[Federal Register Volume 88, Number 188 (Friday, September 29, 2023)]
[Notices]
[Pages 67408-67411]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-21342]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-98502; File No. SR-CBOE-2023-051]


Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
Its Rules Regarding Early Termination of Complex Order Auctions

September 25, 2023.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on September 15, 2023, Cboe Exchange, Inc. (the ``Exchange'' or ``Cboe 
Options'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I, II, 
and III, 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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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Cboe Exchange, Inc. (the ``Exchange'' or ``Cboe Options'') proposes 
to amend its rules regarding early termination of complex order 
auctions. 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://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx), 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
    The Exchange proposes to amend certain of its rules regarding the 
early termination of complex order auctions. The Exchange offers 
several auction mechanisms for complex orders, including the Complex 
Order Auction (``COA''),\5\ the Complex Automated Improvement Mechanism 
(``C-AIM''),\6\ and the Complex Solicitation Auction Mechanism (``C-
SAM'').\7\ The Rules regarding each of these complex order auction 
mechanisms contain provisions that describe what events may cause the 
applicable auction to terminate prior to the end of the auction 
timer.\8\ These provisions generally correspond to the pricing 
requirements to begin an auction. This ensures that the auction will 
not continue if the market changes in a manner that would create a 
situation in which the auction would not have been permitted to begin.
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    \5\ See Rule 5.33(d).
    \6\ See Rule 5.38.
    \7\ See Rule 5.40.
    \8\ See Rules 5.33(d)(3), 5.38(d)(1), and 5.40(d)(1).

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[[Page 67409]]

COA
    COA is a single-sided auction in which an eligible order will be 
exposed for price improvement. Specifically, upon receipt of a COA-
eligible order,\9\ the System sends a COA auction message to 
subscribers of data feeds that deliver COA auction messages, which 
message identifies certain terms of the COA-eligible order. To be COA-
eligible, a buy (sell) order must, among other things, have a price 
equal to or higher (lower) than the synthetic best offer (bid) (``SBO 
(SBB)''), provided that if any of the bids or offers on the simple book 
that comprise the SBB (SBO) is represented by a Priority Customer 
order,\10\ the price must be at least one minimum increment higher 
(lower) than the SBB (SBO).\11\ Corresponding to this requirement, 
current Rule 5.33(d)(3)(B) and (C) provide that a COA will terminate 
prior to the end of the COA auction timer:
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    \9\ See Rule 5.33(b)(5) (definition of COA-eligible order).
    \10\ A ``Priority Customer'' means a person or entity that is 
Public Customer and not a Professional. A ``Public Customer'' means 
a person that is not a broker-dealer, and a ``Professional'' means 
any person or entity that (a) is not a broker or dealer in 
securities, and (b) places more than 390 orders in listed options 
per day on average during a calendar month for its own beneficial 
account(s). See Rule 1.1 (definitions of Priority Customer, Public 
Customer, and Professional).
    \11\ See Rule 5.33(b)(5) (definition of COA-eligible order).
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     when the System receives a non-Priority Customer Order in 
a leg of the complex order that would improve the SBBO on the same side 
as the COA-eligible order that initiated the COA to a price better than 
the COA price, in which case the System terminates the COA and 
processes the COA-eligible order pursuant to subparagraph (5) below, 
enters the new order in the simple book, and updates the SBBO; or
     if the System receives a Priority Customer Order in a leg 
of the complex order that would join or improve the SBBO on the same 
side as the COA-eligible order that initiated the COA to a price equal 
to or better than the COA price, in which case the System terminates 
the COA and processes the COA-eligible order pursuant to subparagraph 
(5) below, enters the new order in the simple book, and updates the 
SBBO.
    The Exchange proposes to amend Rule 5.33(d)(3)(B) and (C) to 
provide that any incoming order may cause the SBBO to change in a 
manner that causes a COA auction to terminate early. Specifically, the 
proposed rule change amends these Rule provisions to state the 
following:

    (B) when the System receives an order in a leg of the complex 
order that would improve the SBBO on the same side as the COA-
eligible order that initiated the COA to a price better than the COA 
price, in which case the System terminates the COA and processes the 
COA-eligible order pursuant to [Rule 5.33(d)(5)], enters the new 
order in the Simple Book, and updates the SBBO; or
    (C) if the System receives an order in a leg of the complex 
order that would join or improve the SBBO on the same side as the 
COA-eligible order that initiated the COA to a price equal to the 
COA price and cause any component of the SBBO to be represented by a 
Priority Customer, in which case the System terminates the COA and 
processes the COA-eligible order pursuant to [Rule 5.33(d)(5)], 
enters the new order in the Simple Book, and updates the SBBO.

Pursuant to the proposed change to subparagraph (B), a COA will 
continue to terminate early if the Exchange receives any simple order 
(Priority or non-Priority Customer) that would cause the SBBO to be 
better than the stop price (as covered by current subparagraphs (B) and 
(C)). Pursuant to the proposed change to subparagraph (C), a COA will 
terminate early if the Exchange receives any simple order (not just a 
Priority Customer order as set forth in current subparagraph (C)) that 
would cause the SBBO to be equal to the stop price and have the best 
bid or offer (``BBO'') of a leg represented by a Priority Customer 
order.
C-AIM and C-SAM
    C-AIM permits a Trading Permit Holder (``TPH'') to submit for 
execution a complex order it represents as agent (``Agency Order'') 
against principal or solicited interest (an ``Initiating Order'') that 
stops the entire Agency Order at a price that satisfies specified 
criteria.\12\ Similarly, C-SAM permits a TPH to submit for execution an 
Agency Order against an Initiating Order (that, unlike for C-AIM, may 
only be solicited) that stops the entire Agency Order at a price that 
satisfies specified criteria.\13\ With respect to both C-AIM and C-SAM, 
the stop price for the buy (sell) Agency Order must, among other 
things:
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    \12\ See generally Rule 5.38; see also Rule 5.38(a) (C-AIM 
auction eligibility requirements) and (b) (C-AIM stop price 
requirements).
    \13\ See generally Rule 5.40; see also Rule 5.40(a) (C-SAM 
auction eligibility requirements) and (b) (C-SAM stop price 
requirements). The primary differences between C-AIM and C-SAM are 
that (a) the minimum size (as determined by the Exchange) of an 
order submitted into C-SAM cannot be smaller than 500 option 
contracts on the smallest leg, while the minimum size of a C-AIM 
order may not be smaller than one contract (compare Rules 5.38(a)(3) 
and 5.40(a)(3)) and (b) and that execution of orders submitted into 
C-SAM are handled as all-or-none orders.
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     with respect to same-side simple orders, be (a) at least 
one minimum increment better than the SBB (SBO) if the applicable side 
of the BBO on any component of the complex strategy is represented by a 
Priority Customer order on the simple book; or (b) at or better than 
the SBB (SBO) if the applicable side of the BBO of each component of 
the complex strategy is represented by a non-Priority Customer order or 
quote on the simple book; and
     with respect to opposite-side simple orders, be (a) at 
least one minimum increment better than the SBO (SBB) if the BBO of any 
component of the complex strategy is represented by a Priority Customer 
order on the simple book; or (b) at or better than the SBO (SBB) if the 
BBO of each component of the complex strategy represents a non-Priority 
Customer quote or order on the simple book.\14\
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    \14\ See Rules 5.38(b)(1) and (3) and 5.40(b)(1) and (3).
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    Corresponding to these requirements, current Rules 5.38(d)(1)(d), 
(e), and (f) and 5.40(d)(1)(d), (e), and (f) \15\ provide that a C-AIM 
or C-SAM auction, respectively, will terminate prior to the end of the 
C-AIM or C-SAM, as applicable, auction timer:
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    \15\ The proposed rule change capitalizes the lettering of the 
subparagraphs in Rules 5.38(d)(1) and 5.40(d)(1) to conform to the 
lettering used throughout the Rulebook.
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     upon receipt by the System of an unrelated non-Priority 
Customer order or quote that would post to the simple book and cause 
the SBBO on the same side as the Agency Order to be better than the 
stop price;
     upon receipt by the System of an unrelated Priority 
Customer order in any component of the complex strategy that would post 
to the simple book and cause the SBBO on the same side as the Agency 
Order to be equal to or better than the stop price; or
     upon receipt by the System of a simple non-Priority 
Customer order that would cause the SBBO on the opposite side of the 
Agency Order to be better than the stop price, or a Priority Customer 
order that would cause the SBBO on the opposite side of the Agency 
Order to be equal to or better than the stop price.
    The Exchange proposes to amend Rules 5.38(d)(1)(d), (e), and (f) 
((D) and (E) as proposed) and 5.40(d)(1)(d), (e), and (f) ((D) and (E) 
as proposed) to provide that any incoming order may cause the SBBO to 
change in a manner that causes a C-AIM or C-SAM auction, respectively, 
to terminate early. Specifically, the proposed rule change amends these 
Rule provisions to state the following:

    (D) upon receipt by the System of an unrelated order or quote 
that would post to

[[Page 67410]]

the Simple Book and cause the SBBO on the same side as the Agency 
Order to be (i) better than the stop price, or (ii) equal to the 
stop price if any component of the SBBO is then represented by a 
Priority Customer;
    (E) upon receipt by the System of an unrelated order that would 
post to the Simple Book and cause the SBBO on the opposite side of 
the Agency Order to be (i) better than the stop price, or (ii) equal 
to the stop price if any component of the SBBO is then represented 
by a Priority Customer;

    Pursuant to the proposed subparagraph (D) of each of Rules 
5.38(d)(1) and 5.40(d)(1), a C-AIM or C-SAM will continue to terminate 
early if the Exchange receives any simple order (Priority or non-
Priority Customer) that would cause the SBBO on the same side as the 
Agency Order to be better than the stop price (as covered by current 
subparagraphs (d) and (e)). Additionally, pursuant to the proposed 
subparagraph (D) of each of Rules 5.38(d)(1) and 5.40(d)(1), a C-AIM or 
C-SAM will terminate early if the Exchange receives any simple order 
(not just a Priority Customer order as set forth in current 
subparagraph (e)) that would cause the SBBO on the same side as the 
Agency Order to be equal to the stop price if any component of the SBBO 
is then represented by a Priority Customer order. Similarly, pursuant 
to proposed subparagraph (E) of each of Rules 5.38(d)(1) and 
5.40(d)(1), a C-AIM or C-SAM will continue to terminate early if the 
Exchange receives any simple order (Priority or non-Priority Customer) 
that would cause the SBBO on the opposite side of the Agency Order to 
be better than the stop price (as covered by current subparagraph (f)). 
Additionally, pursuant to proposed subparagraph (E) of each of Rules 
5.38(d)(1) and 5.40(d)(1), a C-AIM or C-SAM will terminate early if the 
Exchange receives any simple order (not just a Priority Customer order 
as set forth in current subparagraph (f)) that would cause the SBBO on 
the opposite side of the Agency Order to be equal to the stop price if 
any component of the SBBO is then represented by a Priority Customer 
order.
Purpose of Proposed Rule Changes
    One purpose of the COA, C-AIM, and C-SAM auction price requirements 
is to protect interest on the simple book, including Priority Customer 
interest, as execution of the auction or Agency order, as applicable, 
could not occur at a price outside the SBBO or at the same price as the 
SBBO if it includes simple Priority Customer interest on any leg. The 
purpose of early termination provisions corresponding to those auction 
price requirements is to terminate an auction if the market changes in 
a manner that would create a situation in which the auction would not 
have been permitted to begin. The proposed changes to each of the COA, 
C-AIM, and C-SAM early termination provisions add the scenario in which 
the applicable auction will terminate early if the Exchange receives a 
Non-Priority Customer order that would cause the SBBO to be equal to 
the stop price and have the BBO of a leg represented by a Priority 
Customer order (as current rules contemplate only that an incoming 
Priority Customer order could cause the SBBO to improve to a price 
equal to the auction price). This situation could occur, for example, 
if there was a Priority Customer order representing the BBO of one leg 
of the component strategy at the beginning of the auction but the stop 
price was better than the SBBO, and an incoming order (Priority or Non-
Priority Customer) during the auction caused the SBBO to change such 
that it then equals the stop price with a Priority Customer order 
representing one of the legs. The Exchange believes these proposed 
changes will further protect Priority Customer orders on the simple 
book by ensuring that no execution within COA, C-AIM, or C-SAM will 
occur at a price that equals the SBBO (and the applicable side) if the 
BBO of any component of the applicable complex strategy is represented 
by a Priority Customer, regardless of what type of incoming order 
caused the change in the SBBO.

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.\16\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \17\ 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) \18\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \16\ 15 U.S.C. 78f(b).
    \17\ 15 U.S.C. 78f(b)(5).
    \18\ Id.
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    In particular, the Exchange believes the proposed rule change will 
remove impediments to and perfect the mechanism of a free and open 
market and protect investors, because it will update scenarios that 
will cause complex auctions to terminate early in a manner that 
protects interest resting on the simple book, including Priority 
Customer interest. The proposed changes to each of the COA, C-AIM, and 
C-SAM early termination provisions add the scenario in which the 
applicable auction will terminate early if the Exchange receives a Non-
Priority Customer order that would cause the SBBO to be equal to the 
stop price and have the BBO of a leg represented by a Priority Customer 
order. These proposed changes will eliminate a current gap in current 
Rules, which contemplate only that an incoming Priority Customer order 
could cause the SBBO to improve to a price equal to the auction price). 
These proposed rule changes increase consistency among the auction 
price requirement and early termination provisions, thus removing 
impediments to a free and open market. As a result, the Exchange 
believes the proposed rule change will further protect Priority 
Customer orders on the simple book by ensuring that no execution within 
a COA, C-AIM, or C-SAM auction will occur at a price that equals the 
SBBO (and the applicable side) if the BBO of any component of the 
applicable complex strategy is represented by a Priority Customer, 
regardless of what type of incoming order caused the change in the 
SBBO, which ultimately protects investors and the public interest.

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 that the proposed rule change will impose any burden on 
intramarket competition that is not necessary or appropriate in 
furtherance of the purposes of the Act, as the proposed changes will 
apply to all TPHs in the same manner. The Exchange does not believe 
that the proposed rule change will impose any burden on intermarket 
competition that is not necessary or appropriate in

[[Page 67411]]

furtherance of the purposes of the Act, as it relates solely to 
provisions regarding when complex auctions occurring on the Exchange 
may terminate early. The proposed rule changes are not intended to be 
competitive.

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 foregoing proposed rule change does not:
    A. significantly affect the protection of investors or the public 
interest;
    B. impose any significant burden on competition; and
    C. become operative for 30 days from the date on which it was 
filed, or such shorter time as the Commission may designate, it has 
become effective pursuant to Section 19(b)(3)(A) of the Act \19\ and 
Rule 19b-4(f)(6) \20\ thereunder. 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. If the Commission takes such action, the 
Commission will institute proceedings to determine whether the proposed 
rule change should be approved or disapproved.
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    \19\ 15 U.S.C. 78s(b)(3)(A).
    \20\ 17 CFR 240.19b-4(f)(6).
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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-CBOE-2023-051 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-2023-051. 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-2023-051 and should be submitted on or 
before October 20, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-21342 Filed 9-28-23; 8:45 am]
BILLING CODE 8011-01-P