[Federal Register Volume 89, Number 94 (Tuesday, May 14, 2024)]
[Notices]
[Pages 42007-42009]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-10432]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-100081; File No. SR-CBOE-2024-015]


Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of 
Filing of Amendment No. 1 and Order Granting Accelerated Approval of a 
Proposed Rule Change, as Modified by Amendment No. 1, To Amend Exchange 
Rule 5.33, Complex Orders

May 8, 2024.

I. Introduction

    On March 19, 2024, Cboe Exchange, Inc. (``Exchange'' or ``Cboe 
Options'') 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 amend the definition of 
``complex strategy'' in Exchange Rule 5.33(a) to allow the Exchange to 
create new complex strategies. In addition, the proposal amends 
Exchange Rule 5.33(b)(2) to provide that, in a class in which the 
Exchange determines that complex orders with Capacity M or N are not 
eligible for entry into the Complex Order Book (``COB''), the Exchange 
may determine that a complex order with Capacity M or N may enter the 
COB in complex strategies designated by the Exchange.\3\ The proposed 
rule change was published for comment in the Federal Register on March 
28, 2024.\4\ On April 4, 2024, the Exchange filed Amendment No. 1 to 
the proposed rule change.\5\ The Commission has received no comment 
letters regarding the proposal. The Commission is publishing this 
notice to solicit comment on Amendment No. 1 and is approving the 
proposed rule change, as modified by Amendment No. 1, on an accelerated 
basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ The Exchange states that the origin code ``M'' represents 
Exchange Market-Makers, and the origin code ``N'' represents market 
makers or specialists on another exchange (``away market makers''). 
The Exchange states that, currently, orders representing any 
capacity, including M and N, are eligible for entry and may rest on 
the COB in all classes except S&P 500 Index (``SPX'') and Cboe 
Volatility Index (``VIX'') options. In SPX and VIX options, M and N 
complex orders are not eligible for entry into the COB except as set 
forth in Exchange Rule 5.33(b)(2). See Securities Exchange Act 
Release No. 99838 (March 22, 2024), 89 FR 21548, 21549, n.3 (March 
28, 2024) (``Notice'') and Amendment No. 1.
    \4\ See Notice, supra note 3.
    \5\ Amendment No. 1 revises the proposal to correct descriptions 
of the current complex book process by stating that Market-Makers 
and away market makers currently are not permitted to enter orders 
in VIX options, as well as SPX options, in the COB. Amendment No. 1 
makes no changes to Exhibit 5 of the proposal. Amendment No. 1 is 
available on the Commission's website at https://www.sec.gov/comments/sr-cboe-2024-015/srcboe2024015.htm.
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II. Description of the Proposed Rule Change, as Modified by Amendment 
No. 1

    The definition of complex strategy in Exchange Rule 5.33(a) 
provides that new complex strategies may be created as the result of 
the receipt of a complex instrument creation request or the receipt of 
a complex order for a complex strategy that is not currently in the 
Exchange's system.\6\ The Exchange proposes to revise this definition 
to also allow the Exchange to create new complex strategies. The 
Exchange states that customers will continue to have the

[[Page 42008]]

ability to create complex instruments as they do today.\7\
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    \6\ See Cboe Rule 5.33(a).
    \7\ See Notice, 89 FR at 21550.
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    Exchange Rule 5.33(b)(2) states, in part, that the Exchange 
determines which Capacities are eligible for entry into the COB.\8\ The 
Exchange states that, currently, orders entered with any Capacity, 
including Market-Maker and away market-maker orders, are eligible for 
entry and may rest on the COB in all classes except SPX and VIX.\9\ In 
SPX and VIX options, Market-Maker and away market maker complex orders 
are not eligible for entry into the COB except as set forth in Exchange 
Rule 5.33(b)(2)(A).\10\ The Exchange proposes to amend Exchange Rule 
5.33(b)(2) to provides that in a class in which the Exchange determines 
that orders with Capacity M or N are not eligible for entry into the 
COB, the Exchange may determine that a complex order with Capacity M or 
N may enter the COB in complex strategies designated by the Exchange. 
The Exchange will have the ability to designate strategies created by 
the Exchange and by users for the entry of Market-Maker and away market 
maker orders in the COB.\11\
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    \8\ ``Capacity'' means the capacity in which a User submits an 
order, which the User specifies by applying the corresponding code 
to the order. See Cboe Rule 1.1.
    \9\ See Amendment No. 1.
    \10\ See id. Exchange Rule 5.33(b)(2)(A) provides that ``In a 
class in which the Exchange determines complex orders with Capacity 
M or N are not eligible for entry into the COB, the Exchange may 
determine that a complex order with Capacity M or N may enter the 
COB if: (i) the complex order is on the opposite side of (a) a 
Priority Customer complex order(s) resting in the COB with a price 
not outside the SNBBO; or (b) orders on the same side of the market 
in the same complex strategy that initiated a COA(s) if there are 
``x'' number of COAs within ``y'' milliseconds, counted on a rolling 
basis (the Exchange determines the number ``x'' (which must be at 
least two) and the time period ``y'' (which may be no more than 
2,000); and (ii) the User cancels the complex order, if it remains 
unexecuted, no later than a specified time (which the Exchange 
determines and may be no more than five minutes) after the time the 
COB receives the M or N complex order.''
    \11\ See Notice, 89 FR at 21550.
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    When determining which complex strategies to create and in which 
complex strategies the orders of Market-Makers and away market makers 
will be eligible for COB entry, the Exchange represents that it intends 
to make such determinations based on objective, nondiscriminatory 
factors, including strategy type, orders, and executions within a 
strategy type using close by strikes, and market participant 
feedback.\12\
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    \12\ See id. at 21552.
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III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change, as modified by Amendment No. 1, is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to a national securities exchange.\13\ In particular, the 
Commission finds that the proposed rule change is consistent with 
Section 6(b)(5) of the Act,\14\ which requires, among other things, 
that the rules of a national securities exchange be designed to prevent 
fraudulent and manipulative acts and practices, 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.
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    \13\ 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).
    \14\ 15 U.S.C. 78f(b)(5).
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    The proposal will allow the Exchange to create complex strategies 
and to determine, in classes for which the Exchange has determined that 
the orders of Market-Makers and away market makers may not rest in the 
COB, that the orders of Market-Makers and away market makers may rest 
in the COB in complex strategies designated by the Exchange. As 
described more fully in the Notice, the Exchange states that it 
understands from market participants that electronic trading in complex 
strategies may be limited for a variety of reasons, including the 
fragmentation of liquidity across multiple customer-created complex 
instruments expressing a similar exposure profile.\15\ The Exchange 
states that allowing it to create complex strategies, and to designate 
complex strategies in which the orders of Market-Makers and away market 
makers are eligible for entry in the COB, would permit the 
consolidation of liquidity in a single complex strategy that currently 
is spread across multiple customer-created complex instruments 
expressing the same or similar exposure profiles.\16\ The Exchange 
further states that the proposal to allow the Exchange to create 
complex strategies could aggregate liquidity seeking a particular level 
of risk exposure in a single set of strikes for a complex strategy (as 
opposed to across many varying strikes).\17\ According to the Exchange, 
the consolidation of liquidity resulting from the proposed changes 
could increase execution opportunities at more competitive prices.\18\ 
The Commission believes that consolidating liquidity in particular 
complex strategies, including commonly traded strategies, could 
increase price competition in these strategies, potentially resulting 
in more favorable executions for investors. The Exchange represents 
that it will determine the complex strategies to create and the complex 
strategies in in which the orders of Market-Makers and away market 
makers will be eligible for COB entry based on objective and 
nondiscriminatory factors, including the strategy type, orders, and 
executions within a strategy type using close by strikes, and market 
participant feedback.\19\ In addition, the Exchange states that 
customers will continue to have the ability to create complex 
instruments as they do today.\20\
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    \15\ See Notice, 89 FR at 21549.
    \16\ See Notice, 89 FR at 21459, 21550.
    \17\ See Notice, 89 FR at 21550.
    \18\ See id.
    \19\ See Notice, 89 FR at 21552.
    \20\ See id. at 21550. See also Exchange Rule 5.33(a) 
(definition of complex strategy).
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IV. Solicitation of Comments on Amendment No. 1 to the Proposed Rule 
Change

    Interested persons are invited to submit written data, views, and 
arguments concerning whether Amendment No. 1 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-2024-015 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-2024-015. 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

[[Page 42009]]

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-2024-015 and should be submitted on or before June 4, 2024.

V. Accelerated Approval of Proposed Rule Change, as Modified by 
Amendment No. 1

    The Commission finds good cause to approve the proposed rule 
change, as modified by Amendment No. 1, prior to the thirtieth day 
after the date of publication of notice of the filing of Amendment No. 
1 in the Federal Register. The proposal, as originally filed, stated 
that SPX is the only option class for which the Exchange has determined 
that the orders of Market-Makers and away market makers are not 
eligible for entry in the COB.\21\ Amendment No. 1 revises the proposal 
to indicate that the Exchange has determined that the orders of Market-
Makers and away market makers in VIX options, as well as SPX options, 
are not eligible for entry in the COB. Amendment No. 1 does not modify 
the rule text or the operation of the proposed rules; rather it 
corrects an erroneous factual statement regarding the option classes 
for which the Exchange has determined that the orders of Market-Makers 
and away market makers are not eligible to rest in the COB. 
Accordingly, the Commission finds good cause, pursuant to Section 
19(b)(2) of the Act,\22\ to approve the proposed rule change, as 
modified by Amendment No. 1, on an accelerated basis.
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    \21\ See Notice, 89 FR at 21549, n.3 and n.4.
    \22\ 15 U.S.C. 78s(b)(2).
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VI. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\23\ that the proposed rule change (SR-CBOE-2024-015), as modified 
by Amendment No. 1, is approved.
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    \23\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
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    \24\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-10432 Filed 5-13-24; 8:45 am]
BILLING CODE 8011-01-P