2020-07649. 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  

  • Start Preamble 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.

    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]

    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.

    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 Start Printed Page 20554by 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.

    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.

    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 Start Printed Page 20555quarter, 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]

    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]

    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

    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.

    Start Signature
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    For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.[15]

    J. Matthew DeLesDernier,

    Assistant Secretary.

    End Signature End Preamble

    Footnotes

    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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    4.  See Securities Exchange Act Release No. 73639 (November 19, 2014), 79 FR 72252 (December 5, 2014) (“SCI Adopting Release”).

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    8.  See supra note 5.

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    9.  See supra note 6.

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    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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    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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    [FR Doc. 2020-07649 Filed 4-10-20; 8:45 am]

    BILLING CODE 8011-01-P

Document Information

Published:
04/13/2020
Department:
Securities and Exchange Commission
Entry Type:
Notice
Document Number:
2020-07649
Pages:
20553-20556 (4 pages)
Docket Numbers:
Release No. 34-88577, File No. SR-C2-2020-003
PDF File:
2020-07649.Pdf