[Federal Register Volume 87, Number 173 (Thursday, September 8, 2022)]
[Notices]
[Pages 55053-55054]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-19350]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-95657; File No. SR-CBOE-2022-038]


Self-Regulatory Organizations; Cboe Exchange, Inc.; Order 
Approving a Proposed Rule Change To Amend CBOE Rule 5.32 With Respect 
to the Handling of Cancel/Replace Messages

September 1, 2022.

I. Introduction

    On July 7, 2022, Cboe Exchange, Inc. (``Exchange'' or ``CBOE'') 
filed with the Securities and Exchange Commission (``Commission''), 
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule 
change to establish that a cancel/replace message received for an order 
already resting on the Exchange's order book will cause such resting 
order to lose its original priority position, subject to certain 
exceptions. The proposed rule change was published for comment in the 
Federal Register on July 26, 2022.\3\ The Commission 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 Exchange Act Release No. 95328 (July 20, 2022), 87 FR 
44438 (``Notice'').
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II. Summary of the Proposal

    The Exchange proposes to amend CBOE Rule 5.32(e) to describe the 
impact on priority of a ``no-change'' order \4\ (i.e., an order 
submitted to cancel or replace a resting order that does not change any 
terms of an order) and of a cancel/replace message that does not change 
the price or size of a resting order but changes another term of an 
order. CBOE Rule 5.32(e) describes whether a resting order's priority 
position may change if it is modified with a cancel/replace message. 
Specifically, current CBOE Rule 5.32(e) states if the price of an order 
is changed, the order loses position and is placed in a priority 
position as if the Exchange's system (``System'') received the order at 
the time the order was changed. If the quantity of an order is 
decreased, it retains its priority position. If the quantity of an 
order is increased, it loses its priority position and is placed in a 
priority position as if the System received the order at the time the 
quantity of the order is increased.
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    \4\ In this context, the term ``order'' includes bids and offers 
submitted in bulk messages. A bulk message means a single electronic 
message a user submits with an M (Market-Maker) capacity to the 
Exchange in which the User may enter, modify, or cancel up to an 
Exchange-specified number of bids and offers. See CBOE Rule 1.1 
(definition of bulk message, which provides that the System handles 
a bulk message bid or offer in the same manner as it handles an 
order or quote, unless the Rules specify otherwise).
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    The Exchange explains, however, that CBOE Rule 5.32(e) is currently 
silent regarding how the System handles a cancel/replace message 
comprised of a no-change order or an order that changes terms other 
than price and size.\5\ The Exchange further represents that it 
recently determined that the System does not handle all no-change 
orders and messages uniformly with respect to how they affect resting 
orders. Specifically, the Exchange explains that currently, when the 
System receives a no-change order, the resting order would lose its 
priority position; however, if the System receives a no-change bid or 
offer in a bulk message, the resting bid or offer would not lose its 
priority position.\6\
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    \5\ See Notice, supra note 3, at 44439.
    \6\ See id.
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    The Exchange proposes to amend CBOE Rule 5.32(e) so that it states 
as follows: if a User submits a cancel/replace message for a resting 
order, regardless of whether the cancel/replace message modifies any 
terms of the resting order, the order loses its priority position and 
is placed in a priority position based on the time the System receives 
the cancel/replace message, unless the User only (1) decreases the 
quantity of an order (as is currently set forth in the Rules), (2) 
modifies the Max Floor (if a Reserve Order), or (3) modifies the stop 
price (if a Stop or Stop-Limit order), in which case the order retains 
its priority position.

[[Page 55054]]

    The Exchange states that this change will harmonize the handling of 
all no-change orders and quotes so that any no-change order or bulk 
message bid or offer will lose priority.\7\ Further, the Exchange 
states that this proposal will also codify current System functionality 
that causes a resting order to lose its priority position if any 
cancel/replace message is submitted if any term other than the Max 
Floor (if a Reserve Order) \8\ or the stop price (if a Stop or Stop-
Limit order \9\) is modified.\10\
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    \7\ See id.
    \8\ A ``Reserve Order'' is a limit order with both a portion of 
the quantity displayed and a reserve portion of the quantity not 
displayed. See CBOE Rule 5.6.
    \9\ A ``Stop (Stop-Loss)'' order is an order to buy (sell) that 
becomes a market order when the consolidated last sale price 
(excluding prices from complex order trades if outside of the NBBO) 
or NBB (NBO) for a particular option contract is equal to or above 
(below) the stop price specified by the User. A ``Stop-Limit'' order 
is an order to buy (sell) that becomes a limit order when the 
consolidated last sale price (excluding prices from complex order 
trades if outside the NBBO) or NBB (NBO) for a particular option 
contract is equal to or above (below) the stop price specified by 
the User. See CBOE Rule 5.6.
    \10\ See Notice, supra note 3, at 44439.
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III. Discussion and Commission Findings

    After careful review, the Commission finds that the Exchange's 
proposal is consistent with the requirements of the Exchange Act and 
the rules and regulations thereunder applicable to a national 
securities exchange.\11\ In particular, the Commission finds that the 
proposed rule change is consistent with Sections 6(b)(5) \12\ and 
6(b)(8) \13\ of the Exchange Act. Section 6(b)(5) of the Exchange 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 Exchange 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 Exchange 
Act.
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    \11\ 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).
    \12\ 15 U.S.C. 78f(b)(5).
    \13\ 15 U.S.C. 78f(b)(8).
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    The Commission believes that requiring the System to handle all 
cancel/replace orders in a uniform manner with respect to priority of 
affected resting orders is consistent with the Exchange Act in that 
such requirement is designed to promote just and equitable principles 
of trade and remove impediments to and perfect the mechanism of a free 
and open market and a national market system. Furthermore, the 
Commission believes that narrowly restricting when a resting order 
retains its priority after the System receives a subsequent cancel/
replace message (e.g., its only modifies the Max Floor of the resting 
order) is designed, to, among other things, 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 without imposing any 
unreasonable burdens on competition.
    Accordingly, the Commission finds that the proposed rule change is 
consistent with the Exchange Act.

IV. Conclusion

    It is therefore ordered that, pursuant to Section 19(b)(2) of the 
Exchange Act,\14\ the proposed rule change (SR-CBOE-2022-038) be, and 
hereby is, approved.
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    \14\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-19350 Filed 9-7-22; 8:45 am]
BILLING CODE 8011-01-P