[Federal Register Volume 84, Number 112 (Tuesday, June 11, 2019)]
[Notices]
[Pages 27169-27172]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-12192]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-86038; File No. SR-C2-2019-013]


Self-Regulatory Organizations; Cboe C2 Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change Relating 
To Adopt Limit-on-Close (``LOC'') and Market-on-Close (``MOC'') Orders

June 5, 2019.
    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 May 29, 2019, Cboe C2 Exchange, Inc. (the ``Exchange'' or 
``C2'') 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 Exchange 
filed the proposal as a ``non-controversial'' proposed rule change 
pursuant to Section 19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-
4(f)(6) thereunder.\4\ The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \4\ 17 CFR 240.19b-4(f)(6).

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[[Page 27170]]

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 
adopt limit-on-close (``LOC'') and market-on-close (``MOC'') orders. 
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
    In 2016, the Exchange's parent company, Cboe Global Markets, Inc. 
(``Cboe Global''), also the parent company of Cboe Exchange, Inc. 
(``Cboe Options''), acquired Cboe EDGX Exchange, Inc. (``EDGX or EDGX 
Options''), Cboe EDGA Exchange, Inc. (``EDGA''), Cboe BZX Exchange, 
Inc. (``BZX or BZX Options''), and Cboe BYX Exchange, Inc. (``BYX'' 
and, together with Cboe Options, the Exchange, EDGX, EDGA, and BZX, the 
``Cboe Affiliated Exchanges''). The Cboe Affiliated Exchanges are 
working to align certain system functionality, retaining only intended 
differences between the Cboe Affiliated Exchanges, in the context of a 
technology migration. Cboe Options intends to migrate its technology to 
the same trading platform used by the Exchange, EDGX Options, and BZX 
Options in the fourth quarter of 2019. The proposal set forth below is 
intended to add certain functionality to the Exchange's System that is 
available on Cboe Options in order to ultimately provide a consistent 
technology offering for market participants who interact with the Cboe 
Affiliated Exchanges.\5\ Although the Exchange intentionally offers 
certain features that differ from those offered by its affiliates and 
will continue to do so, the Exchange believes that offering similar 
functionality to the extent practicable will reduce potential confusion 
for Users.
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    \5\ The Exchange also notes that its affiliated exchanges, BZX 
Options and EDGX Options, are simultaneously proposing to make 
similar changes in order to align functionality with Cboe Options.
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    The Exchange proposes to adopt LOC and MOC orders. The proposed 
amendments to Rule 6.10(d) define an LOC order as a limit order, and an 
MOC order as a market order, respectively, that may only execute on the 
Exchange no earlier than three minutes prior to Regular Trading Hours 
(``RTH'') market close. The System enters LOC and MOC orders into the 
Book in time sequence (based on the times at which the Exchange 
initially received them), where they may be processed in accordance 
with Rule 6.12.\6\ The Exchange notes that it does not have a closing 
auction in which market participants may participate in an auction 
rotation that determines the closing price for a series, like that of 
the equities space, but that the proposed MOC and LOC orders merely 
become executable three minutes prior to the close of RTH. The Exchange 
queues LOC and MOC orders in the System until three minutes before the 
RTH market close. At that time, the System handles a LOC or MOC order 
as a limit order or market order, as applicable, and processes them in 
accordance with Rule 6.12. The Exchange believes that three minutes 
prior to the RTH market close is a reasonable time prior to the market 
close to trigger MOC and LOC orders, as it provides those orders with 
sufficient time to interact with contra-side interest and potentially 
execute at a time close to the RTH market close.\7\ The proposed LOC 
and MOC order definitions also provide that the System cancels an LOC 
order or an MOC order (or an unexecuted portion of an LOC or MOC order) 
that does not execute by the RTH market close. This is consistent with 
the purpose of these orders, which is to execute near the RTH market 
close on the day they were submitted to the Exchange. As the execution 
of MOC and LOC orders is linked to the RTH market close, such orders 
will be valid only during RTH; however, the System will accept such 
orders during any trading session.\8\ A User may not designate an MOC 
or LOC order as ``All Sessions''; \9\ any MOC or LOC order designated 
as All Sessions will be rejected. In addition to this, the Exchange 
notes that Users may not designate bulk messages as MOC or LOC, which 
is consistent with the current requirement that bulk messages must have 
a time-in-force of Day to encourage Users to provide liquidity to the 
Exchange's market throughout the trading day and update bulk messages 
in response to changed market conditions day-to-day.\10\ The proposed 
order types are based on substantially similar order types available on 
Cboe Options.\11\ MOC and LOC orders allow a User to execute orders in 
a series close to the close time.
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    \6\ Rule 6.12 describes how the System processes orders and 
quotes in the Book.
    \7\ The Exchange notes that Cboe Options currently triggers the 
MOC and LOC orders three minutes prior to the RTH market close.
    \8\ The Exchange notes that an RTH Only MOC or LOC order 
submitted during Global Trading Hours (``GTH'') will remain on the 
book until the close of RTH.
    \9\ See Rule 6.10(b) which defines ``All Sessions'' as an order 
a User designates as eligible to trade during both Global Trading 
Hours (``GTH'') and RTH. The Exchange also notes that Rule 6.10(b) 
defines ``RTH Only'' as an order a User designates as eligible to 
trade only during RTH or not designated as All Sessions. Therefore, 
the default instruction is RTH Only and an unmarked MOC or LOC order 
will be treated as RTH Only. See also Securities Exchange Act 
Release No. 85788 (May 6, 2019), 84 FR 20673 (May 10, 2019) (Notice 
of Filing and Immediate Effectiveness of a Proposed Rule Change To 
Amend the Exchange's Opening Process and Add a Global Trading Hours 
Session for DJX Options) (SR-C2-2019-009).
    \10\ See Rule 6.10(d), which defines time-in-force of ``Day'' as 
an order that, if not executed, expires at the RTH market close. All 
bulk messages have a Time-in-Force of Day. See also Securities 
Exchange Act Release No. 85038 (February 2, [sic] 2019), 84 FR 2598 
(February 7, 2019) (Notice of Filing and Immediate Effectiveness of 
a Proposed Rule Change To Discontinue Bulk Order Functionality and 
Implement Bulk Message Functionality) (SR-C2-2018-025). Note Users 
may submit bulk messages within three minutes of the RTH market 
close, which would ultimately be handled in the same manner as an 
LOC order.
    \11\ See Cboe Options Rule 6.53, which defines a ``market-on-
close'' order as a market or limit order to be executed as close as 
possible to the close of the market near to or at the closing price 
for the particular option series. The Exchange notes that in 
connection with migration, Cboe Options intends to propose the same 
definitions of market- and limit-on-close orders as proposed in this 
rule filing.
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    The Exchange also proposes to add subparagraph (C) to Rule 
6.12(c)(5) to include additional order handling regarding MOC orders 
during a limit up-limit down state.\12\ The proposed change provides 
that if the underlying security is in a limit up-limit down state three 
minutes prior to the RTH market close a MOC order will not be elected, 
and that if the underlying security exits the limit up-limit down state 
prior to

[[Page 27171]]

the RTH market close, the System will attempt to re-evaluate, elect, 
and execute the order.\13\ The Exchange notes that the proposed 
handling of MOC orders in a limit up-limit down state is consistent 
with the Regulation NMS Plan to Address Extraordinary Market Volatility 
(``Limit Up-Limit Down Plan'') and is based on the corresponding Cboe 
Options rule regarding handling of MOC orders.\14\ The Exchange also 
proposes to add a reference to MOC orders to Rule 6.39(a), which lists 
the order types that will be handled specially during a limit up-limit-
down state, to reflect the proposed change to Rule 6.12(c)(5).
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    \12\ See Rule 6.39 which defines a ``limit up-limit down state'' 
to mean the period of time when the underlying security of an option 
enters a limit or straddle state as defined in the Regulation NMS 
Plan to Address Extraordinary Market Volatility (the ``Limit Up-
Limit Down Plan'' or the ``Plan'').
    \13\ The Exchange also amends the heading to subparagraph (c)(5) 
to reflect the addition of MOC order handling during a limit up-
limit down state. The Exchange notes that during a limit up-limit 
down state limit orders are not impacted and continue to be eligible 
for execution.
    \14\ See Cboe Options Rule 6.45(d)(2).
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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.\15\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \16\ 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) \17\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \15\ 15 U.S.C. 78f(b).
    \16\ 15 U.S.C. 78f(b)(5).
    \17\ Id.
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    In particular, the Exchange believes that the proposed adoption of 
MOC and LOC orders serves to benefit investors by allowing Users 
flexibility to have orders only be eligible for execution near the 
close, a time in which maximum significant number of participants 
interact on the Exchange. The Exchange believes that the proposed 
change promotes just and equitable principles of trade because it 
encourages increased participation near the close, thereby contributing 
to enhanced price discovery and transparency that will result in a 
closing price point that more closely reflects the interest of market 
participants. The Exchange also believes that the proposed change will 
benefit investors by fostering increased liquidity near the close. As 
stated, the proposed change is based on Cboe Options rules.\18\
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    \18\ See supra note 11.
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    Furthermore, the Exchange believes specifying that the MOC and LOC 
may execute no more than three minutes from the RTH close removes 
impediments to and perfects the mechanism of a free and open market and 
national market system and protects investors because it will allow 
Users greater flexibility regarding the execution of their orders and/
or their customers' orders. The Exchange believes this three minute 
time-frame prior to the RTH market close is a reasonable time prior to 
the market close to trigger MOC and LOC orders, because it provides 
those orders with sufficient times to interact with contra-side 
interest and to potentially execute at a time close to RTH market 
close.
    The Exchange also believes not permitting bulk messages to be MOC 
and LOC orders will remove impediments to and perfect the mechanism of 
a free and open market and protect investors because it is consistent 
with the purpose of bulk messages. As stated, bulk messages are 
currently restricted to designation as time-in-force of Day in order to 
encourage Users to provide liquidity to the Exchange's market during 
RTH and update bulk messages in response to day-to-day changed market 
conditions.\19\ Because MOC and LOC orders are only available for 
execution for three minutes prior to the RTH market close, as opposed 
to during the entire RTH session, Exchange believes that not permitting 
bulk messages to be MOC or LOC orders ensures that functionality 
available to Users is consistent with the purpose of bulk messages.
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    \19\ See supra note 10.
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    Moreover, the Exchange also believes that rejecting MOC and LOC 
orders if designated as ``All Sessions'' serves to remove impediments 
to and perfect the mechanism of a free and open market and protect 
investors by providing functionality that is consistent with the 
purpose of MOC and LOC orders. As described above, because MOC and LOC 
orders are linked to the RTH close, allowing MOC or LOC orders to be 
marked for All Sessions (i.e., RTH and GTH) would be inconsistent with 
the function of MOC and LOC orders. Therefore, the Exchange believes 
that not permitting MOC and LOC orders to be marked as All Sessions 
will protect investors by ensuring instructions for MOC and LOC orders 
are consistent with their purpose.
    Additionally, the Exchange believes that the proposed additional 
order handling for MOC during a limit up-limit down state protects 
investors because it is consistent with the Limit Up-Limit Down Plan 
and prevents a market order from executing outside of the specified 
price bands. This order handling is consistent with that of Cboe 
Options rules.\20\
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    \20\ See supra note 14.
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    Lastly, the Exchange notes that the proposed rule change is 
generally intended to align the functionality offered by the Exchange 
with functionality currently offered by Cboe Options in order to 
provide a consistent technology offering for the Cboe Affiliated 
Exchanges.\21\ A consistent technology offering, in turn, will simplify 
the technology implementation, changes, and maintenance by Users of the 
Exchange that are also participants on Cboe Affiliated Exchanges.\22\ 
The Exchange believes this consistency will promote a fair and orderly 
national options market system. When Cboe Options migrates to the same 
technology as that of the Exchange and other Cboe Affiliated Exchanges, 
Users of the Exchange and other Cboe Affiliated Exchanges will have 
access to similar functionality on all Cboe Affiliated Exchanges. As 
such, the proposed rule change would foster cooperation and 
coordination with persons engaged in facilitating transactions in 
securities and would remove impediments to and perfect the mechanism of 
a free and open market and a national market system.
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    \21\ See supra note 5.
    \22\ Id.
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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 does not 
believe the proposed rule change will impose any burden on intramarket 
competition, as the proposed rule change will apply in the same manner 
to all orders submitted as MOC or as LOC. MOC and LOC orders will be 
available to all Users, and MOC and LOC orders from all Users will be 
handled in the same manner. The use of

[[Page 27172]]

MOC and LOC orders will be voluntary. The Exchange does not believe the 
proposed rule change will impose any burden on intermarket competition 
because the proposed change is based on rules that allow for 
substantially the same order types that are available on another 
options exchange.\23\
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    \23\ See supra note 11.
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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 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 if consistent with the protection of investors 
and the public interest, the proposed rule change has become effective 
pursuant to Section 19(b)(3)(A) of the Act \24\ and Rule 19b-4(f)(6) 
thereunder.\25\
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    \24\ 15 U.S.C. 78s(b)(3)(A).
    \25\ 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 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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    A proposed rule change filed under Rule 19b-4(f)(6) \26\ normally 
does not become operative for 30 days after the date of filing. 
However, pursuant to Rule 19b-4(f)(6)(iii) \27\ the Commission may 
designate a shorter time if such action is consistent with the 
protection of investors and the public interest.
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    \26\ 17 CFR 240.19b-4(f)(6).
    \27\ 17 CFR 240.19b-4(f)(6)(iii).
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    The Exchange has asked the Commission to waive the 30-day operative 
delay. The Commission believes that waiving the 30-day operative delay 
is consistent with the protection of investors and the public interest 
as it will allow the Exchange to offer two order types that are 
substantially similar to order types that are currently available on 
Cboe Options. Thus, as represented by the Exchange, the proposed rule 
change does not introduce any new functionality or present any novel 
issues. For this reason, the Commission designates the proposed rule 
change to be operative on June 20, 2019, the day before the Exchange 
would like to implement MOC and LOC orders.\28\
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    \28\ 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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    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 necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act.

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

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-C2-2019-013 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-C2-2019-013. 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-C2-2019-013 and should be submitted on 
or before July 2, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\29\
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    \29\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-12192 Filed 6-10-19; 8:45 am]
 BILLING CODE 8011-01-P