Notice2024-10432
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing of Amendment No. 1 and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment No. 1, To Amend Exchange Rule 5.33, Complex Orders
Primary source
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Published
May 14, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 89 Issue 94 (Tuesday, May 14, 2024)</title>
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[Federal Register Volume 89, Number 94 (Tuesday, May 14, 2024)]
[Notices]
[Pages 42007-42009]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-10432]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-100081; File No. SR-CBOE-2024-015]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of
Filing of Amendment No. 1 and Order Granting Accelerated Approval of a
Proposed Rule Change, as Modified by Amendment No. 1, To Amend Exchange
Rule 5.33, Complex Orders
May 8, 2024.
I. Introduction
On March 19, 2024, Cboe Exchange, Inc. (``Exchange'' or ``Cboe
Options'') 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 amend the definition of
``complex strategy'' in Exchange Rule 5.33(a) to allow the Exchange to
create new complex strategies. In addition, the proposal amends
Exchange Rule 5.33(b)(2) to provide that, in a class in which the
Exchange determines that complex orders with Capacity M or N are not
eligible for entry into the Complex Order Book (``COB''), the Exchange
may determine that a complex order with Capacity M or N may enter the
COB in complex strategies designated by the Exchange.\3\ The proposed
rule change was published for comment in the Federal Register on March
28, 2024.\4\ On April 4, 2024, the Exchange filed Amendment No. 1 to
the proposed rule change.\5\ The Commission has received no comment
letters regarding the proposal. The Commission is publishing this
notice to solicit comment on Amendment No. 1 and is approving the
proposed rule change, as modified by Amendment No. 1, on an accelerated
basis.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ The Exchange states that the origin code ``M'' represents
Exchange Market-Makers, and the origin code ``N'' represents market
makers or specialists on another exchange (``away market makers'').
The Exchange states that, currently, orders representing any
capacity, including M and N, are eligible for entry and may rest on
the COB in all classes except S&P 500 Index (``SPX'') and Cboe
Volatility Index (``VIX'') options. In SPX and VIX options, M and N
complex orders are not eligible for entry into the COB except as set
forth in Exchange Rule 5.33(b)(2). See Securities Exchange Act
Release No. 99838 (March 22, 2024), 89 FR 21548, 21549, n.3 (March
28, 2024) (``Notice'') and Amendment No. 1.
\4\ See Notice, supra note 3.
\5\ Amendment No. 1 revises the proposal to correct descriptions
of the current complex book process by stating that Market-Makers
and away market makers currently are not permitted to enter orders
in VIX options, as well as SPX options, in the COB. Amendment No. 1
makes no changes to Exhibit 5 of the proposal. Amendment No. 1 is
available on the Commission's website at <a href="https://www.sec.gov/comments/sr-cboe-2024-015/srcboe2024015.htm">https://www.sec.gov/comments/sr-cboe-2024-015/srcboe2024015.htm</a>.
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II. Description of the Proposed Rule Change, as Modified by Amendment
No. 1
The definition of complex strategy in Exchange Rule 5.33(a)
provides that new complex strategies may be created as the result of
the receipt of a complex instrument creation request or the receipt of
a complex order for a complex strategy that is not currently in the
Exchange's system.\6\ The Exchange proposes to revise this definition
to also allow the Exchange to create new complex strategies. The
Exchange states that customers will continue to have the
[[Page 42008]]
ability to create complex instruments as they do today.\7\
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\6\ See Cboe Rule 5.33(a).
\7\ See Notice, 89 FR at 21550.
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Exchange Rule 5.33(b)(2) states, in part, that the Exchange
determines which Capacities are eligible for entry into the COB.\8\ The
Exchange states that, currently, orders entered with any Capacity,
including Market-Maker and away market-maker orders, are eligible for
entry and may rest on the COB in all classes except SPX and VIX.\9\ In
SPX and VIX options, Market-Maker and away market maker complex orders
are not eligible for entry into the COB except as set forth in Exchange
Rule 5.33(b)(2)(A).\10\ The Exchange proposes to amend Exchange Rule
5.33(b)(2) to provides that in a class in which the Exchange determines
that orders with Capacity M or N are not eligible for entry into the
COB, the Exchange may determine that a complex order with Capacity M or
N may enter the COB in complex strategies designated by the Exchange.
The Exchange will have the ability to designate strategies created by
the Exchange and by users for the entry of Market-Maker and away market
maker orders in the COB.\11\
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\8\ ``Capacity'' means the capacity in which a User submits an
order, which the User specifies by applying the corresponding code
to the order. See Cboe Rule 1.1.
\9\ See Amendment No. 1.
\10\ See id. Exchange Rule 5.33(b)(2)(A) provides that ``In a
class in which the Exchange determines complex orders with Capacity
M or N are not eligible for entry into the COB, the Exchange may
determine that a complex order with Capacity M or N may enter the
COB if: (i) the complex order is on the opposite side of (a) a
Priority Customer complex order(s) resting in the COB with a price
not outside the SNBBO; or (b) orders on the same side of the market
in the same complex strategy that initiated a COA(s) if there are
``x'' number of COAs within ``y'' milliseconds, counted on a rolling
basis (the Exchange determines the number ``x'' (which must be at
least two) and the time period ``y'' (which may be no more than
2,000); and (ii) the User cancels the complex order, if it remains
unexecuted, no later than a specified time (which the Exchange
determines and may be no more than five minutes) after the time the
COB receives the M or N complex order.''
\11\ See Notice, 89 FR at 21550.
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When determining which complex strategies to create and in which
complex strategies the orders of Market-Makers and away market makers
will be eligible for COB entry, the Exchange represents that it intends
to make such determinations based on objective, nondiscriminatory
factors, including strategy type, orders, and executions within a
strategy type using close by strikes, and market participant
feedback.\12\
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\12\ See id. at 21552.
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III. Discussion and Commission Findings
After careful review, the Commission finds that the proposed rule
change, as modified by Amendment No. 1, is consistent with the
requirements of the Act and the rules and regulations thereunder
applicable to a national securities exchange.\13\ In particular, the
Commission finds that the proposed rule change is consistent with
Section 6(b)(5) of the Act,\14\ which requires, among other things,
that the rules of a national securities exchange be designed to prevent
fraudulent and manipulative acts and practices, 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.
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\13\ 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).
\14\ 15 U.S.C. 78f(b)(5).
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The proposal will allow the Exchange to create complex strategies
and to determine, in classes for which the Exchange has determined that
the orders of Market-Makers and away market makers may not rest in the
COB, that the orders of Market-Makers and away market makers may rest
in the COB in complex strategies designated by the Exchange. As
described more fully in the Notice, the Exchange states that it
understands from market participants that electronic trading in complex
strategies may be limited for a variety of reasons, including the
fragmentation of liquidity across multiple customer-created complex
instruments expressing a similar exposure profile.\15\ The Exchange
states that allowing it to create complex strategies, and to designate
complex strategies in which the orders of Market-Makers and away market
makers are eligible for entry in the COB, would permit the
consolidation of liquidity in a single complex strategy that currently
is spread across multiple customer-created complex instruments
expressing the same or similar exposure profiles.\16\ The Exchange
further states that the proposal to allow the Exchange to create
complex strategies could aggregate liquidity seeking a particular level
of risk exposure in a single set of strikes for a complex strategy (as
opposed to across many varying strikes).\17\ According to the Exchange,
the consolidation of liquidity resulting from the proposed changes
could increase execution opportunities at more competitive prices.\18\
The Commission believes that consolidating liquidity in particular
complex strategies, including commonly traded strategies, could
increase price competition in these strategies, potentially resulting
in more favorable executions for investors. The Exchange represents
that it will determine the complex strategies to create and the complex
strategies in in which the orders of Market-Makers and away market
makers will be eligible for COB entry based on objective and
nondiscriminatory factors, including the strategy type, orders, and
executions within a strategy type using close by strikes, and market
participant feedback.\19\ In addition, the Exchange states that
customers will continue to have the ability to create complex
instruments as they do today.\20\
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\15\ See Notice, 89 FR at 21549.
\16\ See Notice, 89 FR at 21459, 21550.
\17\ See Notice, 89 FR at 21550.
\18\ See id.
\19\ See Notice, 89 FR at 21552.
\20\ See id. at 21550. See also Exchange Rule 5.33(a)
(definition of complex strategy).
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IV. Solicitation of Comments on Amendment No. 1 to the Proposed Rule
Change
Interested persons are invited to submit written data, views, and
arguments concerning whether Amendment No. 1 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#681a1d040d450b0705050d061c1b281b0d0b460f071e"><span class="__cf_email__" data-cfemail="5b292e373e76383436363e352f281b283e38753c342d">[email protected]</span></a>. Please include
File Number SR-CBOE-2024-015 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-2024-015. 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
[[Page 42009]]
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-2024-015 and should be submitted on or before June 4, 2024.
V. Accelerated Approval of Proposed Rule Change, as Modified by
Amendment No. 1
The Commission finds good cause to approve the proposed rule
change, as modified by Amendment No. 1, prior to the thirtieth day
after the date of publication of notice of the filing of Amendment No.
1 in the Federal Register. The proposal, as originally filed, stated
that SPX is the only option class for which the Exchange has determined
that the orders of Market-Makers and away market makers are not
eligible for entry in the COB.\21\ Amendment No. 1 revises the proposal
to indicate that the Exchange has determined that the orders of Market-
Makers and away market makers in VIX options, as well as SPX options,
are not eligible for entry in the COB. Amendment No. 1 does not modify
the rule text or the operation of the proposed rules; rather it
corrects an erroneous factual statement regarding the option classes
for which the Exchange has determined that the orders of Market-Makers
and away market makers are not eligible to rest in the COB.
Accordingly, the Commission finds good cause, pursuant to Section
19(b)(2) of the Act,\22\ to approve the proposed rule change, as
modified by Amendment No. 1, on an accelerated basis.
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\21\ See Notice, 89 FR at 21549, n.3 and n.4.
\22\ 15 U.S.C. 78s(b)(2).
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VI. Conclusion
It is therefore ordered, pursuant to section 19(b)(2) of the
Act,\23\ that the proposed rule change (SR-CBOE-2024-015), as modified
by Amendment No. 1, is approved.
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\23\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\24\
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\24\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-10432 Filed 5-13-24; 8:45 am]
BILLING CODE 8011-01-P
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