Notice2023-10123
Self-Regulatory Organizations; Cboe C2 Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Rule 5.32 Regarding Certain Cancel-Replace Messages
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Published
May 12, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 92 (Friday, May 12, 2023)</title>
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[Federal Register Volume 88, Number 92 (Friday, May 12, 2023)]
[Notices]
[Pages 30810-30812]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-10123]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-97456; File No. SR-C2-2023-011]
Self-Regulatory Organizations; Cboe C2 Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
Rule 5.32 Regarding Certain Cancel-Replace Messages
May 8, 2023.
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 April 25, 2023, Cboe C2 Exchange, Inc. (the ``Exchange'' or ``C2'')
filed with the Securities and Exchange Commission (``SEC'' or
``Commission'') the proposed rule change as described in Items I, II,
and III 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
Cboe C2 Exchange, Inc. (the ``Exchange'' or ``C2 Options'')
proposes to amend Rule 5.32. 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 5.32(e) to describe the impact
on priority of a ``no-change'' order \3\ (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.
Current 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 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 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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\3\ In this context, the term ``order'' includes bids and offers
submitted in bulk messages. A bulk message means a bid or offer
included in 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 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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Rule 5.32(e), however, 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. The Exchange
recently determined that if 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. The Exchange
proposes to 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, as well as add to the Rules how the System handles no-change
orders. Additionally, the Exchange proposes to 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) \4\ or the stop price (if a Stop or
Stop-Limit order \5\) is modified. Therefore, the proposed rule change
amends Rule 5.32(e) to state 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.
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\4\ A ``Reserve Order'' is a limit order with both a portion of
the quantity displayed (``Display Quantity'') and a reserve portion
of the quantity (``Reserve Quantity'') not displayed. Both the
Display Quantity and Reserve Quantity of the Reserve Order are
available for potential execution against incoming orders. When
entering a Reserve Order, a User must instruct the Exchange as to
the quantity of the order to be initially displayed by the System
(``Max Floor''). If the Display Quantity of a Reserve Order is fully
executed, the System will, in accordance with the User's
instruction, replenish the Display Quantity from the Reserve
Quantity using one of the below replenishment instructions. If the
remainder of an order is less than the replenishment amount, the
System will display the entire remainder of the order. The System
creates a new timestamp for both the Display Quantity and Reserve
Quantity of the order each time it is replenished from reserve. A
User may attach an instruction for random replenishment (where the
System randomly replenishes the Display Quantity for the order with
a number of contracts not outside a replenishment range, which
equals the Max Floor plus and minus a replenishment value
established by the User when entering a Reserve Order with a Random
Replenishment instruction) or fixed replenishment (the System will
replenish the Display Quantity of an order with the number of
contracts equal to the Max Floor). See Rule 5.6(c).
\5\ 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 Rule 5.6(c).
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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.\6\ Specifically, the
Exchange believes the proposed rule change is consistent with the
section 6(b)(5) \7\ requirements that the rules of an exchange be
designed to prevent fraudulent and manipulative acts and
[[Page 30811]]
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) \8\ requirement that the rules of
an exchange not be designed to permit unfair discrimination between
customers, issuers, brokers, or dealers.
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\6\ 15 U.S.C. 78f(b).
\7\ 15 U.S.C. 78f(b)(5).
\8\ Id.
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In particular, the Exchange believes the proposed rule change will
remove impediments to and perfect the mechanism of a free and open
market as well as protect investors by adding transparency to the Rules
regarding how the System handles cancel/replace messages that change no
order terms or change order terms other than price and size. The
Exchange believes consistency in handling of all no-change orders and
quotes will simplify order handling and thus further benefit investors.
The Exchange believes it is reasonable for a user's resting order to
lose priority if that user submits a cancel/replace order, including a
no-change order, to replace that resting order (other than the three
exceptions). Ultimately, the purpose of a cancel and replace message is
to replace a resting order with a new order; therefore, it is
appropriate for the System to treat that replacement order as a new
order for purposes of priority. Despite the fact that a cancel/replace
message does not modify the price or size of a resting order (and thus
has no investment purpose), a user elected to send that new order to
the Exchange despite having an identical order resting on the
Exchange's book and use System capacity to do so. Therefore, the
Exchange believes it promotes just and equitable principles of trade to
treat that replacement order as a new order for priority purposes. The
Exchange believes the proposed rule change encourages users to submit
to the Exchange only bona fide cancel/replace orders that have
legitimate investment purposes and discourages use of System capacity
to send unnecessary message traffic.
As set forth in the current Rule 5.32(e), a cancel/replace order
that decreases the size of a resting order would continue to not result
in a loss of priority position is an order. The Exchange believes it is
appropriate to continue to not have this type of cancel/replace order
cause a loss of priority because it is consistent with a partial
execution of that order, which would similarly not cause a loss of
priority.\9\ Unlike a no-change order, an order to reduce the size of a
resting order may have a legitimate investment purpose, such as to
reduce execution risk. Additionally, the Exchange believes it will
remove impediments to and perfect the mechanism of a free and open
market as well as protect investors by adding transparency to codify
that a change to the Max Floor (if a Reserve Order) or the stop price
(if a Stop or Stop-Limit order) will not cause a resting order to lose
priority because it is unnecessary given the handling of those orders
and the fact that at that time there is no priority to lose. Such
handling is consistent with the definitions and handling of both of
those order types. Specifically, as set forth in the definition of a
Reserve Order, the Max Floor amount is relevant for replenishment of
the Display Quantity of the order after execution, and once
replenished, the System creates a new timestamp for both the Display
Quantity and Reserve Quantity of the order each time it is replenished
from reserve (i.e., prioritizes it in the book at the time of
replenishment). Therefore, there is no need for a loss in priority due
to a change in the Max Floor amount because that order will have its
priority reset once it is replenished with that new amount. Similarly,
as set forth in the definitions of Stop and Stop-Limit orders, those
orders become market or limit orders, respectively, once triggered and
thus placed on the book as market or limit orders and prioritized based
on that time. The stop price is the piece of information that
determines when these orders will be triggered. As a result, there is
no need for an order to lose priority due to a change in the stop price
given that those orders have not yet been prioritized on the Book and
will be prioritized once triggered and entered into the Book for
potential execution.
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\9\ See Rule 5.32(d).
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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 System will handle
all cancel/replace orders from all users in the same manner. All
cancel/replace orders, except for the three exceptions, will cause the
resting order to lose priority. The three types of cancel/replace
orders that will not cause a resting order to lose priority and are
consistent with current order handling rules. 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
only impacts priority of orders resting on the Exchange's book and thus
will have no impact on terms of an order that are disseminated to
market participants or on trading outside of the Exchange.
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 \10\ and
Rule 19b-4(f)(6) \11\ 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.
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\10\ 15 U.S.C. 78s(b)(3)(A).
\11\ 17 CFR 240.19b-4(f)(6).
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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.
[[Page 30812]]
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#691b1c050c440a0604040c071d1a291a0c0a470e061f"><span class="__cf_email__" data-cfemail="e89a9d848dc58b8785858d869c9ba89b8d8bc68f879e">[email protected]</span></a>. Please include
File Number SR-C2-2023-011 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-C2-2023-011. 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 the filing also will be available for inspection
and copying at the principal offices 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-C2-2023-011, and should be submitted on
or before June 2, 2023.
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\12\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\12\
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-10123 Filed 5-11-23; 8:45 am]
BILLING CODE 8011-01-P
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