Notice2024-13214
Self-Regulatory Organizations; Cboe BYX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Interpretation and Policy .03 to Rule 11.13 To Provide an Additional, Optional Risk Setting to Members and Clearing Members
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
June 17, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
<html>
<head>
<title>Federal Register, Volume 89 Issue 117 (Monday, June 17, 2024)</title>
</head>
<body><pre>
[Federal Register Volume 89, Number 117 (Monday, June 17, 2024)]
[Notices]
[Pages 51380-51383]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-13214]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-100317; File No. SR-CboeBYX-2024-017]
Self-Regulatory Organizations; Cboe BYX Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
Interpretation and Policy .03 to Rule 11.13 To Provide an Additional,
Optional Risk Setting to Members and Clearing Members
June 11, 2024.
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 May 29, 2024, Cboe BYX Exchange, Inc. (the ``Exchange'' or
``BYX'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the Exchange. The
Exchange filed the proposal as a ``non-controversial'' proposed rule
change pursuant to section 19(b)(3)(A)(iii) of the Act \3\ and Rule
19b-4(f)(6) thereunder.\4\ The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A)(iii).
\4\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Cboe BYX Exchange, Inc. (the ``Exchange'' or ``BYX'') proposes to
amend Interpretation and Policy .03 to Rule 11.13 to provide an
additional, optional risk setting to Members and Clearing Members. The
text of the proposed rule change is provided in Exhibit 5.
The text of the proposed rule change is also available on the
Exchange's website (<a href="http://markets.cboe.com/us/equities/regulation/rule_filings/byx/">http://markets.cboe.com/us/equities/regulation/rule_filings/byx/</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 purpose of the proposed rule change is to provide Members \5\
and Clearing Members \6\ the option to utilize additional risk settings
under proposed Interpretation and Policy .03 of Rule 11.13. Based on
feedback from its Members, the Exchange proposes to offer additional,
optional risk settings at the Market Participant Identifier (``MPID'')
level and/or to a subset of orders identified within the MPID level
(the ``risk group identifier'' level) that would authorize the Exchange
to take automated action if a designated limit for a Member is
breached. Such risk settings would provide Members and Clearing Members
with enhanced abilities to manage their risk with respect to orders on
the Exchange.\7\ Proposed paragraphs (a)(3) and (4) of Interpretation
and Policy .03 of Rule 11.13 set forth the specific risk settings the
Exchange proposes to offer. The current risk settings noted in
paragraphs (a)(1)-(2) of Interpretation and Policy .03 of Rule 11.13
will continue to be available to Members and Clearing Members.
Specifically, the Exchange proposes to offer two aggregate credit risk
settings (the ``Aggregate Credit Risk Checks'') as follows:
---------------------------------------------------------------------------
\5\ See Rule 1.5(n). A ``Member'' shall mean any Member or
Sponsored Participant who is authorized to obtain access to the
System pursuant to Rule 11.3.
\6\ See Rule 11.15(a). The term ``Clearing Member'' refers to a
Member that is a member of a Qualified Clearing Agency and clears
transactions on behalf of another Member.
\7\ Similarly, a Sponsoring Member may utilize the check to
manage the risk of its Sponsored Participants. A Sponsoring Member
shall mean a broker-dealer that has been issued a membership by the
Exchange who has been designated by a Sponsored Participant to
execute, clear and settle transactions resulting from the System.
The Sponsoring Member shall be either (i) a clearing firm with
membership in a clearing agency registered with the Commission that
maintains facilities through which transactions may be cleared or
(ii) a correspondent firm with a clearing arrangement with any such
clearing firm. See Rule 1.5(y). A Sponsored Participant shall mean a
person which has entered into a sponsorship arrangement with a
Sponsoring Member pursuant to Rule 11.3. Such sponsored
relationships generally include where a broker-dealer allows its
customer to use the broker-dealer's MPID or other mechanism or
mnemonic to enter orders into the Exchange's System that bypass the
Sponsoring Member's order handling system and are electronically
routed directly to the Exchange by the Sponsored Participant,
including through a service bureau or other third-party technology
provider. See Rule 1.5(x). See also Securities Exchange Act Release
No. 97176 (March 21, 2023), 88 FR 18193 (March 27, 2023), SR-
CboeBYX-2023-005 (``BYX Sponsored Participant Definition Filing'')
at 18194, footnote 12.
---------------------------------------------------------------------------
<bullet> The ``Aggregate Gross Credit Exposure Limit'', which
refers to a pre-established maximum daily dollar amount for purchases
and sales across all symbols, where both purchases and sales are
counted as positive values. For purposes of calculating the Aggregate
Gross Credit Exposure Limit, both executed and open orders are
included; and
<bullet> The ``Aggregate Net Credit Exposure Limit'', which refers
to a pre-established maximum daily dollar amount for purchases and
sales across all symbols, where purchases are counted as positive
values and sales are counted as negative values. For purposes of
calculating the Aggregate Net Credit Exposure Limit,
[[Page 51381]]
both executed and open orders are included.
The proposed Aggregate Credit Risk Checks are nearly identical to
credit risk settings monitoring both gross and net exposure provided
for in paragraph (h) of Interpretation and Policy .01 of Rule 11.13,
but with one notable difference. Importantly, the proposed Aggregate
Credit Risk Checks would be applied at the MPID level and/or risk group
identifier level, while the risk settings noted in paragraph (h) of
Interpretation and Policy .01 are applied at the logical port level.\8\
The proposed Aggregate Credit Risk Checks are also nearly identical to
the Gross Credit Risk Limit and Net Credit Risk Limit risk settings
provided for in Interpretation and Policy .03(a)(1)-(2) of Rule 11.13,
but with one notable difference. The proposed Aggregate Credit Risk
Checks are both calculated using both executed and open orders, while
the risk settings noted in paragraphs (a)(1)-(2) of Interpretation and
Policy .03 are calculated using only executed orders. Therefore, the
proposed risk management functionality would allow a Member or Clearing
Member to manage its risk more comprehensively, instead of (i) relying
on the more limited port level functionality offered today under
Interpretation and Policy .01(h) and (ii) being subject to limits only
calculated at notional execution value under paragraphs (a)(1)-(2) of
Interpretation and Policy .03. Stated differently, the calculation of
the proposed Aggregate Credit Risk Checks will not differ from the
current aggregate credit risk settings offered under paragraph (h) of
Interpretation and Policy .01 of Rule 11.13; however, the ability to
implement aggregate credit risk limits at the MPID and/or risk group
identifier levels will permit Members and Clearing Members to set
credit risk limits at a more granular level. The Exchange also notes
that the New York Stock Exchange LLC (``NYSE'') and MIAX Pearl equities
exchange (``MIAX Pearl'') both offer risk settings substantially
similar to the Aggregate Credit Risk Checks proposed by the
Exchange.\9\
---------------------------------------------------------------------------
\8\ A logical port represents a port established by the Exchange
within the Exchange's System for trading and billing purposes. Each
logical port established is specific to a Member or non-Member and
grants that Member or non-Member the ability to accomplish a
specific function, such as order entry, order cancellation, or data
receipt.
\9\ See NYSE Rule 7.19(b)(1)(A); MIAX Pearl Equities Rule
2618(a)(2)(E)-(F). The Exchange notes that MIAX Pearl adopted Rule
2618(a)(2)(E)-(F) on February 13, 2023, but the functionality may
not yet be operational. See Securities Exchange Act Release No.
96905 (February 13, 2023), 88 FR 10391 (February 17, 2023), SR-
PEARL-2023-03 (``MIAX Risk Control Filing'').
---------------------------------------------------------------------------
In addition to the proposed Aggregate Credit Risk Checks, the
Exchange proposes to amend paragraph (e) of Interpretation and Policy
.03 to provide for an additional manner in which the Exchange may
respond in the event that a risk setting is breached. Currently, the
Exchange is authorized to automatically block new orders submitted and
cancel all open orders in the event that a risk setting is breached. As
proposed, paragraph (e) of Interpretation and Policy .03 would permit
Members and Clearing Members to authorize the Exchange to either: (i)
block new orders submitted and cancel open orders (as is currently
permitted) or (ii) block new orders submitted without cancelling open
orders in the event that a risk setting is breached. The proposed
change is intended to give Members and Clearing Members additional
flexibility in how the Exchange responds to a breach of a risk setting
pursuant to Interpretation and Policy .03(a).
By way of background, Exchange Rule 11.15(a) requires that all
transactions passing through the facilities of the Exchange shall be
cleared and settled through a Qualified Clearing Agency using a
continuous net settlement system.\10\ This requirement may be satisfied
by direct participation, use of direct clearing services, or by entry
into a corresponding clearing arrangement with another Member that
clears through a Qualified Clearing Agency (i.e., a Clearing Member).
If a Member clears transactions through another Member that is a
Clearing Member, such Clearing Member shall affirm to the Exchange in
writing, through letter of authorization, letter of guarantee or other
agreement acceptable to the Exchange, its agreement to assume
responsibility for clearing and settling any and all trades executed by
the Member designating it as its clearing firm.\11\ Thus, while not all
Members are Clearing Members, all Members are required to either clear
their own transactions or to have in place a relationship with a
Clearing Member that has agreed to clear transactions on their behalf
in order to conduct business on the Exchange. Therefore, the Clearing
Member that guarantees the Member's transactions on the Exchange has a
financial interest in the risk settings utilized within the System \12\
by the Member. A Member that does not self-clear may allocate or revoke
the responsibility of establishing and adjusting the risk settings
identified in paragraph (a) to its Clearing Member via the risk
management tool available on the web portal at any time.\13\
---------------------------------------------------------------------------
\10\ See Rule 1.5(u). The term ``Qualified Clearing Agency''
means a clearing agency registered with the Commission pursuant to
section 17A of the Act that is deemed qualified by the Exchange. The
rules of any such clearing agency shall govern with the respect to
the clearance and settlement of any transactions executed by the
Member on the Exchange.
\11\ A Member can designate one Clearing Member per MPID
associated with the Member.
\12\ See Rule 1.5(aa). ``System'' is defined as ``the electronic
communications and trading facility designated by the Board through
which securities orders of Members are consolidated for ranking,
execution and, when applicable, routing away.''
\13\ See Rule 11.13, Interpretation and Policy .03(c). If a
Member revokes the responsibility of establishing and adjusting the
risk settings identified in paragraph (a), the settings applied by
the Member would be applicable.
---------------------------------------------------------------------------
The Exchange proposes to make the risk setting available to its
Members upon request and will not require Members to utilize the
Aggregate Credit Risk Checks. The Exchange will not provide
preferential treatment to Members utilizing the Aggregate Credit Risk
Checks. However, the Exchange believes the Aggregate Credit Risk Checks
will offer Members another option in efficient risk management of their
access to the Exchange. For instance, the Aggregate Credit Risk Checks
may assist some Members in mitigating the risk of executing and/or
submitting orders to the Exchange that would violate the Members'
stated risk tolerance. Additionally, the proposed functionality is
designed to assist Members and Clearing Members in the management of,
and risk control over, their credit risk.
Importantly, as is the case with the Exchange's existing risk
settings, the Member, and not the Exchange, will have the full
responsibility for ensuring that their orders comply with applicable
securities rules, laws, and regulations. Furthermore, the Exchange does
not believe that use of the Aggregate Credit Risk Checks can replace
Member-managed risk management solutions, and use of the Aggregate
Credit Risk Checks does not automatically constitute compliance with
Exchange rules. Pursuant to Rule 15c3-5 under the Act,\14\ a broker-
dealer with market access must perform appropriate due diligence to
assure that controls are reasonably designed to be effective, and
otherwise consistent with the rule.\15\
---------------------------------------------------------------------------
\14\ 17 CFR 240.15c3-5.
\15\ See Division of Trading and Markets, Responses to
Frequently Asked Questions Concerning Risk Management Control for
Brokers or Dealers with Market Access, available at <a href="https://www.sec.gov/divisions/marketreg/faq-15c-5-risk-management-controls-bd.htm">https://www.sec.gov/divisions/marketreg/faq-15c-5-risk-management-controls-bd.htm</a>.
---------------------------------------------------------------------------
In conjunction with the proposed addition of the Aggregate Credit
Risk Checks to Interpretation and Policy .03(a), the Exchange proposes
to remove
[[Page 51382]]
paragraph (h) from Interpretation and Policy .01 as the Exchange is not
required to offer or maintain risk settings and the existing risk
settings offered under paragraph (h) of Interpretation and Policy .01
will be redundant with the proposed addition of the Aggregate Credit
Risk Checks. The Exchange notes that the current risk settings noted in
paragraph (h) of Interpretation and Policy .01 will continue to be
available for a limited period of time following the addition of the
proposed Aggregate Credit Risk Checks under Interpretation and Policy
.03 in order to provide Members and Clearing Members adequate
opportunity to transition their risk settings. The Exchange will
announce via Exchange Notice the date on which the risk setting offered
under Interpretation and Policy .01(h) will no longer be available
within 30 days of the implementation of the Aggregate Credit Risk
Checks.
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.\16\ Specifically, the
Exchange believes the proposed rule change is consistent with the
section 6(b)(5) \17\ 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. Additionally,
the Exchange believes the proposed rule change is consistent with the
section 6(b)(5) \18\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
---------------------------------------------------------------------------
\16\ 15 U.S.C. 78f(b).
\17\ 15 U.S.C. 78f(b)(5).
\18\ Id.
---------------------------------------------------------------------------
In particular, the Exchange believes that the proposed Aggregate
Credit Risk Checks and amendment to paragraph (e) of Interpretation and
Policy .03 will remove impediments to and perfect the mechanism of a
free and open market and a national market system because it provides
Members and Clearing Members with additional functionality to manage
their credit risk with respect to orders on the Exchange. In addition,
the proposed Aggregate Credit Risk Checks are not novel as they are
based on the Exchange's existing risk setting in Interpretation and
Policy .01(h) of Rule 11.13. Additionally, the proposed Aggregate
Credit Risk Checks are substantially similar to risk controls offered
by both NYSE, which offers a Gross Credit Risk Limit,\19\ and MIAX
Pearl, which has adopted both Gross and Net Notional Open and Trade
Value risk settings.\20\ Therefore, Members and Clearing Members are
already familiar with the types of protections the proposed Aggregate
Credit Risk Checks will offer. As such, the Exchange believes that the
proposed risk settings would provide a means to address potentially
market-impacting events, helping to ensure the proper functioning of
the market.
---------------------------------------------------------------------------
\19\ Supra note 9.
\20\ Id.
---------------------------------------------------------------------------
In addition, the Exchange believes that the proposed Aggregate
Credit Risk Checks and amendment to paragraph (e) of Interpretation and
Policy .03 is designed to protect investors and the public interest
because the proposed functionality is a form of risk mitigation that
will aid Members and Clearing Members in minimizing their risk exposure
and reduce the potential for disruptive, market-wide events. The
Exchange understands that its Members and Clearing Members employ a
number of different risk-based controls, including those required by
Rule 15c3-5. The proposed Aggregate Credit Risk Checks will serve as an
additional tool for Members and Clearing Members to assist them in
identifying any risk exposure. The Exchange believes the proposed
Aggregate Credit Risk Checks will assist Members and Clearing Members
in managing their financial exposure, which, in turn, could enhance the
integrity of trading on the securities markets and help to assure the
stability of the financial system.
Finally, the Exchange believes the proposed rule change does not
unfairly discriminate among the Exchange's Members because use of the
proposed Aggregate Credit Risk Checks are optional and are not a
prerequisite for participation on the Exchange. The proposed Aggregate
Credit Risk Checks are completely voluntary and, as they relate solely
to optional risk management functionality, no Member is required or
under any regulatory obligation to utilize them. Additionally, the
removal of the risk settings offered under Interpretation and Policy
.01(h) does not unfairly discriminate as the change applies equally to
all Members and Clearing Members (i.e., the risk setting will not be
available for any Member or Clearing Member) and merely results in
Members not being able to utilize the risk setting, which, as noted
above, the Exchange is not required to offer or maintain. Further, the
risk settings offered under Interpretation and Policy .01(h) are
unnecessary and redundant given the proposed Aggregate Credit Risk
Checks, which permit Members and Clearing Members to set credit risk
limits at a more granular level.
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. To the contrary, the
Exchange believes that the proposed rule change may have a positive
effect on intermarket competition because it would allow the Exchange
to offer risk management functionality that is comparable to
functionality offered by other national securities exchanges.\21\
Further, by providing Members and Clearing Members additional means to
monitor and control risk, the proposed rule may increase confidence in
the proper functioning of the markets and contribute to additional
competition among trading venues and broker-dealers. Rather than impede
competition, the proposal is designed to facilitate more robust risk
management by Members and Clearing Members, which, in turn, could
enhance the integrity of trading on the securities markets and help to
assure the stability of the financial system. The proposal to remove
the risk setting offered under Interpretation and Policy .01(h)
similarly will not impose any burden on competition because the changes
apply to all Members and Clearing Members uniformly, as in the risk
setting will no longer be available to any Member or Clearing Member.
---------------------------------------------------------------------------
\21\ Supra note 9.
---------------------------------------------------------------------------
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:
[[Page 51383]]
A. significantly affect the protection of investors or the public
interest;
B. impose any significant burden on competition; and
C. 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 \22\ and
Rule 19b-4(f)(6) \23\ thereunder. At any time within 60 days of the
filing of the proposed rule change, the Commission summarily may
temporarily suspend such rule change if it appears to the Commission
that such action is necessary or appropriate in the public interest,
for the protection of investors, or otherwise in furtherance of the
purposes of the Act. If the Commission takes such action, the
Commission will institute proceedings to determine whether the proposed
rule change should be approved or disapproved.
---------------------------------------------------------------------------
\22\ 15 U.S.C. 78s(b)(3)(A).
\23\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------
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="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#384a4d545d155b5755555d564c4b784b5d5b165f574e"><span class="__cf_email__" data-cfemail="88fafde4eda5ebe7e5e5ede6fcfbc8fbedeba6efe7fe">[email protected]</span></a>. Please include
file number SR-CboeBYX-2024-017 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-CboeBYX-2024-017. 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
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. Do not
include personal identifiable information in submissions; you should
submit only information that you wish to make available publicly. We
may redact in part or withhold entirely from publication submitted
material that is obscene or subject to copyright protection. All
submissions should refer to file number SR-CboeBYX-2024-017 and should
be submitted on or before July 8, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\24\
---------------------------------------------------------------------------
\24\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-13214 Filed 6-14-24; 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 June 17, 2024.
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.