Notice2023-21346
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Certain Rules Related to Stock-Option Orders
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 29, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 188 (Friday, September 29, 2023)</title>
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[Federal Register Volume 88, Number 188 (Friday, September 29, 2023)]
[Notices]
[Pages 67388-67393]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-21346]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-98509; File No. SR-CBOE-2023-052]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
Certain Rules Related to Stock-Option Orders
September 25, 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 September 15, 2023, Cboe Exchange, Inc. (``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
[[Page 67389]]
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 certain Rules related to stock-option orders. 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 update certain of its Rules regarding the
definition and execution of stock-option orders. Rule 1.1 defines a
``stock-option order'' as an order to buy or sell a stated number of
units of an underlying or a related security coupled with either (a)
the purchase or sale of option contract(s) on the opposite side of the
market representing either the same number of units of the underlying
or related security or the number of units of the underlying security
necessary to create a delta neutral position or (b) the purchase or
sale of an equal number of put and call option contracts, each having
the same exercise price and expiration date, and each representing the
same number of units of stock as, and on the opposite side of the
market from, the underlying or related security portion of the order.
It also provides that for purposes of electronic trading, the term
stock-option order has the meaning set forth in Rule 5.33. Therefore,
this definition of stock-option order in Rule 1.1 applies to open
outcry trading on the Exchange.
Rule 5.33(b)(5) currently defines a ``stock-option order'' for
purposes of electronic trading as the purchase or sale of a stated
number of units of an underlying stock or a security convertible into
the underlying stock (``convertible security'') coupled with the
purchase or sale of an option contract(s) on the opposite side of the
market representing either (a) the same number of units of the
underlying stock or convertible security or (b) the number of units of
the underlying stock necessary to create a delta neutral position, but
in no case in a ratio greater than eight-to-one (8.00), where the ratio
represents the total number of units of the underlying stock or
convertible security in the option leg(s) to the total number of units
of the underlying stock or convertible security in the stock leg.\5\
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\5\ Only those stock-option orders in the classes designated by
the Exchange with no more than the applicable number of legs are
eligible for processing. Stock-option orders execute in the same
manner as other complex orders, except as otherwise specified in
Rule 5.33.
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Rule 5.33(f)(2)(B) and Rule 5.85(b)(3) currently describe certain
restrictions on electronic and open outcry, respectively, executions of
stock-option orders. Current Rule 5.33(f)(2)(B) provides that stock-
option orders that execute electronically are subject to the following:
<bullet> For a stock-option order with one option leg, the option
leg may not trade at a price worse than the individual component price
on the Simple Book or at the same price as a Priority Customer Order on
the Simple Book.
<bullet> For a stock-option order with more than one option leg,
the option legs must trade at prices pursuant Rule 5.33(f)(2)(A).\6\
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\6\ Rule 5.33(f)(2)(A) states the System does not execute a
complex order pursuant to Rule 5.33 at a net price: (i) that would
cause any component of the complex strategy to be executed at a
price of zero; (ii) that would cause any component of the complex
strategy to be executed at a price worse than the individual
component prices on the Simple Book; (iii) worse than the price that
would be available if the complex order Legged into the Simple Book;
or (iv) worse than the SBBO or equal to the SBBO when there is a
Priority Customer order on any leg comprising the SBBO and: (a) if a
complex order has a ratio equal to or greater than one-to-three
(.333) and less than or equal to three-to-one (3.00), or is an Index
Combo order, at least one component of the complex order must
execute at a price that improves the BBO for that component by at
least one minimum increment; or (b) if the complex order has a ratio
less than one-to-three (.333) or greater than three-to-one (3.00),
the component(s) of the complex order for the leg(s) with a Priority
Customer order at the BBO must execute at a price that improves the
price of that Priority Customer order(s) on the Simple Book by at
least one minimum increment, except AON complex orders may only
execute at prices better than the SBBO.
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<bullet> A stock-option order may only execute if the stock leg is
executable at the price(s) necessary to achieve the desired net
price.\7\
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\7\ To facilitate the execution of the stock leg and options
leg(s) of an executable stock-option order at valid increments
pursuant to Rule 5.33(f)(1)(B), the legs may trade outside of their
expected notional trade value by a specified amount (which the
Exchange determines), unless the order has a capacity of ``C''.
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<bullet> The System executes the buy (sell) stock leg of a stock-
option order pursuant to Rule 5.33 up to a buffer amount above (below)
the NBO (NBB) for the stock leg.\8\
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\8\ See Rule 5.33(f)(2)(B)(i)-(iii). The rule further provides
that the execution price of the buy (sell) stock leg of a QCC with
Stock Order may be any price (including outside the NBBO for the
stock leg), except the price must be permitted by Regulation SHO and
the Limit Up-Limit Down Plan. Rule 5.33(f)(2)(B)(iv).
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Rule 5.85(b)(3) provides that stock-option orders and security
future-option orders have priority over bids (offers) of in-crowd
market participants but not over Priority Customer bids (offers) in the
Book.
The Exchange previously amended its rules to permit complex orders
of all ratios to be executed on the Exchange, both electronically and
in open outcry, subject to certain execution restrictions.\9\ Rule 1.1
currently defines ``complex order'' as an order involving the
concurrent execution of two or more different series in the same
underlying security or index (the ``legs'' or ``components'' of the
complex order), for the same account, occurring at or near the same
time and for the purpose of executing a particular investment strategy
with no more than the applicable number of legs (which number the
Exchange determines on a class-by-class basis). The Exchange determines
in which classes complex orders are eligible for processing. The
Exchange determines on a class-by-class basis whether complex orders
with ratios less than one-to-three (.333) or greater than three-to-one
(3.00) (except for Index Combo orders) are eligible for electronic
processing. Unless the context otherwise requires, the term complex
order includes Index Combo orders, stock-option orders and security
future-option orders.\10\
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\9\ See Securities Exchange Release No. 94204 (February 9,
2022), 87 FR 8625 (February 15, 2022) (SR-CBOE-2021-046).
\10\ The proposed definition of conforming complex order
provides that, for the purpose of applying these ratios to complex
orders comprised of legs for both mini-options and standard options,
ten mini-option contracts represent one standard option contract.
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[[Page 67390]]
The Exchange first proposes to adopt definitions of ``conforming''
and ``nonconforming'' complex orders in Rule 1.1. The Exchange notes
these proposed definitions are consistent with definitions used by
another options exchange.\11\ Specifically, the Exchange proposes to
define a ``conforming complex order'' as (a) a complex order with a
ratio on the options legs greater than or equal to one-to-three (.333)
or less than or equal to three-to-one (3.00), (b) an Index Combo
order,\12\ and (c) a stock-option order with a ratio less than or equal
to eight-to-one (8.00), where the ratio represents the total number of
units of the underlying stock or convertible security in the option
leg(s) to the total number of units of the underlying stock or
convertible security in the stock leg. The Exchange proposes to define
a ``nonconforming complex order'' as (a) a complex order with a ratio
on the options legs less than one-to-three (.333) or greater than
three-to-one (3.00) (except for Index Combo orders) and (b) a stock-
option order with a ratio greater than eight-to-one (8.00), where the
ratio represents the total number of units of the underlying stock or
convertible security in the option leg(s) to the total number of units
of the underlying stock or convertible security in the stock leg. The
proposed definitions of conforming and nonconforming complex orders
each provide that, for the purpose of applying these ratios to complex
orders comprised of legs for both mini-options and standard options,
ten mini-option contracts represent one standard option contract. The
proposed definitions of conforming and nonconforming complex orders
also provide that, for or the purpose of applying these ratios to
complex orders comprised of legs for both micro-options and standard
options, 100 micro-option contracts represent one standard option
contract. These proposed ratio applications are consistent with the
current definition of complex order and stock-option order.
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\11\ See Miami International Securities Exchange, LLC (``MIAX'')
Rule 518(a)(8) and (16) (defining ``conforming ratio'' and
``nonconforming ratio'').
\12\ See Rule 5.33(b)(5) (definition of Index Combo order).
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The inclusion of an Index Combo as a conforming complex order is
consistent with the definition of Index Combo order \13\ and the rule
filing to adopt an Index Combo order.\14\ As noted in the rule filing
to adopt an Index Combo order, the release further stated that the
proposed eight-to-one ratio was selected because it was a ``defined
conforming ratio . . . used for stock-option orders . . . .'' \15\ The
purpose of an Index Combo order is to allow investors to trade an index
option with a synthetic underlying position, making it a functional
equivalent to a stock-option order.\16\ As noted in that rule filing,
and in the definition of an Index Combo order in Rule 5.33, an Index
Combo order is subject to all provisions applicable to complex orders
(excluding the one-to-three/three-to-one ratio) in the Rules, which
included permissible execution prices set forth in Rule
5.33(f)(2)(A).\17\ Therefore, it is consistent with current Rules to
include an Index Combo order as a ``conforming complex order.''
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\13\ See id. (defining an ``Index Combo'' order is an order to
purchase or sell one or more index option series and the offsetting
number of Index Combinations defined by the delta. For purposes of
an Index Combo order, the following terms have the following
meanings: (1) An ``Index Combination'' is a purchase (sale) of an
index option call and sale (purchase) of an index option put with
the same underlying index, expiration date, and strike price. (2) A
``delta'' is the positive (negative) number of Index Combinations
that must be sold (purchased) to establish a market neutral hedge
with one or more series of the same index option. (3) An Index Combo
order may not have a ratio greater than eight options to one Index
Combination (8.00), and will be subject to all provisions applicable
to complex orders (excluding the one-to-three/three-to-one ratio) in
the Rules.)
\14\ See Securities Exchange Act Release No. 87883 (January 2,
2020), 85 FR 942 (January 8, 2020) (SR-CBOE-2019-126).
\15\ See id. at 945.
\16\ See id. At the time the Index Combo order type was adopted,
Rule 5.33(f)(2)(A) included permissible pricing for conforming
complex orders only, which as a result would have applied to Index
Combos.
\17\ See id. and Rule 5.33(b)(5) (subparagraph (3) of definition
of Index Combo).
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The proposed rule change amends Rules 1.1 (definitions of ``complex
order'' and ``stock-option order''); 5.6(c) (definition of ``complex
order''); 5.30(a)(4), (b)(4), and (c)(4); 5.33(a) (definition of
``complex order''), (b)(5) (definition of ``stock-option order''), and
(f)(A)(iv); 5.83(b); and 5.85(b)(1) and (2) to incorporate the proposed
definitions of conforming and nonconforming complex orders but make no
other substantive changes to these rules. These proposed changes are
consistent with industry terminology regarding complex orders with
these ratios.
Based on the definition in Rule 1.1 of complex orders, which
includes stock-option orders, the Exchange's previous rule change was
intended to apply to stock-option orders (i.e., to permit stock-option
orders of any ratio to be processed, including (in permitted classes)
electronically.\18\ The reasons set forth in that rule change for
expanding electronic processing of nonconforming complex orders applies
to all complex orders, including stock-option orders. However, the
Exchange inadvertently did not update certain provisions specific to
stock-option orders. Therefore, in addition to adding the proposed
definitions of conforming and nonconforming complex orders, the
proposed rule change clarifies that the Exchange may permit stock-
option orders of any ratio to be processed, including (in permitted
classes) electronically. Specifically, the Exchange proposes to update
the definition of stock-option order in Rule 5.33(b)(5) to state in
classes determined by the Exchange, a nonconforming stock-option order
is not eligible for electronic processing, including the complex order
auction (``COA''), complex order book (``COB''), complex automated
improvement mechanism (``C-AIM''), and complex solicited auction
mechanism (``C-SAM''). This proposed language is the same as language
currently included in the definition of ``complex order'' in Rule
5.33(a), the intent of which is to permit the Exchange to determine in
which classes nonconforming complex orders (including stock-option
orders) may be submitted for electronic processing on the Exchange
pursuant to Rule 5.33.
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\18\ See supra note 9; and Exchange Notice, Cboe Options
Introduces New Net Price Increments and Enhanced Electronic and Open
Outcry Handling for Complex Orders with Non-Conforming Ratios, dated
March 21, 2022 (available at Cboe Options Introduces New Net Price
Increments and Enhanced Electronic and Open Outcry Handling for
Complex Orders with Non-Conforming Ratios). The Exchange notes
another options exchange interprets current Rule 5.33 to permit the
electronic processing of nonconforming stock-option orders.
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The proposed rule change also adds Rule 5.33(f)(2)(B)(v) to state
the System does not execute a stock-option order pursuant to Rule 5.33
at a net price worse than the SBBO or equal to the synthetic best bid
or offer (``SBBO'') when there is a Priority Customer order on any leg
comprising the SBBO and: (a) if a conforming stock-option order, at
least one option component of the stock-option order must execute at a
price that improves the BBO for that component by at least one minimum
increment; or (b) if a nonconforming stock-option order, the option
components of the stock-option order for the leg(s) with a Priority
Customer order at the BBO must execute at a price that improves the
price of that Priority Customer order(s) on the Simple Book by at least
one minimum increment, except AON stock-option orders may only execute
at prices better than the SBBO. This is consistent with the permissible
execution prices of conforming and nonconforming complex orders with
only option components submitted for electronic processing.\19\
Similarly, the proposed
[[Page 67391]]
rule change adds Rule 5.85(b)(4) and (5) to state:
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\19\ See Rule 5.33(f)(2)(A)(iv).
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<bullet> A conforming stock-option order may be executed at a net
debit or credit price without giving priority to equivalent bids
(offers) in the individual series legs that are represented in the
trading crowd or in the Book if the price of at least one option leg of
the order improves the corresponding bid (offer) of a Priority Customer
order(s) in the Book by at least one minimum trading increment as set
forth in Rule 5.4(b). In other words, if there is a Priority Customer
order on every leg comprising the SBBO, at least one option leg of the
stock-option order must execute at a price that improves the price of
the Priority Customer order on the Simple Book for that leg by at least
one minimum increment.
<bullet> A nonconforming stock-option order may be executed at a
net debit or credit price without giving priority to equivalent bids
(offers) in the individual series legs that are represented in the
trading crowd or in the Book if each option leg of the order betters
the corresponding bid (offer) of a Priority Customer order(s) in the
Book on each leg by at least one minimum trading increment as set forth
in Rule 5.4(b). In other words, if there is a Priority Customer order
on any leg(s) comprising the SBBO, the component(s) of the stock-option
for the option leg(s) with a Priority Customer order at the BBO must
execute at a price that improves the price of that Priority Customer
order(s) on the Simple Book by at least one minimum increment.
This is consistent with the permissible execution prices of
conforming and nonconforming complex orders with only option components
submitted for open outcry processing.\20\
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\20\ See Rule 5.85(b)(1) and (2).
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Therefore, execution of all conforming and nonconforming complex
orders, including stock-option orders, continues to protect Priority
Customer interest on the Exchange.\21\
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\21\ To avoid potential confusion, the proposed rule change
deletes from Rule 5.85(b)(3) that stock-option orders do not have
priority over Priority Customer bids (offers) in the simple book, as
proposed subparagraphs (4) and (5) more explicitly describe stock-
option order priority with respect to bids and offers in the simple
book.
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The proposed rule change has no impact on the requirements for
stock-option orders or how they may be executed. For example, all
stock-option orders (both conforming and nonconforming) must satisfy
the criteria set forth in the definitions of stock-option orders in
Rule 1.1 (for open outcry processing) and 5.33(b) (for electronic
processing), as set forth above. Additionally, all stock-option orders
must comply with the Qualified Contingent Trade (``QCT'')
exemption.\22\ The Exchange represents that its surveillances
incorporate stock-option orders with all ratios, including
nonconforming ratios.
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\22\ See Rule 5.33, Interpretation and Policy .04.
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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.\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
adopt definitions of conforming and nonconforming complex orders
(including stock-option orders) in Rule 1.1, and to incorporate these
proposed definitions into Rules 1.1 (definitions of ``complex order''
and ``stock-option order''), 5.6(c) (definition of ``complex order'');
5.30(a)(4), (b)(4), and (c)(4), 5.33(a) (definition of ``complex
order''), (b)(5) (definition of ``stock-option order''), and
(f)(A)(iv), 5.83(b), and 5.85(b)(1) and (2), will protect investors, as
it incorporates into the Exchange's Rules terminology generally used in
the industry to refer to complex orders with ratios equal to and
greater than 0.33, including Index Combos (conforming) and less than
0.33 [sic] and greater than 3.00 (nonconforming), and stock-option
orders with ratios less than or equal to 8.00 (conforming) and greater
than 8.00 (nonconforming). As discussed above, inclusion of Index
Combos within the definition of a conforming complex order is
consistent with the definition of Index Combos and the rule filing to
adopt Index Combos.\26\ Therefore, the Exchange believes this proposed
rule change adds transparency and reduces potential confusion within
the Exchange's Rules. These definitions ultimately make no substantive
changes to the rules and relate merely to terminology. The Exchange
notes these definitions are substantially similar to definitions used
in at least one other options exchanges' [sic] rulebook.\27\
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\26\ See Securities Exchange Act Release No. 87883 (January 2,
2020), 85 FR 942, 945 (January 8, 2020) (SR-CBOE-2019-126); and Rule
5.33(b)(5) (definition of Index Combo).
\27\ See MIAX Rule 518(a)(8) and (16) (defining ``conforming
ratio'' and ``nonconforming ratio'').
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Additionally, the Exchange believes the proposed rule change to
provide for the electronic processing of stock-option orders with any
ratio will remove impediments to and perfect the mechanism of a free
and open market and a national market system, and, in general, to [sic]
protect investors and the public interest, as it will eliminate
confusion regarding what types of stock-option orders are permissible
for electronic processing. As noted above, when the Exchange amended
its Rules to permit the electronic processing of nonconforming complex
orders, the intent of that amended was to permit the electronic
processing of all nonconforming complex orders, including nonconforming
stock-option orders.\28\ The reasons set forth in the Exchange's prior
rule filing regarding expansion of electronic processing of
nonconforming complex orders applies to all complex orders, including
stock-option orders; the Exchange inadvertently omitted updates to
certain provision regarding stock-option orders to incorporate that
change.\29\ The proposed rule change merely updates the definition of
stock-option order to incorporate the same change that was made to the
definition of complex order with respect to electronic processing to
provide consistency and transparency in the Exchange's Rules. As noted
above, the proposed rule changes regarding execution of conforming and
nonconforming stock-option orders are consistent with the Exchange's
previously adopted rules regarding
[[Page 67392]]
execution of other conforming and nonconforming complex orders. This
proposed change is also consistent with the rules of at least one other
options exchange.\30\
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\28\ The current definition of stock-option order in Rule 1.1
applicable to open outcry trading has no ratio restriction.
Therefore, current Rules do not currently restrict submission of
stock-option orders for open outcry trading to conforming stock-
option orders (as discussed, the Exchange proposes to add clarity
regarding permissible open outcry execution prices of nonconforming
stock-option orders, which are consistent with those of other
nonconforming complex orders).
\29\ See supra note 9.
\30\ See MIAX Rule 518, Interpretation and Policy .01(c).
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The proposed rule change also adds provisions in Rules
5.33(f)(2)(B) and 5.85(b) (and deletes the current provision in Rule
5.85(b)(3) describing stock-option order priority with respect to
Priority Customer bids (offers) in the Book) regarding the specific
permissible execution prices for conforming and nonconforming stock-
option orders, consistent with the execution pricing for other
conforming and nonconforming complex orders, which further adds
transparency regarding the execution of these orders on the Exchange
(both electronically and in open outcry). The Exchange believes the
proposed rule change will add clarity, transparency, and consistency to
its Rules, thus eliminating potential confusion about the permissible
execution prices of conforming and nonconforming complex orders, which
will ultimately remove impediments to and perfect the mechanisms of a
free and open market and national market system, and in general protect
investors.
The proposed rule change will permit the electronic trading of
nonconforming stock-option orders but has no impact on the requirements
for stock-option orders or how they may be executed. Execution of all
conforming and nonconforming complex orders, including stock-option
orders, will continue to protect Priority Customer interest on the
Exchange. All stock-option orders (both conforming and nonconforming)
must satisfy the criteria set forth in the definitions of stock-option
orders in Rule 1.1 (for open outcry processing) and 5.33(b) (for
electronic processing), which are described above. Additionally, all
stock-option orders must comply with the Qualified Contingent Trade
(``QCT'') exemption.\31\ The Exchange represents that its surveillances
incorporate stock-option orders with all ratios, including
nonconforming ratios.
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\31\ See Rule 5.33, Interpretation and Policy .04.
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The proposed rule change will further remove impediments to and
perfect the mechanism of a free and open market and a national market
system, as it is similar to the Rules of at least one other options
exchange.\32\
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\32\ See MIAX Rules 518(a)(5), (8), and (16) and Interpretation
and Policy .01(c).
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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, as the proposed
rule change applies equally to all Trading Permit Holders (``TPHs'').
Therefore, any TPH may submit conforming and nonconforming stock-option
orders for open outcry or electronic processing, which will all be
handled by the Exchange in a uniform manner. Further, the Exchange's
proposal will continue to protect Priority Customer interest on the
Exchange.
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 it has no
impact on the requirements for stock-option orders or how they may be
executed. As discussed above, the proposed rule change merely updates
certain rule provisions it inadvertently did not update in connection
with a previous rule change. Additionally, the proposed rule change is
consistent with the offering of at least one other options
exchange.\33\ The Exchange believes availability of conforming and
nonconforming complex orders, including stock-option orders, may
promote competition, as it provides investors with multiple venues at
which to electronically execute these orders, giving investors greater
flexibility and choice of where to send their orders.
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\33\ See id.
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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 \34\ and Rule 19b-
4(f)(6) thereunder.\35\
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\34\ 15 U.S.C. 78s(b)(3)(A).
\35\ 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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A proposed rule change filed under Rule 19b-4(f)(6) \36\ normally
does not become operative prior to 30 days after the date of the
filing. However, Rule 19b-4(f)(6)(iii) \37\ permits the Commission to
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 to allow the
Exchange to make clear in its rules that non-conforming ratio stock-
option orders in classes determined by the Exchange are eligible for
electronic processing. The Exchange notes that another options exchange
currently allows non-conforming ratio stock-option orders to trade
electronically.\38\ Accordingly, the proposal will provide investors
with an additional venue for trading non-conforming ratio stock-option
orders electronically. The proposal also adopts definitions of
``conforming complex order'' and ``non-conforming complex order'' and
incorporates these definitions into the Exchange's rules. The ratio
requirements in the proposed definitions of conforming complex order
and non-conforming complex order are consistent with the requirements
in defined terms used by another options exchange.\39\ As discussed
above, the Exchange states that the permissible execution prices for
stock-option orders with conforming and nonconforming ratios are
consistent with the permissible execution prices for conforming and
nonconforming complex orders with only option components, and will
continue to protect Priority Customer interest on the Exchange.
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\36\ 17 CFR 240.19b-4(f)(6).
\37\ 17 CFR 240.19b-4(f)(6)(iii).
\38\ See MIAX Rule 518(a)(5).
\39\ See MIAX Rules 518(a)(8) and (a)(16) (defining ``conforming
ratio'' and ``non-conforming ratio,'' respectively).
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The Commission finds that waiving the 30-day operative delay is
consistent with the protection of investors and the public interest.
The proposal will provide investors with an additional venue for the
electronic trading of nonconforming, as well as conforming, stock-
option orders. In addition, the proposal adds to the Exchange's rules
[[Page 67393]]
definitions of conforming complex order and nonconforming complex order
that are consistent with defined terms used on another options
exchange.\40\ The proposal incorporates the proposed definitions of
conforming and nonconforming complex order into the Exchange's rules,
including Exchange Rules 5.33(f)(2) and 5.85(b), and adds new Exchange
Rules 5.33(f)(2)(b)(v) and 5.85(b)(4) and (5) to specifically address
the permissible execution prices for stock-option orders, but makes no
substantive changes to the permissible execution prices for complex
order or stock-option orders.\41\ Accordingly, the proposal raises no
new or novel regulatory issues. For these reasons, the Commission
designates the proposal operative upon filing.\42\
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\40\ See MIAX Rules 518(a)(8) and (a)(16).
\41\ The permissible execution prices for stock-options orders
currently are addressed in Cboe Rules 5.33(f)(2)(B)(ii) and
5.85(b)(3).
\42\ 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 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="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#2153544d440c424e4c4c444f5552615244420f464e57"><span class="__cf_email__" data-cfemail="4735322b226a24282a2a222933340734222469202831">[email protected]</span></a>. Please include
file number SR-CBOE-2023-052 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-2023-052. 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="https://www.sec.gov/rules/sro.shtml">https://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
a.m. and 3 p.m. Copies of the filing also 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-2023-052 and should be
submitted on or before October 20, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\43\
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\43\ 17 CFR 200.30-3(a)(12), (59).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-21346 Filed 9-28-23; 8:45 am]
BILLING CODE 8011-01-P
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</html>Indexed from Federal Register on September 29, 2023.
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.