading Permit Holders. The Exchange does
not believe that the proposed rule change will impose any burden on
intermarket competition that is not necessary or appropriate in
furtherance of the purposes of the Act, because it relates solely to
the application of one of the Exchange's price protection mechanisms to
ISOs. Additionally, the proposed rule change substantively identical to
a recent rule change by Cboe EDGX Exchange, Inc. (``EDGX
Options'').\14\ The Exchange also notes at least one other options
exchange excludes ISOs from certain of its price protection
measures.\15\
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\14\ See SR-CboeEDGX-2023-082 (December 21, 2023).
\15\ See Miami International Securities Exchange, LLC (``MIAX'')
Rule 515(c)(1) (ISOs excluded from MIAX's price protection on non-
market maker orders in non-proprietary products, which prevents
orders from executing more than a specified number of increments
away from the national best bid or offer (``NBBO'') at the time the
order is received).
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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:
A. significantly affect the protection of investors or the public
interest;
B. impose any significant burden on competition; and
C. become operative for 30 days from the date on which it was
filed, or such shorter time as the Commission may designate, it has
become effective pursuant to section 19(b)(3)(A) of the Act \16\ and
Rule 19b-4(f)(6) \17\ thereunder.\18\ At any time within 60 days of the
filing of the proposed rule change, the Commission summarily may
temporarily suspend such rule change if it appears to the Commission
that such action is necessary or appropriate in the public interest,
for the protection of investors, or otherwise in furtherance of the
purposes of the Act. If the Commission takes such action, the
Commission will institute proceedings to determine whether the proposed
rule change should be approved or disapproved.
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\16\ 15 U.S.C. 78s(b)(3)(A).
\17\ 17 CFR 240.19b-4(f)(6).
\18\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give the Commission
written notice of its intent to file 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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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-2024-004 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-2024-004. 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 subject to copyright protection. All submissions
should refer to file number SR-CBOE-2024-004 and should be submitted on
or before February 14, 2024.
[[Page 4645]]
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\19\
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\19\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-01304 Filed 1-23-24; 8:45 am]
BILLING CODE 8011-01-P
