Notice2021-28571
Self-Regulatory Organizations; Cboe C2 Exchange, Inc.; Notice of Filing and Order Granting Accelerated Approval of a Proposed Rule Change Relating to Certain Fine Amounts in Rule 13.15, Which Governs the Exchange's Minor Rule Violation Plan, and Non-Substantive Clarifying Changes
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
January 5, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
<html>
<head>
<title>Federal Register, Volume 87 Issue 3 (Wednesday, January 5, 2022)</title>
</head>
<body><pre>
[Federal Register Volume 87, Number 3 (Wednesday, January 5, 2022)]
[Notices]
[Pages 504-507]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-28571]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-93887; File No. SR-C2-2021-019]
Self-Regulatory Organizations; Cboe C2 Exchange, Inc.; Notice of
Filing and Order Granting Accelerated Approval of a Proposed Rule
Change Relating to Certain Fine Amounts in Rule 13.15, Which Governs
the Exchange's Minor Rule Violation Plan, and Non-Substantive
Clarifying Changes
December 30, 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 December 16, 2021, Cboe C2 Exchange, Inc. (the ``Exchange'' or
``C2'') 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 Commission
is publishing this notice to solicit comments on the proposed rule
change from interested persons and approving the proposal on an
accelerated basis.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend Rule 13.15, which governs the
Exchange's Minor Rule Violation Plan (``MRVP''), in connection with
applicable fines, as well as a clarifying, nonsubstantive change. 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="https://markets.cboe.com/us/options/regulation/rule_filings/ctwo/">https://markets.cboe.com/us/options/regulation/rule_filings/ctwo/</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 III 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 its MRVP in Rule 13.15(g)(14) in
connection with the fine schedule applicable for minor rule violations
of a Market-Maker's quoting obligations and proposes to update language
in Chapter 13 to reflect recent changes to Cboe Exchange, Inc. (``Cboe
Options'') MRVP. Chapter 13 of the C2 Rulebook incorporates Cboe
Options Chapter 13, in most part, by reference. Rule 13.15 provides for
disposition of specific violations through assessment of fines in lieu
of conducting a formal disciplinary proceeding. Rule 13.15(g) sets
forth the list of specific Exchange Rules under which a Trading Permit
Holder (``TPH'') or person associated with or employed by a TPH may be
subject to a fine for violations of such Rules and the applicable fines
that may be imposed by the Exchange.
The proposed rule change amends the fine schedule applicable to
Maker-Makers for failure to meet Exchange continuous quoting
obligations. The Exchange notes that because Cboe Options Rule
13.15(g)(9) \3\ applies to violations of Cboe Options' Market-Maker
quoting obligations, this subparagraph is inapplicable to Market-Makers
on C2. Instead, the Exchange maintains its own Rule 13.15(g)(14),\4\
which governs minor rule violations of C2 Market-Makers' continuous
quoting obligations. Specifically, Rule 13.15(g)(14) (13.15(g)(9), as
amended) \5\ provides that a fine will be imposed upon a Market-Maker
in accordance with the fine schedule set forth below for failure to
meet its continuous quoting obligations (Rule 5.52(d)):
---------------------------------------------------------------------------
\3\ Previously Cboe Options Rule 13.15(g)(14). The paragraphs in
Cboe Options Rule 13.15(g) were recently renumbered. See Securities
Exchange Release No. 92702 (August 18, 2021), 86 FR 47346 (August
24, 2021) (SR-CBOE-2021-045). As a result, the proposed rule change
updates Rules 13.15(g)(6), (g)(14), and (g)(19) to Rules (g)(4),
(g)(9), and (g)(14), respectively, as well as references where
applicable, to be consistent with the recently renumbered paragraphs
in Cboe Options Rule 13.15(g).
\4\ See id.
\5\ See id.
---------------------------------------------------------------------------
For the first offense during any rolling 24-month period, the fine
schedule imposed by Rule 13.15(g)(14) currently permits the Exchange to
apply a fine ranging between $2,000 and $4,000. For subsequent offenses
during the same period, the fine schedule currently permits the
Exchange to apply a fine ranging between $4,000 and $5,000. The
proposed rule change updates the fine schedule to provide that, during
any rolling 24-month period, the Exchange may give a Letter of Caution
for a first offense, may apply a fine of $1,500 for a second offense,
may apply a fine of $3,000 for a third offense,\6\ and may proceed with
formal disciplinary action for subsequent offenses. As is the case for
all rule violations covered under Rule 13.15(g), the Exchange may
determine that a violation of Market-Maker quoting obligations is
intentional, egregious, or otherwise not minor in nature and choose to
proceed under the Exchange's formal disciplinary rules rather than its
MRVP.\7\ The Exchange may continue to aggregate individual
[[Page 505]]
violations of particular rules and treat such violations as a single
offense.\8\
---------------------------------------------------------------------------
\6\ The Exchange notes that Rule 13.15(a) authorizes the
Exchange to impose a fine, not to exceed $5,000, for minor rule
violations in lieu of commencing a disciplinary proceeding.
Additionally, any fine imposed pursuant to Rule 13.15 that (1) does
not exceed $2,500 and (2) is not contested, shall be reported by the
Exchange to the Commission on a periodic, rather than a current,
basis, except as may otherwise be required by Exchange Act Rule 19d-
1 and by any other regulatory authority.
\7\ See Rule 13.15(f).
\8\ See Rule 13.15(a).
---------------------------------------------------------------------------
The Exchange believes it is appropriate to remove the range of
fines imposed for first and subsequent offenses and, instead, apply a
letter of caution for a first offense, a specified fine amount for a
second and a third offense, and formal disciplinary proceedings for
subsequent offenses. Particularly, the Exchange believes that applying
a lesser penalty (Letter of Caution) for a first offense and then
providing a higher, itemized fine per second and third offenses and,
ultimately, formal disciplinary proceedings for any subsequent offenses
during a rolling 24-month period, will allow the Exchange to levy
progressively larger fines and greater penalties against repeat-
offenders (as opposed to a fine range for any offenses that may come
after a first offense). The Exchange believes this fine structure may
serve to more effectively deter repeat-offenders while providing
reasonable warning for a first offense during a rolling 24-month
period. The Exchange notes that the proposed fine schedule for
violations of a Market Maker's continuous quoting obligation is
identical to the fine schedule under Cboe Options' MRVP for market
maker violations of continuous quoting obligations on Cboe Options. The
Exchange further notes that the proposed change is intended to provide
for consistency across the Exchange's MRVP and the MRVPs of its
affiliated options exchanges, Cboe Options, Cboe BZX Exchange, Inc.
(``BZX Options'') and Cboe EDGX Exchange, Inc. (``EDGX''), as BZX
Options and EDGX Options also intend to file proposals to update their
minor rule violation fines for market maker violations of continuous
quoting requirements on their exchanges in an identical manner.
The proposed rule change also makes a nonsubstantive, clarifying
change to Chapter 13 by removing the provision which currently provides
that Cboe Options Rules 13.15(g)(4), 13.15(g)(5) and 13.15(g)(7) do not
apply to C2.\9\ Cboe Options recently eliminated these provisions from
its MRVP; therefore, this provision is no longer applicable.\10\
---------------------------------------------------------------------------
\9\ As a result of removing this provision, the proposed rule
change also makes a nonsubstantive change to the subsequent
provision by updating the reference to multiple above paragraphs to
instead reference a single above paragraph.
\10\ See Securities Exchange Release No. 92702 (August 18,
2021), 86 FR 47346 (August 24, 2021) (SR-CBOE-2021-045).
---------------------------------------------------------------------------
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. 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.
---------------------------------------------------------------------------
\11\ 15 U.S.C. 78f(b).
\12\ 15 U.S.C. 78f(b)(5).
\13\ Id.
---------------------------------------------------------------------------
The Exchange believes that the proposed rule change to remove the
range of fines imposed for first and subsequent Market-Maker quoting
offenses and, instead, apply a letter of caution for a first offense, a
specified fine amount for a second and a third offense, and formal
disciplinary proceedings for subsequent offenses will assist the
Exchange in preventing fraudulent and manipulative acts and practices
and promoting just and equitable principles of trade, and will serve to
remove impediments to and perfect the mechanism of a free and open
market and a national market system, and, in general, protect investors
and the public interest. Particularly, the Exchange believes that
applying a lesser penalty (Letter of Caution) for a first offense and
then providing an itemized fine per second and third offenses and,
ultimately, formal disciplinary proceedings for any subsequent offenses
during a rolling 24-month period, will allow the Exchange to levy
greater penalties (i.e., formal disciplinary proceedings) against
repeat-offenders (as opposed to a fine range for any offenses that may
come after a first offense) which may serve to more effectively deter
repeat-offenders while providing reasonable warning for a first offense
during a rolling 24-month period. The Exchange believes that more
effectively deterring repeat-offenders and making first instance
offenders aware of their quoting obligation violations and the
subsequent consequences for continued failure, will, in turn, further
motivate Market-Makers to continue to uphold their quoting obligations,
providing liquid markets to the benefit of all investors. The Exchange
again notes that the proposed fine schedule is consistent with the fine
schedule under Cboe Options' MRVP applicable to marker maker violations
of continuous quoting requirements on Cboe Options. As described above,
BZX Options and EDGX Options intend to file proposals to update their
minor rule violation fines applicable to violations of market maker
continuous quoting obligations in the same manner as Cboe Options and
as proposed herein. As such, the proposed rule change is also designed
to benefit investors by providing from consistent penalties across the
MRVPs of the Exchange and its affiliated options exchanges.
Additionally, the proposed clarification in Chapter 13 will benefit
investors by providing for Rules that accurately reflect current Cboe
Options Rule 13.15, which Chapter 13 incorporates, in most part, by
reference.
The Exchange further believes that the proposed rule changes to
Rule 13.15(g) are consistent with Section 6(b)(6) of the Act,\14\ which
provides that members and persons associated with members shall be
appropriately disciplined for violation of the provisions of the rules
of the exchange, by expulsion, suspension, limitation of activities,
functions, and operations, fine, censure, being suspended or barred
from being associated with a member, or any other fitting sanction. As
noted, the proposed rule change amends the fine schedule applicable to
Market-Maker failures to meet their quoting obligations in a manner
that appropriately sanctions such failures.
---------------------------------------------------------------------------
\14\ 15 U.S.C. 78f(b)(6).
---------------------------------------------------------------------------
The Exchange also believes that the proposed change is designed to
provide a fair procedure for the disciplining of members and persons
associated with members, consistent with Sections 6(b)(7) and 6(d) of
the Act.\15\ Rule 13.15, currently and as amended, does not preclude a
TPH or person associated with or employed by a TPH from contesting an
alleged violation and receiving a hearing on the matter with the same
procedural rights through a litigated disciplinary proceeding.
---------------------------------------------------------------------------
\15\ 15 U.S.C. 78f(b)(7) and 78f(d).
---------------------------------------------------------------------------
[[Page 506]]
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 change is
not intended to address competitive issues but rather is concerned
solely with amending its MRVP in connection with the fine schedule for
Market-Maker failures to meet quoting obligations. The Exchange
believes the proposed rule change will strengthen the Exchange's
ability to carry out its oversight and enforcement functions and deter
potential violative conduct.
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. 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="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#2b595e474e06484446464e455f586b584e48054c445d"><span class="__cf_email__" data-cfemail="82f0f7eee7afe1edefefe7ecf6f1c2f1e7e1ace5edf4">[email protected]</span></a>. Please include
File Number SR-C2-2021-019 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-C2-2021-019. 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="https://www.sec.gov/rules/sro.shtml">https://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-C2-2021-019 and should be
submitted on or before January 26, 2022.
IV. Commission's Findings and Order Granting Accelerated Approval of
Proposed Rule Change
The Commission finds that the proposed rule change is consistent
with the requirements of the Act and the rules and regulations
thereunder applicable to a national securities exchange.\16\ In
particular, the Commission finds that the proposed rule change is
consistent with Section 6(b)(5) of the Act,\17\ which requires that the
rules of an exchange be designed to promote just and equitable
principles of trade, to remove impediments and to perfect the mechanism
of a free and open market and a national market system, and, in
general, to protect investors and the public interest. The Commission
also believes that the proposal is consistent with Sections 6(b)(1) and
6(b)(6) of the Act \18\ which require that the rules of an exchange
enforce compliance with, and provide appropriate discipline for,
violations of Commission and Exchange rules. Finally, the Commission
finds that the proposal is consistent with the public interest, the
protection of investors, or otherwise in furtherance of the purposes of
the Act, as required by Rule 19d-1(c)(2) under the Act,\19\ which
governs minor rule violation plans.
---------------------------------------------------------------------------
\16\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
\17\ 15 U.S.C. 78f(b)(5).
\18\ 15 U.S.C. 78f(b)(1) and 78f(b)(6).
\19\ 17 CFR 240.19d-1(c)(2).
---------------------------------------------------------------------------
As stated above, generally the Exchange proposes to: (1) Amend the
fine amounts applicable to a Maker-Maker's failure to meet the
Exchange's continuous quoting obligations, and (2) make non-substantive
and clarifying changes to Chapter 13. Specifically, the Exchange
proposes to amend the fine amounts in proposed Rule 13.15(g)(9) to
provide that, during any rolling 24-month period, the Exchange may give
a Letter of Caution for a first offense, may apply a fine of $1,500 for
a second offense, may apply a fine of $3,000 for a third offense, and
may proceed with formal disciplinary action for subsequent offenses.
The Commission believes that Rule 13.15, as incorporated by
reference, is an effective way to discipline a member for a minor
violation of a rule. The Commission finds that the Exchange's proposal
to amend the fine amounts related to a Market-Maker's failure to meet
the Exchange's quoting obligations as required by Rule 5.52(d), as set
forth in proposed Rule 13.15(g)(9), is consistent with the Act because
it may help the Exchange's ability to better carry out its oversight
and enforcement responsibilities. The Commission also believes that the
Exchange's proposal to make non-substantive changes that reflect
updated rule numbers is consistent with the Act because such changes
will add clarity and accuracy to the Exchange's rules.
In approving the propose rule change, the Commission in no way
minimizes the importance of compliance with the Exchange's rules and
all other rules subject to fines under Rule 13.15. The Commission
believes that a violation of any self-regulatory organization's rules,
as well as Commission rules, is a serious matter. However, Rule 13.15
provides a reasonable means of addressing rule violations that may not
rise to the level of requiring formal disciplinary proceedings, while
providing greater flexibility in handling certain violations. The
Commission expects that the Exchange will continue to conduct
surveillance with due diligence and make a determination based on its
findings, on a case-by-case basis, whether a fine of more or less than
the recommended amount is appropriate for a violation under Rule 13.15
or whether a violation requires formal disciplinary action.
For the same reasons discussed above, the Commission finds good
cause, pursuant to Section 19(b)(2) of the Act,\20\ for approving the
proposed rule change prior to the thirtieth day after the date of
publication of the notice of the filing thereof in the Federal
Register. The proposal will assist the Exchange in preventing
fraudulent and manipulative practices by allowing the Exchange to
adequately enforce compliance with, and provide
[[Page 507]]
appropriate discipline for, violations of Exchange rules. Accordingly,
the Commission believes that a full notice-and-comment period is not
necessary before approving the proposal.
---------------------------------------------------------------------------
\20\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------
V. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the Act
\21\ and Rule 19d-1(c)(2) thereunder,\22\ that the proposed rule change
(SR-C2-2021-019) be, and hereby is, approved on an accelerated basis.
---------------------------------------------------------------------------
\21\ 15 U.S.C. 78s(b)(2).
\22\ 17 CFR 240.19d-1(c)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\23\
---------------------------------------------------------------------------
\23\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2021-28571 Filed 1-4-22; 8:45 am]
BILLING CODE 8011-01-P
</pre><script data-cfasync="false" src="/cdn-cgi/scripts/5c5dd728/cloudflare-static/email-decode.min.js"></script></body>
</html>Indexed from Federal Register on January 5, 2022.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.