[Federal Register Volume 85, Number 71 (Monday, April 13, 2020)]
[Notices]
[Pages 20553-20556]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-07649]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88577; File No. SR-C2-2020-003]


Self-Regulatory Organizations; Cboe C2 Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
Rule 6.34 in Connection With Business Continuity and Disaster Recovery 
Testing

April 7, 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 C2 Exchange, Inc. (``Exchange'' or ``C2'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I and II below, which Items 
have been prepared by the Exchange. The Commission is publishing this 
notice to solicit comments on the proposed rule change from interested 
persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Cboe C2 Exchange, Inc. (the ``Exchange'' or ``C2'') proposes to 
amend Rule 6.34 in connection with business continuity and disaster 
recovery testing. 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/options/regulation/rule_filings/ctwo/), 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 harmonize Rule 6.34, in connection with 
business continuity and disaster recovery testing, with the 
corresponding rules of its affiliated options exchanges, Cboe BZX 
Exchange, Inc. (``BZX Options'') and Cboe EDGX Exchange, Inc. (``EDGX 
Options'').\3\
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    \3\ The Exchange notes that Cboe Exchange, Inc. (``Cboe 
Options'') is simultaneously filing a rule change to harmonize 
certain provisions of its business continuity and disaster recovery 
testing rules with that of BZX Options and EDGX Options.
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    As background, Regulation Systems Compliance and Integrity 
(``Regulation SCI'') \4\ applies to certain self-regulatory 
organizations (including the Exchange), alternative trading systems 
(``ATSs''), plan processors, and exempt clearing agencies 
(collectively, ``SCI entities''). Specifically, Rule 1004 of Regulation 
SCI (``Reg SCI'') states that each SCI entity shall establish standards 
for the designation of members or participants that are necessary for 
the maintenance of fair and orderly markets in the event of the 
activation of the business continuity and disaster recovery plans, 
designate such members or participants in scheduled functional and 
performance testing of the operation of such plans no less than once 
every 12 months, and coordinate the testing of such plans on an 
industry- or sector-wide basis with other SCI entities.
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    \4\ See Securities Exchange Act Release No. 73639 (November 19, 
2014), 79 FR 72252 (December 5, 2014) (``SCI Adopting Release'').
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    In order to comply with the coordination requirement among SCI 
entities, the Exchange has conducted the required operational testing 
in parallel with the industry-led testing program coordinated by the 
Securities Industry and Financial Markets Association (``SIFMA''), 
which occurs on an annual basis. In particular, Rule 6.34(b) requires 
certain Trading Permit Holders (``TPHs'') that contribute a meaningful 
percentage of the Exchange's overall volume must connect to the 
Exchange's backup systems and participate in functional and performance 
testing as announced

[[Page 20554]]

by the Exchange, which occurs at least once every 12 months. This is 
consistent with Reg SCI and generally occurs in October. In particular, 
subparagraph (b)(1) provides that the Exchange determines the 
percentage of volume it considers to be meaningful for purposes of Rule 
6.34(b), subparagraph (b)(2) provides that the Exchange measures volume 
executed on the Exchange on a quarterly basis, and that the Exchange 
also individually notifies all Trading Permit Holders quarterly that 
are subject to this paragraph (b) based on the prior calendar quarter's 
volume, and subparagraph (b)(3) provides that if a Trading Permit 
Holder has not previously been subject to the requirements of this 
paragraph (b), such Trading Permit Holder has until the next calendar 
quarter before such requirements are applicable.
    In order to harmonize its business continuity and disaster recovery 
testing provisions with that of its affiliated options exchanges, the 
Exchange proposes to amend subparagraph (b)(2) to allow the Exchange to 
identify TPHs designated to test based on trading activity during a 
single designated quarter for a given year. In line with this proposed 
rule change, the Exchange also subsequently updates the timeframe for 
notification to TPHs that are designated for testing in subparagraph 
(b)(2) and removes subparagraph (b)(3) as all TPHs will be subject to 
the same measurement quarter selected by the Exchange. Specifically, 
the proposed rule change provides that the Exchange individually 
notifies all TPHs (designated for testing) annually, and at least three 
months prior to the scheduled functional and performance testing. The 
proposed rule change is substantively identical to the language 
regarding testing notification provided in Interpretation and Policy 
.01 to Rule 2.4 of BZX Options and EDGX Options. The proposed rule 
change is intended to provide the Exchange with greater flexibility in 
selecting the most relevant quarter's trade data for which the Exchange 
may identify TPHs that will be designated to participate in annual 
testing. As such, the Exchange may identify TPHs designated for testing 
based on potentially the most representative measure of trading 
activity. For example, if the second quarter of the year in which the 
test will take place is generally experiencing high volume and trading 
activity, such a quarter would provide a better, more relevant and/or 
accurate sample of overall activity and trading patterns on the 
Exchange than a former, potentially less active quarter or a quarter 
farther removed from the test date (e.g., the third quarter of the 
preceding year) for which a TPH might have been designated, thus 
providing a more relevant and/or accurate, holistic representation of 
the TPHs who meet the requirement set forth in Rules 6.34(b). The 
proposed rule change provides additional detail regarding the timeframe 
for which the Exchange will provide notice to TPHs that have been 
designated to test based on a single designated quarter as opposed to a 
quarterly basis. The Exchange believes three months is reasonable 
advanced notice.
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.\5\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \6\ 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) \7\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \5\ 15 U.S.C. 78f(b).
    \6\ 15 U.S.C. 78f(b)(5).
    \7\ Id.
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    In particular, the proposed change is intended to harmonize the 
rules in connection with business continuity and disaster recovery 
testing across the Exchange and its affiliated options exchanges, BZX 
Options and EDGX Options.\8\ The proposed rule change does not propose 
new or unique business continuity and disaster recovery procedures or 
requirements as the proposed changes are substantively similar to rules 
currently in place on the Exchange's affiliated options exchanges and 
previously filed with the Commission. Consistent requirements and 
procedures in connection with business continuity and disaster recovery 
testing will simplify the regulatory requirements and increase the 
understanding of the Exchange's operations for TPHs that are also 
participants on the Exchange's affiliated options exchanges. Greater 
harmonization across the affiliated options exchanges will result in 
greater uniformity, rules that are easier to follow and understand, and 
less burdensome, more efficient regulatory compliance, thereby 
contributing to the protection of investors and the public interest. 
Moreover, the proposed rule change will harmonize Exchange rules with 
those of other self-regulatory organizations in furtherance of the 
coordination of testing among SCI entities required by Rule 1004(c) of 
Regulation SCI. As set forth in Regulation SCI, ``SROs have the 
authority, and legal responsibility, under Section 6 of the Exchange 
Act, to adopt and enforce rules (including rules to comply with 
Regulation SCI's requirements relating to business continuity and 
disaster recovery testing) applicable to their members or participants 
that are designed to, among other things, 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.'' \9\ The Exchange believes 
that the proposed rule change is consistent with such authority and 
legal responsibility and will serve to strengthen the Exchange's 
coordination with other SCI entities to the benefit of investors and 
the public interest.
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    \8\ See supra note 5.
    \9\ See supra note 6.
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    In addition to this, by allowing the Exchange to identify TPHs that 
are subject to testing based on activity during a single designated 
quarter and to issue an annual notification at least three months prior 
to testing the proposed rule change will remove impediments to and 
perfect the mechanism of a free and open market and national market 
system, and, in general, protect investors as it will allow the 
Exchange to rely on the trading activity within a quarter that may be 
more relevant or representative of overall trading activity and 
patterns on the Exchange in order to better determine which TPHs should 
participate in testing, provide specificity as to the timing for which 
the Exchange will give notice to TPHs designated to participate in 
testing based on the selection of a single measurement

[[Page 20555]]

quarter, and, in general, will simplify the TPH designation and notice 
process.

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 notes that the 
proposed rule change is not a competitive proposal as it is intended to 
coordinate TPH notification and designated calendar quarters in 
connection with annual functional and performance testing participation 
with the rules of its affiliated options exchanges.
    The Exchange does not believe that the proposed rule change will 
impose any burden on intramarket competition that is not necessary or 
appropriate in furtherance of the purposes of the Act because the 
trading activity of TPHs will be measured during the same Exchange-
determined quarter for all TPHs and annual notice will be given to each 
TPH designated for testing at the same time at least three months in 
advance.
    The Exchange does not believe that the proposed rule change will 
impose any burden on intermarket competition that is not necessary or 
appropriate in furtherance of the purposes of the Act because the 
proposed rule changes are substantively identical to the corresponding 
rules of BZX Options and EDGX Options, which have previously been filed 
with the Commission.

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 \10\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\11\
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    \10\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \11\ 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 under Rule 19b-4(f)(6) \12\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, Rule 19b-4(f)(6)(iii) \13\ 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 so that the proposed 
rule change may become effective and operative immediately upon filing. 
The Exchange states that waiver of the operative delay would eliminate 
potential confusion in connection with testing participation in the 
next annual functional and performance testing (October 2020) across 
the Exchange and its affiliated options exchanges and in coordination 
with other SCI entities. The Exchange also states that the proposed 
rule changes will harmonize Exchange rules with those of other self-
regulatory organizations in furtherance of the coordination of testing 
among SCI entities, thereby contributing the protection of investors 
and the public interest. The Exchange further states that the proposed 
rule change will simplify and streamline the process of notification to 
TPHs designated to participate in the annual test and will ensure that 
the Exchange and its affiliated options exchanges will be able to base 
all member participation on the same designated quarter (e.g., Q1 2020) 
for the upcoming annual test, thus resulting in more efficient 
regulatory compliance and operations for investors across the 
exchanges. Accordingly, the Commission believes that waiver of the 30-
day operative delay is consistent with the protection of investors and 
the public interest. Therefore, the Commission hereby waives the 30-day 
operative delay and designates the proposed rule change as operative 
upon filing.\14\
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    \12\ 17 CFR 240.19b-4(f)(6).
    \13\ 17 CFR 240.19b-4(f)(6)(iii).
    \14\ 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: (i) 
Necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) 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-C2-2020-003 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-C2-2020-003. 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-C2-2020-003 and should be submitted on 
or before May 4, 2020.


[[Page 20556]]


    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-07649 Filed 4-10-20; 8:45 am]
 BILLING CODE 8011-01-P


