Notice2021-12243
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Its Rules in Connection With the Number of Legs of a Complex Order That May Be Entered on a Single Order Ticket at the Time of Systemization
Primary source
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Published
June 11, 2021
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 86 Issue 111 (Friday, June 11, 2021)</title>
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[Federal Register Volume 86, Number 111 (Friday, June 11, 2021)]
[Notices]
[Pages 31361-31363]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-12243]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-92116; File No. SR-CBOE-2021-036]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
Its Rules in Connection With the Number of Legs of a Complex Order That
May Be Entered on a Single Order Ticket at the Time of Systemization
June 7, 2021.
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 May 25, 2021, Cboe Exchange, Inc. (the ``Exchange'' or ``Cboe
Options'') filed with the Securities and Exchange Commission
(``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 Exchange, Inc. (the ``Exchange'' or ``Cboe Options'') proposes
to amend its Rules in connection with the number of legs of a complex
order that may be entered on a single order ticket at the time of
systemization. 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 (<a href="http://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx">http://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx</a>), 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 its Rules in connection with the
number of legs of a complex order that may be entered on a single order
ticket at the time of systemization.
Specifically, Rule 5.7(f) currently provides that each order,
cancellation of, or change to an order transmitted to the Exchange must
be ``systematized'' in a format approved by the Exchange, either before
it is sent to the Exchange or upon receipt on the Exchange's trading
floor. An order is systematized if (1) the order is sent electronically
to the Exchange or (2) the order that is sent to the Exchange
nonelectronically (e.g., telephone orders) is input electronically into
the Exchange's systems contemporaneously upon receipt on the Exchange,
and prior to representation of the order. Any proprietary system
approved by the Exchange on the Exchange's trading floor that receives
orders is considered an Exchange system for purposes of this Rule.\5\
Regarding the systemization of complex orders, Rule 5.7(f)(4)
particularly provides that complex orders of 12 legs or less (one leg
of which may be for an underlying security or security future, as
applicable) must be entered on a single order ticket at time of
systemization. If permitted by the Exchange (which the Exchange will
announce by Regulatory Circular), complex orders of more than 12 legs
(one leg of which may be for an underlying security or security future,
as applicable) may be split across multiple order tickets, if the
Trading Permit Holder representing the complex order uses the fewest
order tickets necessary to systematize the order and identifies for the
Exchange the order tickets that are part of the same complex order (in
a form and manner prescribed by the Exchange).
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\5\ See Rule 5.7.03.
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The Exchange notes that it adopted the 12 leg maximum per order
ticket in 2015 as a result of Exchange system limitations.\6\ At that
time, the Exchange could only support the processing of up to 12 legs
on a single order ticket for representation and execution in open
outcry as a complex order.\7\ Based on customer feedback, the Exchange
understands that there are order entry and execution systems used by
Trading Permit Holders (``TPHs'') that are able to support at least 16
legs. If a TPH with a system that can support 16 legs on a single order
ticket receives a complex order for more than 12 legs to route to an
Exchange system for execution on the Exchange's trading floor, it must
break up the order to comply with Rule 5.7(f)(4). As such, the Exchange
proposes to amend Rule 5.7(f)(4) to increase the 12 leg maximum per
single order ticket to a maximum of 16 legs per single order ticket at
time of systemization. Pursuant to proposed Rule 5.7(f)(4), complex
orders of 16 legs or less (one leg of which may be for an underlying
security or security future, as applicable) must be entered on a single
order ticket at time of systemization and orders of more than 16 legs
may be split across multiple order tickets.\8\ The TPH representing the
complex order must continue to use the fewest order tickets necessary
to systematize the order and to identify for the Exchange the order
tickets that are part of the same complex order. In addition, the
proposed rule change also
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updates paragraph (3) under the definition of SPX Combo Order \9\ in
Rule 5.6(c), which currently reflects the same 12 leg maximum per
single order ticket at time of systemization, to provide that an SPX
Combo Order for 16 legs or fewer must be entered on a single order
ticket at time of systemization and that an SPX Combo Order for more
than 16 legs may be represented or executed as a single SPX Combo Order
in accordance with Rule 5.85(e) if it is split across multiple order
tickets and the Trading Permit Holder representing the SPX Combo Order
uses the fewest order tickets necessary to systematize the order and
identifies for the Exchange the order tickets that are part of the same
SPX Combo Order.
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\6\ See Securities Exchange Act Release No. 74169 (January 29,
2015), 80 FR 6145 (February 4, 2015) (SR-CBOE-2015-011), which
implemented the 12 leg per order requirement in current Rule
5.7(f)(4); see also Securities Exchange Act Release No. 75026 (May
21, 2015), 80 FR 30514 (May 28, 2015) (SR-CBOE-2015-048).
\7\ Exchange systems have, since 2015, been enhanced and are
able to support a greater number of legs per order ticket.
\8\ As similarly noted in the 2015 filing that implemented the
12 leg per order requirement currently reflected in Rule 5.7(f)(4),
TPHs will not be required to make changes to their own or third-
party vendor's order entry and execution systems. However, to the
extent a TPH wants to represent and execute a complex order
(including SPX Combo Orders) in open outcry, the order must be
entered on a single order ticket and cannot exceed 16 legs or, if
for more than 16 legs, entered on fewest order tickets necessary
(linked in a form and manner prescribed by the Exchange). For
example, if a TPH's order entry and execution system currently only
supports the open outcry processing of a complex order with up to 12
legs, the system would not need to be enhanced if the TPH does not
intend to represent and execute complex orders with more than 12
legs. If the TPH intends to represent and execute complex orders
with more than 12 legs (i.e., complex orders with 13 to 16 legs),
then the TPH may need to enhance its existing system or utilize a
third-party vendor's order entry and execution system that supports
the open outcry processing of such orders on a single order ticket.
See also SR-CBOE-2015-011, supra note 6. The Exchange additionally
notes that it plans to implement the proposed change approximately
60 days after disseminating notice of the proposed change to its
TPHs. The Exchange believes that this will provide TPHs that intend
to represent and execute complex orders with more than 12 legs with
ample time to enhance, if necessary, their existing systems or
utilize a third-party vendor's order entry and execution system that
supports the open outcry processing of such orders on a single order
ticket.
\9\ An ``SPX Combo Order'' is an order to purchase or sell one
or more SPX option series and the offsetting number of SPX
combinations defined by the delta. See Rule 5.6(c).
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Due to Exchange system limitations that may prevent a complex order
with more than a certain number of legs from being entered on a single
order ticket for representation and execution in open outcry, the
single order ticket leg limitations in place are intended to provide
consistency in processing and in order to continue to enhance the
Exchange's audit trail by reducing the number of tickets required for
larger complex orders. Notwithstanding the necessity of order ticket
leg maximums given Exchange system limitations, the Exchange notes that
splitting an order across multiple order tickets takes additional time,
can leave room for error, and requires additional TPH administrative
resources as a TPH must identify for the Exchange the order tickets
that are part of the same complex order (in a form and manner
prescribed by the Exchange). The proposed rule change is designed to
reduce the number of complex orders that TPHs need to break up into
multiple order tickets. As a result, the proposed rule change
ultimately allows TPHs to more effectively and efficiently systematize
complex orders for execution in open outcry.
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Securities Exchange Act of 1934 (``Act'') and the rules and
regulations thereunder applicable to the Exchange and, in particular,
the requirements of Section 6(b) of the Act.\10\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \11\ 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)\12\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
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\10\ 15 U.S.C. 78f(b).
\11\ 15 U.S.C. 78f(b)(5).
\12\ Id.
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In particular, the Exchange believes the proposed rule change will
allow TPHs to submit order tickets for their open outcry complex orders
(including SPX Combo Orders) in a manner that is more compatible with
the processing capacity that their order entry systems are able to
support today,\13\ thus reducing the number of complex orders that need
to be broken up into multiple order tickets. By allowing TPHs to more
effectively and efficiently systematize complex orders with a large
amount of legs for execution in open outcry within the processing
capacity limits of the order entry systems they use, the Exchange
believes the proposed rule change removes impediments to and perfects
the mechanism of a free and open market and national market system. The
Exchange notes that the proposed rule change does not impact the
current manner in which TPHs may represent a complex order in open
outcry, nor does it impact the permissible number of legs or
permissible ratios of complex orders. The proposed rule change merely
increases the leg limit per single order ticket, which may increase
trading efficiencies for TPHs by allowing TPHs to reduce the number of
order tickets submitted for their larger complex orders,\14\ while
continuing to provide consistency in processing and further enhancing
the Exchange's audit trail (as fewer orders will require multiple
tickets). This, in turn, serves to protect investors by promoting
transparency, assisting in surveillance, and providing the Exchange the
ability to better enforce compliance by its TPHs with the Act and the
Exchange Rules.
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\13\ See also supra note 7.
\14\ See also supra note 8.
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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 a maximum number of legs
per single order ticket will continue apply equally to all market
participants that systematize complex orders (including SPX Combo
Orders) for execution in open outcry. 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 because the proposed rule change is not competitive
in nature nor does it relate to trading on the Exchange. Rather, it
relates solely to the manner in which market participants systematize
complex orders for trading on the Exchange's trading floor.
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) of the Act \15\ and Rule 19b-
4(f)(6) thereunder.\16\
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\15\ 15 U.S.C. 78s(b)(3)(A).
\16\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
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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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
[[Page 31363]]
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 change 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
<bullet> Use the Commission's internet comment form (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#156760797038767a7878707b6166556670763b727a63"><span class="__cf_email__" data-cfemail="a5d7d0c9c088c6cac8c8c0cbd1d6e5d6c0c68bc2cad3">[email protected]</span></a>. Please include
File Number SR-CBOE-2021-036 on the subject line.
Paper Comments
<bullet> 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-2021-036. 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 (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>).
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
20549-1090, on official business days between the hours of 10:00 a.m.
and 3:00 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. All
comments received will be posted without change. Persons submitting
comments are cautioned that we do not redact or edit personal
identifying information from comment submissions. You should submit
only information that you wish to make available publicly. All
submissions should refer to File Number SR-CBOE-2021-036, and should be
submitted on or before July 2, 2021.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
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\17\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-12243 Filed 6-10-21; 8:45 am]
BILLING CODE 8011-01-P
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