Notice2022-16550
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Certain of Its Rules Related to Market-Makers
Primary source
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Published
August 3, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 148 (Wednesday, August 3, 2022)</title>
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[Federal Register Volume 87, Number 148 (Wednesday, August 3, 2022)]
[Notices]
[Pages 47478-47481]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-16550]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-95383; File No. SR-CboeBZX-2022-040]
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
Certain of Its Rules Related to Market-Makers
July 28, 2022.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on July 14, 2022, Cboe BZX Exchange, Inc. (the ``Exchange'' or
``BZX'') 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.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Cboe BZX Exchange, Inc. (``BZX Options'' or the ``Exchange'') is
filing with the Securities and Exchange Commission (the ``Commission'')
a proposed rule change to amend certain of its Rules related to Market
Makers. The text of the proposed rule change is provided in Exhibit 5.
[[Page 47479]]
The text of the proposed rule change is also available on the
Exchange's website (<a href="http://markets.cboe.com/us/options/regulation/rule_filings/BZX/">http://markets.cboe.com/us/options/regulation/rule_filings/BZX/</a>), at the Exchange's Office of the Secretary, and at
the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend certain of its Rules related to
Market Makers. Specifically, the Exchange proposes to amend its Rules
to permit an Options Member to register separate Market Maker
aggregation units as separate Market Makers, each of which would be
subject to Market Maker obligations on an individual basis. Currently,
the Exchange interprets the term ``Market Maker'' to apply at a firm
level, including with respect to obligations. However, the Exchange
understands Options Members have Market Maker units that are completely
separate from each other for operational and profit/loss purposes, with
appropriate information barriers between units.\3\ Because of this
operational separation, such organizations may prefer to have those
units be treated as individual Market Makers under the Exchange's Rules
consistent with those organizations' internal operations.
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\3\ Certain Exchange rules contemplate Options Members having
separate business units and require information barriers in the form
of appropriate policies and procedures that reflect the Options
Member's business to establish those separate business units. See,
e.g., Rules 18.4 (prevention of the misuse of material, nonpublic
information); and 18.7 (which applies Cboe Exchange, Inc. position
limits to the Exchange).
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The proposed rule change amends certain Rules to provide Options
Members with this flexibility:
<bullet> Rule 22.2 currently provides that Options Members
registered as Market Makers have certain rights and bear certain
responsibilities beyond those of other Options Members. The proposed
rule change adds Interpretation and Policy .01 to provide that if an
Options Member is comprised of multiple market making aggregation units
and has in place appropriate information barriers or segregation
requirements,\4\ the Options Member may register each individual
aggregation unit as a separate Market Maker.
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\4\ The Options Member will need to provide the Exchange with
sufficient evidence of separation of these units.
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<bullet> The proposed rule change adds Rule 22.3, Interpretation
and Policy .01 to provide that Market Maker appointments would apply to
each individual Market Maker aggregation unit and adds Rule 22.4,
Interpretation and Policy .01 to provide that each Market Maker
aggregation unit will be evaluated for good standing on an individual
basis.
<bullet> The proposed rule change amends Rules 21.20,
Interpretation and Policy .02 and adds Rule 22.5, Interpretation and
Policy .01 and Rule 22.6, Interpretation and Policy .01 to provide that
Market Maker obligations will apply to individual Market Maker
aggregation units if an Options Member registers separate aggregation
units as Market Makers.
<bullet> The proposed rule change adds Rule 22.5, Interpretation
and Policy .01 and Rule 22.6, Interpretation and Policy .01 to provide
that Market Maker obligations will apply to individual Market Maker
aggregation units if an Options Member registers separate aggregation
units as Market Makers.
<bullet> The proposed rule change adds Rule 2.4, Interpretation and
Policy .02 to require any individual Market Maker aggregation unit
within a single firm to connect to the Exchange's backup systems and
participate in functional and performance testing announced by the
Exchange if that unit satisfies the connection criteria set forth in
Rule 2.4(b).
These proposed changes are consistent with the concept of treating
individual Market Maker aggregation units within a single firm as
separate Market Makers.
The proposed rule change states that an Options member may register
separate aggregation units as individual Market Makers if the
organization has in place appropriate information barriers or
segregation units. The proposed language provides Options Members with
flexibility to adapt their policies and procedures to reflect their
business model and activities, including changes thereto. This
flexibility is similar to other rules that require information
barriers, such as Rule 18.4, which requires every Options Member to
establish, maintain, and enforce written policies and procedures
reasonably designed, taking into consideration the nature of the
Options Members' business, to prevent the misuse of material nonpublic
information by the Options Member or persons associated with such
Options Member in violation of the federal securities laws or the Rules
thereunder, and the Exchange Rules. In accordance with this proposed
rule change, pursuant to Rule 18.4, an Options Member that registers
separate business units as individual Market Makers would be obligated
to ensure that its policies and procedures reflect the current state of
its business and continue to be reasonably designed to prevent the
misuse of material, nonpublic information. Separate market making units
registered as individual Market Makers may dictate that an information
barrier or functional separation be part of the appropriate set of
policies and procedures that would be reasonably designed to achieve
compliance with the proposed rule change. The proposed rule change has
no pre-approval requirement; however, appropriate information barriers
would be subject to review as part of the process to register the
separate aggregation units as individual Market Makers with the
Exchange.\5\ Additionally, these policies and procedures would be
subject to regular review by the Exchange's Regulation Division, such
as part of the routine examination or testing process or as part of
internal surveillances and investigations.
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\5\ The Exchange's Regulatory Division intends to announce by
Regulatory Circular a method by which an Options Member may seek
pre-approval of the policies and procedures comprising the
information barriers.
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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.\6\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \7\ 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
[[Page 47480]]
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) \8\ requirement that the rules
of an exchange not be designed to permit unfair discrimination between
customers, issuers, brokers, or dealers.
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\6\ 15 U.S.C. 78f(b).
\7\ 15 U.S.C. 78f(b)(5).
\8\ Id.
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In particular, the Exchange believes the proposed rule change will
promote just and equitable principles of trade and 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 will provide Options Members with flexibility to
register its business units as Market-Makers with the Exchange, and
have the Exchange regulate those Market-Maker business units, in a
manner consistent with these organizations' internal business
operations. The Exchange believes this will permit these organizations
to manage the entirety of their Market-Maker operations--including
Market-Maker registrations, appointments, and quoting--as they deem
appropriate based on the nature of their businesses, which may
ultimately benefit the efficiency of their Market-Maker businesses. The
Exchange does not propose to modify any Market-Maker responsibilities
or obligations. The Exchange does not believe the proposed rule change
will reduce liquidity, as any individual Market-Maker aggregation unit
(as opposed to the Options Member collectively) will need to satisfy
all Market-Maker obligations, including continuous quoting obligations,
on its own.
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
will not impose any burden on intramarket competition, because it will
apply in the same manner to all Options Members that register with the
Exchange as Market-Makers. Whether an Options Member registers separate
business units as Market-Makers is within the sole discretion of that
organization. With respect to Options Members that elect to register
separate business units as Market-Makers, the proposed rule change will
apply all applicable Market-Maker rules, including those regarding
Market-Maker obligations and responsibilities, in the same manner to
those units. The Exchange does not propose to modify any Market-Maker
obligations or responsibilities, and thus does not believe the proposed
rule change will diminish liquidity on the Exchange. The proposed rule
change will not impose any burden on intermarket competition, because
the proposed rule change applies only to how Options Members may
register with the Exchange as a Market-Maker and how the Exchange will
determine Market-Maker compliance with Exchange-imposed Market-Maker
obligations and responsibilities.
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 \9\ and Rule 19b-
4(f)(6) thereunder.\10\
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\9\ 15 U.S.C. 78s(b)(3)(A).
\10\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give the Commission
written notice of its intent to file 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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A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the
Act normally does not become operative for 30 days after the date of
its filing. However, Rule 19b-4(f)(6)(iii) \11\ permits the Commission
to designate a shorter time if such action is consistent with the
protection of investors and the public interest. The Exchange requested
that the Commission waive the 30-day operative delay so that the
proposal may become operative immediately upon filing. The proposal
provides flexibility to an Options Member to register separate market-
maker aggregation units as separate Market-Makers, each of which would
be subject to Market-Maker obligations on an individual basis, if
appropriate information barriers or segregation requirements are in
place. The Commission believes that waiver of the 30-day operative
delay is consistent with the protection of investors and the public
interest because the proposed rule change does not raise any new or
novel issues. Accordingly, the Commission hereby waives the 30-day
operative delay and designates the proposed rule change operative upon
filing.\12\
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\11\ 17 CFR 240.19b-4(f)(6)(iii).
\12\ For purposes only of waiving the 30-day operative delay,
the Commission has also considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act.
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#b3c1c6dfd69ed0dcdeded6ddc7c0f3c0d6d09dd4dcc5"><span class="__cf_email__" data-cfemail="98eaedf4fdb5fbf7f5f5fdf6ecebd8ebfdfbb6fff7ee">[email protected]</span></a>. Please include
File Number SR-CboeBZX-2022-040 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-CboeBZX-2022-040. 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
[[Page 47481]]
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-CboeBZX-2022-
040 and should be submitted on or before August 24, 2022.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\13\
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\13\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-16550 Filed 8-2-22; 8:45 am]
BILLING CODE 8011-01-P
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