Notice2022-00876
Self-Regulatory Organizations; Cboe BYX Exchange, Inc.; Cboe BZX Exchange, Inc.; Cboe EDGA Exchange, Inc.; Cboe EDGX Exchange, Inc.; Order Granting Approval of Proposed Rule Changes To Amend Each Exchange's Rules in Connection With a Risk Setting That Users May Elect To Apply to Their Orders in Hard To Borrow Securities
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 19, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 12 (Wednesday, January 19, 2022)</title>
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[Federal Register Volume 87, Number 12 (Wednesday, January 19, 2022)]
[Notices]
[Pages 2961-2963]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-00876]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-93963; File Nos. SR-CboeBYX-2021-027; SR-CboeBZX-2021-
076; SR-CboeEDGA-2021-024; SR-CboeEDGX-2021-048]
Self-Regulatory Organizations; Cboe BYX Exchange, Inc.; Cboe BZX
Exchange, Inc.; Cboe EDGA Exchange, Inc.; Cboe EDGX Exchange, Inc.;
Order Granting Approval of Proposed Rule Changes To Amend Each
Exchange's Rules in Connection With a Risk Setting That Users May Elect
To Apply to Their Orders in Hard To Borrow Securities
January 12, 2022.
I. Introduction
On November 8, 2021, Cboe BYX Exchange, Inc. (``CboeBYX'') and Cboe
BZX Exchange, Inc. (``CboeBZX''), and on November 18, 2021, Cboe EDGA
Exchange, Inc. (``CboeEDGA'') and Cboe EDGX Exchange, Inc.
(``CboeEDGX,'' and collectively, the ``Exchanges''), each filed with
the Securities and Exchange Commission (``Commission''), pursuant to
Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\
and Rule 19b-4 thereunder,\2\ a proposed rule change to allow each
Exchange to offer its Users \3\ a hard to borrow risk setting
[[Page 2962]]
(``Hard to Borrow List'') that Users may elect to apply to their short
sale orders in U.S. equity securities. The proposed rule changes were
published for comment in the Federal Register on November 29, 2021.\4\
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ A User is any Member or Sponsored Participant who is
authorized to obtain access to the System. See Cboe BYX Rule
1.5(cc); Cboe BZX Rule 1.5(cc); Cboe EDGA Rule 1.5(ee); and Cboe
EDGX Rule 1.5(ee).
\4\ See Securities Exchange Act Release Nos. 93638 (November 22,
2021), 86 FR 67767 (SR-CboeBYX-2021-027) (``BYX Notice''); 93641
(November 22, 2021), 86 FR 67763 (SR-CboeBZX-2021-076) (``BZX
Notice''); 93642 (November 22, 2021), 86 FR 67765 (SR-CboeEDGA-2021-
024) (``EDGA Notice''); and 93643 (November 22, 2021), 86 FR 67774
(SR-CboeEDGX-2021-048) (``EDGX Notice''). The proposed rule changes
are nearly identical.
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The Commission has received no comments on the proposed rule
changes. This order approves the proposed rule changes.
II. Description of the Proposed Rule Changes
The Exchanges propose to include a Hard to Borrow List within their
risk settings. The Exchanges currently offer certain optional risk
settings applicable to a User's activities on the Exchange.\5\ These
risk settings currently provide Users with controls to restrict the
types of securities transacted, including restricted securities and
easy to borrow securities, as well as restricting activity to test
symbols only.\6\
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\5\ See Interpretation and Policy .01 to CboeBYX Rule 11.13;
Interpretation and Policy .01 to CboeBZX Rule 11.13; Interpretation
and Policy .01 to CboeEDGA Rule 11.10; and Interpretation and Policy
.01 to CboeEDGX Rule 11.10.
\6\ See BYX Notice at 67767; BZX Notice at 67764; EDGA Notice at
67765; and EDGX Notice at 67775.
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According to the Exchanges, when utilized, these optional risk
tools act as a risk filter by evaluating a User's orders to determine
whether the orders comply with certain criteria established by the
User.\7\ The proposal will offer Users an optional tool to evaluate
whether their orders comply with User established criteria.\8\
Specifically, orders submitted in securities included on a User's Hard
to Borrow List will be rejected back to the User.\9\ The Hard to Borrow
List resides at a User's port level, a User-specific logical session
used to access the Exchange.\10\ Users may upload a Hard to Borrow List
to their preferred port(s) via a web-based application programming
interface.\11\ When uploaded to the port, Users may apply the setting
to some or all of the market-participant identifiers (MPID) that they
use to access the Exchange via the specified port.\12\
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\7\ Id.
\8\ Id.
\9\ Id.
\10\ Id.
\11\ Id.
\12\ Id.
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The Exchanges state that, as is the case with the Exchanges'
existing risk settings, the User, and not the Exchange, will have the
full responsibility for ensuring that their orders comply with
applicable securities rules, laws, and regulations, and may not rely on
the Hard to Borrow List for any such purpose.\13\ Furthermore, use of
the Hard to Borrow List does not automatically constitute compliance
with Exchange Rules.\14\ The Exchanges state that they do not believe
that the use of the Hard to Borrow List can replace User-managed risk
management solutions.\15\
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\13\ See BYX Notice at 67767; BZX Notice at 67764; EDGA Notice
at 67765; and EDGX Notice at 67775 (citing Securities and Exchange
Act Release No. 50103 (July 28 2004), 69 FR 48007 (August 6, 2004)
(Final Rule: Short Sales) at 48014, regarding hard to borrow lists
and the locate requirements under 17 CFR 242.203 (Regulation SHO
Rule 203--Borrowing and delivery requirements)).
\14\ See BYX Notice at 67767; BZX Notice at 67764; EDGA Notice
at 67766; and EDGX Notice at 67775.
\15\ Id.
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The Exchanges propose to make the risk setting available to their
Users upon request and will not require Users to utilize the Hard to
Borrow List.\16\ The Exchanges also state that they will not provide
preferential treatment to Users using the Hard to Borrow List.\17\
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\16\ Id.
\17\ Id.
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In support of the proposal, the Exchanges assert the Hard to Borrow
List will offer Users another option in efficient risk management of
their access to the Exchange.\18\ For example, the Exchanges state the
Hard to Borrow List may assist some Users in managing borrowing costs
for their short sale transactions.\19\ According to the Exchanges, day
over day borrowing costs in hard to borrow securities may be costly,
and while a locate may be secured by a User prior to routing their
short sale transactions to one of the Exchanges, borrowing costs may
make such transactions less desirable.\20\ The Exchanges state by
utilizing the Hard to Borrow List, Users have a tool that enables them
to manage their costs by rejecting orders in such securities.\21\
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\18\ Id.
\19\ Id.
\20\ Id.
\21\ Id.
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III. Discussion and Commission Findings
After careful review of the proposals, the Commission finds that
the proposed rule changes are consistent with the requirements of the
Act and the rules and regulations thereunder applicable to a national
securities exchange.\22\ In particular, the Commission finds that the
proposed rule changes are consistent with Section 6(b)(5) of the
Act,\23\ which requires, among other things, that the Exchanges' rules
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 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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\22\ In approving the proposed rule changes, the Commission
notes that it has considered the proposed rules' impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
\23\ 15 U.S.C. 78f(b)(5).
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The Commission believes that the proposed rule changes are
reasonably designed to provide a useful risk management tool to Users
on the Exchanges. Adding a Hard to Borrow List could allow Users on the
Exchanges to better manage borrowing costs for such securities. The
Exchanges currently provide risk controls restricting certain
transactions by symbol,\24\ and the Commission believes that the
proposed rule change would provide an additional option for Users
seeking to further tailor their risk management capability while
transacting on the Exchanges.
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\24\ See, e.g., Interpretation and Policy .01 to CboeBYX Rule
11.13(d); Interpretation and Policy .01 to CboeBZX Rule 11.13(d);
Interpretation and Policy .01 to CboeEDGA Rule 11.10(d); and
Interpretation and Policy .01 to CboeEDGX Rule 11.10(d).
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The Commission notes that the proposed Hard to Borrow List is an
optional functionality. The Commission reminds Users electing to use
the proposed risk control to be mindful of their obligations under all
applicable securities laws, rules, and regulations and emphasizes that
the proposed risk control is not a substitute for a Users' own systems,
processes, and procedures for compliance with such laws, rules, and
regulations. The Commission expects the Exchanges to periodically
assess whether its risk control settings are operating in a manner that
is consistent with the promotion of fair and orderly markets.
For the foregoing reasons, the Commission finds that the proposal
is consistent with the requirements of the Act.
IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the Act
\25\ that the proposed rule changes (SR-CboeBYX-2021-027, SR-CboeBZX-
2021-076, SR-CboeEDGA-2021-024, SR-CboeEDGX-
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2021-048), be, and hereby are, approved.
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\25\ 15 U.S.C. 78f(b)(5).
\26\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\26\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-00876 Filed 1-18-22; 8:45 am]
BILLING CODE 8011-01-P
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