[Federal Register Volume 87, Number 12 (Wednesday, January 19, 2022)]
[Notices]
[Pages 2961-2963]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-00876]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-93963; File Nos. SR-CboeBYX-2021-027; SR-CboeBZX-2021-
076; SR-CboeEDGA-2021-024; SR-CboeEDGX-2021-048]


Self-Regulatory Organizations; Cboe BYX Exchange, Inc.; Cboe BZX 
Exchange, Inc.; Cboe EDGA Exchange, Inc.; Cboe EDGX Exchange, Inc.; 
Order Granting Approval of Proposed Rule Changes To Amend Each 
Exchange's Rules in Connection With a Risk Setting That Users May Elect 
To Apply to Their Orders in Hard To Borrow Securities

January 12, 2022.

I. Introduction

    On November 8, 2021, Cboe BYX Exchange, Inc. (``CboeBYX'') and Cboe 
BZX Exchange, Inc. (``CboeBZX''), and on November 18, 2021, Cboe EDGA 
Exchange, Inc. (``CboeEDGA'') and Cboe EDGX Exchange, Inc. 
(``CboeEDGX,'' and collectively, the ``Exchanges''), each filed with 
the Securities and Exchange Commission (``Commission''), pursuant to 
Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\ 
and Rule 19b-4 thereunder,\2\ a proposed rule change to allow each 
Exchange to offer its Users \3\ a hard to borrow risk setting

[[Page 2962]]

(``Hard to Borrow List'') that Users may elect to apply to their short 
sale orders in U.S. equity securities. The proposed rule changes were 
published for comment in the Federal Register on November 29, 2021.\4\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ A User is any Member or Sponsored Participant who is 
authorized to obtain access to the System. See Cboe BYX Rule 
1.5(cc); Cboe BZX Rule 1.5(cc); Cboe EDGA Rule 1.5(ee); and Cboe 
EDGX Rule 1.5(ee).
    \4\ See Securities Exchange Act Release Nos. 93638 (November 22, 
2021), 86 FR 67767 (SR-CboeBYX-2021-027) (``BYX Notice''); 93641 
(November 22, 2021), 86 FR 67763 (SR-CboeBZX-2021-076) (``BZX 
Notice''); 93642 (November 22, 2021), 86 FR 67765 (SR-CboeEDGA-2021-
024) (``EDGA Notice''); and 93643 (November 22, 2021), 86 FR 67774 
(SR-CboeEDGX-2021-048) (``EDGX Notice''). The proposed rule changes 
are nearly identical.
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    The Commission has received no comments on the proposed rule 
changes. This order approves the proposed rule changes.

II. Description of the Proposed Rule Changes

    The Exchanges propose to include a Hard to Borrow List within their 
risk settings. The Exchanges currently offer certain optional risk 
settings applicable to a User's activities on the Exchange.\5\ These 
risk settings currently provide Users with controls to restrict the 
types of securities transacted, including restricted securities and 
easy to borrow securities, as well as restricting activity to test 
symbols only.\6\
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    \5\ See Interpretation and Policy .01 to CboeBYX Rule 11.13; 
Interpretation and Policy .01 to CboeBZX Rule 11.13; Interpretation 
and Policy .01 to CboeEDGA Rule 11.10; and Interpretation and Policy 
.01 to CboeEDGX Rule 11.10.
    \6\ See BYX Notice at 67767; BZX Notice at 67764; EDGA Notice at 
67765; and EDGX Notice at 67775.
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    According to the Exchanges, when utilized, these optional risk 
tools act as a risk filter by evaluating a User's orders to determine 
whether the orders comply with certain criteria established by the 
User.\7\ The proposal will offer Users an optional tool to evaluate 
whether their orders comply with User established criteria.\8\ 
Specifically, orders submitted in securities included on a User's Hard 
to Borrow List will be rejected back to the User.\9\ The Hard to Borrow 
List resides at a User's port level, a User-specific logical session 
used to access the Exchange.\10\ Users may upload a Hard to Borrow List 
to their preferred port(s) via a web-based application programming 
interface.\11\ When uploaded to the port, Users may apply the setting 
to some or all of the market-participant identifiers (MPID) that they 
use to access the Exchange via the specified port.\12\
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    \7\ Id.
    \8\ Id.
    \9\ Id.
    \10\ Id.
    \11\ Id.
    \12\ Id.
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    The Exchanges state that, as is the case with the Exchanges' 
existing risk settings, the User, and not the Exchange, will have the 
full responsibility for ensuring that their orders comply with 
applicable securities rules, laws, and regulations, and may not rely on 
the Hard to Borrow List for any such purpose.\13\ Furthermore, use of 
the Hard to Borrow List does not automatically constitute compliance 
with Exchange Rules.\14\ The Exchanges state that they do not believe 
that the use of the Hard to Borrow List can replace User-managed risk 
management solutions.\15\
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    \13\ See BYX Notice at 67767; BZX Notice at 67764; EDGA Notice 
at 67765; and EDGX Notice at 67775 (citing Securities and Exchange 
Act Release No. 50103 (July 28 2004), 69 FR 48007 (August 6, 2004) 
(Final Rule: Short Sales) at 48014, regarding hard to borrow lists 
and the locate requirements under 17 CFR 242.203 (Regulation SHO 
Rule 203--Borrowing and delivery requirements)).
    \14\ See BYX Notice at 67767; BZX Notice at 67764; EDGA Notice 
at 67766; and EDGX Notice at 67775.
    \15\ Id.
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    The Exchanges propose to make the risk setting available to their 
Users upon request and will not require Users to utilize the Hard to 
Borrow List.\16\ The Exchanges also state that they will not provide 
preferential treatment to Users using the Hard to Borrow List.\17\
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    \16\ Id.
    \17\ Id.
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    In support of the proposal, the Exchanges assert the Hard to Borrow 
List will offer Users another option in efficient risk management of 
their access to the Exchange.\18\ For example, the Exchanges state the 
Hard to Borrow List may assist some Users in managing borrowing costs 
for their short sale transactions.\19\ According to the Exchanges, day 
over day borrowing costs in hard to borrow securities may be costly, 
and while a locate may be secured by a User prior to routing their 
short sale transactions to one of the Exchanges, borrowing costs may 
make such transactions less desirable.\20\ The Exchanges state by 
utilizing the Hard to Borrow List, Users have a tool that enables them 
to manage their costs by rejecting orders in such securities.\21\
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    \18\ Id.
    \19\ Id.
    \20\ Id.
    \21\ Id.
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III. Discussion and Commission Findings

    After careful review of the proposals, the Commission finds that 
the proposed rule changes are consistent with the requirements of the 
Act and the rules and regulations thereunder applicable to a national 
securities exchange.\22\ In particular, the Commission finds that the 
proposed rule changes are consistent with Section 6(b)(5) of the 
Act,\23\ which requires, among other things, that the Exchanges' rules 
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 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.
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    \22\ In approving the proposed rule changes, the Commission 
notes that it has considered the proposed rules' impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
    \23\ 15 U.S.C. 78f(b)(5).
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    The Commission believes that the proposed rule changes are 
reasonably designed to provide a useful risk management tool to Users 
on the Exchanges. Adding a Hard to Borrow List could allow Users on the 
Exchanges to better manage borrowing costs for such securities. The 
Exchanges currently provide risk controls restricting certain 
transactions by symbol,\24\ and the Commission believes that the 
proposed rule change would provide an additional option for Users 
seeking to further tailor their risk management capability while 
transacting on the Exchanges.
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    \24\ See, e.g., Interpretation and Policy .01 to CboeBYX Rule 
11.13(d); Interpretation and Policy .01 to CboeBZX Rule 11.13(d); 
Interpretation and Policy .01 to CboeEDGA Rule 11.10(d); and 
Interpretation and Policy .01 to CboeEDGX Rule 11.10(d).
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    The Commission notes that the proposed Hard to Borrow List is an 
optional functionality. The Commission reminds Users electing to use 
the proposed risk control to be mindful of their obligations under all 
applicable securities laws, rules, and regulations and emphasizes that 
the proposed risk control is not a substitute for a Users' own systems, 
processes, and procedures for compliance with such laws, rules, and 
regulations. The Commission expects the Exchanges to periodically 
assess whether its risk control settings are operating in a manner that 
is consistent with the promotion of fair and orderly markets.
    For the foregoing reasons, the Commission finds that the proposal 
is consistent with the requirements of the Act.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the Act 
\25\ that the proposed rule changes (SR-CboeBYX-2021-027, SR-CboeBZX-
2021-076, SR-CboeEDGA-2021-024, SR-CboeEDGX-

[[Page 2963]]

2021-048), be, and hereby are, approved.
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    \25\ 15 U.S.C. 78f(b)(5).
    \26\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\26\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-00876 Filed 1-18-22; 8:45 am]
BILLING CODE 8011-01-P


