Notice2022-19350
Self-Regulatory Organizations; Cboe Exchange, Inc.; Order Approving a Proposed Rule Change To Amend CBOE Rule 5.32 With Respect to the Handling of Cancel/Replace Messages
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
September 8, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 173 (Thursday, September 8, 2022)</title>
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[Federal Register Volume 87, Number 173 (Thursday, September 8, 2022)]
[Notices]
[Pages 55053-55054]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-19350]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-95657; File No. SR-CBOE-2022-038]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Order
Approving a Proposed Rule Change To Amend CBOE Rule 5.32 With Respect
to the Handling of Cancel/Replace Messages
September 1, 2022.
I. Introduction
On July 7, 2022, Cboe Exchange, Inc. (``Exchange'' or ``CBOE'')
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 establish that a cancel/replace message received for an order
already resting on the Exchange's order book will cause such resting
order to lose its original priority position, subject to certain
exceptions. The proposed rule change was published for comment in the
Federal Register on July 26, 2022.\3\ The Commission received no
comment letters regarding the proposed rule change. This order approves
the proposed rule change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Exchange Act Release No. 95328 (July 20, 2022), 87 FR
44438 (``Notice'').
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II. Summary of the Proposal
The Exchange proposes to amend CBOE Rule 5.32(e) to describe the
impact on priority of a ``no-change'' order \4\ (i.e., an order
submitted to cancel or replace a resting order that does not change any
terms of an order) and of a cancel/replace message that does not change
the price or size of a resting order but changes another term of an
order. CBOE Rule 5.32(e) describes whether a resting order's priority
position may change if it is modified with a cancel/replace message.
Specifically, current CBOE Rule 5.32(e) states if the price of an order
is changed, the order loses position and is placed in a priority
position as if the Exchange's system (``System'') received the order at
the time the order was changed. If the quantity of an order is
decreased, it retains its priority position. If the quantity of an
order is increased, it loses its priority position and is placed in a
priority position as if the System received the order at the time the
quantity of the order is increased.
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\4\ In this context, the term ``order'' includes bids and offers
submitted in bulk messages. A bulk message means a single electronic
message a user submits with an M (Market-Maker) capacity to the
Exchange in which the User may enter, modify, or cancel up to an
Exchange-specified number of bids and offers. See CBOE Rule 1.1
(definition of bulk message, which provides that the System handles
a bulk message bid or offer in the same manner as it handles an
order or quote, unless the Rules specify otherwise).
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The Exchange explains, however, that CBOE Rule 5.32(e) is currently
silent regarding how the System handles a cancel/replace message
comprised of a no-change order or an order that changes terms other
than price and size.\5\ The Exchange further represents that it
recently determined that the System does not handle all no-change
orders and messages uniformly with respect to how they affect resting
orders. Specifically, the Exchange explains that currently, when the
System receives a no-change order, the resting order would lose its
priority position; however, if the System receives a no-change bid or
offer in a bulk message, the resting bid or offer would not lose its
priority position.\6\
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\5\ See Notice, supra note 3, at 44439.
\6\ See id.
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The Exchange proposes to amend CBOE Rule 5.32(e) so that it states
as follows: if a User submits a cancel/replace message for a resting
order, regardless of whether the cancel/replace message modifies any
terms of the resting order, the order loses its priority position and
is placed in a priority position based on the time the System receives
the cancel/replace message, unless the User only (1) decreases the
quantity of an order (as is currently set forth in the Rules), (2)
modifies the Max Floor (if a Reserve Order), or (3) modifies the stop
price (if a Stop or Stop-Limit order), in which case the order retains
its priority position.
[[Page 55054]]
The Exchange states that this change will harmonize the handling of
all no-change orders and quotes so that any no-change order or bulk
message bid or offer will lose priority.\7\ Further, the Exchange
states that this proposal will also codify current System functionality
that causes a resting order to lose its priority position if any
cancel/replace message is submitted if any term other than the Max
Floor (if a Reserve Order) \8\ or the stop price (if a Stop or Stop-
Limit order \9\) is modified.\10\
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\7\ See id.
\8\ A ``Reserve Order'' is a limit order with both a portion of
the quantity displayed and a reserve portion of the quantity not
displayed. See CBOE Rule 5.6.
\9\ 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. 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. See CBOE Rule 5.6.
\10\ See Notice, supra note 3, at 44439.
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III. Discussion and Commission Findings
After careful review, the Commission finds that the Exchange's
proposal is consistent with the requirements of the Exchange Act and
the rules and regulations thereunder applicable to a national
securities exchange.\11\ In particular, the Commission finds that the
proposed rule change is consistent with Sections 6(b)(5) \12\ and
6(b)(8) \13\ of the Exchange Act. Section 6(b)(5) of the Exchange Act
requires that the rules of a national securities exchange be designed,
among other things, 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. Section
6(b)(8) of the Exchange Act requires that the rules of a national
securities exchange not impose any burden on competition that is not
necessary or appropriate in furtherance of the purposes of the Exchange
Act.
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\11\ 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).
\12\ 15 U.S.C. 78f(b)(5).
\13\ 15 U.S.C. 78f(b)(8).
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The Commission believes that requiring the System to handle all
cancel/replace orders in a uniform manner with respect to priority of
affected resting orders is consistent with the Exchange Act in that
such requirement is designed to promote just and equitable principles
of trade and remove impediments to and perfect the mechanism of a free
and open market and a national market system. Furthermore, the
Commission believes that narrowly restricting when a resting order
retains its priority after the System receives a subsequent cancel/
replace message (e.g., its only modifies the Max Floor of the resting
order) is designed, to, among other things, 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 without imposing any
unreasonable burdens on competition.
Accordingly, the Commission finds that the proposed rule change is
consistent with the Exchange Act.
IV. Conclusion
It is therefore ordered that, pursuant to Section 19(b)(2) of the
Exchange Act,\14\ the proposed rule change (SR-CBOE-2022-038) be, and
hereby is, approved.
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\14\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\15\
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\15\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-19350 Filed 9-7-22; 8:45 am]
BILLING CODE 8011-01-P
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