Notice2025-23534
Self-Regulatory Organizations; Cboe Exchange, Inc.; Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change To Amend Functionality Relating to the Processing of Auction Responses
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
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 59928-59930]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2025-23534]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-104440; File No. SR-CBOE-2025-074]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Order
Instituting Proceedings To Determine Whether To Approve or Disapprove a
Proposed Rule Change To Amend Functionality Relating to the Processing
of Auction Responses
December 17, 2025.
I. Introduction
On September 30, 2025, Cboe Exchange, Inc. (``Exchange'' or
``Cboe'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) \1\ of the Securities
Exchange Act of 1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ a
proposed rule change to amend the maximum amount of time permitted for
processing auction responses in non-FLEX classes. The proposed rule
change was published for comment in the Federal Register on October 3,
2025.\4\ On November 3, 2025, pursuant to Section 19(b)(2)(A)(ii)(I) of
the Act,\5\ the Commission designated a longer period within which to
approve the proposed rule change, disapprove the proposed rule change,
or institute proceedings to determine whether to disapprove the
proposed rule change.\6\ The Commission has not received any comments
on the proposal. Pursuant to Section 19(b)(2)(B) of the Act,\7\ the
Commission is hereby instituting proceedings to determine whether to
approve or disapprove the proposed rule change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
\4\ See Securities Exchange Act Release No. 104159 (Sep. 30,
2025), 90 FR 48094 (``Notice'').
\5\ See 15 U.S.C. 78s(b)(2)(A)(ii)(I).
\6\ See Securities Exchange Act Release No. 104173, 90 FR 51424
(Nov. 17, 2025). The Commission designated January 1, 2026, as the
date by which the Commission shall approve or disapprove, or
institute proceedings to determine whether to disapprove, the
proposed rule change.
\7\ 15 U.S.C. 78s(b)(2)(B).
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II. Description of the Proposed Rule Change
The Exchange currently offers the following auction and exposure
mechanisms (``auctions''): Complex Order Auction (``COA''),\8\ Step Up
Mechanism (``SUM''),\9\ Automated Improvement Mechanism (``AIM''),\10\
Complex AIM (``C-AIM''),\11\ Solicitation Auction Mechanism
(``SAM''),\12\ Complex SAM (``C-SAM''),\13\ FLEX Auction process,\14\
FLEX AIM,\15\ and FLEX SAM.\16\ In general in these auctions, the
System \17\ electronically exposes eligible orders for an Exchange-
determined period of time in accordance with the applicable Exchange
Rule, during which time, in response to an auction notification
message, Users \18\ may submit auction responses or auction response
messages.
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\8\ See Cboe Rule 5.33(d).
\9\ See Cboe Rule 5.35.
\10\ See Cboe Rule 5.37.
\11\ See Cboe Rule 5.38.
\12\ See Cboe Rule 5.39.
\13\ See Cboe Rule 5.40.
\14\ See Cboe Rule 5.72(c).
\15\ See Cboe Rule 5.73.
\16\ See Cboe Rule 5.74.
\17\ The term ``System'' means the Exchange's hybrid trading
platform that integrates electronic and open outcry trading of
option contracts on the Exchange, and includes any connectivity to
the foregoing trading platform that is administered by or on behalf
of the Exchange, such as a communications hub. See Cboe Rule 1.1.
\18\ The term ``User'' means any TPH or sponsored user who is
authorized to obtain access to the System pursuant to Cboe Rule 5.5.
See Cboe Rule 1.1.
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Cboe Rule 5.25(c) provides that at the conclusion of an auction
response or exposure period, the System will continue to process any
messages in its inbound queue that were received by the System before
the end of the auction response or exposure period, as identified by
each message's timestamp, for up to an Exchange-determined period of
time on a class-by-class basis. This Exchange-determined period of time
may not exceed 100 milliseconds, except in the case of non-FLEX S&P 500
Index options ``SPX options.'' \19\ For non-FLEX SPX options, this
Exchange-determined period of time plus the length of the auction
response or exposure period, as applicable, may not exceed 1000
milliseconds (until December 31, 2025).\20\ The applicable auction will
execute once all messages, including auction responses, received before
the end time of the auction response period have been processed or the
Exchange-determined maximum time limit has elapsed, whichever occurs
first.\21\
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\19\ See Cboe Rule 5.25(c); see also Securities Exchange Act
Release No. 97738 (June 15, 2023), 88 FR 40878 (June 22, 2023)
(order approving SR-CBOE-2022-051, which established the 100-
millisecond maximum processing time period) (``100 Millisecond
Order'').
\20\ See Cboe Rule 5.25(c); see also Securities Exchange Act
Release No. 102966 (May 1, 2025), 90 FR 19330 (May 7, 2025) (SR-
CBOE-2025-031). The auction response processing time is currently
set to 900 milliseconds for SPX options and 100 milliseconds for all
other classes. See Notice, supra note 4, at 48095, n. 13.
\21\ See Notice, supra note 4, at 48095.
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The Exchange is proposing to make permanent the non-FLEX SPX
functionality and broaden it such that it applies to all non-FLEX
option classes,
[[Page 59929]]
and the Exchange is proposing not to apply any auction response
processing time to FLEX auctions.\22\ Specifically, the Exchange is
proposing to amend Cboe Rule 5.25(c) to provide that, for non-FLEX
auction or exposure mechanisms, the System processing time for any
messages in its inbound queue that were received by the System before
the end of the auction response or exposure period (as identified by
each message's timestamp), plus the length of the auction response or
exposure period, as applicable, may not exceed 1000 milliseconds.\23\
Only auction responses submitted during the auction response or
exposure period would be eligible for processing,\24\ in time
priority,\25\ and the proposed rule change would make no changes to how
the auction rules operate regarding allocation and execution
priority.\26\
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\22\ See proposed Cboe Rule 5.25(c); see also Notice, supra note
4, at 48095, n. 17. The term ``FLEX auction'' refers to the FLEX
Auction process, FLEX AIM, and FLEX SAM.
\23\ See proposed Cboe Rule 5.25(c). The Exchange will announce
the length of the Exchange-determined processing period with
reasonable advance notice via Exchange Notice. See Cboe Rule
5.25(c).
\24\ See Notice, supra note 4, at 48095.
\25\ See id. at 48097.
\26\ See id. at 48097, 48098.
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The Exchange states, among other things,\27\ that the proposed,
increased maximum processing time will result in more timely-submitted
auction responses having the opportunity to participate in the auction
and being executed in all classes, particularly in times of volatility
and high message traffic.\28\ According to the Exchange, this may
provide further opportunities for auctioned orders to receive price
improvement, and may encourage liquidity providers to submit more
auction responses, which may contribute to a deeper, more liquid action
process.\29\ The Exchange believes the proposal will continue to
appropriately balance providing investors with timely processing of
their options quote and order messages with providing investors who
submit orders that are auctioned with additional liquidity.\30\ The
Exchange also states that given the much longer length of FLEX
auctions, which may last three seconds to five minutes,\31\ the
Exchange believes an increase in auction response processing is
unnecessary for FLEX SPX options.\32\
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\27\ See generally, Notice, supra note 4, for the entirety of
the Exchange's statements in support of its proposal.
\28\ See Notice, supra note 4, at 48095-96. The Exchange states
that it generally experiences significant increases in volumes and
messages traffic when the market experiences volatility. As a
result, the Exchange states that it has observed deeper pending
message queues, which results in an increased number of timely
received auction responses not being processed as part of the
execution at the conclusion of an auction. The Exchange believes,
based on its observations, that the proposed maximum time may
increase the number of timely received auction responses that may
execute against an auction order. See id. at 48096.
\29\ See id. at 48096, 48097.
\30\ See id. at 48096.
\31\ See Cboe Rules 5.72(c)(1)(F), 5.73(c)(3), and 5.74(c)(3).
\32\ See Notice, supra note 4, at 48098.
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The Exchange provides certain data in support of its proposal.
Specifically, the Exchange states that, in 2025 prior to May 12 (the
date on which the Exchange implemented the longer auction processing
response time for non-FLEX SPX options), the percentage of auction
responses in SPX that were received by the System before the end of the
auction period (i.e., had received a Network Interface Card timestamp)
but were rejected because the Exchange could not process them before
the end of the combined auction response or exposure period (as
applicable) plus the then-existing extra processing time, reached over
20% on several occasions and averaged approximately 7.64%.\33\ Between
May 12 and September 5, this percentage was nearly 0, according to the
Exchange.\34\ Despite the maximum auction response processing time
being 900 milliseconds, the average length of that time period used
since that time was only about 14 milliseconds.\35\ The Exchange
believes, given the continued increase in options volumes across the
industry (and thus all classes), that all classes could benefit from
the additional processing times.\36\
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\33\ See id. at 48096.
\34\ See id.
\35\ See id.
\36\ See id.
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III. Proceedings To Determine Whether To Approve or Disapprove the
Proposed Rule Change
The Commission hereby institutes proceedings pursuant to Section
19(b)(2)(B) of the Act \37\ to determine whether the Exchange's
proposed rule change should be approved or disapproved. Institution of
proceedings does not indicate that the Commission has reached any
conclusions with respect to any of the issues involved. Rather, the
Commission seeks and encourages interested persons to provide
additional comment on the proposed rule change to inform the
Commission's analysis of whether to approve or disapprove the proposed
rule change.
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\37\ 15 U.S.C. 78s(b)(2)(B).
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Pursuant to Section 19(b)(2)(B) of the Act,\38\ the Commission is
providing notice of the grounds for disapproval under consideration.
The Commission is instituting proceedings to allow for additional
analysis of, and input from commenters with respect to, the consistency
of the proposed rule change with the Act and, in particular, Section
6(b)(5) of the Act,\39\ which requires 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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\38\ Id.
\39\ 15 U.S.C. 78f(b)(5).
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Under the Commission's Rules of Practice, the ``burden to
demonstrate that a proposed rule change is consistent with the [Act]
and the rules and regulations issued thereunder . . . is on the self-
regulatory organization that proposed the rule change.'' \40\ The
description of a proposed rule change, its purpose and operation, its
effect, and a legal analysis of its consistency with applicable
requirements must all be sufficiently detailed and specific to support
an affirmative Commission finding,\41\ and any failure of a self-
regulatory organization to provide this information may result in the
Commission not having a sufficient basis to make an affirmative finding
that a proposed rule change is consistent with the Act and the
applicable rules and regulations.\42\
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\40\ Rule 700(b)(3), Commission Rules of Practice, 17 CFR
201.700(b)(3).
\41\ Id.
\42\ Id.
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As discussed above, currently, the Exchange-determined period of
additional processing time for timely-received auction responses may
not exceed 100 milliseconds, except that this maximum processing time
is 1000 milliseconds for auctions in non-FLEX SPX options. The
Exchange's proposal would increase to 1000 milliseconds the maximum
processing time for all non-FLEX classes (and make the 1000-millisecond
maximum processing time period permanent for non-FLEX SPX classes), and
no longer apply an auction message processing time to any FLEX
auctions.
The Commission is concerned that the proposal does not provide an
adequate basis, at this time, for the Commission
[[Page 59930]]
to conclude that the proposed increase to the maximum processing time
for auction messages in non-FLEX classes other than SPX and the
proposed non-application of any auction response processing time to
FLEX auctions would be consistent with the Act. While the Exchange sets
forth benefits that could accrue from the proposal, the data it
proffers in support of the proposal is specific to its experience with
non-FLEX SPX options. The proposal does not set forth data directly
supporting the proposed increase in the maximum processing time for
non-FLEX classes other than SPX.\43\ The proposal also states that an
increase in auction response processing time is unnecessary for FLEX
SPX options in light of the fact that FLEX auctions may last three
seconds to five minutes--a proposition with which the Commission
agrees. But the proposal does not currently set forth support for the
proposed non-application of any auction response processing time to any
FLEX auction, which is an aspect of the proposal that, in the
Commission's view, is distinct from not increasing the auction response
processing time for FLEX SPX options. Lastly, the Commission also seeks
comment on whether the proposal presents any market risk due to a
longer auction processing time for auction responses or the
cancellation of auction responses that have been submitted during the
auction response period.
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\43\ See, e.g., 100 Millisecond Order, supra note 19, at 40878
n. 21 (stating that an Exchange review indicated that approximately
55% of auction responses had no opportunity to execute in their
respective auctions notwithstanding being submitted within the
auction response period).
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Accordingly, the Commission is instituting proceedings to allow for
additional consideration and comment on the issues raised herein,
including as to whether the proposal is consistent with the Act.\44\
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\44\ See 15 U.S.C. 78f(b)(5) and (8).
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IV. Commission's Solicitation of Comments
The Commission requests written views, data, and arguments with
respect to the concerns identified above as well as any other relevant
concerns. Such comments should be submitted by January 12, 2026.
Rebuttal comments should be submitted by January 26, 2026. Although
there do not appear to be any issues relevant to approval or
disapproval that would be facilitated by an oral presentation of views,
data, and arguments, the Commission will consider, pursuant to Rule
19b-4, any request for an opportunity to make an oral presentation.\45\
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\45\ 15 U.S.C. 78s(b)(2). Section 19(b)(2) of the Act grants the
Commission flexibility to determine what type of proceeding--either
oral or notice and opportunity for written comments--is appropriate
for consideration of a particular proposal by an SRO. See Securities
Acts Amendments of 1975, Report of the Senate Committee on Banking,
Housing and Urban Affairs to Accompany S. 249, S. Rep. No. 75, 94th
Cong., 1st Sess. 30 (1975).
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The Commission asks that commenters address the sufficiency and
merit of the Exchange's statements in support of the proposal, in
addition to any other comments they may wish to submit about the
proposed rule change.
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#dcaea9b0b9f1bfb3b1b1b9b2a8af9cafb9bff2bbb3aa"><span class="__cf_email__" data-cfemail="4634332a236b25292b2b232832350635232568212930">[email protected]</span></a>. Please include
file number SR-CBOE-2025-074 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-2025-074. 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-2025-074 and should be submitted on
or before January 12, 2026. Rebuttal comments should be submitted by
January 26, 2026.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\46\
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\46\ 17 CFR 200.30-3(a)(57).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-23534 Filed 12-19-25; 8:45 am]
BILLING CODE 8011-01-P
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