Notice2021-19858
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Rule 5.32 in Connection With Participation Entitlements
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Published
September 15, 2021
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 86 Issue 176 (Wednesday, September 15, 2021)</title>
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[Federal Register Volume 86, Number 176 (Wednesday, September 15, 2021)]
[Notices]
[Pages 51408-51410]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-19858]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-92913; File No. SR-CBOE-2021-052]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
Rule 5.32 in Connection With Participation Entitlements
September 9, 2021.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that, on September 2, 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 \4\ and Rule
19b-4(f)(6) thereunder.\5\ 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\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
\4\ 15 U.S.C. 78s(b)(3)(A)(iii).
\5\ 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 5.32 in connection with participation entitlements. 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
[[Page 51409]]
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 5.32(a)(2)(B), in connection
with participation entitlements, to clarify the manner in which the
System treats non-Priority Customers with orders and quotes at the same
price and to correct certain inadvertent rule text regarding the manner
in which the System applies the PMM participation entitlement
percentages. In particular, Rule 5.32(a)(2)(B) governs participation
entitlements for Designated Market-Makers (``DPMs''), Lead Market-
Makers (``LMMs'') and Preferred Market-Makers (``PMMs'') and currently
provides that the Exchange may apply one or more of the DPM, LMM, and
PMM participation entitlements (in any sequence) to a class. If the
DPM, LMM, or PMM, as applicable, has a quote at the highest bid or
lowest offer, it will receive the greater of (i) the number of
contracts it would receive pursuant to the applicable base allocation
algorithm and (ii) 50% of the contracts if there is one other non-
Priority Customer order or quote, 40% of the contracts if there are two
non-Priority Customer orders or quotes, or 30% of the contracts if
there are three or more non-Priority Customer orders or quotes on the
Book at that price.
First, the proposed rule change updates Rule 5.32(a)(2)(B) to
clarify the manner in which the System treats non-Priority Customer
orders and quotes. For the purposes of the participation entitlement,
the System currently counts the number of firms at each price level,
aggregating orders or quotes per firm, rather than counting the number
of each separate order or quote. Therefore, to reflect current System
functionality, the proposed rule change removes references to
individual non-Priority Customer orders and quotes in Rule
5.32(a)(2)(B) and updates the language to provide that, if the DPM or
LMM,\6\ as applicable, has a quote at the highest bid or lowest offer,
it will receive the greater of (i) the number of contracts it would
receive pursuant to the applicable base allocation algorithm and (ii)
50% of the contracts if there is one other non-Priority Customer, 40%
of the contracts if there are two non-Priority Customers, or 30% of the
contracts if there are three or more non-Priority Customers with orders
or quotes on the Book at that price.
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\6\ The proposed rule change removes ``PMM'' from this provision
and adopts language in connection with participation entitlement
percentages application to PMMs, as described in further detail in
this proposal.
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Second, the proposed rule change updates Rule 5.32(a)(2)(B) to be
consistent with the manner in which the System currently applies the
participation entitlement percentages for PMMs. The System currently
applies a 50%/40% participation entitlement percentage structure to
PMMs, as opposed to the 50%/40%/30% participation entitlement
percentage structure that, pursuant to Rule 5.32(a)(2)(B), applies to
all three Market-Maker types. Therefore, to reflect current System
functionality, the proposed rule change adopts language in Rule
5.32(a)(2)(B) to provide that, if the PMM, as applicable, has a quote
at the highest bid or lower offer, it will receive the greater of (i)
the number of the contracts it would receive pursuant to the applicable
base allocation algorithm and (ii) 50% of the contracts if there is one
other non-Priority Customer, or 40% of the contracts if there are two
or more non-Priority Customers with orders or quotes on the Book at
that price. The current participation entitlement percentage structure
for DPMs and LMMs (i.e., 50%/40%/30%) will remain the same and the
Exchange may continue to apply one or more of the participation
entitlements for DPMs and LMMs, and for PMMs, as proposed, (in any
sequence) to a class. The Exchange notes that it previously
restructured its Rules related to order entry and allocation, including
the participation entitlement provisions, in connection with a 2019
technology migration. Prior to this restructuring, separate provisions
governed the participation entitlement percentages for PMMs, DPMs, and
LMMs. The provision that governed the PMM participation entitlements
provided for the same 40%/50% participation entitlement structure as
proposed herein \7\ and the provisions that governed the DPM and LMM
participation entitlements provided for the same participation
entitlement percentage structure for DPMs and LMMs as Rule
5.32(a)(2)(B) currently provides for today. Upon the migration-related
restructuring of its Rules, the Exchange intended to continue to apply
the 50%/40% participation entitlement percentage structure to PMMs and
the 50%/40%/30% participation entitlement percentage structure to DPMs
and LMMs. Indeed, following the restructuring, the System today
continues to apply the 50%/40% participation entitlement percentage
structure to PMMs and the 50%/40%/30% participation entitlement
percentage structure to DPMs and LMMs. However, in the migration-
related filing that restructured the rules governing participation
entitlements by combining such rules, the Exchange inadvertently
applied the 50%/40%/30% participation entitlement percentage structure
to all three Market-Maker types. Therefore, the proposed rule change
updates the Rule to correct this inadvertent rule change and make
explicit that the 50%/40% participation entitlement percentage
structure continues to apply to PMMs, consistent with the pre-migration
provision that was previously filed with the Commission.
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\7\ Specifically, prior Rule 8.13(c) provided that the PMM
participation entitlement is the greater of one contract or 40% when
there are two or more other Market-Maker quotes or broker-dealer
orders at the BBO, and 50% when there is one other Market-Maker
quote or broker-dealer order at the BBO. The Exchange notes that the
current application of the base algorithm, as opposed to one
contract, was the only substantive change intended to be made to
this provision. DPMs, LMMs, and PMMs were intended to continue to be
subject to the obligations that were set forth in the applicable
Rules in place prior to the 2019 technology migration. See
Securities Exchange Act Release No. 86374 (July 15, 2019), 84 FR
34963 (July 19, 2019) (SR-CBOE-2019-033) at footnote 68.
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The Exchange notes the proposed rule changes reflect how the System
currently treats non-Priority Customer with orders or quotes at the
same price for the purposes of the participation entitlement and
reflect the participation entitlement percentages that the System
continues to apply to PMMs today. The proposed rule changes are merely
a clarification and a correction to inadvertently changed rule text
that do not alter any current functionality nor the current
participation entitlement percentage structures, but instead add
clarity to the Rule by more accurately reflecting the current
participation entitlement 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.\8\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \9\ requirements that the rules of an exchange be
designed to prevent fraudulent and manipulative acts and
[[Page 51410]]
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) \10\ requirement that the rules of
an exchange not be designed to permit unfair discrimination between
customers, issuers, brokers, or dealers.
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\8\ 15 U.S.C. 78f(b).
\9\ 15 U.S.C. 78f(b)(5).
\10\ Id.
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In particular, the Exchange believes that the proposed rule changes
regarding the manner in which the System treats non-Priority Customer
with orders and quotes at the same price for the purposes of the
participation entitlement and applies the PMM participation entitlement
percentages removes impediments to and perfects the mechanism of a free
and open market and national market system by amending Rule
5.32(a)(2)(B) to be consistent with current functionality. The proposed
changes are merely a clarification and a correction to inadvertently
changed rule text in the Rule intended to more accurately reflect how
the System currently works, thereby increasing transparency in the Rule
and ultimately benefitting investors. The proposed clarification and
correction do not alter any current functionality nor the current
participation entitlement percentage structures, which are consistent
with pre-migration provisions as previously filed with the Commission,
but instead provide clarity to the Rule by more accurately describing
the current participation entitlement process.
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 proposed rule changes to
Rule 5.32(a)(2)(B) are not competitive in nature but are merely a
clarification and correction in the Rule, consistent with existing
System functionality and intended to provide clarity to the Rule by
more accurately reflecting the current participation entitlement
process. DPMs, LMMs and PMMs will continue to receive participation
entitlements in the same manner as they do today.
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 \11\ and Rule 19b-
4(f)(6) thereunder.\12\ 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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\11\ 15 U.S.C. 78s(b)(3)(A).
\12\ 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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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#394b4c555c145a5654545c574d4a794a5c5a175e564f"><span class="__cf_email__" data-cfemail="f082859c95dd939f9d9d959e8483b0839593de979f86">[email protected]</span></a>. Please include
File Number SR-CBOE-2021-052 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-2021-052. 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 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-2021-052, and should be submitted
on or before October 6, 2021.
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\13\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\13\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-19858 Filed 9-14-21; 8:45 am]
BILLING CODE 8011-01-P
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