8011-01P
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-100256; File No. SR-CBOE-2024-008]
May 31, 2024.
Self-Regulatory Organizations; Cboe Exchange, Inc.; Order Instituting Proceedings to Determine
Whether to Approve or Disapprove a Proposed Rule Change to Adopt a New Rule Regarding
Order and Execution Management Systems
I.

Introduction
On February 13, 2024, Cboe Exchange, Inc. (“Cboe” or the “Exchange”) filed with the

Securities and Exchange Commission (“Commission”), pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the “Act”),1 and Rule 19b-4 thereunder,2 a proposal to adopt a
new rule regarding order and execution management systems (“OEMS”). The proposed rule
change was published for comment in the Federal Register on March 5, 2024.3 On April 16,
2024, pursuant to Section 19(b)(2) of the Exchange Act,4 the Commission designated a longer
period within which to either approve the proposed rule change, disapprove the proposed rule
change, or institute proceedings to determine whether to disapprove the proposed rule change.5
The Commission has received four comment letters regarding the proposed rule change.6 Cboe

15 U.S.C. 78s(b)(1).

17 CFR 240.19b-4.

See Securities Exchange Act Release No. 99620 (February 28, 2024), 89 FR 15907 (“Notice”).

15 U.S.C. 78s(b)(2).

See Securities Exchange Act Release No. 99963 (February 13, 2020), 89 FR 29389 (April 22, 2024). The
Commission designated June 3, 2024, as the date by which it should approve, disapprove, or institute
proceedings to determine whether to disapprove the proposed rule change.

See letters to Vanessa Countryman, Secretary, Commission, from: Tyler Gellasch, President and CEO,
Healthy Markets Association, dated March 25, 2024 (“Healthy Markets Letter”); Jim Considine, Chief
Financial Officer, Mckay Brothers, LLC, dated March 26, 2024 (“Mckay Letter”); Gregory Babyak, Global
Head of Regulatory Affairs, Bloomberg L.P, dated March 26, 2024 (“Bloomberg Letter”); Gregory
Babyak, Global head of Regulator Affairs, Bloomberg L.P., dated May 24, 2024. Comment letters can be
accessed at SEC.gov  Comments on SR-CBOE-2024-008.

responded to the comments on April 19, 2024.7 On May 24, 2024, the Commission received a
comment letter in response to Cboe’s response letter.8
This order institutes proceedings under Section 19(b)(2)(B) of the Exchange Act9 to
determine whether to approve or disapprove the proposed rule changes.
II.

Description of the Proposed Rule Changes
The Exchange proposes to adopt Rule 3.66 to provide that an OEMS10 operated in a

manner independent from the Exchange despite affiliation with the Exchange will not be deemed
a facility of the Exchange as that term is defined in the Act. Section 3(a)(2) of the Act defines
“facility” as follows:
The term “facility” when used with respect to an exchange includes its premises,
tangible or intangible property whether on the premises or not, any right to the use
of such premises or property or any service thereof for the purpose of effecting or
reporting a transaction on an exchange (including, among other things, any
system of communication to or from the exchange, by ticker or otherwise,
maintained by or with the consent of the exchange), and any right of the exchange
to the use of any property or service.11
The Exchange’s proposed Rule 3.66 would provide that for so long as the Exchange
provides or is affiliated with any entity that provides, or the Exchange or an affiliate has a
contractual relationship with any entity that provides, an OEMS platform, such OEMS will not be
regulated as a “facility” of the Exchange and thus not subject to Section 6 of the Act if it meets
certain conditions. These proposed conditions are:

See letter to Vanessa Countryman, Secretary, Commission, from Laura G. Dickman, Vice President,
Associate General Counsel, Cboe Global Markets, Inc., dated April 24, 2024 (“Exchange Response”). The
Exchange Response is available on the Commission’s website at: srcboe2024008-460951-1202654.pdf
(sec.gov).

See letter to Vanessa Countryman, Secretary, Commission, from: Gregory Babyak, Global head of
Regulator Affairs, Bloomberg L.P., dated May 24, 2024 (“Bloomberg Response Letter”). Comment letters
can be accessed at SEC.gov  Comments on SR-CBOE-2024-008.

15 U.S.C. 78s(b)(2)(B).

For a description of the functionalities of an OEMS, see Notice at 89 FR 15907-08.

15 U.S.C. 78c(a)(2).

(a) use of the OEMS is voluntary (i.e., solely within the discretion of a TPH) and not
required for a TPH to access to the Exchange (i.e., the OEMS is a nonexclusive means of
access to the Exchange);
(b) if a TPH using the OEMS establishes a direct connection to the Exchange via an
Exchange port, that connection is established in the same manner and in accordance with the
same terms, conditions, and fees as any third-party OEMS as set forth in the Exchange’s
Rules, technical specifications, and Fees Schedule;
(c) the OEMS (or the entity that owns the OEMS) is not a registered broker-dealer;
(d) for any orders ultimately routed through the OEMS to the Exchange:
(1) users and their brokers are solely responsible for routing decisions; and
(2) the Exchange processes those orders in the same manner as any other orders received by
the Exchange (i.e., orders submitted through the OEMS to the Exchange receive no
preferential treatment on the Exchange);
(e) any fees charged to a user of the OEMS are unrelated to that user’s Exchange activity or
to Exchange fees set forth on the Exchange’s fees schedule;
(f) the OEMS and its users use any premises or service from the Exchange that is a facility,
such as market data, pursuant to the same terms, conditions, and fees as any other user of
Exchange premises and services as set forth in the Exchange’s Rules, technical
specifications, and Fees Schedule;
(g) a third-party not required to register as a national securities exchange under Section 6
of the Act can offer a similar OEMS; and
(h) the Exchange has established and maintains procedures and internal controls
reasonably designed to prevent the OEMS from receiving any competitive advantage or
benefit as a result of its affiliation/relationship with the Exchange, including the provision
of information to the entity or personnel operating the OEMS regarding updates to the

System (such as technical specifications) until such information is available generally to
similarly situated market participants.
The Exchange notes generally that OEMSs as such are not subject to the rule filing
requirements of Section 19(b) of the Act. In limited instances however when the Exchange or an
Exchange affiliate owns an OEMS platform, Commission staff has advised the Exchange that
affiliation with those entities caused the OEMSs to be considered “facilities” under the Act and
are thus subject to the rule filing requirements under Section 19(b) of the Act.12 The Exchange,
however, believes that even if an OEMS is offered by an Exchange affiliate, if it is operated as a
separate business from the Exchange and is operated on the same terms as OEMSs that are not
offered by the Exchange or an Exchange affiliate, it is not a facility as defined by the Act. The
Exchange seeks to codify this interpretation of the Act in its rulebook. The Exchange states that
such an OEMS platform receives no advantage over other OEMS platforms as a result of its
affiliation with the Exchange and orders from such an OEMS are handled by the Exchange
pursuant to its Rules in the same manner as orders from any other OEMSs. The Exchange also
“notes it currently offers certain port fee waivers to users of the Silexx platform [affiliated with
the Exchange] and different pricing for certain functionality to TPHs and non-TPHs.”13 The
Exchange does not provide fee waivers to OEMS users not affiliated with Silexx.
III.

Summary of Comments Received and Exchange’s Response
The Commission has received several comment letters regarding this proposal.14 All

commenters expressed concern regarding this proposal’s position regarding what is considered a
“facility” with respect to an “exchange” and encouraged the Commission to consider any

15 U.S.C. 78s(b)(1).

Notice at n.13.

See supra notes 6, 8.

precedent that this proposal may set.15 Two commenters recommended that the Commission
should reject or disapprove this proposal.16
One commenter stated that the definition of a “facility” is a key pillar of the
Commission’s regulatory framework and a vital component in setting the Commission’s scope of
authority over exchanges.17 The commenter further stated that this proposal falls squarely within
a history of the exchanges’ efforts to limit the Commission’s authority to oversee core exchange
functions18 and that this proposal would redefine the well-established definition of a “facility”
and “exchange” that was recently affirmed by the D.C. Circuit.19 Two commenters found that the
affiliated OEMS clearly falls under the statutory definition of a “facility” of an “exchange” and
that these exchange-affiliated OEMSs have been considered for some time, to fall within the
definition of “facility.”20
In response to the commenters, the Exchange stated that its proposal, contrary to
commenters’ views, does not attempt to redefine the term “facility” and that its proposal applies
the definition of “facility,” which it notes predates the existence of OEMSs, “as interpreted by
the D.C. Circuit, to a specific modern trading tool.”21 The Exchange further stated that the recent
D.C. Circuit decision supports the Exchange’s view that “OEMSs operated by the Exchange or
an Exchange affiliate but independently from the Exchange are not facilities of an exchange as
defined in the Act.”22 In response to the Exchange’s statements, a commenter reiterated its
assertion that these affiliated OEMSs are clearly in scope of the definition of “facility” and
posited that “[a]t heart, the Exchange wishes to continue providing the same OEMS

See Bloomberg Letter, Healthy Markets Letter, and McKay Letter.

See Bloomberg Letter and Healthy Markets Letter.

See Bloomberg Letter, at 3.

See Bloomberg Letter, at 6.

See Bloomberg Letter, at 2-3.

See Bloomberg Letter, at 7. See also Healthy Markets Letter, at 4

See Exchange Response, at 1-2.

See Exchange Response, at 2.

services…yet simply re-define ‘facility’ in a manner that removes these Exchange-affiliated
OEMSs from the ambit of ‘facility.’”23 The commenter also explained that allowing the
Exchange to “exempt themselves” out of the applicable statute would effectively permit the
Exchange “to change the contours of the statute” with broad implications.24 The commenter
stated that the Exchange completely misinterpreted the D.C. Circuit decision and that the Court
instead expressly determined that the definition of both “exchange” and “facility” should be
interpreted broadly under the Act.25 The commenter further stated that “[t]he Exchange’s central
factual argument [, ] that the exchange-owned OEMSs are independently operated from the
interests and control of the Exchange appears to be without merit and contrary to the facts
provided in the proposal.26
In addition, the commenter stated that acceptance of the position put forth in this proposal
to allow exchanges to be the final arbiter of what is a “facility” and to also overturn a settled
Commission decision would be an enormous departure from established precedent.27 One
commenter cautioned that when exchange services are excluded from the definition of a
“facility” and are not subject to the Act and Commission oversight, exchanges are allowed to
provide services in an unfairly discriminatory manner, impose unnecessary and inappropriate
burdens on competition and impede a free and open market in contravention of Sections 6(b)(5)
and (8) of the Act.28 The commenter further cautioned that exchanges have used affiliates and
third-party service providers to obscure whether a service is a “facility” of an exchange.29 In
addition, one commenter stated that this proposal is the Exchange’s attempt to offer OEMS
services free from Commission oversight and the obligations imposed upon exchanges by the

See Bloomberg Response Letter, at 2-3.

See Bloomberg Response Letter, at 5.

See Bloomberg Response Letter, at 7-9.

See Bloomberg Response Letter, at 12-13.

See Bloomberg Letter, at 7.

See McKay Letter, at 1-2.

See McKay Letter, at 2.

Act.30 Commenters also stated that the Exchange failed to provide the Commission or the public
with sufficient information with which to perform its analysis with respect to whether this
proposal is consistent with the Act.31 These commenters further stated that without the essential
details of the Exchange’s OEMS and the scope of services offered on the Exchange, it would be
difficult, if not impossible, for the Commission to ensure that this proposal is consistent with the
Act and the rules and regulations thereunder.32 One commenter also stated that this proposal
contains no information as to how the particular rule is designed to protect investors and the
public interest, as required under the Act.33
The Exchange responded that its proposal is nothing more than a proposed rule change as
required by the Commission’s rule filing process34 and that the proposal includes sufficient
information describing the proposed rule change and why it is consistent with Section 6(b) of the
Act.35 The Exchange further stated that the proposal describes the primary functions of an OEMS
with a similar level of detail as prior Cboe Options rule filings regarding OEMSs, none of which,
as stated by the Exchange, were disapproved or suspended by the Commission or commented on
as being inconsistent with the Act’s rule filing requirements.36 In its response letter, a commenter
stated that the Exchange has not provided any meaningful explanation as to why the proposal is
consistent with the Act and further that the proposal appears to remove the investor protections
of the Act and otherwise limit Commission oversight.37 The commenter also reiterated that these

See Healthy Markets Letter, at 3.

See Bloomberg Letter, at 7-8. See also Healthy Markets Letter, at 8-9.

See Bloomberg Letter, at 7-8. See also Healthy Markets Letter, at 8-9.

See Bloomberg Letter, at 8.

See Exchange Response, at 3.

See Exchange Response, at 4.

See Exchange Response, at 4.

See Bloomberg Response Letter, at 11-12.

exchange-affiliated OEMSs have been considered by the Commission for some time to fall
within the definition of a “facility” under the Act.38
One commenter stated that the Exchange is improperly seeking a statutory exemption for
which the Commission has detailed procedures that the Exchange has not followed.39 The
commenter explained that while it would object to the Commission granting such an exemption,
requesting exemptive relief would at least be within the Commission’s authority. The commenter
further stated that the Exchange however is not asking the Commission for exemptive relief and
is instead asking the Commission to “ignore the plain language of the statute.”40
In response, the Exchange stated that commenters’ views that exemptive relief is needed
are unwarranted and “[a]n exemption is unnecessary if the statute is inapplicable to that product
or service, as the Exchange asserts is the case for a Rule 3.66 OEMS.”41
IV.

Proceedings to Determine Whether to Approve or Disapprove SR-CBOE-2024-008 and
Grounds for Disapproval under Consideration
The Commission is instituting proceedings pursuant to Section 19(b)(2)(B) of the

Exchange Act42 to determine whether the proposed rule change should be approved or
disapproved. Institution of such proceedings is appropriate at this time in view of the legal and
policy issues raised by the proposed rule change. Institution of proceedings does not indicate
that the Commission has reached any conclusions with respect to any of the issues involved.
Rather, as described below, the Commission seeks and encourages interested persons to provide
comments on the proposed rule change to inform the Commission’s analysis of whether to
approve or disapprove the proposal.

See Bloomberg Response Letter, at 6.

See Healthy Markets Letter, at 7.

See Healthy Markets Letter, at 7-8.

See Exchange Response, at 5.

15 U.S.C. 78s(b)(2)(B).

Pursuant to Section 19(b)(2)(B) of the Exchange Act,43 the Commission is providing
notice of the grounds for disapproval under consideration. The Commission is instituting
proceedings to allow for additional analysis of, and input from commenters with respect to, the
consistency of the proposal with Sections 6(b)(5)44 and 6(b)(8)45 of the Act. Section 6(b)(5) of
the Act requires that the rules of a national securities exchange be designed, among other things,
to promote just and equitable principles of trade, 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, and not be designed to permit unfair discrimination between
customers, issuers, brokers, or dealers. Section 6(b)(8) of the Act requires that the rules of a
national securities exchange not impose any burden on competition that is not necessary or
appropriate in furtherance of the purposes of the Act.
As discussed above, the Exchange is proposing to codify in its rulebook that OEMSs that
meet the conditions described above will be not considered “facilities” as that term is defined by
the Act even if they are operated by the Exchange or an Exchange affiliate. The Commission
received comment letters that express concern regarding the proposal, including that the
Exchange did not provide sufficient information to establish that the proposal is consistent with
the Act.
The Commission notes that, under the Commission’s Rules of Practice, the “burden to
demonstrate that a proposed rule change is consistent with the Exchange Act and the rules and
regulations thereunder . . . is on the self-regulatory organization [‘SRO’] that proposed the rule
change.”46 The description of a proposed rule change, its purpose and operation, its effect, and a
legal analysis of its consistency with applicable requirements must all be sufficiently detailed

Id.

15 U.S.C. 78f(b)(5).

15 U.S.C. 78f(b)(8).

Rule 700(b)(3), Commission Rules of Practice, 17 CFR 201.700(b)(3).

and specific to support an affirmative Commission finding,47 and any failure of an SRO to
provide this information may result in the Commission not having sufficient basis to make an
affirmative finding that a proposed rule change is consistent with the Exchange Act and the
applicable rule and regulations.48
The Commission believes it is appropriate to institute proceedings pursuant to Section
19(b)(2)(B) of the Exchange Act49 to determine whether the proposal should be approved or
disapproved. The Commission is instituting proceedings to allow for additional consideration
and comment on the issues raised herein, including as to whether the proposal is consistent with
the Act.
V.

Procedure: Request for Written Comments
The Commission requests that interested persons provide written submissions of their

data, views, and arguments with respect to the issues identified above, as well as any other
concerns they may have with the proposal. In particular, the Commission invites the written
views of interested persons concerning whether the proposed rule change is consistent with the
Act, or the rules and regulations thereunder. Although there do not appear to be any issues
relevant to approval or disapproval that would be facilitated by an oral presentation of data,
views, and arguments, the Commission will consider, pursuant to Rule 19b-4 under the Act,50
any request for an opportunity to make an oral presentation.51
Interested persons are invited to submit written data, views, and arguments regarding
whether the proposed rule change should be approved or disapproved by [insert date 21 days

See id.

See id.

15 U.S.C. 78s(b)(2)(B).

17 CFR 240.19b-4.

Section 19(b)(2) of the Act, as amended by the Securities Acts Amendments of 1975, Pub. L. 94-29 (June
4, 1975), grants to the Commission flexibility to determine what type of proceeding – either oral or notice
and opportunity for written comments – is appropriate for consideration of a particular proposal by a selfregulatory organization. See Securities Acts Amendments of 1975, Senate Comm. on Banking, Housing &
Urban Affairs, S. Rep. No. 75, 94th Cong., 1st Sess. 30 (1975).

from publication in the Federal Register]. Any person who wishes to file a rebuttal to any other
person’s submission must file that rebuttal by [insert date 35 days from publication in the Federal
Register]. The Commission asks that commenters address the sufficiency of the Exchange’s
statements in support of the proposal, which are set forth in the Notice.52 In particular, the
Commission seeks comment on the following questions:
1. Has the Exchange demonstrated how the proposal is consistent with Section 6(b)(5)
of the Act, which requires, among other things, that the rules of a national securities
exchange be designed to “promote just and equitable principles of trade, 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” and not be
“designed to permit unfair discrimination between customers, issuers, brokers, or
dealers”53 Are there additional facts that commenters believe the Commission should
consider to assess whether the proposal is consistent with Section 6(b)(5)? If so,
please provide.
2.

Has the Exchange demonstrated how the proposal is consistent with Section 6(b)(8)
of the Act, which requires that the rules of a national securities exchange “not impose
any burden on competition not necessary or appropriate in furtherance of the purposes
of [the Act].”54 Are there additional facts that commenters believe the Commission
should consider in order to assess whether the proposal is consistent with Section
6(b)(8)? If so, please provide.

3. Are there any potential competitive advantages that could be realized by an
Exchange-affiliated OEMS “facilitating transactions in securities”55 that could arise
from that OEMS operating outside the Commission review process? If so, please
See Notice, supra note 3.

15 U.S.C. 78f(b)(5).

15 U.S.C. 78f(b)(8).

15 U.S.C. 78f(b)(5).

identify these potential advantages. 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 e-mail to rule-comments@sec.gov. Please include File Number SR-CBOE2024-008 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-2024-008. 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 a.m. and 3
p.m. Copies of the filing also will be available for inspection and copying at the principal office
of the Exchange. Do not include personal identifiable information in submissions; you should
submit only information that you wish to make available publicly. We may redact in part or
withhold entirely from publication submitted material that is obscene or subject to copyright
protection. All submissions should refer to file number SR-CBOE-2024-008 and should be
submitted by [insert date 21 days from the date of publication in the Federal Register]. Rebuttal

comments should be submitted by [INSERT DATE 35 DAYS FROM DATE OF
PUBLICATION IN THE FEDERAL REGISTER].
For the Commission, by the Division of Trading and Markets, pursuant to delegated
authority.56

Sherry R. Haywood,
Assistant Secretary.

[FR Doc. 2024-12367 Filed: 6/5/2024 8:45 am; Publication Date: 6/6/2024]

17 CFR 200.30-3(a)(57).