[Federal Register Volume 90, Number 227 (Friday, November 28, 2025)]
[Notices]
[Pages 54806-54811]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-21404]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-104245; File No. SR-CBOE-2025-081]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
Rule 5.34 To Adopt a Wide Market Protection Mechanism
November 24, 2025.
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 November 19, 2025, 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
and II below, which Items have been prepared by the Exchange. 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.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend Rule 5.34 to adopt a wide market
protection mechanism designed to reduce the risk of orders executing at
extreme or adverse prices when the national best bid and offer
(``NBBO'') is determined to be wide. The text of the proposed rule
change is provided in Exhibit 5.
The text of the proposed rule change is also available on the
Commission's website (https://www.sec.gov/rules/sro.shtml), the
Exchange's website (https://www.cboe.com/us/options/regulation/rule_filings/bzx/), and at the principal office of the Exchange.
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.
[[Page 54807]]
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of this rule filing is to amend Rule 5.34(a), Order and
Quote Price Protection Mechanisms and Risk Controls (Simple Orders), to
adopt a wide market protection mechanism designed to reduce the risk of
orders executing at extreme or adverse prices when the NBBO is
determined to be wide.\3\ The proposed wide market protection mechanism
will leverage the existing iterative drill-through protection mechanism
for certain orders when the NBBO is wide and will initiate a drill-
through pause on applicable inbound market or limit orders or elected
Stop (Stop-Loss) \4\ or Stop-Limit \5\ orders which would either
execute or post to the Book \6\ at potentially extreme prices.
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\3\ The Exchange notes it currently has a Market Order NBBO
Width Protection Mechanism set forth in Rule 5.34(a)(2); the
proposed rule change does not result in changes to the Market Order
NBBO Width Protection Mechanism, which is infrequently triggered. In
general, the current Market Order NBBO Width Protection Mechanism
applies when the NBBO is significantly wider than will be considered
under the proposed wide market protection mechanism. Further, the
Market Order NBBO Width Protection is applicable only to market
orders and does not apply to Stop (Stop-Loss) orders. The proposed
wide market protection mechanism is applicable to market and limit
orders (subject to certain exceptions), and is intended to ``catch''
more orders. Unlike the Market Order NBBO Width Protection
Mechanism, which cancels orders too far outside the NBBO, the
proposed mechanism will trigger the drill-through process for
applicable orders and thus provide additional execution
opportunities.
\4\ 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. Users may not
designate a Stop Order as All Sessions. Users may not designate bulk
messages as Stop Orders. A User may not designate a Stop order as
Direct to PAR. See Rule 5.6(c) (definition of ``Stop (Stop-Loss)''
order).
\5\ 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. A User may not
designate a Stop-Limit Order as All Sessions or RTH and Curb. Users
may not designate bulk messages as Stop-Limit Orders. A User may not
designate a Stop-Limit order as Direct to PAR. See Rule 5.6(c)
(definition of ``Stop-Limit'' order).
\6\ ``Book'' means the electronic book of simple orders and
quotes maintained by the System, which single book is used during
both the regular trading hours and global trading hours trading
sessions. See Rule 1.1 (definition of, ``Book'').
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Drill-through price protection is currently described in Exchange
Rule 5.34(a)(4). Under Rule 5.34(a)(4)(A), if a buy (sell) order enters
the Book at the conclusion of the opening auction process or would
execute or post to the Book when it enters the Book, the System \7\
executes the order up (down) to a buffer amount (the Exchange
determines the buffer amount on a class and premium basis) above
(below) the offer (bid) limit of the Opening Collar \8\ or the National
Best Offer (``NBO'') (National Best Bid (``NBB'')) that existed at the
time of order entry, respectively (the ``drill-through price'').\9\
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\7\ ``System'' means the Exchange's hybrid trading platform that
integrates electronic and open outcry trading of option contracts on
the Exchange and includes any connectivity to the foregoing trading
platform that is administered by or on behalf of the Exchange, such
as a communications hub. See Rule 1.1 (definition of, ``System'').
\8\ See Rule 5.31(a) for the definition of Opening Collars.
\9\ See Rule 5.34(a)(4)(A).
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Rule 5.34(a)(4)(C) establishes an iterative drill-through process,
whereby orders will rest in the Book for multiple time periods and at
more aggressive displayed prices during each time period.\10\
Specifically, for a market order with a Time-in-Force of Day or a limit
order (or unexecuted portion) with a Time-in-Force of Day, Good-til-
Cancelled (``GTC''), or Good-til-Date (``GTD''), the System enters the
order in the Book with a displayed price equal to the drill-through
price. The order (or unexecuted portion) will rest in the Book at the
drill-through price for the duration of consecutive time periods (the
Exchange determines on a class-by-class basis the length of the time
period in milliseconds, which may not exceed three seconds) (each time
period is referred to as an ``iteration'').\11\ Following the end of
each period, the System adds (if a buy order) or subtracts (if a sell
order) one buffer amount (the Exchange determines the buffer amount on
a class-by-class basis) to the drill-through price displayed during the
immediately preceding period (each new price becomes the ``drill-
through price'').\12\ The order (or unexecuted portion) rests in the
Book at that new drill-through price for the duration of the subsequent
period. The System applies a timestamp to the order (or unexecuted
portion) based on the time it enters or is re-priced in the Book for
priority reasons. The order continues through this iterative process
until the earliest of the following to occur: (a) the order fully
executes; (b) the User \13\ cancels the order; or (c) the buy (sell)
order's limit price equals or is less (greater) than the drill-through
price at any time during application of the drill-through mechanism, in
which case the order rests in the Book at its limit price, subject to a
User's instructions.
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\10\ The Exchange will announce to Trading Permit Holders the
buffer amount and the length of the time periods in accordance with
Rule 1.5. The Exchange notes that each time period will be the same
length (as designated by the Exchange), and the buffer amount
applied for each time period will be the same.
\11\ See Rule 5.34(a)(4)(C).
\12\ See Rule 5.34(a)(4)(C).
\13\ The term ``User'' shall mean any Trading Permit Holder or
Sponsored User who is authorized to obtain access to the System
pursuant to Rule 5.5.
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Currently, there are common scenarios in which certain orders are
trading at prices that are, for reasons described below, artificially
wide. For example, certain trading strategies result in a significant
number of simple Stop (Stop-Loss) and Stop-Limit orders resting in the
Book and then being triggered simultaneously by a common event. The
receipt of large quantities of market and limit orders on the same side
of a series results in rapid removal of liquidity without opportunity
for replenishment (and potential related triggers of risk protections).
This results in potentially extreme or adverse execution prices as risk
is re-evaluated by Market-Makers and quotes are replenished, typically
within seconds of the start of the triggering event. Additionally, the
Exchange has observed an increase in resting Stop (Stop-Loss) or Stop-
Limit orders that are simultaneously triggered around the opening of
the relevant trading session and trading at extremely wide price
levels, up to Obvious Error prices. Similarly, Stop (Stop-Loss) and
Stop-Limit orders may be triggered on a trade (rather than an NBBO
update) that exhausts liquidity, causing the triggered order(s) to
execute at the next available bid/offer, which may be at an extreme
level, rather than affording the order the benefit of drill-through
price protection by displaying the order at the price of the triggering
trade and iterating from there.
The Exchange now proposes rule changes designed to prevent trades
at extreme or adverse price levels in such scenarios, when quotes are
wide or when orders are removing liquidity in rapid succession. The
Exchange proposes to amend Rule 5.34 to add a wide market protection
mechanism that will leverage the existing iterative drill-through
protection mechanism for certain orders when the NBBO is considered
``wide'' and will initiate a drill-through pause on applicable near-
marketable inbound market or limit orders or elected Stop (Stop-Loss)
or Stop-Limit orders which would either execute or post to the Book at
potentially extreme or adverse prices.
[[Page 54808]]
Specifically, the Exchange proposes to add new Rule 5.34(a)(5) to
establish a wide market protection mechanism. Under proposed Rule
5.34(a)(5)(A), if (i) when the NBBO is ``wide,'' the System receives a
buy (sell) order with a price that is more than a buffer amount above
(below) the NBB (NBO) or (ii) a Stop (Stop-Loss) or Stop-Limit buy
(sell) order is triggered and is priced more than a buffer amount above
(below) the NBB (NBO) and the NBBO after the triggering event is
``wide,'' the order enters the Book and is displayed at the Benchmark
Price for an Exchange determined-amount of time (this time period will
be considered the first drill-through iteration pursuant to Rule
5.34(a)(4)). If the order does not execute or there is any remaining
size of the order following a partial execution, the order will
continue the drill-through process pursuant to Rule 5.34(a)(4).
As set forth in proposed Rule 5.34(a)(5)(A), for purposes of the
proposed subparagraph (5), the NBBO is ``wide'' if there is no NBO or
the width of the NBBO for the series is equal to or greater than an
amount the Exchange determines on a class-by-class basis and which is
applied based on the NBB. Further, for a buy (sell) order, the
Benchmark Price is the least aggressive price of (1) the NBB (NBO) plus
(minus) a buffer amount determined by the Exchange on a class and
premium basis; \14\ (2) the last trade price, if greater (less) than or
equal to the NBB (NBO); \15\ or (3) the midpoint of the then-current
NBBO. Consider the below examples.
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\14\ In a no-bid scenario for buy orders, the NBB will be
considered as zero and the Benchmark Price will be calculated
accordingly. In a no-offer scenario for sell orders, the NBO will
not be used; the Benchmark Price will use the less aggressive of the
last trade price or the NBB plus the buffer amount determined by the
Exchange on a class-by-class basis.
\15\ If last trade price is worse than the NBO (NBB) it will not
be used as a possible Benchmark Price.
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Example #1, Demonstrating Eligibility of a Stop-Limit Order for Wide
Market Protection
In this example, a buy Stop-Limit order is triggered, the NBBO
after the triggering event is determined to be wide, and the limit
price is more than a buffer amount above the NBB. Under the proposed
rules, the order will be paused at the Benchmark Price and begin drill-
through iteration. Assume for purposes of this example, the market will
be considered wide pursuant to proposed Rule 5.34(a)(5)(A)(i) if the
width of the NBBO for the series is equal to or greater than $1.50.
Further assume for this example, the buffer amount to determine limit
order eligibility based on price is 80% of the width of NBBO.
Order 1: Stop-Limit Buy 5 contracts @3.33, Stop Price = $2.30
MM1 Quote: 5 @1.95 x 5 @3.65
MM2 Quote: 5 @1.95 x 5 @2.30 (NBBO, not wide)
Order 2: Buy 5 @2.30
Order 2 trades with MM2 Quote at 2.30; as a result, Order 1 is elected.
The resulting NBBO after the triggering event is 1.95 x 3.65 (i.e.,
NBBO width equal to $1.70), which is considered wide, and Order 1 is
triggered with a limit price of $3.33, which is greater than the
Exchange-determined buffer amount above the NBB (i.e., NBB of 1.95 +
(NBBO width of 1.70 x 0.80 buffer) = 3.31). Thus, Order 1 is subject to
the wide market protection mechanism.
Example #2, Demonstrating Determination of Benchmark Price
In this example, a buy Stop (Stop-Loss) order is triggered by a
quote, the NBBO after the triggering event is determined to be wide,
and the price is more than a buffer amount above the NBB. Under the
proposed rules, the order will be paused at the Benchmark Price and
begin drill-through iteration. Assume for purposes of this example, the
market will be considered wide pursuant to proposed Rule
5.34(a)(5)(A)(i) if the width of the NBBO for the series is equal to or
greater than $1.50. Further assume for this example, the buffer amount
to determine the order eligibility based on price is 80% of the width
of NBBO and the buffer amount used in determining Benchmark Price is
0.75.
Order 1: Stop (Stop-Loss) Buy 5 @3.40, Stop Price = $2.00
MM1 Quote: 5 @1.95 x 5 @3.75
MM2 Quote 5 @1.95 x 5 @2.30 (NBBO, not wide)
Order 2: Buy 5 @2.30
Order 2 trades with MM2 Quote at 2.30; as a result, Order 1 is elected.
The resulting NBBO after the triggering event is 1.95 x 3.75 (i.e.,
NBBO width equal to $1.80), which is considered wide, and Order 1 is
triggered with a price of $3.40, which is greater than the Exchange-
determined buffer amount above the NBB (i.e., NBB of 1.95 + (NBBO width
of 1.80 x 0.80 buffer) = 3.39). Thus, Order 1 is subject to the wide
market protection mechanism. The Benchmark Price is 2.30, determined as
the least aggressive of:
The NBB (1.95) plus a buffer amount determined by the Exchange
on a class and premium basis (0.75): 2.70
Last Trade Price: 2.30
The midpoint of the then-current NBBO: 2.85
Thus, executions of Order 1 up to $2.30 will be considered the
initial drill-through iteration, as the order becomes subject to the
drill-through price protection mechanism under Rule 5.34(a)(4)(C).
The Exchange proposes to add Rule 5.34(a)(5)(B) to specify that the
wide market protection mechanism applies during all trading sessions,
except for a pre-determined amount of time prior to the close of the
Regular Trading Hours (``RTH'') \16\ and Curb \17\ trading sessions
(such time will be determined by the Exchange).\18\ This provides a
final opportunity for market participants to utilize Stop (Stop-Loss)
and Stop-Limit orders to exit positions if desired at the end of the
trading session, in order to avoid unintended overnight risk.\19\
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\16\ RTH for transactions in equity options (including options
on individual stocks, ETFs, ETNs, and other securities) are the
normal business days and hours set forth in the rules of the primary
market currently trading the securities underlying the options,
except for options on ETFs, ETNs, Index Portfolio Shares, Index
Portfolio Receipts, and Trust Issued Receipts the Exchange
designates to remain open for trading beyond 4:00 p.m. Eastern Time
(ET) but in no case later than 4:15 p.m. ET. RTH for transactions in
index options are from 9:30 a.m. to 4:15 p.m. ET, subject to certain
exceptions.
\17\ The Curb session begins at 4:15 p.m. and goes until 5:00
p.m. on Monday through Friday.
\18\ During this time, the drill-through process will not be
initiated by the wide market protection mechanism, but may still
apply pursuant to Rule 5.34(a)(4).
\19\ The Exchange notes that Rule 6.5(c), Obvious Errors, will
continue to apply as it does today; there are no changes to the
Obvious Error rules as a result of the proposed rule change.
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The Exchange proposes to add Rule 5.34(a)(5)(C), which states that
if an order would initiate the wide market protection while the drill-
through process in the applicable series is in progress pursuant to
Rule 5.34(a)(4), then the System does not initiate the wide market
protection and instead the order would join the ongoing drill-through
as set forth in Rule 5.34(a)(4)(C)(iv). The Exchange also proposes to
add Rule 5.34(a)(5)(D) to exclude bulk messages, Intermarket Sweep
Orders (``ISOs''), Immediate-or-Cancel orders (``IOCs''), and M and N
capacity \20\ orders with a Time-in-Force of Day \21\ from the wide
market protection mechanism; and to note that the Exchange may apply
the wide market protection on a class-by-class basis.
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\20\ See Rule 1.1 (definition of ``Capacity'').
\21\ The Exchange notes that while M and N capacity orders with
a Time-in-Force of Day are excluded from the wide market protection
mechanism, they may separately be subject to the drill-through price
protection mechanism, as applicable.
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[[Page 54809]]
The Exchange also proposes to amend Rule 5.34(a)(1)(A)(ii) \22\ to
exclude from the current protections for market orders in no-bid series
certain orders that would be otherwise subject to wide market
protection under the proposed rule changes. Currently, under Rule
5.34(a)(1)(A)(ii), if the System receives a sell market order in a
series after it is open for trading with an NBB of zero, and the NBO in
the series is greater than $0.50, the System cancels or rejects the
market order, or routes the market order to PAR for manual handling,
subject to a User's instruction, except if a drill-through process
(described in subparagraph (a)(4)) is in progress for sell orders in
the series and the sell market order would be subject to the drill-
through protection, then the order joins the ongoing drill-through
process in the then-current iteration and at the then-current drill-
through price, regardless of NBBO. The Exchange proposes to amend Rule
5.34(a)(1)(A)(ii) to note that in the event the System receives a sell
market order in a series after it is open for trading with an NBB of
zero and the NBO in the series is greater than $0.50, if the order is
subject to wide market protection pursuant to proposed subparagraph
(a)(5), then the order enters the Book and is displayed at the
Benchmark Price for an Exchange determined-amount of time (this time
period will be considered the first drill-through iteration pursuant to
subparagraph (a)(4)), with any remaining size continuing the drill-
through process pursuant to subparagraph (a)(4).
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\22\ The Exchange also proposes a non-substantive change to
correct a typographical error within Rule 5.34(a)(1)(A)(ii), to
change ``expect'' to ``except.''
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Finally, the Exchange proposes to amend Rule 5.34(a)(1)(B) to
exclude from the current protections for market orders in no-offer
series certain orders that would be otherwise subject to wide market
protection under the proposed rule changes or drill-through protections
pursuant to current Rule 5.34(a)(4). Currently under Rule
5.34(a)(1)(B), if the System receives a buy market order in a series
after it is open for trading with an NBO of zero, the System cancels or
rejects the market order. The Exchange proposes to amend Rule
5.34(a)(1)(B) to note that in the event the System receives a buy
market order in a series after it is open for trading with an NBO of
zero, if the order is subject to wide market protection pursuant to
proposed subparagraph (a)(5), then the order enters the Book and is
displayed at the Benchmark Price for an Exchange determined-amount of
time (this time period will be considered the first drill-through
iteration pursuant to subparagraph (a)(4)), with any remaining size
continuing the drill-through process pursuant to subparagraph (a)(4);
or if a drill-through process (described in current subparagraph
(a)(4)) is in progress for buy orders in the series and the buy market
order would be subject to the drill-through protection, then the order
joins the ongoing drill-through process in the then-current iteration
and at the then-current drill-through price, regardless of NBBO.
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.\23\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \24\ 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) \25\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
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\23\ 15 U.S.C. 78f(b).
\24\ 15 U.S.C. 78f(b)(5).
\25\ Id.
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In particular, the Exchange believes the proposed rule change to
implement a wide market protection mechanism will remove impediments to
and perfect the mechanism of a free and open market and a national
market system, and, in general, protect investors, because it will
provide applicable orders with additional and consistent execution
opportunities and price protections. As noted above, the wide market
protection mechanism is effectively an extension of the Exchange's
current drill-through price protection, of which the primary purpose is
to prevent orders from executing at prices ``too far away'' from the
market when they enter the Book for potential execution. The Exchange
believes the proposed rule change is consistent with this purpose,
because Users who submit applicable orders or have orders triggered in
markets that are wider than expected, possibly due to wide quotes or
orders removing liquidity in rapid succession, will receive price
protection against execution at potentially extreme or adverse prices
and additional execution opportunities.
Further, the proposed rule change to leverage the existing
iterative drill-through protection mechanism for certain orders when
the NBBO is considered ``wide'' allows these orders to receive the same
level of price protection as other orders otherwise subject to the
drill-through process. The proposed rule change will allow orders in
wide markets additional execution opportunities while continuing to
protect them against execution at potentially extreme prices, by
providing the opportunity for execution at reasonable prices by
allowing for liquidity replenishment that may result in more aggressive
prices, especially during times when liquidity may require additional
time to replenish, such as near the beginning of a trading session.
The Exchange believes the proposal will enhance risk protections,
the individual firm benefits of which flow downstream to counterparties
both at the Exchange and at other options exchanges, which increases
systemic protections as well. The Exchange believes enhancing risk
protections will allow Users to enter orders, including Stop (Stop-
Loss) and Stop-Limit orders, and quotes with further reduced fear of
inadvertent exposure to excessive risk, which will benefit investors
through increased exposure to liquidity for the execution of their
orders.
The Exchange also believes the proposed changes regarding the
application of the wide market protection mechanism during Exchange
trading sessions will protect investors, as the proposed application
allows market participants a final opportunity to utilize Stop (Stop-
Loss) and Stop-Limit orders to exit positions if desired at the end of
the relevant trading session, in order to avoid unintended overnight
risk. Further, the proposed changes add transparency to the rules
regarding the wide market protection functionality and provide greater
certainty as to the application of the process.
Additionally, the Exchange believes changes to specifically exclude
bulk messages, ISOs, and IOCs from the wide market protection mechanism
(similar to the drill-through price protection mechanism) is reasonable
and
[[Page 54810]]
appropriate, given the iterative pricing process would be inconsistent
with the orders instruction (and thus the user's intent). Further, the
Exchange believes the proposed change to exclude M and N capacity
orders with a Time-in-Force of Day from the wide market protection is
reasonable, as Market-Makers are positioned to observe and subsequently
address wide market scenarios, by tightening the NBBO with an order or
quote.
The Exchange also believes the proposed change to clarify that the
System will not initiate the wide market protection while a drill-
through process in the applicable series is in progress is reasonable,
as it will bring transparency and clarity to the rulebook regarding how
the wide market protection mechanism interacts with the drill-through
price protection mechanism, to the benefit of investors. This proposed
change is consistent with current drill-through functionality, where
incoming orders that enter the Book while the drill-through is in
progress and that would be subject to the drill-through protection join
the on-going drill-through process.\26\
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\26\ See Rule 5.34(a)(4)(iv).
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Additionally, the Exchange believes changes to specifically exclude
from the current protections for market orders in no-bid (offer) series
certain orders that would otherwise be subject to wide market
protection will remove impediments to and perfect the mechanism of a
free and open market and a national market system, and, in general,
protect investors. Specifically, the Exchange believes the change to
exclude from the current protections for market orders in no-bid
(offer) series certain orders that would otherwise be subject to wide
market protection may allow opportunity for execution than if they were
immediately canceled or rejected. This proposed rule change may
increase execution opportunities for Users that submit sell market
orders with an NBB of zero when the NBO in the series is greater than
$0.50 (in the case of market orders in no-bid series protections) or
buy market orders with an NBO of zero while still providing protection
against executions at potentially erroneous prices. Similarly, the
Exchange believes the change to allow buy market orders received by the
System when the NBO is zero to be subject to the drill-through process
is reasonable, as it may allow opportunity for execution of such
orders, rather than if they were immediately canceled or rejected. This
change aligns market order in no-bid (offer) series protection for
Users that submit sell market orders with an NBB of zero when the NBO
in the series is greater than $0.50 (in the case of market orders in
no-bid series protections) with how the Exchange will handle buy market
orders with an NBO of zero.
Finally, the Exchange believes the proposed change to apply the
wide market protection on a class-by-class basis is reasonable, as
classes may have different trading characteristics or may be affected
differently by market conditions. The proposal will provide the
Exchange with flexibility to apply wide market protections in a manner
which accounts for material differences across option classes, thereby
enhancing investor protection while minimizing unnecessary market
disruption. Further, the Exchange believes the proposed changes are not
unfairly discriminatory, as wide market protection applies uniformly to
all market participants within each class. This approach is consistent
with the Exchange's existing practice of applying certain other order
and quote price protection and risk controls, such as the limit order
fat finger check for simple orders,\27\ on a class-by-class basis where
product characteristics warrant differential treatment in regard to
risk protections.
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\27\ See Rule 5.34(c)(1)(A).
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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 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 because the wide market
protection functionality will apply to all applicable orders in a class
in the same manner. Additionally, it will provide the same price
protection and execution opportunities to relevant orders that are
currently provided to orders that are subject to the drill-through
price protection process, as the wide market protection mechanism is
effectively an extension of the Exchange's current drill-through price
protection. As noted above, the Exchange believes it is not unfairly
discriminatory to apply this protection on a class-by-class basis, as
wide market protection applies uniformly to all market participants
within each class. This approach is consistent with the Exchange's
existing practice of applying certain other order and quote price
protection and risk controls, such as the limit order fat finger check
for simple orders,\28\ on a class-by-class basis where product
characteristics warrant differential treatment in regard to risk
protections.
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\28\ See Rule 5.34(c)(1)(A).
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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 the proposed
rule change relates specifically to price protections offered on the
Exchange and how the System handles orders as part of these price
protection mechanisms. The proposed wide market protection mechanism
expands the current drill-through price protection mechanism and
provides relevant orders with improved protection against execution at
potentially extreme or adverse prices through drill-through price
protection.
The Exchange believes the proposed rule change would ultimately
provide all market participants with additional execution opportunities
when appropriate while providing protection from extreme or adverse
execution. The Exchange believes the proposal will enhance risk
protections, the individual firm benefits of which flow downstream to
counterparties both at the Exchange and at other options exchanges,
which increases systemic protections as well. The Exchange believes
enhancing risk protections will allow Users to enter orders, including
Stop (Stop-Loss) and Stop-Limit orders, and quotes with further reduced
fear of inadvertent exposure to excessive risk, which will benefit
investors through increased exposure to liquidity for the execution of
their orders. Without adequate risk management tools, Trading Permit
Holders could reduce the amount of order flow and liquidity they
provide. Such actions may undermine the quality of the markets
available to customers and other market participants. Accordingly, the
proposed rule change is designed to encourage Trading Permit Holders to
submit additional order flow and liquidity to the Exchange. The
proposed change may similarly provide additional execution
opportunities, which further benefits liquidity, especially during
times when liquidity may require additional time to replenish, such as
near the beginning of a trading session.
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.
[[Page 54811]]
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The Exchange has filed the proposed rule change pursuant to Section
19(b)(3)(A) of the Act \29\ and Rule 19b-4(f)(6) \30\ thereunder.
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) of the Act \31\ and Rule 19b-4(f)(6) \32\
thereunder.
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\29\ 15 U.S.C. 78s(b)(3)(A).
\30\ 17 CFR 240.19b-4(f)(6).
\31\ 15 U.S.C. 78s(b)(3)(A).
\32\ 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, along
with a brief description and text of 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) \33\ normally
does not become operative prior to 30 days after the date of the
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\34\ the Commission
may designate a shorter time if such action is consistent with the
protection of investors and the public interest. The Exchange has asked
the Commission to waive the 30-day operative delay so that the proposed
rule change may become operative immediately upon filing. The Exchange
believes waiver of the operative delay is consistent with the
protection of investors and the public interest because it will allow
the Exchange to more expeditiously implement the proposed changes which
will provide applicable orders with improved protection against
execution at potentially extreme or adverse prices via the wide market
protection mechanism. For these reasons, and because the proposed rule
change does not raise any novel legal or regulatory issues, the
Commission finds that waiver of the 30-day operative delay is
consistent with the protection of investors and the public interest.
Therefore, the Commission hereby waives the 30-day operative delay and
designates the proposed rule change to be operative upon filing.\35\
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\33\ 17 CFR 240.19b-4(f)(6).
\34\ 17 CFR 240.19b-4(f)(6)(iii).
\35\ 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. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule should be approved or disapproved.
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-CBOE-2025-081 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-2025-081. 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 filing 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-2025-081 and should be submitted on
or before December 19, 2025.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\36\
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\36\ 17 CFR 200.30-3(a)(12), (59).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-21404 Filed 11-26-25; 8:45 am]
BILLING CODE 8011-01-P