[Federal Register Volume 84, Number 41 (Friday, March 1, 2019)]
[Notices]
[Pages 7159-7160]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-03632]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-85191; File No. SR-C2-2018-022]
Self-Regulatory Organizations; Cboe C2 Exchange, Inc.; Order
Approving a Proposed Rule Change To Provide for the Trading of Complex
Reserve Orders
February 25, 2019.
I. Introduction
On November 8, 2018, Cboe C2 Exchange, Inc. (``C2'' or
``Exchange'') 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 provide for the trading of Complex Reserve
Orders. The proposed rule change was published for comment in the
Federal Register on November 27, 2018.\3\ On December 19, 2018, the
Commission designated a longer period within which to approve the
proposed rule change, disapprove the proposed rule change, or institute
proceedings to determine whether to approve or disapprove the proposed
rule change.\4\ The Commission has received no comment letters
regarding the proposed rule change. This order approves the proposed
rule change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 84643 (November 21,
2018), 83 FR 60916 (``Notice''). In addition to the changes
described herein, the proposal makes non-substantive changes to
revise the heading of C2 Rule 6.13(g) and to add headings to C2 Rule
6.13(h)(1) and (2). See id. at nn. 10 and 13.
\4\ See Securities Exchange Act Release No. 84867, 83 FR 66811
(December 27, 2018). The Commission designated February 25, 2019, as
the date by which the Commission shall approve the proposed rule
change, disapprove the proposed rule change, or institute
proceedings to determine whether to approve or disapprove the
proposed rule change.
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II. Description of the Proposed Rule Change
As described more fully in the Notice,\5\ C2 proposes to amend its
rules to provide for the trading of Complex Reserve Orders. C2 notes
that it currently offers Reserve Order functionality for simple
orders.\6\ C2 states that Reserve Orders provide Users with additional
flexibility to manage and display their orders and additional control
over their executions on C2.\7\
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\5\ See note 3, supra.
\6\ See Notice, 83 FR at 60917, and C2 Rule 6.10.
\7\ See Notice, 83 FR at 60917-8.
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A Complex Reserve Order is a complex limit order with both a
portion of the quantity displayed (``Display Quantity'') and a reserve
portion of the quantity (``Reserve Quantity'') not displayed.\8\ Both
the Display Quantity and Reserve Quantity of the Complex Reserve Order
are available for potential execution pursuant to C2 Rules 6.13(c)-
(e).\9\ Displayed complex orders resting on the Complex Order Book
(``COB'') have priority over non-displayed portions of Complex Reserve
Orders resting on the COB.\10\ When entering a Complex Reserve Order, a
User must instruct the Exchange as to the quantity of the Complex
Reserve Order to be initially displayed by C2's System (``Max
Floor'').\11\ If the Display Quantity of a Complex Reserve Order is
fully executed, the System will replenish the display quantity in
accordance with the User's instruction.\12\ If the remainder of a
Complex Reserve Order is less than the replenishment amount, the System
will display the entire remainder of the Complex Reserve Order.\13\ The
System creates a new timestamp for both the Display Quantity and
Reserve Quantity of the Complex Reserve Order each time it is
replenished from reserve.\14\
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\8\ See proposed C2 Rule 6.13(b)(6).
\9\ See id. Pursuant to C2 Rules 6.13(c)-(e), complex orders
(including the Display and Reserve Quantities of Complex Reserve
Orders) may execute during the Complex Order Book opening process,
against incoming complex orders, against simple orders in the Simple
Book (via Legging), or following a Complex Order Auction. Complex
Reserve Orders will be COA-eligible, subject to a User's
instructions. See Notice, 83 FR at n.5.
\10\ See proposed C2 Rule 6.13(h)(4). The COB is the Exchange's
electronic book of complex orders. See C2 Rule 6.13
\11\ See proposed C2 Rule 6.13(b)(6). The System is the
automated trading system the Exchange uses for the trading of option
contracts. See C2 Rule 100.
\12\ The proposed rule provides two replenishment instructions.
Under the Random Replenishment instruction, the System randomly
replenishes the Display Quantity for the Complex Reserve Order with
a number of contracts not outside a replenishment range, which
equals the Max Floor plus and minus a replenishment value
established by the User when entering a Complex Reserve Order with a
Random Replenishment instruction. For any Complex Reserve Order for
which a User does not select Random Replenishment, the System will
replenish the Display Quantity of the Complex Reserve Order with the
number of contracts equal to the Max Floor (or the entire remainder
of the Complex Reserve Order if it is less than the replenishment
amount). See proposed C2 Rule 6.13(b)(6).
\13\ See id.
\14\ See id.
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The proposal addresses the participation of Complex Reserve Orders
in the Complex Order Auction (``COA''). If a COA-eligible order is a
Complex Reserve Order, the COA auction message will identify only the
Display Quantity, although the entire quantity of the order (both the
Display Quantity and Reserve Quantity) may execute following the COA
pursuant to C2 Rule 6.13(d)(5).\15\ COA Responses may be larger than
the COA-eligible order.\16\ The System caps the size of aggregated COA
Responses for an Executing Firm ID (``EFID'') at the size of the COA-
eligible order (including Display Quantity and Reserve Quantity) if the
COA-eligible order is a Complex Reserve Order).\17\ At the conclusion
of the COA, the System executes the COA-eligible order against contra
side interest in price priority.\18\ At the same price, the COA-
eligible order will execute first against orders and quotes in the
Simple Book (both displayed and non-displayed orders) for the
individual leg components of the complex order, and then against COA
Responses and unrelated orders posted to the COB.\19\ A do-not-COA
order \20\ or an order resting on the COB that is eligible for
execution will execute against contra side interest at the same price
by trading with orders and quotes in the Simple Book (both displayed
and non-displayed orders) for the individual leg components of the
complex order before executing against complex orders resting on the
COB at that price.\21\
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\15\ See proposed C2 Rule 6.13(d)(1). C2 Rule 6.13(b)(2) states
that buy (sell) complex orders with User instructions to (or which
default to) initiate a COA that are priced higher (lower) than the
SBB (SBO) and higher (lower) than the price of complex orders
resting at the top of the COB are ``COA-eligible orders,'' while buy
(sell) complex orders with User instructions not to (or which
default to not) initiate a COA, that are marked Post Only, or that
are priced equal to or lower (higher) than the SBB (SBO) or equal to
or lower (higher) than the price of complex orders resting at the
top of the COB are ``do-not-COA orders.''
\16\ See proposed C2 Rule 6.13(d)(4)(B).
\17\ See id.
\18\ See proposed C2 Rule 6.13(d)(5).
\19\ See proposed C2 Rule 6.13(d)(5)(A). The Simple Book is the
electronic book of simple orders and quotes maintained by the
System. See C2 Rule 100.
\20\ See note 15, supra.
\21\ See proposed C2 Rule 6.13(e)(1). The entire quantity of a
Complex Reserve Order (both the Display Quantity and Reserve
Quantity) Legs into the Simple Book at the same time, and any
quantity that does not execute pursuant to C2 Rule 6.13(d) or (e)
after Legging will rest in the COB in accordance with the Complex
Reserve Order instruction. See proposed C2 Rule 6.13(g)(5).
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[[Page 7160]]
III. Discussion and Commission Findings
After careful review, the Commission finds that the proposed rule
change is consistent with the requirements of the Act,\22\ and the
rules and regulations thereunder applicable to a national securities
exchange.\23\ In particular, the Commission finds that the proposed
rule change is consistent with Section 6(b)(5) of the Act,\24\ which
requires, among other things, that the rules of a national securities
exchange be designed 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 that the
rules are not designed to permit unfair discrimination between
customers, issuers, brokers, or dealers.
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\22\ 15 U.S.C. 78f.
\23\ 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).
\24\ 15 U.S.C. 78f(b)(5).
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The Commission believes that Complex Reserve Orders could provide
market participants with greater flexibility and control over the
trading of their complex orders and could allow them to provide
additional liquidity to the market. The Commission notes that C2
currently offers Reserve Order functionality for simple orders.\25\
Under the proposal, displayed complex orders resting on the COB will
have priority over the non-displayed portions of Complex Reserve Orders
resting on the COB.\26\ As described above, the proposal further
provides that complex orders will execute against displayed and non-
displayed leg market interest before executing against complex order
interest at the same price.\27\ The Commission notes that complex
orders on C2 currently execute against leg market interest (displayed
first and then non-displayed) before executing against complex order
interest.\28\ While displayed interest ordinarily executes before non-
displayed interest at the same price to encourage market participants
to submit displayed interest, the Commission believes that executing
non-displayed leg market interest before complex interest at the same
price should facilitate interaction between the single leg and complex
markets and provide all single leg interest at a given price, displayed
and non-displayed, with an opportunity to participate in executions
with complex orders.
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\25\ See note 6, supra.
\26\ See proposed C2 Rule 6.13(h)(4).
\27\ See proposed C2 Rules 6.13(d)(5)(A)(i) and (e)(1) and notes
19-21, supra, and accompanying text.
\28\ See C2 Rules 6.13(d)(5)(A) and (e).
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IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\29\ that the proposed rule change (SR-C2-2018-022) is approved.
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\29\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\30\
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\30\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-03632 Filed 2-28-19; 8:45 am]
BILLING CODE 8011-01-P