[Federal Register Volume 85, Number 136 (Wednesday, July 15, 2020)]
[Notices]
[Pages 42951-42954]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-15210]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-89273; File No. SR-CboeBZX-2020-056]


Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing and Order Granting Accelerated Approval of a Proposed Rule 
Change To Add the Consolidated Audit Trail Industry Member Compliance 
Rules to the List of Minor Rule Violations in Rules 8.15 and 25.3

July 9, 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 July 8, 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 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 and approving the proposal on an 
accelerated basis.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Cboe BZX Exchange, Inc. (the ``Exchange'' or ``BZX'') proposes to 
add the Consolidated Audit Trail (``CAT'') industry member compliance 
rules (``CAT Compliance Rules'') to the list of minor rule violations 
in Rules 8.15 and 25.3. 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
    In order to implement the National Market System Plan Governing the 
Consolidated Audit Trail (the ``CAT NMS Plan'' or ``Plan'') the 
Exchange codified the CAT Compliance Rules in Rules 4.5 through 
4.16.\3\ The CAT NMS Plan was filed by the Plan Participants to comply 
with Rule 613 of Regulation NMS under the Exchange Act,\4\ and each 
Plan Participant accordingly has adopted the same compliance rules as 
the Exchange's Rules 4.5 through 4.16. The common compliance rules 
adopted by each Plan Participant are designed to require industry 
members to comply with the provisions of the CAT NMS Plan, which 
broadly calls for industry members to record and report timely and 
accurate customer, order, and trade information relating to activity in 
NMS Securities and OTC Equity Securities.
---------------------------------------------------------------------------

    \3\ See Securities Exchange Act Release Nos. 79927 (February 2, 
2017), 82 FR 9874 (February 8, 2017) (SR-BatsBZX-2017-08); and 80256 
(March 15, 2017), 82 FR 14526 (March 21, 2017) (Order Approving 
Proposed Rule Changes To Adopt Consolidated Audit Trail Compliance 
Rules).
    \4\ 17 CFR 242.613.
---------------------------------------------------------------------------

    Rule 8.15 provides for disposition of certain violations through 
assessment of fines in lieu of conducting a formal disciplinary 
proceeding. Rule 8.15.01, specifically, sets forth the list of specific 
BZX Equities Rules under which any Member, associated person of a 
Member, or registered or non-registered employee of a Member may be 
subject to a fine for violations of such Rules. Rule 25.3 provides the 
same for BZX Options Rule violations, under which an Options Member, 
associated person of an Options Member, or registered or non-registered 
employee of an Options Member may be subject to a fine for violations 
of such Rules. The Exchange proposes to amend Rule 8.15.01 and Rule 
25.3 to add the CAT Compliance Rules in Rules 4.5 through 4.16 to the 
list of rules in Rule 8.15.01 and Rule 25.3 eligible for disposition 
pursuant to a minor fine; specifically, under proposed Rule 8.15.01(i) 
and proposed Rule 25.3(g).\5\ Proposed Rule 8.15.01(i) and proposed 
Rule 25.3(g) each provide that for failures to comply with the 
Consolidated Audit Trail Compliance Rule requirements of Rules 4.5 
through 4.16, the Exchange may impose a minor rule violation fine of up 
to $2,500. The Exchange may seek other disciplinary action for more 
serious violations.
---------------------------------------------------------------------------

    \5\ FINRA's maximum fine for minor rule violations under FINRA 
Rule 9216(b) is $2,500. The Exchange will apply an identical maximum 
fine amount for eligible violations of Rules 4.5 through 4.16 to 
achieve consistency with FINRA and also amend its minor rule 
violation plan (``MRVP'') to include such fines. Like FINRA, the 
Exchange would be able to pursue a fine greater than $2,500 for 
violations of Rules 4.5 through 4.16 in a regular disciplinary 
proceeding or a letter of consent under Chapter 8 as appropriate. 
Any fine imposed in excess of $2,500 or not otherwise covered by 
Rule 19d-1(c)(2) of the Act would be subject to prompt notice to the 
Commission pursuant to Rule 19d-1 under the Act. As noted below, in 
assessing the appropriateness of a minor rule fine with respect to 
CAT Compliance Rules, the Exchange will be guided by the same 
factors that FINRA utilizes. See text accompanying notes 7-8 [sic], 
infra.
---------------------------------------------------------------------------

    The Exchange is coordinating with the Financial Industry Regulatory 
Authority, Inc. (``FINRA'') and other Plan Participants to promote 
harmonized and consistent enforcement of all the Plan Participants' CAT 
Compliance Rules. The Commission recently approved a Rule 17d-2 Plan 
under which the regulation of CAT Compliance Rules will be allocated 
among Plan Participants to reduce regulatory duplication for industry 
members that are members of more than one Participant (``common 
members'').\6\ Under the Rule 17d-2 Plan, the regulation of CAT 
Compliance Rules with respect to common members that are members of 
FINRA is allocated to FINRA. Similarly, under the Rule 17d-2 Plan, 
responsibility for common members of multiple other Plan Participants 
and not a member of FINRA will be allocated among those other Plan 
Participants, including to the Exchange. For those non-common members 
who are allocated to BZX pursuant to the Rule 17d-2 Plan, the Exchange 
and FINRA have entered into a Regulatory Services Agreement (``RSA'') 
pursuant to which FINRA will assist the Exchange with conducting 
surveillance, investigation, examination, and enforcement activity in 
connection with

[[Page 42952]]

the CAT Compliance Rules on the Exchange's behalf. The Exchange expects 
that the other exchanges will be entering into similar RSAs.
---------------------------------------------------------------------------

    \6\ See Securities Exchange Act Release No. 88366 (March 12, 
2020), 85 FR 15238 (March 17, 2020).
---------------------------------------------------------------------------

    The Exchange notes that this proposal is based upon the FINRA 
filing to amend FINRA Rule 9217 in order to add FINRA's corresponding 
CAT Compliance Rules to FINRA's list of rules that are eligible for 
minor rule violation plan treatment.\7\ The Exchange also notes that 
the New York Stock Exchange LLC (``NYSE'') submitted a filing to amend 
its Minor Rule Violation Plan (``MRVP'') to add its CAT Compliance 
Rules in a manner consistent with FINRA's proposal,\8\ and other Plan 
Participants intend to submit the same. Thus, in order to achieve 
consistency with FINRA and the other Plan Participants, the Exchange 
proposes to adopt fines up to $2,500 in connection with minor rule 
fines for violations of the CAT Compliance Rules (Rules 4.5 through 
4.16) in proposed Rules 8.15.01(i) and 25.3(g) under the Exchange's 
MRVP. In connection with FINRA's proposed amendment to FINRA Rule 9217 
to make FINRA's CAT Compliance Rules MRVP eligible, FINRA has stated 
that it will apply the minor fines for CAT Compliance Rules in the same 
manner that FINRA has for its similar existing audit trail-related 
rules.\9\ Accordingly, in order to promote regulatory consistency, the 
Exchange plans to do the same. Specifically, application of a minor 
fine with respect to CAT Compliance Rule violations will be guided by 
the same factors that FINRA references in its filing. However, more 
formal disciplinary proceedings may be warranted instead of minor rule 
dispositions in certain circumstances such as where violations prevent 
regulatory users of the CAT from performing their regulatory functions. 
Where minor rule dispositions are appropriate, the following factors 
help guide the determination of fine amounts:
---------------------------------------------------------------------------

    \7\ See Securities Exchange Act Release No. 88870 (May 14, 
2020), 85 FR 30768 (May 20, 2020) (SR-FINRA-2020-013).
    \8\ See SR-NYSE-2020-51 (filed June 12, 2020).
    \9\ See supra note 7; see also FINRA Notice to Members 04-19 
(March 2004) available at https://www.finra.org/rules-guidance/notices/04-19 (providing specific factors used to inform 
dispositions for violations of OATS reporting rules).
---------------------------------------------------------------------------

     Total number of reports that are not submitted or 
submitted late;
     The timeframe over which the violations occur;
     Whether violations are batched;
     Whether the violations are the result of the actions of 
one individual or the result of faulty systems or procedures;
     Whether the firm has taken remedial measures to correct 
the violations;
     Prior minor rule violations within the past 24 months;
     Collateral effects that the failure has on customers; and
     Collateral effects that the failure has on the Exchange's 
ability to perform its regulatory function.\10\
---------------------------------------------------------------------------

    \10\ See id.
---------------------------------------------------------------------------

    Upon effectiveness of this rule change, the Exchange will publish a 
regulatory bulletin notifying its Members and/or Options Members of the 
rule change and the specific factors that will be considered in 
connection with assessing minor rule fines described above.
    For the foregoing reasons, the Exchange believes that the proposed 
rule change will result in a coordinated, harmonized approach to CAT 
Compliance Rule enforcement across Plan Participants that will be 
consistent with the approach FINRA has taken with the CAT rules.
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.
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(5).
    \13\ Id.
---------------------------------------------------------------------------

    Minor rule fines provide a meaningful sanction for minor or 
technical violations of rules when the conduct at issue does not 
warrant stronger, immediately reportable disciplinary sanctions. The 
inclusion of a rule in the Exchange's MRVP does not minimize the 
importance of compliance with the rule, nor does it preclude the 
Exchange from choosing to pursue violations of eligible rules through a 
letter of consent if the nature of the violations or prior disciplinary 
history warrants more significant sanctions. Rather, the Exchange 
believes that the proposed rule change will strengthen the Exchange's 
ability to carry out its oversight and enforcement responsibilities in 
cases where full disciplinary proceedings are unwarranted in view of 
the minor nature of the particular violation. The Exchange believes the 
option to impose a minor rule sanction gives the Exchange additional 
flexibility to administer its enforcement program in the most effective 
and efficient manner while still fully meeting the Exchange's remedial 
objectives in addressing violative conduct.\14\ Specifically, the 
proposed rule change is designed to prevent fraudulent and manipulative 
acts and practices because it will provide the Exchange the ability to 
issue a minor rule fine for violations of the CAT Compliance Rules in 
Rules 4.5 through 4.16 where a more formal disciplinary action may not 
be warranted or appropriate consistent with the approach of other Plan 
Participants for the same conduct.
---------------------------------------------------------------------------

    \14\ Pursuant to Rule 8.15(a) and (e) and Rule 25.3, the 
Exchange has the discretion to impose a fine in lieu of commencing a 
disciplinary proceeding for a violation that is minor in nature. 
Rule 8.15(e) states specifically that nothing in Rule 8.15 requires 
the Exchange to impose a fine pursuant to Rule 8.15 with respect to 
the violation of any Rule included in any such listing. Rule 25.3 
states specifically that the Exchange is not required to proceed 
under said Rules as to any rule violation and may, whenever such 
action is deemed appropriate, commence a disciplinary proceeding 
under Chapter VIII (Discipline) rules as to any such violation.
---------------------------------------------------------------------------

    In connection with the fine level specified in the proposed rule 
change, adding proposed Rules 8.15.01(i) and 25.3(g) to specifically 
provide that for violations of the CAT Compliance Rules in Rules 4.5 
through 4.16 the Exchange may impose a fine not to exceed $2,500 would 
further the goal of transparency within the Exchange's rules. Adopting 
the same cap as FINRA for minor rule fines in connection with the CAT 
Compliance Rules would also promote regulatory consistency across self-
regulatory organizations.
    The Exchange further believes that the proposed amendments to Rule 
8.15.01 and Rule 25.3 are consistent with Section 6(b)(6) of the 
Act,\15\ which provides that members and persons associated with 
members shall be appropriately disciplined for violation of the 
provisions of the rules of the

[[Page 42953]]

exchange, by expulsion, suspension, limitation of activities, 
functions, and operations, fine, censure, being suspended or barred 
from being associated with a member, or any other fitting sanction. As 
noted, the proposed rule change would provide the Exchange (both BZX 
Equities and BZX Options) the ability to sanction minor or technical 
violations of Rules 4.5 through 4.16 pursuant to the Exchange's rules.
---------------------------------------------------------------------------

    \15\ 15 U.S.C. 78f(b)(6).
---------------------------------------------------------------------------

    Finally, the Exchange also believes that the proposed change is 
designed to provide a fair procedure for the disciplining of members 
and persons associated with members, consistent with Sections 6(b)(7) 
and 6(d) of the Act.\16\ Rule 8.15 does not preclude a Member, 
associated person of a Member, or registered or non-registered employee 
of a Member, and Rule 25.3 does not preclude an Options Member, 
associated person of an Options Member, or registered or non-registered 
employee of an Options Member, from contesting an alleged violation and 
receiving a hearing on the matter with the same procedural rights 
through a litigated disciplinary proceeding.
---------------------------------------------------------------------------

    \16\ 15 U.S.C. 78f(b)(7) and 78f(d).
---------------------------------------------------------------------------

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 intended to address competitive issues but rather is concerned 
solely with making the CAT Compliance Rules in Rules 4.5 through 4.16 
eligible for a minor rule fine disposition, thereby strengthening the 
Exchange's ability to carry out its oversight and enforcement functions 
and deter potential violative conduct. Also, as stated above, the 
proposed rule change is consistent with similar proposals recently 
filed by FINRA and NYSE, and other Plan Participants intend to submit 
the same.

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. 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-2020-056 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-2020-056. 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-2020-056 and should be submitted 
on or before August 5, 2020.

IV. Commission's Findings and Order Granting Accelerated Approval of 
Proposed Rule Change

    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to a national securities exchange.\17\ In 
particular, the Commission finds that the proposed rule change is 
consistent with Section 6(b)(5) of the Act,\18\ which requires that the 
rules of an exchange be designed to promote just and equitable 
principles of trade, to remove impediments and to perfect the mechanism 
of a free and open market and a national market system, and, in 
general, to protect investors and the public interest. The Commission 
also believes that the proposal is consistent with Sections 6(b)(1) and 
6(b)(6) of the Act \19\ which require that the rules of an exchange 
enforce compliance with, and provide appropriate discipline for, 
violations of Commission and Exchange rules. Finally, the Commission 
finds that the proposal is consistent with the public interest, the 
protection of investors, or otherwise in furtherance of the purposes of 
the Act, as required by Rule 19d-1(c)(2) under the Act,\20\ which 
governs minor rule violation plans.
---------------------------------------------------------------------------

    \17\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \18\ 15 U.S.C. 78f(b)(5).
    \19\ 15 U.S.C. 78f(b)(1) and 78f(b)(6).
    \20\ 17 CFR 240.19d-1(c)(2).
---------------------------------------------------------------------------

    As stated above, the Exchange proposes to add the CAT Compliance 
Rules to the list of minor rule violations in Rules 8.15 and 25.3 to be 
consistent with the approach FINRA has taken for minor violations of 
its corresponding CAT Compliance Rules.\21\ The Commission has already 
approved FINRA's treatment of CAT Compliance Rules violations when it 
approved the addition of CAT Compliance Rules to FINRA's MRVP.\22\ As 
noted in that order, and similarly herein, the Commission believes that 
Exchange's treatment of CAT Compliance Rules violations as part of its 
MRVP provides a reasonable means of addressing violations that do not 
rise to the level of requiring formal disciplinary proceedings, while 
providing greater flexibility in handling certain violations. However, 
the Commission expects that, as with FINRA, the Exchange will continue 
to conduct surveillance with

[[Page 42954]]

due diligence and make determinations based on its findings, on a case-
by-case basis, regarding whether a sanction under the rule is 
appropriate, or whether a violation requires formal disciplinary 
action. Accordingly, the Commission believes the proposal raises no 
novel or significant issues.
---------------------------------------------------------------------------

    \21\ As discussed above, the Exchange has entered into a Rule 
17d-2 Plan and an RSA with FINRA with respect to the CAT Compliance 
Rules. The Commission notes that, unless relieved by the Commission 
of its responsibility, as may be the case under the Rule 17d-2 Plan, 
the Exchange continues to bear the responsibility for self-
regulatory conduct and liability for self-regulatory failures, not 
the self-regulatory organization retained to perform regulatory 
functions on the Exchange's behalf pursuant to an RSA. See 
Securities Exchange Release No. 61419 (January 26, 2010), 75 FR 5157 
(February 1, 2010) (SR-BATS-2009-031), note 93 and accompanying 
text.
    \22\ See supra note 7.
---------------------------------------------------------------------------

    For the same reasons discussed above, the Commission finds good 
cause, pursuant to Section 19(b)(2) of the Act,\23\ for approving the 
proposed rule change prior to the thirtieth day after the date of 
publication of the notice of the filing thereof in the Federal 
Register. The proposal merely adds the CAT Compliance Rules to the 
Exchange's MRVP and harmonizes its application with FINRA's application 
of CAT Compliance Rules under its own MRVP. Accordingly, the Commission 
believes that a full notice-and-comment period is not necessary before 
approving the proposal.
---------------------------------------------------------------------------

    \23\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the Act 
\24\ and Rule 19d-1(c)(2) thereunder,\25\ that the proposed rule change 
(SR-CboeBZX-2020-056) be, and hereby is, approved on an accelerated 
basis.
---------------------------------------------------------------------------

    \24\ 15 U.S.C. 78s(b)(2).
    \25\ 17 CFR 240.19d-1(c)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\26\
---------------------------------------------------------------------------

    \26\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-15210 Filed 7-14-20; 8:45 am]
BILLING CODE 8011-01-P


