[Federal Register Volume 85, Number 15 (Thursday, January 23, 2020)]
[Notices]
[Pages 4007-4011]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-01029]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87985; File No. SR-CboeBZX-2020-002]


Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change Relating 
To Amend Its Rules Governing the Give Up of a Clearing Member by a User 
on Exchange Transactions

January 16, 2020.
    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 January 2, 2020, Cboe BZX Exchange, Inc. (the ``Exchange'' or 
````BZX'''') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the Exchange. The 
Exchange filed the proposal as a ``non-controversial'' proposed rule 
change pursuant to Section 19(b)(3)(A)(iii) of the Act \3\ and Rule 
19b-4(f)(6) thereunder.\4\ The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
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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 BZX Exchange, Inc. (the ``Exchange'' or ``BZX Options'') 
proposes to amend its rules governing the give up of a Clearing Member 
by a User on Exchange transactions. The text of the proposed rule 
change is provided in Exhibit 5.
    The text of the proposed rule change is also available on the 
Exchange's website (http://markets.cboe.com/us/equities/regulation/rule_filings/bzx/), at the Exchange's Office of the Secretary, and at 
the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend Rule 21.12, which governs the give 
up of a Clearing Member \5\ by a User \6\ on Exchange transactions, to 
substantially conform to Cboe Exchange, Inc. (``Cboe Options'') Rule 
5.10, proposed Cboe EDGX Exchange, Inc. (``EDGX Options'') Rule 21.12, 
and proposed Cboe C2 Exchange, Inc. (``C2 Options'') Rule 6.30.\7\
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    \5\ The term ``Clearing Member'' means an Options Member that is 
self-clearing or an Options Member that clears BZX Options 
Transactions for other Members of BZX Options. See Exchange Rule 
16.1.
    \6\ The term ``User'' means any Options Member or Sponsored 
Participant who is authorized to obtain access to the System 
pursuant to Rule 11.3 (Access). See Exchange Rule 16.1.
    \7\ See SR-CboeEDGX-2020-001 (filed January 2, 2020) and SR-C2-
2020-001 (filed January 2, 2020) (collectively referred to as the 
``EDGX Options and C2 Options Proposed Give Up Rule'').
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Background
    Under current Exchange rules, Users entering transactions on the 
Exchange must either be a Clearing Member or must establish a clearing 
arrangement with a Clearing Member, and must have a Letter of Guarantee 
issued by a Clearing Member. In addition, under current Rule 21.12, a 
User must give up the name of the Clearing Member through which each 
transaction will be cleared. Every Clearing Member accepts financial 
responsibility for all BZX Options transactions made by the guaranteed 
User pursuant to Exchange Rule 22.8(b) (Terms of Letter Guarantee). The 
proposed amendment will result in a more structured and coherent 
streamlined give up process on the Exchange as it will align with the 
give up functionality on BZX Options with that currently available on 
Cboe Options, C2 Options, and EDGX Options.
    Additionally, beginning in early 2018, certain Clearing Members (in 
conjunction with the Securities Industry and Financial Markets 
Association (``SIFMA'')) expressed concerns related to the process by 
which executing brokers on U.S. options exchanges (the ``Exchanges'') 
are allowed to designate or `give up' a clearing firm for purposes of 
clearing particular transactions. The SIFMA-affiliated Clearing Members 
have recently identified the current give up process as a significant 
source of risk for clearing firms. SIFMA-affiliated Clearing Members 
subsequently requested that the Exchanges alleviate this risk by 
amending Exchange rules governing the give up process. \8\ Therefore, 
the Exchange is now seeking to amend its Rule 21.17 to align with 
applicable rules of the Exchanges and also to substantially conform to 
existing Cboe Options Rule 5.10 and proposed EDGX Options Rule 22.12 
and C2 Options Rule 6.30.
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    \8\ Cboe Options recently modified its give up procedure under 
rule 5.10 to allow clearing trading permit holders to ``Opt In'' 
such that the clearing trading permit holder (``TPH'') may specify 
which Cboe Options TPH organizations are authorized to give up that 
clearing trading permit holder. See Securities and Exchange Act 
Release No. 86401 (July 17, 2019), 84 FR 35433 (July 23, 2019) (SR-
CBOE-19-036). Nasdaq PHLX LLC (``PHLX''), NYSE Arca, Inc., (``NYSE 
Arca''), and NYSE American LLC (``NYSE American'') also recently 
modified their respect give up rules to adopt an ``Opt In'' process; 
see also Securities and Exchange Act Release No. 85136 (February 14, 
2019), 84 FR 5526 (February 21, 2019) (SR-PHLX-2018-72), Securities 
and Exchange Act Release No. 85871 (May 16, 2019), 84 FR 23613 (May 
22, 2019) (SR-NYSEArca 2019-32) and Securities and Exchange Act 
Release 85875 (May 16, 2019), 84 FR 23591 (May 22, 2019) (SR-
NYSEAMER-2019-17). The Exchange's proposal leads to the same result 
of providing its Clearing Member's the ability to control risk and 
includes PHLX's, NYSE Arca's and NYSE American's ``Opt In'' process, 
but it otherwise differs slightly in process from their give up 
rules. For example, the Exchange intends to maintain its provisions 
relating to Designated Give Ups and eliminate its provisions 
relating to the rejection of a trade. The Exchange's proposal is 
substantially the same as the current give up process on Cboe 
Options.
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Proposed Rule
    The Exchange proposes to amend Rule 21.12 by replacing the current 
rule text with details regarding the give up procedure for a User 
executing transactions on the Exchange. As amended, Rule 21.12 would 
provide that a User may indicate, at the time of the trade or through 
post trade allocation, any Options Clearing Corporation (``OCC'') 
number of the Clearing Member through which the transaction will be 
cleared (``give up'')

[[Page 4008]]

to either a ``Designated Give Up'' \9\ or a ``Guarantor'',\10\ as those 
roles would be defined in the Rule and discussed in further detail 
below.\11\ Further, Rule 21.12 would provide that Clearing Members may 
elect to ``Opt In'' and restrict one or more of its OCC number(s) 
(``Restricted OCC Number''), as defined in the Rule and described in 
further detail below.\12\
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    \9\ See proposed Exchange Rule 21.12(b)(1).
    \10\ See proposed Exchange Rule 21.12(b)(2).
    \11\ See proposed Exchange Rule 21.12(a); see also paragraph (a) 
of the EDGX Options and C2 Options Proposed Give Up Rule. The 
Exchange notes that paragraph (a) of Cboe Options 5.10 slightly 
differs from the proposed paragraph (a) on the Exchange, EDGX 
Options, and C2 Options; however, Cboe Options plans to amend its 
paragraph (a) of Rule 5.10 to conform to proposed Exchange, EDGX 
Options, and C2 Options rules with slight differences as it relates 
to floor trading.
    \12\ Id.
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    Amended Rule 21.12(b)(1) would define the term ``Designated Give 
Up'' as a Clearing Member that a User (other than a Market-Maker) \13\ 
identifies to the Exchange, in writing, as a Clearing Member the User 
requests the ability to give up.\14\ To designate a Designated Give Up, 
a User must submit written notification to the Exchange, in a form and 
manner prescribed by the Exchange (``Notification Form'').\15\ A copy 
of the proposed Notification Form is included with this filing in 
Exhibit 3. Similarly, should a User no longer want the ability to give 
up a particular Designated Give Up, the User would have to submit 
written notification to the Exchange, in a form and manner prescribed 
by the Exchange.\16\
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    \13\ For purposes of this rule, references to ``Market-Maker'' 
shall refer to a Member acting in the capacity of a Market-Maker and 
shall include all Market-Maker capacities.
    \14\ See proposed Exchange Rule 21.12(b)(1); see also Cboe 
Options 5.10(b)(1).
    \15\ See proposed Exchange Rule 21.12(b)(3); see also Cboe 
Options Rule 5.10(b)(3).
    \16\ See proposed Exchange Rule 21.12(b)(7); see also Cboe 
Options Rule 5.10(b)(7).
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    The Exchange notes that, as proposed, a User may designate any 
Clearing Member as a Designated Give Up, provided that the Designated 
Give Up has not Opted In, or provided that the User is an Authorized 
User \17\ of that Designated Give Up. Further, there would be no 
maximum number of Designated Give Ups that a User can identify. The 
Exchange would notify a Clearing Member, in writing and as soon as 
practicable, of each User that has identified it as a Designated Give 
Up.\18\
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    \17\ An ``Authorized User'' refers to a User that has written 
authorization as described in proposed Rule 21.12(c)(2) to give up a 
Restricted OCC Number. See proposed Exchange Rule 21.12(a).
    \18\ Supra note 14.
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    As amended, Rule 21.12(b)(2) would define the term Guarantor as a 
Clearing Member that has issued a Letter of Guarantee for the executing 
User, pursuant to the Rules of the Exchange \19\ that are in effect at 
the time of the execution of the applicable trade.\20\ An executing 
User may give up its Guarantor without such Guarantor being a 
Designated Give Up. The Exchange's Rule 22.8 provides that a Letter of 
Guarantee is required to be issued and filed by each Clearing Member 
through which a User clears transactions. Accordingly, a Market-Maker 
would only be enabled to give up a Guarantor that had executed a Letter 
of Guarantee on its behalf pursuant to Rule 22.8. Thus, Market-Makers 
would not identify any Designated Give Ups.
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    \19\ See Exchange Rule 22.8 (Letters of Guarantee).
    \20\ See proposed Exchange Rule 21.12(b)(2); see also Cboe 
Options Rule 5.10(b)(2).
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    Proposed Rule 21.12(c) would provide that Clearing Members may 
request the Exchange restrict one or more of their OCC numbers (``Opt 
In'') from being given up unless otherwise authorized.\21\ If a 
Clearing Member Opts In, the Exchange will require written 
authorization from the Clearing Member permitting a User to give up a 
Clearing Member's Restricted OCC number.\22\ An Opt In would remain in 
effect until the Clearing Member terminates the Opt In as described in 
proposed subparagraph (c)(3).\23\ If a Clearing Member does not Opt In, 
that Clearing Member's OCC number may be subject to being given up by 
any User that has designated it as a Designated Give Up.\24\ Proposed 
Rule 21.12(c)(1) will set forth the process by which a Clearing Member 
may Opt In.\25\ Specifically, a Clearing Member may Opt In by sending a 
completed ``Clearing Member Restriction Form'' listing all Restricted 
OCC Numbers and Authorized Users.\26\ A copy of the proposed form is 
included in Exhibit 3. A Clearing Member may elect to restrict one or 
more OCC clearing numbers that are registered in its name at the 
OCC.\27\ The Clearing Member would be required to submit the Clearing 
Member Restriction Form to the Exchange's MSD as described on the form. 
Once submitted, the Exchange requires ninety days before a Restricted 
OCC Number is effective within the System.\28\ This time period is to 
provide adequate time for the Users of that Restricted OCC Number who 
are not initially specified by the Clearing Member as Authorized Users 
to obtain the required written authorization from the Clearing Member 
for that Restricted OCC Number. Such Users would still be able to give 
up that Restricted OCC Number during this ninety day period (i.e., 
until the number becomes restricted within the System).
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    \21\ See proposed Exchange Rule 21.12(c); see also Cboe Options 
Rule 5.10(c).
    \22\ Id.
    \23\ Id.
    \24\ Id.
    \25\ See proposed Exchange Rule 21.12(c)(1); see also Cboe 
Options Rule 5.10(c)(1).
    \26\ This form will be available on the Exchange's website. The 
Exchange will also maintain, on its website, a list of the 
Restricted OCC Numbers, which will be updated on a regular basis, 
and the Clearing Member's contact information to assist Users (to 
the extent they are not already Authorized Users) with requesting 
authorization for a Restricted OCC Number. The Exchange may utilize 
additional means to inform its Members of such updates on a periodic 
basis.
    \27\ Supra note 29.
    \28\ Supra note 29.
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    Proposed Rule 21.12(c)(2) will set forth the process for Users to 
give up a Clearing Member's Restricted OCC Number.\29\ Specifically, a 
User desiring to give up a Restricted OCC Number must become an 
Authorized User.\30\ The Clearing Member will be required to authorize 
a User as described in subparagraph (1) or (3) of Rule 21.12(c) (i.e., 
through a Clearing Member Restriction Form), unless the Restricted OCC 
Number is already subject to a Letter of Guarantee that the User is a 
party to, as set forth in Rule 21.12(b)(6).\31\ Pursuant to proposed 
Rule 21.12(c)(3), a Clearing Member may amend the list of its 
Authorized Users or Restricted OCC Numbers by submitting a new Clearing 
Member Restriction Form to the Exchange's MSD indicating the amendment 
as described on the form.\32\ Once a Restricted OCC Number is effective 
within the System pursuant to Rule 21.12(c)(1), the Exchange may permit 
the Clearing Member to authorize, or remove authorization for, a User 
to give up the Restricted OCC Number intra-day only in unusual 
circumstances, and on the next business day in all regular 
circumstances.\33\ The Exchange will promptly notify Users if they are 
no longer authorized to give up a Clearing Member's Restricted OCC 
Number.\34\ If a Clearing Member removes a Restricted OCC Number, any 
User may give up that OCC clearing number once the removal has become 
effective on or before the next business day, provided that Clearing 
Member has been designated as a Designated Give Up.\35\
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    \29\ See proposed Exchange Rule 21.12(c)(2); see also Cboe 
Options Rule 5.10(c)(2).
    \30\ Id.
    \31\ Id.
    \32\ See proposed Exchange Rule 21.12(c)(3) and (e); see also 
Cboe Options Rule 5.10(c)(3) and (e).
    \33\ Id.
    \34\ Id.
    \35\ Id.
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    As noted above, amended Rule 21.12 would provide that a User may 
only give up (A) a Clearing Member that has

[[Page 4009]]

previously been identified and processed by the Exchange as a 
Designated Give Up for that User, provided that the Designated Give Up 
has not Opted In, or provided that the User is an Authorized User of 
that Designated Give Up, or (B) a Guarantor for that user.\36\ This 
proposed requirement would be enforced by the Exchange's trading 
systems.\37\ Specifically, the Exchange has configured its trading 
systems to only accept orders from a User that identifies a Designated 
Give Up or Guarantor for that User. For any Restricted OCC Number, the 
Exchange's trading systems will only accept orders for that number from 
an Authorized User that has also designated that Clearing Member as a 
Designated Give Up. The System would reject any order entered by a User 
not meeting the aforementioned criteria. The Exchange notes that it 
would notify a User in writing when an identified Designated Give Up 
becomes effective (i.e., when a Clearing Member has been identified by 
the User as a Designated Give Up, has been enabled by the Exchange's 
trading systems to be given up).\38\ A Guarantor for a User, by virtue 
of having an effective Letter of Guarantee on file with the Exchange, 
would be enabled to be given up for that User without any further 
action by the User.\39\ The Exchange notes that this configuration 
(i.e., the trading systems accepting only orders that identify a 
Designated Give Up or a Guarantor) is intended to help reduce keypunch 
errors (errors involving erroneous data entry), and prevent the User 
from mistakenly giving up the name of a Clearing Member that it does 
not have the ability to give up a trade. However, in light of Clearing 
Members having the ability to restrict their OCC numbers from being 
given up by unauthorized Users, the Exchange does not propose to adopt 
a process for Clearing Members to ``reject'' trades.\40\
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    \36\ See proposed Exchange Rule 21.12(b)(3); see also Cboe 
Options Rule 5.10(b)(3).
    \37\ See proposed Exchange Rule 21.12(d); see also Cboe Options 
Rule 5.10(d).
    \38\ See proposed Exchange Rule 21.12(e); see also Cboe Options 
Rule 5.10(e).
    \39\ See proposed Exchange Rule 21.12(b)(6); see also Cboe 
Options Rule 5.10(b)(6).
    \40\ See paragraph (f) of existing EDGX Options Rule 21.12 and 
C2 Options Rule 6.30(f). The Exchange notes, that the EDGX Options 
and C2 Options Proposed Give Up Rule seeks to eliminate existing 
paragraph (f). Further, Cboe Options Rule 5.10 does not have a 
process for Clearing Members to ``reject'' trades.
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    The Exchange also proposes in Rule 21.12(f) three scenarios in 
which a give up on a transaction may be changed without Exchange 
involvement.\41\ First, if an executing User has the ability through an 
Exchange system to do so, it could change the give up on a trade to 
another Designated Give Up, provided it's an Authorized User for any 
Restricted OCC Number, or its Guarantor.\42\ The Exchange notes that 
Users often make these changes when, for example, there is a keypunch 
error. The ability of the executing User to make any such change would 
end at the ``Trade Date Cutoff Time''.\43\ Next, the modified rule 
would provide that, if a Designated Give Up has the ability to do so, 
it may change the give up on a transaction for which it was given up to 
(A) another Clearing Member affiliated with the Designated Give Up or 
(B) a Clearing Member for which the Designated Give Up is a back office 
agent.\44\ The ability to make such a change would end at the Trade 
Date Cutoff Time.\45\ The Exchange notes that often Clearing Members 
themselves have the ability to change a give up on a trade for which it 
was given up to another Clearing Member affiliate or Clearing Member 
for which the Designated Give Up is a back office agent. Therefore, 
Exchange involvement in these instances is not necessary. In addition, 
the proposed rule provides that if both a Designated Give Up or 
Guarantor and a Clearing Member have the ability through an Exchange 
system to do so, the Designated Give Up or Guarantor and Clearing 
Member may each enter trade records into the Exchange's systems on the 
next trading day (``T+1'') that would effect a transfer of the trade in 
a non-expired option series from that Designated Give Up (or Guarantor) 
to that Clearing Member.\46\ The Designated Give Up or Guarantor could 
not make any such change after the T+1 Cutoff Time.\47\ The Exchange 
notes that a Designated Give Up or Guarantor must notify, in writing, 
the Exchange and all the parties to the trade, of any such change made 
pursuant to this provision.\48\ This notification alerts the parties 
and the Exchange that a change to the give up has been made. Finally, 
the Designated Give Up or Guarantor would be responsible for monitoring 
the trade and ensuring that the other Clearing Member has entered its 
side of the transaction timely and correctly. If either a Designated 
Give Up (or Guarantor) or Clearing Member cannot themselves enter trade 
records into the Exchange's systems to effect a transfer of the trade 
from one to the other, the Designated Give Up (or Guarantor) may 
request the ability from the Exchange to enter both sides of the 
transaction in accordance with amended Rule 21.12(f)(3).
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    \41\ See proposed Exchange Rule 21.12(f); see also Cboe Options 
Rule 5.10(f).
    \42\ See proposed Exchange Rule 21.12(f)(1); see also Cboe 
Options Rule 5.10(f)(1).
    \43\ The ``Trade Date Cutoff Time'' is established by the 
Clearing Corporation (or 15 minutes thereafter if the Exchange 
receives and is able to process a request to extend its time of 
final trade submission to the Clearing Corporation). Id.
    \44\ See proposed Exchange Rule 21.12(f)(2); see also Cboe 
Options Rule 5.10(f)(2).
    \45\ Id.
    \46\ See proposed Exchange Rule 21.12(f)(3); see also Cboe 
Options Rule 5.10(f)(3).
    \47\ The ``T+1 Cutoff Time'' is 1:00 p.m. Eastern Time on T+1; 
see proposed Exchange Rule 21.12(f)(3); see also Cboe Options Rule 
5.10(f)(3) (which provides a cutoff time of 12:00 p.m. Central 
Time).
    \48\ Id.
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    The Exchange proposes Rule 21.12(g) to state that a Clearing Member 
would be financially responsible for all trades for which it is the 
give up at the Applicable Cutoff Time (for purposes of the proposed 
rule, the ``Applicable Cutoff Time'' shall refer to the T+1 Cutoff Time 
for non-expiring option series and to the Trade Date Cutoff Time for 
expiring option series).\49\ The Exchange notes, however, that nothing 
in the proposed rule shall preclude a different party from being 
responsible for the trade outside of the Rules of the Exchange pursuant 
to OCC Rules, any agreement between the applicable parties, other 
applicable rules and regulations, arbitration, court proceedings or 
otherwise.\50\ Additionally, the proposed Rule does not preclude these 
factors from being considered in a different forum (e.g., court or 
arbitration), nor does it preclude any Clearing Member that violates 
any provision of amended Rule 21.12 from being subject to disciplinary 
actions in accordance with Exchange rules.
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    \49\ See proposed Exchange Rule 21.12(g); see also Cboe Options 
Rule 5.10(g).
    \50\ See proposed Interpretation and Policy .01 to Exchange Rule 
21.12 (``Nothing herein will be deemed to preclude the clearance of 
Exchange transactions by a non-User pursuant to the By-Laws of the 
Options Clearing Corporation so long as a Clearing Member who is a 
User is also designated as having responsibility under these Rules 
for the clearance of such transactions.''); see also Interpretation 
and Policy .01 to Cboe Options Rule 5.10.
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    The Exchange also proposes to adopt subparagraph (h) of Rule 21.12 
to provide that an intentional misuse of this Rule is impermissible, 
and may be treated as a violation of Rule 3.1, titled ``Business 
Conduct of Members''.\51\ This language will make clear that the 
Exchange will regulate an intentional

[[Page 4010]]

misuse of this Rule, and that such behavior would be a violation of 
Exchange rules. The proposed language is similar to corresponding 
provisions in other exchanges' give up rules.\52\
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    \51\ See Cboe Options Rule 5.10(h), which states that 
intentional misuse of Rule 5.10 may be treated as a violation of 
Rule 8.1 (Just and Equitable Principles of Trade).
    \52\ See e.g., Cboe Options Rule 5.10(h).
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    Lastly, the Exchange proposes to amend its current Member 
Notification of Designated Give ups Form (``Designated Give ups 
Form''). As of October 7, 2019 the Cboe affiliated Options Exchanges 
are on the same technology platform. To provide further harmonization 
across the Cboe affiliated Options Exchanges and provide more seamless 
administration of the Give Up rule, the Exchange proposes to adopt the 
forms currently applicable to the Cboe Exchange, Inc., which will be 
applicable to all Cboe affiliated Options Exchanges. The proposed 
Designated Give Up forms are included in Exhibit 3.
Implementation Date
    The Exchange proposes to announce the implementation date of the 
proposed rule change in an Exchange Notice, to be published no later 
than thirty (30) days following the operative date. The implementation 
date will be no later than sixty (60) days following the operative 
date.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Act and the rules and regulations thereunder applicable to the 
Exchange and, in particular, the requirements of Section 6(b) of the 
Act.\53\ Specifically, the Exchange believes the proposed rule change 
is consistent with the Section 6(b)(5) \54\ requirements that the rules 
of an exchange be designed to prevent fraudulent and manipulative acts 
and practices, to promote just and equitable principles of trade, to 
foster cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect to, and 
facilitation transactions in securities, to remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system, and, in general, to protect investors and the public interest. 
Additionally, the Exchange believes the proposed rule change is 
consistent with the Section 6(b)(5) \55\ requirement that the rules of 
an exchange not be designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
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    \53\ 15 U.S.C. 78f(b).
    \54\ 15 U.S.C. 78f(b)(5).
    \55\ Id.
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    Detailing in the rules how Users would give up Clearing Members 
provides transparency and operational certainty. The Exchange believes 
additional transparency removes a potential impediment to, and would 
contribute to perfecting, the mechanism of a free and open market and a 
national market system, and, in general, would protect investors and 
the public interest. Moreover, the Exchange notes that amended Rule 
21.12 requires Users to adhere to a standardized process to ensure a 
seamless administration of the Rule. For example, all notifications 
relating to a change in give up must be made in writing. The Exchange 
believes that these requirements will aid the Exchange's efforts to 
monitor and regulate Users and Clearing Members as they relate to 
amended Rule 21.12 and changes in give ups, thereby protecting 
investors and the public interest.
    Further, as discussed above, several clearing firms affiliated with 
SIFMA have recently expressed concerns relating to the current give up 
process, which permits Users to identify any Clearing Member as a 
Designated Give Up for purposes of clearing particular transactions, 
and have identified the current give up process (i.e., a process that 
lacks authorization) as a significant source of risk for clearing 
firms. The Exchange believes that the proposed changes to Rule 21.12 
help alleviate this risk by enabling Clearing Members to `Opt In' to 
restrict one or more of its OCC clearing numbers (i.e., Restricted OCC 
Numbers), and to specify which Authorized Users may give up those 
Restricted OCC Numbers. As described above, all other Users would be 
required to receive written authorization from the Clearing Member 
before they can give up that Clearing Member's Restricted OCC Number. 
The Exchange believes that this authorization provides proper 
safeguards and protections for Clearing Members as it provides controls 
for Clearing Members to restrict access to their OCC clearing numbers, 
allowing access only to those Authorized Users upon their request. The 
Exchange also believes that its proposed Clearing Member Restriction 
Form allows the Exchange to receive in a uniform fashion, written and 
transparent authorization from Clearing Members, which ensures seamless 
administration of the Rule.
    The Exchange believes that the proposed Opt In process strikes the 
right balance between the various views and interests across the 
industry. For example, although the proposed rule would require Users 
(other than Authorized Users) to seek authorization from Clearing 
Members in order to have the ability to give them up, each User will 
still have the ability to give up a Restricted OCC Number that is 
subject to a Letter of Guarantee without obtaining any further 
authorization if that User is party to that arrangement. The Exchange 
also notes that to the extent the executing User has a clearing 
arrangement with a Clearing Members (i.e., through a Letter of 
Guarantee), a trade can be assigned to the executing User's Guarantor. 
Accordingly, the Exchange believes that the proposed rule change is 
reasonable and continues to provide certainty that a Clearing Members 
would be responsible for a trade, which protects investors and the 
public interest.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. The Exchange does not believe 
that the proposed rule change will impose an unnecessary burden on 
intramarket competition because it would apply equally to all similarly 
situated Members. The Exchange also notes that, should the proposed 
changes make the Exchange more attractive for trading, market 
participants trading on other exchanges can always elect to become 
Members on the Exchange to take advantage of the trading opportunities. 
Furthermore, the proposed rule change does not address any competitive 
issues and ultimately, the target of the Exchange's proposal is to 
provide transparency and operational certainty to the Exchange's give 
up process, and also to reduce risk for Clearing Members. Clearing 
firms make financial decisions based on risk and reward, and while it 
is generally in their beneficial interest to clear transactions for 
market participants in order to generate profit, it is the Exchange's 
understanding from SIFMA and clearing firms that the current process 
can create significant risk when the clearing firm can be given up on 
any market participant's transaction, even where there is no prior 
customer relationship or authorization for that designated transaction. 
In the absence of a mechanism that governs a market participant's use 
of a Clearing Member's services, the Exchange's proposal may indirectly 
facilitate the ability of a Clearing Member to manage their existing 
customer relationships while continuing to allow market participant 
choice in broker execution services. While Clearing Members may compete 
with executing brokers for order flow, the Exchange does not believe 
this proposal imposes an undue burden on competition. Rather, the 
Exchange believes that the proposed

[[Page 4011]]

rule change balances the need for Clearing Members to manage risks and 
allows them to address outlier behavior from executing brokers while 
still allowing freedom of choice to select an executing broker.

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 written 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 after the date of the filing, or such 
shorter time as the Commission may designate, it has become effective 
pursuant to 19(b)(3)(A) of the Act \56\ and Rule 19b-4(f)(6) \57\ 
thereunder.
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    \56\ 15 U.S.C. 78s(b)(3)(A).
    \57\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative for 30 days after the date of the filing. However, 
Rule 19b-4(f)(6)(iii) \58\ permits the Commission to designate a 
shorter time if such action is consistent with the protection of 
investors and the public interest. In its filing, the Exchange 
requested that the Commission waive the 30-day operative delay. The 
Exchange represented that the proposal establishes a rule regarding the 
give up of a Clearing Member in order to help clearing firms manage 
risk while continuing to allow market participants choice in broker 
execution services. The Commission notes that it recently approved a 
substantially similar proposed rule change from Phlx, after which other 
options exchanges subsequently adopted subatantially similarly 
rules.\59\ The Commission believes that waiver of the 30-day operative 
delay is consistent with the protection of investors and the public 
interest, because the Exchange's proposal raises no new issues. 
Further, such waiver will permit the Exchange, without further delay, 
to begin implementing the new standardized give up process, thus 
aligning its give up process with that of the other option exchanges. 
Accordingly, the Commission waives the 30-day operative delay and 
designates the proposed rule change operative upon filing.\60\
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    \58\ 17 CFR 240.19b-4(f)(6)(iii).
    \59\ See Securities Exchange Act Release No. 85136 (February 14, 
2019), 84 FR 5526 (February 21, 2019) (Phlx-2018-72) (order 
approving a proposed rule change to establish rules governing give 
ups). See also supra note 18 (citing the filings in which other 
options exchanges adopted substantially similar rules).
    \60\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or disapproved.

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

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-CboeBZX-2020-002 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-CboeBZX-2020-002. 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 (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-CboeBZX-2020-002 and should be submitted 
on or before February 13, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\61\
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    \61\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-01029 Filed 1-22-20; 8:45 am]
 BILLING CODE 8011-01-P


