[Federal Register Volume 86, Number 18 (Friday, January 29, 2021)]
[Notices]
[Pages 7580-7582]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-01942]



[[Page 7580]]

=======================================================================
-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90986; File No. SR-CBOE-2021-004]


Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
Rule 5.24

January 25, 2021.
    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 14, 2021, 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.
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

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

Text of the Proposed Rule Change

    (a) Cboe Exchange, Inc. (the ``Exchange'' or ``Cboe Options'') 
proposes to amend Rule 5.24. The text of the proposed rule change is 
provided below.
    (additions are italicized; deletions are [bracketed])
* * * * *

Rules of Cboe Exchange, Inc.

* * * * *

Rule 5.24. Disaster Recovery

    (a)-(d) No change.
    (e) Loss of Trading Floor. If the Exchange trading floor becomes 
inoperable and the Exchange does not make a virtual trading floor 
available in a class pursuant to subparagraph (3) below, the 
Exchange will continue to operate in a screen-based only environment 
using a floorless configuration of the System that is operational 
while the trading floor facility is inoperable. The Exchange will 
operate using this configuration only until the Exchange's trading 
floor facility is operational. Open outcry trading will not be 
available in the event the trading floor becomes inoperable, except 
as otherwise set forth in this paragraph (e) below and pursuant to 
Rule 5.26, as applicable.
    (1) Applicable Rules. In the event that the trading floor 
becomes inoperable, trading will be conducted pursuant to all 
applicable System Rules, except that open outcry Rules will not be 
in force, including but not limited to the Rules (or applicable 
portions of the Rules) in Chapter 5, Section G, and as follows 
(subparagraphs (A) through ([D]C) will be effective until [December 
31, 2020]June 30, 2021):
* * * * *

    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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend Rule 5.24 regarding the Exchange's 
business continuity and disaster recovery plans. Rule 5.24 describes 
which Trading Permit Holders (``TPHs'') are required to connect to the 
Exchange's backup systems as well as certain actions the Exchange may 
take as part of its business continuity plans so that it may maintain 
fair and orderly markets if unusual circumstances occurred that could 
impact the Exchange's ability to conduct business. This includes what 
actions the Exchange would take if its trading floor became inoperable. 
Specifically, Rule 5.24(e) states if the Exchange trading floor becomes 
inoperable and the Exchange does not make a virtual trading floor 
available in a class pursuant to Rule 5.24(e)(3), the Exchange will 
continue to operate in a screen-based only environment using a 
floorless configuration of the System that is operational while the 
trading floor facility is inoperable. The Exchange would operate using 
that configuration only until the Exchange's trading floor facility 
became operational. Open outcry trading would not be available in the 
event the trading floor becomes inoperable.\5\
---------------------------------------------------------------------------

    \5\ Pursuant to Rule 5.26, the Exchange may enter into a back-up 
trading arrangement with another exchange, which could allow the 
Exchange to use the facilities of a back-up exchange to conduct 
trading of certain of its products. The Exchange currently has no 
back-up trading arrangement in place with another exchange.
---------------------------------------------------------------------------

    Rule 5.24(e)(1) currently states in the event that the trading 
floor becomes inoperable, trading will be conducted pursuant to all 
applicable System Rules, except that open outcry Rules would not be in 
force, including but not limited to the Rules (or applicable portions) 
in Chapter 5, Section G,\6\ and that all non-trading rules of the 
Exchange would continue to apply. The Exchange recently adopted several 
rule changes that would apply during a time in which the trading floor 
in inoperable, which are currently effective until December 31, 
2020.\7\ The Exchange believes these rules were necessary to implement 
to maintain a fair and orderly market while the trading floor was not 
operable in order to create an all-electronic trading environment 
similar to the otherwise unavailable open outcry trading environment.
---------------------------------------------------------------------------

    \6\ Chapter 5, Section G of the Exchange's rulebook sets forth 
the rules and procedures for manual order handling and open outcry 
trading on the Exchange.
    \7\ See Securities Exchange Act Release Nos. 88386 (March 13, 
2020), 85 FR 15823 (March 19, 2020) (SR-CBOE-2020-019); 88447 (March 
20, 2020), 85 FR 17129 (March 26, 2020) (SR-CBOE-2020-023); 88490 
(March 26, 2020), 85 FR 18318 (April 1, 2020) (SR-CBOE-2020-026); 
88530 (March 31, 2020), 85 FR 19182 (April 6, 2020) (SR-CBOE-2020-
031); 88886 (May 15, 2020), 85 FR 31008 (May 21, 2020) (SR-CBOE-
2020-047); 89307 (July 14, 2020), 85 FR 43938 (July 20, 2020) (SR-
CBOE-2020-066); 89789 (September 8, 2020), 85 FR 56658 (September 
14, 2020) (SR-CBOE-2020-081); and 90174 (October 14, 2020), 85 FR 
66617 (October 20, 2020) (SR-CBOE-2020-092). The Exchange recently 
adopted permanent Position Compression Cross (``PCC'')/Compression 
orders and deleted subparagraph (D), pursuant to which the Exchange 
could offer PCC/Compression orders in the even the trading floor was 
inoperable. See Securities Exchange Act Release No. 90179 (October 
14, 2020), 85 FR 66590 (October 20, 2020) (SR-CBOE-2020-074). In the 
rule filing to permanently adopt PCC/Compression orders, the 
Exchange deleted the temporary version of compression orders in 
subparagraph (E) in its entirety (which was later relettered to 
subparagraph (D) pursuant to a separate rule filing that deleted the 
prior subparagraph (D)), but inadvertently did not change the 
applicability of subparagraph (e)(1) to subparagraphs (A) through 
(C) rather than (A) through (D). Therefore, the proposed rule change 
makes this update.
---------------------------------------------------------------------------

    As of March 16, 2020, the Exchange suspended open outcry trading to 
help prevent the spread of COVID-19.\8\ The

[[Page 7581]]

trading floor remained closed until June 15, 2020. During the time when 
the trading floor was closed, the Exchange operated in an all-
electronic trading environment and the temporary rules in Rule 
5.24(e)(1) applied to that electronic trading environment. The Exchange 
believes that, while those temporary rules did not fully replicate open 
outcry trading, they allowed all-electronic trading to occur more 
similarly to open outcry trading. The Exchange has continued to 
consider other enhancements to the all-electronic trading configuration 
to further replicate the open outcry trading environment. As part of 
those enhancements, the Exchange recently adopted Rule 5.24(e)(3), 
which would permit the Exchange to make available a virtual trading 
floor in one or more classes if the trading floor became inoperable. 
That rule provides that if the Exchange makes a virtual trading floor 
available in a class, the temporary rules in subparagraph (e)(1) above 
will not apply to that class.
---------------------------------------------------------------------------

    \8\ On March 11, 2020, the World Health Organization 
characterized COVID-19 as a pandemic and to slow the spread of the 
disease, federal and state officials implemented social-distancing 
measures, placed significant limitations on large gatherings, 
limited travel, and closed non-essential businesses.
---------------------------------------------------------------------------

    The trading floor is currently open for open outcry trading, and 
the Exchange is operating pursuant to its normal hybrid trading rules. 
The Exchange implemented numerous health and safety measures in 
connection with the reopening of the trading floor on June 15, 2020 to 
help protect the safety and welfare of the trading floor community and 
help prevent the continued spread of COVID-19.\9\ However, the Exchange 
recognizes the ongoing nature of the COVID-19 pandemic in the United 
States, which may cause the Exchange to once again close its trading 
floor. In the event the Exchange did close its trading floor again, the 
Exchange believes it would be necessary to operate in an all-electronic 
trading environment. The Exchange may determine to make a virtual 
trading floor available in some or all classes. However, to the extent 
the virtual trading is unavailable in any class, the Exchange believes 
it would be necessary again to apply the adopted temporary rules in 
Rule 5.24(e)(1) in that class to maintain a fair and orderly market 
while the trading floor was not operable in order to create an all-
electronic trading environment for that class similar to the otherwise 
unavailable open outcry trading environment. As noted above, Rule 
5.24(e)(1) is currently effective only until December 31, 2020 (and the 
rules became inapplicable upon the reopening of the trading floor on 
June 15, 2020). Given the Exchange may believe it is appropriate to 
close the trading floor with little advanced notice and in a short 
timeframe to help protect the safety and welfare of the trading floor 
community, the Exchange proposes to extend the effectiveness of the 
temporary rules in Rule 5.24(e)(1) to June 30, 2021 (unless further 
extended). The Exchange believes this will permit the Exchange to as 
seamlessly as possible transition back to an all-electronic trading 
environment in any class in which the Exchange did not make a virtual 
trading floor available. The Exchange notes Rule 5.24(e)(1) will not 
apply to trading during times when the trading floor remains operable 
or to any class in which the Exchange makes a virtual trading floor 
available when the trading floor is inoperable.
---------------------------------------------------------------------------

    \9\ See Exchange Notice C2020052601, Standards of Conduct 
related to the Reopening of the Cboe Options Trading Floor and 
COVID-19 (May 26, 2020), available at https://cdn.cboe.com/resources/release_notes/2020/Standards-of-Conduct-related-to-the-Reopening-of-the-Cboe-Options-Trading-Floor-Notice-Final.pdf.
---------------------------------------------------------------------------

    Previously when the temporary provisions of Rule 5.24(e)(1) were in 
place, the Exchange's Regulatory Division has continued its standard 
routine surveillance reviews for electronic trading and implemented a 
regulatory plan to surveil the rules in place in Rule 5.24(e)(1) when 
operating in a screen-based only environment. In the event the Exchange 
closes its trading floor again and the temporary provisions in Rule 
5.24(e)(1) become applicable to any class in an all-electronic trading 
environment, the Exchange's Regulatory Division would reimplement that 
regulatory plan to surveil those 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.\10\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \11\ 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) \12\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(5).
    \12\ Id.
---------------------------------------------------------------------------

    In particular, the Exchange believes the proposed rule change will 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system, and, in general, protect investors 
and the public interest by permitting the Exchange to as seamlessly as 
possible transition back to an all-electronic trading environment in 
the event the Exchange determines it is appropriate to again close its 
trading floor. The Exchange expects it would take this action if it 
believes necessary and appropriate to help protect the safety and 
welfare of the trading community. Such a determination may occur with 
little advance notice, and closure of the trading floor may need to 
occur in a short time frame. The Exchange continues to believe the 
recent amendments to Rule 5.24(e)(1) allowed all-electronic trading to 
occur more similarly to open outcry trading while the trading floor was 
closed. The Exchange believes the proposed rule change is necessary and 
appropriate to provide TPHs with execution opportunities in an all-
electronic trading environment in which a virtual trading floor is 
unavailable for orders that generally execute in open outcry trading. 
Rule 5.24(e)(3), which would permit the Exchange to make available a 
virtual trading floor in one or more classes if the trading floor 
became inoperable, provides that if the Exchange makes a virtual 
trading floor available in a class, the temporary rules in subparagraph 
(e)(1) will not apply to that class. The proposed rule change will 
provide investors with definitive knowledge of what rules will apply 
when the trading floor is closed (and a virtual trading floor is not 
available).

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 as a competitive filing, but rather extends the 
effectiveness of temporary rules as part of the Exchange's business 
continuity plans, which are intended to allow the Exchange to continue 
to maintain fair and orderly markets while

[[Page 7582]]

the Exchange's trading floor continues to be inoperable.

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 \13\ and Rule 19b-
4(f)(6) thereunder.\14\
---------------------------------------------------------------------------

    \13\ 15 U.S.C. 78s(b)(3)(A).
    \14\ 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.
---------------------------------------------------------------------------

    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act \15\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \16\ 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 operative immediately. The Exchange 
believes extension of the temporary rules put in place due to the 
ongoing COVID-19 pandemic will permit the Exchange to minimize 
disruptions in the market during a transition back to an all-electronic 
trading environment if the Exchange believes it is necessary and 
appropriate to help protect the safety and welfare of the trading 
community and did not make a virtual trading floor available. The 
Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest as 
it will allow the temporary rules to continue with minimal 
interruption, thereby avoiding investor confusion that could result 
from an interruption in the effectiveness of the rules. Accordingly, 
the Commission hereby waives the operative delay and designates the 
proposed rule change operative upon filing.\17\
---------------------------------------------------------------------------

    \15\ 17 CFR 240.19b-4(f)(6).
    \16\ 17 CFR 240.19b-4(f)(6)(iii).
    \17\ 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).
---------------------------------------------------------------------------

    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-2021-004 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-2021-004. 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-2021-004 and should be submitted on 
or before February 19, 2021.
---------------------------------------------------------------------------

    \18\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-01942 Filed 1-28-21; 8:45 am]
BILLING CODE 8011-01-P


