Notice2026-10540
Self-Regulatory Organizations; Cboe EDGA Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Chapter 8 of the Exchange's Rulebook Relating To Investigative and Disciplinary Matters
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
May 28, 2026
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 91 Issue 102 (Thursday, May 28, 2026)</title>
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[Federal Register Volume 91, Number 102 (Thursday, May 28, 2026)]
[Notices]
[Pages 31751-31769]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-10540]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-105544; File No. SR-CboeEDGA-2026-017]
Self-Regulatory Organizations; Cboe EDGA Exchange, Inc.; Notice
of Filing and Immediate Effectiveness of a Proposed Rule Change To
Amend Chapter 8 of the Exchange's Rulebook Relating To Investigative
and Disciplinary Matters
May 22, 2026.
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 13, 2026, Cboe EDGA Exchange, Inc. (the ``Exchange'' or
``EDGA'') 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 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.
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\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).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Cboe EDGA Exchange, Inc. (``EDGA'' or the ``Exchange'') is filing
with the Securities and Exchange Commission (the ``Commission'')
proposed rule changes to amend Chapter 8 of the Exchange's Rulebook
relating to investigative and disciplinary matters. The text of the
proposed rule change is provided in Exhibit 5.
The text of the proposed rule change is also available on the
Commission's website (<a href="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>), the
Exchange's website (<a href="https://www.cboe.com/us/equities/regulation/rule_filings/bzx/">https://www.cboe.com/us/equities/regulation/rule_filings/bzx/</a>), and at the principal office of the Exchange.
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 rules concerning investigative and
disciplinary matters involving Exchange Members \5\ and persons
associated with Members (``associated persons''). Specifically, the
Exchange proposes to update its Rules relating to (1) disciplinary
jurisdiction; (2) complaints and investigations; (3) expedited
proceedings; (4) charges; (5) answers; (6) hearings; (7) offers of
settlement; (8) decisions; (9) reviews; (10) judgments and sanctions;
(11) service of notice; (12) agency review and reporting; (13)
imposition of fines for minor rule violations; (14) ex parte
communications; and (15) release of disciplinary complaints, decisions,
and other information. The Exchange proposes these updates in an effort
to increase efficiency and fairness by harmonizing the Exchange's Rules
concerning investigative and disciplinary matters with those of the
Exchange's affiliate exchanges: Cboe Exchange, Inc. (``C1'' or ``Cboe
Options'') \6\ and Cboe C2 Exchange, Inc. (``C2'') \7\ (collectively,
and hereinafter, referred to as the ``Affiliated Exchanges'').\8\ In
doing so, the Exchange proposes rules changes to adopt new roles for
the Exchange's Business Conduct Committee (``BCC'').\9\ As part
[[Page 31752]]
of the harmonization process between the Exchange and Affiliated
Exchanges, the Exchange proposes to align the Exchange's hearing
process and timeliness requirements with those of the Affiliated
Exchanges. Additionally, the Exchange proposes to remove Rule 8.14,
Agency Review, in its entirety because the Act provides for a statutory
right to review \10\ and the Affiliated Exchanges do not contain a
similar provision. In place of the removed Rule 8.14, the Exchange
proposes to add a rule regarding reporting to the Central Registration
Depository (``CRD''). The Exchange also proposes to remove Rule 8.18,
Release of Disciplinary Complaints, Decisions and Other Information,
because the Rules of the Affiliated Exchanges do not contain a similar
provision. Finally, the Exchange proposes to update certain Rules
contained in Chapter 8 of the Exchange's Rulebook to correct minor
errors and update obsolete and outdated language.
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\5\ See Exchange Rule 1.5(n). ``The term ``Member'' shall mean
any registered broker or dealer that has been admitted to membership
in the Exchange. A Member will have the status of a ``member'' of
the Exchange as that term is defined in Section 3(a)(3) of the Act.
Membership may be granted to a sole proprietor, partnership,
corporation, limited liability company or other organization which
is a registered broker or dealer pursuant to Section 15 of the Act,
and which has been approved by the Exchange.''
\6\ See Rules of Cboe Exchange, Inc., specifically Rules 13.1,
13.2, 13.3, 13.4, 13.5, 13.6, 13.8, 13.9, 13.10, 13.11, 13.12,
13.13, 13.14, 13.15, and 13.16.
\7\ See Rules of Cboe C2 Exchange, Inc., specifically Chapter
13, which incorporates by reference the rules contained in Cboe
Exchange, Inc. Chapter 13.
\8\ The rules under Chapter 13 of the Affiliated Exchanges are
the same in number, form and substance. Therefore, the Exchange
refers singularly to the corresponding rule of the ``Affiliated
Exchanges'' throughout this proposed rule filing.
\9\ See proposed Rule 8.2(m). The BCC has decision-making
authority concerning possible violations within the disciplinary
jurisdiction of the Exchange. The BCC is comprised of one or more
Members or associated persons, one or more public representatives,
and may also include other individuals affiliated with the
securities, futures or derivatives industry, all as appointed by the
Exchange's Nominating and Governance Committee with the approval of
the Exchange's Board of Directors.
\10\ 15 U.S.C. 78s(d).
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By way of background, the Exchange Rules currently divide
responsibility for the adjudication of its Rules into two categories:
(1) rules for which the Chief Regulatory Officer (``CRO'') and Hearing
Panels are responsible for adjudicating through formal disciplinary
proceedings; and (2) rules under which fines may be assessed in lieu of
formal disciplinary action. With respect to violations that are
adjudicated by the CRO and Hearing Panels, Rule 8.4(b) requires the CRO
to prepare a statement of charges whenever it appears that there is
probable cause for finding a violation within the disciplinary
jurisdiction of the Exchange has occurred and formal disciplinary
action is warranted. Alternatively, in lieu of conducting a formal
disciplinary proceeding, Rule 8.15, Imposition of Fines for Minor
Violation(s) of Rules, provides for disposition of specific violations
through assessment of fines. In sum, the current application of the
Rules provides for the CRO to determine whether to initiate charges in
a regulatory matter and to determine appropriate sanctions for rule
violations.
The Exchange believes that harmonizing the composition of the
disciplinary Rules between the Exchange and the Affiliated Exchanges
benefits Members because those parties who maintain status as both a
Member of the Exchange and a Trading Permit Holder \11\ (``TPH'') on
the Affiliated Exchanges will be subject to substantially similar
disciplinary rules and not perceive one set of disciplinary rules to be
more lenient or harsh depending on the Exchange's core business. The
Exchange notes that the CRO will continue to supervise the regulatory
functions of the Exchange, separate from that of the Exchange's
business interest, reporting directly to the Regulatory Oversight
Committee of the Board of Directors (``ROC''). Below is a summary of
the Exchange's Rules and their proposed changes concerning
investigations and disciplinary matters.
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\11\ See Bylaws of Cboe Exchange, Inc. Section 1.1 Definitions.
``The term ``Trading Permit Holder'' means any individual,
corporation, partnership, limited liability company or other entity
authorized by the Rules that holds a Trading Permit. . . . A Trading
Permit Holder is a ``member'' solely for purposes of the Act;
however, one's status as a Trading Permit Holder does not confer on
that Person any ownership interest in the Exchange.''
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Summary of Proposed Rule Changes
The Exchange proposes the following rule changes, including
proposed changes to:
(1) Amend Rule 8.1, Disciplinary Jurisdiction, to reflect the
Affiliated Exchanges' Rule 13.1, including adding a provision that
Members or associated persons continue to be subject to the
disciplinary jurisdiction of the Exchange with respect to the failure
to honor arbitration awards and removing the provision specifying that
the Exchange may contract with another self-regulatory organization to
perform some or all of the Exchange's disciplinary functions;
(2) Amend Rule 8.2, Complaint and Investigation, to reflect the
layout and content of Affiliated Exchanges' Rule 13.2 by:
a. Updating Rule 8.2(a) to place the responsibility of initiating
an investigation with the Exchange's regulatory staff whenever the
regulatory staff determines a reasonable basis exists to do so or upon
receipt of a complaint by any person or entity including the Board,\12\
Exchange employees, and Members;
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\12\ See Rule 1.5(e). The terms ``Board'' and ``Board of
Directors'' shall mean the Board of Directors of the Exchange.
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b. Updating Rule 8.2(b) to specify the appropriate action when the
regulatory staff finds reasonable grounds to believe a violation
occurred, but no formal regulatory action is warranted in lieu of a
statement of charges;
c. Updating Rule 8.2(c) to add that a Member or associated person
is obligated to appear and testify, respond to interrogatories, and
furnish information as requested by the Exchange in connection with an
inquiry resulting from agreement pursuant to Exchange Rules 8.2(f),
8.2(g), or 13.7;
d. Updating Rule 8.2(d) to extend the time in which a Subject \13\
has to submit a response to a notification from 15 to 25 days, add a
25-day tolling period while a request for access to the relevant
investigative file is pending, and make other non-substantive
conforming changes;
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\13\ See Rule 8.2(d). The term ``Subject'' means the ``person(s)
who is the subject of the report'' issued pursuance to Rule 8.2.
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e. Updating Rule 8.2(h) to extend the time in which a Subject has
to submit a videotaped response to a notification from 15 to 25 days
and to specify the length and format of videotaped responses submitted
pursuant to the Rule;
f. Adding Interpretation and Policy .03-.05 of the Affiliated
Exchanges' Rule 13.2 as Exchange Rules 8.2(i)-(k) to specify the format
of complaints and form of materials to be submitted upon request, and
define the term ``Regulatory staff'' as it is used in Chapter 8 of the
Exchange Rules; and
g. Adding Proposed Rule 8.2(m) defining the BCC and outlining the
composition of the BCC;
(3) Amend Rule 8.3, Expedited Proceeding, to extend the time a
Subject has to submit written responses to notices from the Regulatory
staff from 15 to 25 days and to make other non-substantive conforming
changes to the Rule text;
(4) Amend Rule 8.4, Charges, to remove the current text of Rule
8.4(a) and replace it entirely with the text of the Affiliated
Exchanges' Rule 13.4(a), add that a Complainant \14\ shall be notified
if further proceedings are warranted to Rule 8.4(b), and add Rule
8.4(c) specifying the terms of a Respondent's \15\ access to requested
documents;
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\14\ See Proposed Rule 8.2(a). The term ``Complainant'' means
``any person or entity, including the Board, Exchange employees, and
Members'' that submits a complaint pursuant to Rule 8.2.
\15\ See Proposed Rule 8.2(b). The term ``Respondent'' means
``the person or organization alleged to have committed a
violation.''
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(5) Amend Rule 8.5, Answer, to extend the time that a Subject has
to submit an answer from 15 to 25 days and add a 25-day tolling period
while a request for access to the relevant investigative file is
pending;
(6) Update Rule 8.6, Hearing, by:
a. Specifying that hearings on charges shall be held before a
Hearing Panel comprised of three or five members of the BCC, rather
than appointed by the
[[Page 31753]]
Chief Executive Officer; and that BCC Counsel may assist the Hearing
Panel in preparing its written recommendations or judgments;
b. Replacing the current text of Rule 8.6(a)(1) by adopting the
Affiliated Exchanges' Rule 13.6(a)(1) regarding the impartiality of
Hearing Panel members and deleting Rules 8.6(a)(1)(A)-(B);
c. Adopting the Affiliated Exchanges' Rule 13.6(a)(2) regarding
motions for disqualification of Hearing Panel members as Rule 8.6(a)(2)
and the Affiliated Exchanges' Rule 13.6(a)(3) regarding rulings on
motions for disqualification of Hearing Panel members as Rule
8.6(a)(3);
d. Replacing the current text of Rule 8.6(b) by adopting the
Affiliated Exchanges' Rule 13.6(b) regarding prehearing procedures;
e. Removing current Rule 8.6(c) and renumbering current Rule 8.6(d)
as Rule 8.6(c);
f. Adopting the Affiliated Exchanges' Rule 13.6(d) regarding
documents and witnesses as Rule 8.6(d); and
g. Adopting the Affiliated Exchanges' Rule 13.6(d), Interpretations
and Policies .01-.03 regarding interventions as Rule 8.6(e);
(7) Amend Rule 8.8, Offers of Settlement, to clarify that the staff
may also appear before the CRO to make an oral statement if the
Respondent elects to make an oral statement before the CRO, and that a
Respondent may submit an offer during the course of any proceeding
under Chapter 8 of the Exchange Rules;
(8) Amend Rule 8.9, Decision, to add that a decision shall also
include a statement of the sanctions imposed and reasons for the
sanctions, that the regulatory division of the Exchange shall also
receive a copy of statements, and that the Exchange shall post the
complete decision on the appropriate EDGA website once the decision is
considered final;
(9) Update Rule 8.10, Review, by:
a. Extending the time for a Respondent to petition for review of a
decision from 10 days to 15 days, specify the process of petitioning
for review of a decision, and clarify that other parties to a hearing
may also submit petitions for review and responses to petitions for
review;
b. Allowing the Board or a committee of the Board to ratify a
review, clarify that new issues may be raised by the parties involved
in the review, and clarify that the Board may affirm, reverse or modify
the decision, and that the decision must be served upon the Respondent
and the regulatory division of the Exchange;
c. Extending the time the Board has to review a decision from 20
days to 30 days; and
d. Eliminating Rule 8.10(d);
(10) Amend Rule 8.11, Judgment and Sanctions, to remove a committee
of the Board as an applicable body that may determine penalties and
impose discipline upon Members and associated persons and remove
Interpretations and Policies .01 to Rule 8.11;
(11) Amend Rule 8.12, Miscellaneous Provisions, to clarify that the
address a Respondent may be served at is the last known place of
business as it appears on the books and records of the Exchange, and to
provide an additional three days to the prescribed period a Respondent
has to respond in the case of service by certified mail;
(12) Remove Rule 8.14, Agency Review, in its entirety and replace
it with the text of Rule 13.14 of the Affiliated Exchanges regarding
reporting to the CRD;
(13) Revise Rule 8.15, Imposition of Fines for Minor Rule
Violations, to include additional details about the Minor Rule
Violation program and align the Exchange's rule with corresponding Rule
13.15 of the Affiliated Exchanges;
(14) Update Rule 8.16. Ex Parte Communications, to clarify that the
provisions of the Rule apply to all Members and associated persons,
amend the definition of Adjudicator \16\ under the Rule, add
subparagraphs (e), (f), and (g) to define ex parte communication, and
add clarifying provisions regarding what may not be considered a
violation of Rule 8.16; and
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\16\ See Proposed Rule 8.16 (defining ``Adjudicator'' as ``any
member of the Hearing Panel, Business Conduct Committee, Board or
committee of the Board'' participating in a decision with respect to
the proceeding at issue).
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(15) Remove Rule 8.18, Release of Disciplinary Complaints,
Decisions and Other Information, in its entirety.
Detailed descriptions of the proposed changes to specific rules
within Chapter 8 are outlined below.
Exchange Rule 8.1, Disciplinary Jurisdiction
(1) Current Rule 8.1
In its current form, Exchange Rule 8.1 sets forth the Exchange's
jurisdiction regarding disciplinary matters involving its Members and
associated persons. Members and associated persons are subject to the
disciplinary jurisdiction of the Exchange pursuant to Chapter 8 of the
Exchange's Rulebook and, after notice and opportunity for a hearing may
be appropriately disciplined by: expulsion; suspension; limitation of
activities, functions and operation; fine; censure; suspension or bar
from association with a Member or any other fitting sanction.\17\ An
individual Member or associated person may be charged with a violation
committed by an employee under the Member's supervision or by the
Member or associated person, as though such violation was their
own.\18\ Similarly, a Member organization may be charged with any
violation committed by its employees or by any other person who is
associated with such Member organization, as though such violation was
their own.\19\ Members and associated persons continue to be subject to
the Exchange's disciplinary jurisdiction following termination of such
person's association with a Member with respect to matters that
occurred prior to such termination provided that the Exchange gave
written notice to the former Member or former associated person within
one year of the Exchange's receipt of written notice of termination of
such former Member or such former associated person.\20\ Chapter 8 does
not apply to summary suspensions or other action taken pursuant to
Chapter 7 of the Rules of the Exchange and action taken pursuant to
Chapter 7 shall not be deemed disciplinary action under Chapter 8.\21\
Rule 8.1(d) provides that Exchange is permitted to contract with
another self-regulatory organization (``SRO'') to perform some or all
of the Exchange's disciplinary functions and allows the Exchange to
retain ultimate legal responsibility for and control of such
functions.\22\
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\17\ See Rule 8.1(a).
\18\ Id.
\19\ Id.
\20\ See Rule 8.1(b).
\21\ See Rule 8.1(c).
\22\ See Rule 8.1(d).
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(2) Proposed Changes to Rule 8.1
The Exchange first proposes to amend Rule 8.1(b) to clarify that
former Members or associated people continue to be subject to the
Exchange's jurisdiction with respect to their failure to honor an
arbitration award pursuant to Chapter 9 of the Exchange Rules. Chapter
9 of the Exchange's Rules governs the EDGA arbitration process. Rule
9.5 states that failing to honor a EDGA arbitration award may be deemed
conduct inconsistent with just and equitable principles of trade.
Conduct inconsistent with just and equitable principles of trade is a
violation of Rule 3.1 and is thus subject to the disciplinary
jurisdiction of the Exchange and should be codified as
[[Page 31754]]
such.\23\ Currently, however, such failure to honor a EDGA arbitration
award by a former Member, or former person associated with a Member,
may not always be subject to the Exchange's disciplinary jurisdiction.
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\23\ See Rule 9.5.
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Current Rule 8.1(b) provides that a Member or associated person
shall continue to be subject to the disciplinary jurisdiction of the
Exchange following such Member's or associated person's termination of
membership, or termination of association with such Member, with
respect to matters that occurred prior to such termination, provided
that written notice of the commencement of an inquiry into such matters
is given by the Exchange to such former Member or associated person
within one year of the Exchange's receipt of notice of such
termination.\24\ This provision allows for certain anomalies in the
context of failure to pay arbitration awards. For example, consider the
following scenario: A customer is involved in a trading dispute with a
EDGA Member. Months later, the Member terminates its membership on the
Exchange. Weeks after the membership termination, the customer properly
files an arbitration claim with EDGA.\25\ One and a half years after
the membership termination, the customer prevails in the arbitration
proceeding, and a monetary award is imposed against the former Member.
Nevertheless, the former Member subsequently fails to honor the
arbitration award. Because more than one year has passed since the
former Member's termination of membership and the Exchange did not
provide written notice of the commencement of an inquiry into the
failure to pay the award, the Exchange could not assert disciplinary
jurisdiction over the former Member. The Exchange believes this is
problematic given the fact that the dispute concerned Exchange-related
business, and that the award was pursuant to an Exchange arbitration
proceeding. While the Exchange notes that the customer in the above
example would be able to seek enforcement of the award through the
judicial system, the inability of the Exchange to potentially take
disciplinary measures undermines the credibility of the Exchange's
arbitration forum.
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\24\ See Rule 8.1(b).
\25\ Rule 9.1 states that Members shall comply with any FINRA
rules and interpretations thereof incorporated by reference as if
such rules and interpretations were part of the Exchange's Rules.
FINRA Rule 12202 states that claims by or against a member or an
associated person who is inactive at the time the claim is filed is
ineligible for arbitration under the FINRA Code of Arbitration
unless the customer agrees in writing to arbitrate after the claim
arises.
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The Exchange also proposes to remove current Rule 8.1(d) in its
entirety to remove obsolete and duplicative language regarding the
ability of the Exchange to contract with another self-regulatory
organization to perform disciplinary functions and replace this text
with text found in Rule 13.1, Interpretations and Policies .02 of the
Affiliated Exchanges describing when the notice requirement found in
current Rule 8.1(b) shall not apply. Rule 8.1(d) currently states that
the Exchange may contract with another self-regulatory organization to
perform some or all of the Exchange's disciplinary functions, allows
the Exchange to specify the extent to which the Rules of Chapter 8
govern disciplinary functions when contracting with an SRO, and allows
the Exchange to retail ultimate legal responsibility and control over
the Exchange's disciplinary functions. The Exchange proposes to remove
the current language of 8.1(d) because its contents are duplicative of
Exchange Rule 13.7, Regulatory Services Agreements.\26\ The text added
to Rule 8.1(d) would eliminate the notice requirement in Rule 8.1(b)
solely with respect to instances where the Exchange seeks to take
disciplinary measures with respect to a former Member or associated
person for failure to honor an arbitration award pursuant to Chapter 9.
Accordingly, the Exchange proposes to delete the text of current Rule
8.1(d) and replace this text with the text of Rule 13.1,
Interpretations and Policies. 02 of the Affiliated Exchanges in its
entirety.\27\
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\26\ See Affiliated Exchanges' Rule 13.7. ``The Exchange may
enter into one or more agreements with another self-regulatory
organization to provide regulatory services to the Exchange to
assist the Exchange in discharging its obligations under Section 6
and Section 19(g) of the Exchange Act. Any action taken by another
self-regulatory organization, or its employees or authorized agents,
acting on behalf of the Exchange pursuant to a regulatory services
agreement shall be deemed to be an action taken by the Exchange;
provided, however, that nothing in this provision shall affect the
oversight of such other self- regulatory organization by the
Commission. . . . the Exchange shall retain ultimate legal
responsibility for, and control of, its self-regulatory
responsibilities, and any such regulatory services agreement shall
so provide.''
\27\ The proposed change is substantially similar to SR-CBOE-
2001-14, with minor differences for terminology and outdated rule
references. Additionally, the Affiliated Exchanges' current
arbitration rule (Chapter 14) explicitly states that former TPHs and
associated persons of TPHs are considered to be encompassed by
Chapter 14.
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Together, the proposed changes to Rule 8.1(b) and Rule 8.1(d) would
provide that failing to pay arbitration awards would remain under the
disciplinary jurisdiction of the Exchange. The proposed change to Rule
8.1(b) seeks to clarify that former Members or associated persons
continue to be subject to the Exchange's jurisdiction with respect to
their failure to honor an arbitration award pursuant to Chapter 9 of
the Exchange Rules while the proposed change to Rule 8.1(d) would seek
to eliminate the notice requirement in Rule 8.1(b) solely with respect
to instances where the Exchange seeks to take disciplinary measures
with respect to a former Member or associated person for failure to
honor an arbitration award pursuant to Chapter 9. The proposed
amendments to Rule 8.1(b) and 8.1(d) will result in Rule 8.1 aligning
with Rule 13.1 of the Affiliated Exchanges.
Exchange Rule 8.2, Complaint and Investigation
(1) Current Rule 8.2
Current Rule 8.2 states that staff investigates and examines
possible violations within the disciplinary jurisdiction of the
Exchange (``violations'') whenever possible violations are brought to
its attention in any manner, including upon order of the Board, the CRO
or other Exchange officials designated by the CRO, or upon receipt of a
complaint alleging such violation.\28\ Members and associated persons
are required to cooperate with staff inquiries and to furnish
information requested in connection with investigations and
examinations.\29\ Members and associated persons are entitled to be
represented by counsel during any such Exchange investigation,
proceeding or inquiry.\30\ Failure to furnish information requested by
the Exchange in the course of an inquiry, investigation, hearing or
appeal, or in the course of preparation by the Exchange in anticipation
of such hearing or appeal on the date or within the time period
specified by the Exchange shall be deemed to be a violation of Rule
8.2.\31\ In each instance where an investigation has been instituted as
a result of a complaint, and in every other instance in which an
investigation finds that there are reasonable grounds to believe that a
violation has been committed, the staff (or when appropriate, the
designated self-regulatory organization) submits a written report
(``report'') of the investigation to the CRO.\32\
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\28\ See Rule 8.2(a).
\29\ See Rule 8.2(c).
\30\ Id.
\31\ See Rule 8.2(e).
\32\ See Rule 8.2(b).
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[[Page 31755]]
Prior to submitting a report to the CRO, staff must notify the
subject of the report (``Subject'') of the nature of the alleged
violations.\33\ Unless the CRO decides expeditious action is required,
the Subject has 15 days to submit a written statement to the CRO
concerning why no disciplinary action should be taken.\34\ The Subject
may request access to documents in the investigative file, furnished by
the Subject or the Subject's agents, to assist the Subject in preparing
such a written statement.\35\ The Subject may also submit a videotaped
response in lieu of a written statement, the length and format of which
is decided by the Exchange.\36\
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\33\ See Rule 8.2(d).
\34\ Id.
\35\ Id.
\36\ See Rule 8.2(h).
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The Exchange may enter into cooperative agreements with domestic
and foreign self-regulatory organizations providing for the exchange of
information and other forms of mutual assistance or for market
surveillance, investigative, enforcement or other regulatory
purposes.\37\ No Member or associated person or entity subject to the
jurisdiction of the Exchange shall refuse to appear and testify before
another exchange or another self-regulatory organization in connection
with a regulatory investigation, examination or disciplinary proceeding
or refuse to furnish testimony, documentary materials or other
information or otherwise impede or delay such investigation,
examination or disciplinary proceeding if the Exchange requests such
testimony, documentary materials or other information in connection
with an inquiry resulting from a cooperative agreement entered into by
the Exchange.\38\
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\37\ See Rule 8.2(g).
\38\ See Rule 8.2(f).
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(2) Proposed Changes to Rule 8.2
The Exchange proposes to reorganize and amend Rule 8.2 to align
with and reflect the layout of the Affiliated Exchanges' Rule 13.2. The
Exchange proposes these amendments to Rule 8.2 with the sole purpose of
aligning the Rules of the Exchange with the Rules of the Affiliate
Exchanges, thereby promoting consistency and efficiency for Members and
TPHs.
First, the Exchange proposes to update Rule 8.2(a) to remove the
Exchange's (or designated SRO's) and the Board's ability to initiate an
investigation and place the responsibility to initiate an investigation
with the Exchange's Regulatory staff, defined infra, upon receipt of a
complaint. Specifically, Rule 8.2(a) currently provides that an
investigation can be initiated in four different ways: (1) by the
Exchange, (2) by the Board, (3) by the CRO, or (4) by receipt of a
complaint. The Exchange proposes to amend Rule 8.2(a) to place the
responsibility to initiate an investigation with the Exchange's
Regulatory staff whenever the Regulatory staff determines a reasonable
basis to do so exists or upon receipt of a complaint by any person or
entity including the Board, Exchange employees, and Members (the
``Complainant''), provided that such complaint specifies in reasonable
detail the facts constituting the alleged violation. The proposed
amendment to Rule 8.2(a) will result in Rule 8.2(a) aligning with Rule
13.2(a) of the Affiliated Exchanges.
Second, the Exchange proposes to replace Rule 8.2(b) with the
equivalent Rule 13.2(c) of the Affiliated Exchanges, which specifies
the appropriate procedure in circumstances in which the Regulatory
staff finds reasonable grounds to believe a violation occurred, but no
formal regulatory action is warranted in lieu of a statement of
charges. Currently, Rule 8.2(b) provides that a written report of an
investigation shall be submitted to the CRO in every instance where an
investigation has been instituted and an investigation results in a
finding that a violation was committed. Notably, current Rule 8.2(b)
does not contemplate the appropriate procedures for when the Regulatory
staff determines that a violation occurred, but a non-formal regulatory
action is warranted in lieu of issuing a statement of charges or when
the Regulatory staff determines no reasonable grounds to believe a
violation occurred exist. The Exchange proposes to amend 8.2(b) to
provide that when the Regulatory staff determines that a violation
occurred, but a non-formal regulatory action is warranted, in lieu of
issuing a statement of charges, the Regulatory staff may impose a non-
formal regulatory action without the submission of a written report of
its investigation to the CRO. Additionally, the Exchange proposes to
amend Rule 8.2(b) to provide that when the Regulatory staff determines
no reasonable grounds to believe a violation occurred exist, the
Regulatory staff may close the investigation without submission of a
written report to the CRO. The proposed Rule 8.2(b) reflects the
language and procedures described Affiliated Exchanges' Rule 13.2(c)
and differs only where necessary to conform to the Exchange's existing
Rule text and to account for details or descriptions included in the
Exchange's Rules but not in the applicable Rules of the Affiliated
Exchanges.
Third, the Exchange proposes to amend Rule 8.2(c) to add that a
Member or associated person is obligated to appear and testify, respond
to interrogatories, and furnish information requested by the Exchange
in connection with an inquiry resulting from an agreement pursuant to
Exchange Rules 8.2(f),\39\ 8.2(g),\40\ or 13.7.\41\ Currently, Exchange
Rule 8.2(c) provides for circumstances in which a Member or associated
person is obligated to appear and testify, respond in writing to
interrogatories, and furnish documentary materials and other
information requested by the Exchange including in connection with a an
investigation initiated pursuant to the Rule or a hearing or appeal
conducted or anticipated to be conducted pursuant to Chapter 8 of the
Exchange Rules. Current Rule 8.2(c) does not obligate a Member or
associated person to perform the specified actions in connection with
an Exchange inquiry resulting from an agreement entered in connection
with regulatory cooperation, a cooperative agreement, or a regulatory
services agreement. The Exchange proposes to amend Rule 8.2(c) to add
that a Member or associated person is obligated to appear and testify,
respond to interrogatories, and furnish information requested by the
Exchange in connection with an inquiry resulting from agreement
pursuant to Exchange Rules 8.2(f), Regulatory Cooperation, 8.2(g),
Cooperative Agreements, or 13.7, Regulatory Services Agreements. The
proposed change to Rule 8.2(c) reflects the language of Affiliated
Exchanges' Rule 13.2(b) and differs only where necessary to conform to
the Exchange's
[[Page 31756]]
existing Rule text and to account for details or descriptions included
in the Exchange's Rules but not in the applicable Rules of the
Affiliated Exchanges.
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\39\ See Rule 8.2(f). ``No Member or person associated with a
Member or other person or entity subject to the jurisdiction of the
Exchange shall refuse to appear and testify before another exchange
or other self-regulatory organization in connection with a
regulatory investigation, examination or disciplinary proceeding or
refuse to furnish testimony, documentary materials or other
information or otherwise impede or delay such investigation,
examination or disciplinary proceeding if the Exchange requests such
testimony, documentary materials or other information in connection
with an inquiry resulting from an agreement entered into by the
Exchange pursuant to subsection (g) of this Rule. . . .''
\40\ See Rule 8.2(g). ``The Exchange may enter into agreements
with domestic and foreign self-regulatory organizations providing
for the exchange of information and other forms of mutual assistance
or for market surveillance, investigative, enforcement or other
regulatory purposes. . . .''
\41\ See Rule 13.7. The Exchange may enter into one or more
agreements with another self-regulatory organization to provide
regulatory services to the Exchange to assist the Exchange in
discharging its obligations under Section 6 and Section 19(g) of the
Exchange Act. . . .''
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Fourth, the Exchange proposes to amend Rule 8.2(d) to extend the
time in which a Subject \42\ has to submit a response to a notification
from 15 to 25 days, add a 25-day tolling period while a request for
access to the relevant investigative file is pending, and add
clarifying language to specify that the reference to any resolution of
the Board in Rule 8.2(d) refers only to resolutions of the Board
regulating the conduct of business on the Exchange. Currently, Rule
8.2(c) allows Subjects 15 days from the date of notification to submit
a written statement to the CRO describing why no disciplinary action
should be taken, whereas the Affiliated Exchanges allow for 25
days.\43\ Additionally, current Rule 8.2(c) does not include a tolling
provision for Subjects when they are awaiting access to the relevant
investigative file, whereas the Affiliated Exchanges include a tolling
provision.\44\ Finally, unlike Rule 13.2(d) of the Affiliated
Exchanges, current Exchange Rule 8.2(c) refers to resolutions of the
Board without specifying that the Rule only refers to resolutions of
the Board regulating the conduct of business on the Exchange. To ensure
consistency between the Exchange and the Affiliated Exchanges, the
Exchange proposes to amend Rule 8.2(d) to extend the time for a Subject
to submit a response to a notification from 15 to 25 days, add a 25-day
tolling period while a request for access to the relevant investigative
file is pending, and add clarifying language to specify that the
reference to any resolution of the Board in Rule 8.2(d) refers only to
resolutions of the Board regulating the conduct of business on the
Exchange. The resulting Rule 8.2(d) will reflect the language of Rule
13.2(d) of the Affiliated Exchanges and differ only where necessary to
conform to the Exchange's existing Rule text and to account for details
or descriptions included in the Exchange's Rules but not in the
applicable Rules of the Affiliated Exchanges.
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\42\ See Rule 8.2(d). The term ``Subject'' refers to the
person(s) who is the subject of the report.
\43\ See Affiliated Exchanges' Rule 13.2(d). ``A subject shall
have 25 days from the date of notification [ ] to submit a written
statement to the CRO concerning why no disciplinary action should be
taken.''
\44\ See Affiliated Exchanges' Rule 13.2(d). ``The 25-day period
to submit a written statement shall toll while any request for
access to the investigative file pursuant to this section is
pending.''
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Fifth, the Exchange proposes to amend Rule 8.2(h) to extend the
time in which a Subject may submit a videotaped response to a
notification from 15 to 25 days and to specify the length and format of
videotaped responses submitted pursuant to the Rule 8.2. Currently,
Exchange Rule 8.2(h) allows Subjects 15 days to submit a videotaped
response to a notification. The current Rule fails to specify the
length and format of videotaped responses and states that the Exchange
will establish these standards. The Exchange proposes to extend the
time in which a Subject may submit a videotaped response to a
notification from 15 to 25 days to align the Exchange's Rules with
those of the Affiliated Exchanges and proposed Rule 8.2(d), discussed
above. The Exchange also proposes to specify that submitted videotaped
responses shall not exceed 12 minutes and must be accompanied by a
written transcript to align the Exchange's Rules with those of the
Affiliated Exchanges and provide clarity to its Members regarding the
standards for videotaped responses submitted pursuant to Rule 8.2(h).
The resulting Rule 8.2(d) will reflect the exact language of
Interpretation and Policy .02 of the Affiliated Exchanges' Rule 13.2.
Sixth, the Exchange proposes to add Interpretation and Policy
.03-.05 of the Affiliated Exchanges' Rule 13.2 as Exchange Rule 8.2(i)-
(k) to specify the format of complaints, specify the form of materials
to be submitted upon request, and define the term ``Regulatory staff''
as it is used in Chapter 8 of the Exchange Rules. The Affiliated
Exchanges have rules in place specifying (1) that Complainants should
sign written complaints or identify themselves when making oral
complaints; (2) that data should be furnished upon request in the
manner and standard electronic format prescribed by the Exchange; and
(3) that define the term ``Regulatory staff'' as used in the relevant
chapter. Conversely, the Exchange currently has no rules making such
specifications. As such, the Exchange proposes to amend Rule 8.2 to add
the specifications related to identification, furnishing materials upon
request, and the definition of Regulatory staff that are included in
the Rules of the Affiliated Exchanges. The Exchange proposes to adopt
Rule 8.2(i) requiring Complainants to sign written complaints or
identify themselves when making oral complaints and identify the
specific rules and regulations allegedly violated. The Exchange also
proposes to adopt Rule 8.2(j) requiring each Member to furnish data
concerning orders, transactions, and positions upon request in the
manner and standard electronic format prescribed by the Exchange.
Finally, the Exchange proposes to adopt Rule 8.2(k) to define the term
``Regulatory staff,'' as used in Chapter 8, to mean the Exchange's
employees in the regulatory division, and, as applicable, employees of
FINRA performing regulatory services for the Exchange. The resulting
Rules 8.2(i), 8.2(j), and 8.2(k) will reflect Interpretation and Policy
.03-.05 of the Affiliated Exchanges' Rule 13.2 with the only difference
between the rules being the corresponding Exchange Rules and defined
terms referenced in each.
Finally, the Exchange proposes to add Rule 8.2(m) to the Rules of
the Exchange defining the BCC and detailing is composition. Proposed
Rule 8.2(m) will define the BCC as a committee of the Board with
decision-making authority concerning possible violation within the
discretionary jurisdiction of the Exchange. Further, the proposed rule
will detail the composition of the BCC as being comprised of one or
more Member or associated person, one or more public representatives,
and may also include other individuals affiliated with the securities,
futures or derivatives industry, all as appointed by the Exchange's
Nominating and Governance Committee with the approval of the Exchange's
Board of Directors. The resulting Rule 8.2(m) will set forth the
definition and composition of the BCC in the Rules of the Exchange
thereby adding clarity. The Exchange's proposed amendments to Rule 8.2
discussed above will result in clarifying the Rules of the Exchange and
the terms therein and Rule 8.2 aligning with and reflecting the general
format of the Affiliated Exchanges' Rule 13.2 with differences only
where necessary to conform to the Exchange's existing Rule text and to
account for details or descriptions included in the Exchange's Rules
but not in the applicable Rules of the Affiliated Exchanges.
Exchange Rule 8.3, Expedited Processing
(1) Current Rule 8.3
Current Rule 8.3, Expedited Proceeding, states that when a Subject
receives notice of a report, the Subject may seek to dispose of the
matter through a letter of consent.\45\ The Subject may submit notice
to staff electing to proceed in an expedited manner and shall have 15
days to submit a written statement pursuant to Rule 8.2(d).\46\ The
Subject and staff may then negotiate a letter of consent
[[Page 31757]]
outlining stipulations and findings regarding the violation(s) and the
sanctions therefore.\47\ Disposing of the matter via letter of consent
occurs only if the Subject and staff agree on the terms and it is
signed by the Subject.\48\ The CRO may accept or reject the letter of
consent.\49\ If the CRO accepts the letter, the Exchange may adopt the
letter as its decision.\50\ If the CRO rejects the letter, the matter
proceeds as if the letter had not been submitted. The CRO's decision to
accept or reject the letter is final.\51\ Upon rejection, the Subject
shall have 15 days to submit a written statement pursuant to Rule
8.2(d).\52\ At any time, the Subject or staff may terminate the
negotiations via written declaration of an end to the negotiations.\53\
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\45\ See Rule 8.3.
\46\ Id.
\47\ Id.
\48\ Id.
\49\ Id.
\50\ Id.
\51\ Id.
\52\ Id.
\53\ Id.
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(2) Proposed Changes to Rule 8.3
The Exchange proposes to amend Rule 8.3, Expedited Proceeding, to
extend the time for a Subject to submit written responses to notices
from the Regulatory staff from 15 to 25 days and to make other non-
substantive conforming changes to the rule text. Rule 8.3, Expedited
Proceedings, references Rule 8.2(d), regarding notice and time to
respond to a notice, multiple times. Currently, Rule 8.2(d) allows
Subjects 15 days to respond to a notice from the Exchange's Regulatory
staff. As discussed in detail above, the Exchange is proposing to
extend time allotted in Rule 8.2(d) to 25 days to align the Rules of
the Exchange with those of the Affiliated Exchanges. Similarly, current
Rule 8.3 allows Subjects 15 days to submit a written notice in response
a notification electing to proceed in an expedited manner, a
declaration of an end to negotiations, or a rejection of a letter of
consent. The Exchange now proposes to extend the time allotted to a
Subject to submit a written response in each of these scenarios to 25
days.
Additionally, the Exchange proposes to make other non-substantive
changes to Rule 8.3 to conform the language of the Rule with the
language of Affiliated Exchanges' Rule 13.3, Expedited Proceeding.
These non-substantive changes include changing references to ``Exchange
staff'' to ``Regulatory staff,'' which the Exchange proposes to define
in Rule 8.2(k), discussed above. The Exchange's proposed amendments to
Rule 8.3 as discussed above will align Rule 8.3 with the general format
and language of the Affiliated Exchanges' Rule 13.3.
Exchange Rule 8.4, Charges
(1) Current Rule 8.4
Current Rule 8.4 states that when it appears to the CRO from the
staff's report pursuant to Rule 8.2(b) that no probable cause exists
for finding a violation occurred or if the CRO otherwise determines
that no further action is warranted, the CRO issues a written statement
setting out its reasons for that finding.\54\ When the CRO determines
probable cause exists for finding a violation occurred and further
proceedings are warranted, the CRO directs staff to prepare a statement
of charges against the Respondent specifying the acts for which the
Respondent is charged and setting forth the specific violations.\55\ A
copy of the statement of charges shall be served upon the Respondent in
accordance with Rule 8.12.\56\
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\54\ See Rule 8.4(a).
\55\ See Rule 8.4(b).
\56\ Id.
---------------------------------------------------------------------------
(2) Proposed Changes to Rule 8.4
The Exchange proposes to amend Rule 8.4. Charges, to delete the
current text of Rule 8.4(a) and replace it entirely with the text of
the Affiliated Exchanges' Rule 13.4(a), amend Rule 8.4(b) to provide
that a Complainant shall be notified if further proceedings are
warranted, and add Rule 8.4(c) specifying the terms of a Respondent's
access to requested documents.
First, the Exchange proposes to delete the current text of Rule
8.4(a) and replace it entirely with the text of the Affiliated
Exchanges' Rule 13.4(a). Current Rule 8.4(a) describes the steps the
CRO must take in the case he or she determines that no probable cause
exists for finding a violation occurred or that no further proceedings
are warranted. In both cases, current Rule 8.4(a) directs the CRO to
issue a written statement setting forth the reasons for his or her
finding. Rule 8.4(a) does not specify which materials the CRO must base
his or her finding on and requires the CRO, rather than the Regulatory
staff, to take the specified action. The Exchange proposes to amend
Rule 8.4(a) to adopt the language of the Affiliated Exchange's Rule
13.4(a) in its entirety. As a result, Rule 8.4(a) will continue to
describe the steps the CRO must take if he or she determines that no
probable cause exists for finding a violation occurred or that no
further proceedings are warranted. The amended Rule 8.4(a) will also
specify that the CRO should base his or her finding on the report of
the Regulatory staff, that the determination should be based on the
whether a violation occurred within the disciplinary jurisdiction of
the Exchange, and direct the Regulatory staff, rather than the CRO, to
prepare and issue a written statement setting forth the reasons for the
CRO's findings. The resulting Rule 8.4(a) will reflect the exact
language of the Affiliated Exchanges' Rule 13.4(a).
Second, the Exchange proposes to amend Rule 8.4(b) to specify that
the CRO's finding should be based on the report of the Regulatory staff
and that the Regulatory staff prepares and issues the statement of
charges. Similar to current Rule 8.4(a), current Rule 8.4(b) does not
specify that the CRO's finding should be based on a report from the
Regulatory staff or that the Regulatory staff, rather than the CRO,
should prepare and issue statements of charges. The Exchange proposes
to amend Rule 8.4(b) to add these specifications. Additionally, the
Exchange proposes to amend Rule 8.4(b) to specify that the term
``Respondent'' refers to the person or organization alleged to have
committed a violation, and that the Complainant, if any, shall be
notified if further proceedings are warranted. Current Rule 8.4(b) does
not specifically define the term ``Respondent'' or whether Complainants
will be contacted if further proceedings are warranted. The Exchange
proposes to add to Rule 8.4(b) that the term ``Respondent'' refers to
``the person or organization alleged to have committed a violation.''
The Exchange also proposes to add that if further proceedings are
warranted, the Complainant shall be notified. The resulting Rule 8.4(b)
will reflect the exact language of Rules 13.4(b) of the Affiliated
Exchanges.
Finally, the Exchange proposes to add subparagraph (c) to Rule 8.4
to specify the terms of the Respondent's access to requested documents.
Currently, neither Rule 8.4, nor any provision in Chapter 8 of the
Exchange's Rulebook, provides the terms of Respondent's access to
documents relating to their investigation. The Exchange proposes to
adopt Rule 8.4(c) to specify that Respondents who have made a request
for documents shall have access to all documents concerning their case
within 25 days after a statement of charges has been properly served
upon the Respondent. If a Respondent requests such documentation, the
Regulatory staff may protect the identity of the Complainant. The
Exchange seeks to add clarity to the process by which Respondents may
obtain all relevant
[[Page 31758]]
documentation and ensure that procedures for obtaining such information
are transparently communicated to all Members of the Exchange. The
resulting Rule 8.4(c) will reflect the language of Rules 13.4(c) of the
Affiliated Exchanges, with differences only to account for the Exchange
Rules referenced therein.
Exchange Rule 8.5, Answer
(1) Current Rule 8.5
Currently, Rule 8.5, Answer, states that a Respondent has 15 days
after service of the statement of charges to file a written answer to
the statement of charges (``Answer'').\57\ The Answer must specifically
admit or deny any allegation contained in the statement of charges and
may be accompanies by supporting documentation.\58\
---------------------------------------------------------------------------
\57\ See Rule 8.5.
\58\ Id.
---------------------------------------------------------------------------
(2) Proposed Changes to Rule 8.5
The Exchange proposes to amend Rule 8.5, Answer, to extend the time
for a Subject to submit an answer from 15 to 25 days and add a 25-day
tolling period while a request for access to the relevant investigative
file is pending. Similar to Rule 8.2, discussed above, Rule 8.5
currently allows Respondents 15 days after service of the charges to
file an answer, whereas the Affiliated Exchanges allow for 25 days.\59\
Additionally, current Rule 8.5 does not include a tolling provision for
Respondents when they are awaiting access to the relevant investigative
file, whereas the Affiliated Exchanges include a tolling provision.\60\
To ensure consistency between the Exchange and its Affiliated
Exchanges, the Exchange proposes to amend Rule 8.5 to extend the time
that a Respondent has to file an answer from 15 to 25 days and add a
25-day tolling period while a request for access to the relevant
investigative file is pending, The resulting Rule 8.5 will reflect the
language of Rule 13.5 of the Affiliated Exchanges with differences only
to account for the Exchange Rules referenced therein.
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\59\ See Affiliated Exchanges' Rule 13.5. ``The Respondent shall
have 25 business days after service of the charges to file a written
answer thereto.''
\60\ See Affiliated Exchanges' Rule 13.5. ``The 25-day period to
submit a written answer shall toll while any request for access to
the investigative file pursuant to Rule 13.4(c) is pending.''
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Exchange Rule 8.6, Hearings
(1) Current Rule 8.6
Current Rule 8.6, Hearings, states that subject to Rule 8.7 \61\
regarding summary proceedings, hearings on charges are held before a
panel of three hearing officers (the ``Hearing Panel'') appointed by
the Chief Executive Officer.\62\ Each Hearing Panel shall be comprised
of the following: (i) a professional hearing officer, who shall serve
as Chairman; (ii) a hearing officer who is an Industry Member; \63\ and
(iii) a hearing officer who is a Member Representative.<SUP>64 65</SUP>
Exchange counsel may assist the Hearing Panel in preparing its written
recommendations or judgments.\66\ Within 15 days of the appointment of
the Hearing Panel, the Respondent may move, in writing, to disqualify
any Hearing Officer sitting on such Hearing Panel based upon bias or
conflict of interest.\67\ The Exchange may file a brief in opposition
to the Respondent's motion within 15 days of service thereof.\68\ The
Hearing Panel shall rule upon such motion no later than 30 days from
filing by the Respondent.\69\
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\61\ See Rule 8.7. ``Notwithstanding the provisions of Rule 8.6
of this Chapter, the CRO may make a determination without a hearing
and may impose a penalty as to violations which the Respondent has
admitted or charges which the Respondent has failed to answer or
which otherwise are not in dispute. Notice of such summary
determination, specifying the violations and penalty, shall be
served upon the Respondent, who shall have ten (10) business days
from the date of service to notify the CRO that he desires a hearing
upon all or a portion of any charges not previously admitted or upon
the penalty. Failure to so notify the CRO shall constitute an
admission of the violations and acceptance of the penalty as
determined by the CRO and a waiver of all rights of review. If the
Respondent requests a hearing, the matters which are the subject of
the hearing shall be handled in accordance with the hearing and
review procedures of this Chapter.''
\62\ See Rule 8.6(a)(2).
\63\ See Rule 8.6(a)(1)(A). An ``Industry Member'' is generally
defined as a person having significant involvement with a broker or
dealer, a person who provides professional services to a broker or
dealer, or a person who has an employment relationship or consults
for or provides professional services to the Exchange or any
affiliate thereof.
\64\ See Rule 8.6(a)(1)(B). The term ``Member Representative''
means a member of any hearing panel who is an office, director,
employee or agent of an Exchange Member.
\65\ See Rule 8.6(a)(2).
\66\ See Rule 8.6(b).
\67\ Id.
\68\ Id.
\69\ Id.
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Participants shall be given at least 15 business days' notice of
the time and place of the hearing and a statement of the matters to be
considered therein.\70\ Not less than 8 days in advance of the hearing
date, the parties much furnish copies of all documentary evidence they
wish to present at the hearing, and the parties shall furnish a list of
all documents submitted for the record not less than four business days
in advance of the hearing.\71\ These documents shall be made available
to the parties for inspection and copying.\72\ The Hearing Panel shall
determine all questions concerning the admissibility of evidence and
shall otherwise regulate the conduct at the hearing.\73\ The charges
shall be presented by a representative of the Exchange or the
designated SRO who, along with the Respondent, may present evidence and
produce witnesses who shall testify under oath and are subject to being
questioned by the Hearing Panel and opposing parties.\74\ The Responded
is entitled to be represented by counsel who may participate fully in
the hearing.\75\ A transcript of the hearing shall be made and shall
become part of the record.\76\
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\70\ See Rule 8.6(c).
\71\ Id.
\72\ Id.
\73\ See Rule 8.6(d).
\74\ Id.
\75\ Id.
\76\ Id.
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(2) Proposed Changes to Rule 8.6
The Exchange proposes to remove current text of Rule 8.6, Hearings,
and replace it entirely with the language of Rule 13.6 of the
Affiliated Exchanges, which describes the process of conducting
hearings for the Affiliated Exchanges. Proposed changes to Rule 8.6
include amending Rule 8.6(a) to change the composition of the panel
overseeing hearings from three hearing officers appointed by the CEO to
three to five members of the BCC selected by the Chairperson of the
BCC; reorganizing the contents of the Rule to reflect the format of
Rule 13.6 of the Affiliated Exchanges, and adding subparagraphs (d) and
(e) to Rule 8.6.
The Exchange proposes to amend Rule 8.6(a) to remove the current
rule text and replace it entirely with the text of Rule 13.6(a) of the
Affiliated Exchanges. Current Rule 8.6(a) defines the terms ``Industry
Member'' and ``Member Representative member,'' and then specifies the
composition of Hearing Panels that conduct hearings pursuant to the
Rule as three hearing officers appointed by the CRO. The amended Rule
8.6(a) will define the term ``Hearing Panel'' as the selected members
of the BCC that shall exercise the authority of the BCC with respect to
matters pertaining to the hearing. The proposed rule change will
transform the composition of the Hearing Panel from a panel of three
hearing officers appointed by the Chief Executive Officer to three to
five members of the BCC selected by the Chairperson of the BCC.
Proposed Rule 8.6(a) will also provide that the Exchange and the
Respondent shall be the parties to the hearing and where a Member
organization is a is a party, it shall be
[[Page 31759]]
represented at the hearing by one if its Principals or nominees.
Additionally, the rule will provide that Hearing Panel members shall
remain impartial and function independently from Exchange staff.
Current Rule 8.6(b) imposes the requirement that members of the
Hearing Panel must remain impartial and provides the procedures for
which a Respondent may move to disqualify a member of the Hearing Panel
based on bias or a conflict of interest. The Exchange proposes to
remove subparagraph (b) of Rule 8.6 and replace it with a provision
describing hearing procedures, discussed in detail infra. The Exchange
proposes to amend subparagraph (1) of Rule 8.6(a) to set forth the
requirement that members of the Hearing Panel remain impartial
throughout the proceeding and the procedures for, if at any point in
time, a member of the Hearing Panel determines they have a conflict of
interest. These provisions were previously contained in subparagraph
(b) of Rule 8.6. If a conflict of interest arises, the Hearing Panel
member shall notify the Chairperson of the BCC who shall notify all
Parties that the Hearing Panel member withdrawals from the hearing and
then appoint a replacement. Finally, subparagraph (2) of proposed Rule
8.6(a) will provide for an avenue by which a Respondent may motion for
the disqualification of a Hearing Penal member based on bias or a
conflict of interest within 15 days of the appointment of the Hearing
Panel member. This provision was also previously contained in
subparagraph (b) of Rule 8.6. Similar to the requirements of current
Rule 8.6(b), motions for disqualification of a Hearing Panel member
will be required to be in writing and must state the facts and
circumstances giving rise to the alleged bias or conflict. Then, the
Exchange will have 15 days to file a brief in opposition to the
Respondent's motion. The resulting Rule 8.6(a) will reflect the
requirements and format set forth in Affiliated Exchanges' Rule 13.6(a)
and differ only where necessary to conform to the Exchange's existing
Rule text and to account for details or descriptions included in the
Exchange's Rules but not in the applicable Rules of the Affiliated
Exchanges.
Next, the Exchange proposes to amend current Rule 8.6(b) to remove
the existing text and replace it entirely with the text of Rule 13.6(b)
of the Affiliated Exchanges. Current Rule 8.6(b) imposes the
requirement that members of the Hearing Panel must remain impartial and
provides the procedures for which a Respondent may move to disqualify a
member of the Hearing Panel based on bias or a conflict of interest. As
discussed above, the Exchange proposes to move the requirement of
impartiality of Hearing Panel members and the procedures for addressing
a Hearing Panel member's conflict of interest to subparagraph (a) of
Rule 8.6. The Exchange proposes to replace current Rule 8.6(b) with a
provision specifying prehearing procedures, which are currently found
in Rule 8.6(c). As discussed in greater detail infra, the Exchange
proposes to remove the text of current Rule 8.6(c) and renumber current
Rule 8.6(d) as Rule 8.6(c).
The Exchange proposes to amend Rule 8.6(b) to specify the terms of
notice before a hearing, location of a hearing, pre-hearing furnishing
of documents, and pre-hearing conference requirements. First, the
amended Rule 8.6(b) will specify that notice shall be served upon all
Parties to a hearing at least 15 days before the hearing specifying the
time and location of the hearing which is typically held in Chicago,
but may be held outside of Chicago to accommodate hearing participants.
Similar to current Rule 8.6(c), proposed Rule 8.6(b) will require 15
business days' notice of a hearing to all parties and require that all
evidence each party intends to furnish to the Hearing Panel shall be
furnished within 10 business days prior to the hearing. Next, proposed
Rule 8.6(b) will specify that each party to a hearing must furnish all
documentary evidence it intends to present at the hearing to the
Hearing Panel and all other parties to the hearing within 10 days prior
to the scheduled hearing. Proposed Rule 8.6(b) will also provide that
where time and the nature of a proceeding permit, the parties shall
meet in a prehearing conference to clarify and simplify issues and
otherwise expediate the hearing process. The Rule will specify that at
such pre-hearing conference the parties shall attempt to reach an
agreement regarding the authenticity of documents and facts not in
dispute, and that either party may request that the Hearing Panel or
Chairperson thereof decide any unresolved prehearing issue. Finally,
proposed Rule 8.6(b) will set forth the situations in which
interlocutory Board review of a decision by the Hearing Panel is
permitted. Generally, proposed Rule 8.6(b) will prohibit any
interlocutory review by the Board unless the Hearing Panel agrees to
review after determining that the issue is a controlling issue of rule
or policy and that immediate Board review would materially advance the
ultimate resolution of the case. The resulting Rule 8.6(b) will reflect
the language and organization of Rule 13.6(b) of the Affiliated
Exchanges.
Next, the Exchange proposes to remove the existing text of Rule
8.6(c) as this text has been incorporated into proposed Rule 8.6(b).
The Exchange also proposes to renumber current Rule 8.6(d) concerning
the conduct of hearing as Rule 8.6(c) and proposes additional non-
substantive changes to reflect the language of the Affiliated
Exchanges' Rule 13.6(c). Proposed Rule 8.6(c) will impose the same
requirements upon the Hearing Panel at a hearing as current Rule 8.6(d)
does and add the opportunity for intervening parties to present
evidence at a hearing be represented by counsel. The resulting Rule
8.6(c) will reflect the exact language of Rule 13.6(c) of the
Affiliated Exchanges.
Next, the Exchange proposes to adopt Rule 13.6(d) of the Affiliated
Exchanges regarding documents and witnesses as Exchange Rule 8.6(d).
Proposed Rule 8.6(d) will provide the process by which the Hearing
Panel may compel the production of evidence from the Exchange, a
Member, or associated person. Proposed Rule 8.6(d) will allow a
Respondent to submit a written request to the Hearing Panel asking the
Hearing Panel to enter an order compelling the production of non-
privileged documents by the Exchange, a Member, or associated person.
Before entering an order under proposed Rule 8.6(d), the Hearing Panel
will be required to hear any objections raised and weigh the probative
value of the requested evidence against considerations including undue
delay, waste of time, confusion, and unfair prejudice. As a result of
compelled production under proposed Rule 8.6(d), the Hearing Panel may
require the Respondent to pay the costs of producing the requested
evidence and no Member or associated person may refuse to furnish
relevant evidence requested or ordered by the Hearing Panel. The
resulting Rule 8.6(d) will reflect the language and procedures outlined
in Rule 13.6(f) of the Affiliated Exchanges and differ only where
necessary to conform to the Exchange's existing Rule text and to
account for details or descriptions included in the Exchange's Rules
but not in the applicable Rules of the Affiliated Exchanges.
Finally, the Exchange proposes to adopt the Affiliated Exchanges'
Rule 13.6 Interpretations and Policies .01-.03 regarding parties
intervening in a hearing as Rule 8.6(e). Proposed Rule 8.6(e) will set
forth the process by which a third party may intervene as a
[[Page 31760]]
party to a hearing. Under proposed Rule 8.6(e), a party may only
intervene in a hearing if (1) the party satisfactorily demonstrates to
the Hearing Panel that the party has an interest in the subject of the
hearing and that disposition of the matter before the Hearing Panel may
impair or impede the party's ability to protect that interest; or (2)
the Hearing Panel, in its discretion, permits a party to intervene when
the party's claim or defense and the main action have questions of fact
or law in common. Proposed Rule 8.6(e) will require any party seeking
to intervene in a hearing to file a notice requesting to intervene with
the Hearing Panel stating the grounds for intervention. The Exchange
proposes to add subparagraphs (1) and (2) to proposed Rule 8.6(d)
including specifying that the Hearing Panel has discretion to take into
consideration whether intervention will unduly delay a hearing and that
the CRO shall have authority to direct that a hearing to be scheduled
at any time after the period to answer, specified in Rule 8.5,
discussed above, has elapsed. The resulting Rule 8.6(f) will reflect
the exact language of Affiliated Exchanges' Rule 13.6 Interpretations
and Policies .01-.03 with the only difference between the Rules being
the Rules referenced therein.
The Exchanges proposes the aforementioned changes to Rule 8.6,
Hearings, with the broader purpose of harmonizing the Rules of the
Exchange with the Rules of the Affiliated Exchanges. The changes to
Rule 8.6 propose to adopt new roles for the Exchange's Business Conduct
Committee similar to the functions of the relevant BCC of the
Affiliated Exchanges. The Exchange believes that harmonizing the
composition of the disciplinary rules between the Exchange and the
Affiliated Exchanges benefits Members because those parties who
maintain status as both a Member of the Exchange and a Trading Permit
Holder on the Affiliated Exchanges will be subject to substantially
similar disciplinary rules and not perceive one set of disciplinary
rules to be more lenient or harsh depending on the Exchange's core
business.
Rule 8.8, Offers of Settlement
(1) Current Rule 8.8
Current Rule 8.8, Offers of Settlement, states that a Respondent
may submit an offer of settlement (``offer'') to the CRO at any time
during the course of any proceeding.\77\ If the CRO accepts the offer,
it issues a decision consistent with the terms of the offer.\78\ If the
CRO rejects the offer, it notifies the Respondent and the matter
proceeds as if the offer had not been made.\79\ In addition, the
Respondent is notified if staff will not recommend acceptance of an
offer, and the Respondent may then appear before the CRO to make an
oral statement in support of the offer.\80\ If the CRO rejects an offer
that the staff supports, the Respondent may also appear before the CRO
to make an oral statement concerning why the CRO should consider
changing its decision.\81\ A Respondent must make a request for such an
appearance within 5 days of being notified that the offer was rejected
or that the staff will not recommend acceptance.\82\ Unless otherwise
ordered by the CRO, a Respondent shall be entitled to submit a maximum
of two written offers of settlement in connection with the statement of
charges issued pursuant to Rule 8.4(b).\83\
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\77\ See Rule 8.8(a).
\78\ Id.
\79\ Id.
\80\ See Rule 8.8(b)
\81\ Id.
\82\ Id.
\83\ See Rule 8.8(c).
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(2) Proposed Changes to Rule 8.8
The Exchange proposes to amend Rule 8.8, Offers of Settlement, to
remove the provision that the staff may also appear before the CRO to
make an oral statement if the Respondent elects to make an oral
statement before the CRO. Additionally, the Exchange proposes to amend
Rule 8.8 to provide that a Respondent may submit an offer during the
course of any proceeding under Chapter 8 of the Exchange Rules.
Currently, Rule 8.8(b) allows a Respondent to appear before the CRO to
make an oral statement in support of an offer. If the CRO rejects the
offer, the Respondent may appear in front of the CRO to make an oral
statement in support of their offer and the Exchange staff may appear
to make an oral statement in support of it position.\84\ The Exchange
proposes to remove the language in Rule 8.8(b) stating that the staff
may also make an oral statement in support of its position. Rule 13.8
of the Affiliated Exchanges contains a similar provision to Exchange
Rule 8.8(b), but does not contain a provision allowing the staff to
also appear in front of the CRO. The Exchange proposes to remove this
provision of Rule 8.8(b) to ensure consistency across the Rules of the
Exchange and the Affiliated Exchanges.
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\84\ See Rule 8.8(a).
---------------------------------------------------------------------------
The Exchange also proposes to add subparagraph (d) to Rule 8.8
regarding presentment of offers of settlement. The Exchange proposes to
add language taken from Affiliated Exchanges' Rule 13.8 Interpretations
and Policies .02 which clarifies when a Respondent may propose a
written offer and that the Hearing Panel shall grant parties leave from
a hearing if an offer of settlement is submitted subsequent to a
hearing. The Exchange proposes to adopt similar language to Affiliated
Exchanges' Rule 13.8 Interpretations and Policies .02. The resulting
Rule 8.8(d) will ensure the granting of leave from hearings when an
offer is submitted subsequent to a hearing and clarify that a
Respondent may submit a written offer at any time during a proceeding
under Chapter 8 of the Exchange Rules, subject to Rule 8.8(c).\85\
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\85\ See Rule 8.8(c). ``Unless the CRO shall otherwise order, a
Respondent shall be entitled to submit to the CRO a maximum of two
written offers of settlement in connection with the statement of
charges issued to that Respondent pursuant to Rule 8.4(b).''
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Rule 8.9, Decision
(1) Current Rule 8.9
Currently, Rule 8.9, Decision, states that following a hearing, the
Hearing Panel issues a decision, in writing, determining whether the
Respondent has committed a violation.\86\ The decision shall include a
statement of findings and conclusions upon all material issues
presented on the record.\87\ Where a penalty is imposed, the decision
shall include a statement specifying the acts or practices in which the
Respondent has been found to have engaged and setting forth the
specific provisions of authority of which the acts are deemed to be in
violation.\88\ The Respondent shall promptly be sent a copy of the
decision.\89\
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\86\ See Rule 8.9.
\87\ Id.
\88\ Id.
\89\ Id.
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(2) Proposed Changes to Rule 8.9
The Exchange proposes to amend Rule 8.9, Decision, to add that a
decision shall also include a statement of the penalties imposed and
reasons for the penalties, that the regulatory division shall also
receive a copy of the statements, and that the Exchange shall post the
complete decision on the appropriate EDGA website once the decision is
considered final. Current Rule 8.9 sets out the required contents of a
decision where a penalty is imposed but does not include that the
decision must include a statement of the sanctions and the reasons for
their imposition. The Exchange proposes to add to Rule 8.9 that where a
penalty is imposed, the decision of the Hearing
[[Page 31761]]
Panel shall also include a statement of the penalties imposed and the
reasons therefor. Additionally, current Rule 8.9 states that a
Respondent shall receive a copy of a decision but does not provide that
the regulatory division of the Exchange shall receive a copy as well.
The Exchange proposes to amend Rule 8.9 to include that the regulatory
division shall also receive a copy of the decision. Finally, the
Exchange proposes to add to Rule 8.9 that after review of a decision is
complete and considered final, the Exchange shall post the complete
decision on the appropriate EDGA website. The Rules of the Affiliated
Exchanges include a similar provision \90\ that is currently not
contained in the Rules of the Exchange. The Exchange proposes this
addition to ensure consistency across the Rules of the Exchange and
Affiliated Exchanges and to ensure that Members and Trading Permit
Holders of each do not perceive the Rules of one exchange as stricter
than the other. The resulting Rule 8.9 will closely reflect Rule 13.9
of the Affiliated Exchanges, with the only difference being the
Exchange Rules referenced therein.
---------------------------------------------------------------------------
\90\ See Affiliated Exchange Rule 13.9.
---------------------------------------------------------------------------
Rule 8.10, Review
(1) Current Rule 8.10
Current Rule 8.10, Review, states that a Respondent has 10 days
after service of a decision to petition for review of the decision by
submitting a petition, in writing, and specifying the findings and
conclusions to which exceptions are taken together with reasons for
such exceptions.\91\ The review shall be conducted by the Appeals
Committee of the Board (the ``Committee'').\92\ The review shall be
based solely upon the record and the written exceptions filed by the
parties unless the Committee decides to open the record for
introduction of evidence or to hear arguments.\93\ The Committee's
decision shall be in writing and shall be final.\94\
---------------------------------------------------------------------------
\91\ See Rule 8.10(a).
\92\ See Rule 8.10(b).
\93\ Id.
\94\ Id.
---------------------------------------------------------------------------
The Board may order review of a decision made pursuant to Rule 8.7
\95\ or 8.9, discussed above, within 20 business days after issuance of
the decision.\96\ Such review shall be conducted in accordance with the
Committee review procedure described above.\97\ Within 30 days of a
decision made to not initiate charges pursuant to Rule 8.4(a),
described above, the Board may order review of such decision upon
application made by the Chief Executive Officer (``CEO'').\98\ Such
review shall be conducted in accordance with the Committee review
procedure described above.\99\
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\95\ See Rule 8.7. ``Notwithstanding the provisions of Rule 8.6
of this Chapter, the CRO may make a determination without a hearing
and may impose a penalty as to violations which the Respondent has
admitted or charges which the Respondent has failed to answer or
which otherwise are not in dispute. Notice of such summary
determination, specifying the violations and penalty, shall be
served upon the Respondent, who shall have ten (10) business days
from the date of service to notify the CRO that he desires a hearing
upon all or a portion of any charges not previously admitted or upon
the penalty. Failure to so notify the CRO shall constitute an
admission of the violations and acceptance of the penalty as
determined by the CRO and a waiver of all rights of review. If the
Respondent requests a hearing, the matters which are the subject of
the hearing shall be handled in accordance with the hearing and
review procedures of this Chapter.''
\96\ See Rule 8.10(c).
\97\ Id.
\98\ See Rule 8.10(d).
\99\ Id.
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(2) Proposed Changes to Rule 8.10
The Exchange proposes amend Rule 8.10(a) to reflect the content and
format of Rule 13.10 of the Affiliated Exchanges. In doing so, the
Exchange proposes to extend the time for a Respondent to petition for
review of a decision from 10 days to 15 days, to specify the process of
petitioning for review of a decision, and to clarify that other parties
to a hearing may also submit a petition for review and a response to
petitions for review. The Exchange also proposes to amend Rule 8.10(b)
to allow the Board or a committee of the Board, excluding any Board
member who participated in the review, to ratify a review, and to
clarify that new issues may be raised by the parties involved in the
review, but all parties must be given notice and opportunity to address
them. Additionally, the Exchange proposes to amend Rule 8.10(b) to
further clarify that the Board may affirm, reverse or modify the
decision, and that the decision must be served upon the Respondent and
the regulatory division of the Exchange. Next, the Exchange proposes to
amend Rule 8.10(c) to extend the time allotted for the Board to review
a decision from 20 days to 30 days. Finally, the Exchange proposes to
remove subparagraph (d) of Rule 8.10 entirely to eliminate the CEO's
role from the disciplinary issues of the Exchange all together.
The Exchange proposes to amend Rule 8.10(a) to allow both the
Respondent and the regulatory division the opportunity to petition for
review of a decision, extend the period of time allotted to both
parties to file such a review from 10 days to 15 days, and specify the
process by which the parties may petition for review. Current Rule
8.10(a) allows only the Respondent to petition for review of a decision
within 10 days of service of notice of a decision and fails to specify
the process for filing a petition for review. The Exchange proposes to
extend this time to 15 days, include the regulatory division of the
Exchange as a party who many petition for review, and specify that a
petitioning party must file a copy of the written petition with the
Secretary of the Exchange (``Secretary'') shared with all other parties
to the hearing. In response to a petition for review all other parties
to the hearing shall have 15 days to respond to the petition by serving
a written response upon the Secretary and all other parties to the
hearing. The resulting Rule 8.10(a) will clarify the processes for
submitting petitions for review for all parties to a hearing and
closely reflect the language of Rule 13.10(a) of the Affiliated
Exchanges. The resulting Rule 8.10(a) will differ from Rule 13.10(a) of
the Affiliated Exchanges only where necessary to conform to the
Exchange's existing Rule text and to account for details or
descriptions included in the Exchange's Rules but not in the applicable
Rules of the Affiliated Exchanges.
The Exchange proposes to amend Rule 8.10(b) to reflect the language
of the Rule 13.10(b) of the Affiliated Exchanges. Current Rule 8.10(b)
provides that the review of a decision shall be conducted by the
Appeals Committee of the Board and based solely on the record and
written exceptions filed by the parties. The Exchange proposes to allow
the Board or any subcommittee thereof, excluding any Director who took
part in the Hearing Panel, to review a decision. The Exchange proposes
to allow the reviewing Committee to open the record to introduce
additional evidence if it chooses, in which case parties to the hearing
shall be given notice and opportunity to address any additional issues.
Finally, the Exchange proposes to clarify that the decision of the
Board shall be made in writing and served upon the Respondent and the
Regulatory Division. The resulting Rule 8.10(b) will closely reflect
Rule 13.10(b) of the Affiliated Exchanges with differences to account
for the Exchange's existing Rule text and details and descriptions
included in the Exchange's Rules but not in the applicable Rules of the
Affiliated Exchanges.
The Exchange proposes to amend Rule 8.10(c) to extend the time the
Board which the Board can review an
[[Page 31762]]
order of a decision from 20 days to 30 days and to specify that the 30
period begins at the time service of the decision upon the Respondent
and the Regulatory Division. Current Rule 8.10(c) allows the Board to
review an order of a decision made pursuant to Rule 8.7 or Rule 8.9,
described above, within 20 business days after issuance of the
decision. The Exchange proposes to extend the time allotted to the
Board to review an o order of a decision to 30 days. The resulting Rule
8.10(c) will closely reflect Rule 13.10(c) of the Affiliated Exchanges
with differences only to account for the Exchange Rules referenced
therein.
Finally, the Exchange proposes to remove current subparagraph (d)
from Rule 8.10, which allows the CEO to apply for, and the Board to
order for, the review of decisions made pursuant to Rule 8.4(a),
discussed above. The Exchange proposes to eliminate subparagraph (d) of
Rule 8.10 with the broader purpose of removing the CEO from
disciplinary matters within the Exchange. As discussed above, the
Exchange seeks to align its Rules with those of the Affiliated
Exchanges, which do not include the CEO as a stakeholder in
disciplinary actions taken by the Affiliated Exchanges. The resulting
Rule 8.10 will closely reflect the language and processes prescribed by
Rule 13.10 of the Affiliated Exchanges and differ only where necessary
to conform to the Exchange's existing Rule text and to account for
details or descriptions included in the Exchange's Rules but not in the
applicable Rules of the Affiliated Exchanges.
Rule 8.11, Judgment and Sanction
(1) Current Rule 8.11
Current Rule 8.11, Judgment and Sanction, provides that the CRO,
Hearing Panel, or committee of the Board appropriately discipline
Members and associated persons for violations by expulsion, suspension,
limitation of activities, fine, censure, suspension of association with
a Member, suspension or revocation of membership, or any other fitting
sanction.\100\ Under this Rule, the CRO, Hearing Panel, or a committee
of the Board, as applicable, considers several factors when determining
sanctions including, but not limited to, deterrence, remediation,
precedent and the appropriateness of disgorgement and/or
restitution.\101\ Penalties imposed under this Rule shall not become
effective until the review process is completed or the decision
otherwise becomes final.\102\ The CRO, Hearing Panel, or committee of
the Board, as applicable, may impose such conditions and restrictions
on the activities of the Respondent pending effectiveness of a decision
imposing a penalty on the Respondent as necessary for the protection of
investors, creditors, and the Exchange.\103\ The current Rule 8.11 also
states that Exchange staff shall make all necessary findings under the
Exchange Act and comply with all other applicable laws and
regulations.\104\
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\100\ See Rule 8.11(a).
\101\ See Rule 8.11(c).
\102\ See Rule 8.11(b).
\103\ Id.
\104\ See Rule 8.11, Interpretations and Policies .01 to Rule
8.11.
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(2) Proposed Changes to Rule 8.11
The Exchange proposes to amend Rule 8.11, Judgment and Sanctions,
to remove a committee of the Board as an applicable body that may
determine penalties and impose discipline upon Members and associated
persons. Current Rule 8.11(a) lists the CRO, Hearing Panel, and a
committee of the Board as persons who may impose appropriate
disciplinary actions for violations by expulsion, suspension,
limitation of activities, fine, censure, suspension of association with
a Member, suspension or revocation of membership, or any other fitting
sanction. Current Rule 8.11(b) also includes a committee of the Board
as an applicable body that may impose conditions or restrictions upon
Members or associated persons for the protection of investors,
creditors, and the Exchange pending the effectiveness of a decision
imposing a penalty. Similarly, Rule 8.11(c) sets forth the appropriate
considerations of the CRO, Hearing Panel, and committee of the Board in
determining the imposition of sanctions. The Exchange proposes to
remove a committee of the Board as a party that may determine and
impose sanctions as described in the Rule. The resulting Rule 8.11 will
contain the process for imposing disciplinary actions, but with a
committee of the Board removed as a party that may take the actions
described in Rule 8.11. The resulting Rule 8.11 will closely reflect
Rule 13.11 of the Affiliated Exchanges with differences only to account
for the Exchange Rules referenced therein.
The Exchange also proposes to remove Interpretations and Policies
.01 to Rule 8.11. Interpretations and Policies .01 to Rule 8.11
currently states that Exchange staff shall make all necessary findings
under the Exchange Act and comply with all other applicable laws and
regulations. The Exchange proposes to remove this portion of Rule 8.11
because it is duplicative of the duties already imposed on the Exchange
by the Exchange Act and other laws and regulations. Additionally, the
corresponding Rule 13.11 of the Affiliated Exchanges does not contain a
similar provision. Accordingly, the Exchange proposes to remove the
duplicative language of Interpretations and Policies .01 to Rule 8.11
to align the Rules of the Exchange with those of the Affiliate
Exchanges.
Rule 8.12, Miscellaneous Provisions
(1) Current Rule 8.12
Current Rule 8.12, Miscellaneous Provisions, states that service
may be effected by personally delivering any charges, notices or other
documents upon the Respondent, by leaving such charges, notices or
other documents at his place of business, or by registered and
certified mail addressed to the Respondent at his last known place of
business.\105\ The Exchange may grant an extension of time limits for
the submission of answers, petitions or other materials if the
authority to whom such materials are to be submitted grants permission
for the extension.\106\
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\105\ See Rule 8.12(a).
\106\ See Rule 8.12(b).
---------------------------------------------------------------------------
The Exchange's staff, CRO, Board, or designated SRO shall have the
right (1) to require any Member to report orally or in writing with
regard to any matter involved in any such investigation or hearing, and
(2) to investigate the books, records and accounts of any such Member
with relation to any matter involved in any such investigation or
hearing.\107\ Members shall comply with requests to make any report as
required by Rule 8.12(c) and shall comply with any inspection of books,
records and accounts as may be validly called for under Rule
8.12(c).\108\
---------------------------------------------------------------------------
\107\ See Rule 8.12(c).
\108\ Id.
---------------------------------------------------------------------------
(2) Proposed Changes to Rule 8.12
The Exchange proposes to amend Rule 8.12, Miscellaneous Provisions,
to clarify that the address the Respondent may be served at is the last
known place of business as it appears on the books and records of the
Exchange, and to provide an additional three days to the prescribed
period a Respondent has to respond in the case of service by certified
mail. Additionally, the Exchange proposes to clarify all references to
Respondent within Rule 8.12. Current Rule 8.12(a) describes where a
Respondent may be served, including by mail to his last known place of
business. However, the current
[[Page 31763]]
Rule does not provide the source of the address that may be used in the
case of service by certified mail and does not allow for additional
time to respond to service in the case of service by certified mail.
The Exchange proposes to amend Rule 8.12(a) to clarify that service by
mail shall be addressed to the Respondent at the Respondent's last know
place of business as it appears on the books and records of the
Exchange. The Exchange also proposes to add a provision to Rule 8.12(a)
to allow the Respondent three additional days to respond to service
delivered by certified mail. Finally, the Exchange proposes to add non-
substantive changes to Rule 8.12(a) to clearly use the term
``Respondent'' instead of ``his'' when referring to the Respondent in
the Rule text. The resulting Rule 8.12(a) will clearly state the
address to be used in the case of service by certified mail. The
resulting Rule 8.12 will closely reflect the language and processes
prescribed by Rule 13.12 of the Affiliated Exchanges and differ only
where necessary to conform to the Exchange's existing Rule text and to
account for details or descriptions included in the Exchange's Rules
but not in the applicable Rules of the Affiliated Exchanges.
8.14, Agency Review
(1) Current Rule 8.14
Current Rule 8.14, Agency Review, states that actions taken by the
Exchange pursuant to Chapter 8 shall be subject to the review and
action of any appropriate regulatory agency under the Act.\109\
---------------------------------------------------------------------------
\109\ See Rule 8.14.
---------------------------------------------------------------------------
(2) Proposed Changes to Rule 8.14
The Exchange proposes to remove current Rule 8.14, Agency Review,
in its entirety and replace it with the text of Rule 13.14 of the
Affiliated Exchanges. Current Rule 8.14 states that actions taken by
the Exchange shall be subject to review by the appropriate regulatory
agency under the Act. The Exchange believes this provision is
duplicative of rules and restrictions already imposed on disciplinary
actions under the Exchange Act.\110\ Thus, the Exchange proposes to
remove the text of current Rule 8.14 because it is duplicative.
---------------------------------------------------------------------------
\110\ See 15 U.S.C. 78s.
---------------------------------------------------------------------------
In place of current Rule 8.14, the Exchange proposes adopt language
regarding reporting to the CRD using similar language to that of Rule
13.14 of the Affiliated Exchanges. Subparagraph (a) of proposed Rule
8.14, Reporting to the Central Registration Depository, will require
the Exchange to report any issuance of a statement of charges
concerning formal Exchange disciplinary proceedings pursuant to Rule
8.4(b), described above, and all significant changes in the status of
pending proceedings to the CRD.
The Exchange also proposes to add clarifying descriptions of the
terms used in Rule 8.14(a) to subparagraph (b) of proposed Rule 8.14.
Proposed subparagraph (b)(1) of proposed Rule 8.14 will clarify that
formal Exchange disciplinary proceedings are considered pending from
the time the statement of charges is issued pursuant to Exchange Rule
8.4(b), as described above, until the proceeding becomes final.
Subparagraph (b)(2) of proposed Rule 8.14 will clarify that an Exchange
disciplinary proceeding shall be considered formal if it is initiated
by the Exchange pursuant to Exchange Rule 8.1 through 8.13. Finally,
subparagraph (b)(3) of proposed Rule 8.14 will list examples of
significant changes that shall be reported to the CRD including the
scheduling of a disciplinary hearing, the issuance of a decision by the
CRO or Hearing Panel, the filing of an appeal to the Board, and the
issuance of a decision by the Board. The resulting Rule 8.14 will
reflect the language of Rule 13.14 of the Affiliated Exchanges with the
only differences between the rules being the references to the Exchange
specific rules within them. The Exchange proposes the aforementioned
changes to Rule 8.14 with the purpose of clarifying which instances the
Exchange reports disciplinary proceedings to the CRD and aligning the
Rules of the Exchange with those of the Affiliated Exchanges.
Rule 8.15, Imposition of Fines for Minor Violation(s) of Rules
(1) Current Rule 8.15
Current Rule 8.15, Imposition of Fines for Minor Rule Violations,
states that in lieu of commencing disciplinary proceedings, the
Exchange may impose fines on Members and associated persons for
specified Rule violations that the Exchange has deemed minor in
nature.\111\ In any action taken by the Exchange pursuant to Rule 8.15,
the person against whom a fine is imposed shall be served, as provided
in Rule 8.12 discussed above, with a written statement setting forth
the details of each violation, the associated fine for each violation,
the date by which the determination becomes final, and the fine due and
payable to the Exchange.\112\ The person against whom a fine is imposed
shall not have less than 15 business days after the date of service to
contest the Exchange's determination.\113\ Payment of the fine shall be
deemed to be a waiver by such person of the right to a disciplinary
proceeding under Rule 8.1-8.13, discussed above, and any review of the
matter by the appeals committee or by the Board.\114\ If the person
against whom a fine is imposed contests the Exchange's determination
through a written response meeting the requirements of an Answer,
described in Rule 8.5 above, the matter shall become a disciplinary
proceeding subject to the provisions of Rules 8.1-8.13, described
above.\115\ The Exchange periodically announces a listing of Exchange
Rules as to which fines may be imposed and the specific dollar amount
that may be imposed or the minimum and maximum dollar amounts that may
be imposed with respect to such violations.\116\ The Exchange is not
required to impose a fine pursuant to Rule 8.15 with respect to a
violation of any Rule included in such listing.\117\
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\111\ See Rule 8.15(a).
\112\ See Rule 8.15(b).
\113\ Id.
\114\ See Rule 8.15(c).
\115\ See Rule 8.15(d).
\116\ See Rule 8.15(e). See also Rule 8.15, Interpretations and
Polices .01 (List of Exchange Rule Violations and Recommended Fine
Schedule Pursuant to Rule 8.15).
\117\ Id.
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(2) Proposed Changes to Rule 8.15
The Exchange proposes to amend Rule 8.15, Imposition of Fines for
Minor Violation(s) of Rules, to reflect the content and layout of Rule
13.15 of the Affiliated Exchanges, which provides the guidelines for
imposing fines for minor rule violations on the Affiliated Exchanges.
The Exchange proposes to amend Rule 8.15(a) to limit fines imposed
under the Rule to $5,000, specify the actions constituting minor rule
violations, describe the Exchange's treatment of separate and similar
offenses for purposes of the Rule, and provide that reporting of
uncontested violations to the Commission not exceeding $2,500 shall be
reported on a periodic basis. The Exchange proposes to amend Rule
8.15(b) to extend the time that a determination becomes final or a
determination must be contested under the Rule from no less than 15
days to no less than 30 days after service of the written statement and
to specify that failure to contest, submission, and/or acceptance of a
fine by a member does not constitute admission. The Exchange proposes
to remove current rule 8.15(c) in its entirety and replace it with
revised Rule 8.15(c). The Exchange proposes revised Rule 8.15(c) with
[[Page 31764]]
subparagraphs (1)-(4), which will describe the process of contesting a
fine. Finally, the Exchange proposes to amend current Rule 8.15(e) to
become revised Rule 8.15(d) and make conforming non-substantive
changes, authorize the Exchange to impose fines for first or second
offenses when warranted under the circumstances as set forth in the
Rule's Interpretations and Policies,\118\ and clarify the Exchange's
authority to take formal disciplinary action under Rule 8.2 et seq.,
rather than Rule 8.15 when warranted by the egregiousness of the
violation.
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\118\ See Interpretations and Policies .01 to Rule 8.15 (List of
Exchange Rule Violations and Recommended Fine Schedule Pursuant to
Rule 8.15).
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The Exchange proposes to amend Rule 8.15(a) to limit fines imposed
under the Rule from $2,500 to $5,000, specify the actions constituting
minor rule violations, describe the Exchange's treatment of separate
and similar offenses for purposes of the Rule, and provide that
reporting of uncontested violations to the Commission not exceeding
$2,500 shall be reported on a periodic basis. Currently, Rule 8.15(a)
contains a limitation on the fine that may be imposed under the Rule of
$2,500 and does not specify the character of rule violations that
constitute minor violations within the meaning of Rule 8.15. The
Exchange proposes to amend the limit of fines that may be imposed under
the Rule to $5,000. Additionally, the Exchange proposes to specify,
within Rule 8.15(a), that minor rule violations within the meaning of
the Rule are contained in Interpretations and Policies .01 to Rule 8.15
and Rule 25.3, Penalty for Minor Rule Violations.\119\ Currently, Rule
8.15(a) also does not contain a provision, such as the one contained in
Rule 13.15(a) of the Affiliated Exchanges, allowing the Exchange to
aggregate particular violations based on a comprehensive automated
surveillance program. The Exchange proposes to amend Rule 8.15 to
contain a similar provision providing that the Exchange may aggregate
individual violations and treat these violations as a single offense,
provided that the aggregation is based on a comprehensive automated
surveillance program. Finally, current Rule 8.15(a) provides that
uncontested violations 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. Currently, the Exchange does not publicly report
uncontested violations not exceeding $2,500, but does notify the
Commission on a periodic basis of all fines imposed pursuant to Rule
8.15. The Exchange proposes to amend Rule 8.15(a) to provide that it
shall report uncontested fines not exceeding $2,500 to the Commission
on a periodic basis.
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\119\ See Rule 25.3 (Penalty for Minor Rule Violations).
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Next, the Exchange proposes to amend Rule 8.15(b) to extend the
time that a determination becomes final or a determination must be
contested under the Rule from no less than 15 days to no less than 30
days after service of the written statement and to specify that failure
to contest, submission, and/or acceptance of a fine by a Member does
not constitute admission. Currently, Rule 8.15 states that the date
that a determination becomes final or a determination must be contested
shall be no less than 15 days. The Exchange proposes to amend Rule
8.15(b) to set the date a determination becomes final or a
determination must be contested to not less than 30 days, which is the
time provided in Rule 13.15(b) of the Rules of the Affiliated
Exchanges. Additionally, current Rule 8.15(b) fails to specify the
meaning of a Member's failure to contest a fine or a Member's
submission of and/or the Exchange's acceptance of an offer of
settlement. The Exchange proposes to amend Rule 8.15(b) to specify that
such actions do not constitute admission of the violation the fine is
issued for.
Additionally, the Exchange proposes to remove the current text of
Rule 8.15(c) and Rule 8.15(d) in their entirety. Current Rule 8.15(c)
states that payment of a fine by a person whom a fine is imposed
against pursuant to Rule 8.15 constitutes waiver of the person's right
to disciplinary proceedings under Rule 8.1 through 8.13, discussed
above and any review of the matter thereof. Current Rule 8.15(d) states
that if the person against whom a fine is imposed contests the
Exchange's determination through a written response meeting the
requirements of an Answer, described in Rule 8.5 above, the matter
shall become a disciplinary proceeding subject to the provisions of
Rules 8.1 through 8.13. The Exchange proposes to remove the text of
Rule 8.15(c) and Rule 8.15(d) in their entirety because the
corresponding Rule 13.15 of the Affiliated Exchanges does not contain a
similar provision.
Next, the Exchange proposes to add revised Rule 8.15(c) with
language taken from the text of Rule 13.15(c) of the Affiliated
Exchanges, including subparagraphs (1)-(4), which describe the process
of contesting a fine. The resulting subparagraph (1) of revised Rule
8.15(c) will provide that any person against whom a fine is imposed may
contest the fine by filing a written Answer, as described in Rule 8.5,
with the Secretary of the Exchange. Then the Rule will provide that the
Answer will become subject to review by a Hearing Panel and hearings,
if requested, will be conducted in accordance with Rule 8.6, discussed
above. Next, the resulting subparagraph (2) of revised Rule 8.15(c)
will provide that if the Hearing Panel determines that the conduct for
which the fine was imposed is a violation of the Rules of the Exchange,
then the Hearing Panel may impose applicable disciplinary sanctions and
impose a forum fee of $100, if no hearing is conducted, or $300, if a
hearing is conducted. Additionally, the Rule will provide that the
Hearing Panel has discretion to waive the forum fee if it determines
that a rule violation occurred but the disciplinary sanction imposed
for such rule violation(s) is a fine less than the total fine initially
imposed by the Exchange. The resulting subparagraph (3) of revised Rule
8.15(c) will provide that the party that commenced the action, the
person charged, or the Board may require a review by the Board of a
determination by a Hearing Panel as described in Rule 8.10, discussed
above, and that the party who commenced the action shall have the same
rights as a Respondent under Rule 8.10. Finally, resulting subparagraph
(4) of revised Rule 8.15(c) shall provide that if a fine is upheld
after contestation, the party responsible for paying the fine must pay
the fine, all interest accrued, and any forum fee imposed immediately.
The proposed amendment to current Rule 8.15(c) will result in the text
of the Rule reflecting that of the corresponding Rule 13.15(c) of the
Affiliated Exchanges.
Finally, the Exchange proposes to re-number current subparagraph
(e) as revised subparagraph (d) and amend revised Rule 8.15(d) to make
conforming non-substantive changes, clarify that the Exchange may
impose fines for first or second offenses when warranted under the
circumstances as set forth in the Rule's Interpretations and Policies,
and clarify that the Exchange may take formal disciplinary action under
Rule 8.2 et seq., rather than Rule 8.15, when warranted by the
egregiousness of the violation. With the Exchange's proposal to remove
the current text found in Rule 8.15(c) and proposed re-numbering of
Rule 8.15(d) to Rule 8.15(c), the Exchange also proposes to re-number
current subparagraph (e) as subparagraph (d). Current Rule 8.15(e)
requires the Exchange to periodically announce Exchange Rules under
which fines may be imposed and the specific
[[Page 31765]]
dollar amount that may be imposed thereunder. The Exchange proposes to
amend the language of current Rule 8.15(e) (proposed Rule 8.15(d)) to
reflect the language of Rule 13.15(f) of the Affiliated Exchanges. As a
result, revised Rule 8.15(d) will allow the Exchange to impose fines
for first or second offenses when warranted under the circumstances as
set forth in the Rule's Interpretations and Policies and authorize the
Exchange to take formal disciplinary action under Rule 8.2 et seq.,
rather than Rule 8.15, when warranted by the egregiousness of the
violation. The resulting Rule 8.15(d) will also clarify that the
Exchange shall issue regulatory circulars to its Members and Member
organizations containing a list of Exchange Rules and Bylaws for which
the Exchange may impose fines as provided in Rule 8.15. The Exchanges
proposes all of the changes to Rule 8.15, Imposition of Fines for Minor
Violation(s) of Rules, with the broader purpose of clarifying the
process by which the Exchange may impose fines for minor violations and
harmonizing the Rules of the Exchange with the Rules of the Affiliated
Exchanges. The Exchange notes that the proposed changes include
language taken solely from the Rules of the Affiliated Exchanges and do
not substantively alter the Exchange's Rules regarding minor rule
violations. As such, the proposed changes do not pose any novel legal
or regulatory issues for the Commission's consideration.
Rule 8.16, Ex Parte Communications)
(1) Current Rule 8.16
Current Rule 8.16, Ex Parte Communications, states that the
Exchange has in place rules prohibiting ex parte communications
relevant to the merits of a proceeding between Respondents and Exchange
staff members and any Hearing Officer, any member of the Board, or a
member of a committee of the Board who is participating in a decision
with respect to that proceeding (an ``Adjudicator'') unless all parties
are on notice and have an opportunity to participate in the
communication.\120\ If an ex parte communication occurs in violation of
Rule 8.16, an Adjudicator shall place in the record: (1) all such
written communications; (2) memoranda stating the substance of all such
oral communications; and (3) all written responses and memoranda
stating the substance of all oral responses to all such
communications.\121\ Further, the Board or a committee thereof may take
whatever action it deems appropriate if a prohibited ex parte
communication has occurred.\122\ Participants to a proceeding may
respond to any allegations relating to a prohibited ex parte
communication placed in the record.\123\ The prohibitions of Rule 8.16
apply beginning with the initiation of an investigation pursuant to
Rule 8.2(a) (described above), unless the person responsible for the
communication knows that an investigation shall be initiated.\124\ In
such instances, the prohibition on ex parte communication shall apply
beginning at the time such person knows the investigation shall be
initiated.\125\
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\120\ See Rule 8.16 (a)(1) and Rule 8.16(a)(2).
\121\ See Rule 8.16(b).
\122\ See Rule 8.16(c).
\123\ Id.
\124\ See Rule 8.16(d).
\125\ Id.
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(2) Proposed Changes to Rule 8.16
The Exchange proposes to amend Rule 8.16, Ex Parte Communications,
to clarify that the provisions of the Rule apply to all Members and
associated persons, amend the definition of Adjudicator under the Rule,
add subparagraph (e) to define ex parte communication, and add
subparagraphs (f) and (g) which provide guidance regarding what may not
be considered a violation of Rule 8.16. Current Rule 8.16(a) provides
that no Respondent or Exchange staff member may make an ex parte
communication in violation of the Rule. Additionally, the Rule
currently includes in the definition of ``Adjudicator'' any Officer or
member of the Board or a committee of the Board who is participating in
the decision in a proceeding.
The Exchange proposes to amend Rule 8.16(a) to clarify that the
prohibition against ex parte communications under the Rule applies to
all members and associated persons and Exchange staff members. The
Exchange also proposes to amend the definition of Adjudicator provided
in subparagraph (a) to include any member of the Hearing Panel,
Business Conduct Committee, Board or committee of the Board who is
participating in a decision. The proposed definition will eliminate
Officers and add the Hearing Panel and Business Conduct Committee
members to the definition of Adjudicator as it is used in Rule 8.16.
Next, the Exchange proposes to add subparagraphs (e), (f), and (g)
to Rule 8.16 closely resembling the language of subparagraphs (e), (f),
and (g) of Rule 13.16 of the Affiliated Exchanges. Proposed Rule
8.16(e) will include a definition of ``ex parte communication''
including that the term means an oral or written communication made
without notice to all parties, unless a copy has been delivered to all
interested parties or it is made in the presence of all interested
parties except those who, on adequate prior notice, declined to be
present. Proposed Rule 8.16(f) will clarify that ex parte
communications solely regarding procedural matters are not a violation
of the Rule. Proposed Rule 8.16(g) will add an exception to the Rule if
a person refuses an attempted ex parte communication once it becomes
apparent that communication concerns the merits of the proceeding at
issue. Proposed rule 8.16(g) will also specify that for the exception
contained therein to apply, the person refusing the attempted
communication must notify the Regulatory staff of the attempted
communication and how the person responded. The resulting Rule 8.16
will and conform the definition of Adjudicator as it is used in Rule
8.16 with the language of proposed Rule 8.6, discussed above.
Additionally, the resulting Rule 8.16 will closely resemble Rule 13.16
of the Affiliated Exchanges and differ only where necessary to conform
to the Exchange's existing Rule text and to account for details or
descriptions included in the Exchange's Rules but not in the applicable
Rules of the Affiliated Exchanges.
Rule 8.18, Release of Disciplinary Complaints, Decisions and Other
Information
(1) Current Rule 8.18
Current Rule 8.18, Release of Disciplinary Complaints, Decisions
and Other Information, states that the Exchange shall release a copy to
the public of, subject to the Exchange's discretion, any disciplinary
complaint,\126\ disciplinary decision,\127\ or any client suspension
order issued by the Exchange.\128\ Any release to the public of a
disciplinary complaint must indicate that the complaint represents the
initiation of a formal proceeding by the Exchange and does not
represent a final decision at to any of the allegations contained in
the complaint.\129\ Copies of
[[Page 31766]]
any disciplinary decision provided to the public prior to the
expiration of the time period for appeal or review, or while such
appeal or review is pending, shall indicate that the findings and
sanctions imposed therein are subject to review and modification by the
Exchange or the Commission.\130\ The Exchange reserves the right to
redact information that contains confidential customer information and,
in extraordinary circumstances, may decline to release a copy of or
information related to a disciplinary complaint or a disciplinary
decision.\131\ The Exchange shall provide notice to the public in the
event that a disciplinary decision is appealed to the Commission and
whether the effectiveness of such decision has been stayed pending the
outcome of the proceedings before the Commission.\132\
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\126\ See Rule 8.18 (e)(1). A disciplinary complaint shall mean
any statement of charges issued pursuant to Rule 8.4 or any notice
served pursuant to Rule 8.17.
\127\ See Rule 8.18(e)(2). A disciplinary decision shall mean
any decision issued pursuant to Chapter 8, including, decisions
issued by a Hearing Panel or the Appeals Committee, accepted offers
of settlement, and suspension order pursuant to Rule 8.17; provided,
however, minor rule violation plan letter issued pursuant to Rules
8.15 and 25.3 are not subject to this Rule.
\128\ See Rule 8.18(a)(1) and Rule 8.18(a)(2).
\129\ See Rule 8.18(b)(1).
\130\ See Rule 8.18(b)(2).
\131\ See Rule 8.18(c).
\132\ See Rule 8.18(d).
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(2) Proposed Changes to Rule 8.18
The Exchange proposes to eliminate current Rule 8.18, Release of
Disciplinary Complaints, Decisions and Other Information, in its
entirety. Current Rule 8.18 sets out the procedures for releasing to
the public disciplinary complaints and disciplinary decisions issued by
the Exchange. The Exchange proposes to eliminate Rule 8.18 because the
Rules of the Affiliated Exchanges do not contain a similar provision
and proposed amendments to the Exchange's rulebook, including the
proposed amendment to Rule 8.9, discussed above, include provisions for
the release of complete decisions on the appropriate EDGA website.
Thus, the specifications included in current Rule 8.18 are no longer
necessary.
The Exchange proposes all amendments discussed about with the
broader purpose of aligning the Rules of the Exchange with the Rules of
the Affiliated Exchanges. The Exchange believes that harmonizing the
Rules of the Exchange with the Rules of the Affiliated Exchanges
benefits Members because those parties who maintain status as both a
Member of the Exchange and a Trading Permit Holder on the Affiliated
Exchanges will be subject to substantially similar disciplinary rules
and not perceive one set of disciplinary rules to be more lenient or
harsh depending on the Exchange's core business.
2. Statutory Basis
The Exchange believes the proposed rule changes are 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.\133\ Specifically, the
Exchange believes the proposed rule changes are consistent with the
Section 6(b)(5) \134\ requirements that the rules of an exchange be
designed to present 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 changes are consistent with the
Section 6(b)(5) \135\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers. In addition, the Exchange believes that the
proposed rule changes further the objectives of Section 6(b)(7) of the
Act,\136\ in that they provides fair procedures for the disciplining of
Members and associated persons, the denial of Member status to any
person, the barring of any person from becoming associated with a
Member thereof, and the prohibition or limitation by the Exchange of
any person with respect to access to services offered by the Exchange
or a Member thereof.
---------------------------------------------------------------------------
\133\ 15 U.S.C. 78f(b).
\134\ 15 U.S.C. 78f(b)(5).
\135\ Id.
\136\ 15 U.S.C. 78f(b)(7).
---------------------------------------------------------------------------
In particular, the Exchange believes the proposed rule changes will
contribute to the protection of investor and public by having rules
related to all disciplinary matters consistent among Cboe EDGA Exchange
and the Affiliated Exchanges, Cboe Exchange and Cboe C2 Exchange, as
well as by bolstering participants' collective understanding of the
Exchange's Rules and the Rules of the Affiliated Exchanges. All
proposed rule changes are intended to provide clarification and
alignment with the Rules of the Affiliated Exchanges, Further, the
proposed changes are derived from the Rules of the Affiliated
Exchanges, which have been previously reviewed by the Commission.
In particular, the Exchange proposes to amend Rule 8.6, Hearings,
to adopt new roles for the Exchange's Business Conduct Committee to
compose the Hearing Panel to hear and decide applicable matters under
Chapter 8 of the Exchange's Rules. The Exchange proposes to adopt new
roles for the Exchange's Business Conduct Committee, which will perform
a substantially similar function to the current panel overseeing
disciplinary hearings. A Hearing Panel consisting of impartial members
will continue to be available to Members and associated persons. Thus,
the Exchange believes the proposed changes to Rule 8.6 regarding
hearings will not impose any additional burden upon Members or
associated persons and will ensure continued fairness in the Exchange's
disciplinary procedures. The Exchange believes the proposed changes to
Rule 8.6, Hearings, ensures the hearing process for disciplinary
matters within the jurisdiction of the Exchange is clearly articulated
and easily understandable for all Members and associated persons. The
proposed changes to Rule 8.6 will align the structure of Chapter 8 with
that of the corresponding Rulebooks of the Affiliate Exchanges, thus
promoting consistency amongst the Exchange and its Affiliate Exchanges.
The introduction of the proposed subparagraphs does not present any new
or novel issues for the Commission to consider, as the proposed text is
identical to text already approved by the Commission, however the
Exchange notes that the proposed rule may differ slightly where
necessary to conform to existing Exchange rule text.
The proposed rule changes to Rule 8.1, Disciplinary Jurisdiction,
Rule 8.2, Complaint and Investigation, Rule 8.3, Expediated Proceeding,
Rule 8.4, Charges, Rule 8.5, Answer, Rule 8.8, Offers of Settlement,
Rule 8.9, Decision, Rule 8.10, Petition, Rule 8.11, Judgment and
Sanction, Rule 8.12, Miscellaneous Provisions, and Rule 8.16, Ex Parte
Communications provide both clarification and alignment with the Rules
of the Affiliated Exchanges. These proposed rule changes amend the
language of the Exchange Rules using language taken from the Rules of
the Affiliated Exchanges and does not raise any novel rule text that
the Commission has not already reviewed. The additional proposal of
adding Rule 8.2(m) defining the BCC and detailing its composition adds
clarity to the Rules of the Exchange by adding a concrete definition of
a term used in both the Rules of the Exchange and its Affiliated
Exchanges. Each of these rules changes results in rules no more
stringent for Members and associated persons than are currently in
place. Therefore, the Exchange believes the proposed changes
[[Page 31767]]
will not significantly alter the disciplinary standards imposed on
Members and associated persons nor impose any significant additional
burden. As such, the Exchange believes the proposed changes will
continue to ensure the Exchange's disciplinary procedures remain fair
to all Members and associated persons. Additionally, the Exchange
believes the proposed rule changes will result in greater uniformity
and less burdensome regulatory compliance for Members and associated
persons. Greater uniformity in disciplinary rules across the Exchange
and the Affiliated Exchanges will foster cooperation and coordination
with persons engaged in facilitating transactions in securities and
will remove impediments to and perfect the mechanism of a free and open
market and a national market system.
The proposed amendments to Rule 8.1, Disciplinary Jurisdiction seek
to clarify that former Members or associated persons continue to be
subject to the Exchange's jurisdiction with respect to their failure to
honor an arbitration award. As discussed above, the proposed amendments
to Rule 8.1 ensure that a failure to honor a EDGA arbitration award by
a former Member, or former person associated with a Member remains
within the disciplinary jurisdiction of the Exchange. Thus, the
proposed change to Rule 8.1 ensures the credibility of the Exchange's
arbitration forum thereby protecting investors and the public interest.
The Exchange also believes the proposed changes to Rule 8.1 will ensure
fairness in the disciplinary procedures of the Exchange by ensuring
that failures to pay arbitration awards by former Members and
associated persons will remain under the disciplinary jurisdiction of
the Exchange. Additionally, the proposed changes to Rule 8.1 will
result in aligning the Rules of the Exchange with those of the
Affiliated Exchanges, providing greater uniformity in disciplinary
rules across the Exchange and the Affiliated Exchanges.
The proposed changes to Rule 8.2, Complaint and Investigation,
clarify the contents of the Rule and extend the time a Subject or
Respondent has to respond to an inquiry from the Exchange. The proposed
addition of subparagraphs (i)-(k) regarding Identification, Furnishing
Materials Upon Request, and the definition of the term ``Regulatory
Staff'' to Rule 8.2 will offer clarity to Members and associated
persons regarding the procedures and complaint process and terms used
throughout the Rule. Additionally, the proposed changes to Rule 8.2
will align the structure of Chapter 8 with that of the corresponding
Rulebooks of the Affiliate Exchanges, thus promoting consistency
amongst the Exchange and its Affiliate Exchanges. The introduction of
the proposed subparagraphs does not present any new or novel issues for
the Commission to consider, as the proposed text is identical to text
already approved by the Commission, however the Exchange notes that the
proposed rule may differ slightly where necessary to conform to
existing Exchange rule text. None of the proposed changes to Rule 8.2
shortens the amount of time allotted to a Subject or Respondent to
respond to an inquiry from the Exchange, but rather extends the amount
of time that a Subject or Respondent has to respond to an inquiry from
the Exchange. As such, the Exchange believes the proposed changes to
Rule 8.2 ensure that the Exchange's disciplinary procedures remain fair
to all Members and associated persons. Additionally, the Exchange
believes that each of these proposed rule changes protects investors
and the public by providing additional information regarding the
disciplinary processes of the Exchange and by providing additional time
for Subjects and Respondents to respond to an inquiry from the
Exchange.
The proposed changes to Rule 8.3, Expedited Proceeding, Rule 8.4,
Charges, Rule 8.5, Answer, Rule 8.8, Offers of Settlement, Rule 8.9,
Decision, Rule 8.10, Review, Rule 8.11, Judgment and Sanction, Rule
8.12, Miscellaneous Provisions, and Rule 8.16, Ex Parte Communications
are proposed in order to define terms used throughout the Rules and
make other non-substantive conforming provisions with the purpose of
clarifying the language of the Rules and aligning the contents of the
Rules with Rules of the Affiliated Exchanges. The Exchange notes that
none of these proposed rule changes shortens the amount of time
allotted to a Subject or Respondent to respond to an inquiry from the
Exchange, but rather extends the amount of time that a Subject or
Respondent has to respond to an inquiry from the Exchange. The Exchange
believes the proposed changes will not significantly alter the
disciplinary procedures of the Exchange nor impose any significant
additional burden thereby protecting investors and the public interest
and ensuring fairness in the disciplinary procedures of the Exchange.
Further, the proposed changes to these Rules are necessary to align the
Answer, Decision, and Review sections of Chapter 8 with the proposed
changes to Rule 8.6.
Additionally, the Exchange believes the proposed deletion of rule
text in Rule 8.14, Agency Review, and Rule 8.18, Release of
Disciplinary Complaints, Decisions, and Other Information, contribute
to the protection of investors and the public interest by both aligning
the Rules of the Exchange with the Rules of the Affiliate Exchanges and
by removing duplicative language from the Rules of the Exchange. The
Exchange proposes to remove the entire text of both current Rule 8.14,
regarding the right to agency review of Exchange disciplinary actions,
and Rule 8.18, regarding the release of final disciplinary actions,
because each of these rules are duplicative of the rights of Members
under other Exchange Rules and the Exchange Act itself. The Exchange
believes the proposed changes will continue to ensure fairness in the
Exchange's disciplinary procedures because they do not remove or alter
any of the rights of Members of associated persons. The Exchange
believes that removing the text of each of these rules will provide
clarity to investors regarding the disciplinary processes of the
Exchange by eliminating duplicative, and potentially confusing, text
from the Rules of the Exchange.
Further, the Exchange believes that revising current Rule 8.14,
Agency Review, and replacing the existing text (which is proposed to be
deleted) with rule text regarding reporting to the CRD that is
substantially similar to Rule 13.4 of the Affiliated Exchanges,
contributes to the protection of investors and the public interest by
providing investors, the public, and Members with notice of the
information the Exchange reports to the CRD regarding disciplinary
matters. Together, these changes benefit investors and the public
interest by providing additional clarity in the Exchange's rulebook and
aligning the Exchange's Rules with that of its Affiliate Exchanges. The
proposed addition of rule text regarding reporting to the CRD in
proposed Rule 8.14 will also align the structure of Chapter 8 with that
of the corresponding rulebooks of the Affiliate Exchanges, thus
promoting consistency amongst the Exchange and its Affiliate Exchanges.
Additionally, the introduction of the proposed rule text in Rule 8.14
following the deletion of existing rule text does not present any new
or novel issues for the Commission to consider, as the proposed text is
identical to text already reviewed by the Commission, however the
Exchange notes that the proposed rule may differ slightly where
necessary to conform to existing Exchange rule text.
Further, the Exchange believes the proposed changes to Rule 8.15,
Imposition of Fines for Minor Violation(s) of Rules, contribute to the
[[Page 31768]]
protection of investors and the public interest by both aligning the
Rules and procedures of the Exchange with the Rules and procedures of
the Affiliate Exchanges and by clearly setting forth the process and
requirements of the imposition of fines for minor rule violations. The
Exchange is not proposing to amend any of the rates associated with the
imposition of fines for minor rule violations, but rather seeks to
clarify only how and when a fine may be imposed. Further, the Exchange
seeks to provide additional detail about how a Member may contest a
fine imposed by the Exchange. These proposed changes do not impose
additional regulatory burdens on Members but instead provide greater
clarity and reduce confusion by aligning the process of imposing a fine
for a minor rule violation across the Exchange and its Affiliated
Exchanges. By clarifying rules and reducing confusion, the Exchange
believes the proposed changes to Rule 8.15 collectively ensure fairness
in the disciplinary procedures of the Exchange. The proposed amendments
to Rule 8.15 are based solely on existing Rule 13.15 of the Affiliated
Exchanges. However, the language of the Exchange Rules and the Rules of
the Affiliated Exchanges may differ slightly where necessary to conform
to existing Exchange rule text or to account for details or
descriptions included in the Exchange's Rules but not in the applicable
Rules of the Affiliated Exchanges.
Additionally, the Exchange believes the proposed changes to align
the language of the Rules of the Exchange with those of the Affiliated
Exchanges promote consistency and improve understanding of the Rules
across EDGA Exchange and its Affiliated Exchanges. The proposed rule
changes to Chapter 8 are based on the existing Rules of the Affiliated
Exchanges. However, the language of the Exchange Rules and the Rules of
the Affiliated Exchanges may differ slightly where necessary to conform
to existing Exchange rule text or to account for details or
descriptions included in the Exchange's Rules but not in the applicable
Rules of the Affiliated Exchanges. The Exchange believes aligning the
Rules of the Exchange with the Rules of the Affiliated Exchanges will
result in greater uniformity and less burdensome regulatory compliance
for the Exchange and its Members. As such, the Exchange believes
maintaining uniformity will foster cooperation and coordination with
persons engaged in facilitating trading on the Exchange and its
Affiliated Exchanges and will remove impediments to and perfect the
mechanism of a free and open market and a national market system. In
addition, the proposed rule changes apply equally to all Members,
persons associated with a Member, and former Members in that each of
these parties are subject to the proposed disciplinary rules, thereby
ensuring fairness in the disciplinary procedures of the Exchange. As
such, the Exchange believes the proposed rule changes also promote the
just and equitable principles of trade and are not unfairly
discriminatory.
The Exchange also believes that the proposed amendments will
collectively contribute to the protection of investors and the public
interest by making the Exchange's Rules easier to understand, standing
alone and collectively with the rules of its Affiliated Exchanges. In
addition, the proposed rule changes include other non-substantive
changes throughout the rules that will protect investors and benefit
market participants, as these changes simplify or clarify rules, delete
duplicative rule provisions, conform paragraph numbering and lettering
throughout the rules, use plain English, and conform language to the
corresponding rules of its Affiliated Exchanges where feasible. By
simplifying and clarifying rules, the Exchange believes the proposed
changes also collectively ensure fairness in the disciplinary
procedures of the Exchange.
Finally, the Exchange believes the proposed rule change is
consistent with Section 6(b)(1) of the Act, which provides that the
Exchange be organized and have the capacity to be able to carry out the
purposes of the Act and to enforce compliance by the Exchange's Members
and associated persons with the Act, the rules and regulations
thereunder, and the Rules of the Exchange. As stated, the proposed rule
changes conform the Exchange's disciplinary procedures and Rules to the
disciplinary procedures and Rules of its Affiliated Exchanges. Thus,
the Exchange believes these proposed changes create uniformity, which
allows for the Exchange to organize consistently with the Affiliated
Exchanges and to more easily apply its disciplinary rules to Members of
the Exchange and Trading Permit Holders on the Affiliated Exchanges.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule changes will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The proposed rule changes do
not create an unnecessary or inappropriate intra-market burden on
competition because the proposed changes will apply uniformly to all
Members of the Exchange. Thus, the Exchange believes this proposed rule
changes will reduce the burden on Exchange participants by providing
consistent and clear Rules among the Exchange and the Affiliated
Exchanges. Further, the proposed changes are not designed to address
any competitive issues. Indeed, the proposed rule changes do not create
an unnecessary or inappropriate inter-market burden on competition
because the proposed rule changes are intended to harmonize the
Exchange Rules with that of the Affiliated Exchanges.
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)(iii) of the Act \137\ and
subparagraph (f)(6) of Rule 19b-4 thereunder.\138\
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\137\ 15 U.S.C. 78s(b)(3)(A)(iii).
\138\ 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, along
with a brief description and text of 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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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 under
Section 19(b)(2)(B) \139\ of the Act to determine whether the proposed
rule
[[Page 31769]]
change should be approved or disapproved.
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\139\ 15 U.S.C. 78s(b)(2)(B).
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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#6f1d1a030a420c0002020a011b1c2f1c0a0c41080019"><span class="__cf_email__" data-cfemail="b5c7c0d9d098d6dad8d8d0dbc1c6f5c6d0d69bd2dac3">[email protected]</span></a>. Please include
file number SR-CboeEDGA-2026-017 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-CboeEDGA-2026-017. 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 filing 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-CboeEDGA-2026-017 and should be
submitted on or before June 18, 2026.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\140\
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\140\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2026-10540 Filed 5-27-26; 8:45 am]
BILLING CODE 8011-01-P
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</html>Indexed from Federal Register on May 28, 2026.
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.