Notice2022-06190
Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice of Filing of Amendment No. 1 and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment No. 1, To Amend Rule 25.3, Which Governs the Exchange's Minor Rule Violation Plan, in Connection With Certain Minor Rule Violations and Applicable Fines
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
March 24, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 57 (Thursday, March 24, 2022)</title>
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[Federal Register Volume 87, Number 57 (Thursday, March 24, 2022)]
[Notices]
[Pages 16778-16784]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-06190]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-94470; File No. SR-CboeEDGX-2021-052]
Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice
of Filing of Amendment No. 1 and Order Granting Accelerated Approval of
a Proposed Rule Change, as Modified by Amendment No. 1, To Amend Rule
25.3, Which Governs the Exchange's Minor Rule Violation Plan, in
Connection With Certain Minor Rule Violations and Applicable Fines
March 18, 2022.
I. Introduction
On December 6, 2021, Cboe EDGX Exchange, Inc. (``Exchange'' or
``EDGX'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) \1\ of the Securities
Exchange Act of 1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ a
proposed rule change to amend Rule 25.3, which governs the Exchange's
Minor Rule Violation Plan (``MRVP''), in connection with certain minor
rule violations and applicable fines. The proposed rule change was
published for comment in the Federal Register on December 23, 2021.\4\
On February 3, 2022, the Commission extended the time period within
which to approve the proposed rule change, disapprove the proposed rule
change, or institute proceedings to determine whether to approve or
[[Page 16779]]
disapprove the proposed rule change.\5\ On March 8, 2022, the Exchange
filed Amendment No. 1 to the proposed rule change, which replaced and
superseded the proposed rule change as originally filed.\6\ The
Commission received no comments on the proposed rule change. The
Commission is publishing this notice to solicit comments on Amendment
No. 1 from interested persons and is approving the proposed rule
change, as modified by Amendment No. 1, on an accelerated basis.
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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\ See Securities Exchange Act Release No. 93815 (December 17,
2021), 86 FR 73029.
\5\ See Securities Exchange Act Release No. 94143, 87 FR 7518
(February 9, 2022) (extending the time period to March 23, 2022).
\6\ In Amendment No. 1, the Exchange revised the proposal to:
(1) Provide additional detail and clarification regarding the
Exchange's current and proposed treatment of violations of a Market
Maker's quoting obligations, (2) correct an inadvertent error in the
Exhibit 5, and (3) remove a superfluous provision in the Exhibit 5
to provide for additional clarity. Amendment No. 1 to the proposed
rule change is available at: <a href="https://www.sec.gov/rules/sro/cboeedgx.htm">https://www.sec.gov/rules/sro/cboeedgx.htm</a>.
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II. The Exchange's Description of the Proposed Rule Change, as Modified
by Amendment No. 1
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 its MRVP in Rule 25.3 in connection
with certain minor rule violations and applicable fines. Rule 25.3
provides for disposition of specific violations through assessment of
fines in lieu of conducting a formal disciplinary proceeding.\7\
Current Rule 25.3(a)-(g) sets forth a list of specific Exchange Rules
under which an Options Member, associated person of an Options Member,
or registered or non-registered employee of an Options Member may be
subject to a fine for violations of such Rules and the applicable fines
that may be imposed by the Exchange.
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\7\ The Exchange may, with respect to any such violation,
proceed under Rule 8.15 (Imposition of Fines for Minor Violation(s)
of Rules) and impose the fine set forth in Rule 25.3(a)-(g).
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Specifically, the proposed rule change amends Rule 25.3 by: (1)
Eliminating violations of Rule 22.6(a) (regarding Market Maker firm
quotes) in Rule 25.3(c), which currently imposes fines for violations
of Rules 22.6(a) through (c) (Market Maker Quotations); (2) relocating
violations of Rule 22.6(b) (regarding Market Maker initial quote volume
requirements) and Rule 22.6(c) (regarding Market Maker two-sided quote
requirements) to Rule 25.3(d),\8\ which currently imposes fines for
violations of Rule 22.6(d) (regarding Market Maker continuous quoting
obligations) so that a single MRVP provision governs violations of a
Market Maker's quoting obligations; and (3) updating the fine schedule
applicable to minor rule violations related to Market Maker quoting
obligations (i.e., Rules 22.6(b)-(d), as proposed) in Rule 25.3(d).
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\8\ As a result of the proposed elimination or relocation of the
rule violations listed under Rule 25.3(c), the proposed rule change
ultimately eliminates Rule 25.3(c) from the MRVP and subsequently
renumbers current Rules 25.3(d), 25.3(e), 25.3(f) and 25.3(g) to
Rules 25.3(c), 25.3(d), 25.3(e) and 25.3(f), respectively.
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First, the proposed rule change eliminates the violation of 22.6(a)
currently in Rule 25.3(c) of the MRVP. Specifically, Rule 22.6(a)
requires a Market Maker to submit bids and offers that are firm for all
orders. The Exchange no longer believes violations of Rule 22.6(a) to
be minor in nature and therefore proposes to remove it from the list of
rules in Rule 25.3 eligible for a minor rule fine disposition.
Particularly, the Exchange believes that violations of Rule 22.6(a), to
the extent they would occur,\9\ may directly impact trading on the
Exchange, the maintenance of a fair and orderly market and customer
protections because honoring firm quotations is vital in promoting
efficient functioning of intermarket price priority and trading in
general. Pursuant to Rule 25.3, the Exchange is not required to proceed
under said Rules as to any rule violation and may, whenever such action
is deemed appropriate, commence a disciplinary proceeding under Chapter
VIII (Discipline) rules as to any such violation. The Exchange notes
that the proposed rule change is consistent with the MRVP of its
affiliated options exchange, Cboe Exchange, Inc. (``Cboe Options''),
which recently filed a proposal, approved by the Commission,\10\ to no
longer include such violations as eligible for a minor rule disposition
on Cboe Options for the same reason--it no longer believed violations
of the firm quote requirement to be minor in nature.
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\9\ The Exchange notes that Market Maker bids and offers entered
on the Exchange's all-electronic trading platform are firm for all
orders for the number of contracts specified in the bid and offer,
subject to the exceptions noted in Rule 22.6(a) and in Rule 602 of
Regulation NMS under the Exchange Act of 1934 (the ``Act''), and
that the electronic execution of marketable orders against resting
bids and offers is system-enforced by the Exchange as provided in
the Exchange Rules.
\10\ See Securities Exchange Act Release No. 92702 (August 18,
2021), 86 FR 47346 (August 24, 2021) (SR-CBOE-2021-045) (Notice of
Filing and Order Granting Accelerated Approval of a Proposed Rule
Change To Amend Rule 13.15, Which Governs the Exchange's Minor Rule
Violation Plan).
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The proposed rule change next relocates violations of Rules 22.6(b)
\11\ and (c), currently in Rule 25.3(c) of the MRVP, to Rule 25.3(d)
(Rule 25.3(c), as amended) \12\ of the MRVP. The Exchange notes that
Rule 22.6 governs Market Maker quoting obligations on the Exchange and,
more specifically, Rule 22.6(b) requires a Market Maker to submit
initial quotes that contain a minimum size (currently, at least one
contract) and Rule 22.6(c) requires a Market Maker to submit two-sided
quotes. As stated above, Rule 25.3(d) currently imposes certain fines
for a Market Maker's failure to meet the continuous quoting obligations
in Rule 22.6(d). By relocating violations of Rules 22.6(b) and (c) to
join violations of Rule 22.6(d) in Rule 25.3(d) of the MRVP, the
proposed rule change amends the MRVP to impose the same fine schedule
for violations of a Market Maker's quoting obligations. As a result of
combining these into Rule 25.3(d), the proposed rule change
subsequently renames Rule 25.3(d) as ``Market Maker Quoting
Obligations''. The Exchange notes that the proposed rule change is
consistent, and intended to harmonize to the extent possible, with the
MRVP of the Exchange's affiliated options exchange, Cboe Options, which
imposes one fine schedule for a market maker's failure to meet its
quoting obligations on Cboe Options, including failure to meet
continuous quoting requirements and failure to meet initial quote
volume requirements.\13\ The Exchange's other affiliated options
exchanges, Cboe BZX Exchange, Inc. (``BZX Options'') and Cboe C2
Exchange, Inc. (``C2 Options''), have also filed proposals to update
their MRVPs in connection with the violations of market maker quoting
requirements on BZX Options and C2 Options, to the extent possible, in
an identical manner.\14\
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\11\ Amendment No. 1 corrects an inadvertent error in the
Exhibit 5 in connection with the relocation of violations of Rule
22.6(b) to Rule 25.3(d) by correcting reference to Rule ``22.b(b)''
to correctly reflect Rule ``22.6(b)''.
\12\ See supra note 8.
\13\ See Cboe Options Rule 13.15(g)(9).
\14\ The Exchange notes that C2 Option's proposal has been
approved by the Commission and BZX Option's proposal is currently
pending approval by the Commission. See Securities Exchange Act
Release Nos. 93887 (December 30, 2021), 87 FR 504 (January 5, 2022)
(SR-C2-2021-019) (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); and 93834 (December
20, 2021), 86 FR 73072 (December 23, 2021) (SR-CboeBZX-2021-083)
(Notice of Filing of a Proposed Rule Change To Amend Rule 25.3,
Which Governs the Exchange's Minor Rule Violation Plan, in
Connection With Certain Minor Rule Violations and Applicable Fines).
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[[Page 16780]]
The Exchange notes that, under current Rule 25.3(c), violations of
the Market Maker initial quote volume requirement (Rule 22.6(b)) and
violations of the Market Maker two-sided quote requirement (Rule
22.6(c)) are to be treated separately for purposes of determining the
number of cumulative violations under the applicable fine schedule. For
example, if during the same period, a Market Maker violates the initial
quote volume requirement five times and also violates the two-sided
quote requirement four times, the current provision would provide for
two separate Letters of Caution (one for the initial quote size
violations and one for the two-sided quote violations).\15\ The Cboe
Options MRVP applicable to violations of market maker quoting
obligations does not contain this language and, as proposed, the
amended MRVP language would not include this ``separate treatment''
provision for Market-Maker quoting obligations to be consistent with
corresponding Cboe Options MRVP provision. Additionally, while current
Rule 25.3(c) provides that Rules 22.6(b) and (c) shall be treated
separately for purposes of determining the number of cumulative
violations, pursuant to Rule 8.15(a), the Exchange, like Cboe Options,
is permitted to ``aggregate similar violations generally if the conduct
was unintentional, there was no injury to public investors, or the
violations resulted from a single systemic problem or cause that has
been corrected.'' \16\ The Exchange, like Cboe Options, considers
violations of a Market Maker's quoting obligations Rule 22.6(b), (c)
and (d)) to be similar in nature.\17\ The Exchange believes moving
violations of Rule 22.6(b) and (c) from Rule 25.3(c) to Rule 25.3(d)
and removing the language to treat each paragraph separately for
purposes of determining the cumulative violations aligns with how the
Exchange generally surveils for and sanctions violations across market
maker quoting obligations while still allowing the flexibility to treat
the violations separately, if necessary. By aligning the fine schedule
across each of the Market Maker quoting obligations the proposed rule
change will allow for consistent application of the MRVP for the
various Market Maker quoting obligations whether the violations are
sanctioned separately or aggregation is warranted pursuant to Rule
8.15(a).
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\15\ The Exchange notes that Rule 22.6(b) requires the best bid
and best offer entered by a Market Maker to have a size of at least
one contract. The System requires a bid or offer to include a size
of at least one contract, as a bid or offer with a size of zero
results in any existing bid/offer quote for that series to be
cancelled. As a result, the Exchange does not observe violations of
Rule 22.6(b), but retains the provision in MRVP should the minimum
size requirement be greater than one in the future.
\16\ Cboe Options Rule 13.15(a) contains the same language. The
Exchange, like Cboe Options, may consider violations of a Market
Maker's quoting obligations under Rule 22.6(b), (c), and (d) to be
similar in nature.
\17\ The Exchange notes that Rule 22.6(d) requires a Market
Maker to provide continuous bids and offers in accordance with,
among other things, the Rule 22.6(c) requirement to provide two-
sided quotes. Because two-sided quotes are an element of the
continuous electronic quote obligation, and violations of continuous
quoting requirements can be the direct result of failure to provide
two-sided quotes, the Exchange commonly cites Rule 22.6(d) in
connection with two-sided quote violations. However, depending on
the particular facts and circumstances, a Market Maker may be cited
for a violation of continuous electronic quotes under Rule 22.6(d)
or two-sided quotes under Rule 22.6(c) or both.
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Further, the Exchange notes that Rule 25.3(d) currently provides
that violations occurring during a calendar month are aggregated and
sanctioned as a single offense. In line with the proposed change to
allow the Exchange the flexibility to choose to aggregate violations
across different sections governing market maker quoting obligations
(upon the proposed relocation of the Market Maker two-sided quote and
initial quote volume requirements to Rule 25.3(d)), the proposed rule
change removes this language. Without the explicit requirement that the
Exchange must aggregate and sanction violations as a single offense,
the Exchange is free to determine whether or not violations of a Market
Maker's quoting obligations across different sections, and across
different review periods (e.g., calendar months),\18\ should be
aggregated and sanctioned as a single offense pursuant to Rule 8.15(a);
\19\ just as the Exchange may choose to aggregate violations, pursuant
to Rule 8.15(a), across different sections without time constraints
(e.g., in a calendar month) under other MRVP provisions that otherwise
do not contain any explicit aggregation requirement.\20\ Moreover, the
Exchange believes that, notwithstanding the relocation of the two-sided
quote and initial quote volume requirements to Rule 25.3(d), the
aggregation requirement in Rule 25.3(d) currently conflicts with Rule
22.6(d) and a Market Maker's continuous quoting obligations.
Specifically, Rule 22.6(d)(1) provides that the Exchange determines
compliance by a Market Maker with the continuous quoting obligation in
Rule 22.6(d) on a monthly basis. Rule 22.6(d)(1) goes on to provide
that determining compliance with the continuous quoting obligations on
a monthly basis does not relieve a Market Maker from meeting this
obligation on a daily basis, nor does it prohibit the Exchange from
taking disciplinary action against a Market Maker for failing to meet
this obligation each trading day. Therefore, the Exchange believes that
it should have the flexibility to be able to separately charge for
violations of a Market Maker's continuous quoting obligations on a
monthly basis and a daily basis.
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\18\ See infra note 21.
\19\ See supra note 16.
\20\ If the current provision were to be maintained in Rule
25.3(d) upon the relocation of the initial quote volume requirement
and the two-sided quote requirement to Rule 25.3(d), then violations
of a Market Maker's quoting obligations would never amount to more
than one offense if they occurred in the same month. For example, if
a Market Maker were to violate Rule 22.6(d) in February 2022 and
violate Rule 22.6(b) and/or Rule 22.6(c) during the same month,
then, pursuant to the current provision, such violations would have
to be treated as a single offense and could not constitute more than
one offense.
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The proposed rule change also updates the fine schedule heading in
Rule 25.3(d) to reflect that fines may be imposed per the number of
offenses, rather than violations, within one period (i.e., any rolling
24-month period), which more accurately reflects the manner in which
the Exchange aggregates violations as a single offense under Rule
25.3(d), currently and as proposed, and further harmonizes Rule 25.3(d)
with that of Cboe Options corresponding MRVP provision, which also
counts the number of offenses in connection with market maker
violations of quoting obligations in any rolling 24-month period.
Ultimately, the Exchange believes that the proposed flexibility to
choose whether to aggregate violations of a Market Maker's quoting
obligations across sections will allow it to administer discipline in a
manner it deems most appropriate. For example, if a Market Maker
violates its continuous quoting obligation pursuant to Rule 22.6(d) on
multiple trading days, January 27, 28 and 31, 2022, due to a systemic
error, and also violates the initial quote volume requirement pursuant
to Rule 22.6(b) multiple times during the next trading day, February 1,
[[Page 16781]]
2022,\21\ due to the same systemic error that has since been corrected,
the Exchange may deem it appropriate to treat such violations as a
single offense \22\ and issue a Letter of Caution, which is applicable
to a first offense pursuant to Rule 25.3(d). This would be in lieu of
treating such violations as two separate offenses--the violation of the
Market Maker's continuous quoting obligations (22.6(d)) as a first
offense, for which the Exchange would issue a Letter of Caution, and
the violations of its initial quote volume requirement aggregated into
a separate, second offense, for which the Exchange would then issue a
fine applicable to a second offense pursuant to Rule 25.3(d) (as
proposed and described in detail below). If, in June 2022 (i.e., within
the same 24-month period as the above referenced violations),\23\ the
Market Maker violates the initial quote volume requirement multiple
times throughout the month due to another systemic error, and also
violates the continuous quote requirement pursuant to Rule 22.6(d) on
multiple days throughout June 2022 due to the same systemic error, the
Exchange may again deem it appropriate to treat these violations as a
single offense, constituting the Market Maker's second offense within
the previous rolling 24-month period for which the Exchange would then
issue a fine applicable to a second offense pursuant to Rule 25.3(d)
(as proposed). The Exchange could, alternatively, choose to aggregate
the June 2022 violations of the initial quote volume requirement as one
offense and the June 2022 violations of the continuous quote
requirement as another offense, which would result in the issuance of
two offenses stemming from the same review period (i.e., a review of
June 2022) \24\ to which the Exchange would then issue a fine
applicable to a second and third offense within the previous rolling
24-month period pursuant to Rule 25.3(d) (as proposed).
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\21\ The Exchange is not required to treat violations occurring
in separate review periods (e.g., a monthly review, a weekly review,
etc.) as separate offenses and the Exchange is not required to treat
violations occurring in the same review period as a single offense
(including as proposed--in connection with removing the provision in
Rule 25.3(d) that requires the Exchange to aggregate and sanction
violations occurring in a month as a single offense).
\22\ See supra note 16.
\23\ See Rule 25.3, which states that a subsequent violation is
calculated on the basis of a rolling 24-month period (``Period'').
\24\ See supra note 21.
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The proposed rule change next amends the fine schedule in Rule
25.3(d) (Rule 25.3(c), as amended) \25\ applicable to Market Makers for
violations of their quoting obligations (Rules 22.6(b)-(d), as
proposed) in order to harmonize, to the extent possible, this MRVP
provision with the corresponding Cboe Options MRVP provision applicable
to violations of a market maker's quoting obligations on Cboe Options.
The current fine schedule in Rule 25.3(d), currently applicable to
violations of a Market Maker's continuous quoting obligations, sets
forth the following:
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\25\ See supra note 8.
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For the first violation during any rolling 24-month period (i.e.,
one period),\26\ the fine schedule imposed by Rule 25.3(d) currently
permits the Exchange to give a Letter of Caution. For a second
violation during the same period, the fine schedule currently permits
the Exchange to apply a fine of $1,000. For a third violation in the
same period, the fine schedule currently permits the Exchange to apply
a fine of $2,500. For a fourth violation in the same period, the fine
schedule currently permits the Exchange to apply a fine of $5,000.
Finally, for five or more violations in the same period, the fine
schedule currently permits the Exchange to proceed with formal
disciplinary action.
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\26\ See supra note 23.
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The proposed rule change updates the fine schedule to provide that,
during any rolling 24-month period, the Exchange may continue to give a
Letter of Caution for a first offense,\27\ may apply a fine of $1,500
for a second offense,\28\ may apply a fine of $3,000 for a third
offense, and may proceed with formal disciplinary action for subsequent
offenses. As described above, and as is the case for all rule
violations covered under Rule 25.3, the Exchange may determine that it
is appropriate to commence a formal disciplinary proceeding for a
violation of Market Maker quoting obligations and may choose to proceed
under the Exchange's formal disciplinary rules rather than its MRVP.
The Exchange may continue to aggregate similar violations generally if
the conduct was unintentional, there was no injury to public investors,
or the violations resulted from a single systemic problem or cause that
has been corrected, and treat such violations as a single offense.\29\
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\27\ As stated herein, the proposed rule change also updates the
fine schedule heading to reflect that fines may be imposed per the
number of offenses, rather than violations, which more accurately
reflects the manner in which the Exchange aggregates violations as a
single offense under Rule 25.3(d), currently and as proposed.
\28\ Any fine imposed pursuant to the Exchange's MRVP that does
not exceed $2,500 and is not contested shall not be publicly
reported, except as may be required by Rule 19d-1 under the Act or
as may be required by any other regulatory authority. See Rule
8.15(a).
\29\ See Rule 8.15(a).
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The Exchange believes it is appropriate to increase the fine
amounts for a second and third offense and to remove the fine imposed
for a fourth offense and proceed with formal disciplinary proceedings
for subsequent offenses following a third offense. Particularly, the
Exchange believes that applying a higher fine per second and third
offenses in connection with a Market Maker's quoting obligations \30\
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 (i.e., formal
disciplinary proceedings following a third offense) against repeat-
offenders. The Exchange believes this fine structure may serve to more
effectively deter repeat-offenders while continuing to provide
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 quoting obligations is identical to the
fine schedule under the MRVP of Cboe Options for market maker
violations of quoting obligations on Cboe Options, including a
continuous quoting requirement and initial volume requirement. 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, BZX Options and C2 Options,
as BZX Options and C2 Options also intend to file proposals to update
their minor rule violation fines for violations of market maker quoting
requirements on their exchanges in an identical manner.
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\30\ The proposed fine amounts are also an increase from the
fines in Rule 25.3(c) currently imposed for violations of Market
Maker initial quote volume and two-sided requirements. The Exchange
notes, however, that Rule 25.3(c) currently imposes fines per
violation whereas Rule 25.3(d) imposes fines per offense, which may
be cumulative violations of Market Maker quoting obligations, as
proposed.
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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.\31\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section
[[Page 16782]]
6(b)(5) \32\ 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) \33\
requirement that the rules of an exchange not be designed to permit
unfair discrimination between customers, issuers, brokers, or dealers.
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\31\ 15 U.S.C. 78f(b).
\32\ 15 U.S.C. 78f(b)(5).
\33\ Id.
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The Exchange believes that the proposed rule change to remove the
firm quote requirement, which it no longer considers violations of
which to be minor in nature, as eligible for a minor rule fine
disposition under its MRVP, 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 violations of the
firm quote requirement may directly impact trading on the Exchange,
maintenance of a fair and orderly market, and customer protection. As
such, the Exchange does not believe violations of this rule to be minor
in nature and, instead, should be handled under its formal disciplinary
rules, rather than imposing fines pursuant to its MRVP. Also, and as
stated above, the proposed rule change is consistent with the MRVP of
its affiliated options exchange, Cboe Options, which, for the same
reasons provided herein, no longer includes violations of the firm
quote requirement as eligible for a minor rule disposition on Cboe
Options.\34\
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\34\ See supra note 10.
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The Exchange believes that the proposed rule change to apply the
same MRVP fine schedule for violations of a Market Makers quoting
obligations pursuant to Rule 22.6 (i.e., Rules 22.6(b)-(d)) and the
same process for imposing such fines--that is, permitting the Exchange
to aggregate violations of such Market Maker obligations into a single
offense--will assist the Exchange in preventing fraudulent and
manipulative acts and practices and promoting just and equitable
principles of trade by uniformly imposing penalties and procedures for
failure to satisfy obligations governed by the same Rule. By allowing
for the consistent application of the MRVP for the various Market Maker
quoting obligations and the administration of discipline in a manner
the Exchange deems most appropriate (i.e., whether the violations are
sanctioned separately or aggregation is warranted pursuant to Rule
8.15(a)), the Exchange believes the proposed rule change provides the
Exchange with the flexibility to administer its enforcement program in
a more uniform, effective and efficient manner, thereby removing
impediments to and perfect the mechanism of a free and open market and
a national market system, and, in general, protecting investors and the
public interest.
Additionally, the Exchange believes the proposed rule change 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 because it is intended to harmonize
the Exchange's MRVP in connection with Market Maker quoting obligations
with that of Cboe Options, as well as BZX Options and C2 Options (to
the extent possible),\35\ thereby providing consistent structures and
procedures across MRVP provisions applicable to market maker
obligations on the affiliated options exchanges. The proposed rule
change contributes to the protection of investors and the public
interest by promoting regulatory consistency by increasing
understanding of the Exchange's MRVP provisions for Trading Permit
Holders (``TPHs'') that are also market participants on the Exchange's
affiliated options exchanges, making it easier for participants across
the affiliated options exchanges to adhere to the disciplinary rules.
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\35\ See supra notes 13 and 14.
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The Exchange also believes that the proposed rule change, in
connection with the fine schedule for violations of a Market Maker's
quoting obligations in Rule 25.3(d), as proposed, to increase the fine
amounts for a second and third offense \36\ and to remove the fine
imposed for a fourth offense and proceed with formal disciplinary
proceedings for subsequent offenses following a third offense 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 higher 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 (i.e., formal
disciplinary proceedings following a third offense) against repeat-
offenders 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, while continuing to make 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 violations of Market
Maker quoting requirements on Cboe Options, including a continuous
quoting requirement and initial quote volume requirement. As described
above, BZX Options and C2 Options intend to file proposals to update
their minor rule violation fines applicable to violations of market
maker 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.
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\36\ See supra note 30.
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The Exchange further believes that the proposed rule changes to
Rule 25.3 are consistent with Section 6(b)(6) of the Act,\37\ 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 removes a Rule listed as eligible for a
minor rule fine disposition under the Exchange's MRVP that the Exchange
no longer believes violations of which are minor in nature and is more
appropriately disciplined through
[[Page 16783]]
the Exchange's formal disciplinary procedures, amends the MRVP
provisions so that the same fine schedule, and process to impose such
fines, uniformly applies to violations of a Market Maker's quoting
obligations in Rule 22.6, and amends the fine schedule applicable to
Market Maker failures to meet their quoting obligations in a manner
that appropriately sanctions such failures.
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\37\ 15 U.S.C. 78f(b)(6).
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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.\38\ Rule 25.3, currently and as amended, does not preclude an
Options Member, associated person of an Options Member, or registered
or non-registered employee of an Options Member from contesting an
alleged violation and receiving a hearing on the matter with the same
procedural rights through a litigated disciplinary proceeding.
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\38\ 15 U.S.C. 78f(b)(7) and 78f(d).
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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 proposed rule change is
not intended to address competitive issues but rather is concerned
solely with amending its MRVP in connection with rules eligible for a
minor rule fine disposition and with the fine schedule for Market Maker
failures to meet their quoting obligations. The Exchange believes the
proposed rule changes, overall, 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. Discussion and Commission Findings
The Commission finds that the proposed rule change, as modified by
Amendment No. 1, is consistent with the requirements of the Act and the
rules and regulations thereunder applicable to a national securities
exchange.\39\ In particular, the Commission finds that the proposed
rule change, as modified by Amendment No. 1, is consistent with Section
6(b)(5) of the Act,\40\ 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, as
modified by Amendment No. 1, is consistent with Sections 6(b)(1) and
6(b)(6) of the Act \41\ 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, as modified by Amendment No. 1, 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,\42\ which governs minor rule violation plans.
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\39\ 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).
\40\ 15 U.S.C. 78f(b)(5).
\41\ 15 U.S.C. 78f(b)(1) and 78f(b)(6).
\42\ 17 CFR 240.19d-1(c)(2).
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As stated above, the Exchange proposes to amend Rule 25.3 by
eliminating violations of Rule 22.6(a) from Rule 25.3(c) and the
Exchange's MRVP; relocating violations of Rule 22.6(b) and Rule 22.6(c)
to proposed Rule 25.3(c) so that a single MRVP provision governs
violations of a Market Maker's quoting obligations; amending the
current manner of calculating violations of Market Marker rules,
including deleting a provision that requires violations of Market Maker
obligations occurring during a calendar month be aggregated and
sanctioned as a single offense; and updating the fine schedule
applicable to minor rule violations related to Market Maker quoting
obligations.
The Commission believes that Rule 25.3 is an effective way to
discipline a member for a minor violation of a rule. More specifically,
the Commission finds that the Exchange's proposal, as modified by
Amendment No. 1, to eliminate Rule 22.6(a), a Market Maker quoting
obligation rule, from the MRVP is consistent with the Act because it
should help the Exchange enforce compliance with, and provide
appropriate discipline for, violation of a rule that the Exchange no
longer believes is minor in nature. Combining all the Market Maker
quoting obligation rules together in one provision of Rule 25.3 will
also bring clarity to the Rule. The Commission also finds that amending
the current manner of calculating violations of Market Maker rules is
appropriate because the Exchange can already aggregate violations under
Rule 8.15 under certain circumstances. Finally, the Commission finds
that amending the associated fee schedule is consistent with the Act
because it may help the Exchange's ability to better carry out its
oversight and enforcement responsibilities by levying appropriate fines
on Market Makers for violations of the Market Marker rules.
In approving the propose rule change, as modified by Amendment No.
1, the Commission in no way minimizes the importance of compliance with
the Exchange's rules and all other rules subject to fines under Rule
25.3. The Commission believes that a violation of any self-regulatory
organization's rules, as well as Commission rules, is a serious matter.
However, Rule 25.3 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 25.3 or whether a violation requires formal
disciplinary action.
IV. Solicitation of Comments on Amendment No. 1 to the Proposed Rule
Change
Interested persons are invited to submit written views, data, and
arguments concerning whether Amendment No. 1 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#592b2c353c743a3634343c372d2a192a3c3a773e362f"><span class="__cf_email__" data-cfemail="c7b5b2aba2eaa4a8aaaaa2a9b3b487b4a2a4e9a0a8b1">[email protected]</span></a>. Please include
File Number SR-CboeEDGX-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-CboeEDGX-2021-052. This
file number should be included on the subject line if email is used. To
help the
[[Page 16784]]
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-CboeEDGX-2021-052 and should be
submitted on or before April 14, 2022.
V. Accelerated Approval of Proposed Rule Change, as Modified by
Amendment No. 1
The Commission finds good cause to approve the proposed rule
change, as modified by Amendment No. 1, prior to the thirtieth day
after the date of publication of notice of the filing of Amendment No.
1 in the Federal Register. According to the Exchange, Amendment No. 1
supplements the proposal by, among other things: (1) Providing
additional detail and clarification regarding the Exchange's current
and proposed treatment of a Market Maker's quoting obligations, (2)
correcting an inadvertent error in the Exhibit 5, and (3) removing a
superfluous provision in the Exhibit 5 to provide for additional
clarity. The Commission believes that Amendment No. 1 provides
additional accuracy and clarity to the proposal and does not raise any
novel regulatory issues. Accordingly, the Commission finds good cause,
pursuant to Section 19(b)(2) of the Act,\43\ to approve the proposed
rule change, as modified by Amendment No. 1, on an accelerated basis.
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\43\ 15 U.S.C. 78s(b)(2).
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VI. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\44\ that the proposed rule change (SR-CboeEDGX-2021-052), as
modified by Amendment No. 1 thereto, be, and it hereby is, approved on
an accelerated basis.
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\44\ Id.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\45\
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\45\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-06190 Filed 3-23-22; 8:45 am]
BILLING CODE 8011-01-P
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