Notice2026-17804
Self-Regulatory Organizations; Cboe C2 Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Exchange Rule 5.52 (Market-Maker Quotes) To Adopt Two-Sided Quote Bid/Ask Differentials
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Published
September 1, 2026
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 91 Issue 168 (Tuesday, September 1, 2026)</title>
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[Federal Register Volume 91, Number 168 (Tuesday, September 1, 2026)]
[Notices]
[Pages 56257-56260]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-17804]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-106207; File No. SR-C2-2026-022]
Self-Regulatory Organizations; Cboe C2 Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
Exchange Rule 5.52 (Market-Maker Quotes) To Adopt Two-Sided Quote Bid/
Ask Differentials
August 27, 2026.
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 August 17, 2026, Cboe C2 Exchange, Inc. (the ``Exchange'' or
``C2'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I and II
below, which Items have been prepared by the Exchange. The Commission
is publishing this notice to solicit comments on the proposed rule
change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Cboe C2 Exchange, Inc. (``C2'' or the ``Exchange'') is filing with
the Securities and Exchange Commission (``Commission'' or ``SEC'') a
proposed rule change to amend Exchange Rule 5.52 (Market-Maker Quotes)
to adopt two-sided quote bid/ask differentials. 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/ctwo/">https://www.cboe.com/us/options/regulation/rule_filings/ctwo/</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 Rule 5.52 to adopt two-sided quote
bid/ask differentials, also referred to as spread parameters, which
establish the maximum permissible width between a Market-Maker's bid
and offer in a series in an appointed class. The proposal is modeled on
the framework of Miami International Securities Exchange, LLC
(``MIAX'') Rules 603(b)(4) and (5), and is also consistent with the
quote width frameworks of other options exchanges, including Nasdaq
ISE, LLC (``ISE'') Options 2, Section 4(b)(4).
Background on Market-Maker Quoting Obligations
Exchange Rule 5.51 sets forth Market-Maker Obligations on the
Exchange. Rule 5.51(a)(1) requires that, ordinarily, a Market-Maker
must during the trading day maintain a continuous two-sided market in
each of its appointed classes, pursuant to Rule 5.52(d). Rule 5.52(d)
[[Page 56258]]
requires a Market-Maker to enter continuous electronic bids and offers
(in accordance with the requirements in Rules 5.51 and 5.52). Given
this, a Market-Maker is generally obligated to comply with all
requirements provided in Exchange Rules 5.51 and 5.52.
Exchange Rule 5.52(c) provides for the requirements of two-sided
quotes. Specifically, Rule 5.52(c) currently provides that a Market-
Maker that enters a bid (offer) on the Exchange in a series in an
appointed class must enter an offer (bid). Currently, Market-Makers on
the Exchange are not subject to bid/ask differentials, meaning that the
requirement for a two-sided market can be set with a quote that is very
wide. The Exchange now proposes to adopt new provisions under Rule
5.52(c) to set forth the bid/ask differential requirements for such
two-sided quotes.
Proposed Bid/Ask Differential Requirements
The Exchange proposes to add to Exchange Rule 5.52(c) that the bid/
ask differential of a Market-Maker's electronic quotes may not exceed
$5 regardless of the Market-Maker's bid. For purposes of measuring
compliance with the bid/ask differential requirement, the Exchange will
consider the aggregate of all quotes entered by a Market-Maker (i.e.,
at the Trading Permit Holder (``TPH'') firm level) across all Executing
Firm IDs (``EFIDs'') used by that Market-Maker in a particular option
series or class. For example, if a Market-Maker TPH quotes using
multiple EFIDs in the same series, with EFID A quoting $0 bid at $10
offer and EFID B quoting $5 bid at $15 offer, the Exchange would
measure the bid/ask differential based on the firm's aggregate quote of
$5 bid at $10 offer, resulting in a $5 width that satisfies the
requirement.
Additionally, the Exchange clarifies that a bid of zero or no bid
is a valid bid for purposes of the two-sided market requirement and the
bid/ask differential calculation. Using the example above, EFID A's
quote of a $10 offer (and no bid) would result in a $10 width, as no
bid is equivalent to a bid of $0. However, when aggregated with EFID
B's quote of $5 bid at $15 offer, the Market-Maker firm's aggregate
quote would be $5 bid at $10 offer, satisfying the $5 differential
requirement.
Proposed Exceptions
The Exchange also proposes to adopt certain exceptions to the bid/
ask differential requirements under proposed Rules 5.52(c)(1) and (2).
Proposed Rule 5.52(c)(1) would provide that the Exchange may
establish bid/ask differentials other than the foregoing for one or
more series or classes of options. As proposed, the Exchange would have
flexibility to establish bid/ask differentials in excess of $5 where
appropriate for a particular options series or class.\3\ The Exchange
notes that MIAX has exercised similar discretion to establish wider
bid/ask differentials tailored to specific market conditions.\4\
Similarly, Nasdaq PHLX LLC (``Phlx'') has established separate bid/ask
differential requirements for options on the Nasdaq-100 Index (``NDX'')
and other proprietary index products.\5\
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\3\ If the Exchange were to exercise this discretion, it would
announce any such differentials to members via exchange notice.
\4\ For example, MIAX has established bid/ask differentials for
various options series or classes based on factors such as the price
of the underlying security and market characteristics. See MIAX
Options Exchange Regulatory Circular 2025-44 at
MIAX_Options_RC_2025_44.pdf.
\5\ See Options Regulatory Alert #2026-40, PHLX, ISE and GEMX--
Bid Ask Differentials for NDX Option Class through September 18,
2026, available at <a href="https://www.nasdaqtrader.com/MicroNews.aspx?id=ORA2026-40">https://www.nasdaqtrader.com/MicroNews.aspx?id=ORA2026-40</a> (establishing bid/ask differentials for
NDX options on a bid-price tiered basis, with intraday differentials
ranging from $20 to $800 depending on the bid price of the option).
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Proposed Rule 5.52(c)(2) would provide that the bid/ask
differentials shall not apply to in-the-money series where the national
best bid and offer (``NBBO'') for the underlying security is wider than
the differentials set forth above. For such series, the bid/ask
differentials may be as wide as the spread between the NBBO in the
underlying security.
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Act and the rules and regulations thereunder applicable to the
Exchange and, in particular, the requirements of Section 6(b) of the
Act.\6\ Specifically, the Exchange believes the proposed rule change is
consistent with the Section 6(b)(5) \7\ requirements that the rules of
an exchange be designed to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade, to foster
cooperation and coordination with persons engaged in regulating,
clearing, settling, processing information with respect to, and
facilitating transactions in securities, to remove impediments to and
perfect the mechanism of a free and open market and a national market
system, and, in general, to protect investors and the public interest.
Additionally, the Exchange believes the proposed rule change is
consistent with the Section 6(b)(5) \8\ requirement that the rules of
an exchange not be designed to permit unfair discrimination between
customers, issuers, brokers, or dealers.
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\6\ 15 U.S.C. 78f(b).
\7\ 15 U.S.C. 78f(b)(5).
\8\ Id.
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The Exchange believes that establishing bid/ask differential
requirements for Market-Maker quotes promotes just and equitable
principles of trade and removes impediments to and perfects the
mechanism of a free and open market and a national market system. The
Exchange believes the proposed bid/ask differentials will enhance the
quality of markets on the Exchange by requiring that Market-Makers
maintain reasonably tight markets when fulfilling their continuous
quoting obligations. Currently, Market-Makers may satisfy their two-
sided quoting obligations with quotes that are excessively wide, which
may not provide meaningful liquidity to market participants. By
establishing a general maximum permissible width of $5 between a
Market-Maker's bid and offer, the Exchange believes the proposal will
cause Market-Makers to submit quotes that are more likely to facilitate
price discovery and execution opportunities for investors.
The Exchange believes the proposed $5 bid/ask differential as the
general maximum is reasonable and appropriate. The differential is
sufficiently wide to accommodate normal market conditions and
volatility while preventing Market-Makers from entering quotes that are
so wide as to provide no meaningful liquidity. The Exchange notes that
the proposal is consistent with MIAX Rules 603(b)(4) and (5).
The Exchange believes that measuring compliance with the bid/ask
differential requirement at the TPH firm level (i.e., aggregating
quotes across all EFIDs used by a Market-Maker in a particular series)
is consistent with the protection of investors and the public interest.
This approach recognizes the operational reality that Market-Maker
firms often utilize multiple EFIDs for legitimate business purposes,
such as managing different trading strategies or order flow types. The
Exchange believes measuring compliance with the bid/ask differential
requirement at the firm level more accurately reflects the Market-
Maker's overall market in a series, rather than evaluating each EFID in
isolation. This aggregation approach appropriately assesses whether the
Market-Maker is providing a meaningful two-sided market to investors,
as the firm's combined quotes across all EFIDs represent the actual
liquidity available
[[Page 56259]]
from that Market-Maker. This approach is also consistent with how the
Exchange measures compliance with other Market-Maker obligations, which
are assessed at the firm level rather than by individual EFID.
The Exchange believes that clarifying that a bid of zero or no bid
satisfies the two-sided quotation requirement promotes regulatory
clarity and removes impediments to and perfects the mechanism of a free
and open market. The Exchange believes this clarification will provide
Market-Makers with additional understanding of their obligations and
thus their ability to comply with the rule in a straightforward manner
without being penalized for quoting markets that accurately reflect
economic reality. By permitting zero or no bids to be considered a bid
for purposes of determining compliance with quoting obligations, the
Exchange believes the proposed rule change imposes a meaningful bid/ask
differential requirement (measured in the aggregate across all EFIDs
used by a Market-Maker in a series), that requires Market-Makers
provide two-sided markets while providing Market-Makers with
flexibility to quote in a manner that reflects then-current market
conditions, thereby facilitating fair and efficient price discovery.
The Exchange believes that proposed Rule 5.52(c)(1), which provides
the Exchange with the ability to establish bid/ask differentials other
than $5 for one or more series or classes of options, is reasonable and
promotes just and equitable principles of trade. This flexibility
allows the Exchange to tailor bid/ask differential requirements to the
specific characteristics of particular options series or classes, such
as volatility levels, liquidity profiles, underlying security
characteristics, or other relevant factors. For example, certain
options classes may warrant narrower bid/ask differentials to enhance
market quality, while wider differentials may be appropriate in others
to account for unique risk or liquidity characteristics. This
discretion enables the Exchange to respond to evolving market
conditions and impose bid/ask differential requirements that are
appropriate for different product types. The Exchange notes it will
announce differentials, including any changes, to TPHs pursuant to Rule
1.5, providing transparency and notice of the applicable requirements.
This approach is consistent with the flexibility provided to MIAX under
MIAX Rules 603(b)(4) and (5).
The Exchange believes the exception under proposed Rule 5.52(c)(2)
for in-the-money series where the underlying security market is wider
than the applicable bid/ask differential is appropriate because it
recognizes that options pricing is inherently tied to the pricing of
the underlying security. When the NBBO in the underlying security is
wider than the bid/ask differential required for the option, it would
be unreasonable to require Market-Makers to maintain tighter markets in
the option than exist in the underlying security itself. The Exchange
believes this proposed exception is reasonable and appropriate to avoid
placing Market-Makers in the untenable position of being required to
quote options more tightly than the securities on which those options
are based, which could expose Market-Makers to undue risk and
potentially discourage participation in market making. By allowing the
bid/ask differential to be as wide as the NBBO in the underlying
security for such series, the proposal appropriately balances the goal
of maintaining tight markets with the practical realities of options
pricing.
The Exchange notes that the proposed exceptions are substantively
identical to those in MIAX Rules 603(b)(4) and (5), further
demonstrating that the proposal is consistent with the Act.
For the foregoing reasons, the Exchange believes the proposal is
consistent with the Act.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The Exchange does not
believe that the proposed rule change will impose any burden on
intramarket competition that is not necessary or appropriate in
furtherance of the purposes of the Act because the proposed bid/ask
differential requirements will apply uniformly to all Market-Makers on
the Exchange. All Market-Makers will be subject to the same bid/ask
differential requirements in all classes.
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 the proposal
is consistent with MIAX Rules 603(b)(4) and (5) and the quote width
frameworks of other options exchanges, including ISE and Phlx. By
adopting bid/ask differential requirements consistent with those of
other options exchanges, Market-Makers on the Exchange will be subject
to comparable bid/ask differential requirements as market-makers on
other markets.
For the foregoing reasons, the Exchange does not believe the
proposed rule change will impose any burden on competition that is not
necessary or appropriate in furtherance of the purposes of the Act.
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 written 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 after the date of the filing, or such
shorter time as the Commission may designate, it has become effective
pursuant to Section 19(b)(3)(A)(iii) of the Act \9\ and subparagraph
(f)(6) of Rule 19b-4 thereunder.\10\
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\9\ 15 U.S.C. 78s(b)(3)(A)(iii).
\10\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
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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At any time within 60 days of the filing of such 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 under
Section 19(b)(2)(B) \11\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\11\ 15 U.S.C. 78s(b)(2)(B).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
[[Page 56260]]
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#0674736a632b65696b6b636872754675636528616970"><span class="__cf_email__" data-cfemail="a4d6d1c8c189c7cbc9c9c1cad0d7e4d7c1c78ac3cbd2">[email protected]</span></a>. Please include
file number SR-C2-2026-022 on the subject line.
Paper Comments
<bullet> Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to file number SR-C2-2026-022. 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-C2-2026-022 and should be submitted on
or before September 22, 2026.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\12\
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\12\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2026-17804 Filed 8-31-26; 8:45 am]
BILLING CODE 8011-01-P
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