[Federal Register Volume 85, Number 64 (Thursday, April 2, 2020)]
[Notices]
[Pages 18610-18612]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-06857]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88502; File No. SR-CBOE-2020-027]


Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change Relating 
To Amend Rule 6.6 in Connection With Updates Permitted Through the 
Clearing Editor

March 27, 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 March 26, 2020, Cboe Exchange, Inc. (the ``Exchange'' or ``Cboe 
Options'') 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 Exchange, Inc. (the ``Exchange'' or ``Cboe Options'') proposes 
to amend Rule 6.6 in connection with updates permitted through the 
Clearing Editor. 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://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx), 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 proposed rule change amends Rule 6.6(d), which describes 
updates that may be made to trades executed in open outcry through the 
Clearing Editor and accompanied by a Reason Code, to permit such 
updates to be made to trades executed electronically.
    The Clearing Editor allows Trading Permit Holders to update 
executed trades on their trading date and revise them for clearing. The 
Clearing Editor may be used to update certain information entered 
pursuant to Rule 6.1 or to correct certain bona fide errors. Rule 
6.6(b) permits Trading Permit Holders (``TPHs'') to change certain 
fields in Clearing Editor in connection with orders executed 
electronically and in open outcry. Such fields may include: (1) 
Executing Firm and Contra Firm; (2) Executing Broker and Contra Broker; 
(3) CMTA; (4) Account and Sub Account; (5) Client Order ID; (6) 
Position Effect (open/close); (7) Capacity; \5\ (8) Strategy ID; (9) 
Frequent Trader ID; (10) Compression Trade ID; or (11) ORS ID. Rule 
6.6(d) currently provides that, in addition to the fields listed in 
paragraph (b), TPHs may change the following fields through the 
Clearing Editor for trades executed in open outcry: (1) Series, (2) 
Quantity, (3) Buy or Sell; or (4) Price. Each of these changes must be 
accompanied by a Reason Code.\6\ Notification of changes made pursuant 
to this paragraph (d) will automatically be sent to the Exchange with 
the submission of the changes through the Clearing Editor. The Exchange 
notes that, prior to a recent technology migration,\7\ the Exchange 
Rules allowed for TPHs to make the updates enumerated in 6.6(d) to 
their trades executed electronically.
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    \5\ If the change is from a customer Capacity code of (C) to any 
other Capacity code, it must be accompanied by a Reason Code and 
notice of such change will automatically be sent to the Exchange 
with the submission of the change through the Clearing Editor.
    \6\ Example Reason Codes include: Input Error; Unmatched Trade; 
Unknown; Manual Add; Other Text Required; Trade Nullification; Trade 
Adjustment; Error Account; and System Issue.
    \7\ See Securities Exchange Act Release No. 87079 (September 24, 
2019) 84 FR 51693 (September 30, 2019) (SR-CBOE-2019-062).
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    Many TPHs currently split single trades into multiple smaller 
trades (or post-trade allocations), each of which may be adjusted or 
nullified according to the mutual adjustment process in Rule 6.5 
(Nullification and Adjustment of Options Transactions Including Obvious 
Error). A TPH may easily update (adjust or nullify) an allocated 
portion of a trade executed in open outcry via the Clearing Editor and 
pursuant to Rule 6.6(d). A TPH that seeks to update an allocated 
portion of an electronically executed trade, however, must do so 
through the Trade Desk,\8\ and the TPH may then only nullify and re-
enter the single trade in its entirety, despite the fact that only one 
partial trade needed to be busted and re-entered.
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    \8\ See C1 Options Mutual Adjust/Bust Form, available at https://markets.cboe.com/us/options/trading/mutual_adjust_or_bust_form/?mkt=cone (March 23, 2020).
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    For example, a broker may execute a trade of 100 contracts for 
Buyer 1 and then may add the Contra Firm via Clearing Editor, pursuant 
to Rule 6.6(b), allocating 50 contracts to Seller 1, 25 contracts to 
Seller 2, and 25 contracts to Seller 3.\9\ The broker may subsequently 
realize that the 25 contracts allocated to Seller 3 should have been 
allocated to Seller 4. If executed in open outcry, the broker would be 
able to update the relevant allocated portion (Quantity) in the 
Clearing Editor pursuant to Rule 6.6(d) and the appropriate Clearing 
Editor messages would then be sent to the relevant TPHs (i.e., Seller 3 
receives a Clearing Editor cancel message for 25 contracts, Buyer 1 
receives a cancel message for 25 contracts with Seller 3 as the Contra 
Firm; Seller 4 receives an execution message for 25 contracts with 
Buyer 1 as the Contra Firm, and Buyer 1 receives a new execution 
message for 25 with Seller 4 as the Contra Firm). If executed 
electronically, the broker is currently unable to make these updates 
via the Clearing Editor, and instead, must nullify the entire trade 
(including the allocations apportioned to Seller 1 and Seller 2) and 
re-enter the trade details for all three portions via the Trade Entry 
tool.\10\ Re-entry of trades using this process does not currently 
disseminate messages regarding updated trade executions and Contra 
Firms to relevant parties, which results in trade processing issues for 
Clearing TPHs. As such, the Exchange proposes to amend Rule 6.6(d) by 
removing its restriction to trades executed in open outcry in order

[[Page 18611]]

to permit TPHs to make updates through the Clearing Editor to the 
fields enumerated in Rule 6.6(d), accompanied by a Reason Code, for 
their trades executed in either open outcry or electronically.
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    \9\ The Exchange notes that a broker might do this for a trade 
executed electronically where, for example, the broker executes a 
trade in the Automated Improvement Mechanism (``AIM Auction'') 
through PULSe, which does not currently provide functionality that 
allows a broker to add Contras to the trade. Therefore, the broker 
would have to allocate the trade and submit the Contras via the 
Clearing Editor following the transaction.
    \10\ The Trade Entry Tool allows TPHs to enter the other side of 
unmatched trades and is part of the Clearing Editor.
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    As indicated above, up until October 2019, the Exchange Rules 
permitted TPHs to make changes permitted by Rule 6.6(d) to their trades 
executed electronically and in open outcry, and currently, TPHs may 
essentially continue to adjust the same fields enumerated in Rule 
6.6(d) for their electronic orders by submitting a mutual adjustment 
request through the Trade Desk, and thereafter re-entering the entire 
trade with the updated fields. Because the same reasons that require 
TPHs to update trades pursuant to Rule 6.6(d) apply to executions 
electronically and in open outcry, the Exchange believes it is 
appropriate to permit TPHs to updates all trades pursuant to Rule 
6.6(d) as they previously could. The Exchange believes this will 
streamline the process when updates need to be made in connection with 
busts and adjusts of partial trades. The Exchange notes that, like for 
open outcry trades today, all TPHs that update Rule 6.6(d) fields for 
their electronic trades will be required to accompany such changes with 
a Reason Code (which is automatically prompted by the Clearing Editor). 
Accordingly, this enables the Exchange to better surveil for and 
enforce against potential issues or abusive behavior via the Clearing 
Editor and in connection with the adjustment process by allowing the 
Exchange to automatically receive information regarding the changes and 
understand the rationale behind all such changes.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Securities Exchange Act of 1934 (the ``Act'') and the rules and 
regulations thereunder applicable to the Exchange and, in particular, 
the requirements of Section 6(b) of the Act.\11\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \12\ requirements that the rules of an exchange be 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, to foster cooperation 
and coordination with persons engaged in regulating, clearing, 
settling, processing information with respect to, and facilitating 
transactions in securities, to remove impediments to and perfect the 
mechanism of a free and open market and a national market system, and, 
in general, to protect investors and the public interest. Additionally, 
the Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \13\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(5).
    \13\ Id.
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    In particular, the Exchange believes that the proposed rule change 
will foster cooperation and coordination with persons engaged in 
clearing and processing information with respect to securities and will 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system, as it is intended to reduce 
potential issues in the processing of post-trade information and 
facilitate a more effective adjustment process. The proposed rule 
change will allow TPHs to adjust and/or nullify only the relevant 
portions of electronically executed trades, rather than having to 
nullify and re-enter the entire trade, and will ensure that all 
relevant parties to the revised transaction receive information 
regarding the changes. The Exchange further believes that the proposed 
rule change does not raise and new or novel issues or processes for 
TPHs, as they are currently able to update the same fields for their 
trades executed in open outcry (and were until fewer than six months 
ago permitted to make such updates to their trades executed 
electronically), pursuant to Rule 6.6(d), previously filed with the 
Commission.\14\ As described above, TPHs make currently make the same 
updates to their electronic executions through another, more onerous 
process through the Trade Desk and Trade Entry tool. The Exchange 
believes the proposed rule change will streamline the process when 
updates need to be made in connection with busts and adjusts of partial 
trades, which efficiency the Exchange believes will remove impediments 
to and perfect the mechanism of a free and open market and a national 
market system, which in general will benefit TPHs. Furthermore, the 
Exchange believes that continuing to require a TPH to submit a Reason 
Code via the Clearing Editor in conjunction with any change made 
pursuant to Rule 6.6(d), will assist in preventing fraudulent and 
manipulative acts and otherwise promote just and equitable principles 
of trade because it would allow the Exchange to automatically be 
notified of Rule 6.6(d) changes and the rationale behind such changes. 
This, in turn, will continue to allow the Exchange to better surveil 
for and enforce against potential issues or abusive behavior via the 
Clearing Editor, thus, protecting investors and the public interest.
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    \14\ See Securities Exchange Act Release No. 73439 (October 27, 
2014) 79 FR 64846 (October 31, 2014) (SR-CBOE-2014-082). Prior to 
the October 7, 2019 technology migration, current Rule 6.6(d) was 
Rule 6.67(b).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The Exchange does not 
believe the proposed rule change would impose any burden on intramarket 
competition that is not necessary or appropriate in furtherance of the 
Act, because it would again allow all TPHs to make updates to 
(including providing a requisite Reason Code) the fields enumerated 
under Rule 6.6(d) for their trades executed electronically and in open 
outcry in the same manner. The Exchange notes that the proposed rule 
change does not restrict any the fields that a TPH may currently change 
via the Clearing Editor, but merely extends the existing permissible 
changes to all trades. The Exchange does not believe that the proposed 
rule change would impose any burden on intermarket competition, because 
the proposed rule change is not intended to address competitive issues, 
but rather, is concerned with the correction of post-trade information 
and the reduction of any post-trade processing issues.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange neither solicited nor received comments on the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \15\ and Rule 19b-
4(f)(6) thereunder.\16\
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    \15\ 15 U.S.C. 78s(b)(3)(A).
    \16\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
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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    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act \17\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \18\ permits the 
Commission to designate a shorter time if such action is consistent 
with the protection of investors and the public interest. The Exchange 
has asked the Commission to waive the 30-day operative delay. The 
Exchange believes that waiver of the operative delay is consistent with 
the protection of investors and the public interest because, as the 
Exchange discussed above, its proposal is intended to facilitate the 
processing of post-trade information and mitigate any issues that may 
arise from the current post-electronic trade update process. 
Particularly, the Exchange believes that putting the proposed rule 
change into operation as soon as possible would assist floor brokers 
currently trading electronically to continue to use the Clearing Editor 
for post-trade adjustments while the Exchange's trading floor is 
inoperable due to the novel coronavirus.\19\ As stated above, the 
Exchange believes that the proposed rule change would not impact TPHs 
nor raise any new or novel issues or processes for them, as they are 
able (when the Exchange floor is operable) to implement the same 
process for their open outcry trades, and have, up until recently,\20\ 
been able to do so for their electronic executions. For these reasons, 
the Commission believes that waiver of the 30-day operative delay is 
consistent with the protection of investors and the public interest. 
Accordingly, the Commission hereby waives the 30-day operative delay 
and designates the proposal operative upon filing.\21\
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    \17\ 17 CFR 240.19b-4(f)(6).
    \18\ 17 CFR 240.19b-4(f)(6)(iii).
    \19\ See Tradedesk Update No. C2020031204 (March 12, 2020) Novel 
Coronavirus Update, Trading Floor Closure.
    \20\ See Securities Exchange Act Release No. 87079 (September 
24, 2019) 84 FR 51693 (September 30, 2019) (SR-CBOE-2019-062).
    \21\ For purposes only of waiving the 30-day operative delay, 
the Commission also has 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 change 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-CBOE-2020-027 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-CBOE-2020-027. 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-CBOE-2020-027 and should be submitted on 
or before April 23, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(12).

J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-06857 Filed 4-1-20; 8:45 am]
BILLING CODE 8011-01-P


