Notice2021-16966
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Rules 3.31, 3.33 and 3.34
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Published
August 10, 2021
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 86 Issue 151 (Tuesday, August 10, 2021)</title>
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[Federal Register Volume 86, Number 151 (Tuesday, August 10, 2021)]
[Notices]
[Pages 43701-43704]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-16966]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-92562; File No. SR-CBOE-2021-043]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
Rules 3.31, 3.33 and 3.34
August 4, 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 July 22, 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 substantially prepared by the
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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
The Exchange proposes to amend Rules 3.31, 3.34 and 3.33. The text
of the proposed rule change is provided in Exhibit 5.
The text of the proposed rule change is 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 certain registration rules including
(i) Rule 3.31 to update an incorrect cross-reference, (ii) Rule 3.33 to
update a Regulatory Element Program reference and (iii) Rule 3.34 to
provide the option of filing an initial or a transfer electronic Form
U4 filing and any amendments to the disclosure information on Form U4
based on a manually or an electronically signed copy of the form, each
as described below.
Proposed Rule Change to Rule 3.31
Rule 3.31 (Registration Categories) currently sets forth
registration requirements for principal and representative registration
categories. In particular, Rule 3.31(a)(2) provides that each principal
as defined in paragraph (a)(1) (of Rule 3.31) is required to register
with the Exchange as a General Securities Principal, subject to certain
exceptions. More specifically, Rule 3.31(a)(2) provides that if a
principal's activities include the functions of a Compliance Officer, a
Financial and Operations Principal, a Securities Trader Principal, a
Securities Trader Compliance Officer, or a Registered Options Principal
``as specified in paragraphs (a)(3) through (a)(6) of . . . Rule
[3.31],'' then the principal must appropriately register in one or more
of these categories. The Exchange notes however that the aforementioned
categories are described under paragraphs (a)(3) through (a)(7) \5\
(instead of through (a)(6)) and that the Exchange inadvertently omitted
to cross-reference subparagraph (a)(7). Accordingly, the Exchange
proposes to update the reference to (a)(6) to (a)(7) in the rule text
to accurately reflect the corresponding subparagraphs to the
registration categories listed under Rule 3.31(a)(2)(A)(i).
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\5\ See Rule 3.31(a)(7), which describes the requirements to
register as a Registered Options Principal.
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Proposed Rule Change to Rule 3.33
Existing Rule 3.33 (Continuing Education for Registered Persons)
includes Regulatory Elements for Exchange registered persons. The
Regulatory Elements are Continuing Education (``CE'') programs
administered by the Financial Industry Regulatory Industry, Inc.
(``FINRA'') and consist of periodic computer-based training on
regulatory, compliance, ethical, and supervisory subjects, and sales
practice standards. Pursuant to current Rule 3.33(a)(3), the Exchange
offers the following Regulatory Elements for Exchange registered
persons: The S201 for registered principals and supervisors; the S106
for persons registered only as Investment Company and Variable
Contracts Representatives; and the S101 for all other registered
persons. The Exchange proposes to amend Rule 3.33(a)(3), to be
consistent with FINRA's most current CE programs. Specifically, the
Exchange proposes to remove the language in Rule 3.33(a)(3) that
provides that the S106 Regulatory Element CE Program is offered for
persons registered only as Investment Company and Variable Contracts
Representatives. In December 2018, the content from S106 became part of
the S101 Regulatory Element CE Program and was retired as a stand-alone
program.\6\ As a result, persons registered only as Investment Company
and Variable Contracts Representatives who complete the S106 CE
Program, pursuant to Rule 3.33(a)(3), are now required to complete the
S101 CE Program, as is currently the case for all other registered
persons. Therefore, the Exchange proposes to update Rule 3.33(a)(3) to
reflect this CE Program change by removing the language in Rule
3.33(a)(3) that provides that the S106 is offered for persons
registered only as Investment Company and Variable Contracts
Representatives while maintaining the existing language that provides
that the S101 is offered for all other registered persons.
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\6\ See FINRA Information Notice, Administrative Changes to the
Continuing Education Regulatory Element Programs (December 2, 2018),
available at: <a href="https://www.finra.org/rules-guidance/notices/information-notice-100218">https://www.finra.org/rules-guidance/notices/information-notice-100218</a>.
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Proposed Rule Change to Rule 3.34
Paragraph (c) of Rule 3.34 (Electronic Filing Requirements for
Uniform Forms), currently sets forth Form U4 filing requirements.
Specifically, Rule 3.34(c) provides that initial and transfer
electronic Form U4 filings and any amendments to the disclosure
information on Form U4 must be based on a manually signed Form U4
provided to the Trading Permit Holder (``TPH'') or applicant for
membership by the person on whose behalf the Form U4 is being filed,
consistent with FINRA Rule 1010(c). However, FINRA recently amended
their Rule 1010(c) to permit firms to choose to rely on electronic
signatures to satisfy the signature requirements when filing Form
U4.\7\ The Exchange proposes to amend Rule 3.34 to similarly allow
firms to rely on electronic signatures when filing Form U4, consistent
with FINRA Rule 1010(c).
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\7\ See Securities Exchange Release No. 91262 (March 5, 2021),
86 FR 13935 (March 11, 2021) (SR-FINRA-2021-003).
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Specifically, the Exchange proposes to amend Exchange Rule 3.34,
similar to the amendments made by FINRA, to provide firms the option of
filing an initial or a transfer Form U4 based on a manually or an
electronically signed copy of the form provided to the TPH, or
applicant for membership, by the individual on whose behalf the form is
being filed. As such, the proposed rule change removes the term
``manual'' from manual signature and the term ``manually'' from
manually signed in Rule 3.34(c) and in Interpretation and Policy .03 to
Rule 3.34.\8\ The proposed
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rule change provides TPHs, and applicants for membership, with an
opportunity to better manage operational challenges. Particularly, the
COVID-19 pandemic amplified the need to better manage operational
challenges like those that arose during the pandemic \9\ and that may
continue to arise in the future. The proposed rule change would not
require the use of a particular type of technology to obtain a valid
electronic signature from the associated person. The Exchange believes
that some firms may be unable to obtain the manual signature of
applicants for registration resulting in a significant operational
backlog. By permitting these firms to rely on electronic signatures to
satisfy the signature requirements of Exchange Rule 3.34, the proposed
rule change may reduce or eliminate this backlog. For purposes of the
proposed rule change, a valid electronic signature would be any
electronic mark that clearly identifies the signatory and is otherwise
in compliance with the Electronic Signatures in Global and National
Commerce Act (``E-Sign Act'') and the guidance issued by the Commission
relating to the E-Sign Act.\10\
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\8\ The proposed rule change also makes minor, nonsubstantive
formatting changes, including: Adding a period at the end of the
heading for Rule 3.34(c), which is uniform with subparagraph
headings throughout the Rulebook; and adding the phrase ``of this
Rule'' following references to subparagraph (c)(3) to provide for
additional clarity regarding rule references.
\9\ See SR-FINRA-2021-003, 86 FR at 13937 (noting the same in
connection with the FINRA filing).
\10\ See accord Securities Exchange Act Release No. 85282 (March
11, 2019), 84 FR 9573 (March 15, 2019) (Order Approving File No. SR-
FINRA-2018-040) (discussing valid electronic signatures under
existing guidance).
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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.\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.
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\11\ 15 U.S.C. 78f(b).
\12\ 15 U.S.C. 78f(b)(5).
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In particular, the Exchange believes the proposed rule change
promotes just and equitable principles of trade and removes impediments
to and perfects the mechanisms of a free and open market and a national
market system and, in general, protects investors and the public
interest, by amending an incorrect cross-reference in Rule 3.31 and a
reference to an obsolete CE Program to reflect the current CE Programs
administered by FINRA. Moreover, the proposed rule change updates the
Exchange Rules to be consistent with current CE Program requirements
and is designed to protect investors by ensuring accuracy and clarity
relating to cross references in its rules and regarding CE for TPHs in
Rule 3.33. Furthermore, the proposed rule change provides firms with
the flexibility to rely on electronic signatures to satisfy the
signature requirements of Rule 3.34. Specifically, the Exchange
proposes to amend Exchange Rule 3.34, similar to the amendments made by
FINRA, to provide the option of filing an initial or a transfer Form U4
based on a manually or an electronically signed copy of the form
provided to the TPH, or applicant for membership, by the individual on
whose behalf the form is being filed. Considering the technological
advancements that provide for enhanced authentication and security of
electronic signatures, the Exchange believes that it is appropriate to
amend Rule 3.34 to provide such flexibility. The proposed rule change
also addresses the ongoing public health risks stemming from the
outbreak of COVID-19 and the operational challenges that firms continue
to face as a result of pandemic repercussions.\13\ By permitting these
firms to rely on electronic signatures to satisfy the signature
requirements of Rule 3.34, the proposed rule change may reduce or
eliminate an operational backlog due to the difficulty firms may have
faced in obtaining the manual signature of applicants for registration
as a result of the impact of the pandemic on daily work environments.
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\13\ See supra note 9.
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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 as the proposed rule changes to
update an incorrect cross-reference and delete an obsolete CE Program
reference are merely clarifying in nature and are not meant to address
any competitive issue. The proposed change relating to manual
signatures is, in all material respects, substantively identical to
recent rule changes adopted by FINRA. The Exchange believes the
proposed change will reduce a regulatory burden for TPHs by allowing
them to rely on Form U4 copies with an electronic signature. All TPHs
will have the option to rely on such forms with an electronic signature
(or continue to rely on forms with a manual signature). Also, all
persons registered only as Investment Company and Variable Contracts
Representatives Regulatory Element are already required to complete the
S101 CE Program, as FINRA replaced S106 with S101 in 2018; the proposed
rule change just updates the Regulatory Element number in the Rules
accordingly.
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 changes are based upon the same changes recently made to
FINRA Rule 1010(c) and consistent with the current Regulatory Element
CE Programs administered by FINRA, as well as updates an incorrect
cross-reference in the rules.
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 \14\ and Rule 19b-
4(f)(6) \15\ thereunder.
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\14\ 15 U.S.C. 78s(b)(3)(A).
\15\ 17 CFR 240.19b-4(f)(6).
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A proposed rule change filed under Rule 19b-4(f)(6) normally does
not become operative for 30 days after the date of filing. However,
pursuant to Rule 19b-4(f)(6)(iii), the Commission may designate a
shorter time if such action is consistent with the protection of
investors and the public interest. The
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Exchange has asked the Commission to waive the 30-day operative delay
so that the proposed rule change may become operative immediately upon
filing. As noted by the Exchange, correcting the cross-reference in
Rule 3.31(a)(2)(A)(i) and updating the reference to an obsolete CE
Program in Rule 3.33(a)(3) would immediately alleviate potential
confusion in connection with the Exchange's publicly available
rulebook. The Exchange also states that the proposed rule changes will
help ensure accuracy and clarity relating to cross references in its
rules and regarding CE for TPHs. Additionally, the Exchange notes that
the proposed rule change to Exchange Rule 3.34 is based on a similar
rule change by FINRA that has already taken effect. Finally, as the
Exchange notes above in regard to its proposed rule change allowing
electronic signatures to satisfy the signature requirements of Rule
3.34, the COVID-19 pandemic amplified the need to better manage
operational challenges like those that arose during the pandemic \16\
and that may continue to arise in the future.
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\16\ See supra note 9 (where FINRA noted the same). In that
filing, FINRA also requested and the Commission granted a waiver of
the 30-day operative delay. See SR-FINRA-2021-003, 86 FR at 13938-9.
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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.\17\
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\17\ For purposes only of waiving the 30-day operative delay,
the Commission has considered the proposed rule change'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
<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#d6a4a3bab3fbb5b9bbbbb3b8a2a596a5b3b5f8b1b9a0"><span class="__cf_email__" data-cfemail="3f4d4a535a125c5052525a514b4c7f4c5a5c11585049">[email protected]</span></a>. Please include
File Number SR-CBOE-2021-043 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-2021-043. 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 (<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 such 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 submissions. You should submit only information that
you wish to make available publicly. All submissions should refer to
File Number SR-CBOE-2021-043 and should be submitted on or before
August 31, 2021.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\18\
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\18\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-16966 Filed 8-9-21; 8:45 am]
BILLING CODE 8011-01-P
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