Notice2021-22274
Self-Regulatory Organizations; Cboe C2 Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Rule 5.5(c) and Rule 5.6 in Connection With Time-In-Force Instructions Available for Bulk Messages and To Make a Clarifying Change
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
October 14, 2021
Issuing agencies
Securities and Exchange Commission
Full Text
<html>
<head>
<title>Federal Register, Volume 86 Issue 196 (Thursday, October 14, 2021)</title>
</head>
<body><pre>
[Federal Register Volume 86, Number 196 (Thursday, October 14, 2021)]
[Notices]
[Pages 57234-57237]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-22274]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-93269; File No. SR-C2-2021-014]
Self-Regulatory Organizations; Cboe C2 Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
Rule 5.5(c) and Rule 5.6 in Connection With Time-In-Force Instructions
Available for Bulk Messages and To Make a Clarifying Change
October 7, 2021.
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 September 24, 2021, Cboe C2 Exchange, Inc. (the ``Exchange'' or
``C2'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the Exchange. The
Exchange filed the proposal as a ``non-controversial'' proposed rule
change pursuant to Section 19(b)(3)(A)(iii) of the Act \3\ and Rule
19b-4(f)(6) thereunder.\4\ The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\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).
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of the
Substance of the Proposed Rule Change
Cboe C2 Exchange, Inc. (the ``Exchange'' or ``C2'') proposes to
amend Rule 5.5(c) and Rule 5.6 in connection with Time-in-Force
instructions available for bulk messages and to make a clarifying
change. 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://markets.cboe.com/us/options/regulation/rule_filings/ctwo/">http://markets.cboe.com/us/options/regulation/rule_filings/ctwo/</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 Rule 5.5(c) and Rule 5.6(d) to allow
Users to instruct bulk messages with a Time-in-Force of Immediate-or-
Cancel (``IOC''). Currently, Users may not designate bulk messages as
IOC, which, pursuant to Rule 5.6(d), instructs a limit order to execute
in whole or in part as soon as the System receives it. The System
cancels and does not post to the Book an IOC order (or unexecuted
portion) not executed immediately on the Exchange or another options
exchange. A bulk message is a single electronic message a User submits
with an M Capacity (i.e., for the account of a Market-Maker) to the
Exchange in which the User may enter, modify, or cancel up to an
Exchange-specified number of bids and offers. More, specifically, bulk
message functionality is available to Market-Makers and permits them to
update their electronic quotes in block quantities across series in a
class. Rule 5.5(c)(3)(A)(i) currently provides that a bulk message
submitted through a dedicated logical port (i.e., a ``bulk port'') has
a Time-in-Force of Day. Pursuant to Rule 5.6(d), the term ``Day''
means, for an order so designated, an order or quote that, if not
executed, expires at the RTH market close. All bulk messages have a
Time in Force of DAY, as set forth in Rule 5.5(c).
The Exchange proposes to allow Market-Makers to designate bulk
messages as IOC by amending the following: Rule 5.3(c)(3)(A)(i) to
provide that a bulk message submitted through a bulk port has a Time-
in-Force of Day or IOC; the definition of IOC in Rule 5.6(d) to provide
that Users may designate bulk messages as IOC; and the definition of
``Day'' in Rule 5.6(d) to remove the language that all bulk messages
have a Time-in-Force of DAY,
[[Page 57235]]
as set forth in Rule 5.5(c), and instead provide that Users may
designate bulk messages as Day.
A Market-Maker's primary purpose is to provide liquidity to the
market, which it may do in various ways, including resting quotes on
the Book as well as submitting quotes to trade against other resting
interest on the Book. In addition to providing liquidity via continuous
quotes in a Market-Maker's appointed classes,\5\ as part of its quoting
obligations, a Market-Maker is also required to maintain active markets
in its appointed classes, update quotations in response to changed
market conditions in its appointed classes and compete with other
Market-Makers in its appointed classes.\6\ As part of a Market-Maker's
efforts to satisfy these obligations, a Market-Maker may update quotes
with the specific purpose of removing interest resting in the Book.
This may provide additional execution opportunities for customers,
thereby encouraging an increase in overall participation in an
appointed class.
---------------------------------------------------------------------------
\5\ See Rule 5.51(a)(1).
\6\ See Rule 5.51(a)(3)-(5).
---------------------------------------------------------------------------
Currently, if a Market-Maker wishes to execute against interest in
the Book, a Market-Maker will enter a Book Only bulk message or modify
an existing bulk message to attempt to execute against such interest,
followed immediately by a bulk message to cancel the preceding bulk
message (or unexecuted portion) so that no portion of that bulk message
will remain displayed on the Book. Essentially, in order to execute
against interest on the Book, Market-Makers may currently send a
sequence of bulk messages that mimic the result of an IOC instruction--
ultimately the bulk message is cancelled and does not post to the Book
if it is not executed immediately against resting interest. Sending a
bulk message to cancel immediately following the submission of a bulk
message or a bulk message modification to execute against resting
interest creates an extra step for Market-Makers (compared to Trading
Permit Holders (``TPHs'') that may use IOC orders to accomplish this)
using bulk message functionality and requires the System to process
additional messages. As such, the proposed rule change to permit
Market-Makers to designate their bulk messages as IOC would allow them
to attempt more effectively and efficiently to execute against interest
in the Book and would reduce message traffic by eliminating the need
for Market-Makers to send multiple messages to attempt this. The
Exchange notes that Market-Makers may already use bulk messages to
remove liquidity from the Book (if they so elect) using the ``Book
Only'' instruction and, as described above, Market-Makers may already
use bulk messages to remove liquidity without letting nonexecuted size
rest on the Book. The proposed rule change merely streamlines the
manner in which Market-Makers may already utilize bulk messages to
execute against interest on the Book without sending an unexecuted bulk
message (or unexecuted portion) to the Book thereafter. Also, Market-
Makers may already designate their quotes submitted in an order as
IOC.\7\
---------------------------------------------------------------------------
\7\ The Exchange notes that a Market-Maker may submit their
quotes electronically in an order or bulk message. The Exchange also
notes that, while Market-Makers may currently instruct their orders,
including quotes submitted as orders, as IOC, the Exchange
understands that Market-Makers predominantly conduct their trading
activity through and design their business models around the use
bulk messages.
---------------------------------------------------------------------------
The Exchange notes that bulk message functionality is designed to
facilitate Market-Makers quoting on the Exchange in connection with
their responsibility as liquidity providers. For example, the current
requirement that bulk messages have a Time-in-Force of Day is
consistent with general practice of Market-Makers to enter new quotes
at the beginning of each trading day, as well as a Market-Maker's
obligation to update its quotes in response to changed market
conditions in its appointed classes. The provision that allows Market-
Makers to designate their bulk messages as Post Only or Book Only is
intended to provide Market-Makers with flexibility to use these
instructions to permit them to execute against resting interest upon
entry or add liquidity to the Book in connection with their various
obligations in a manner they deem appropriate.\8\ The Exchange believes
that the proposed rule change likewise permits Market-Makers to use an
instruction with respect to their bulk messages as an additional tool
to provide liquidity to the market and meet their various obligations
(such as maintaining active markets in an appointed class, updating
quotations in response to changed market conditions in an appointed
class and competing with other Market-Makers in an appointed class) in
a manner they deem appropriate, which may include removing interest in
the Book to subsequently post updated quotes at potentially tighter
spreads and to provide additional execution opportunities at
potentially improved prices. The Exchange also believes that the
proposed rule change enhances a current means by which Market-Makers
use bulk messages to facilitate the provision of liquidity on the
Exchange. That is, Market-Makers using bulk messages with an IOC
instruction, as proposed, may more efficiently execute against resting
interest, thereby increasing execution opportunities for orders resting
on the Book. An increase in transactions on the Exchange may facilitate
tighter spreads and price discovery, and, as a result, encourage
increased participation and additional order flow from other market
participants. The Exchange notes that the submission of bulk messages
to the Exchange is voluntary and that Market-Makers may continue to
elect to use bulk messages designated as Day in the same manner as they
do today, including sending a bulk message immediately followed by a
cancel to attempt to execute against resting interest.
---------------------------------------------------------------------------
\8\ See Securities Exchange Release Nos. 85038 (February 1,
2019), 84 FR 2598 (February 7, 2019) (SR-C2-2018-025); and 88814
(May 5, 2020), 85 FR 27779 (May 11, 2020) (SR-C2-2020-005). The
Exchange notes that SR-C2-2018-025 implemented bulk message
functionality to be consistent with the bulk message functionality,
also adopted at that time, by its affiliated options exchange, Cboe
Exchange, Inc. (``Cboe Options''). The Exchange notes that Cboe
Option's bulk message functionality replaced its prior block quoting
functionality, which likewise allowed a Market Maker to submit a
single message containing bids and offers in multiple series;
however, Cboe Options Rules did not prohibit an IOC designation for
quotes submitted in block quantities.
---------------------------------------------------------------------------
The proposed rule change also updates Rule 5.6(a), which currently
provides that, unless otherwise specified in the Rules or the context
indicates otherwise, the Exchange determines which of the following
order types, Order Instructions, and Times-in-Force are available on a
class, system, or trading session basis. The Exchange notes that,
currently, an Order Instruction or Time-in-Force applied to a bulk
message applies to each bid and offer within that bulk message. The
proposed rule change updates Rules 5.6(a) to make this explicit. The
proposed rule change does not alter any current functionality, but
instead adds clarity to the Rule by more accurately reflecting the
current application of such designations to bulk messages.
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.\9\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section
[[Page 57236]]
6(b)(5) \10\ 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) \11\ requirement that the rules of an exchange not be designed
to permit unfair discrimination between customers, issuers, brokers, or
dealers.
---------------------------------------------------------------------------
\9\ 15 U.S.C. 78f(b).
\10\ 15 U.S.C. 78f(b)(5).
\11\ Id.
---------------------------------------------------------------------------
In particular, the Exchange believes that the proposed rule change
allowing Market-Makers to designate their bulk messages as IOC will
remove impediments to and perfect the mechanism of a free and open
market and national market system and benefit investors by permitting
Market-Makers to more effectively and efficiently execute bulk messages
against specific interest on the Book without posting an unexecuted
bulk message (or unexecuted portion) to the Book thereafter. As
described above, Market-Makers already submit bulk messages in a manner
that mimics an IOC instruction; the proposed rule change merely
streamlines this process for Market-Makers by allowing them to use a
Time-in-Force instruction currently available for their orders (which
may also contain a Market-Maker's quotes) on the Exchange today. In
addition to this, Market-Makers may already include Book Only
instructions that permit their bulk messages to remove liquidity from
the Book. The proposed rule change is designed to benefit market
participants by increasing efficiency and reducing additional message
traffic by eliminating the need for Market-Makers to send an additional
bulk message to cancel along with their bulk messages in instances in
which they wish to execute against interest that appears on the Book.
The proposed rule change allows Market-Makers to elect to use their
bulk messages as additional tools to meet their various obligations in
a manner they deem appropriate, consistent with the purpose of bulk
message functionality to facilitate Market-Makers' provision of
liquidity, which may include removing interest in the Book to
subsequently post updated quotes at potentially tighter spreads and to
provide additional execution opportunities at potentially improved
prices. Also, the use of IOC bulk messages for Market-Makers may
ultimately facilitate the provision of additional liquidity on the by
increasing execution opportunities on the Exchange, as an increase in
transactions on the Exchange may facilitate tighter spreads and price
discovery, thereby encouraging increased participation and additional
order flow from other market participants, to the benefit of all
investors. Market-Makers may continue to elect to use bulk messages
designated as Day in the same manner as they do today, including
sending a bulk message immediately followed by a cancel to attempt to
execute against resting interest.
Additionally, the Exchange does not believe that the proposed rule
change would permit unfair discrimination as bulk message functionality
is principally designed to facilitate the provision of liquidity by
Market-Makers to the Exchange and help Market-Makers satisfy their
obligations. The Exchange believes that Market-Makers play a unique and
critical role in the options market by providing liquid and active
markets and are subject to various quoting obligations (which other
market participants are not), including an obligation to maintain
active markets, to update quotations in response to changed market
conditions and to compete with other Market-Makers in its appointed
classes. Bulk message functionality, including an IOC bulk message,
provides Market-Makers with a means to help them satisfy these
obligations. As noted above, Market-Makers are already able to use Book
Only bulk messages to execute against resting liquidity in multiple
series across a class and to cancel quotes in multiple series across a
class. The proposed rule change simply allows Market-Makers to utilize
their bulk messages in the same manner, just with a single message.
Additionally, the Exchange believes that the proposed rule change
regarding the manner in which an Order Instruction and Time-in-Force
instruction is applied to bulk messages removes impediments to and
perfects the mechanism of a free and open market and national market
system by amending Rule 5.6(a) to reflect current functionality. The
proposed rule change is merely a clarification in the Rule intended to
more accurately reflect how bulk message functionality currently works,
thereby increasing transparency in the Rule and ultimately benefitting
investors. The proposed clarification does not alter any current
functionality and is simply intended to provide clarity to the Rule.
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 in connection with IOC bulk
messages will impose any burden on intramarket competition that is not
necessary or appropriate in furtherance of the purposes of the Act
because the IOC instruction for bulk messages will be available for all
Market-Makers that choose to submit bulk messages. Use of the IOC
instruction for bulk messages is voluntary, and Market-Makers may
choose to continue to only apply the Day Time-in-Force to bulk messages
and continue to attempt to execute bulk messages against resting
interest using multiple messages as they do today. The proposed rule
change permits Market-Makers to use a Time-in-Force that is already
available to all TPHs, including Market-Makers, to apply to their
orders. While only Market-Makers may submit IOC bulk messages (as only
Market-Makers may currently submit any bulk messages), the Exchange
believes this is appropriate given the various obligations Market-
Makers must satisfy under the Rules and the unique and critical role
Market-Makers play in the options market by providing liquid and active
markets. The Exchange believes providing Market-Makers with flexibility
to use the IOC instruction with respect to bulk messages will provide
Market-Makers with an enhanced tool to provide liquidity to the market
and satisfy their obligations in a manner they deem appropriate, as
they are similarly able to do today by electing the Book Only and Post
Only instructions for their bulk messages.
The Exchange does not believe that the proposed rule change in
connection with IOC bulk messages will impose any burden on intermarket
competition that is not necessary or appropriate in furtherance of the
purposes of the Act as it relates to quoting functionality available to
Market-Makers on the Exchange. The Exchange notes that market
participants on other exchanges are welcome to become Market-Makers on
the Exchange if they determine that this proposed rule change has made
participation as a Market-Maker on the Exchange more attractive or
favorable.
The proposed rule change in connection with the application of
[[Page 57237]]
Order Instructions and Times-in-Force instructions to bulk messages is
not competitive in nature but is merely a clarification in the Rule,
consistent with existing bulk message functionality and intended to
provide clarity to the Rule by more accurately reflecting the current
bulk message functionality. All Order Instructions and Times-in-Force
instructions will continue to apply to bulk messages in the same manner
as they do today.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received comments on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not:
A. Significantly affect the protection of investors or the public
interest;
B. impose any significant burden on competition; and
C. become operative for 30 days from the date on which it was
filed, or such shorter time as the Commission may designate, it has
become effective pursuant to Section 19(b)(3)(A) of the Act \12\ and
Rule 19b-4(f)(6) \13\ thereunder. At any time within 60 days of the
filing of the proposed rule change, the Commission summarily may
temporarily suspend such rule change if it appears to the Commission
that such action is necessary or appropriate in the public interest,
for the protection of investors, or otherwise in furtherance of the
purposes of the Act. If the Commission takes such action, the
Commission will institute proceedings to determine whether the proposed
rule change should be approved or disapproved.
---------------------------------------------------------------------------
\12\ 15 U.S.C. 78s(b)(3)(A).
\13\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------
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#483a3d242d652b2725252d263c3b083b2d2b662f273e"><span class="__cf_email__" data-cfemail="552720393078363a3838303b2126152630367b323a23">[email protected]</span></a>. Please include
File Number SR-C2-2021-014 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-C2-2021-014. 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 on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of such 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-C2-2021-014, and should be submitted on
or before November 4, 2021.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\14\
---------------------------------------------------------------------------
\14\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-22274 Filed 10-13-21; 8:45 am]
BILLING CODE 8011-01-P
</pre><script data-cfasync="false" src="/cdn-cgi/scripts/5c5dd728/cloudflare-static/email-decode.min.js"></script></body>
</html>Indexed from Federal Register on October 14, 2021.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.