[Federal Register Volume 85, Number 64 (Thursday, April 2, 2020)]
[Notices]
[Pages 18610-18612]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-06857]
[[Page 18610]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-88502; File No. SR-CBOE-2020-027]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change Relating
To Amend Rule 6.6 in Connection With Updates Permitted Through the
Clearing Editor
March 27, 2020.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on March 26, 2020, Cboe Exchange, Inc. (the ``Exchange'' or ``Cboe
Options'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I, and
II below, which Items have been prepared by the Exchange. The Exchange
filed the proposal as a ``non-controversial'' proposed rule change
pursuant to Section 19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-
4(f)(6) thereunder.\4\ The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A)(iii).
\4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Cboe Exchange, Inc. (the ``Exchange'' or ``Cboe Options'') proposes
to amend Rule 6.6 in connection with updates permitted through the
Clearing Editor. 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 (http://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 proposed rule change amends Rule 6.6(d), which describes
updates that may be made to trades executed in open outcry through the
Clearing Editor and accompanied by a Reason Code, to permit such
updates to be made to trades executed electronically.
The Clearing Editor allows Trading Permit Holders to update
executed trades on their trading date and revise them for clearing. The
Clearing Editor may be used to update certain information entered
pursuant to Rule 6.1 or to correct certain bona fide errors. Rule
6.6(b) permits Trading Permit Holders (``TPHs'') to change certain
fields in Clearing Editor in connection with orders executed
electronically and in open outcry. Such fields may include: (1)
Executing Firm and Contra Firm; (2) Executing Broker and Contra Broker;
(3) CMTA; (4) Account and Sub Account; (5) Client Order ID; (6)
Position Effect (open/close); (7) Capacity; \5\ (8) Strategy ID; (9)
Frequent Trader ID; (10) Compression Trade ID; or (11) ORS ID. Rule
6.6(d) currently provides that, in addition to the fields listed in
paragraph (b), TPHs may change the following fields through the
Clearing Editor for trades executed in open outcry: (1) Series, (2)
Quantity, (3) Buy or Sell; or (4) Price. Each of these changes must be
accompanied by a Reason Code.\6\ Notification of changes made pursuant
to this paragraph (d) will automatically be sent to the Exchange with
the submission of the changes through the Clearing Editor. The Exchange
notes that, prior to a recent technology migration,\7\ the Exchange
Rules allowed for TPHs to make the updates enumerated in 6.6(d) to
their trades executed electronically.
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\5\ If the change is from a customer Capacity code of (C) to any
other Capacity code, it must be accompanied by a Reason Code and
notice of such change will automatically be sent to the Exchange
with the submission of the change through the Clearing Editor.
\6\ Example Reason Codes include: Input Error; Unmatched Trade;
Unknown; Manual Add; Other Text Required; Trade Nullification; Trade
Adjustment; Error Account; and System Issue.
\7\ See Securities Exchange Act Release No. 87079 (September 24,
2019) 84 FR 51693 (September 30, 2019) (SR-CBOE-2019-062).
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Many TPHs currently split single trades into multiple smaller
trades (or post-trade allocations), each of which may be adjusted or
nullified according to the mutual adjustment process in Rule 6.5
(Nullification and Adjustment of Options Transactions Including Obvious
Error). A TPH may easily update (adjust or nullify) an allocated
portion of a trade executed in open outcry via the Clearing Editor and
pursuant to Rule 6.6(d). A TPH that seeks to update an allocated
portion of an electronically executed trade, however, must do so
through the Trade Desk,\8\ and the TPH may then only nullify and re-
enter the single trade in its entirety, despite the fact that only one
partial trade needed to be busted and re-entered.
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\8\ See C1 Options Mutual Adjust/Bust Form, available at https://markets.cboe.com/us/options/trading/mutual_adjust_or_bust_form/?mkt=cone (March 23, 2020).
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For example, a broker may execute a trade of 100 contracts for
Buyer 1 and then may add the Contra Firm via Clearing Editor, pursuant
to Rule 6.6(b), allocating 50 contracts to Seller 1, 25 contracts to
Seller 2, and 25 contracts to Seller 3.\9\ The broker may subsequently
realize that the 25 contracts allocated to Seller 3 should have been
allocated to Seller 4. If executed in open outcry, the broker would be
able to update the relevant allocated portion (Quantity) in the
Clearing Editor pursuant to Rule 6.6(d) and the appropriate Clearing
Editor messages would then be sent to the relevant TPHs (i.e., Seller 3
receives a Clearing Editor cancel message for 25 contracts, Buyer 1
receives a cancel message for 25 contracts with Seller 3 as the Contra
Firm; Seller 4 receives an execution message for 25 contracts with
Buyer 1 as the Contra Firm, and Buyer 1 receives a new execution
message for 25 with Seller 4 as the Contra Firm). If executed
electronically, the broker is currently unable to make these updates
via the Clearing Editor, and instead, must nullify the entire trade
(including the allocations apportioned to Seller 1 and Seller 2) and
re-enter the trade details for all three portions via the Trade Entry
tool.\10\ Re-entry of trades using this process does not currently
disseminate messages regarding updated trade executions and Contra
Firms to relevant parties, which results in trade processing issues for
Clearing TPHs. As such, the Exchange proposes to amend Rule 6.6(d) by
removing its restriction to trades executed in open outcry in order
[[Page 18611]]
to permit TPHs to make updates through the Clearing Editor to the
fields enumerated in Rule 6.6(d), accompanied by a Reason Code, for
their trades executed in either open outcry or electronically.
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\9\ The Exchange notes that a broker might do this for a trade
executed electronically where, for example, the broker executes a
trade in the Automated Improvement Mechanism (``AIM Auction'')
through PULSe, which does not currently provide functionality that
allows a broker to add Contras to the trade. Therefore, the broker
would have to allocate the trade and submit the Contras via the
Clearing Editor following the transaction.
\10\ The Trade Entry Tool allows TPHs to enter the other side of
unmatched trades and is part of the Clearing Editor.
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As indicated above, up until October 2019, the Exchange Rules
permitted TPHs to make changes permitted by Rule 6.6(d) to their trades
executed electronically and in open outcry, and currently, TPHs may
essentially continue to adjust the same fields enumerated in Rule
6.6(d) for their electronic orders by submitting a mutual adjustment
request through the Trade Desk, and thereafter re-entering the entire
trade with the updated fields. Because the same reasons that require
TPHs to update trades pursuant to Rule 6.6(d) apply to executions
electronically and in open outcry, the Exchange believes it is
appropriate to permit TPHs to updates all trades pursuant to Rule
6.6(d) as they previously could. The Exchange believes this will
streamline the process when updates need to be made in connection with
busts and adjusts of partial trades. The Exchange notes that, like for
open outcry trades today, all TPHs that update Rule 6.6(d) fields for
their electronic trades will be required to accompany such changes with
a Reason Code (which is automatically prompted by the Clearing Editor).
Accordingly, this enables the Exchange to better surveil for and
enforce against potential issues or abusive behavior via the Clearing
Editor and in connection with the adjustment process by allowing the
Exchange to automatically receive information regarding the changes and
understand the rationale behind all such changes.
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.\11\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \12\ 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) \13\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
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\11\ 15 U.S.C. 78f(b).
\12\ 15 U.S.C. 78f(b)(5).
\13\ Id.
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In particular, the Exchange believes that the proposed rule change
will foster cooperation and coordination with persons engaged in
clearing and processing information with respect to securities and will
remove impediments to and perfect the mechanism of a free and open
market and a national market system, as it is intended to reduce
potential issues in the processing of post-trade information and
facilitate a more effective adjustment process. The proposed rule
change will allow TPHs to adjust and/or nullify only the relevant
portions of electronically executed trades, rather than having to
nullify and re-enter the entire trade, and will ensure that all
relevant parties to the revised transaction receive information
regarding the changes. The Exchange further believes that the proposed
rule change does not raise and new or novel issues or processes for
TPHs, as they are currently able to update the same fields for their
trades executed in open outcry (and were until fewer than six months
ago permitted to make such updates to their trades executed
electronically), pursuant to Rule 6.6(d), previously filed with the
Commission.\14\ As described above, TPHs make currently make the same
updates to their electronic executions through another, more onerous
process through the Trade Desk and Trade Entry tool. The Exchange
believes the proposed rule change will streamline the process when
updates need to be made in connection with busts and adjusts of partial
trades, which efficiency the Exchange believes will remove impediments
to and perfect the mechanism of a free and open market and a national
market system, which in general will benefit TPHs. Furthermore, the
Exchange believes that continuing to require a TPH to submit a Reason
Code via the Clearing Editor in conjunction with any change made
pursuant to Rule 6.6(d), will assist in preventing fraudulent and
manipulative acts and otherwise promote just and equitable principles
of trade because it would allow the Exchange to automatically be
notified of Rule 6.6(d) changes and the rationale behind such changes.
This, in turn, will continue to allow the Exchange to better surveil
for and enforce against potential issues or abusive behavior via the
Clearing Editor, thus, protecting investors and the public interest.
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\14\ See Securities Exchange Act Release No. 73439 (October 27,
2014) 79 FR 64846 (October 31, 2014) (SR-CBOE-2014-082). Prior to
the October 7, 2019 technology migration, current Rule 6.6(d) was
Rule 6.67(b).
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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 the proposed rule change would impose any burden on intramarket
competition that is not necessary or appropriate in furtherance of the
Act, because it would again allow all TPHs to make updates to
(including providing a requisite Reason Code) the fields enumerated
under Rule 6.6(d) for their trades executed electronically and in open
outcry in the same manner. The Exchange notes that the proposed rule
change does not restrict any the fields that a TPH may currently change
via the Clearing Editor, but merely extends the existing permissible
changes to all trades. The Exchange does not believe that the proposed
rule change would impose any burden on intermarket competition, because
the proposed rule change is not intended to address competitive issues,
but rather, is concerned with the correction of post-trade information
and the reduction of any post-trade processing issues.
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 \15\ and Rule 19b-
4(f)(6) thereunder.\16\
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\15\ 15 U.S.C. 78s(b)(3)(A).
\16\ 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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[[Page 18612]]
A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the
Act \17\ normally does not become operative for 30 days after the date
of its filing. However, Rule 19b-4(f)(6)(iii) \18\ permits the
Commission to designate a shorter time if such action is consistent
with the protection of investors and the public interest. The Exchange
has asked the Commission to waive the 30-day operative delay. The
Exchange believes that waiver of the operative delay is consistent with
the protection of investors and the public interest because, as the
Exchange discussed above, its proposal is intended to facilitate the
processing of post-trade information and mitigate any issues that may
arise from the current post-electronic trade update process.
Particularly, the Exchange believes that putting the proposed rule
change into operation as soon as possible would assist floor brokers
currently trading electronically to continue to use the Clearing Editor
for post-trade adjustments while the Exchange's trading floor is
inoperable due to the novel coronavirus.\19\ As stated above, the
Exchange believes that the proposed rule change would not impact TPHs
nor raise any new or novel issues or processes for them, as they are
able (when the Exchange floor is operable) to implement the same
process for their open outcry trades, and have, up until recently,\20\
been able to do so for their electronic executions. For these reasons,
the Commission believes that waiver of the 30-day operative delay is
consistent with the protection of investors and the public interest.
Accordingly, the Commission hereby waives the 30-day operative delay
and designates the proposal operative upon filing.\21\
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\17\ 17 CFR 240.19b-4(f)(6).
\18\ 17 CFR 240.19b-4(f)(6)(iii).
\19\ See Tradedesk Update No. C2020031204 (March 12, 2020) Novel
Coronavirus Update, Trading Floor Closure.
\20\ See Securities Exchange Act Release No. 87079 (September
24, 2019) 84 FR 51693 (September 30, 2019) (SR-CBOE-2019-062).
\21\ For purposes only of waiving the 30-day operative delay,
the Commission also has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please
include File Number SR-CBOE-2020-027 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-CBOE-2020-027. 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 (http://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-CBOE-2020-027 and should be submitted on
or before April 23, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\22\
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\22\ 17 CFR 200.30-3(a)(12).
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-06857 Filed 4-1-20; 8:45 am]
BILLING CODE 8011-01-P