83 FR 14096 - Self-Regulatory Organizations; Cboe C2 Exchange, Inc.; Notice of Filing and Order Granting Accelerated Approval of a Proposed Rule Change Concerning an Affiliation Between the Exchange and Cboe Trading and To Adopt Rules To Permit Inbound Routing by Cboe Trading
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 83, Issue 63 (April 2, 2018)
Federal Register Volume 83, Issue 63 (April 2, 2018)
| Page Range | 14096-14098 | |
| FR Document | 2018-06570 |
[Federal Register Volume 83, Number 63 (Monday, April 2, 2018)] [Notices] [Pages 14096-14098] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2018-06570] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-82952; File No. SR-C2-2018-004] Self-Regulatory Organizations; Cboe C2 Exchange, Inc.; Notice of Filing and Order Granting Accelerated Approval of a Proposed Rule Change Concerning an Affiliation Between the Exchange and Cboe Trading and To Adopt Rules To Permit Inbound Routing by Cboe Trading March 27, 2018 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 12, 2018, Cboe C2 Exchange, Inc. (the ``Exchange'' or ``C2 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 Commission is publishing this notice to solicit comments on the proposed rule change from interested persons and, for the reasons discussed below, is 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 The Exchange proposes to adopt rules related to the inbound router for C2 Options. The text of the proposed rule change is also available on the Exchange's website (http://www.c2exchange.com/Legal/), 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 seeks: (1) To adopt Rule 3.18 to govern the Exchange's receipt of inbound options orders from the Exchange's affiliate broker- dealer, Cboe Trading, Inc. (``Cboe Trading''), on behalf of the Exchange's affiliate options exchanges, Cboe EDGX Exchange, Inc. (``EDGX Options'') and Cboe BZX Exchange, Inc. (``BZX Options) and (2) approval from the Securities and Exchange Commission (the ``Commission'') pursuant to Rule 3.2(f) for affiliate Cboe Trading to become a Trading Permit Holder of the Exchange. Proposed Rule 3.18 is based on EDGX Options Rule 2.12. Pursuant to proposed Rule 3.18, Cboe Trading's inbound routing services from EDGX Options and BZX Options to the Exchange would be subject to the following conditions and limitations: (1) The Exchange must enter into (a) a plan pursuant to Rule 17d-2 under the Exchange Act with a non- affiliated self-regulatory organization \3\ and (b) a regulatory services contract with a non-affiliated SRO to perform regulatory responsibilities for Cboe Trading for unique Exchange rules. (2) The regulatory services contract must require the Exchange to provide the non-affiliated self-regulatory organization with information, in an easily accessible manner, regarding all exception reports, alerts, complaints, trading errors, cancellations, investigations, and enforcement matters (collectively, ``Exceptions'') in which Cboe Trading is identified as a participant that has potentially violated Exchange or Commission rules, and shall require that the non-affiliated self-regulatory organization provide a report to the Exchange quantifying all such exception reports, alerts, complaints, trading errors, cancellations, investigations and enforcement matters on not less than a quarterly basis. (3) The Exchange, on behalf of its parent company, Cboe Global Markets, must establish and maintain procedures and internal controls reasonably designed to ensure that Cboe Trading does not develop or implement changes to its systems on the basis of nonpublic information obtained as a result of its affiliation with the Exchange until such information is available generally to similarly situated Trading Permit Holders of the Exchange. --------------------------------------------------------------------------- \3\ The Exchange will ensure a 17d-2 plan is in place prior to offering inbound routing from Cboe Trading. --------------------------------------------------------------------------- The Exchange will comply with the above-listed conditions prior to offering inbound routing from Cboe Trading. In meeting the conditions, the Exchange will have mechanisms in place to protect the independence of the Exchange's regulatory responsibility with respect to Cboe Trading, as well as demonstrate that Cboe Trading cannot use any information that it may have because of its affiliation with the Exchange to its advantage. Exchange Rule 3.2(f) provides that without prior Commission approval, no Trading Permit Holder may be or become affiliated with the Exchange. The Exchange seeks Commission approval for Exchange affiliate Cboe Trading to become a Trading Permit Holder of the Exchange pursuant to Rule 3.2(f). 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.\4\ Specifically, the Exchange believes the proposed rule change is consistent with the Section 6(b)(5) \5\ 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) \6\ requirement that the rules of an exchange not be designed to permit unfair discrimination between customers, issuers, brokers, or dealers. --------------------------------------------------------------------------- \4\ 15 U.S.C. 78f(b). \5\ 15 U.S.C. 78f(b)(5). \6\ Id. --------------------------------------------------------------------------- In particular, the Exchange believes that the rule change promotes the maintenance of a fair and orderly [[Page 14097]] market, the protection of investors and the public interest, and is in the best interests of the Exchange and its Trading Permit Holders as it will allow the routing of orders from affiliated exchanges, BZX Options and EDGX Options, to the Exchange. Moreover, in meeting the requirements of Rule 3.18 (i.e., the 17d-2 plan, the regulatory services contract, and procedures and internal controls) the Exchange believes it will have mechanisms in place that protect the independence of the Exchange's regulatory responsibility with respect to Cboe Trading, as well as demonstrates that Cboe Trading cannot use any information that it may have because of its affiliation with the Exchange to its advantage. B. Self-Regulatory Organization's Statement on Burden on Competition C2 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 does not believe the proposed rule change will impose any burden on intramarket or intermarket competition that is not necessary or appropriate in furtherance of Act as the proposed rule is based on EDGX Options Rule 2.12 and BZX Options Rule 2.12 [sic], which allow [sic] EDGX Options and BZX Options to receive orders from affiliate Cboe Trading on behalf of affiliate exchanges. Moreover, the requirements of Rule 3.18 (i.e., the 17d-2 plan, the regulatory services contract, and procedures and internal controls) help to prevent an unfair burden on competition and unfair discrimination between customers, issuers, brokers, or dealers. 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 CommentsUse 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-C2-2018-004 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-C2-2018-004. 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-C2-2018-004, and should be submitted on or before April 23, 2018. IV. Commission's Findings and Order Granting Accelerated Approval of Proposed Rule Change After careful review, 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.\7\ In particular, the Commission finds that the proposed rule change is consistent with Section 6(b)(1) of the Act,\8\ which requires, among other things, that a national securities exchange be so organized and have the capacity to carry out the purposes of the Act, and to comply and enforce compliance by its members and persons associated with its members, with the provisions of the Act, the rules and regulation thereunder, and the rules of the Exchange. Further, the Commission finds that the proposed rule change is consistent with Section 6(b)(5) of the Act,\9\ which requires, among other things, that the rules of a national securities 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. Section 6(b)(5) also requires that the rules of an exchange not be designed to permit unfair discrimination among customers, issuers, brokers, or dealers. --------------------------------------------------------------------------- \7\ 15 U.S.C. 78f(b). 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). \8\ 15 U.S.C. 78f(b)(1). \9\ 15 U.S.C. 78f(b)(5). --------------------------------------------------------------------------- Recognizing that the Commission has previously expressed concern regarding the potential for conflicts of interest in instances where a member firm is affiliated with an exchange to which it is routing orders, the Exchange has proposed limitations and conditions to Cboe Trading's affiliation with the Exchange to permit the Exchange to accept routed orders that Cboe Trading would route in its capacity as a facility of C2. Specifically, as detailed above, the Exchange committed to the following limitations and conditions: The Exchange shall enter into a plan pursuant to Rule 17d- 2 under the Act with a non-affiliated self-regulatory organization (``SRO'') and ensure that such plan is operative before offering routing services through Cboe Trading. The 17d-2 plan will relieve the Exchange of regulatory responsibilities with respect to Cboe Trading for rules that are common rules between the Exchange and the non- affiliated SRO. In addition, the Exchange shall enter into a regulatory services agreement (``RSA'') with a non-affiliated SRO to perform regulatory responsibilities for Cboe Trading for unique Exchange rules that are not common rules under the 17d-2 plan. The RSA shall require the Exchange to provide the non- affiliated SRO with information, in an easily accessible manner, regarding all exception reports, alerts, complaints, trading errors, cancellations, investigations, and enforcement matters (collectively [[Page 14098]] ``Exceptions'') in which Cboe Trading is identified as a participant that has potentially violated Exchange or Commission rules, and shall require that the non-affiliated SRO provide a report, at least quarterly, to the Exchange quantifying all Exceptions in which Cboe Trading is identified as a participant that has potentially violated Exchange or Commission rules. The Exchange, on behalf of Cboe Trading, shall establish and maintain procedures and internal controls reasonably designed to ensure that Cboe Trading does not develop or implement changes to its system on the basis of non-public information regarding planned changes to Exchange systems, obtained as a result of its affiliation with the Exchange, until such information is available generally to similarly situated members of the Exchange in connection with the provision of order routing to or from the Exchange. As the Exchange represents above, the Exchange believes that the above conditions will protect the independence of the Exchange's regulatory responsibility with respect to Cboe Trading and ensure that Cboe Trading cannot use any information that it may have because of its affiliation with the Exchange to its advantage. In the past, the Commission has expressed concern that the affiliation of an exchange with one of its members raises potential conflicts of interest, and the potential for unfair competitive advantage.\10\ To address these concerns, the Exchange has proposed ongoing conditions applicable to Cboe Trading's routing activities in its capacity as a facility of C2, which are enumerated above. The Commission believes that these conditions are designed to mitigate concerns about potential conflicts of interest and unfair competitive advantage. In particular, the Commission believes that a non-affiliated SRO's oversight of Cboe Trading, combined with a non-affiliated SRO's monitoring of Cboe Trading's compliance with the Exchange's rules and quarterly reporting to the Exchange, will help to protect the independence of the Exchange's regulatory responsibilities with respect to Cboe Trading. The Commission also believes that the Exchange's proposal is designed to ensure that the Exchange will not permit Cboe Trading to have any information advantage on account of its affiliation with the Exchange. --------------------------------------------------------------------------- \10\ See, e.g., Securities Exchange Act Release Nos. 54170 (July 18, 2006), 71 FR 42149 (July 25, 2006) (SR-NASDAQ-2006-006) (order approving Nasdaq's proposal to adopt Nasdaq Rule 2140, restricting affiliations between Nasdaq and its members); 53382 (February 27, 2006), 71 FR 11251 (March 6, 2006) (SR-NYSE-2005-77) (order approving the combination of the New York Stock Exchange, Inc. and Archipelago Holdings, Inc.); 58673 (September 29, 2008), 73 FR 57707 (October 3, 2008) (SR-Amex-2008-62 and SR-NYSE-2008-60) (order approving the combination of NYSE Euronext and the American Stock Exchange LLC); 59135 (December 22, 2008), 73 FR 79954 (December 30, 2008) (SR-ISE-2009-85) (order approving the purchase by ISE Holdings of an ownership interest in DirectEdge Holdings LLC); 59281 (January 22, 2009), 74 FR 5014 (January 28, 2009) (SR-NYSE-2008-120) (order approving a joint venture between NYSE and BIDS Holdings L.P.); 58375 (August 18, 2008), 73 FR 49498 (August 21, 2008) (File No. 10- 182) (order granting the exchange registration of BATS Exchange, Inc.); 61698 (March 12, 2010), 75 FR 13151 (March 18, 2010) (File Nos. 10-194 and 10-196) (order granting the exchange registration of EDGX Exchange, Inc. and EDGA Exchange, Inc.); and 62716 (August 13, 2010), 75 FR 51295 (August 19, 2010) (File No. 10-198) (order granting the exchange registration of BATS-Y Exchange, Inc.). --------------------------------------------------------------------------- Finally, Exchange Rule 3.2(f) provides that, without prior Commission approval, no Trading Permit Holder may be or become affiliated with the Exchange. The Exchange now seeks Commission approval for its affiliate, Cboe Trading, to become a Trading Permit Holder of the Exchange pursuant to Rule 3.2(f) so that its affiliate may provide routing services as a facility of the Exchange. Although the Commission continues to be concerned about potential unfair competition and conflicts of interest between an exchange's self- regulatory obligations and its commercial interest when the exchange is affiliated with one of its members, for the reasons discussed above, the Commission believes that it is consistent with the Act to permit Cboe Trading to become affiliated with the Exchange, in the capacity of a facility of C2, for the purposes of providing routing services for the Exchange subject to the conditions described above.\11\ --------------------------------------------------------------------------- \11\ The Commission notes that these limitations and conditions are consistent with those previously approved by the Commission for other exchanges. See, e.g., Securities Exchange Act Release Nos. 64090 (March 17, 2011), 76 FR 16462 (March 23, 2011) (SR-BX-2011- 007); 66808 (April 13, 2012), 77 FR 23294 (April 18, 2012) (SR-BATS- 2012-013); 66807 (April 13, 2012), 77 FR 23300 (April 18, 2012) (SR- BYX-2012-006); 67256 (June 26, 2012), 77 FR 39277 (July 2, 2012) (SR-BX-2012-030); 69233 (March 25, 2013), 78 FR 19352 (March 29, 2013) (SR-NASDAQ-2013-028); 69232 (March 25, 2013), 78 FR 19342 (March 29, 2013) (SR-BX-2013-013); 69229 (March 25, 2013), 78 FR 19337 (March 29, 2013) (SR-Phlx-2013-15); and 68970 (June 27, 2013), 78 FR 40225 (July 3, 2013) (SR-EDGX-2013-17). --------------------------------------------------------------------------- The Exchange has requested that the Commission find good cause for approving the proposed rule change prior to the 30th day after publication of the notice thereof in the Federal Register. The Exchange stated that accelerated approval of its proposal will facilitate the Exchange's plans to migrate C2 Options to Bats technology in May 2018. The Commission notes that Cboe Trading, formerly known as Bats Trading, Inc.,\12\ serves as the routing facility for the Exchange's affiliate options exchanges, EDGX Options and BZX Options and is subject to substantively identical conditions and limitations by those exchanges.\13\ The Exchange's current proposal is intended to allow Cboe Trading to perform an identical role for the Exchange as to which it currently performs for EDGX Options and BZX Options, including accepting routed orders sent from EDGX Options and BZX Options to the Exchange. --------------------------------------------------------------------------- \12\ See Securities Exchange Act Release No. 81952 (October 26, 2017), 82 FR 50725 (November 1, 2017) (SR-BatsBYX-2017-27). \13\ See EDGX Options Rule 2.12 (Cboe Trading, Inc. as Inbound Router) and BZX Options Rule 2.12 (Cboe Trading, Inc. as Inbound Router). See also EDGX Options Rule 2.11 (Cboe Trading, Inc. as Outbound Router) and BZX Options Rule 2.11 (Cboe Trading, Inc. as Outbound Router). --------------------------------------------------------------------------- The Commission believes that good cause exists for accelerated approval of the proposed rule change because it raises no novel issues, as the Exchange is adopting the same conditions and limitations that EDGX Options and BZX Options have adopted for Cboe Trading.\14\ Accordingly, the Commission finds good cause, pursuant to Section 19(b)(2) of the Act,\15\ to approve the proposed rule change prior to the 30th day after the date of publication of the notice of filing thereof in the Federal Register. --------------------------------------------------------------------------- \14\ The Commission notes that it did not receive any comments on a substantively identical proposal from EDGX Options with respect to inbound routing from Cboe Trading. See Securities Exchange Act Release No. 69870 (June 27, 2013), 78 FR 40225 (July 3, 2013) (SR- EDGX-2013-17). \15\ 15 U.S.C. 78s(b)(2). --------------------------------------------------------------------------- V. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act,\16\ that the proposed rule change (SR-C2-2018-004) be, and hereby is, approved on an accelerated basis. --------------------------------------------------------------------------- \16\ 15 U.S.C. 78s(b)(2). For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\17\ --------------------------------------------------------------------------- \17\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Jill Peterson, Assistant Secretary. [FR Doc. 2018-06570 Filed 3-30-18; 8:45 am] BILLING CODE 8011-01-P
![14096 Federal Register / Vol. 83, No. 63 / Monday, April 2, 2018 / Notices
Number SR–IEX–2018–06 and should the proposed rule change and discussed establish and maintain procedures and
be submitted on or before April 23, any comments it received on the internal controls reasonably designed to
2018. proposed rule change. The text of these ensure that Cboe Trading does not
For the Commission, by the Division of statements may be examined at the develop or implement changes to its
Trading and Markets, pursuant to delegated places specified in Item IV below. The systems on the basis of nonpublic
authority.103 Exchange has prepared summaries, set information obtained as a result of its
Jill Peterson, forth in sections A, B, and C below, of affiliation with the Exchange until such
Assistant Secretary. the most significant aspects of such information is available generally to
[FR Doc. 2018–06568 Filed 3–30–18; 8:45 am]
statements. similarly situated Trading Permit
Holders of the Exchange.
BILLING CODE 8011–01–P A. Self-Regulatory Organization’s The Exchange will comply with the
Statement of the Purpose of, and the above-listed conditions prior to offering
Statutory Basis for, the Proposed Rule inbound routing from Cboe Trading. In
SECURITIES AND EXCHANGE Change
COMMISSION meeting the conditions, the Exchange
1. Purpose will have mechanisms in place to
[Release No. 34–82952; File No. SR–C2– protect the independence of the
2018–004] The Exchange seeks: (1) To adopt
Rule 3.18 to govern the Exchange’s Exchange’s regulatory responsibility
receipt of inbound options orders from with respect to Cboe Trading, as well as
Self-Regulatory Organizations; Cboe
the Exchange’s affiliate broker-dealer, demonstrate that Cboe Trading cannot
C2 Exchange, Inc.; Notice of Filing and
Cboe Trading, Inc. (‘‘Cboe Trading’’), on use any information that it may have
Order Granting Accelerated Approval
behalf of the Exchange’s affiliate options because of its affiliation with the
of a Proposed Rule Change
exchanges, Cboe EDGX Exchange, Inc. Exchange to its advantage.
Concerning an Affiliation Between the Exchange Rule 3.2(f) provides that
Exchange and Cboe Trading and To (‘‘EDGX Options’’) and Cboe BZX
Exchange, Inc. (‘‘BZX Options) and (2) without prior Commission approval, no
Adopt Rules To Permit Inbound Trading Permit Holder may be or
Routing by Cboe Trading approval from the Securities and
Exchange Commission (the become affiliated with the Exchange.
March 27, 2018 ‘‘Commission’’) pursuant to Rule 3.2(f) The Exchange seeks Commission
Pursuant to Section 19(b)(1) of the for affiliate Cboe Trading to become a approval for Exchange affiliate Cboe
Securities Exchange Act of 1934 (the Trading Permit Holder of the Exchange. Trading to become a Trading Permit
‘‘Act’’),1 and Rule 19b–4 thereunder,2 Proposed Rule 3.18 is based on EDGX Holder of the Exchange pursuant to Rule
notice is hereby given that on March 12, Options Rule 2.12. Pursuant to proposed 3.2(f).
2018, Cboe C2 Exchange, Inc. (the Rule 3.18, Cboe Trading’s inbound 2. Statutory Basis
‘‘Exchange’’ or ‘‘C2 Options’’) filed with routing services from EDGX Options
the Securities and Exchange and BZX Options to the Exchange The Exchange believes the proposed
Commission (the ‘‘Commission’’) the would be subject to the following rule change is consistent with the
proposed rule change as described in conditions and limitations: (1) The Securities Exchange Act of 1934 (the
Items I and II below, which Items have Exchange must enter into (a) a plan ‘‘Act’’) and the rules and regulations
been prepared by the Exchange. The pursuant to Rule 17d–2 under the thereunder applicable to the Exchange
Commission is publishing this notice to Exchange Act with a non-affiliated self- and, in particular, the requirements of
solicit comments on the proposed rule regulatory organization 3 and (b) a Section 6(b) of the Act.4 Specifically,
change from interested persons and, for regulatory services contract with a non- the Exchange believes the proposed rule
the reasons discussed below, is affiliated SRO to perform regulatory change is consistent with the Section
approving the proposal on an responsibilities for Cboe Trading for 6(b)(5) 5 requirements that the rules of
accelerated basis. unique Exchange rules. (2) The an exchange be designed to prevent
regulatory services contract must fraudulent and manipulative acts and
I. Self-Regulatory Organization’s require the Exchange to provide the practices, to promote just and equitable
Statement of the Terms of Substance of non-affiliated self-regulatory principles of trade, to foster cooperation
the Proposed Rule Change organization with information, in an and coordination with persons engaged
The Exchange proposes to adopt rules easily accessible manner, regarding all in regulating, clearing, settling,
related to the inbound router for C2 exception reports, alerts, complaints, processing information with respect to,
Options. trading errors, cancellations, and facilitating transactions in
The text of the proposed rule change investigations, and enforcement matters securities, to remove impediments to
is also available on the Exchange’s (collectively, ‘‘Exceptions’’) in which and perfect the mechanism of a free and
website (http://www.c2exchange.com/ Cboe Trading is identified as a open market and a national market
Legal/), at the Exchange’s Office of the participant that has potentially violated system, and, in general, to protect
Secretary, and at the Commission’s Exchange or Commission rules, and investors and the public interest.
Public Reference Room. shall require that the non-affiliated self- Additionally, the Exchange believes the
regulatory organization provide a report proposed rule change is consistent with
II. Self-Regulatory Organization’s the Section 6(b)(5) 6 requirement that
to the Exchange quantifying all such
Statement of the Purpose of, and the rules of an exchange not be designed
exception reports, alerts, complaints,
Statutory Basis for, the Proposed Rule to permit unfair discrimination between
trading errors, cancellations,
Change customers, issuers, brokers, or dealers.
investigations and enforcement matters
daltland on DSKBBV9HB2PROD with NOTICES
In its filing with the Commission, the on not less than a quarterly basis. (3) In particular, the Exchange believes
Exchange included statements The Exchange, on behalf of its parent that the rule change promotes the
concerning the purpose of and basis for company, Cboe Global Markets, must maintenance of a fair and orderly
103 17CFR 200.30–3(a)(12). 3 The Exchange will ensure a 17d–2 plan is in 4 15 U.S.C. 78f(b).
1 15 U.S.C. 78s(b)(1). 5 15 U.S.C. 78f(b)(5).
place prior to offering inbound routing from Cboe
2 17 CFR 240.19b–4. Trading. 6 Id.
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![Federal Register / Vol. 83, No. 63 / Monday, April 2, 2018 / Notices 14097
market, the protection of investors and Paper Comments enforce compliance by its members and
the public interest, and is in the best • Send paper comments in triplicate persons associated with its members,
interests of the Exchange and its to Secretary, Securities and Exchange with the provisions of the Act, the rules
Trading Permit Holders as it will allow Commission, 100 F Street NE, and regulation thereunder, and the rules
the routing of orders from affiliated Washington, DC 20549–1090. of the Exchange. Further, the
exchanges, BZX Options and EDGX Commission finds that the proposed
All submissions should refer to File
Options, to the Exchange. Moreover, in rule change is consistent with Section
Number SR–C2–2018–004. This file
meeting the requirements of Rule 3.18 6(b)(5) of the Act,9 which requires,
number should be included on the
(i.e., the 17d–2 plan, the regulatory among other things, that the rules of a
subject line if email is used. To help the
services contract, and procedures and national securities exchange be
Commission process and review your
internal controls) the Exchange believes designed to prevent fraudulent and
comments more efficiently, please use
it will have mechanisms in place that manipulative acts and practices, to
only one method. The Commission will
protect the independence of the promote just and equitable principles of
post all comments on the Commission’s
Exchange’s regulatory responsibility trade, to foster cooperation and
internet website (http://www.sec.gov/
with respect to Cboe Trading, as well as coordination with persons engaged in
rules/sro.shtml). Copies of the
demonstrates that Cboe Trading cannot regulating, clearing, settling, processing
submission, all subsequent
use any information that it may have information with respect to, and
amendments, all written statements
because of its affiliation with the facilitating transactions in securities, to
with respect to the proposed rule
Exchange to its advantage. remove impediments to and perfect the
change that are filed with the
mechanism of a free and open market
B. Self-Regulatory Organization’s Commission, and all written
and a national market system, and, in
Statement on Burden on Competition communications relating to the
general, to protect investors and the
proposed rule change between the
C2 does not believe that the proposed public interest. Section 6(b)(5) also
Commission and any person, other than
rule change will impose any burden on requires that the rules of an exchange
those that may be withheld from the
competition that is not necessary or not be designed to permit unfair
public in accordance with the
appropriate in furtherance of the discrimination among customers,
provisions of 5 U.S.C. 552, will be
purposes of the Act. The Exchange does issuers, brokers, or dealers.
available for website viewing and
not believe the proposed rule change Recognizing that the Commission has
printing in the Commission’s Public
will impose any burden on intramarket previously expressed concern regarding
Reference Room, 100 F Street NE,
or intermarket competition that is not the potential for conflicts of interest in
Washington, DC 20549 on official
necessary or appropriate in furtherance instances where a member firm is
business days between the hours of
of Act as the proposed rule is based on affiliated with an exchange to which it
10:00 a.m. and 3:00 p.m. Copies of the
EDGX Options Rule 2.12 and BZX is routing orders, the Exchange has
filing also will be available for
Options Rule 2.12 [sic], which allow proposed limitations and conditions to
inspection and copying at the principal Cboe Trading’s affiliation with the
[sic] EDGX Options and BZX Options to office of the Exchange. All comments
receive orders from affiliate Cboe Exchange to permit the Exchange to
received will be posted without change. accept routed orders that Cboe Trading
Trading on behalf of affiliate exchanges. Persons submitting comments are
Moreover, the requirements of Rule 3.18 would route in its capacity as a facility
cautioned that we do not redact or edit of C2.
(i.e., the 17d–2 plan, the regulatory personal identifying information from
services contract, and procedures and Specifically, as detailed above, the
comment submissions. You should Exchange committed to the following
internal controls) help to prevent an submit only information that you wish
unfair burden on competition and unfair limitations and conditions:
discrimination between customers,
to make available publicly. All • The Exchange shall enter into a
submissions should refer to File plan pursuant to Rule 17d–2 under the
issuers, brokers, or dealers. Number SR–C2–2018–004, and should Act with a non-affiliated self-regulatory
C. Self-Regulatory Organization’s be submitted on or before April 23, organization (‘‘SRO’’) and ensure that
Statement on Comments on the 2018. such plan is operative before offering
Proposed Rule Change Received From IV. Commission’s Findings and Order routing services through Cboe Trading.
Members, Participants, or Others Granting Accelerated Approval of The 17d–2 plan will relieve the
The Exchange neither solicited nor Proposed Rule Change Exchange of regulatory responsibilities
received comments on the proposed with respect to Cboe Trading for rules
After careful review, the Commission that are common rules between the
rule change. finds that the proposed rule change is Exchange and the non-affiliated SRO. In
III. Solicitation of Comments consistent with the requirements of the addition, the Exchange shall enter into
Act and the rules and regulations a regulatory services agreement (‘‘RSA’’)
Interested persons are invited to
thereunder applicable to a national with a non-affiliated SRO to perform
submit written data, views, and
securities exchange.7 In particular, the regulatory responsibilities for Cboe
arguments concerning the foregoing,
Commission finds that the proposed Trading for unique Exchange rules that
including whether the proposed rule
rule change is consistent with Section are not common rules under the 17d–2
change is consistent with the Act.
6(b)(1) of the Act,8 which requires, plan.
Comments may be submitted by any of
among other things, that a national • The RSA shall require the Exchange
the following methods:
securities exchange be so organized and to provide the non-affiliated SRO with
daltland on DSKBBV9HB2PROD with NOTICES
Electronic Comments have the capacity to carry out the information, in an easily accessible
• Use the Commission’s internet purposes of the Act, and to comply and manner, regarding all exception reports,
comment form (http://www.sec.gov/ alerts, complaints, trading errors,
7 15 U.S.C. 78f(b). In approving this proposed rule
rules/sro.shtml); or change, the Commission has considered the
cancellations, investigations, and
• Send an email to rule-comments@ proposed rule’s impact on efficiency, competition, enforcement matters (collectively
sec.gov. Please include File Number SR– and capital formation. See 15 U.S.C. 78c(f).
C2–2018–004 on the subject line. 8 15 U.S.C. 78f(b)(1). 9 15 U.S.C. 78f(b)(5).
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![14098 Federal Register / Vol. 83, No. 63 / Monday, April 2, 2018 / Notices
‘‘Exceptions’’) in which Cboe Trading is these conditions are designed to migrate C2 Options to Bats technology
identified as a participant that has mitigate concerns about potential in May 2018.
potentially violated Exchange or conflicts of interest and unfair The Commission notes that Cboe
Commission rules, and shall require that competitive advantage. In particular, the Trading, formerly known as Bats
the non-affiliated SRO provide a report, Commission believes that a non- Trading, Inc.,12 serves as the routing
at least quarterly, to the Exchange affiliated SRO’s oversight of Cboe
facility for the Exchange’s affiliate
quantifying all Exceptions in which Trading, combined with a non-affiliated
options exchanges, EDGX Options and
Cboe Trading is identified as a SRO’s monitoring of Cboe Trading’s
participant that has potentially violated compliance with the Exchange’s rules BZX Options and is subject to
Exchange or Commission rules. and quarterly reporting to the Exchange, substantively identical conditions and
• The Exchange, on behalf of Cboe will help to protect the independence of limitations by those exchanges.13 The
Trading, shall establish and maintain the Exchange’s regulatory Exchange’s current proposal is intended
procedures and internal controls responsibilities with respect to Cboe to allow Cboe Trading to perform an
reasonably designed to ensure that Cboe Trading. The Commission also believes identical role for the Exchange as to
Trading does not develop or implement that the Exchange’s proposal is designed which it currently performs for EDGX
changes to its system on the basis of to ensure that the Exchange will not Options and BZX Options, including
non-public information regarding permit Cboe Trading to have any accepting routed orders sent from EDGX
planned changes to Exchange systems, information advantage on account of its Options and BZX Options to the
obtained as a result of its affiliation with affiliation with the Exchange. Exchange.
the Exchange, until such information is Finally, Exchange Rule 3.2(f) provides The Commission believes that good
available generally to similarly situated that, without prior Commission cause exists for accelerated approval of
members of the Exchange in connection approval, no Trading Permit Holder may the proposed rule change because it
with the provision of order routing to or be or become affiliated with the raises no novel issues, as the Exchange
from the Exchange. Exchange. The Exchange now seeks is adopting the same conditions and
As the Exchange represents above, the Commission approval for its affiliate,
Exchange believes that the above limitations that EDGX Options and BZX
Cboe Trading, to become a Trading Options have adopted for Cboe
conditions will protect the Permit Holder of the Exchange pursuant
independence of the Exchange’s Trading.14 Accordingly, the
to Rule 3.2(f) so that its affiliate may
regulatory responsibility with respect to Commission finds good cause, pursuant
provide routing services as a facility of
Cboe Trading and ensure that Cboe to Section 19(b)(2) of the Act,15 to
the Exchange. Although the
Trading cannot use any information that approve the proposed rule change prior
Commission continues to be concerned
it may have because of its affiliation about potential unfair competition and to the 30th day after the date of
with the Exchange to its advantage. conflicts of interest between an publication of the notice of filing thereof
In the past, the Commission has exchange’s self-regulatory obligations in the Federal Register.
expressed concern that the affiliation of and its commercial interest when the V. Conclusion
an exchange with one of its members exchange is affiliated with one of its
raises potential conflicts of interest, and members, for the reasons discussed It is therefore ordered, pursuant to
the potential for unfair competitive above, the Commission believes that it Section 19(b)(2) of the Act,16 that the
advantage.10 To address these concerns, is consistent with the Act to permit proposed rule change (SR–C2–2018–
the Exchange has proposed ongoing Cboe Trading to become affiliated with 004) be, and hereby is, approved on an
conditions applicable to Cboe Trading’s the Exchange, in the capacity of a accelerated basis.
routing activities in its capacity as a facility of C2, for the purposes of
facility of C2, which are enumerated For the Commission, by the Division of
providing routing services for the
above. The Commission believes that Trading and Markets, pursuant to delegated
Exchange subject to the conditions
authority.17
described above.11
10 See, e.g., Securities Exchange Act Release Nos. Jill Peterson,
54170 (July 18, 2006), 71 FR 42149 (July 25, 2006) The Exchange has requested that the
Commission find good cause for Assistant Secretary.
(SR–NASDAQ–2006–006) (order approving
Nasdaq’s proposal to adopt Nasdaq Rule 2140, approving the proposed rule change [FR Doc. 2018–06570 Filed 3–30–18; 8:45 am]
restricting affiliations between Nasdaq and its prior to the 30th day after publication of BILLING CODE 8011–01–P
members); 53382 (February 27, 2006), 71 FR 11251
(March 6, 2006) (SR–NYSE–2005–77) (order the notice thereof in the Federal
approving the combination of the New York Stock Register. The Exchange stated that
Exchange, Inc. and Archipelago Holdings, Inc.); accelerated approval of its proposal will 12 See Securities Exchange Act Release No. 81952
58673 (September 29, 2008), 73 FR 57707 (October facilitate the Exchange’s plans to
3, 2008) (SR–Amex–2008–62 and SR–NYSE–2008– (October 26, 2017), 82 FR 50725 (November 1, 2017)
60) (order approving the combination of NYSE (SR-BatsBYX–2017–27).
Euronext and the American Stock Exchange LLC); 11 The Commission notes that these limitations 13 See EDGX Options Rule 2.12 (Cboe Trading,
59135 (December 22, 2008), 73 FR 79954 (December and conditions are consistent with those previously Inc. as Inbound Router) and BZX Options Rule 2.12
30, 2008) (SR–ISE–2009–85) (order approving the approved by the Commission for other exchanges. (Cboe Trading, Inc. as Inbound Router). See also
purchase by ISE Holdings of an ownership interest See, e.g., Securities Exchange Act Release Nos. EDGX Options Rule 2.11 (Cboe Trading, Inc. as
in DirectEdge Holdings LLC); 59281 (January 22, 64090 (March 17, 2011), 76 FR 16462 (March 23,
Outbound Router) and BZX Options Rule 2.11
2009), 74 FR 5014 (January 28, 2009) (SR–NYSE– 2011) (SR–BX–2011–007); 66808 (April 13, 2012),
2008–120) (order approving a joint venture between 77 FR 23294 (April 18, 2012) (SR–BATS–2012– (Cboe Trading, Inc. as Outbound Router).
14 The Commission notes that it did not receive
NYSE and BIDS Holdings L.P.); 58375 (August 18, 013); 66807 (April 13, 2012), 77 FR 23300 (April 18,
daltland on DSKBBV9HB2PROD with NOTICES
2008), 73 FR 49498 (August 21, 2008) (File No. 10– 2012) (SR–BYX–2012–006); 67256 (June 26, 2012), any comments on a substantively identical proposal
182) (order granting the exchange registration of 77 FR 39277 (July 2, 2012) (SR–BX–2012–030); from EDGX Options with respect to inbound
BATS Exchange, Inc.); 61698 (March 12, 2010), 75 69233 (March 25, 2013), 78 FR 19352 (March 29, routing from Cboe Trading. See Securities Exchange
FR 13151 (March 18, 2010) (File Nos. 10–194 and 2013) (SR–NASDAQ–2013–028); 69232 (March 25, Act Release No. 69870 (June 27, 2013), 78 FR 40225
10–196) (order granting the exchange registration of 2013), 78 FR 19342 (March 29, 2013) (SR–BX– (July 3, 2013) (SR–EDGX–2013–17).
EDGX Exchange, Inc. and EDGA Exchange, Inc.); 2013–013); 69229 (March 25, 2013), 78 FR 19337 15 15 U.S.C. 78s(b)(2).
and 62716 (August 13, 2010), 75 FR 51295 (August (March 29, 2013) (SR-Phlx–2013–15); and 68970
16 15 U.S.C. 78s(b)(2).
19, 2010) (File No. 10–198) (order granting the (June 27, 2013), 78 FR 40225 (July 3, 2013) (SR–
exchange registration of BATS–Y Exchange, Inc.). EDGX–2013–17). 17 17 CFR 200.30–3(a)(12).
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Document Created: 2018-11-01 09:08:50
Document Modified: 2018-11-01 09:08:50
| Category | Regulatory Information | |
| Collection | Federal Register | |
| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
| Publisher | Office of the Federal Register, National Archives and Records Administration | |
| Section | Notices | |
| FR Citation | 83 FR 14096 |
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