Notice2025-23531
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing of a Proposed Rule Change To Proposes To Amend Rules 5.37, 5.39, 5.73, and 5.74 To Permit Orders for the Accounts of Market-Makers With an Appointment in the Applicable Class on the Exchange, in all Classes, To Be Solicited for the Initiating Order Submitted for Execution Against an Agency Order Into a Simple AIM, Simple SAM, FLEX AIM or FLEX SAM Auction
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Published
December 22, 2025
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 90 Issue 243 (Monday, December 22, 2025)</title>
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[Federal Register Volume 90, Number 243 (Monday, December 22, 2025)]
[Notices]
[Pages 59906-59909]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2025-23531]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-104437; File No. SR-CBOE-2025-090]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of
Filing of a Proposed Rule Change To Proposes To Amend Rules 5.37, 5.39,
5.73, and 5.74 To Permit Orders for the Accounts of Market-Makers With
an Appointment in the Applicable Class on the Exchange, in all Classes,
To Be Solicited for the Initiating Order Submitted for Execution
Against an Agency Order Into a Simple AIM, Simple SAM, FLEX AIM or FLEX
SAM Auction
December 17, 2025.
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 December 9, 2025, Cboe Exchange, Inc. (the ``Exchange'' or
``Cboe Options'') 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
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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[[Page 59907]]
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 Rules 5.37, 5.39, 5.73, and 5.74 to permit orders for the
accounts of Market-Makers with an appointment in the applicable class
on the Exchange, in all classes, to be solicited for the Initiating
Order submitted for execution against an Agency Order into a simple
AIM, simple SAM, FLEX AIM or FLEX SAM Auction. The text of the proposed
rule change is provided in Exhibit 5.
The text of the proposed rule change is also available on the
Commission's website (<a href="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>), the
Exchange's website (<a href="https://www.cboe.com/us/options/regulation/rule_filings/bzx/">https://www.cboe.com/us/options/regulation/rule_filings/bzx/</a>), and at the principal office of the Exchange.
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 Rules 5.37 (Automated Price
Improvement Mechanism (``AIM'' or ``AIM Auction'')), 5.39
(``Solicitation Auction Mechanisms (``SAM'' or ``SAM Auction'')), 5.73
(FLEX Automated Improvement Mechanism (``FLEX AIM'' or ``FLEX AIM
Auction'')), and 5.74 (FLEX Solicitation Auction Mechanism (``FLEX
SAM'' or ``FLEX SAM Auction'')), to permit orders for the accounts of
Market-Makers with an appointment in the applicable class on the
Exchange, in all classes, to be solicited for the Initiating Order \3\
submitted for execution against an Agency Order into a simple AIM
Auction pursuant to Rule 5.37, a simple SAM Auction pursuant to Rule
5.39, a FLEX AIM Auction pursuant to Rule 5.73, or a FLEX SAM Auction
pursuant to Rule 5.74.
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\3\ The ``Initiating Order'' is the order comprised of principal
interest or a solicited order(s) submitted to trade against the
order the submitting Trading Permit Holder (the ``Initiating TPH''
or ``Initiating FLEX Trader,'' as applicable) represents as agent
(the ``Agency Order'').
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By way of background, Rule 5.37 contains the requirements
applicable to the execution of certain customer orders (``Agency
Orders'') using AIM. An AIM Auction is an electronic auction intended
to provide an Agency Order with the opportunity to receive price
improvement (over the National Best Bid or Offer (``NBBO'')). Rule 5.39
contains the requirements applicable to the execution of Agency Orders
using SAM. Similarly, a SAM Auction is an electronic auction intended
to provide a larger-sized Agency Order with the opportunity to receive
price improvement over the NBBO. Upon submitting an Agency Order into
an AIM or SAM Auction, the initiating Trading Permit Holder
(``Initiating TPH'') must also submit a contra-side second order
(``Initiating Order'') for the same size as the Agency Order. The
Initiating Order guarantees that the Agency Order will receive an
execution at no worse than the auction price. Upon commencement of an
auction, market participants may submit responses to trade against the
Agency Order.\4\ At the conclusion of an AIM Auction, depending on the
contra-side interest (including auction responses) available, the
Initiating Order may be allocated a certain percentage (or more) of the
Agency Order.\5\ At the conclusion of a SAM Auction, depending on the
contra-side interest (including auction responses) available, the
Initiating Order may be allocated the entire Agency Order or none of
the Agency Order.\6\ Rules 5.73 and 5.74 contain the requirements for
AIM and SAM Auctions for flexible exchange options (``FLEX Options'')
(``FLEX AIM'' and ``FLEX SAM,'' respectively).
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\4\ See Rules 5.37(c)(5) and 5.39(c)(5).
\5\ See Rule 5.37(e).
\6\ See Rule 5.39(e).
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Currently, the introductory paragraphs of Rules 5.37 and 5.73
prohibit orders for the accounts of Market-Makers with an appointment
in the applicable class on the Exchange in all classes except S&P 500
Index options (``SPX'') to be solicited to execute against the Agency
Order in a simple AIM or FLEX AIM Auction, respectively. The
introductory paragraphs of Rules 5.39 and 5.73 prohibit orders for the
accounts of Market-Makers with an appointment in the applicable class
on the Exchange to be solicited to execute against the Agency Order in
a simple SAM or FLEX SAM Auction, respectively.
While market participants other than appointed Market-Makers may
contribute liquidity to these crossing auctions as either contra orders
or responses, appointed Market-Makers, who are the primary source of
liquidity on the Exchange in their appointed classes, are limited in
the manner in which they may provide liquidity to these auctions. Given
that contra orders that comprise Initiating Orders may be allocated a
percentage of the Agency Order at the conclusion of the auctions, the
limited ability of appointed Market-Makers to participate in simple
AIM, simple SAM, FLEX AIM, and FLEX SAM Auctions may reduce the
execution opportunities for these liquidity providers, which execution
opportunities are available to other market participants who may be
solicited or submit responses.
The Exchange believes that eliminating the prohibition against
appointed Market-Makers acting as contra in single-leg AIM orders would
enhance price improvement opportunities, particularly for retail and
smaller Customer orders. This is especially relevant in proprietary
products like VIX options, for which many AIM orders are large-sized
transactions with banks or institutional participants as contras, while
retail orders often route directly to the Book without the opportunity
for potential price improvement via AIM auctions. Allowing local
appointed Market-Makers to be solicited as contras may result in
exposure of more small customer orders to potential price improvement
via auction processes. The Exchange notes that appointed Market-Makers
may be solicited as contras for complex AIM and SAM Auctions, which
function in a substantially similar manner as AIM and SAM for simple
orders.\7\ The Exchange further notes that Rule 8.10 prohibits TPHs
from misusing material, nonpublic information (for example, advanced
knowledge of auctioned orders), so protections will remain in place
under the proposed rule change to address any potential information
leakage concerns.
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\7\ See Rules 5.38 and 5.39.
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Additionally, the restriction has become operationally outdated in
current market structure. As noted above, it is common practice that
AIM orders already involve the same Market-Maker firm acting as both
contra (via an away Market-Maker) and auction respondent (via an
appointed Market-Maker). Eliminating this restriction would reduce an
arbitrary and
[[Page 59908]]
unnecessary burden allow Market-Maker firms to structure more efficient
auction processes, which may ultimately promote greater competition
among Market-Makers and provide Customers with enhanced opportunities
for price improvement.
To demonstrate the importance of the liquidity provided by Market-
Makers, for the time period from January to June 2025, the percentage
of smaller Customer orders (20 or fewer) that executed in open outcry
against a Market-Maker in multi-list classes as contra was
approximately 57%, and the percentage of smaller customer orders (20 or
fewer) that executed electronically against a Market-Maker in multi-
list classes as contra was approximately 93%. Further, for the same
time period, the percentage of smaller Customer orders (20 or fewer)
that executed in open outcry against a VIX Market-Maker as contra was
approximately 71%, and the percentage of smaller customer orders (20 or
fewer) that executed electronically against a Market-Maker in multi-
list classes as contra was approximately 87%. Currently, there are 24
distinct TPHs with appointments across multi-list classes and 18 TPHs
with VIX appointments, which represent a significant pool of liquidity
that would be available to participate in AIM Auctions through both
contra orders and auction responses.
The Exchange is proposing to amend Rules 5.37, 5.39, 5.73, and 5.74
to permit orders for the accounts of Market-Makers with an appointment
in the applicable class to be solicited for the Initiating Order
submitted for execution against an Agency Order in all classes into a
simple AIM Auction pursuant to Rule 5.37, a simple SAM Auction pursuant
to Rule 5.39, a FLEX AIM Auction pursuant to Rule 5.73, or a FLEX SAM
Auction pursuant to Rule 5.74. The Exchange believes providing
appointed Market-Makers with an additional way to participate in
electronic auctions will expand available liquidity for these auctions,
which may increase execution and price improvement opportunities for
customers' orders. No similar restriction applies to crossing
transactions in open outcry trading.\8\ Brokers seeking liquidity to
execute against customer orders on the trading floor regularly solicit
appointed Market-Makers in the applicable class for this liquidity, as
they are generally the primary source of liquidity in a class (as noted
above). Therefore, the Exchange believes the proposed rule change will
further align open outcry and electronic crossing auctions and the
execution and price improvement opportunities available in both
auctions by permitting the same participants to be solicited as contras
in AIM, SAM, FLEX AIM, and FLEX SAM Auctions across all classes at all
times.
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\8\ See Rules 5.86 and 5.87.
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The Exchange notes the electronic crossing price improvement
auction of another options exchange currently permits orders for the
accounts of appointed market-makers to be solicited as the contra
orders for that auction.\9\
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\9\ See NYSE American, Inc. (``American'') Rule 971.1NY and NYSE
Pillar Options FIX Gateway Protocol Specification, Section 5.2, New
Cross Order. See also <a href="https://www.nyse.com/markets/american-options/cube-customer-best-execution">https://www.nyse.com/markets/american-options/cube-customer-best-execution</a>.
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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.\10\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \11\ 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) \12\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
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\10\ 15 U.S.C. 78f(b).
\11\ 15 U.S.C. 78f(b)(5).
\12\ Id.
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In particular, the Exchange believes the proposed rule change will
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 because it will provide the primary liquidity providers
on the Exchange with an additional way to participate in electronic
auctions. Additionally, by permitting brokers to solicit primary
liquidity providers in a class for electronic auctions, the Exchange
believes brokers will be able to more efficiently locate liquidity to
fill their customer orders, particularly during times of volatility. As
a result, the Exchange believes the proposed rule change will likely
expand available liquidity for these auctions, which may create
additional execution and price improvement opportunities for customers
at all times, which ultimately benefits investors.
The Exchange believes the proposed rule change is consistent with
the Act because it will further align open outcry and electronic
crossing auctions and the execution and price improvement opportunities
available in both auctions by permitting the same participants to be
solicited as contras in both types of auctions across all classes.
Currently, appointed Market-Makers may be solicited with respect to
crossing transactions on the trading floor but may not be solicited
with respect to electronic crossing transactions. The Exchange believes
there is no reason to restrict Market-Makers ability to provide
liquidity into electronic auctions when they are able to similarly
provide that liquidity in open outcry trading. As noted above, the
electronic crossing price improvement auction of another options
exchange currently permits orders for the accounts of appointed market-
makers to be solicited as the contra orders for that auction.\13\
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\13\ See NYSE American, Inc. (``American'') Rule 971.1NY and
NYSE Pillar Options FIX Gateway Protocol Specification, Section 5.2,
New Cross Order. See also <a href="https://www.nyse.com/markets/american-options/cube-customer-best-execution">https://www.nyse.com/markets/american-options/cube-customer-best-execution</a>.
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The Exchange believes the proposed rule change will promote
competition in AIM Auctions, including competition to initiate AIM
Auctions, which will remove impediments to and perfect the mechanism of
a free and open market and a national market system, and, in general,
to protect investors. The Exchange believes the availability of this
liquidity to Agency Orders will positively affect the experience for
Agency Orders and overall quality of the auctions. Furthermore, the
Exchange believes increasing the number of market participants
available to be solicited may increase competition to provide
Initiating Orders, which may lead to an AIM Auction being initiated at
a better price. More market participants competing to provide
Initiating Orders may lead to solicited parties providing more
aggressive initial prices. The Exchange believes the ability of all
market participants, including appointed Market-Makers that did not
submit an Initiating Order, to submit responses to an AIM Auction will
continue to provide competition for executions against Agency Orders.
The Exchange believes any risk that appointed Market-Makers may
misuse the nonpublic information of an
[[Page 59909]]
upcoming AIM Auction is de minimis. Currently, that risk is present for
non-appointed Market-Makers, but the Exchange has not observed any
trends of solicited market participants separately submitting unrelated
orders as a result of knowledge of impending AIM Auctions in other
classes. The Exchange notes Rule 5.37, Interpretation and Policy .02
prohibits a pattern or practice of submitting orders or quotes for the
purpose of disrupting or manipulating AIM Auctions, and Rule 8.10
requires TPHs to establish, maintain, and enforce written policies and
procedures reasonably designed to prevent the misuse of material,
nonpublic information by TPHs and their associated persons. Finally,
the Exchange believes the proposed rule change is not designed to
permit unfair discrimination between customers, issuers, brokers, or
dealers because it will be permit orders for accounts of appointed
Market-Makers to be solicited in the same manner as orders for the
accounts of all other market participants. Currently, all market
participants other than appointed Market-Makers may be solicited as the
contra and submit responses in AIM Auctions for all classes. Given the
additional costs and obligations associated with being an appointed
Market-Maker, the Exchange does not believe these Market-Makers should
have fewer execution opportunities with respect to volume submitted for
execution through AIM auctions and not for electronic execution against
interest in the book. The Exchange believes the proposed rule change
will provide all Market-Makers on the Exchange with the same ability to
participate in AIM in all classes at all times, which may further
increase execution and price improvement opportunities for customers.
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 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 it provides the same execution
opportunities in AIM Auctions to appointed Market-Makers that are
currently available to all other market participants. Additionally, the
proposed rule change will further align open outcry and electronic
crossing auctions and the execution and price improvement opportunities
available in both auctions by permitting the same participants to be
solicited as contras in auctions across all classes.
The Exchange does not believe 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 it
relates to orders submitted into auction mechanisms on the Exchange.
Additionally, the Exchange notes that the rules of at least one other
options exchange permits orders for the accounts of appointed market-
makers to be solicited as contra orders for that exchange's electronic
crossing price improvement auction.\14\ The Exchange believes the
proposed rule change may improve price competition within AIM Auctions,
because the primary liquidity providers will be able to increase
participation in AIM Auctions.
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\14\ See NYSE American, Inc. (``American'') Rule 971.1NY and
NYSE Pillar Options FIX Gateway Protocol Specification, Section 5.2,
New Cross Order. See also <a href="https://www.nyse.com/markets/american-options/cube-customer-best-execution">https://www.nyse.com/markets/american-options/cube-customer-best-execution</a>.
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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
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the Exchange consents, the Commission will:
A. by order approve or disapprove such proposed rule change, or
B. institute proceedings to determine whether the proposed rule
change should be 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#582a2d343d753b3735353d362c2b182b3d3b763f372e"><span class="__cf_email__" data-cfemail="a9dbdcc5cc84cac6c4c4ccc7dddae9daccca87cec6df">[email protected]</span></a>. Please include
file number SR-CBOE-2025-090 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-2025-090. 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 filing 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-2025-090 and should be submitted on
or before January 12, 2026.
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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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-23531 Filed 12-19-25; 8:45 am]
BILLING CODE 8011-01-P
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