[Federal Register Volume 85, Number 82 (Tuesday, April 28, 2020)]
[Notices]
[Pages 23557-23560]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-08934]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88722; File No. SR-CBOE-2020-037]


Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Remove 
Its Optional Daily Risk Limits Pursuant to Rule 5.34

April 22, 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 April 13, 2020, Cboe Exchange, Inc. (the

[[Page 23558]]

``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 remove its optional daily risk limits pursuant to Rule 5.34. 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 Exchange proposes to remove the optional daily risk limit 
settings for Users in Rule 5.34(c)(4).\5\ The daily risk limits are 
voluntary functionality. Pursuant to current Rule 5.34(c)(4), if a User 
enables this functionality they may establish one or more of the 
following values for each of its ports, which the System aggregates 
(for simple and complex orders) across all of a User's ports (i.e., 
applies on a firm basis): (i) Cumulative notional booked bid value 
(``CBB''); (ii) cumulative notional booked offer value (``CBO''); (iii) 
cumulative notional executed bid value (``CEB''); and (iv) cumulative 
notional executed offer value (``CEO''). The User may then establish a 
limit order notional cutoff, a market order notional cutoff, or both, 
each of which it may establish on a net basis, gross basis, or both. If 
a User exceeds a cutoff value, the System cancels or rejects all 
incoming limit orders or market orders, respectively. If a User 
establishes a limit order notional cutoff but does not establish (or 
sets as zero) the market order notional cutoff, the System cancels or 
rejects all market orders. The System calculates a notional cutoff on a 
gross basis by summing CBB, CBO, CEB, and CEO. The System calculates a 
notional cutoff on a net basis by summing CEO and CBO, then subtracting 
the sum of CEB and CBB, and then taking the absolute value of the 
resulting amount. This functionality does not apply to bulk messages.
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    \5\ As a result of the proposed rule change, the Exchange also 
updates the subsequent paragraph numbering in current subparagraphs 
(c)(5) through (c)(11).
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    The Exchange proposes to remove the daily limit risk mechanism 
because use of this mechanism on Users' ports is infrequent. Indeed, no 
Users currently have the daily risk limit enabled on a port connected 
to the Exchange. Because so few Users enable this functionality for 
their ports, the Exchange believes the current demand does not warrant 
the Exchange resources necessary for ongoing System support for the 
risk mechanism (e.g., the System must maintain and apply algorithms 
that track and calculate gross and net notional exposure). The Exchange 
again notes that the use of the daily risk limit is voluntary. The 
Exchange will continue to offer to Users a full suite of price 
protection mechanisms and risk controls which sufficiently mitigate 
risks associated with Users entering orders and quotes at unintended 
prices, and risks associated with orders and quotes trading at prices 
that are extreme and potentially erroneous, as a likely result of human 
or operational error. This includes other price protections and risk 
controls associated with notional value of a User's orders and quotes. 
For example, Rule 5.34(c)(3) provides for a voluntary functionality in 
which the System cancels or rejects an incoming order or quote with a 
notional value that exceeds the maximum notional value a User 
establishes for each of its ports, and Rule 5.34(c)(5) \6\ provides for 
a voluntary functionality in which a User may establish risk limits 
within a class or across classes \7\ defined by certain parameters, of 
which the notional value of executions is an parameter option. Once a 
risk parameter is reached, no new trades are executed and any orders or 
quotes in route are System-rejected.
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    \6\ The Exchange notes that as a result of the proposed removal 
of Rule 5.34(c)(4), current Rule 5.34(c)(5) will become new Rule 
5.34(c)(4).
    \7\ And for one Executing Firm ID (``EFID'') or a group of 
EFIDs.
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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.\8\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \9\ 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) \10\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
    \10\ Id.
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    In particular, the proposed rule change will remove impediments to 
and perfect the mechanism of a free and open market and national market 
system and benefit investors, because it will delete from the Rules a 
risk control that the Exchange will no longer offer, thereby promoting 
transparency in its Rules. The Exchange notes, too, that other options 
exchange do not offer daily risk limits, or other risk controls, 
associated with notional value of their users' order or quotes.\11\ The 
Exchange

[[Page 23559]]

does not believe that the proposed rule change will affect the 
protection of investors or the public interest or the maintenance of a 
fair and orderly market because this risk control is so infrequently 
implemented, and currently, no User has this risk control established 
in any port connected to the Exchange. In addition to this, the 
Exchange notes that the use of this risk control is voluntary and the 
Exchange will continue to offer a full suite of price protection 
mechanisms and risk controls, including those associated with notional 
value of a Users' orders and quotes, which sufficiently mitigate risks 
associated with Users entering orders and quotes at unintended prices, 
and risks associated with orders and quotes trading at prices that are 
extreme and potentially erroneous, as a likely result of human or 
operational error. Also, the Exchange believes the low usage rate for 
the daily risk limits does not warrant the continued resources 
necessary for System support of such controls. As a result, the 
Exchange believes the proposed rule change will also remove impediments 
to and perfect the mechanism of a free and open market and national 
market system by allowing the Exchange to reallocate System capacity 
and resources to more frequently elected System functionality, 
including other price protection and risk control functionality.
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    \11\ See NYSE CGW FIX Gateway Specification for NYSE American 
Options and NYSE Arca Options (last updated February 27, 2020) 
available at https://www.nyse.com/publicdocs/nyse/markets/nyse/FIX_Specification_and_API.pdf, which provides for various User-
defined risk controls, like those of the Exchange, but does not 
offer parameter settings in connection with aggregate notional 
values. NYSE American Options and NYSE Arca Options also do not 
offer such settings in their rules.
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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 proposed rule change is 
not competitive in nature, but rather is intended to remove a risk 
control that is rarely used on the Exchange. The Exchange does not 
believe that the proposed rule change would impose a burden on 
intramarket competition that is not necessary or appropriate in 
furtherance of the purposes of the Act because it will remove the 
option to use this risk control for all Users on the Exchange. In 
addition to this, and as stated above, the use of the daily risk limit 
is voluntary and the Exchange will continue to offer various other 
price protections and risk controls that sufficiently mitigate risks 
associated with market participants entering and/or trading orders and 
quotes at unintended or extreme prices. Further, the Exchange does not 
believe that the proposed rule change would impose a burden on 
intermarket competition that is not necessary or appropriate in 
furtherance of the purposes of the Act because the proposed rule change 
reflects the current risk control offerings on other options 
exchanges.\12\
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    \12\ See supra note 11.
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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 after the date of the filing, or such 
shorter time as the Commission may designate, it has become effective 
pursuant to Section 19(b)(3)(A) of the Act \13\ and Rule 19b-4(f)(6) 
\14\ thereunder.
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    \13\ 15 U.S.C. 78s(b)(3)(A).
    \14\ 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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    The Exchange has asked the Commission to waive the 30-day operative 
delay.\15\ The Commission finds that waiving the 30-day operative delay 
is consistent with the protection of investors and the public interest. 
The Exchange represents that generally the Daily Risk Limits are 
utilized infrequently by its Users and that currently the functionality 
is not being used at all. The Exchange also indicates that eliminating 
Daily Risk Limits will enable the efficient allocation of technical 
resources and the Exchange will continue to offer an effective suite of 
risk management options to its Users pursuant to Rule 5.34. 
Accordingly, the Commission designates the proposal operative upon 
filing.\16\
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    \15\ 17 CFR 240.19b-4(f)(6)(iii).
    \16\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule change's impact on 
efficiency, competition, and capital formation. 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-CBOE-2020-037 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-2020-037. 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; the Commission does not edit 
personal identifying information from submissions. You should submit 
only information that you wish to make available publicly. All 
submissions should refer to File Number SR-CBOE-2020-037 and should be 
submitted on or before May 19, 2020.


[[Page 23560]]


    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-08934 Filed 4-27-20; 8:45 am]
 BILLING CODE 8011-01-P


