Notice2021-11613
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Rule 3.54 and Rule 3.10
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Published
June 3, 2021
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 86 Issue 105 (Thursday, June 3, 2021)</title>
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[Federal Register Volume 86, Number 105 (Thursday, June 3, 2021)]
[Notices]
[Pages 29820-29823]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-11613]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-92057; File No. SR-CBOE-2021-034]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
Rule 3.54 and Rule 3.10
May 27, 2021.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on May 20, 2021, 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 3.54 and Rule 3.10. 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 (<a href="http://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx">http://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx</a>), 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 3.54 in connection with a
Designated Primary Market-Maker (``DPM'') Designee.
Pursuant to Rule 3.54(a), a DPM may act as a DPM solely through its
DPM Designees. A ``DPM Designee'' is an individual who is approved by
the Exchange to represent a DPM in its capacity as a DPM. An individual
must satisfy various requirements, which are included in Rule 3.54(b),
in order to be a DPM Designee of a DPM. Specifically, current Rule
3.54(b)(2) provides that, as one of the requirements, the individual
must be a Responsible Person of the DPM. Additionally, pursuant to
current Rule 3.9(a), each Trading Permit Holder (``TPH'') organization
that is the holder of a Trading Permit that provides electronic access
to the Exchange must designate at least one individual as the
Responsible Person for that TPH organization. The Exchange notes that
Off-Floor DPMs, which is a DPM authorized to function remotely away
from the Exchange's trading floor,\5\ must hold Trading Permits that
provide electronic access to the Exchange. Rule 3.9(a) provides that a
Responsible Person must represent the TPH organization with respect to
a TPH organization's electronic Trading Permit(s) in all matters
relating to the Exchange, and must be a U.S.-based officer, director or
management-level employee of the TPH organization, who is responsible
for the direct supervision and control of Associated Persons of that
TPH organization. Rule 3.9(b) provides that each TPH organization must
designate an individual nominee to represent the organization with
respect to each Floor Broker Trading Permit or Market-Maker Floor
Trading Permit in all matters relating to the Exchange. Thus, an On-
Floor DPM, which operates on the Exchange's trading floor,\6\ is
required to have a nominee for its Market-Maker Floor Trading Permit.
Rule 3.9(b) provides, among other things, that each nominee of a TPH
organization is required to be registered as a Market-Maker if holding
a Market-Making Trading Permit, have authorized trading functions, and
perform Exchange-approved trading functions only on behalf of one TPH
organization. As a result, a nominee is required to be materially
involved in the daily operation of the Exchange business activities of
the TPH organization for which the person is a nominee.
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\5\ See Rule 1.1, Definition of ``Designated Primary Market-
Maker and DPM''.
\6\ See id.
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Rule 3.10(a) requires, among other things, any individual
designated to act as a Responsible Person or nominee desiring to act in
one or more of the trading functions authorized by the Rules of the
Exchange (``Rules'', and individually, ``Rule'') to submit an
application to the TPH Department in a form and manner prescribed by
the Exchange. Additionally, Rule 3.10(d) provides that the TPH
Department shall investigate, among other applicants, each applicant
applying to be a Responsible Person or nominee (with the exception of
any associated person applicant that is a current Trading Permit
Holder, Responsible Person or nominee, any applicant that was a Trading
Permit Holder, Responsible Person or nominee within 9 months prior to
the date of receipt of that applicant's application by the TPH
Department, and any Trading Permit Holder, Responsible Person, nominee
or associated person applicant that was
[[Page 29821]]
investigated by the TPH Department within 9 months prior to the date of
receipt of that applicant's application by the TPH Department).
The Exchange previously restructured its Trading Permits and Rules
regarding Trading Permits in connection with a 2019 technology
migration.\7\ Prior to this restructuring and the above-described Rules
in their current form, all TPH organizations (both electronic and
floor-based) were required to designate an individual nominee to
represent the organization with respect to that Trading Permit in all
matters relating to the Exchange and a nominee could represent either
an electronic or floor-based DPM as a DPM Designee. Now, only floor-
based TPHs are required to designate a nominee while TPHs that hold a
Trading Permit that provides electronic access to the Exchange
(including those designated as Off-Floor DPMs only) are required to
designate a Responsible Person. Upon the migration-related
restructuring of its Rules, the Exchange intended to require a
designation of a nominee only for floor-based Trading Permits and that
TPH organizations holding electronic permits would be required to
designate a Responsible Person and, as such, intended to reference
``Responsible Person'', where appropriate in the Rules, alongside
references to ``nominees''.\8\ In the filing that revised the Rule
governing DPM Designees for the migration,\9\ the Exchange
inadvertently removed the reference to nominee in the Rule governing
DPM Designees, and the Rule now, unintentionally, provides that a DPM
Designee must be a Responsible Person of the DPM, without regard to
whether the DPM is an On-Floor or Off-Floor DPM. This poses an
unnecessary regulatory burden for On-Floor DPMs, who would not
otherwise be required to designate a Responsible Person as a DPM
Designee if not for the inadvertent deletion of the reference to
``nominee'' in Rule 3.54. Therefore, the proposed rule change amends
the DPM Designee requirements in proposed Rules 3.54(b)(1) and (2) to
be clear that, for an Off-Floor DPM, at least one individual must be a
Responsible Person of the DPM, and, for an On-Floor DPM, the individual
must be a nominee of the DPM or an affiliate of the DPM, as was the
requirement for an On-Floor DPM up until the fourth quarter of 2019
when the Exchange inadvertently removed the reference to nominees in
Rule 3.54(b). The proposed rule change also eliminates the DPM Designee
requirement in current Rule 3.54(b)(1) that an individual must be
approved to be a Trading Permit Holder. A Responsible Person is not
required to be approved as a Trading Permit Holder and the Exchange did
not intend upon the migration-related restructuring of its Rules for a
Responsible Person that is a DPM Designee to otherwise be approved as a
Trading Permit Holder. Nominees are already (and will continue to be)
required to approved as Trading Permit Holders pursuant to Rule
3.9(b)(5). As a result, the Exchange believes that the elimination of
this provision will mitigate any potential confusion regarding DPM
Designee requirements.
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\7\ See Securities Exchange Act Release No. 87377 (October 21,
2019), 84 FR 57500 (October 25, 2019) (SR-CBOE-2019-099).
\8\ See Securities Exchange Act Release No. 87024 (September 19,
2019), 84 FR 50545 (September 25, 2019) (SR-CBOE-2019-059), which
provided that, upon migration, a ``DPM, like all member
organizations, will continue to be required to maintain at least one
nominee (or Responsible Person) and may choose to maintain multiple
nominees (or Responsible Persons)'', and that the Exchange ``will
require a designation of a nominee only for floor-based Trading
Permits. TPH organizations that hold electronic permits will be
required to designate a ``Responsible Person'', who must be
affiliated with the TPH''.
\9\ See id.
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Additionally, as described above, a Responsible Person must be a
U.S.-based officer, director or management-level employee of the TPH
organization, who is responsible for the direct supervision and control
of Associated Persons of that TPH organization. Unlike a nominee, a
Responsible Person is not required to have authorized trading functions
on behalf of the DPM. A Responsible Person at the executive or
managerial level might not be involved in the day-to-day trading
activities of the DPM. Therefore, the Exchange proposes to update Rule
3.54(b)(1) so that an Off-Floor DPM may also designate individuals as
DPM Designees that are involved in the performance of trading functions
on behalf of the DPM, much like that of a nominee for an On-Floor DPM,
as proposed. Specifically, the proposed rule change provides that, if
at least one individual satisfies the Responsible Person requirement,
then an Off-Floor DPM may designate additional individuals as DPM
Designees that are not required to be Responsible Persons but must be
involved in the day-to-day trading of the DPM's appointed classes and
otherwise satisfy the DPM Designee requirements (in subparagraphs
(b)(2) through (5)). As a result, an Off-Floor DPM will still be
required to have a Responsible Person DPM Designee but will also be
able to identify an additional DPM Designee that is more intimately
involved in the actual daily trading in the DPM's appointed classes,
which is more aligned with the role of a nominee of an On-Floor DPM.
Lastly, the proposed rule change amends Rules 3.10(a) and (d) to
include the term DPM Designees among the list of individuals required
to apply to the TPH Department of the Exchange and among the list of
individual applicants that the TPH Department must investigate pursuant
to the application process. The proposed rule change ensures that the
Off-Floor DPM Designees that are not necessarily required to be
Responsible Persons, as proposed, must still go through the Exchange's
application process.
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 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 proposed rule change removes impediments to and
perfects the mechanism of a free and open market and national market
system because it removes an unnecessary (and inadvertent) regulatory
burden for On-Floor DPMs that are required, by nature of their on-floor
Market-Maker position, to have a nominee pursuant to Rule 3.9 but do
not hold Trading Permits that provide electronic access to the Exchange
and are therefore not automatically required to designate a Responsible
Person pursuant to Rule 3.9. As such, the proposed rule change allows
an On-Floor DPM to designate a nominee as a DPM Designee, for which
each On-Floor DPM must already have
[[Page 29822]]
in place to represent its Market-Maker Floor Trading Permit(s), instead
of having to take additional steps to identify and designate a
Responsible Person just to qualify as a DPM Designee. The proposed rule
change also reduces any potential confusion for investors by
eliminating an unnecessary and redundant provision that DPM Designees
must be approved as Trading Permit Holders, as this is not a
requirement for Responsible Persons (nor did the Exchange otherwise
intended to be a requirement for Off-Floor DPM Designees) and is
already, and will continue to be, a requirement for all nominees
pursuant to the Rule governing nominee requirements. The Exchange
believes that nominees and Responsible Persons are qualified, pursuant
to the Rules, to respectively represent an On-Floor DPM or Off Floor
DPM. Additionally, the Exchange believes that the proposed rule change
does not raise any new or novel issues nor affect the protection of
investors because the Rules in effect prior the fourth quarter of 2019
provided that DPM Designees were required to be nominees, and TPH
organizations with Floor Trading Permits Trading are still required to
designate nominees pursuant to Rule 3.9.
The Exchange further believes that the proposed rule change removes
impediments to and perfects the mechanism of a free and open market and
national market system because it allows for an Off-Floor DPM to
designate as a DPM Designee an individual who is more intimately
involved in the daily trading functions and performance of the DPM in
its appointed classes, while also still having a DPM Designee that is a
Responsible Person. Although a Responsible Person is qualified to
represent the DPM in all Exchange matters, given the more managerial
and supervisory level requirements to be a Responsible Person, such an
individual might not operate day-to-day trading functions in a DPM's
appointed classes. As such, an Off-Floor DPM will be able to have a DPM
Designee that is more materially involved in the daily trading
operation of the DPM and have authorized trading functions and perform
those functions on behalf of the DPM. The Exchange believes this will
provide additional assurance that a DPM may meets its quoting
requirements and other Market-Maker obligations in its appointed
classes and better align the level of operational responsibility
required for an Off-Floor DPM Designee with that of an On-Floor DPM
Designee, as proposed. For this reason, too, the Exchange also believes
that proposed rule change furthers the objectives of Section 6(c)(3) of
the Act,\13\ which authorizes the Exchange to, among other things,
prescribe standards of financial responsibility or operational
capability and standards of training, experience and competence for its
Trading Permit Holders and person associated with Trading Permit
Holders. The proposed rule change also ensures that every individual
designated to represent a DPM pursuant to the Rules must continue to go
through the Exchange's application and investigation process.
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\13\ 15 U.S.C. 78f(c)(3).
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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 the proposed rule change
requiring a DPM Designee to be a nominee applies equally to all On-
Floor DPMs equally, and the proposed rule change allowing an Off-Floor
DPM to have additional DPM Designees required to be involved in the
day-to-day operation of the DPM in its appointed classes applies
equally to all Off-Floor DPMs.
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 the
proposed rule change only affects DPMs of the Exchange and the
requirements and process regarding their designees. The proposed rule
change is not intended to address any competitive issues, but rather to
more appropriately align the requirements for individuals acting on
behalf of DPMs with respect to their activity on the Exchange.
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)(iii) of the Act \14\ and
subparagraph (f)(6) of Rule 19b-4 thereunder.\15\
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\14\ 15 U.S.C. 78s(b)(3)(A)(iii).
\15\ 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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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission will institute proceedings to
determine whether the proposed rule change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#e496918881c9878b8989818a9097a4978187ca838b92"><span class="__cf_email__" data-cfemail="5b292e373e76383436363e352f281b283e38753c342d">[email protected]</span></a>. Please include
File Number SR-CBOE-2021-034 on the subject line.
Paper Comments
<bullet> Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-CBOE-2021-034. 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
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post all comments on the Commission's internet website (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>). Copies of the submission, all subsequent
amendments, all written statements with respect to the proposed rule
change that are filed with the Commission, and all written
communications relating to the proposed rule change between the
Commission and any person, other than those that may be withheld from
the public in accordance with the provisions of 5 U.S.C. 552, will be
available for website viewing and printing in the Commission's Public
Reference Room, 100 F Street NE, Washington, DC 20549 on official
business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of
the filing also will be available for inspection and copying at the
principal office of the Exchange. All comments received will be posted
without change. Persons submitting comments are cautioned that we do
not redact or edit personal identifying information from comment
submissions. You should submit only information that you wish to make
available publicly. All submissions should refer to File Number SR-
CBOE-2021-034 and should be submitted on or before June 24, 2021.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\16\
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\16\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-11613 Filed 6-2-21; 8:45 am]
BILLING CODE 8011-01-P
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