[Federal Register Volume 89, Number 26 (Wednesday, February 7, 2024)]
[Notices]
[Pages 8469-8472]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-02415]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-99457; File No. SR-CboeEDGX-2024-010]


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

February 1, 2024.
    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 January 25, 2024, Cboe EDGX Exchange, Inc. (the ``Exchange'' or 
``EDGX'') 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 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 EDGX Exchange, Inc. (the ``Exchange'' or ``EDGX 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://markets.cboe.com/us/options/regulation/rule_filings/edgx/), 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. Terminating the auction if one of 
these events occurs 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 21.20(d).
    \6\ See Rule 21.22.
    \7\ See Rule 21.23.
    \8\ See Rules 21.20(d)(3), 21.22(d)(1), and 21.23(d)(1).
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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 $0.01

[[Page 8470]]

higher (lower) than the SBB (SBO).\11\ Corresponding to this 
requirement, current Rule 21.20(d)(3)(B) and (C) provide, respectively, 
that a COA will terminate prior to the end of the COA auction timer:
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    \9\ See Rule 21.20(b) (definition of COA-eligible order).
    \10\ A ``Priority Customer'' means a person or entity that is 
not: (a) a broker or dealer in securities or (b) a Professional. A 
``Public Customer'' means a person that is not a broker or dealer in 
securities, 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 16.1 (definitions 
of Priority Customer, Public Customer, and Professional).
    \11\ See Rule 21.20(b) (definition of COA-eligible order).
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     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 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, posts the new 
order in the simple book, and updates the SBBO; or
     if the System receives a Priority Customer Order that 
would join or improve the SBBO on the same side as the COA in progress 
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, posts the new order in the simple book, and 
updates the SBBO.
    The Exchange proposes to amend Rule 21.20(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 subparagraphs (B) and (C) to provide 
as follows:
     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 21.20(d)(5), posts the new order to the Simple 
Book, and updates the SBBO; or
     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 21.20(d)(5), posts the new order to 
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 auction 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 auction 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 Member 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 Member 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 
(also referred to in this rule filing as the auction price) for the buy 
(sell) Agency Order must, among other things:
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    \12\ See generally Rule 21.22; see also Rule 21.22(a) (C-AIM 
auction eligibility requirements) and (b) (C-AIM stop price 
requirements).
    \13\ See generally Rule 21.23; see also Rule 21.23(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 
21.22(a)(3) and 21.23(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 21.22(b)(1) and (3) and 21.23(b)(1) and (3).
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    Corresponding to these requirements, current Rules 21.22(d)(1)(d), 
(e), and (f) and 21.23(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 21.22(d)(1) and 21.23(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 21.22(d)(1)(d), (e), and (f) 
((D) and (E) as proposed) and 21.23(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 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)(i) of each of Rules 
21.22(d)(1) and 21.23(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

[[Page 8471]]

side as the Agency Order to be better than the auction price (as 
covered by current subparagraphs (d) and (e)). Additionally, pursuant 
to the proposed subparagraph (D)(ii) of each of Rules 21.22(d)(1) and 
21.23(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 auction price if any 
component of the SBBO is then represented by a Priority Customer order. 
Similarly, pursuant to proposed subparagraph (E)(i) of each of Rules 
21.22(d)(1) and 21.23(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 auction price (as covered by 
current subparagraph (f)). Additionally, pursuant to proposed 
subparagraph (E)(ii) of each of Rules 21.22(d)(1) and 21.23(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 auction 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 current early termination provisions 
for COA provide that a COA will terminate early if the Exchange system 
receives (1) a simple order that would cause the SBBO on the same side 
as the auctioned order to be equal to or better than the auction price 
or (2) a simple Priority Customer order on the same side that would 
cause the SBBO on the same side as the auctioned order to be equal to 
or better than the auction price.\16\ Similarly, the current early 
termination provisions for C-AIM and C-SAM provide that a C-AIM or C-
SAM auction will terminate early if the Exchange system receives (1) a 
simple non-Priority Customer order that would cause the SBBO on the 
same side as the auctioned order to be better than the auction price, 
(2) a simple Priority Customer order that would cause the SBBO on the 
same side as the auctioned order to be equal to or better than the 
auction price, or (3) a simple non-Priority Customer order that would 
cause the SBBO on the opposite side of the auctioned order to be better 
than the auction price, or a simple Priority Customer Order that would 
cause the SBBO on the opposite side of the auctioned order to be equal 
to or better than the auction price. Ultimately, all of these 
provisions cover the scenarios in which the applicable auction would 
terminate early if the System receives any simple order that would 
cause the SBBO to be better than the auction price or a simple Priority 
Customer order that would cause the SBBO to equal the auction price. 
However, they do not cover the scenario in which the applicable auction 
would terminate early if the System receives a simple non-Priority 
Customer order that would cause the SBBO to equal the auction price and 
any component of the SBBO includes Priority Customer interest. The 
proposed changes to each of the COA, C-AIM, and C-SAM early termination 
provisions add this scenario. This situation addressed by the proposed 
changes 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 auction price was better than the SBBO 
(and thus the auction was able to begin), and an incoming order 
(Priority or non-Priority Customer) that arrives during the auction 
causes the SBBO to change such that the SBBO equals the auction price. 
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 (on the applicable side) if the SBBO includes Priority 
Customer interest, regardless of what type of incoming order (Priority 
Customer or non-Priority Customer) updates the SBBO to equal the 
auction price.
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    \16\ See current Rule 21.20(d)(3)(B) and (C).
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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.\17\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \18\ 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) \19\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \17\ 15 U.S.C. 78f(b).
    \18\ 15 U.S.C. 78f(b)(5).
    \19\ 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 
auction price and any component of the SBBO is 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 (on the applicable side) if any component of the 
SBBO is represented by a Priority Customer, regardless of what type of 
incoming order (Priority Customer or non-Priority Customer)

[[Page 8472]]

updates the SBBO, which ultimately protects investors and the public 
interest.
    The Exchange believes the proposed nonsubstantive changes to 
capitalize the lettering of the subparagraphs in Rules 21.22(d)(1) and 
21.23(d)(1) will benefit investors, as it will conform to the lettering 
used throughout the Rulebook and thus eliminate potential investor 
confusion.

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 Members 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 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.
    Additionally, the proposed nonsubstantive changes are not 
competitive and merely conform subparagraph lettering to the lettering 
used throughout the Rulebook.

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: (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, it has become 
effective pursuant to Section 19(b)(3)(A)(iii) of the Act \20\ and Rule 
19b-4(f)(6) thereunder.\21\ 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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    \20\ 15 U.S.C. 78s(b)(3)(A).
    \21\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
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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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 (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-CboeEDGX-2024-010 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-CboeEDGX-2024-010. 
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 (https://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-CboeEDGX-2024-010 and 
should be submitted on or before February 28, 2024.
    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(12).

Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-02415 Filed 2-6-24; 8:45 am]
BILLING CODE 8011-01-P