Self-Regulatory Organizations; Cboe C2 Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Rules in Connection With the Migration of Cboe C2 to Cboe EDGX Options Technology, 22796-22829 [2018-10417]

Download as PDF 22796 Federal Register / Vol. 83, No. 95 / Wednesday, May 16, 2018 / Notices SECURITIES AND EXCHANGE COMMISSION [Release No. 34–83214; File No. SR–C2– 2018–005] Self-Regulatory Organizations; Cboe C2 Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Rules in Connection With the Migration of Cboe C2 to Cboe EDGX Options Technology May 11, 2018. 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 April 27, 2018, 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 Exchange filed the proposal as a ‘‘non-controversial’’ proposed rule change pursuant to Section 19(b)(3)(A)(iii) of the Act 3 and Rule 19b–4(f)(6) thereunder.4 The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend C2’s rulebook in preparation for the technology migration of C2 onto the options platform of an Exchange’s affiliated options exchange, Cboe EDGX Exchange, Inc. (‘‘EDGX’’ or ‘‘EDGX Options’’). The text of the proposed rule change is also available on the Exchange’s website (https://www.cboe.com/About CBOE/CBOELegalRegulatory Home.aspx), 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 In 2016, the Exchange’s parent company, Cboe Global Markets, Inc. (formerly named CBOE Holdings, Inc.) (‘‘Cboe Global’’), which is also the parent company of Cboe Exchange, Inc. (‘‘Cboe Options’’), acquired EDGX and its affiliated exchanges, Cboe EDGA Exchange, Inc. (‘‘EDGA’’ or ‘‘EDGA Options’’), Cboe BZX Exchange, Inc. (‘‘BZX’’), and Cboe BYX Exchange, Inc. (‘‘BYX’’ and, together with C2, Cboe Options, EDGX, EDGA, and BZX, the ‘‘Cboe Affiliated Exchanges’’). C2 intends to migrate its technology onto the same trading platform as EDGX. In this context, C2 proposes to align certain system functionality with EDGX (and BZX in certain circumstances), while retaining certain C2 functionality, as well as to make other nonsubstantive changes to the rules, retaining only intended differences between it and the Cboe Affiliated Exchanges. Although the Exchange intentionally offers certain features that differ from those offered by the Cboe Affiliated Exchanges and will continue to do so, the Exchange believes offering similar functionality to the extent practicable will reduce potential confusion for market participants. The proposed rule change modifies or adds certain system functionality currently offered by EDGX to provide a consistent technology offering for users of Cboe Affiliated Exchanges. Chapter 1 The proposed rule change makes the following changes to Chapter 1 of the C2 Rulebook. The following table identifies the defined terms that are proposed to be added to or amended in C2 Rule 1.1, whether the proposed amended rule was moved from a current C2 rule or corresponds to the rule of EDGX or another exchange, and proposed substantive changes. Defined term Provision Current C2 rule Corresponding other exchange rule ABBO ............... best bid(s) or offer(s) disseminated by other Eligible Exchanges 5 and calculated by the Exchange based on market information the Exchange receives from OPRA. series in which, as a result of a corporate action by the underlying security, one option contract in the series represents the delivery of other than 100 shares of underlying stock or Units. the price of a limit order or quote to buy one or more options contracts. electronic book of simple orders and quotes maintained by the System. option contract under which the holder of the option has the right, in accordance with the terms of the option and Rules of the Clearing Corporation, to purchase from the Clearing Corporation the number of units of the underlying security or index covered by the option contract, at a price per unit equal to the exercise price, upon the timely exercise of the option. N/A .............................. EDGX Rule 21.20(a)(1) Added to C2 Rule 1.1. 8.5(a)(1) ...................... N/A .............................. Moved to C2 Rule 1.1. N/A .............................. EDGX Rule 16.1(a)(6) Added to C2 Rule 1.1. 1.1 ............................... EDGX Rule 16.1(a)(9) 1.1 ............................... EDGX Rule 16.1(a)(12) Adding that Book may also be referred to as Simple Book. Added clarifying language consistent with put definition to conform to EDGX rule. Adjusted Series Bid .................... sradovich on DSK3GMQ082PROD with NOTICES2 Book or Simple Book. Call ................... 1 15 2 17 U.S.C. 78s(b)(1). CFR 240.19b–4. VerDate Sep<11>2014 18:43 May 15, 2018 3 15 4 17 Jkt 244001 PO 00000 Description of change U.S.C. 78s(b)(3)(A)(iii). CFR 240.19b–4(f)(6). Frm 00002 Fmt 4701 Sfmt 4703 E:\FR\FM\16MYN2.SGM 16MYN2 Federal Register / Vol. 83, No. 95 / Wednesday, May 16, 2018 / Notices 22797 Defined term Provision Current C2 rule Corresponding other exchange rule Description of change Capacity ........... capacity in which a User submits an order, which the User specifies by applying the corresponding code to the order, and includes B (account of a broker or dealer, including a Foreign Broker-Dealer), C (Public Customer account), F (OCC clearing firm proprietary account), J (joint back office account), L (non-Trading Permit Holder affiliate account), M (Market-Maker account), N (market-maker or specialist on another options exchange), U (Professional account). Cboe Trading, Inc., broker-dealer affiliated with C2 and will serve as inbound and outbound router for C2, as discussed below. all option contracts with the same unit of trading covering the same underlying security or index. N/A .............................. N/A .............................. C2 currently refers to capacity as origin code; current C2 origin codes are in Regulatory Circular RG13–015, and are the same as the proposed Capacities, except the proposed rule changes W to U (see EDGX specifications 6), and adds L, which is not currently permitted on C2 (see Cboe Options Regulatory Circular RG13–038). 3.18 ............................. EDGX Rule 2.11 ......... Moved to C2 Rule 1.1. 1.1 ............................... EDGX Rule 16.1(a)(13) Options Clearing Corporation ........................... 1.1 ............................... EDGX Rule 16.1(14) ... Deletes unnecessary reference to options, given only options trade on C2; adds that options may cover an index (see C2 Chapter 24); deletes that a class means options of the same type (currently defined as put or call), as a class is comprised of both puts and calls; adds that a class is comprised of option contracts with the same unit of trading covering the same underlying security or index (discussed below). Adding that the Clearing Corporation may also be referred to as OCC. a Trading Permit Holder that has been admitted to membership in the Clearing Corporation pursuant to the provisions of the rules of the Clearing Corporation and is self-clearing or that clears transactions for other Trading Permit Holders. U.S. Securities and Exchange Commission .... 1.1 ............................... EDGX Rule 16.1(a)(15) Added that Clearing Trading Permit Holders self-clear or clear on behalf of others (consistent with C2 today). 1.1 ............................... EDGX Rule 1.5(g) ....... order involving the concurrent execution of two or more different series in the same class (the ‘‘legs’’ or ‘‘components’’ of the order), for the same account, occurring at or near the same time in a ratio greater than or equal to one-to-three and less than or equal to three-to-one 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. Public Customer or broker-dealer .................... 6.13(a)(1) .................... EDGX Rule 21.20(a)(5) Adding that the Commission may also be referred to as SEC. Moved to C2 Rule 1.1 and 6.12(a); added that C2, like EDGX, can impose a maximum number of legs and determine in which classes complex orders are available. N/A .............................. EDGX Rule 16.1(a)(19) N/A .............................. N/A .............................. EDGX Rule 16.1(a)(20) EDGX Rule 16.1(a)(21) N/A .............................. EDGX Rule 21.1(c)(1) N/A (equity options permitted by C2 Chapter 5). 1.1 ............................... EDGX Rule 16.1(a)(27) EDGX Rule 16.1(a)(23) 1.1 ............................... N/A .............................. N/A .............................. EDGX Rule 16.1(a)(25) Added rules and regulations, which also apply to the Exchange rules. Deleted language about series that expire on Saturday rather than Friday, as no more grandfathered series are listed on the Exchange. Added to C2 Rule 1.1. N/A (index options permitted by C2 Chapter 24). EDGX Rule 16.1(a)(26) Added to C2 Rule 1.1. Cboe Trading ... Class ................ Clearing Corporation or OCC. Clearing Trading Permit Holder. Commission or SEC. Complex Order Customer .......... Customer Order Discretion ......... EFID ................. agency order for the account of a Customer ... authority of a broker or dealer to determine for a Customer the type of option, class or series of options, the number of contracts, or whether options are to be bought or sold. Executing Firm ID ............................................. Equity Option ... option on an equity security or Unit ................. Exchange Act ... Securities Exchange Act of 1934, including rules and regulations thereunder. third Friday of expiration month ....................... sradovich on DSK3GMQ082PROD with NOTICES2 Expiration Date He, Him, His ..... Index Option ..... VerDate Sep<11>2014 deemed to refer to persons of female as well as male gender and to include organizations, as well as individuals, when the context requires. option on a broad-based, narrow-based, micro narrow-based or other index of equity securities prices. 18:43 May 15, 2018 Jkt 244001 PO 00000 Frm 00003 Fmt 4701 Sfmt 4703 Added to C2 Rule 1.1; new definition in C2 Rules, but concept of customers exists throughout current C2 rules (including in priority rules). Added to C2 Rule 1.1. Added to C2 Rule 1.1; substantively the same as the EDGX definition. Added to C2 Rule 1.1; EDGX rule refers to the term MPID, which is generally equivalent to EFID; similar to the term acronym, which is used in current C2 rules; EFID is the term used in C2 technical specification following migration, and thus more appropriate for the C2 rules; as noted below, a firm may have multiple EFIDs. Added to C2 Rule 1.1. E:\FR\FM\16MYN2.SGM 16MYN2 22798 Federal Register / Vol. 83, No. 95 / Wednesday, May 16, 2018 / Notices Defined term Market Close .... Market Open .... Notional Value .. NBB, NBO, and NBBO. Offer ................. OPRA ............... Order ................ Order Entry Firm/OEF. Order Instruction Attributable ....... Book Only ........ Cancel Back ..... Intermarket Sweep Order/ ISO. Match Trade Prevention/ MTP Modifier. sradovich on DSK3GMQ082PROD with NOTICES2 Minimum Quantity. Non-Attributable VerDate Sep<11>2014 Provision time the Exchange specifies for the end of N/A (market close time trading on the Exchange on that trading day. set forth in C2 Rule 6.1). time the Exchange specifies for the start of N/A (market open time trading on the Exchange on that trading day. set forth in C2 Rules 6.1 and 6.10). value calculated by multiplying the number of 6.15(e)(1)(C) ............... contracts (contract size multiplied by the contract multiplier) in an order by the order’s limit price. national best bid, national best offer, and na- 1.1 ............................... tional best bid or offer the Exchange calculates based on market information it receives from OPRA. the price of a limit order or quote to sell one N/A .............................. more option contracts. Options Price Reporting Authority .................... N/A .............................. firm commitment to buy or sell option con- 1.1 and 6.10(a) and (b) tracts that the System receives from a User, which may be a limit order or market order. Trading Permit Holder representing as agent N/A .............................. Customer Orders on the Exchange and non-Market-Maker Trading Permit Holder conducting proprietary trading. processing instruction a User may apply to an N/A .............................. order (multiple instructions may apply to a single order) when entering it into the System. order a User designates for display (price and 6.10(f) .......................... size) that includes the User’s EFID or other unique identifier. order the System ranks and executes pursu- 6.10(j) .......................... ant to Rule 6.12, subjects to the Price Adjust process pursuant to Rule 6.12, or cancels, as applicable (in accordance with User instructions), without routing away to another exchange. order a User designates to not be subject to N/A .............................. the Price Adjust process pursuant to Rule 6.12 that the System cancels or rejects (immediately at the time the System receives the order or upon return to the System after being routed away) if displaying the order on the Book would create a violation of Rule 6.82, or if the order cannot otherwise be executed or displayed in the Book at its limit price. order that has the meaning provided in Sec- 6.10(g) ......................... tion E of Chapter 6, which may be executed at one or multiple price levels in the System without regard to Protected Quotations at other options exchanges; the Exchange relies on the marking of an order by a User as an ISO order when handling such order, and thus, it is the entering Trading Permit Holder’s responsibility, not the Exchange’s responsibility, to comply with the requirements relating to ISOs. order not executed against a resting opposite 6.10(k) ......................... side order or quote also designated with an MTP modifier and originating from the same EFID, Trading Permit Holder identifier, trading group identifier, or Sponsored User identifier (‘‘Unique Identifier’’), with five types of modifiers available. order that requires a specified minimum quan- N/A .............................. tity of contracts be executed or is cancelled; Minimum Quantity orders will only execute against multiple, aggregated orders if such executions would occur simultaneously, and only a Book Only order with TIF designation of IOC may have a Minimum Quantity instruction (the System disregards a Minimum Quantity instruction on any other order). order a User designates for display (price and N/A .............................. size) on an anonymous basis or not designated as an Attributable Order. 18:43 May 15, 2018 Jkt 244001 Corresponding other exchange rule Current C2 rule PO 00000 Frm 00004 Fmt 4701 Description of change EDGX Rule 16.1(a)(34) Added to C2 Rule 1.1. EDGX Rule 16.1(a)(35) Added to C2 Rule 1.1. EDGX Rule 20.6(e)(1)(C). Added to C2 Rule 1.1. EDGX Rule 16.1(a)(29) Added NBB and NBO to C2 definition. EDGX Rule 16.1(a)(30) Added to C2 Rule 1.1. EDGX Rule 16.1(a)(41) EDGX Rule 16.1(a)(42) and 21.1(c). Added to C2 Rule 1.1. Moved market order and limit order definitions to C2 Rule 1.1, as all orders must be market or limit. Added to C2 Rule 1.1. EDGX Rule 16.1(a)(36) EDGX Rule 21.1(d) ..... EDGX Rule 21.1(c)(1) Added to C2 Rule 1.1 (rules currently permit various instructions); various order instructions substantively similar to those available on EDGX. Moved to C2 Rule 1.1, Order Instruction. EDGX Rule 21.1(d)(7) Moved to C2 Rule 1.1, Order Instruction (previously called C2-Only Order). EDGX Rule 11.6(b) ..... Added to C2 Rule 1.1 (consistent with Rule 6.82) and substantively similar EDGX Rule (further discussed below). EDGX Rule 21.1(d)(2) Moved to C2 Rule 1.1 (consistent with current C2 system). EDGX Rule 21.1(g) ..... Moved to C2 Rule 1.1 and conformed to EDGX rule (further discussed below). EDGX Rule 21.1(d)(3) Added to C2 Rule 1.1 (further discussed below). EDGX Rule 21.1(c)(2) Added to C2 Rule 1.1—orders currently not marked Attributable on C2 are non-attributable; proposed rule change merely permits Users to affirmatively designate orders as non-attributable, and specify the Exchange will by default treat orders as NonAttributable unless the User designates it as Attributable. Sfmt 4703 E:\FR\FM\16MYN2.SGM 16MYN2 Federal Register / Vol. 83, No. 95 / Wednesday, May 16, 2018 / Notices 22799 Defined term Provision Current C2 rule Corresponding other exchange rule Description of change Post Only ......... order the System ranks and executes pursuant to Rule 6.12, subject to the Price Adjust process pursuant to Rule 6.12, or cancels or rejects (including if it is not subject to the Price Adjust process and locks or crosses a Protected Quotation of another exchange), as applicable, except the order may not remove liquidity from the Book or route away to another Exchange. order a User designates to be subject to the Price Adjust process pursuant to Rule 6.12, or an order a User does not designate as Cancel Back. limit order with both a portion of the quantity displayed (‘‘Display Quantity’’) and a reserve portion of the quantity (‘‘Reserve Quantity’’) not displayed; both display quantity and reserve quantity are available for potential execution against incoming orders, with Max Floor and replenishment instructions available. order to buy (sell) that becomes a market order when the consolidated last sale price (excluding prices from complex order trades if outside the NBBO) or NBB (NBO) for a particular option contract is equal to or above (below) the stop price specified by the User. order to buy (sell) that becomes a limit order when the consolidated last sale price (excluding prices from complex order trades if outside the NBBO) or NBB (NBO) for a particular option contract is equal to or above (below) the stop price specified by the User. adds definitions of various types of ports available in the new Exchange system. primary exchange on which an underlying security is listed. a Protected Bid or Protected Offer, as each of those terms is defined in Rule 6.80. option contract under which the holder of the option has the right, in accordance with the terms and provisions of the option and Rules of the Clearing Corporation, to sell to the Clearing Corporation the number of units of the underlying security covered by the option contract, at a price per unit equal to the exercise price, upon the timely exercise of such option. bid or offer entered by a Market-Maker as a firm order, which updates the Market-Maker’s previous bid or offer, if any. best bid and offer on the Exchange for a complex strategy calculated using the BBO for each component of a complex strategy to establish the best net bid and offer for a complex strategy. all option contracts of the same class that are the same type of option and have the same exercise price, and expiration date. N/A .............................. EDGX Rule 21.1(d)(8) Added to C2 Rule 1.1 (further discussed below). N/A .............................. EDGX Rule 21.1(i) ...... Added to C2 Rule 1.1 (Price Adjust process described further below). 6.10(c)(8) and 6.12(c) BZX Rule 21.1(d)(1) ... Moved to C2 Rule 1.1 (further discussed below). 6. 10(c)(3) ................... BZX Rule 21.1(d)(11) Moved to C2 Rule 1.1; modified to compare stop prices to national prices rather than Exchange prices (EDGX similarly uses the NBBO), which reflect price from entire market (similar change in Rule 6.10(c) provision regarding stop orders). 6.10(c)(4) .................... BZX Rule 21.1(d)(12) N/A .............................. EDGX Rule 21.1(j) ...... N/A .............................. EDGX Rule 16.1(a)(44) 6.80 ............................. EDGX Rule 16.1(a)(47) Moved to C2 Rule 1.1; modified to compare stop prices to national prices rather than Exchange prices (EDGX similarly uses the NBBO), which reflect price from entire market (similar change in Rule 6.10(c) provision regarding stop orders). Added to C2 Rule 1.1 (further discussed below). Added to C2 Rule 1.1 (concept exists in current C2 rules, such a 6.11(b)). Added to list of defined terms in C2 Rule 1.1. 1.1 ............................... EDGX Rule 16.1(a)(49) Added clarifying language consistent with put definition to conform to EDGX rule. 1.1 ............................... EDGX Rule 16.1(a)(51) 1.1 ............................... EDGX Rule 21.20(a)(11). Conforms C2 definition to EDGX definition (including to state that Market-Maker quotes are entered using order functionality). Moved to proposed C2 Rule 6.13(a); currently defined as Exchange Spread Market in C2 Rule 1.1, which definition is being deleted. 1.1 ............................... EDGX 16.1(a)(55) ....... number of contracts up to 999,999 associated with an order or quote. national best bid and offer for a complex strategy calculated using the NBBO for each component of a complex strategy to establish the best net bid and offer for a complex strategy. options that currently trade on the Exchange pursuant to Chapters 5 and 24. period of time the System will hold an order for potential execution. time-in-force that means an order to buy or sell that, if not executed, expires at market close. time-in-force that means an order that is to be executed in its entirety as soon as the System receives it and, if not so executed, cancelled. N/A .............................. EDGX Rule 21.1(e) ..... 1.1 ............................... EDGX Rule 21.20(a)(12). N/A .............................. EDGX Rule 21.1(b) ..... N/A .............................. EDGX Rule 21.1(f) ...... 6.10(e)(1) .................... EDGX Rule 21.1(f)(3) Added to C2 Rule 1.1 (additional term for options listed for trading). Added to C2 Rule 1.1 (general term to cover various time-in-force instructions). Moved to C2 Rule 1.1. 6.10(c)(5) .................... EDGX Rule 21.1(f)(5) Moved to C2 Rule 1.1. Price Adjust ...... Reserve Order .. Stop (StopLoss) Order. Stop-Limit Order Port ................... Primary Market Protected Quotation. Put .................... Quote or quotation. SBBO ............... Series ............... Size .................. sradovich on DSK3GMQ082PROD with NOTICES2 SNBBO ............. System Securities. Time-in-Force ... Day ................... Fill-or-Kill/FOK .. VerDate Sep<11>2014 18:43 May 15, 2018 Jkt 244001 PO 00000 Frm 00005 Fmt 4701 Sfmt 4703 Clarified that a series consists of options of the same type (i.e. options with the same exercise price and date that are calls are a series, and options with the same exercise price and date that are puts are another series). Added to C2 Rule 1.1 (consistent with current C2 system). Moved to Rule 6.13(a); currently defined as National Spread Market in C2 Rule 1.1, which definition is being deleted. E:\FR\FM\16MYN2.SGM 16MYN2 22800 Federal Register / Vol. 83, No. 95 / Wednesday, May 16, 2018 / Notices Defined term Good-til-Cancelled/GTC. Good-til-Date/ GTD. Immediate-orCancel/IOC. At the Open/ OPG. Trade Desk ...... Transaction ...... Unit ................... Unit of Trading sradovich on DSK3GMQ082PROD with NOTICES2 User .................. Current C2 rule time-in-force that means, if after entry into the System, the order is not fully executed, the order (or unexecuted portion) remains available for potential display or execution (with the same timestamp) unless cancelled by the entering User, or until the option expires, whichever comes first. time-in-force that means, if after entry into the System, the order is not fully executed, the order (or unexecuted portion) remains available for potential display or execution (with the same timestamp) until a date and time specified by the entering User unless cancelled by the entering User. time-in-force for a limit order that is to be executed in whole or in part as soon as the System receives it; the System cancels and does not post to the Book any portion of an IOC order (or unexecuted portion) not executed immediately on the Exchange or another options exchange. time-in-force means an order that may only participate in the Opening Process on the Exchange; the System cancels an OPG order (or unexecuted portion) that does not execute during the Opening Process. Exchange operations staff authorized to make certain trading determinations on behalf of the Exchange. transaction involving a contract effected on or through the Exchange or its facilities or systems. shares or other securities traded on a national securities exchange and defined as an ‘‘NMS stock’’ under Rule 600 of Regulation NMS, and that satisfy the criteria in Rule 5.3, Interpretation and Policy .06. defined in Rule 6.2 ........................................... 6.10(c)(2) .................... EDGX Rule 21.1(f)(4) Moved to C2 Rule 1.1. N/A .............................. EDGX Rule 21.1(f)(1) Added to C2 Rule 1.1 (similar to EDGX timein-force, as further discussed below). 6.10(c)(6) .................... EDGX Rule 21.1(f)(2) Moved to C2 Rule 1.1. 6.10(c)(7) .................... EDGX Rule 21.1(f)(6) Moved to C2 Rule 1.1. 1.1 ............................... N/A .............................. N/A .............................. EDGX Rule 16.1(a)(11) Changed to Trade Desk, which is new term for Help Desk at the Exchange (which term is being deleted from the Rules). Added to C2 Rule 1.1 (same as EDGX rule, consistent with industry term). 5.3, Interpretation and Policy .06. EDGX Rule 19.3(i) (Units defined as Fund Shares in EDGX Rules). Added to list of defined terms in C2 Rule 1.1. 6.2 ............................... N/A .............................. N/A .............................. EDGX Rule 16.1(a)(63) Added to list of defined terms in C2 Rule 1.1 (discussed below). Added to C2 Rule 1.1 (common term to apply to two types of market participants defined in C2 Rules, which are the only two market participants that may access the System under C2 Rules). any Trading Permit Holder or Sponsored User who is authorized to obtain access to the System pursuant to Rule 6.8. The proposed rule change makes changes throughout C2 Rules to conform to the changes to defined terms. As noted above, the proposed rule change amends the definition of class to mean all option contracts with the same unit of trading (including adjusted series as determined by OCC) covering the same underlying security or index. The current definition states a class consists of options of the same type, which is defined as either a put or a call. However, the term class is generally understood to include both puts and calls, which are types of series, not separate classes, making this definition outdated. As described above, options with the same exercise price and expiration date that are puts constitute one series, and options with the same exercise price and expiration date that 5 Eligible Exchange is defined in Cboe Rule 6.80(7). 6 BOE Specifications, available at https:// cdn.batstrading.com/resources/membership/BATS_ US_Options_BOE2_Specification.pdf, and FIX Specifications, available at https:// cdn.batstrading.com/resources/membership/BATS_ US_Options_BZX_FIX_Specification.pdf. VerDate Sep<11>2014 Corresponding other exchange rule Provision 18:43 May 15, 2018 Jkt 244001 are calls constitute another series. Additionally, there are some exceptions for options that cover the same underlying but constitute a separate class, and the proposed definition incorporates this concept.7 For example, mini-options cover the same underlying security as standard options, but are considered as separate class since they have a different deliverable (10 shares of the underlying security rather than 100 shares of the underlying security, respectively). Additionally, when OCC adjusts series in connection with corporate actions (see Rule 5.7), it announces whether those series are part of the same existing class or a new class covering the same underlying security. The concept of unit of trading more accurately describes the series that constitute a class (e.g. the unit of trading for a mini-option is 10, and the unit of trading for a standard option is 100, making each a separate class under the 7 The proposed definition is based on the OCC definition of class. See OCC By-Laws Article I, C.(11). The proposed definition of unit of trading is consistent with C2 Rule 6.2. PO 00000 Frm 00006 Fmt 4701 Sfmt 4703 Description of change proposed definition). The proposed definition accounts for these exceptions, and is a more accurate definition of what options constitute a class today on the Exchange. As noted above, the proposed rule change adds the following order instructions to C2 Rule 1.1, which order instructions are available on EDGX or BZX, as indicated. • Cancel Back: A Book Only or Post Only order a User designates to not be subject to the Price Adjust Process pursuant to Rule 6.12, which the System cancels or rejects if it locks or crosses the opposite side of the ABBO. The System executes a Book Only—Cancel Back order against resting orders and quotes, and cancels or rejects a Post Only—Cancel Back order, that locks or crosses the opposite side of the BBO. The proposed functionality is partially included in the definition of Post Only in the EDGX rules.8 The proposed rule change extends the definition to Book Only orders and is consistent with 8 See E:\FR\FM\16MYN2.SGM EDGX Rule 21.6(d)(8). 16MYN2 sradovich on DSK3GMQ082PROD with NOTICES2 Federal Register / Vol. 83, No. 95 / Wednesday, May 16, 2018 / Notices linkage rules included in Chapter 6, Section E of the Rules and is consistent with EDGX Rule 21.6(f). Book Only orders and Post Only orders do not route by definition, and the Cancel Back instruction provides an option for Users to determine how they will be handled within the System, consistent with their definitions.9 • Match Trade Prevention (MTP) Modifiers: Current C2 Rule 6.10(k) defines a Market-Maker Trade Prevention Order as an IOC order market with the Market-Maker Trade Prevention designation. A Market-Maker Trade Prevention Order that would trade against a resting quote or order for the same Market-Maker will be cancelled, as will the resting quote or order (unless the Market-Maker Trade Prevention Order is received while an order for the same Market-Maker is subject to an auction, in which case only the Market-Maker Trade Prevention Order will be cancelled). The Exchange proposes to adopt MTP modifiers substantively the same as those available on EDGX.10 The proposed MTP modifiers expand this functionality to all Users, rather than just Market-Makers, and provide Users with multiple options regarding how the System handles orders and quotes with the same Unique Identifiers. Pursuant to the proposed rule change, an order designated with any MTP modifier is not executed against a resting opposite side order or quote also designated with an MTP modifier and originating from the same Unique Identifier. Except for the MDC modifier described below, the MTP modifier on the incoming order controls the interaction between two orders marked with MTP modifiers: Æ MTP Cancel Newest (‘‘MCN’’): An incoming order marked with the ‘‘MCN’’ modifier does not execute against a resting order marked with any MTP modifier originating from the same Unique Identifier. The System cancels or rejects the incoming order, and the resting order remains in the Book. Æ MTP Cancel Oldest (‘‘MCO’’): An incoming order marked with the ‘‘MCO’’ modifier does not execute against a resting order marked with any MTP modifier originating from the same Unique Identifier. The System cancels or rejects the resting order, and processes the incoming order in accordance with Rule 6.12. Æ MTP Decrement and Cancel (‘‘MDC’’): An incoming order marked with the ‘‘MDC’’ modifier does not 9 EDGX Rule 11.6(b) (which relates to the EDGX Equities market) contains a similar Cancel Back instruction. 10 See EDGX Rule 21.1(g). VerDate Sep<11>2014 18:43 May 15, 2018 Jkt 244001 execute against a resting order marked with any MTP modifier originating from the same Unique Identifier. If both orders are equivalent in size, the System cancels or rejects both orders. If the orders are not equivalent in size, the System cancels or rejects the smaller of the two orders and decrements the size of the larger order by the size of the smaller order, which remaining balance remains on or processes in accordance with Rule 6.12, as applicable. Notwithstanding the foregoing, unless a User instructs the Exchange not to do so, the System cancels or rejects both orders if the resting order is marked with any MTP modifier other than MDC and the incoming order is smaller in size than the resting order. Æ MTP Cancel Both (‘‘MCB’’): An incoming order marked with the ‘‘MCB’’ modifier does not execute against a resting order marked with any MTP modifier originating from the same Unique Identifier. The System cancels or rejects both orders. Æ MTP Cancel Smallest (‘‘MCS’’): An incoming order marked with the ‘‘MCS’’ modifier does not execute against a resting order marked with any MTP modifier originating from the same Unique Identifier. If both orders are equivalent in size, the System cancels or rejects both orders. If the orders are not equivalent in size, the System cancels or rejects the smaller of the two orders, and the larger order remains on the Book or processes in accordance with Rule 6.12, as applicable. The proposed MTP functionality is designed to prevent market participants from unintentionally causing a proprietary self-trade. The Exchange believes these modifiers will allow firms to better manage order flow and prevent undesirable executions with themselves. Trading Permit Holders may have multiple connections into the Exchange consistent with their business needs and function. As a result, orders routed by the same firm via different connections may, in certain circumstances, trade against each other. The proposed modifiers provide Trading Permit Holders with functionality (in addition to what is available on C2 today) with the opportunity to prevent these potentially undesirable trades. The Exchange notes that offering the MTP modifiers may streamline certain regulatory functions by reducing false positive results that may occur on Exchange generated wash trading surveillance reports when orders are executed under the same Unique Identifier. For these reasons, the Exchange believes the MTP modifiers offer users enhanced order processing functionality that may prevent PO 00000 Frm 00007 Fmt 4701 Sfmt 4703 22801 potentially undesirable executions without negatively impacting brokerdealer best execution obligations. • Minimum Quantity Order: An order that requires a specified minimum quantity of contracts be executed or is cancelled. Minimum Quantity orders will only execute against multiple, aggregated orders if such executions would occur simultaneously. Only a Book Only order with a time-in-force designation of IOC may have a Minimum Quantity instruction (the System disregards a Minimum Quantity instruction on any other order). This functionality ensures a User’s order will not partially execute for less than the minimum amount of contracts a User desires to execute as part of its investment strategy. Only permitting this functionality for Book Only IOC order is consistent with the purpose of this functionality, as current Exchange functionality cannot guarantee that an order that routes or rests on the book to execute against incoming orders will be executed for the minimum requested amount. • Post Only Order: An order the System ranks and executes pursuant to proposed Rule 6.12, subjects to the Price Adjust process pursuant to Rule 6.12, or cancels (including if it is not subject to the Price Adjust process and it would lock or cross a Protected Quotation on another exchange), as applicable (in accordance with User instructions), except the order may not remove liquidity from the Book or route away to another Exchange. This proposed instructions is nearly identical to the C2 Only/Book Only order instruction, except it will also not remove liquidity from the Book. The Exchange currently has a maker-taker fee structure, pursuant to which an execution taking liquidity from the Book is subject to a taker fee. This proposed instruction provides Users with flexibility to avoid incurring a taker fee if their intent is to submit an order to add liquidity to the Book. • Reserve Order: A limit order with both a portion of the quantity displayed (‘‘Display Quantity’’) and a reserve portion of the quantity (‘‘Reserve Quantity’’) not displayed. Both the Display Quantity and Reserve Quantity of the Reserve Order are available for potential execution against incoming orders. When entering a Reserve Order, a User must instruct the Exchange as to the quantity of the order to be initially displayed by the System (‘‘Max Floor’’). If the Display Quantity of a Reserve Order is fully executed, the System will, in accordance with the User’s instruction, replenish the Display Quantity from the Reserve Quantity E:\FR\FM\16MYN2.SGM 16MYN2 sradovich on DSK3GMQ082PROD with NOTICES2 22802 Federal Register / Vol. 83, No. 95 / Wednesday, May 16, 2018 / Notices using one of the below replenishment instructions. If the remainder of an order is less than the replenishment amount, the System will display the entire remainder of the order. The System creates a new timestamp for both the Display Quantity and Reserve Quantity of the order each time it is replenished from reserve. Æ Random Replenishment: An instruction that a User may attach to an order with Reserve Quantity where the System randomly replenishes the Display Quantity for the order with a number of contracts not outside a replenishment range, which equals the Max Floor plus and minus a replenishment value established by the User when entering a Reserve Order with a Random Replenishment instruction. Æ Fixed Replenishment: For any order for that a User does not select Random Replenishment, the System will replenish the Display Quantity of an order with the number of contracts equal to the Max Floor. Current C2 Rule 6.10(c)(8) describes current reserve order functionality available on C2. The proposed functionality is generally the same as the current C2 functionality but enhances the use of reserve orders by providing flexibility for Users to determine whether the reserve replenishment amount is fixed or random. This proposed functionality is substantively the same as that available on BZX.11 The Exchange will provide access to the C2 System to Users through various ports, as is the case on EDGX. There are three different types of ports: Physical ports, logical ports, and bulk order ports. The Exchange notes a bulk order port is a type of logical port, and there are other types of logical ports not specifically identified in the proposed rule. The Exchange believes a separate definition is warranted for bulk order ports given the specific functionality provided through such ports but that other types of logical ports are sufficiently described in the proposed definition of logical port. The proposed rule change defines the term ‘‘port’’ to the Rule 1.1, including the following type of ports: 12 • A ‘‘physical port’’ provides a physical connection to the System. A physical port may provide access to multiple logical ports. • A ‘‘logical port’’ or ‘‘logical session’’ provides the ability within the System to accomplish a specific function through a connection, such as order 11 See 12 See BZX Rule 21.1(d)(1). EDGX Rule 21.1(j). VerDate Sep<11>2014 18:43 May 15, 2018 Jkt 244001 entry, data receipt, or access to information (for example, as discussed below, certain risk control settings may be input by port). • A ‘‘bulk order port’’ is a dedicated logical port that provides Users with the ability to submit single and bulk order messages to enter, modify, or cancel orders designated as Post Only Orders with a Time-in-Force of Day or GTD with an expiration time on that trading day. As noted below, quoting functionality will not be available to Market-Makers after the technology migration. This bulk order functionality will provide Market-Makers with a way to submit orders that simulate current quoting functionality. Bulk order messages will not route to other exchanges with use of the Post Only instruction, which is consistent with current quoting functionality that does not route Market-Maker quotes. Additionally, Market-Makers generally enter new quotes at the beginning of each trading day based on then-current market conditions, and the Day or GTD (with an expiration time on that trading day) Time-in-Force instruction is consistent with this practice. Because these messages will be used to add liquidity to the Book, the Exchange will make this type of port available to all Users to encourage all Users to provide liquidity to the C2 market. This functionality is substantively the same as port functionality available on EDGX. Port is the term the Exchange will use to describe the connection a User will use to connect to the System following the technology migration. Currently, the Exchange refers to System connections as logins, but the functionality is generally the same. The proposed rule change restricts the type of messages that may be submitted through bulk order ports to orders designated as Post Only Orders with a Time-in-Force of Day or GTD with an expiration time on that trading day. Based on definitions described in this rule filing, Post Only Orders with a Time-in-Force of Day or GTD will be posted to and displayed by the Exchange, rather than remove liquidity or route to another options exchange. As a general matter, and as further described below, the proposed change is intended to limit the use of bulk order ports to liquidity provision, particularly by, but not limited to, Market-Makers. In turn, the Exchange believes it is unnecessary to allow orders entered via bulk order entry ports to be able to last beyond the trading day on which they were entered. The Exchange notes that while, as a general matter, bulk order entry provides an efficient way for a market participant to conduct business PO 00000 Frm 00008 Fmt 4701 Sfmt 4703 on the Exchange by allowing the bundling of multiple instructions in a single message, the main purpose of such functionality has always been to encourage quoting on exchanges.13 The Exchange proposes to provide this functionality, which is more similar to quoting functionality currently available on C2. In particular, EDGX has never differentiated between a quote or an order on entry. Rather, Users on EDGX submit orders to the Exchange regardless of the Capacity (i.e., Customer, Market-Maker, or other NonMarket-Maker professional) of the order and regardless of the intended result from submitting such order (e.g., to remove liquidity, post and display liquidity on EDGX, or route to another market). Following migration, C2 will similarly not differentiate between a quote or an order entry. Of course, an order that is posted and displayed on the Exchange is a quotation and the Exchange does maintain various requirements regarding quotations and quoting on the Exchange. The Exchange, however, reiterates that C2 currently distinguishes between orders and quotes, with quotes being required of and only available to registered MarketMakers. In contrast, following migration, in order to quote on the Exchange, a User (including a MarketMaker) will submit an order. While the Exchange does not propose to limit bulk order entry functionality to MarketMakers on the Exchange, the Exchange does propose to limit the type of messages that may be submitted through bulk order entry ports in order to mimic the quoting functionality offered by C2 today. As noted above, the proposed rule change adds the Time-in-Force option Good-til-Date, which is similar to Goodtil-Date functionality available on EDGX.14 For an order so designated, if after entry into the System, the order is not fully executed, the order (or any unexecuted portion) remains available for potential display or execution until a date and time specified by the entering User unless cancelled by the entering User. This Time-in-Force option will 13 For instance, when initially adopted by BZX, bulk order entry was described as a ‘‘bulk-quoting interface’’ and such functionality was limited to BZX market makers. See Securities Exchange Act Release No. 65133 (August 15, 2011), 76 FR 52032 (August 19, 2011) (SR–BATS–2011–029). Bulk quoting was shortly thereafter expanded to be available to all participants on BZX’s options platform but the focus remained on promoting liquidity provision on the Exchange, even though the types of messages permitted were not limited to liquidity providing orders. See Securities Exchange Act Release No. 65307 (September 9, 2011), 76 FR 57092 (September 15, 2011) (SR– BATS–2011–034). 14 See EDGX Rule 21.1(f)(1) and (3). E:\FR\FM\16MYN2.SGM 16MYN2 sradovich on DSK3GMQ082PROD with NOTICES2 Federal Register / Vol. 83, No. 95 / Wednesday, May 16, 2018 / Notices provide Users with additional flexibility regarding the handling of their orders on the System. It will permit Users’ orders to be automatically cancelled at specified dates and times rather than require Users to manually cancel GTC orders at those times. The proposed rule change also deletes the following defined terms. While these terms are used in rules C2 incorporates by reference to Cboe Options rules, these terms are not currently used in the text of the C2 rulebook: • Aggregate Exercise Price • American-style Option • Capped-style Option • Closing Purchase Transaction • Closing Writing Transaction • Covered • European-style Option • Opening Purchase Transaction • Opening Writing Transaction • Principal Shareholder • Quarterly Option Series • Security Future-Option Order • Uncovered The proposed rule change deletes the terms Participant and Permit Holder, which both mean a Trading Permit Holder, another defined term. To simplify the C2 rulebook, the Exchange proposes to have one term refer to a Trading Permit Holder and makes conforming changes throughout the Rules. The proposed rule change adds Interpretation and Policy .01 to Rule 1.1, which states to the extent a term is used in any Rules incorporated by reference to Cboe Options rules and not otherwise defined in the Rules, the term will have the meaning set forth in the Cboe Options rules. To the extent a market participant is reviewing an incorporated by reference rule, the Exchange believes it is appropriate to direct market participants to the Cboe Options rulebook for the definitions of terms used in that rule, because that rule essentially incorporates the definition of any defined terms used in that rule. The Exchange believes it is simpler and less confusing to refer market participants to the Cboe Options rulebook for definitions than to refer them back to the C2 rulebook. The proposed rule change moves Interpretation and Policy .01 to the defined term Professional to Interpretation and Policy .02 at the end of Rule 1.1, as the Exchange believes it is less confusing to have all Interpretations and Policies to a rule located in the same place. The proposed rule change adds a cross-reference to this Interpretation and Policy to the definition of Professional. VerDate Sep<11>2014 18:43 May 15, 2018 Jkt 244001 The proposed rule change deletes the term Voluntary Professional, as that Capacity designation will no longer be available on C2. It is currently unavailable on EDGX. Finally, the proposed rule change makes nonsubstantive changes throughout the definitions in Rule 1.1, including to conform language throughout the rules, to conform language to corresponding EDGX rules, and to use plain English. Proposed C2 Rule 1.2 states the Exchange announces to Trading Permit Holders all determinations it makes pursuant to the Rules via (a) specifications, Notices, or Regulatory Circulars with appropriate advanced notice, which will be posted on the Exchange’s website, or as otherwise provided in the Rules, (b) electronic message, or (c) other communication method as provided in the Rules. Current C2 Rules states the Exchange will generally announce determinations by Regulatory Circular, and the proposed rule expands the different type of documents that may be used to announce determinations, consistent with EDGX. Proposed Rule 1.2 makes clear this information will be available on C2’s website in an easily accessible manner, regardless of the manner in which the Exchange announces it. Additionally, certain determinations are made more real-time pursuant to electronic message received by Trading Permit Holders (e.g., providing intra-day relief for parameter settings in in price protection mechanisms described in proposed Rule 6.14, Interpretation and Policy .01, other determinations related to need to maintain fair and orderly market). This single rule simplifies the Rules by eliminating the need to repeatedly state in the rules how the Exchange will announce determinations. The proposed rule change makes conforming changes throughout the Rules. Proposed C2 Rule 1.3 states unless otherwise specified, all times in the Rules are Eastern Time, except for times in Rules incorporated by reference to Cboe Options rules, which are times as set forth in the applicable Cboe Options rules. Current C2 Rules are generally in Chicago time, so the proposed rule change makes conforming changes throughout the Rules. This single rule simplifies the Rules by eliminating the need to repeatedly state times are in Eastern Time. Chapter 3 The proposed rule change moves the provision regarding Exchange affiliations with Trading Permit Holders from current Rule 3.2(f) to proposed PO 00000 Frm 00009 Fmt 4701 Sfmt 4703 22803 Rule 3.16. Current Rule 3.2(f) prohibits the Exchange from acquiring or maintaining an ownership interest in a Trading Permit Holder, as well as prohibits Trading Permit Holder affiliations with the Exchange or an affiliate of the Exchange without prior Commission approval. Current exceptions include equity interests in CBSX LLC and affiliations with OneChicago, LLC. EDGX Rule 2.10 contains similar restrictions on Exchange affiliations with EDGX Members, but also contains additional exceptions, including (a) a Member’s acquisition of an equity interest in Cboe Global that is permitted by the ownership and voting limitations contained in the Certificate of Incorporation and Bylaws of Cboe Global, (b) affiliations solely by reason of a Member (or any officer, director, manager, managing member, partner, or affiliate of such Member) becoming a director of the Exchange or Cboe Global, or (c) affiliations with Cboe Trading or other Cboe-affiliated exchanges. Cboe Global and C2 governing documents (which have been filed with the Commission) describe any applicable restrictions on equity ownership of Cboe Global, as well as criteria for directors of C2 and Cboe Global Markets. Additionally, C2 governing documents are substantially similar to those of EDGX, and C2 and EDGX have the same parent company (C2 Global). As discussed below, C2’s affiliation with Cboe Trading has recently been approved by the Commission. Therefore, the proposed rule change adds to Rule 3.16 similar exclusions from the affiliation prohibition contained in EDGX Rule 2.10, as the same affiliate restrictions apply to both exchanges and are consistent with governing documents of C2 and Cboe Global previously filed with the Commission. The proposed rule change adopts Rule 3.17 to govern the Exchange’s use of Cboe Trading as an outbound router. Proposed Rule 3.17 is based on EDGX Rule 2.11. As long as Cboe Trading is affiliated with C2 and is providing outbound routing of orders from C2 to other securities exchanges, facilities of securities exchanges, automated trading systems, electronic communications networks or other brokers or dealers (‘‘Trading Centers’’ and, such function of Cboe Trading is referred to as the ‘‘Outbound Router’’), Cboe Trading’s outbound routing services would be subject to the following conditions and limitations: • C2 will regulate the Outbound Router function of Cboe Trading as a facility (subject to Section 6 of the Act), E:\FR\FM\16MYN2.SGM 16MYN2 sradovich on DSK3GMQ082PROD with NOTICES2 22804 Federal Register / Vol. 83, No. 95 / Wednesday, May 16, 2018 / Notices and will, among other things, be responsible for filing with the Commission rule changes and fees relating to the Cboe Trading Outbound Router function and Cboe Trading will be subject to exchange nondiscrimination requirements; [sic] • FINRA, a self-regulatory organization unaffiliated with the Exchange or any of its affiliates, will carry out oversight and enforcement responsibilities as the designated examining authority designated by the Commission pursuant to Rule 17d–1 of the Act with the responsibility for examining Cboe Trading for compliance with applicable financial responsibility rules. • A Trading Permit Holder’s use of Cboe Trading to route orders to another Trading Center will be optional. Any Trading Permit Holder that does not want to use Cboe Trading may use other routers to route orders to other Trading Centers. • Cboe Trading will not engage in any business other than (a) its Outbound Router function, (b) its Inbound Router function as described in Rule 3.18, (c) its usage of an error account in compliance with proposed paragraph (a)(7) below, and (d) any other activities it may engage in as approved by the Commission. • The Exchange will establish and maintain procedures and internal controls reasonably designed to adequately restrict the flow of confidential and proprietary information between the Exchange and its facilities (including Cboe Trading), and any other entity, including any affiliate of Cboe Trading, and, if Cboe Trading or any of its affiliates engages in any other business activities other than providing routing services to the Exchange, between the segment of Cboe Trading or its affiliate that provides the other business activities and the routing services. • The Exchange or Cboe Trading may cancel orders as either deems to be necessary to maintain fair and orderly markets if a technical or systems issue occurs at the Exchange, Cboe Trading, or a routing destination. The Exchange or Cboe Trading will provide notice of the cancellation to affected Trading Permit Holders as soon as practicable. • Cboe Trading will maintain an error account for the purpose of addressing positions that are the result of an execution or executions that are not clearly erroneous under Rule 6.29 and result from a technical or systems issue at Cboe Trading, the Exchange, a routing destination, or a non-affiliate third-party Routing Broker that affects one or more orders (‘‘Error Positions’’). VerDate Sep<11>2014 18:43 May 15, 2018 Jkt 244001 Æ For purposes of proposed Rule 3.17(a)(7), an Error Position will not include any position that results from an order submitted by a Trading Permit Holder to the Exchange that is executed on the Exchange and automatically processed for clearance and settlement on a locked-in basis. Æ Except as provided in proposed subparagraph (7)(C) (described in the next bullet), Cboe Trading does not accept any positions in its error account of a Trading Permit Holder or permit any Trading Permit Holder to transfer any positions from the Trading Permit Holder’s account to Cboe Trading’s error account. Æ If a technical or systems issue results in the Exchange not having valid clearing instructions for a Trading Permit Holder to a trade, Cboe Trading may assume the Trading Permit Holder’s side of the trade so that the trade can be automatically processed for clearance and settlement on a locked-in basis. Æ In connection with a particular technical or systems issue, Cboe Trading or the Exchange will either assign all resulting Error Positions to the Trading Permit Holders in accordance with proposed subparagraph (D)(i),15 or have all resulting Error Positions liquidated in accordance with proposed subparagraph (D)(ii).16 Any determination to assign or liquidate 15 Proposed subparagraph (a)(7)(D)(i) states Cboe Trading or the Exchange will assign all Error Positions resulting from a particular technical or systems issue to the Trading Permit Holders affected by that technical or systems issue if Cboe Trading or the Exchange (a) determines it has accurate and sufficient information (including valid clearing information) to assign the positions to all of the Trading Permit Holders affected by that technical or systems issue; (b) determines it has sufficient time pursuant to normal clearance and settlement deadlines to evaluate the information necessary to assign the positions to all of the Trading Permit Holders affected by that technical or systems issue; and (c) has not determined to cancel all orders affected by that technical or systems issue in accordance with proposed subparagraph (a)(6). 16 Proposed subparagraph (a)(7)(D)(ii) states if Cboe Trading or the Exchange is unable to assign all Error Positions resulting from a particular technical or systems issue to all of the affected Trading Permit Holders in accordance with proposed subparagraph (D), or if Cboe Trading or the Exchange determines to cancel all orders affected by the technical or systems issue in accordance with proposed subparagraph (a)(6), then Cboe Trading will liquidate any applicable Error Positions as soon as practicable. In liquidating such Error Positions, Cboe Trading will (a) provide complete time and price discretion for the trading to liquidate the Error Positions to a third-party broker-dealer and not attempt to exercise any influence or control over the timing or methods of such trading; and (b) establish and enforce policies and procedures that are reasonably designed to restrict the flow of confidential and proprietary information between the third-party broker-dealer and Cboe Trading/the Exchange associated with the liquidation of the Error Positions. PO 00000 Frm 00010 Fmt 4701 Sfmt 4703 Error Positions, as well as any resulting assignments, will be made in a nondiscriminatory fashion. Æ Cboe Trading and the Exchange will make and keep records to document all determinations to treat positions as Error Positions and all determinations for the assignment of Error Positions to Trading Permit Holders or the liquidation of Error Positions, as well as records associated with the liquidation of Error Positions through the third-party broker-dealer. • The books, records, premises, officers, agents, directors, and employees of Cboe Trading as a facility of the Exchange are deemed to be the books, records, premises, officers, agents, directors, and employees of the Exchange for purposes of, and subject to oversight pursuant to, the Exchange Act. The books and records of Cboe Trading as a facility of the Exchange are subject at all times to inspection and copying by the Exchange and the Commission. Nothing in the Rules precludes officers, agents, directors, or employees of the Exchange from also serving as officers, agents, directors, and employees of Cboe Trading. The Exchange will comply with the above-listed conditions prior to offering outbound routing from Cboe Trading. In meeting the conditions, the Exchange will have mechanisms in place to protect the independence of the Exchange’s regulatory responsibility with respect to Cboe Trading, as well as demonstrate the Cboe Trading cannot use any information that it may have because of its affiliation with the Exchange to its advantage. Current Rule 3.2(f) and proposed Rule 3.16 provide that without prior Commission approval, no Trading Permit Holder may be or become affiliated with the Exchange. The Commission recently approved the adoption of Rule 3.18 regarding Cboe Trading (a C2 Trading Permit Holder) as the Inbound Router for C2.17 Such approval satisfies the requirement in current Rule 3.2(f) (and proposed Rule 3.16) for Commission approval of the Exchange affiliation with Cboe Trading.18 Chapter 6 The proposed rule change adds a reference to C2 Rule 6.1 regarding the times at which the System accepts orders and quotes, which are set forth in 17 See Securities Exchange Act Release No. 82952 (March 27, 2018), 83 FR 14096 (April 2, 2018) (SR– C2–2018–004). 18 The proposed rule change makes nonsubstantive changes to Rule 3.18, including updating paragraph numbering and lettering and reflecting the defined term Cboe Trading and Cboe Exchange. E:\FR\FM\16MYN2.SGM 16MYN2 sradovich on DSK3GMQ082PROD with NOTICES2 Federal Register / Vol. 83, No. 95 / Wednesday, May 16, 2018 / Notices proposed C2 Rule 6.9 (as discussed below). The proposed rule change also adds Units to the list of options that the Exchange designates to remain open for trading beyond 4:00 p.m. but no later than 4:15 p.m., which is consistent with EDGX rules.19 The proposed rule change also deletes Interpretation and Policy .03 regarding the trading hours of Quarterly Index Expiration options, as they currently do not and will not trade on C2 upon the System migration. The proposed rule change reformats C2 Rule 6.4 regarding the minimum increments for bids and offers on simple orders for options traded on the Exchange into a table, which the Exchange believes is easier to read, and moves certain information into Interpretations and Policies .01 and .02. The only substantive change is to provide that Mini-SPX Index (XSP) options, for as long as SPDR options (SPY) participate in the Penny Pilot Program, will have a $0.01 increment for all series rather than $0.01 for all series quoting less than $3 and a $0.05 for all series quoting more than $3. The current minimum increments for bids and offers for SPY options, which is an exchange-traded fund that tracks the performance of 1/10th the value of the S&P 500 Index, is $0.01 regardless of whether option series is quoted above, at, or below $3. Because both XSP options and SPY options prices are based, in some manner, on 1/10th the price of the S&P 500 Index, the Exchange believes that it is important that these products have the same minimum increments for consistency and competitive reasons. This is also consistent with rules of other exchanges.20 The proposed rule change also modifies the paragraph formatting and moves certain provisions to the Interpretations and Policies. Current C2 Rule 6.34 describes current provisions regarding System access and connectivity, and the proposed rule change moves relevant provisions to proposed Rule 6.8. As stated in proposed Rule 6.8(a), only authorized Users and associated persons of Users may establish connectivity to and access the Exchange to submit orders and quotes and enter auction response in accordance with the Exchange’s System access procedures, technical specifications, and requirements. This is consistent with current Rule 6.34(a), (d), and (e), which provides only authorized market 19 See, e.g., EDGX Rule 21.2(a) (referred to as Fund Shares and exchange-traded notes in that rule); see also Cboe Options Rule 6.1, Interpretation and Policy .03. 20 See, e.g., Cboe Options Rule 6.42, Interpretation and Policy .03. VerDate Sep<11>2014 18:43 May 15, 2018 Jkt 244001 participants (which may only be Trading Permit Holders and associated persons with authorized access, as well as Sponsored Users pursuant to C2 Rule 3.15) may access the Exchange electronically to facilitate quote and order entry as well as auction processing, in accordance with Exchange-prescribed technical specifications (to the extent any agreement is required to be signed, as indicated in current Rule 6.34(d), that would be indicated in such specifications). Proposed Rule 6.8(b) describes EFIDs. A Trading Permit Holder may obtain one or more EFIDs from the Exchange (in a form and manner determined by the Exchange). The Exchange assigns an EFID to a Trading Permit Holder, which the System uses to identify the Trading Permit Holder and clearing number for the execution of orders and quotes submitted to the System with that EFID. Each EFID corresponds to a single Trading Permit Holder and a single clearing number of a Clearing Trading Permit Holder with the Clearing Corporation. A Trading Permit Holder may obtain multiple EFIDs, which may be for the same or different clearing numbers. A Trading Permit Holder may only identify for any of its EFIDs the clearing number of a Clearing Trading Permit Holder that is a Designated Give Up or Guarantor of the Trading Permit Holder as set forth in Rule 6.30. A Trading Permit Holder is able (in a form and manner determined by the Exchange) to designate which of its EFIDs may be used for each of its ports. If a User submits an order or quote through a port with an EFID not enabled for that port, the System cancels or rejects the order or quote. The proposed rule change regarding EFIDs is similar to the current use of acronyms on the Exchange and consistent with the use of EFIDs on EDGX. The Exchange believes including a description of the use of EFIDs in the Rules adds transparency to the Rules. Consistent with the definition of port above, the proposed rule change adds Rule 6.8(c), which states a User may connect to the Exchange using a logical port available through an API, such as the industry-standard Financial Information eXchange (‘‘FIX’’) protocol or Binary Order Entry (‘‘BOE’’) protocol (Cboe Market Interface will no longer be available, as that is an API on C2’s current system while BOE is an API available on the new technology platform). Users may use multiple logical ports. Additionally, this functionality is similar to bandwidth packets currently available on C2, as described in current Rule 6.35 (and PO 00000 Frm 00011 Fmt 4701 Sfmt 4703 22805 therefore which the proposed rule change deletes). Bandwidth packets restrict the maximum number of orders and quotes per second in the same way logical ports do, and Users may similarly have multiple logical ports as they may have bandwidth packets to accommodate their order and quote entry needs. The Exchange believes it is reasonable to not limit bulk order ports, as the purpose of those ports is to submit message orders in bulk. As discussed below, the Exchange will be able to otherwise mitigate message traffic as necessary. Proposed Rule 6.9 describes the entry of orders. Users can enters into the System, or cancel previously entered orders, from 7:30 a.m. until market close, subject to the following requirements and conditions: (a) Users may transmit to the System multiple orders at a single price level or multiple price levels; (b) Each order a User submits to the Exchange must contain the minimum information identified in the Exchange’s order entry specifications; (c) The System timestamps an order upon receipt, which determines the time ranking of the order for purposes of processing the order; and (d) For each System Security, the System transmits to OPRA for display the aggregate size of all orders in the System eligible for display at the best price to buy and sell. (e) After market close, Users may cancel orders with Time in Force of GTC or GTD that remain on the book until 4:45 p.m. Pursuant to current Rule 6.11(a), the Exchange begins accepting order and quotes no earlier than 2:00 a.m. Chicago time, so the proposed change amends this time to 7:30 a.m. Eastern time to be consistent with EDGX.21 The Exchange notes C2 currently begins accepting orders and quotes at approximately 6:30 a.m. Chicago time, which is consistent with the proposed rule change, and thus the proposed rule change will not modify the time at which the Exchange begins accepting orders and quotes. The provisions in paragraphs (a) through (d) above are consistent with current C2 System functionality, and the Exchange believes adding these provisions to the Rules provides additional transparency for market participants. They are also substantively the same as EDGX rules.22 Paragraph (e) above provides Users with additional flexibility to manage their orders that remain in the book following the market close. Cancelling a GTC or GTD order at 4:30 p.m. has the same 21 See 22 See E:\FR\FM\16MYN2.SGM EDGX Rule 21.7(a). EDGX Rule 21.6(a) through (d). 16MYN2 sradovich on DSK3GMQ082PROD with NOTICES2 22806 Federal Register / Vol. 83, No. 95 / Wednesday, May 16, 2018 / Notices effect as cancelling that order at 7:30 a.m. the following day—ultimately, it accommodates the User’s goal of cancelling an order prior to it potentially executing during the Opening Process the following morning. Proposed C2 Rule 6.10 states the Exchange may determine to make certain order types, Order Instructions, and Times in Force not available for all Exchange systems or classes. This provision is consistent with current C2 Rule 6.10, which provides the Exchange with similar flexibility. As discussed above, the proposed rule change moves definitions of order types that will be available on C2 following the technology migration to proposed C2 Rule 1.1. The proposed rule change deletes all-or-none and market-on-close orders from Rule 6.10, as they will no longer be available on C2 following the technology migration.23 Additionally, the proposed rule change maintains a general definition of complex order in proposed C2 Rule 1.1 (as discussed above), but deletes the specific types of complex orders set forth in current Rule 6.10(d) (i.e. spread order, combination order, straddle order, strangle order, ratio order, butterfly spread orders, box/ roll spread orders, collar orders and risk reversals). While these types of orders will continue to be permitted, the Exchange does not believe it is necessary to limit complex orders to these specific definitions, as investors may determine complex orders of other types are more appropriate with their investment strategies. The EDGX rules do not contain similar definitions and instead only contain a general definition of complex orders. The proposed rule change moves the provisions in Interpretation .01(A) and (C) ((B) is deleted, as it relates to an order type that will no longer be available) to Rule 6.12(c), which will consolidate all provisions regarding order handling in a single location in the Rules. The proposed rule change deletes current Rule 6.11 regarding the opening process on C2, as that opening process will not be available on C2 following the technology migration. Proposed Rule 6.11 describes the opening process that will apply to C2 following the technology migration, which is substantively the same as the current opening process on EDGX.24 The proposed opening process is generally similar to the current C2 opening process, as it provides for a pre-opening 23 The proposed rule change makes conforming changes throughout the rules to delete references to these order types and provisions solely related to these order types. 24 See EDGX Rule 21.7. VerDate Sep<11>2014 18:43 May 15, 2018 Jkt 244001 period and a determination of an opening price subject to certain restrictions to ensure the opening trading price for a series is reasonable and not too far away from the market price for a series. Additionally, the proposed process is used following a trading halt. Proposed Rule 6.11(a) describes the order entry period. The System accepts orders and quotes (including GTC and GTD orders remaining on the Book from the previous trading day) for inclusion in the opening process (the ‘‘Opening Process’’) beginning at 7:30 a.m. and continues to accept market and limit orders and quotes until the time when the System initiates the Opening Process in that option series (the ‘‘Order Entry Period’’). The System does not accept IOC or FOK orders prior to the completion of the Opening Process. The System accepts but does not enforce MTP Modifiers during the Opening Process. Complex orders will not participate in the Opening Process described in proposed Rule 6.11, and instead may participate in the COB Opening Process described in proposed Rule 6.13(c). The System converts all ISOs received prior to the completion of the Opening Process into non-ISOs. Orders entered during the Order Entry Period are not eligible for execution until the opening trade occurs, as described below. Pursuant to current C2 Rule 6.11(a), the System begins accepting orders and quotes no earlier than 2:00 a.m. central time (that time is currently set to 7:30 a.m. eastern time). The Exchange believes beginning the order entry period at 7:30 a.m. eastern time will provide Users with sufficient time to submit orders and quotes prior to the beginning of the Opening Process. This time is the same as when the order entry period on C2 (and EDGX) currently begins. C2 currently also does not accept IOC or FOK orders during the pre-opening period (see current Rule 6.11(a)(1)), and it also does not accept ISOs (see current Rule 6.11(a)(1)) (rather than convert them to non-ISOs). The proposed functionality to convert ISOs to non-ISOs is the same as functionality that exists on EDGX today, and the Exchange believes this may increase the opportunity for execution of these orders during the Opening Process. Following the technology migration, the C2 System will not have functionality available to disseminate opening messages as it does today, so the proposed rule change deletes current Rule 6.11(a)(2). Additionally, when the Opening Process begins, the System will not disseminate a notice as it does today, so the proposed rule PO 00000 Frm 00012 Fmt 4701 Sfmt 4703 change deletes current Rule 6.11(b) and (c)(2). Following the technology migration, the Opening Process will be initiated at a similar time as it is today on C2. Proposed Rule 6.11(a) states after a time period (which the Exchange determines for all classes) following the first transaction in the securities underlying the options on the primary market that is disseminated (‘‘First Listing Market Transaction’’) after 9:30 a.m. with respect to Equity Options, or following 9:30 a.m. with respect to Index Options, the related option series open automatically in a random order, staggered over regular intervals of time (the Exchange determines the length and number of these intervals for all classes) pursuant to proposed subparagraphs (2) through (5). This is substantively the same as EDGX Rule 21.7(a). The proposed times will be the same for all classes of Equity Options, and all classes of Index Options, unlike currently on C2 (see current Rule 6.11(b)), where the opening of certain equity classes is triggered by time rather than the First Listing Market Transaction, and the opening of certain index classes is triggered by the receipt of a disseminated index value. Additionally, current C2 Rule 6.11(c) provides for a similar Exchangeconfigurable delay before a series opens and provides for series to open in a random, staggered order over Exchangedetermined time intervals. Proposed Rule 6.11(a)(2) describes how the new C2 System will calculate the opening price of a series. The System determines a single price at which a particular option series will be opened (the ‘‘Opening Price’’) within 30 seconds of the First Listing Market Transaction or 9:30 a.m., as applicable. If there are no contracts in a series that would execute at any price, the System will open the series for trading without determining an Opening Price. The Opening Price, if determined to be valid as described below, of a series will be: (a) If there is both an NBB and NBO, the midpoint of the NBBO (if the midpoint is a half increment, the System rounds down to the nearest minimum increment (the ‘‘NBBO Midpoint’’); (b) if the NBBO Midpoint is not valid, the last disseminated transaction price in the series after 9:30 a.m. (the ‘‘Last Print’’); or (c) if the NBBO Midpoint and the Last Print are not valid, the last disseminated transaction in the series from the previous trading day (the ‘‘Previous Close’’). If the NBBO Midpoint, Last Print, and Previous Close are not valid, the E:\FR\FM\16MYN2.SGM 16MYN2 Federal Register / Vol. 83, No. 95 / Wednesday, May 16, 2018 / Notices and Previous Close are not valid as described above, the System enters nonexecuted orders and quotes (or unexecuted portions) into the Book in time sequence, where they may be processed in accordance with Rule 6.12. This is similar to the opening rotation period described in current Rule 6.11(c) and Interpretation and Policy .01.26 While EDGX and C2 have different matching algorithms consistent with their market models, the proposed Minimum opening process represents a fair and NBB amount objective manner to match orders during Below $2.00 .................................. $0.25 the opening. Additionally, proposed $2.00 to $5.00 .............................. 0.40 Rule 6.11 indicates the opening process Above $5.00 to $10.00 ................. 0.50 will generally occur within 30 seconds Above $10.00 to $20.00 ............... 0.80 (or an extended time at the discretion of Above $20.00 to $50.00 ............... 1.00 the Exchange as noted above), while Above $50.00 to $100.00 ............. 1.50 current Rule 6.11 indicates the opening Above $100.00 ............................. 2.00 process generally must occur within 60 seconds (subject to various opening or conditions). (b) the Last Print or Previous Close is Proposed Rule 6.11(a)(5) provides if a valid price if there is no NBB and no the Exchange opens a series for trading NBO, or there is a NBB (NBO) and no when the NBBO Midpoint, Last Print, NBO (NBB) and the price is equal to or and Previous Close are not valid as greater (less) than the NBB (NBO). described above, the System enters nonWhile these conditions to determine executed orders and quotes (or the validity of an opening price differ unexecuted portions) into the Book in than the opening conditions currently time sequence, where they may be applied on C2, the Exchange believes posted, cancelled, executed, or routed in application of the proposed conditions will still determine a reasonable and fair accordance with proposed Rule 6.12. This is similar C2’s current authority to opening price for series on C2. The compel opening in a series even if the proposed process to determine and opening conditions are not met, as set validate an Opening Price is forth in current Rule 6.11(e). substantively the same as the process Proposed Rule 6.11(b) describes how currently used on EDGX.25 the Opening Process will be used to Proposed Rule 6.11(a)(4) states after reopen trading following a halt. The establishing a valid Opening Price, the Opening Process following a trading System matches orders and quotes in halt will be the same as the one used for the System that are priced equal to or regular trading (as described above), more aggressively than the Opening except as modified by proposed Price in accordance with priority paragraph (b). Proposed Rule 6.11(b)(1) applicable to the class pursuant to Rule states there will be an Order Entry 6.12. In other words, the System Period that begins immediately when allocates orders and quotes in a class the Exchange halts trading in the series during the Opening Process using the if there is a Regulatory Halt (i.e. if the same allocation from Rule 6.12(a) the primary market for the applicable Exchange applies to the class intraday. underlying security declares a Matches occur until there is no regulatory trading halt, suspension, or remaining volume or an imbalance of pause with respect to such security); orders. All orders and quotes (or unexecuted portions) matched pursuant however, there will be no Order Entry to the Opening Process will be executed Period if the Exchange halts for another at the Opening Price. The System enters reason. This is consistent with current Rule 6.11(f), which permits the any non-executed orders and quotes (or Exchange to shorten or eliminate the unexecuted portions) into the Book in pre-opening period after a halt. time sequence, where they may be processed in accordance with Rule 6.12. Proposed Rule 6.11(b)(2) states the System queues a User’s open orders The System cancels any OPG orders (or upon a Regulatory Halt, unless the User unexecuted portions) that do not entered instructions to cancel its open execute during the Opening Process. orders upon a Regulatory Halt, for Proposed subparagraph (a)(5) states if the Exchange opens a series for trading 26 The Exchange does not intend to have a when the NBBO Midpoint, Last Print, different algorithm apply at the open and intraday, sradovich on DSK3GMQ082PROD with NOTICES2 Exchange in its discretion may extend the Order Entry Period by up to 30 seconds or open the series for trading. For purposes of validating the Opening Price: (a) the NBBO Midpoint, the Last Print, or the Previous Close is a valid price if it is not outside the NBBO, and the price is no more than the following Minimum Amount away from the NBB or NBO for the series: 25 See EDGX Rule 21.7(a)(1) and (2). VerDate Sep<11>2014 18:43 May 15, 2018 Jkt 244001 and therefore proposes to delete current Rule 6.11, Interpretation and Policy .01. PO 00000 Frm 00013 Fmt 4701 Sfmt 4703 22807 participation in the Opening Process following the Regulatory Halt. The System cancels a User’s open orders upon a halt that is not a Regulatory Halt. This functionality will provide Users with additional flexibility to instruct the System how to handle their orders in the event of a Regulatory Halt. Following a trading halt, the System opens a series once the primary market lifts the Regulatory Halt or upon the Exchange’s determination that the conditions that led to the halt are no longer present or that the interests of a fair and orderly market are best served by a resumption of trading, as described in proposed Rule 6.11(b)(3). Pursuant to proposed Rule 6.11(b)(4), the System determines the Opening Price within 30 seconds of the Regulatory Halt or other trading halt being lifted. The Exchange believes this proposed process for opening following a halt will permit C2 to reopen as quickly as possible and in a fair and orderly manner following a halt. The proposed rule change regarding how the System will open following a trading halt is substantively similar to the Opening Process that may be used following a trading halt described in EDGX Rule 21.7(a). The proposed rule change moves current Rule 6.11(e) regarding the Exchange’s ability to deviate from the standard opening procedure to proposed Rule 6.11(c). Current C2 Rule 6.11 may be used for closing; however, the proposed rule change only applies to openings. Because C2 generally does not use its current process for a closing, the Exchange does not believe the fact that the proposed process may only be used for openings following the technology migration will impact trading on C2. Therefore, the proposed rule change deletes current C2 Rule 6.11(g). The proposed rule change moves current Rule 6.11, Interpretation and Policy .03 regarding how the System handles market orders if the underlying security is in a limit up-limit down state during the opening process to proposed Rule 6.11(d). Proposed Rule 6.11 is substantively the same as EDGX Rule 21.7, and the Exchange believes the proposed opening process (based on current use on EDGX) is a fair and orderly way to open series on C2 following the technology migration. The proposed rule change deletes current Rule 6.11, Interpretation and Policy .02 regarding Exchange determinations made pursuant to Rule 6.11, as that is replaced by proposed Rule 1.2. Proposed Rule 6.12 describes how the System will process, display, prioritize, E:\FR\FM\16MYN2.SGM 16MYN2 22808 Federal Register / Vol. 83, No. 95 / Wednesday, May 16, 2018 / Notices sradovich on DSK3GMQ082PROD with NOTICES2 and execute orders and quotes entered into the Book. Current C2 Rule 6.12 provides orders and quotes may be allocated pursuant to price-time or prorata, and those two options will also be available on the new System. The proposed rule change revises the description to be similar to EDGX and BZX Rules 21.8. Proposed Rule 6.12(a)(1) states resting orders and quotes 27 in the Book with the highest bid and lowest offer have priority.28 Proposed Rule 6.12(a)(2) states if there are two or more resting orders or quotes at the best price, the Exchange will determine for each class whether the time or pro-rata allocation applies. Pursuant to time priority (i.e. pricetime), the System prioritizes orders and quotes at the same price in the order in which the System receives them (i.e. in time priority).29 Pursuant to pro-rata priority, the System allocates orders and quotes proportionally according to size (i.e. in a pro-rata basis).30 All classes on EDGX are allocated in a pro-rata manner; however, current C2 rules permit the Exchange to determine for each class whether price-time or prorata will apply, and the proposed rule change maintains that flexibility. Currently on C2, with respect to the pro-rata allocation algorithm, the System allocates contracts to the first resting order or quote proportionally according to size (based on the number of contracts to be allocated and the size of the resting orders and quotes). Then, the System recalculates the number of contracts to which each remaining resting order and quote is afforded proportionally according to size (based on the number of remaining contracts to be allocated and the size of the remaining resting orders and quotes) and allocates contracts to the next resting order or quote. The System repeats this process until it allocates all contracts from the incoming order or quote. Following the System migration, the System instead will allocate executable quantity to the nearest whole number, with fractions 1⁄2 or greater rounded up (in size-time priority) and 27 Displayed orders and quotes always have priority over undisplayed orders and quotes, which is consistent with current C2 functionality. See current Rule 6.12(c)(1) and proposed Rule 6.12(a)(3). Since all-or-none orders will no longer be available on C2 following the technology migration, the only orders that will not be displayed on C2 are the reserve portions of Reserve Orders. 28 See current C2 Rule 6.12(a)(1) and (2) (under both allocation algorithms, orders and quotes are first prioritized based on price); see also EDGX Rule 21.8(b). 29 See current C2 Rule 6.12(a)(1); see also BZX Rule 21.8(a). 30 See current C2 Rule 6.12(a)(2); see also EDGX Rule 21.8(c). VerDate Sep<11>2014 18:43 May 15, 2018 Jkt 244001 fractions less than 1⁄2 rounded down. If the executable quantity cannot be evenly allocated, the System distributes remaining contracts one at a time in size-time priority to orders that were rounded down. The Exchange believes this is a fair, objective process and simple systematic process to allocate ‘‘extra’’ contracts when more than one market participant may be entitled to those extra contracts after rounding, and it is consistent with EDGX Rule 21.8(c). Proposed Rule 6.12(a)(3) states displayed orders have priority over nondisplayed orders. This is consistent with current C2 Rule 6.12(c)(1). Following migration, the only nondisplayed orders will be the reserve portions of reserve orders (as discussed above, all-or-none orders will no longer be available). The proposed rule change deletes current C2 Rule 6.12(a)(3) and (b), which permit the Exchange to apply customer priority, trade participation rights, or additional priority overlays (small order and market turner) to classes. The Exchange does not currently, and does not intend to, apply any of these priority overlays to any class. Therefore, it is not necessary to include these Rules in the C2 Rulebook, and deleting these rules will have no impact on C2 trading.31 The proposed rule change makes conforming changes throughout the rules to delete references to these priority overlays. Proposed Rule 6.12(b) describes a new Price Adjust process, which is a repricing mechanism offered to Users on EDGX.32 As discussed above, orders designated to be subject to the Price Adjust process or not designated as Cancel Back (and thus not subject to the Price Adjust process), will be handled pursuant to proposed Rule 6.12(b).33 If an order is subject to the Price Adjust process, the System ranks and displays a buy (sell) order that, at the time of entry, would lock or cross a Protected Quotation of the Exchange or another Exchange at one minimum price increment below (above) the current NBO (NBB). If the NBBO changes so that an order subject to Price Adjust would not lock or cross a Protected Quotation, the System gives the order a new timestamp and displays the order at the price that 31 The Exchange notes EDGX Rule 21.8 includes customer priority and trade participation right overlays. 32 See EDGX Rule 21.1(i). 33 Under EDGX rules, the price adjust process is not the default setting for orders, like it will be for C2. However, EDGX Users still have the option to use or not use the price adjust process with various order instructions. Therefore, this is not a significant difference. PO 00000 Frm 00014 Fmt 4701 Sfmt 4703 locked the Protected Quotation at the time of entry. All orders the System reranked and re-displayed pursuant to Price Adjust retain their priority as compared to other orders subject to Price Adjust based upon the time the System initially received such orders. Following the initial ranking and display of an order subject to Price Adjust, the System will only re-rank and re-display an order to the extent it achieves a more aggressive price. The System adjusts the ranked and displayed price of an order subject to Price Adjust once or multiple times depending upon the User’s instructions and changes to the prevailing NBBO. A limit order subject to the Price Adjust process will not be displayed at any price worse than its limit price. This repricing mechanism (in addition to the proposed Cancel Back instruction described above) is an additional way in which C2 will ensure compliance with locked and crossed market rules in Chapter 6, Section of the C2 Rulebook and is substantively the same as EDGX Rule 21.1(i). It also provides Users with additional flexibility regarding how they want the System to handle their orders. Proposed Rule 6.12(c) describes how the System will handle orders in additional circumstances. Proposed subparagraph (1) states, subject to the exceptions contained in Rule 6.82(b), the System does not execute an order at a price that trades through a Protected Quotation of another options exchange. The System routes an order a User designates as routable in compliance with applicable Trade-Through restrictions. The System cancels or rejects any order not eligible for routing or the Price Adjust process that is entered with a price that locks or crosses a Protected Quotation of another options exchange. C2’s System currently will not execute orders at trade-through prices, consistent with Chapter 6, Section E of the Rules. This provision is substantively the same as EDGX Rule 21.6(e) and (f). Additionally, the proposed rule change modifies the handling of stop orders to state the System cancels or rejects a buy (sell) stop or stop-limit order if the NBB (NBO) at the time the System receives the order is equal to or above (below) the stop price, and accepts a buy (sell) stop or stop-limit order if the consolidated last sale price at the time the System receives the order is equal to or above (below) the stop price.34 The Exchange believes comparing the stop price of a stop or 34 Current description of the handling of stop orders is in current C2 Rule 6.11(i), which is being deleted. E:\FR\FM\16MYN2.SGM 16MYN2 sradovich on DSK3GMQ082PROD with NOTICES2 Federal Register / Vol. 83, No. 95 / Wednesday, May 16, 2018 / Notices stop-limit order to the NBBO and last consolidated sale price rather than prices available on the Exchange is appropriate, as the NBBO better reflects the market price of the series. This is similar to various price protections in the rules, as discussed below, that compare order prices to national prices rather than Exchange prices. This is also the same as EDGX Rule 21.1(d)(11) and (12), which provide that stop and stoplimit orders on EDGX compare the stop price to the NBBO and last consolidated sale price. The C2 System following the technology migration will be unable to compare the stop price of a stop or stoplimit order to the last consolidated sale price upon receipt of the order, which is why the order will still be accepted even if the stop price is above (below) the last consolidated sale price when the System receives it. Proposed Rule 6.12(c)(3) states the System cancels or rejects a GTC or GTD order in an adjusted series.35 Pursuant to Rule 5.7, due to a corporate action by the issuer of the underlying, OCC may adjust the price of an underlying security. After a corporate action and a subsequent adjustment to the existing options, OPRA and OCC identify the series in question with a separate symbol consisting of the underlying symbol and a numerical appendage. As a standard procedure, exchanges listing options on an underlying security that undergoes a corporate action resulting in adjusted series will list new standard option series across all appropriate expiration months the day after the existing series are adjusted. The adjusted series are generally actively traded for a short period of time following adjustment, but prices of those series may have been impacted by the adjustment. As a result, any GTC or GTD orders submitted prior to the adjustment may no longer reflect the market price of the adjusted series, as the prices of the GTC or GTD orders do not factor in the adjustment. The Exchange believes any executions of such GTC and GTD orders in adjusted series may be at erroneous prices, and thus believes it is appropriate for the System to cancel these orders, which will permit Users to resubmit orders in the adjusted series at prices that reflect the adjustment and to submit orders in the new series. Proposed Rule 6.12(c)(4) states the System does not execute an order with an MTP Modifier entered into the System against an order entered with an MTP Modifier and the same Unique Identifier, and instead handles them in 35 This is true on any trading day on which the adjusted series continues to trade. VerDate Sep<11>2014 18:43 May 15, 2018 Jkt 244001 accordance with Rule 1.1, as discussed above. This is consistent with the definition of MTP Modifiers added to Rule 1.1 above and substantively the same as EDGX Rule 21.8(k). The proposed rule change moves provisions regarding how the System handles market and stop orders during a limit up-limit down state from current Rule 6.10, Interpretation and Policy .01 to proposed Rule 6.12(c)(5). The proposed rule change deletes current C2 Rule 6.12(c) related to contingency orders. The Exchange does not believe the introductory language and subparagraphs (c)(2) and (3) are necessary, as the order instruction definitions discussed above and order handling instructions below contain detail regarding how the System will handle orders designated as stop, stoplimit, or reserve.36 The proposed rule change moves the provision in subparagraph (c)(1) regarding priority of displayed orders over nondisplayed orders to proposed Rule 6.12(a)(3), as discussed above. Because all-or-none orders will no longer be available following the technology migration, the proposed rule change deletes subparagraph (c)(4), which relates to handling of all-or-none orders. The proposed rule change deletes current Rule 6.12(e)(2), which states if the price or quantity of one side of a quote is changed, the unchanged side retains its priority position. Additionally, the proposed rule change deletes the reference in Rule 6.12(e)(1) related to the changed side of a quote. Current C2 functionality provides Market-Maker with the ability to submit two-sided quotes, to which the above provisions relates. Following the technology migration, there will be no such functionality available. MarketMakers will submit quotes using order functionality, but it will only permit one-sided quotes to be input. Therefore, these provisions are no longer applicable. The proposed rule change deletes current Rule 6.12(g) regarding a complex order priority exception. Proposed Rule 6.13 (as described below) describes the priority rules related to the execution of complex orders, so current 36 Current C2 rules categorize all-or-none, marketon-close, stop, stop-limit, FOK, IOC, OPG, and reserve orders as contingency orders. As discussed above, the Exchange will no longer make all-ornone and market-on-close orders available following the technology migration. Additionally, the Exchange believes FOK, IOC, and OPG relate to the time of execution of orders rather than a contingency, and thus the proposed rule change categorizes these instructions as Times-in-Force, as discussed above. Therefore, the only current orders that could be deemed contingency under current rules are stop, stop-limit, and reserve. PO 00000 Frm 00015 Fmt 4701 Sfmt 4703 22809 Rule 6.12(g) is not necessary. As further discussed below, complex orders will trade with leg markets prior to trading with other complex orders, and will never trade at the same price as the SBBO, which is consistent with current Rule 6.12(g).37 The proposed rule change adds proposed Rule 6.12(g), which states options subject to a trading halt initiated pursuant to Rule 6.32 open for trading following the halt at the time specified in Rule 6.11, which is consistent with current Rule 6.11(f). Additionally, proposed Rule 6.12(g) states when trading resumes, the System places orders and quotes that do not execute during the Opening Process in the Book in time priority and processes or executes them as described in Rule 6.12. The Exchange believes this is a fair, objective process and simple systematic process to prioritize orders following a trading halt, and is consistent with EDGX Rule 21.8(j). Proposed Rule 6.13 modifies C2’s current complex order functionality to substantially conform to functionality that will be available on C2’s new System and is currently used on EDGX. Trading of complex orders will be subject to all other Rules applicable to trading of orders, unless otherwise provided in Rule 6.13 (which is currently the case). The proposed rule change moves the definitions of COA and COB to proposed paragraph (a). Additionally, the proposed rule change adds definitions of synthetic best bid or offer (‘‘SBBO’’) and synthetic national best bid or offer (‘‘SNBBO’’) to proposed paragraph (a), which are referred to in current C2 Rule 1.1 as derivative spread market and national spread market. The proposed rule change also adds the following terms to Rule 6.13(a): • Complex strategy: The term ‘‘complex strategy’’ means a particular combination of components and their ratios to one another. New complex strategies can be created as the result of the receipt of a complex instrument creation request or complex order for a complex strategy that is not currently in the System. The Exchange is thus proposing two methods to create a new complex strategy, one of which is a message that a Trading Permit Holder can send to create the strategy and the other is a message a Trading Permit Holder can send that will generate the strategy and that is also an order in that same strategy. These methods will be equally available to all Trading Permit Holders, but the Exchange anticipates that Trading Permit Holders and other 37 See E:\FR\FM\16MYN2.SGM proposed C2 Rule 6.13(f)(2). 16MYN2 sradovich on DSK3GMQ082PROD with NOTICES2 22810 Federal Register / Vol. 83, No. 95 / Wednesday, May 16, 2018 / Notices liquidity providers who anticipate providing larger amounts of trading activity in complex strategies are the most likely to send in a complex instrument creation request (i.e., to prepare for their trading in the complex strategy throughout the day), whereas other participants are more likely to simply send a complex order that simultaneously creates a new strategy. The Exchange may limit the number of new complex strategies that may be in the System or entered for an EFID (which EFID limit would be the same for all Users) at a particular time. • Regular trading: The term ‘‘regular trading’’ means trading of complex orders that occurs during a trading session other than (a) at the opening of the COB or re-opening of the COB for trading following a halt (described in paragraph (c) below) or (b) during the COA process (described in proposed Rule 6.13(d)). These proposed defined terms are the same as those included in EDGX Rule 21.20(a). Proposed Rule 6.13(b) describes the order types, Order Instructions, and Times-in-Force that are eligible for complex orders to be entered into and handled by the System. As an initial matter, proposed paragraph (b) states the Exchange determines which Timesin-Force of Day, GTC, GTD, IOC, or OPG are available for complex orders (including for eligibility to enter the COB and initiate a COA). The proposed rule change is also consistent with EDGX Rule 21.20(b). Complex orders are Book Only and may be market or limit orders. Because complex orders are not routable, and may not be Post Only, Book Only is the only available Order Instruction related to whether an order is routable or not routable. The only other available Order Instruction for complex orders is Attributable/NonAttributable. This relates only to information that User wants, or does not want, included when a complex order is displayed, and has no impact on how complex orders are processed or execute. As they do for simple orders, certain Users want the ability to track their orders, such as which of the resting orders in the COB or which COA’d [sic] order is theirs. The Attributable designation means this information will appear in market data feeds and auction messages, permitting these Users to track their own orders. Proposed paragraph (b) also adds the following instructions that are permissible for complex orders: • Complex Only Orders: A MarketMaker may designate a Day or IOC order as ‘‘Complex Only,’’ which may execute only against complex orders in the COB VerDate Sep<11>2014 18:43 May 15, 2018 Jkt 244001 and may not Leg into the Simple Book. Unless designated as Complex Only, and for all other Times-in-Force and Capacities, a complex order may execute against complex orders in the COB and may Leg into the Simple Book. The Complex Only Order option is analogous to functionality on EDGX. The Exchange also believes the proposed functionality is analogous to other types of functionality already offered by C2 that provides Trading Permit Holders, including MarketMakers, the ability to direct the Exchange not to route their orders away from the Exchange (Book Only). Similar to such analogous features, the Exchange believes that Market-Makers may utilize Complex Only Order functionality as part of their strategies to maintain additional control over their executions, in connection with their attempt to provide and not remove liquidity, or in connection with applicable fees for executions. • COA-Eligible and Do-Not-COA Orders: The Exchange proposes to allow all types of orders to initiate a COA but proposes to have certain types of orders default to initiating a COA upon arrival with the ability to opt-out of initiating a COA and other types of orders default to not initiating a COA upon arrival with the ability to opt-in to initiating a COA. Upon receipt of an IOC complex order, the System does not initiate a COA unless a User marked the order to initiate a COA, in which case the System cancels any unexecuted portion at the end of the COA. Upon receipt of a complex order with any other Timein-Force (except OPG), the System initiates a COA unless a User marked the order to not initiate a COA. Buy (sell) complex orders with User instructions to (or which default to) initiate a COA that are higher (lower) than the SBB (SBO) and higher (lower) than the price of complex orders resting at the top of the COB are ‘‘COA-eligible orders,’’ while buy (sell) complex orders with User instructions not to (or which default not to) initiate a COA or that are priced equal to or lower (higher) than the SBB (SBO) or equal to or lower (higher) than the price of complex orders resting at the top of the COB are ‘‘do-not-COA orders.’’ The Exchange believes that this gives market participants extra flexibility to control the handling and execution of their complex orders by the System by giving them the additional ability to determine whether they wish to have their complex order initiate a COA. The Exchange further believes that the proposed default values are consistent with the terms of the orders (e.g., IOC PO 00000 Frm 00016 Fmt 4701 Sfmt 4703 is intended as an immediate execution or cancellation whereas COA is a process that includes a short delay in order to broadcast and provide participants time to respond). Current Rule 6.13(c)(1)(B) defines COA-eligible orders as orders the Exchange determines to be eligible for COA based on size, type, and origin type, so the proposed rule change is consistent with this flexibility. The Exchange determines which Capacities (i.e., nonbroker-dealer customers, broker-dealers that are not Market-Makers on an options exchange, or Market-Makers on an options exchange) are eligible for entry onto the COB.38 This is consistent with EDGX Rule 21.20(c). Additionally, current Rule 6.13(c)(2)(A) indicates a COA will initiate if the COA-eligible order is marketable against the BBO, so the proposed marketability requirement in the definition of a COA-eligible is consistent with current COA rules as well as the proposed priority rule. Current Rule 6.13(c)(2)(B) provides Trading Permit Holders with ability to choose whether an order is COA-eligible or not, as the proposed rule does. The proposed definition of COA-eligible order is substantively the same as EDGX Rule 21.20, Interpretation and Policy .02. • Complex Orders with MTP Modifiers: Users may apply the following MTP Modifiers to complex orders: MTP Cancel Newest, MTP Cancel Oldest, and MTP Cancel Both. If a complex order would execute against a complex order in the COB with an MTP Modifier and the same Unique Identifier, the System handles the complex orders with these MTP Modifiers as described in Rule 1.1. If a complex order with an MTP Modifier would Leg into the Simple Book and execute against any leg on the Simple Book with an MTP Modifier and the same Unique Identifier, the System cancels the complex order. This will allow a User to avoid trading complex orders against its own orders or orders of affiliates, providing Users with an additional way to maintain control over their complex order executions. Current Rules 6.10 and 6.13(b) and (c) provide C2 with authority to determine which order types are available for COB and COA (and current paragraph (b) states complex orders may be IOC, Day, or GTC, as GTD functionality is not currently available on C2). Proposed paragraph (b) is consistent with this current Exchange authority and expands the Times-in-Force the Exchange may 38 Currently, all Capacities may rest complex orders in the COB, which the Exchange plans to be the case following the technology migration. E:\FR\FM\16MYN2.SGM 16MYN2 sradovich on DSK3GMQ082PROD with NOTICES2 Federal Register / Vol. 83, No. 95 / Wednesday, May 16, 2018 / Notices permit for complex orders to be consistent with the Times-in-Force available for complex orders on EDGX. Proposed Rule 6.13(b) is substantively the same as EDGX Rule 21.20(b). This authority enables the Exchange to modify complex order types available on the Exchange as market conditions change and remain competitive. Proposed Rule 6.13(c) describes the process of accepting orders prior to the opening of the COB for trading (and prior to re-opening after a halt), and the process by which the Exchange will open the COB or re-open the COB following a halt (the ‘‘Opening Process’’). The current COB opening process is described in current Rule 6.13, Interpretation and Policy .07, which the proposed rule change deletes. The proposed COB opening process is substantively the same as the EDGX COB opening process described in EDGX Rule 21.20(c)(A) through (D). The COB Opening Process will occur at the beginning of each trading day and after a trading halt (similar to the current COB opening process, as stated in current Interpretation and Policy .07(b)). There will be a complex order entry period, during which the System will accept complex orders for inclusion in the COB Opening Process at the times and in the manner set forth in proposed Rule 6.11(a), except the Order Entry Period for complex orders ends when the complex strategy opens. Currently, C2 similarly accepts complex orders prior to the COB opening, at the same time it begins to accept simple orders. As discussed above, this time is changing from no earlier than 2:00 a.m. central to 7:30 a.m. eastern (which time is consistent with the current pre-open period on C2). The Exchange believes this provides Users with sufficient time to enter complex orders prior to the open. Complex orders entered during the Order Entry Period will not be eligible for execution until the COB Opening Process occurs. Beginning at 7:30 a.m. and updated every five seconds thereafter until the initiation of the COB Opening Process, the Exchange will disseminate indicative prices and order imbalance information based on complex orders queued in the System for the COB Opening Process. This is new functionality that will provide Users with information regarding the expected COB opening, which is the same as functionality available on EDGX (see EDGX Rule 21.20(c)(2)(A)). The System initiates the COB Opening Process for a complex strategy after a number of seconds (which number the Exchange determines) after all legs of the strategy in the Simple Book are open for trading. This is VerDate Sep<11>2014 18:43 May 15, 2018 Jkt 244001 consistent with the current COB Opening Process, as set forth in current Interpretation and Policy .07(a). All complex orders the System receives prior to opening a complex strategy pursuant to the COB Opening Process, including any delay applied by the Exchange, are eligible to be matched in the COB Opening Process and not during the Opening Process described in Rule 6.11. The proposed delay is consistent with current EDGX functionality and is additional detail in the C2 Rules. C2 similarly applies a delay period during the regular Opening Process, as described above. If there are matching complex orders in a complex strategy, the System determines the COB opening price, which is the price at which the most complex orders can trade. If there are multiple prices that would result in the same number of complex orders executed, the System chooses the price that would result in the smallest remaining imbalance as the COB opening price. If there are multiple prices that would result in the same number of complex orders executed and the same ‘‘smallest’’ imbalance, the System chooses the price closest to the midpoint of the (i) SNBBO or (ii) if there is no SNBBO available, the highest and lowest potential opening prices as the COB opening price. If the midpoint price would result in an invalid increment, the System rounds the COB opening price up to the nearest permissible increment. If the COB opening price equals the SBBO, the System adjust the COB opening price to a price that is better than the corresponding bid or offer in the Simple Book by $0.01. This is consistent with EDGX Rule 21.20(c)(2)(C), except on EDGX, the opening price must improve the SBBO only if there are priority customers on the legs. After the System determines a COB opening price, the Exchange executes matching complex orders in accordance with the priority in proposed Rule 6.12(a) applicable to the class at the COB opening price. The System enters any remaining complex orders (or unexecuted portions) into the COB, subject to a User’s instructions. If there are no matching complex orders in a complex strategy, the System opens the complex strategy without a trade. If after an Exchange-established period of time that may not exceed 30 seconds, the System cannot match orders because (i) the System cannot determine a COB opening price (i.e., all queued orders are market orders) or (ii) the COB opening price is outside the SNBBO, the System opens the complex strategy without a trade. In both case, the System enters PO 00000 Frm 00017 Fmt 4701 Sfmt 4703 22811 any orders in the complex strategy in the COB (in time priority), except it Legs any complex orders it can into the Simple Book. The proposed rule change provides additional detail regarding how the COB will open if there are no matching trades. Additionally, the Exchange believes the proposed configurable time period is important because the opening price protections are relatively restrictive (i.e., based on the SNBBO), and the configurable time period provides the Exchange with the ability to periodically review the process and modify it as necessary to ensure there is sufficient opportunity to have Opening Process executions without also waiting too long to transition to regular trading. This is similar to EDGX Rule 21.20(c)(2)(D). Currently on C2, the System opens the COB in a similar manner, however it first attempts to match complex orders against orders in the Simple Book, then matches complex orders against each other. As proposed, and consistent with EDGX Rule 21.20(c)(2)(C), complex orders will not leg into the book upon the COB open (unless there are no matching complex orders and a complex strategy opens without a trade); however, the COB opening price must improve the SBBO by at least $0.01 as described above, thus providing protection to the leg markets (including customers). The proposed matching process for complex orders on the COB is similar to the process in current Interpretation and Policy .07(a)(ii). Additionally, C2 currently restricts valid opening trade prices to be within the SBBO rather than the SNBBO as the proposed opening process does. The SNBBO more accurately reflects the then-current market, rather than the SBBO, and thus the Exchange believes it is a better measure to use for purposes of determining the reasonability of the prices of orders. Proposed Rule 6.13(d) describes the COA process for COA-eligible orders. Orders in all classes will be eligible to participate in COA. Upon receipt of a COA-eligible order, the System initiates the COA process by sending a COA auction message to all subscribers to the Exchange’s data feeds that deliver COA auction messages. A COA auction message identifies the COA auction ID, instrument ID (i.e., complex strategy), Capacity, quantity, and side of the market of the COA-eligible order. The Exchange may also determine to include the price in COA auction messages, which will be the limit order price or the SBBO (if initiated by a market complex order), or the drill-through price if the order is subject to the drillthrough protection in Rule 6.14(b). This E:\FR\FM\16MYN2.SGM 16MYN2 sradovich on DSK3GMQ082PROD with NOTICES2 22812 Federal Register / Vol. 83, No. 95 / Wednesday, May 16, 2018 / Notices is similar to the RFR message the Exchange currently sends to Trading Permit Holders as set forth in current subparagraph (c)(2)(A). The System may initiate a COA in a complex strategy even though another COA in that complex strategy is ongoing. This concurrent COA functionality is not currently available on C2, but is available on EDGX (see EDGX Rule 21.20(d)(1)). The Exchange believes it will increase price improvement and execution opportunities for complex orders following the technology migration. The Exchange notes at the outset that based on how Exchange Systems operate (and computer processes generally), it is impossible for COAs to occur ‘‘simultaneously’’, meaning that they would commence and conclude at exactly the same time. Thus, although it is possible as proposed for one or more COAs to overlap, each COA will be started in a sequence and with a time that will determine its processing. Thus, even if there are two COAs that commence and conclude at nearly the same time, each COA will have a distinct conclusion at which time the COA will be allocated. If there are multiple COAs ongoing for a specific complex strategy, each COA concludes sequentially based on the time each COA commenced, unless terminated early as described below. At the time each COA concludes, the System allocates the COA-eligible order pursuant to proposed Rule 6.13(d)(5) and takes into account all COA Responses for that COA, orders in the Simple Book, and unrelated complex orders on the COB at the time the COA concludes. If there are multiple COAs ongoing for a specific complex strategy that are each terminated early as described below, the System processes the COAs sequentially based on the order in which they commenced. If a COA Response is not fully executed at the end of the identified COA to which the COA Response was submitted, the System cancels or rejects it at the conclusion of the specified COA. In turn, when the first COA concludes, orders on the Simple Book and unrelated complex orders that then exist will be considered for participation in the COA. If unrelated orders are fully executed in such COA, then there will be no unrelated orders for consideration when the subsequent COA is processed (unless new unrelated order interest has arrived). If instead there is remaining unrelated order interest after the first COA has been allocated, then such unrelated order interest will be considered for allocation when the subsequent COA is processed. VerDate Sep<11>2014 18:43 May 15, 2018 Jkt 244001 As another example, each COA Response is required to specifically identify the COA for which it is targeted and if not fully executed will be cancelled at the conclusion of the COA. Thus, COA Responses will only be considered in the specified COA. The proposed COA process is substantively the same as the COA process described in EDGX Rule 21.20(d), except there will be no customer priority on C2 for simple or complex orders. Proposed subparagraph (d)(3) defines the Response Time Interval as the period of time during which Users may submit responses to the COA auction message (‘‘COA Responses’’). The Exchange determines the duration of the Response Time Interval, which may not exceed 500 milliseconds. This is similar to current subparagraph (c)(3)(B), except the proposed rule change reduces the maximum time period from three seconds to 500 milliseconds. The Exchange believes that 500 milliseconds is a reasonable amount of time within which participants can respond to a COA auction message, as it is the maximum timeframe in EDGX Rule 21.20(d)(3). The current timer on C2 is 20 milliseconds, and therefore the Exchange believes market believes a maximum response time of 500 milliseconds is sufficient to respond to auctions. However, the Response Time Interval terminates prior to the end of that time duration: (1) When the System receives a nonCOA-eligible order on the same side as the COA-eligible order that initiated the COA but with a price better than the COA price, in which case the System terminates the COA and processes the COA-eligible order as described below and posts the new order to the COB; or (2) when the System receives an order in a leg of the complex order that would improve the SBBO on the same side as the COA-eligible order that initiated the COA to a price equal to or better than the COA price, in which case the System terminates the COA and processes the COA-eligible order as described below, posts the new order to the COB, and updates the SBBO. These circumstances that cause a Response Time Interval to terminate prior to the end of the above-noted time duration are substantively the same as EDGX Rule 21.20(d)(5)(C)(i) and (ii). EDGX Rule 21.20(d)(5)(C)(iii) does not apply to C2, as it relates to Priority Customer orders, which have no allocation priority on C2. Current C2 Rule 6.13(c)(8)(C) describes how the System currently handles incoming COA-eligible orders on the same side of PO 00000 Frm 00018 Fmt 4701 Sfmt 4703 the original COA order at a better price. The proposed rule change deletes that provision, as it is being replaced by the functionality above (which order terminates a COA in that circumstance rather than joins the COA, but still provides execution opportunities for the new incoming order by placing it on the COB). The proposed rule change deletes current C2 Rule 6.13(c)(8), which describes current circumstances that cause a COA to end early, as those will no long apply following the technology migration. The proposed rule change deletes current Rule 6.13(c)(8)(A) and (B) regarding incoming COA-eligible orders received during the Response Time Interval, as those orders may initiate a separate COA under the proposed rule change that permits concurrent COAs. The proposed rule change deletes current Rule 6.13(c)(D) and (E) relating to incoming do-not-COA orders and changes in the leg markets that would terminate an ongoing COA, as under the proposed rules, those new orders would not terminate a COA but would be eligible to execute against the COA-eligible order at the end of the COA) (see proposed subparagraph (d)(2), which states execution will occur against orders in the Simple Book and COB at the time the COA concludes). Ultimately, these incoming orders are eligible for execution against a COAeligible order under current and proposed rules. The proposed rule change merely changes the potential execution time to the end of the full response interval time from an abbreviated response interval time. Proposed subparagraph (d)(4) describes COA Responses that may be submitted during the Response Time Interval for a specific COA. The System accepts a COA Response(s) with any Capacity in $0.01 increments during the Response Time Interval. Current subparagraph (c)(3) permits the Exchange to determine whether MarketMakers assigned to a class and Trading Permit Holders acting as agent for orders resting on the top of the COB in the relevant series, or all Trading Permit Holders, may submit COA Responses. Currently, the Exchange permits all Trading Permit Holders to submit COA Responses, so the proposed rule change is consistent with current C2 practice and merely eliminates this flexibility. A COA Response must specify the price, size, side of the market (i.e., a response to a buy COA as a sell or a response to a sell COA as a buy) and COA auction ID for the COA to which the User is submitting the COA Response. While this is not included in current C2 rules, it is consistent with System entry requirements for COA E:\FR\FM\16MYN2.SGM 16MYN2 sradovich on DSK3GMQ082PROD with NOTICES2 Federal Register / Vol. 83, No. 95 / Wednesday, May 16, 2018 / Notices Responses. The System aggregates the size of COA Responses submitted at the same price for an EFID, and caps the size of the aggregated COA Responses at the size of the COA-eligible order. This provision is similar to Cboe Options Rule 6.53(d)(v), which caps order and response sizes for allocation purposes to prevent Trading Permit Holders from taking advantage of a pro-rata allocation by submitting responses larger than the COA-eligible order to obtain a larger allocation from that order. During the Response Time Interval, COA Responses are not firm, and Users can modify or withdraw them at any time prior to the end of the Response Time Interval, although the System applies a new timestamp to any modified COA Response (unless the modification was to decrease its size), which will result in loss of priority. The Exchange does not display COA Responses. At the end of the Response Time Interval, COA Responses are firm (i.e., guaranteed at their price and size). A COA Response may only execute against the COA-eligible order for the COA to which a User submitted the COA Response. The System cancels or rejects any unexecuted COA Responses (or unexecuted portions) at the conclusion of the COA. This is substantively the same as current subparagraph (c)(7) and EDGX Rule 21.20(d)(4). Proposed subparagraph (d)(5) describes how COA-eligible orders are processed at the end of the Response Time Interval. At the end of the Response Time Interval, the System executes a COA-eligible order (in whole or in part) against contra side interest in price priority. If there is contra side interest at the same price, the System allocates the contra side interest as follows: (1) Orders and quotes in the Simple Book for the individual leg components of the complex order through Legging (subject to proposed paragraph (g), as described below), which the System allocates in accordance with the priority in proposed Rule 6.12(a) applicable to the class. (2) COA Responses and unrelated orders posted to the COB, which the System allocates in accordance with the priority in proposed Rule 6.12(a) applicable to the class. This allocation is similar to the current allocation priority on C2 following a COA, as set forth in current C2 Rule 6.13(c)(5), except the proposed rule allocates COA-eligible orders to COA responses and resting complex orders in the same priority as it does simple orders, rather than providing public customer complex orders and VerDate Sep<11>2014 18:43 May 15, 2018 Jkt 244001 COA response with priority. The Exchange believes it is appropriate for complex orders to allocate in the same manner as simple orders. Additionally, on EDGX, COA responses and unrelated orders on the COB allocate in time priority, and Leg into the Simple Book in pro-rata priority, as that is the only allocation algorithm available for simple orders on EDGX. EDGX prioritizes customer orders in the simple book. As discussed above, there will be no customer priority on C2—this applies to both the Simple Book and the COB. However, by trading with the legs first, this provides protection to customer orders in the legs as well, and ensure no complex orders will trade against the COB ahead of customer orders in the legs. Proposed subparagraph (d)(5)(B) states the System enters any COAeligible order (or unexecuted portion) that does not execute at the end of the COA into the COB (if eligible for entry), and applies a timestamp based on the time it enters the COB (see current C2 Rule 6.13(c)(6)). The System cancels or rejects any COA-eligible order (or unexecuted portion) that does not execute at the end of the COA if not eligible for entry into the COB or in accordance with the User’s instructions. Once in the COB, the order may execute pursuant to proposed paragraph (e) following evaluation pursuant to proposed paragraph (i), both as described below, and remain on the COB until they execute or are cancelled or rejected. These provisions are substantively the same as EDGX Rule 21.20(d)(5)(A) and (B). Proposed Rule 6.13(e) describes how the System will handle do-not-COA orders (i.e. orders that do not initiate a COA upon entry to the System) and orders resting in the COB. Upon receipt of a do-not-COA order, or if the System determines an order resting on the COB is eligible for execution following evaluation as described below, the System executes it (in whole or in part) against contra side interest in price priority. If there is contra side interest at the same price, the System allocates the contra side interest as follows: (1) Orders and quotes in the Simple Book for the individual leg components of the complex order through Legging (as described below), which the System allocates in accordance with the priority in proposed Rule 6.12(a) applicable to the class. (2) Complex orders resting on the COB, which the System allocates in accordance with the priority in proposed Rule 6.12(a) applicable to the class. PO 00000 Frm 00019 Fmt 4701 Sfmt 4703 22813 The System enters any do-not-COA order (or unexecuted portion) that cannot execute against the individual leg markets or complex orders into the COB (if eligible for entry), and applies a timestamp based on the time it enters the COB. The System cancels or rejects any do-not-COA order (or unexecuted portion) that would execute at a price outside of the SBBO, if not eligible for entry into the COB, or in accordance with the User’s instructions. Complex orders resting on the COB may execute pursuant to proposed paragraph (e) following evaluation pursuant to proposed paragraph (i), both as described below, and remain on the COB until they execute or are cancelled or rejected. The proposed rule change is similar to current C2 Rule 6.13(b)(1). Additionally, the proposed rule change is substantively the same as EDGX Rule 21.20(c)(3)(B) and (5)(D), except for the priority of execution. As discussed above, on C2, complex orders will trade against the leg markets ahead of the COB (including customer orders), but will not prioritize customer orders on the leg markets. As discussed above, this is consistent with C2’s allocation, which provides no customer priority. Proposed Rule 6.13(f)(1) states the minimum increment for bids and offers on a complex order is $0.01, and the components of a complex order may be executed in $0.01 increments, regardless of the minimum increments otherwise applicable to the individual components of the complex order. This is consistent with current and proposed Rule 6.4. Proposed Rule 6.13(f)(2) provides the System does not execute a complex order pursuant to Rule 6.13 at a net price (1) that would cause any component of the complex strategy to be executed at a price of zero, (2) worse than the SBBO, (3) that would cause any component of the complex strategy to be executed at a price worse than the individual component price on the Simple Book, (4) worse than the price that would be available if the complex order Legged into the Simple Book, or (5) ahead of orders on the Simple Book without improving the BBO on at least one component by at least $0.01. The System executes complex orders without consideration of any prices for the complex strategy that might be available on other exchanges trading the same complex strategy; provided, however, that such complex order price may be subject to the drill-through price protection described below. This is substantively the same as EDGX Rule 21.20(c). However, because complex orders will execute against the leg markets (including customer orders on E:\FR\FM\16MYN2.SGM 16MYN2 sradovich on DSK3GMQ082PROD with NOTICES2 22814 Federal Register / Vol. 83, No. 95 / Wednesday, May 16, 2018 / Notices the legs) prior to executing against complex orders at the same price, complex orders will not execute ahead of a customer order on the legs. Additionally, this provision is substantively the same as current C2 Rules 6.12(g) and 6.13(c)(5). Proposed paragraph (g) adopts restrictions on the ability of complex orders to Leg into the Simple Book. Specifically, a complex order may Leg into the Simple Book pursuant to proposed subparagraphs (d)(5)(A)(i) and (e)(i), subject to the restrictions in proposed paragraph (g), if it can execute in full or in a permissible ratio and if it has no more than a maximum number of legs (which the Exchange determines on a class-by-class basis and may be two, three or four), subject to the following restrictions: (1) All two leg COA-eligible Customer complex orders may Leg into the Simple Book without restriction. (2) Complex orders for any other Capacity with two option legs that are both buy or both sell and that are both calls or both puts may not Leg into the Simple Book. These orders may execute against other complex orders on the COB. (3) All complex orders with three or four option legs that are all buy or all sell (regardless of whether the option legs are calls or puts) may not Leg into the Simple Book. These orders may execute against other complex orders on the COB. The proposed rule change is substantively the same as EDGX Rule 21.20(c)(2)(F), except it does not include restrictions related to Customer orders, because Customer priority will not apply on C2. These restrictions serve the same purpose as the protection included in current C2 Rule 6.13(c)(2)(A), which is to ensure that Market-Makers providing liquidity do not trade above their established risk tolerance levels. Currently, liquidity providers (typically Market Makers, though such functionality is not currently limited to registered Market Makers) in the Simple Book are protected by way of the Risk Monitor Mechanism by limiting the number of contracts they execute as described above. The Risk Monitor Mechanism allows Market-Makers and other liquidity providers to provide liquidity across potentially hundreds of options series without executing the full cumulative size of all such quotes before being given adequate opportunity to adjust the price and/or size of their quotes. All of a participant’s quotes in each option class are considered firm until such time as the Risk Monitor Mechanism’s threshold has been VerDate Sep<11>2014 18:43 May 15, 2018 Jkt 244001 equaled or exceeded and the participant’s quotes are removed by the Risk Monitor Mechanism in all series of that option class. Thus the Legging of complex orders presents higher risk to Market-Makers and other liquidity providers as compared to simple orders being entered in multiple series of an options class in the simple market, as it can result in such participants exceeding their established risk thresholds by a greater number of contracts. Although Market-Makers and other liquidity providers can limit their risk through the use of the Risk Monitor Mechanism, the participant’s quotes are not removed until after a trade is executed. As a result, because of the way complex orders leg into the regular market as a single transaction, MarketMakers and other liquidity providers may end up trading more than the cumulative risk thresholds they have established, and are therefore exposed to greater risk. The Exchange believes that Market Makers and other liquidity providers may be compelled to change their quoting and trading behavior to account for this additional risk by widening their quotes and reducing the size associated with their quotes, which would diminish the Exchange’s quality of markets and the quality of the markets in general. Proposed Rule 6.13(h) contains additional provisions regarding the handling of complex orders: • A complex market order or a limit order with a price that locks or crosses the then-current opposite side SBBO and does not execute because the SBBO is the best price but not available for execution (because it does not satisfy the complex order ratio or the complex order cannot Leg into the Simple Book) enters the COB with a book and display price that improves the then-current opposite side SBBO by $0.01. If the SBBO changes, the System continuously reprices the complex order’s book and display price based on the new SBBO (up to the limit price, if it is a limit order), subject to the drill-through price protection described in Rule 6.14(b), until: (A) The complex order has been executed in its entirety; or (B) the complex order (or unexecuted portion) of the complex order is cancelled or rejected. This provision is substantively the same as EDGX Rule 21.20(c)(4) and (6), except it improves the SBBO by $0.01 in all cases. This is consistent with the proposed C2 rule to trade with the leg markets ahead of the COB. The purpose of using the calculated SBBO is to enable the System to determine a valid trading price range for complex strategies and to protect orders resting on the Simple Book by ensuring that PO 00000 Frm 00020 Fmt 4701 Sfmt 4703 they are executed when entitled. Additionally, this process ensures the System will not execute any component of a complex order at a price that would trade through an order on the Simple Book. The Exchange believes that this is reasonable because it prevents the components of a complex order from trading at a price that is inferior to a price at which the individual components may be traded on the Exchange or ahead of the leg markets. • If there is a zero NBO for any leg, the System replaces the zero with a price $0.01 above NBB to calculate the SNBBO, and complex orders with any buy legs do not Leg into the Simple Book. If there is a zero NBB, the System replaces the zero with a price of $0.01, and complex orders with any sell legs do not Leg into the Simple Book. If there is a zero NBB and zero NBO, the System replaces the zero NBB with a price of $0.01 and replaces the zero NBO with a price of $0.02, and complex orders do not Leg into the Simple Book. The SBBO and SNBBO may not be calculated if the NBB or NBO is zero (as noted above, if the best bid or offer on the Exchange is not available, the System uses the NBB or NBO when calculating the SBBO). As discussed above, permissible execution prices are based on the SBBO. If the SBBO is not available, the System cannot determine permissible posting or execution pricing for a complex order (which are based on the SBBO), which could reduce execution opportunities for complex orders. If the System were to use the zero bid or offer when calculating the SBBO, it may also result in executions at erroneous prices (since there is no market indication for the price at which the leg should execute). For example, if a complex order has a buy leg in a series with no offer, there is no order in the leg markets against which this leg component could execute. This is consistent with functionality on EDGX, and the proposed rule change is merely including this detail in the C2 rules. This is also consistent with the proposed rule change (and EDGX rule) that states complex order executions are not permitted if the price of a leg would be zero. Additionally, this is similar to the proposed rule change described above to improve the posting price of a complex order by $0.01 if it would otherwise lock the SBBO. The proposed rule change is a reasonable process to ensure complex orders receive execution opportunities, even if there is no interest in the leg markets.39 39 Cboe Options Rule 6.13(b)(vi) states if a market order is received when the national best bid in a series is zero, if the Exchange best offer is less than E:\FR\FM\16MYN2.SGM 16MYN2 sradovich on DSK3GMQ082PROD with NOTICES2 Federal Register / Vol. 83, No. 95 / Wednesday, May 16, 2018 / Notices Proposed Rule 6.13(i) states the System evaluates an incoming complex order upon receipt after the open of trading to determine whether it is a COA-eligible order or a do-not-COA order and thus whether it should be processed pursuant to proposed paragraph (d) or (e), respectively. The System also re-evaluates a complex order resting on the COB (including an order (or unexecuted portion) that did not execute pursuant to proposed paragraph (d) or (e) upon initial receipt) (1) at time the COB opens, (2) following a halt, and (3) during the trading day when the leg market price or quantity changes to determine whether the complex order can execute (pursuant to proposed Rule 6.13(e) described above), should be repriced (pursuant to proposed paragraph (h)), should remain resting on the COB, or should be cancelled. This is consistent with EDGX Rule 21.20(c)(2)(G) and (c)(5). This evaluation process ensures that the System is monitoring and assessing the COB for incoming complex orders, and changes in market conditions or events that cause complex orders to reprice or execute, and conditions or events that result in the cancellation of complex orders on the COB. This ensures the integrity of the Exchange’s System in handling complex orders and results in a fair and orderly market for complex orders on the Exchange. Proposed Rule 6.13(j) states the System cancels or rejects a complex market order it receives when the underlying security is subject to a limit up-limit down state, as defined in Rule 6.39. If during a COA of a COA-eligible market order, the underlying security enters a limit up-limit down state, the System terminates the COA without trading and cancels or rejects all COA Responses. This is consistent with handling of simple market orders during a limit up-limit down state, and is substantively the same as EDGX Rule 21.20(d)(8) and current Rule 6.13(c)(9). Proposed Rule 6.13(k) describes the impact of trading halts on the trading of complex orders. If a trading halt exists for the underlying security or a component of a complex strategy, trading in the complex strategy will be suspended. The System queues a Trading Permit Holder’s open orders during a Regulatory Halt, unless the Trading Permit Holder entered or equal to $0.50, the Cboe Options system enters the market order into the book as a limit order with a price equal to the minimum trading increment for the series. Similar to the proposed rule change, this is an example of an exchange modifying an order price to provide execution opportunities for the order when there is a lack of contra-side interest when the order is received by the exchange. VerDate Sep<11>2014 18:43 May 15, 2018 Jkt 244001 22815 instructions to cancel its open complex orders upon a Regulatory Halt, for participation in the re-opening of the COB as described below. A Trading Permit Holder’s complex orders are cancelled unless the Trading Permit Holder instructed the Exchange not to cancel its orders. The COB will remain available for Users to enter and manage complex orders that are not cancelled. Incoming complex orders that could otherwise execute or initiate a COA in the absence of a halt will be placed on the COB. Incoming complex orders with a time in force of IOC will be cancelled or rejected. If, during a COA, any component(s) and/or the underlying security of a COA-eligible order is halted, the COA ends early without trading and all COA Responses are cancelled or rejected. Remaining complex orders will be placed on the COB if eligible or will be cancelled. When trading in the halted component(s) and/or underlying security of the complex order resumes, the System will re-open the COB pursuant to proposed paragraph (c) (as described above). The System queues any complex orders designated for a reopening following a halt until the halt has ended, at which time they are eligible for execution in the Opening Process. This proposed rule change regarding the handling of complex orders during a trading halt is substantively the same as EDGX Rule 21.20, Interpretation and Policy .05. The Exchange believes the proposed provisions described above regarding complex order handling and executions provide a framework that will enable the efficient trading of complex orders in a manner that is similar to current C2 functionality and substantively the same as EDGX functionality. As described above, complex order executions are designed to work in concert with a priority of allocation that continues to respect the priority of allocations on the Simple Book while protecting orders in the Simple Book. Proposed Interpretation and Policy .01 states Market-Makers are not required to quote on the COB. Complex strategies are not subject to any quoting requirements applicable to MarketMakers in the simple market. The Exchange does not take into account Market-Makers’ volume executed in complex strategies when deterring whether Market-Makers meet their quoting obligations in the simple market. This codifies current C2 practice and is identical to EDGX Rule 21.20, Interpretation and Policy .01.40 The proposed rule change deletes current Rule 6.13, Interpretation and Policy .02, which describes how orders resting on the COB may initiate a COA under certain conditions. This ‘‘reCOA’’ functionality will not be available on C2 following the technology migration. However, as described above, the System continuously evaluates orders resting on the COB for execution opportunities against incoming complex orders or orders in the leg markets. Pursuant to EDGX Rule 21.20(c)(5)(B), continual evaluation of orders on the COB does not determine whether orders may be subject to another COA. Therefore, the proposed rule change is consistent with EDGX rules, which do not permit ‘‘re-COA.’’ Proposed Interpretation and Policy .02 states a Trading Permit Holder’s dissemination of information related to COA-eligible orders to third parties or a pattern or practice of submitting orders that cause a COA to conclude early will be deemed conduct inconsistent with just and equitable principles of trade and a violation of Rule 4.1. This combines EDGX Rule 21.20, Interpretation and Policy .02 and current C2 Rule 6.13, Interpretation and Policy .03 into a single provision regarding behavior related to COAs that may be deemed inconsistent with just and equitable principles of trade. Stock-option orders will not be available on C2 following the technology migration, so the proposed rule change deletes all provisions related to, and references to, stockoption orders from Rule 6.13 (including Interpretation and Policy .06) and elsewhere in the Rules. Stock-option order functionality is not currently available on C2, so this proposed rule change will have no impact on C2 market participants. As discussed above, proposed Rule 6.13 regarding complex orders is substantially the same as EDGX Rule 21.20 or current Rule 6.13, except for provisions related to priority, as C2 will not have customer priority. Proposed Rule 6.13 has nonsubstantive differences compared to EDGX Rule 21.20, which differences are intended to simplify the description of complex orders, re-organize the provisions, and eliminate duplicative language. Current C2 Rule 6.14 describes SAL, an electronic auction mechanism that provides price improvement for simple orders. Pursuant to this rule, the Exchange may determine whether to make SAL available on C2. The proposed rule change deletes this rule 40 The proposed rule change deletes current C2 Rule 6.13, Interpretation and Policy .01 regarding determinations made by the Exchange, which is being replaced by proposed Rule 1.2. PO 00000 Frm 00021 Fmt 4701 Sfmt 4703 E:\FR\FM\16MYN2.SGM 16MYN2 22816 Federal Register / Vol. 83, No. 95 / Wednesday, May 16, 2018 / Notices (and makes conforming changes throughout the rules, including deleting references to SAL and Rule 6.14), as this functionality will not be available on C2 following the technology migration. Currently, the Exchange has not made SAL available for any classes on C2. Proposed C2 Rule 6.14 consolidates all order and quote price protection mechanisms and risk controls into a single rule, and states the System’s acceptance and execution of orders and quotes pursuant to the Rules, including proposed Rules 6.11 through 6.13, are subject to the price protection mechanisms and risk controls in proposed Rule 6.14. Proposed Rule 6.14 categorizes these mechanisms and controls as ones applicable to simple orders (proposed paragraph (a)), complex orders (proposed paragraph (b)), and all (i.e. simple and complex) orders (proposed paragraph (c)). The following table identifies the current price protection mechanism and risk control, the current C2 Rule, the proposed C2 Rule, the corresponding EDGX rule (if any), and any proposed changes: Current C2 rule Proposed C2 rule EDGX rule Proposed changes Handling of market orders received in no-bid series. 6.12(h) ........ 6.14(a)(1) ... N/A ...................... Market order NBBO width protection. 6.17(a)(1) ... 6.14(a)(2) ... 21.17(a) .............. Buy order put check. 6.17(d) ........ 6.14(a)(3) ... 21.17(c) ............... Drill-through protection (simple). 6.17(a)(2) ... 6.14(a)(4) ... 21.17(d) .............. Definitions of vertical spread, butterfly spread, and box spread. Credit-to-debit parameters. Debit/credit price reasonability checks. 6.13.04 ....... 6.14(b)(1) ... 21.20.04(a) ......... Pursuant to the proposed rule change, the System cancels or rejects a market order if there is no-bid and the Exchange best offer is less than or equal to $0.50. Under current functionality, the System would treat the sell order as a limit order with a price equal to the minimum increment in this situation. The proposed rule change also expands the same protection to market orders in no-offer series. The Exchange believes the proposed rule change will provide protection for these orders to prevent execution at potentially erroneous prices when a market order is entered in a series with no bid or offer. The proposed functionality is generally the same as current functionality, except the acceptable amount away from NBBO a market order may execute will be determined by a percentage away from the NBBO midpoint (subject to a minimum and maximum dollar amount) rather than specified dollar ranges based on premium, providing the Exchange with flexibility it believes appropriate given previous experience with risk controls. The proposed rule change will apply to market order executions during the Opening Process, and deletes the call underlying value check in current Rule 6.17(d)(1)(B), as this functionality will not be available on C2’s new system following the technology migration. The proposed rule change also deletes references to auctions because C2 will have no simple order auctions following the migration. The proposed functionality is generally the same as current functionality, except the drill-through amount is a buffer amount determined by class and premium rather than a number ticks. The proposed rule change deletes the distinction between orders exposed via SAL or HAL, as those auction mechanisms will not be available on C2’s new system following the technology migration. The proposed functionality applies to Day orders, as well as GTD and GTC orders that reenter the Book from the prior trading day, but not IOC or FOK, as resting in the Book for a period of time is inconsistent with their purpose (which is to cancel if not executed immediately). No substantive changes. 6.13.04(b) ... 6.14(b)(2) ... 21.20.04(b) ......... No substantive changes. 6.13.04(c) ... 6.17(b)(3) ... 21.20.04(c) .......... Buy strategy parameters. 6.13.04(d) ... 6.17(b)(4) ... 21.20.04(d) ......... Maximum value acceptable price range. sradovich on DSK3GMQ082PROD with NOTICES2 Price protection/ risk control 6.13.04(h) ... 6.17(b)(5) ... 21.20.04(e) ......... The proposed functionality is generally the same as current functionality, except the acceptable price is subject to a pre-set buffer amount, which flexibility is consistent with EDGX functionality. The proposed rule change also makes an additional change to conform to a Cboe Options rule, as described below. The proposed functionality is generally the same as current functionality, except the net credit price is subject to a buffer amount (consistent with EDGX functionality). The proposed rule change deletes the mechanism’s applicability to sell strategies, as that functionality will not be available on C2 following the technology migration. The proposed functionality is generally the same as current functionality, except the price range is calculated using a buffer amount (consistent with EDGX functionality) rather than a percentage amount. VerDate Sep<11>2014 18:43 May 15, 2018 Jkt 244001 PO 00000 Frm 00022 Fmt 4701 Sfmt 4703 E:\FR\FM\16MYN2.SGM 16MYN2 Federal Register / Vol. 83, No. 95 / Wednesday, May 16, 2018 / Notices Proposed C2 rule EDGX rule Proposed changes Drill-through proN/A ............. tection (complex). 6.17(b)(6) ... 21.20.04(f) .......... Limit Order Fat Finger Check. 6.13.04(g) and 6.17(b). 6.14(c)(1) ... 21.17(b) and 21.20, Interpretation and Policy .06. Maximum contract size. 6.17(h) ........ 6.14(c)(2) ... N/A ...................... Maximum notional value. N/A ............. 6.14(c)(3) ... Technical specifications. Daily risk limits ...... sradovich on DSK3GMQ082PROD with NOTICES2 Price protection/ risk control N/A ............. 6.14(c)(4) ... Technical specifications. Risk monitor mechanism. 6.17(g) and 8.12. 6.14(c)(5) ... 6.36 ..................... The proposed functionality is generally the same as current functionality that applies to simple orders, and expands it to complex orders. The proposed rule change replaces market width parameter protection and acceptable percentage range parameter in current Rule 6.13.04(a) and (e), respectively, which currently protect C2 complex orders from executing at potentially erroneous prices too far away from the order’s price or the market’s best price. The proposed rule is substantially similar to EDGX Rule 21.20(c)(2)(E), except as follows: (1) The proposed rule change adds the concept that a COA-eligible order would initiate a COA at the drill-through price (this is consistent with current EDGX functionality and is additional detail in the C2 Rules) (the prices for complex strategy executions may be subject to the drill-through protection, which is intended to capture the concept that the price of a COA may be impacted by the drill-through protection; the proposed rule change makes this explicit in the C2 rules); and (2) describes how a change in the SBBO prior to the end of the time period but the complex order cannot Leg, and the new SBO (SBB) crosses the drillthrough price, the System changes the displayed price of the complex order to the new SBO (SBB) minus (plus) $0.01, and the order will not be cancelled at the end of the time period (consistent with EDGX functionality, and the proposed rule change adds this detail to the C2 Rules). The proposed rule change merely permits an order to remain on the COB since the market reflects interest to trade (but not currently executable due to Legging Restrictions) that was not there was not at the beginning of the time period, providing additional execution opportunities prior to cancellation. The proposed functionality is generally the same as current functionality, except the amount away from the NBBO a limit order price may be is a buffer amount rather than a number of ticks with no minimum, and Exchange may determine whether the check applies to simple orders prior to the conclusion of the Opening Process (current rules codify pre-open application), providing the Exchange with flexibility it believes appropriate given previous experience with risk controls. The proposed rule change does not apply to GTC or GTD orders that reenter the Book from the prior trading day, as this check only applies to orders when the System receives them. The proposed rule change provides Users with ability to set a different buffer amount to accommodate its own risk modeling; does not apply to adjusted series prior to the Opening Process, as prices may reflect the corporate action for the underlying but the previous day’s NBBO would not reflect that action. If the check applies prior to the Opening Process, the System compares the order’s price to the midpoint of the NBBO rather than the previous day’s closing price, which the Exchange believes is another reasonable price comparison; will no longer exclude ISOs, which is consistent with EDGX functionality. The proposed functionality is generally the same as current functionality, except the Exchange will set a default amount rather than permit User to set amount. The proposed rule change applies per port rather than acronym or login. The functionality to cancel a resting order or quote if replacement order or quote is entered will not be available on C2 following the technology migration (however, a User can enable cancel on reject functionality described below to receive same result). Voluntary functionality similar to maximum contract size, except the System cancels or rejects an incoming order or quote with a notional value that exceeds the maximum notional value a User establishes for each of its ports. The proposed rule change provides an additional, voluntary control for Users to manage their order and execution risk on C2. Voluntary functionality pursuant to which a User may establish limits for cumulative notional booked bid (‘‘CBB’’) or offer (‘‘CBO’’) value, and cumulative notional executed bid (‘‘CEB’’) or offer (‘‘CEO’’) value for each of its ports on a net or gross basis, or both, and may establish limits for market or limit orders (counting both simple and complex), or both. If a User exceeds a cutoff value (by aggregating amounts across the User’s ports), the System cancels or rejects incoming limit or market orders, or both, as applicable.41 Similar functionality to current C2 quote risk monitor and order entry, execution, and price parameter rate checks, which will not be available on C2 following the technology migration (discussed below) [sic]. VerDate Sep<11>2014 Current C2 rule 22817 18:43 May 15, 2018 Jkt 244001 PO 00000 Frm 00023 Fmt 4701 Sfmt 4703 E:\FR\FM\16MYN2.SGM 16MYN2 22818 Federal Register / Vol. 83, No. 95 / Wednesday, May 16, 2018 / Notices Current C2 rule Proposed C2 rule Cancel on reject .... N/A ............. 6.14(c)(6) ... Technical specifications. Kill switch .............. 6.17(i) ......... 6.14(c)(7) ... 22.11 ................... Cancel on disconnect. 6.48 ............ 6.14(c)(8) ... Technical specifications. Block new orders .. N/A ............. N/A ............. 22.11 ................... Duplicate order protection. sradovich on DSK3GMQ082PROD with NOTICES2 Price protection/ risk control N/A ............. N/A ............. Technical specifications. The proposed rule change deletes the mechanisms related to execution of quotes that lock or cross the NBBO and quotes inverting the NBBO. Since there will be no separate order and quote functionality, orders submitted by Market-Makers will be subject to the protections described above. Under the current EDGX debit/credit price reasonability check (see EDGX Rule 21.20.04(c)), the System only pairs calls (puts) if they have the same expiration date but different exercise prices or the same exercise price but different expiration dates. Under the current C2 debit/credit reasonability check, with respect to pairs with different expiration the System pairs of calls (puts) with different expiration dates if the exercise price for the call (put) with the farther expiration date is lower (higher) than the exercise price for the nearer expiration date in addition to those with different expiration dates and the same exercise price. The proposed rule change amends this check to pair orders in the same manner as EDGX, which is to pair calls (puts) if they have the same expiration 41 The System calculates a notional cutoff on a gross basis by summing CBB, CBO, CEB, and CEO. The System calculates a notional cutoff on a net basis by summing CEO and CBO, then subtracting the sum of CEB and CBB, and then taking the absolute value of the resulting amount. VerDate Sep<11>2014 18:43 May 15, 2018 Jkt 244001 EDGX rule Proposed changes Additional, voluntary control for Users to manage their order and execution risk on C2, pursuant to which the System cancels a resting order or quote if the System rejects a cancel or modification instruction (because, for example, it had an invalid instruction) for that resting order or quote. The proposed rule change is consistent with the purpose of a cancel or modification, which is to cancel the resting order or quote, and carries out this purpose despite an erroneous instruction on the cancel/modification message. The proposed functionality is generally the same as current functionality, except Users may apply it to different categories of orders by EFID rather than acronym or login (consistent with new System functionality), and block of incoming orders or quotes is a separate request by Users. The proposed functionality is generally the same as current technical disconnect functionality, except it is the same for both APIs on the new C2 system. The proposed rule change will continue to protect Users against erroneous executions if it appears they are experiencing a system disruption. The proposed functionality will no longer provide TPHs with ability to determine length of interval, but does provide additional flexibility with respect to which order types may be cancelled—current functionality permits a choice of market-maker quotes and day orders, while the proposed functionality permits a choice of day and GTC/GTD orders, or just day orders. Similar to automatic functionality that occurs on C2 currently when a Trading Permit Holder uses kill switch functionality. The proposed rule change merely provides a separate way to achieve this result on the new System, providing Users with flexibility regarding how to manage their resting orders and quotes. Additional, voluntary control for Users to manage their order and execution risk on C2. The proposed rule change protects Users against execution of multiple orders that may have been erroneously entered. date but different exercise prices or the same exercise price but different expiration dates. Additionally, the proposed rule change deletes the exception for complex orders with European-style exercise. The Exchange no longer believes this exception is necessary and will expand this check to index options with all exercise styles. The proposed Risk Monitor Mechanism is substantively the same as the functionality currently available on EDGX. Because there will no longer be separate order and quote functionality on C2 following the technology migration, there will no longer be separate mechanisms to monitor entry and execution rates, as there are on C2 today. Each User may establish limits for the following parameters in the Exchange’s counting program. The System counts each of the following within a class (‘‘class limit’’) and across all classes for an EFID (‘‘firm limit’’) over a User-established time period (‘‘interval’’) on a rolling basis up to five minutes (except as set forth in (iv) below) and on an absolute basis for a trading day (‘‘absolute limits’’): (i) Number of contracts executed (‘‘volume’’); (ii) notional value of executions (‘‘notional’’); PO 00000 Frm 00024 Fmt 4701 Sfmt 4703 (iii) number of executions (‘‘count’’); and (iv) number of contracts executed as a percentage of number of contracts outstanding within an Exchangedesignated time period or during the trading day, as applicable (‘‘percentage’’), which the System determines by calculating the percentage of a User’s outstanding contracts that executed on each side of the market during the time period or trading day, as applicable, and then summing the series percentages on each side in the class. When the System determines the volume, notional, count, or percentage: (i) Exceeds a User’s class limit within the interval or the absolute limit for the class, the Risk Monitor Mechanism cancels or rejects such User’s orders or quotes in all series of the class and cancels or rejects any additional orders or quotes from the User in the class until the counting program resets (as described below). (ii) exceeds a User’s firm limit within the interval or the absolute limit for the firm, the Risk Monitor Mechanism cancels or rejects such User’s orders or quotes in all classes and cancels or rejects any additional orders or quotes from the User in all classes until the counting program resets (as described below). E:\FR\FM\16MYN2.SGM 16MYN2 sradovich on DSK3GMQ082PROD with NOTICES2 Federal Register / Vol. 83, No. 95 / Wednesday, May 16, 2018 / Notices The Risk Monitor Mechanism will also attempt to cancel or reject any orders routed away to other exchanges. The System processes messages in the order in which they are received. Therefore, it will execute any marketable orders or quotes that are executable against a User’s order or quote and received by the System prior to the time the Risk Monitor Mechanism is triggered at the price up to the size of the User’s order or quote, even if such execution results in executions in excess of the User’s parameters. The System will not accept new orders or quotes from a User after a class limit is reached until the User submits an electronic instruction to the System to reset the counting program for the class. The System will not accept new orders or quotes from a User after a firm limit is reached until the User manually notifies the Trade Desk to reset the counting program for the firm, unless the User instructs the Exchange to permit it to reset the counting program by submitting an electronic message to the System. The Exchange may restrict the number of User class and firm resets per second. The System counts executed COA responses as part of the Risk Monitor Mechanism. The System counts individual trades executed as part of a complex order when determining whether the volume, notional, or count limit has been reached. The System counts the percentage executed of a complex order when determining whether the percentage limit has been reached. The Risk Monitor Mechanism providers Users with similar ability to manage their order and execution risk to the quote risk monitor and rate checks currently available on C2. It merely uses different parameters and modifies the functionality to conform C2’s new System. With respect to various price protections and risk controls in current Rules 6.13, Interpretation and Policy .04, and 6.17, the Exchange has the authority to provide intraday relief by widening or inactivating one or more of the parameter settings for the mechanisms in those rules. This authority is included in proposed Interpretation and Policy .01, to provide this flexibility for all price protections and risk controls for which the Exchange sets parameters, providing the Exchange with flexibility it believes appropriate given previous experience with risk controls. The Exchange will continue to make and keep records to document all determinations to grant intraday relief, and periodically review these determinations for consistency VerDate Sep<11>2014 18:43 May 15, 2018 Jkt 244001 with the interest of a fair and orderly market. The proposed rule change moves the provision regarding the Exchange’s ability to share User-designated risk settings in the System with a Clearing Trading Permit Holder that clears Exchange transactions on behalf of the User from the introduction of current Rule 6.17 to proposed Rule 6.14, Interpretation and Policy .02. Proposed Rule 6.15 replaces current Rule 6.36 regarding routing of orders to other exchanges. C2 will continue to support orders that are designated to be routed to the NBBO as well as orders that will execute only within C2 (as discussed above). Orders designated to execute at the NBBO will be routed to other options markets for execution when the Exchange is not at the NBBO, consistent with the Options Order Protection and Locked/Crossed Market Plan. Subject to the exceptions contained in Rule 6.81, the System will ensure that an order will not be executed at a price that trades through another options exchange. An order that is designated by a Trading Permit Holder as routable will be routed in compliance with applicable TradeThrough restrictions. Any order entered with a price that would lock or cross a Protected Quotation that is not eligible for either routing, or the Price Adjust process described above, will be cancelled. Proposed Rule 6.15 states for System securities, the order routing process is available to Users from 9:30 a.m. until market close. Users can designate an order as either available or not available for routing. Orders designated as not available for routing (either Book Only or Post Only) are processed pursuant to Rule 6.12. For an order designated as available for routing, the System first checks for the Book for available contracts for execution against the order pursuant to Rule 6.12. Unless otherwise instructed by the User, the System then designates the order (or unexecuted portion) as IOC and routes it to one or more options exchanges for potential execution, per the User’s instructions. After the System receives responses to the order, to the extent it was not executed in full through the routing process, the System processes the order (or unexecuted portion) as follows, depending on parameters set by the User when the incoming order was originally entered: • Cancels the order (or unexecuted portion) back to the User; • posts the unfilled balance of the order to the Book, subject to the Price Adjust process described in proposed Rule 6.12(b), if applicable. [sic] PO 00000 Frm 00025 Fmt 4701 Sfmt 4703 22819 • repeats the process described above by executing against the Book and/or routing to the other options exchanges until the original, incoming order is executed in its entirety; • repeats the process described above by executing against the Book and/or routing to the other options exchanges until the original, incoming order is executed in its entirety, or, if not executed in its entirety and a limit order, posts the unfilled balance of the order on the Book if the order’s limit price is reached; or • to the extent the System is unable to access a Protected Quotation and there are no other accessible Protected Quotations at the NBBO, cancels or rejects the order back to the User, provided, however, that this provision does not apply to Protected Quotations published by an options exchange against which the Exchange has declared self-help. Currently, C2 automatically routes intermarket sweep orders, consistent with the definition in Rule 6.80(8). This routing process is functionally equivalent to the current C2 routing process, and referred to as SWPA and is specifically described in proposed Rule 6.15(a)(2)(B). Specifically, SWPA is a routing option (which will be the default routing option following migration, and thus, if no other routing option is specified by a User, a User’s order subject to routing will be handled in the same way it is today). Following the technology migration, C2 will offer additional routing options identical to the routing options offered by EDGX.42 Routing options may be combined with all available Order Instructions and Times-in-Force, with the exception of those whose terms are inconsistent with the terms of a particular routing option. The System considers the quotations only of accessible markets. The term ‘‘System routing table’’ refers to the proprietary process for determining the specific options exchanges to which the System routes orders and the order in which it routes them. The Exchanges reserves the right to maintain a different System routing table for different routing options and to modify the System routing table at any time without notice. These additional routing 42 Users may mark orders as eligible for routing (with one of the four proposed routing instructions) or not eligible for routing (with either a Book Only or Post Only instruction). Separately, both routable and non-routable orders may be marked with repricing instructions (either Price Adjust (single or multiple) and Cancel Back), which instruction the System will apply when it receives the order from the User or receives any unexecuted portion of an order upon returning from routing. E:\FR\FM\16MYN2.SGM 16MYN2 sradovich on DSK3GMQ082PROD with NOTICES2 22820 Federal Register / Vol. 83, No. 95 / Wednesday, May 16, 2018 / Notices options are ROUT, destination specific, and directed ISO: • ROUT is a routing option under which the System checks the Book for available contracts to execute against an order and then sends it to destinations on the System routing table. A User may select either Route To Improve (‘‘RTI’’) or Route To Fill (‘‘RTF’’) for the ROUT routing option. RTI may route to multiple destinations at a single price level simultaneously while RTF may route to multiple destinations and at multiple price levels simultaneously. • Destination specific is a routing option under which the System checks the Book for available contracts to execute against an order and then sends it to a specific away options exchange. • Directed ISO is a routing option under which the System does not check the Book for available contracts and sends the order to another options exchange specified by the User. It is the enter Trading Permit Holder’s responsibility, not the Exchanges responsibility, to comply with the requirements relating to Intermarket Sweep Orders. The Exchange also proposes to offer two options for Re-Route instructions, Aggressive Re-Route and Super Aggressive Re-Route, either of which can be assigned to routable orders: • Pursuant to the Aggressive Re-Route instruction, if the remaining portion of a routable order has been posted to the Book pursuant proposed paragraph (a)(1) above, if the order’s price is subsequently crossed by the quote of another accessible options exchange, the System routes the order to the crossing options exchange if the User has selected the Aggressive Re-Route instruction. • Pursuant to the Super Aggressive Re-Route instruction, to the extent the unfilled balance of a routable order has been posted to the Book pursuant to subparagraph (a)(1) above, if the order’s price is subsequently locked or crossed by the quote of another accessible options exchange, the System routes the order to the locking or crossing options exchange if the User has selected the Super Aggressive Re-Route instruction. Proposed Rule 6.15(b) states the System does not rank or maintain in the Book pursuant to Rule 6.12 orders it has routed to other options exchanges, and therefore those orders are not available to execute against incoming orders. Once routed by the System, an order becomes subject to the rules and procedures of the destination options exchange including, but not limited to, order cancellation. If a routed order (or unexecuted portion) is subsequently returned to the Exchange, the order (or VerDate Sep<11>2014 18:43 May 15, 2018 Jkt 244001 unexecuted portion), the order receives a new time stamp reflected the time the System receives the returned order. Proposed Rule 6.15(c) states Users whose orders are routed to other options exchanges must honor trades of those orders executed on other options exchanges to the same extent they would be required to honor trades of those orders if they had executed on the Exchange. These provisions are consistent with current C2 functionality, and the proposed rule change adds this detail to the C2 Rules. They are also substantively the same as EDGX Rule 21.9(b) and (c). C2 will route orders in options via Cboe Trading, which will serve as the Outbound Router of the Exchange, as discussed above. The Outbound Router will route orders in options listed and open for trading on C2 to other options exchanges pursuant to C2 Rules solely on behalf of C2. The Outbound Router is subject to regulation as a facility of the Exchange, including the requirement to file proposed rule changes under Section 19 of the Exchange Act. Use of Cboe Trading or Routing Services as described below to route orders to other market centers is optional. Parties that do not desire to use Cboe Trading or other Routing Services provided by the Exchange must designate orders as not available for routing. In the event the Exchange is not able to provide Routing Services through its affiliated broker-dealer, the Exchange will route orders to other options exchanges in conjunction with one or more routing brokers that are not affiliated with the Exchange. C2 does not currently have an affiliated brokerdealer that provides routing services, and thus it currently routes orders to other options exchanges in conjunction with one or more routing brokers not affiliated with the Exchange, as provided in current Rule 6.36(a). In connection with Routing Services, the same conditions will apply to routing brokers that currently apply to C2 routing brokers pursuant to current Rule 6.36(a) (which are proposed to be moved to Rule 6.15(e)) and are the same as EDGX Rule 21.9(e). Proposed Rule 6.15(f) states in addition to the Rules regarding routing to away options exchanges, Cboe Trading has, pursuant to Rule 15c3–5 under the Exchange Act, implemented certain tests designed to mitigate the financial and regulatory risks associated with providing Trading Permit Holders with access to away options exchanges. Pursuant to the policies and procedures developed by Cboe Trading to comply with Rule 15c3–5, if an order or series PO 00000 Frm 00026 Fmt 4701 Sfmt 4703 of orders are deemed to be erroneous or duplicative, would cause the entering Trading Permit Holder’s credit exposure to exceed a preset credit threshold, or are noncompliant with applicable pretrade regulatory requirements, Cboe Trading will reject the orders prior to routing and/or seek to cancel any orders that have been routed. This provision is the same as EDGX Rule 21.9(f), and currently applies to Cboe Trading. The proposed rule, including the various routing options, is substantially the same as EDGX Rule 21.9. The various routing options will provide Users with additional flexibility to instruct the Exchange how to handle the routing of their orders. The Re-Route instructions will provide unexecuted orders resting on the Book with additional execution opportunities. The proposed routing process and options are identical to those available on EDGX. Current C2 Rule 6.18 describes HAL, a feature that automates handling of orders not at the NBBO by auctioning them at the NBBO for potential price improvement on the Exchange prior to routing. Pursuant to this rule, the Exchange may determine whether to make HAL available on C2. The proposed rule change deletes this rule (and makes conforming changes throughout the rules, including deleting references to HAL and Rule 6.18), as this functionality will not be available on C2 following the technology migration. The proposed rule change deletes current C2 Rule 6.19 regarding types of order formats, as these formats are available on the current C2 system but will not be applicable on C2’s new system following the technology migration. Information regarding order formats are available in technical specifications on the Exchange’s website.43 Proposed C2 Rule 6.28 states the System sends to a User aggregated and individual transaction reports for the User’s transactions, which reports include transaction details; the contra party’s EFID, clearing Trading Permit Holder account number, and Capacity; and the name of any away exchange if an order was routed for execution. The Exchange reveals a User’s identity (1) when a registered clearing agency ceases to act for a participant, or the User’s Clearing Trading Permit Holder, and the registered clearing agency determines not to guarantee the settlement of the User’s trades, or (2) for regulatory purposes or to comply with an order of 43 See https://markets.cboe.com/us/options/ support/technical/. E:\FR\FM\16MYN2.SGM 16MYN2 sradovich on DSK3GMQ082PROD with NOTICES2 Federal Register / Vol. 83, No. 95 / Wednesday, May 16, 2018 / Notices an arbitrator or court. C2 currently sends out transaction reports containing similar information, and the Exchange believes including this information in the Rules will provide more transparency to market participants about these reports. The proposed rule change is substantively the same as EDGX Rule 21.10 and is consistent with current Exchange and options industry practices, including the fact that clearing information available through OCC provides contra-party information, as well as the ability of a User to disclose its identify on orders. Current C2 Rule 6.49 describes the C2 Trade Match System (‘‘CTM’’) functionality available on C2’s current System, which permits Trading Permit Holders to update transaction reports. The functionality available on C2’s System following the technology migration is called the Clearing Editor. The Clearing Editor, like CTM, allows Trading Permit Holders to update executed trades on their trading date and revise them for clearing. The Clearing Editor may be used to correct certain bona fide errors. Trading Permit Holders may change the following fields through the Clearing Editor: executing firm and contra firm; executing broker and contra broker; CMTA; account and subaccount (not just market-maker account and subaccount, as is the case currently on CTM): Customer ID; position effect (open/close); or Capacity (because there will be no customer priority on C2, there is no need to restrict Capacity changes as set forth in current Rule 6.49). The proposed rule change deletes Rule 6.49(b), which are fields Trading Permit Holders may change only if they provide notice to the Exchange, as Clearing Editor does not permit Trading Permit Holders to change these fields. If a Trading Permit Holder must change the series, quantity, buy or sell, or premium price, it must contact the Exchange pursuant to proposed Rule 6.29 regarding obvious errors. Current Rule 6.49(c) and Interpretation and Policy .01 are moved to Rule 6.31(c) and Interpretation and Policy .01 with no substantive changes. C2 Rule 6.32 describes when the Exchange may halt trading in a class and is substantially similar to EDGX Rules 20.3 and 20.4. Current Rule 6.32(a) lists various factors, among others, the Exchange may consider when determining whether to halt trading in a class, but adds the following two to be consistent with EDGX Rule 20.3: • Occurrence of an act of God or other event outside the Exchange’s control; and VerDate Sep<11>2014 18:43 May 15, 2018 Jkt 244001 • occurrence of a System technical failure or failures including, but not limited to, the failure of a part of the central processing system, a number of Trading Permit Holder applications, or the electrical power supply to the System itself or any related system (the Exchange believes this broader factor regarding system functionality covers the current factor in paragraph (a)(4) regarding the status of a rotation, which is a system process). As the current rule permits the Exchange to consider factors other than those currently listed, including the two factors proposed to be added (which the Exchange currently does consider when determining whether to halt a class), the proposed rule change is consistent current Rule 6.32(a). The proposed rule change moves the provision in Interpretation and Policy .02 to subparagraph (a)(1). The proposed rule change moves the provisions in current Interpretations and Policies .01 and .05 to proposed paragraph (c). The proposed rule change adds proposed paragraph (b), which states if the Exchange determines to halt trading, all trading in the effected class(es) will be halted, and the System cancels all orders in the class(es) unless a User entered instructions to cancel all orders except GTC and GTD orders or not cancel orders during a halt. C2 disseminates through its trading facilities and over OPRA a symbol with respect to the class(es) indicating that trading in the class(es) has been halted. The Exchange makes available to vendors a record of the time and duration of the halt. Following the technology migration, C2 will have functionality availability that permits Trading Permit Holders to enter a standing instruction regarding the handling of its orders during a halt. The remainder of proposed paragraph (b) is consistent with C2’s current practice. The proposed paragraph (b) is also substantively the same as EDGX Rule 20.3(b). C2’s new technology platform is currently the platform for EDGX and other Cboe Affiliated Exchanges, and thus has an established disaster recovery plan. Therefore, the proposed rule change deletes the majority of C2’s disaster recovery provisions, contained in current Rules 6.45 and 6.34(f) (regarding mandatory testing), and adopts proposed Rule 6.34, which is substantially similar to EDGX Rule 2.4. Proposed Rule 6.34 states the Exchange maintains business continuity and disaster recovery plans, including backup systems, it may activate to maintain fair and orderly markets in the event of a systems failure, disaster, or PO 00000 Frm 00027 Fmt 4701 Sfmt 4703 22821 other unusual circumstance that may threaten the ability to conduct business on the Exchange, which is consistent with current Rule 6.45(a). Proposed Rule 6.34(b) states Trading Permit Holders that contribute a meaningful percentage of the Exchange’s overall volume must connect to the Exchange’s backup systems and participate in functional and performance testing as announced by the Exchange, which will occur at least once every 12 months. The Exchange has established the following standards to identify Trading Permit Holders that account for a meaningful percentage of the Exchange’s overall volume and, taken as a whole, the constitute the minimum necessary for the maintenance of fair and orderly markets in the event of the activation of business continuity and disaster recovery plans: • The Exchange will determine the percentage of volume it considers to be meaningful for purposes of this Rule. • The Exchange will measure volume executed on the Exchange on a quarterly basis. The Exchange will also individually notify all Trading Permit Holders quarterly that are subject to this paragraph based on the prior calendar quarter’s volume. • If a Trading Permit Holder has not previously been subject to the requirements of this paragraph, such Trading Permit Holder will have until the next calendar quarter before such requirements are applicable. Proposed Rule 6.34(c) states all Trading Permit Holders may connect to the Exchange’s backup systems and participate in testing of such systems. Current Rule 6.45 similarly requires certain Trading Permit Holders designated by the Exchange to connect to back-up systems and participate in testing (current Rule 6.34(f) also requires participation in mandatory systems testing). The proposed rule change designates different but reasonable criteria for determining which Trading Permit Holders must participate in mandatory testing. Proposed paragraphs (b) and (c) are consistent with Regulation SCI requirements, which apply to certain self-regulatory organizations (including the Exchange), alternative trading systems (‘‘ATSs’’), plan processors, and exempt clearing agencies (collectively, ‘‘SCI entities’’), and requires these SCI entities to comply with requirements with respect to the automated systems central to the performance of their regulated activities. The Exchange takes pride in the reliability and availability of its systems. C2 has, and the Cboe Affiliate Exchanges that operate on the E:\FR\FM\16MYN2.SGM 16MYN2 22822 Federal Register / Vol. 83, No. 95 / Wednesday, May 16, 2018 / Notices sradovich on DSK3GMQ082PROD with NOTICES2 technology platform to which C2 will migrate have, put extensive time and resources toward planning for system failures and already maintain robust business continuity and disaster recovery BC/DR plans consistent with the Rule. Propose Rule 6.35 describes steps the Exchange may take to mitigate message traffic, based on C2’s traffic with respect to target traffic levels and in accordance with C2’s overall objective of reducing both peak and overall traffic. First, the System does not send an outbound message 44 in a series that is about to be sent if a more current quote message for the same series is available for sending, but does not delay the sending of any messages (referred to in proposed Rule 6.35 as ‘‘replace on queue’’). Second, the System will prioritize price update messages over size update messages in all series and in conjunction with the replace on queue functionality described above. Current C2 Rules contains various provisions the current system uses to mitigate message traffic, such as Rules 6.34(b) (permits the Exchange to limit the number of messages Trading Permit Holders may send) and (c) (newly received quotations and other changes to the BBO may not be disseminated for a period of up to, but no more than, one second), 6.35 (regarding bandwidth packets), and 8.11.45 The proposed rule change essentially replaces these provisions. C2 does not have unlimited capacity to support unlimited messages, and the technology platform onto which it will migrates contains the above functionality, which are reasonable measures the Exchange may take to manage message traffic and protect the integrity of the System. The proposed change is substantively the same as EDGX Rule 21.14, except it does not include the provision regarding EDGX’s ability to periodically delist options with an average daily volume of less than 100 contracts. Additionally, current C2 Rule 6.34(c) (which is being deleted and replaced by the message traffic mitigation provisions in proposed Rule 6.35) permits the Exchange to utilize a mechanism so that newly received quotes and other changes to the BBO are not disseminated for a period 44 This refers to outbound messages being sent to data feeds and OPRA. 45 The proposed rule change deletes the remainder of current Rule 6.34(b), which states the Exchange may impose restrictions on the use of a computer connected through an API if necessary to ensure the proper performance of the System. The proposed rules do not contain a similar provision; however, to the extent C2 in the future wanted to impose any type of these restrictions, it would similarly submit a rule change for Commission approval. VerDate Sep<11>2014 18:43 May 15, 2018 Jkt 244001 of up to but no more than one second in order to control the number of quotes the Exchange disseminates. Cboe Options Rule 5.4, Interpretation and Policy .13 (which is incorporated by reference into C2’s Rules) permits the Exchange to delist any class immediately if the class is open for trading on another national securities exchange, or to not open any additional series for trading if the class is solely open for trading on C2. This provision achieves the same purpose as EDGX Rule 21.14(a), and thus it is unnecessary to add the EDGX provision to C2 Rules. The proposed rule change adds Interpretations and Policies .01 through .04 to Rule 6.50 regarding the order exposure requirement: • Rule 6.50 prevents a Trading Permit Holder from executing agency orders to increase its economic gain from trading against the order without first giving other trading interest on the Exchange an opportunity to either trade with the agency order or to trade at the execution price when the Trading Permit Holder was already bidding or offering on the Book. Rule 6.50 imposes an exposure requirement of one second before such orders may execute. However, the Exchange recognizes that it may be possible for a Trading Permit Holder to establish a relationship with a customer or other person to deny agency orders the opportunity to interact on the Exchange and to realize similar economic benefits as it would achieve by executing agency orders as principal. It is a violation of the Rule for a Trading Permit Holder to be a party to any arrangement designed to circumvent this Rule by providing an opportunity for a customer to regularly execute against agency orders handled by the Trading Permit Holder immediately upon their entry into the System. • It is a violation of Rule 6.50 for Trading Permit Holder to cause the execution of an order it represents as agent on C2 against orders it solicited from Trading Permit Holders and nonTrading Permit Holder broker-dealers, whether such solicited orders are entered into C2 directly by the Trading Permit Holder or by the solicited party (either directly or through another Trading Permit Holder), if the Trading Permit Holder fails to expose orders on C2 as required by the Rule. • With respect to nondisplayed portions of reserve orders, the exposure requirement of Rule 6.50 is satisfied if the displayed portion of the order is displayed at its displayable price for one second. • Prior to or after submitting an order to the System, a Trading Permit Holder cannot inform another Trading Permit PO 00000 Frm 00028 Fmt 4701 Sfmt 4703 Holder or any other third party of any of the terms of the order. While these provisions are not currently stated in the C2 Rules, they are consistent with the C2’s interpretation of current Rule 6.50. Current C2 Rule 6.50 is substantively the same as EDGX Rule 22.12, and the following proposed Interpretations and Policies .01 through .04 are substantively the same as EDGX Rule 22.12, Interpretations and Policies .01 through .04. Current C2 Rule 6.51 describes the Automated Improvement Mechanism (‘‘AIM’’), an electronic auction mechanism that provides potential price improvement for eligible incoming orders, and current C2 Rule 6.52 describes the Solicitation Auction Mechanism (‘‘SAM’’), an electronic auction mechanism that provides potential price improvement for the allor-none orders with size of 500 or more. Pursuant to those rules, the Exchange may determine whether to make this functionality available on C2. The proposed rule change deletes these rules (and makes conforming changes throughout the rules, including deleting references to AIM, SAM, and the rules), as this functionality will not be available on C2 following the technology migration. Chapter 8 The proposed rule change adds paragraph (d) to Rule 8.1, which states a Trading Permit Holder or prospective Trading Permit Holder adversely affected by an Exchange determination under this Chapter 8, including the Exchange’s termination or suspension of a Trading Permit Holder’s status as a Market-Maker or a Market-Maker’s appointment to a class, may obtain a review of such determination in accordance with the provisions of Chapter 19. Current Rule 8.2 contains a similar provision applicable to that Rule; however, the remaining rules in Chapter 8 contain various provision that permit the Exchange to make determinations, which would be subject to review under Chapter 19. Therefore, the Exchange believes it is appropriate to include a similar provision applicable to the entire Chapter 8. The proposed rule change modifies rule provisions throughout Chapter 8 to clarify the distinction between MarketMaker registration and appointment. A Trading Permit Holder may register as a Market-Maker which is a function available on the Exchange. A Trading Permit Holder registered as a MarketMaker may select appointments to classes in which it agrees to satisfy obligations as a Market-Maker and E:\FR\FM\16MYN2.SGM 16MYN2 22823 Federal Register / Vol. 83, No. 95 / Wednesday, May 16, 2018 / Notices obtain Market-Maker treatment for its trading activity in those classes. The proposed rule change renames Rule 8.2 to be Market-Maker Class Appointments, as the rule generally describes how a Market-Maker may obtain appointments to classes, rather than continuing Market-Maker registration. To retain status as a registered Market-Maker, a MarketMaker must satisfy its obligations in its appointed classes (as discussed below) and otherwise stay in good standing, as described in Rule 8.4 (as discussed below). Currently, and following the System migration, Market-Makers may select their own class appointments through an Exchange system. Rule 8.2(b) states a Market-Maker may register in one or more classes in a manner prescribed by the Exchange. The proposed rule change adds detail, which conforms to EDGX Rule 22.3(b), which states a Market-Maker may enter an appointment request via an Exchangeapproved electronic interface with the Exchange’s systems by 9:00 a.m., which appointment will become effective on the day the Market-Maker enters the appointment request. The Exchange notes Market-Makers on EDGX may select appointments to series, while Market-Makers on C2 will continue to be able to select appointments to a class, as they do today. This proposed process is similar to the one Market-Makers use on C2’s current systems for selecting appointments. The proposed rule change deletes the language in current Rule 8.2(d) stating a Market-Maker may change its registered classes upon advance notification to the Exchange, as that is duplicative of proposed Rule 8.2(b), which requires Market-Makers to select appointments prior to a trading day for that appointment to become effective on that trading day. The proposed rule change deletes the provision in current Rule 8.2(b) that permits the Exchange to register a Market-Maker in one or more classes of option contracts, as the Exchange does not, and does not intend, to impose appointments on Market-Makers. Similarly, the proposed rule change deletes current Rule 8.2(c), which states no option class registration may be made without the Market-Maker’s consent to such registration, provided that refusal to accept a registration may be deemed sufficient cause for termination or suspension of a MarketMaker. As noted above, Market-Makers select their own appointments. Rules 8.1(b) and 8.4(b), among others, describe circumstances under which the Exchange may suspend or terminate a Trading Permit Holder’s registration as a Market-Maker or a Market-Maker’s appointment in a class. Additionally, the proposed rule change deletes the provision permitting it to arrange two or more classes of contracts into the groupings and make registrations to those groupings rather than to individual classes, as the Exchange does not, and does not intend, to create groups of registrations. Market-Makers only select appointments by class. Proposed Rule 8.2(c) states a MarketMaker’s appointment in a class confers the right of the Market-Maker to quote (using order functionality) in that class. On C2’s current system, there is separate quote functionality for quoting in appointed classes. Following the technology migration, the new System permits Market-Makers to quote in appointed classes using order functionality (which is the case today on EDGX). A similar provision is contained in current Rule 8.2(d). The proposed rule change adds proposed Rule 8.2(d), which references the Exchange’s ability to limit appointments pursuant to proposed Rule 8.1(c), as described above. Current Rule 8.2(d) describes the appointment costs of Market-Maker class appointments. The proposed rule change merely moves the description of appointment costs to proposed Rule 8.3. The proposed rule change deletes current Rule 8.4(a)(2), which states a Market-Maker must continue to satisfy the Market-Maker qualification requirements specified by the Exchange, because it is redundant of the language in subparagraph (a)(1), which states a Market-Maker must continue to meet the general requirements for Trading Permit Holders set forth in Chapter 3 and Market-Maker requirements set forth in Chapter 8. These are generally the only requirements applicable to qualify as a Market-Maker. Rule 8.5 currently describes general obligations imposed on Market-Makers, while Rule 8.6 describes requirements applicable to Market-Maker quotes (the proposed rule change renames Rule 8.6 to apply to all quote requirements rather than the firm quote requirement, which is still included in proposed Rule 8.6(a)). The proposed rule moves the description of the continuous quoting obligation to proposed Rule 8.6(d) from current Rule 8.5(a)(1), but there are no substantive changes to the continuous quoting obligation. The proposed rule change also adds that the Market-Maker continuous quoting obligations in proposed Rule 8.6(d) apply collectively to Market-Makers associated with the same Trading Permit Holder firm. This is consistent with the Exchange’s current interpretation of this obligation, and the proposed rule change merely codifies it in the Rules to provide additional transparency. This structure conforms to EDGX Rules 22.5 and 22.6.46 The proposed rule change also moves current Rule 8.5(d) to proposed Rule 8.6(e), which permits the Exchange to call on a Market-Maker to submit a single quote or maintain continuous quotes in one or more series of a MarketMaker’s appointed class whenever, in the judgment of the Exchange, it is necessary to do so in the interest of maintaining a fair and orderly market. The revised language is substantially the same as EDGX Rule 22.6(d)(2). The proposed rule change also moves current Rule 8.5, Interpretation and Policy .01 to proposed Rule 8.6(d)(4), which provides a Market-Maker has no quoting obligations while the underlying security for an appointed class is in a limit up-limit down state. The revised language is substantially similar to EDGX Rule 22.6(d)(5). The proposed rule change adds the following quoting obligations to Rule 8.6, which are the same as obligations in EDGX Rule 22.6: Proposed C2 rule sradovich on DSK3GMQ082PROD with NOTICES2 Obligation A Market-Maker’s bid (offer) for a series must be accompanied by the number of contracts at the price of the bid (offer) the Market-Maker is willing to buy (sell), and the best bid and best offer entered by a MarketMaker must have a size of at least one contract ................................................................................................ 46 EDGX rules permit appointments by series, while C2 Rules will continue to permit appointments by class. Ultimately, an EDGX market-maker has the same flexibility to select its appointments, and is subject to the same quoting obligations, as C2 Market-Makers. The proposed VerDate Sep<11>2014 18:43 May 15, 2018 Jkt 244001 rule change does not add the obligation in EDGX Rule 22.5(a)(7), which states a Market-Maker must honor all orders the trading system routes to away markets. The Exchange believes this obligation is unnecessary, as it is true for all orders. Additionally, the Exchange expects Market-Makers PO 00000 Frm 00029 Fmt 4701 Sfmt 4703 8.6(b) EDGX rule 22.6(a) will often use Post Only orders to add liquidity to the Book as quotes (including through use of the bulk order port), and those orders, like current quotes today, do not route to other exchanges. E:\FR\FM\16MYN2.SGM 16MYN2 22824 Federal Register / Vol. 83, No. 95 / Wednesday, May 16, 2018 / Notices Proposed C2 rule Obligation sradovich on DSK3GMQ082PROD with NOTICES2 A Market-Maker that enters a bid (offer) on the Exchange in a series in an appointed class must enter an offer (bid) ...................................................................................................................................................................... A Market-Maker is considered an OEF under the Rules in all classes in which the Market-Maker has no appointment. The total number of contracts a Market-Maker may execute in classes in which it has no appointment may not exceed 25% of the total number of all contracts the Market-Maker executes on the Exchange in any calendar quarter ........................................................................................................................................ The proposed size requirement in proposed Rule 8.6(b) is consistent with the firm quote rule, and, as a bid and offer currently cannot have size of zero, the minimum size requirement is consistent with current C2 System functionality. While there is no explicit requirement in current C2 rules that a Market-Maker must enter two-sided quotes in appointed series like the one in proposed Rule 8.6(c), the continuous quoting obligation requires a continuous two-sided market (see current Rule 8.5(a)(1)) and general obligations require a Market-Maker to, among other things, compete with other Market-Makers in its appointed classes, update quotes in response to changes market conditions, and maintain active markets in its appointed classes (see current Rule 8.5(a)(3) through (5)), which are consistent with the requirement to enter two-sided quotes. Additionally, current C2 System functionality permits MarketMakers to submit two-sided quotes. Current C2 Rules contain no specific requirement regarding the percentage of a Market-Makers executed volume that must be within their appointed classes. However, such a requirement is consistent with Market-Makers current obligations to maintain continuous twosided quotes in their appointed classes for a significant part of the trading day, compete in their appointed classes, and update quotes and maintain active markets in their appointed classes. The Exchange believes these additional explicit requirements in the rules will continue to offset the benefits a Market-Maker receives in its appointed classes, as the proposed Market-Maker requirements are consistent with current C2 Marketmaker obligations and observed quoting behavior, and they are the substantively the same as those in the EDGX rules. The Exchange believes having consistent Market-Maker obligations in the C2 and EDGX rules will simplify the regulatory requirements and increase the understanding of the Exchange’s operations for Trading Permit Holders that are Market-Makers on both C2 and EDGX. The proposed rule change combines Rules 8.8 and 8.10 regarding financial VerDate Sep<11>2014 18:43 May 15, 2018 Jkt 244001 requirements and arrangements of Market-Makers into a single Rule 8.8. Current Rule 8.11 provides the Exchange may impose an upper limit on the aggregate number of Market-Makers that may quote in each product (the ‘‘CQL’’). Current and proposed Rule 8.1(c) permits the Exchange to limit the number of Market-Makers in a class and monitor quote capacity, in a similar manner as EDGX may impose any such limits.47 Therefore, the proposed rule change deletes Rule 8.11, since it is duplicative. Currently, there are no Primary Market-Makers (‘‘PMM’’) (see Rule 8.13) or Designated Primary Market-Makers (‘‘DPM’’) (see Rules 8.14 through 8.21), and C2 does not intend to appoint any PMMs or DPMs in the future. Therefore, the proposed rule change deletes Rules 8.13 through 8.21, as well as the definition of DPM in Rule 1.1. The proposed rule change makes corresponding changes throughout the rules to delete references to those rule numbers and to PMMs and DPMs. Other Nonsubstantive Changes The proposed rule change deletes the supplemental rule (a) to Chapter 4 regarding proxy voting. C2 Chapter 4 incorporates Cboe Options Chapter IV by reference. Recently, Cboe Options adopted Cboe Options Rule 4.25, which is substantively identical to the C2 Chapter 4 supplement rule (a). By virtue of the incorporation by reference of Cboe Options Chapter IV, including Rule 4.25, into C2 Chapter 4, Cboe Options Rule 4.25 applies to C2 Trading Permit Holders pursuant to C2 Chapter 4. Therefore, the supplement rule (a) is now duplicative of Cboe Options Rule 4.25 and is no longer necessary. The proposed rule change deletes Rule 6.20, which is currently reserved and contains no rule text. The following rules contain language that the C2 board of directors may make certain trading decisions: • Rule 6.1, Interpretations and Policies .01 and .02 (proposed to be Rule 6.1(b)), which states the board determines trading hours and Exchange holidays. 47 See PO 00000 EDGX Rule 22.2(c). Frm 00030 Fmt 4701 Sfmt 4703 EDGX rule 8.6(c) 22.6(b) 8.6(f) 22.6(c) • Rule 6.4 states the board will establish minimum quoting increments for options traded on the Exchange. • Rule 6.33, which permits the board to designate persons other than the CEO or President to halt or suspend trading and take other action if necessary or appropriate for the maintenance of a fair and orderly market or the protection of investors, due to emergency conditions. • Rule 8.1(c), which permits the board or its designee to limit access to the System, for a period to be determined in the board’s discretion, pending any action required to address the issue of concern to the board, and to the extent the board places permanent limitations on access to the System on any Trading Permit Holder, such limits will be objectively determined and submitted to the Commission for approval pursuant to a rule change filing. These decisions relate to Exchange trading and operations, and thus are made by Exchange management, rather than the Board, which generally is not involved in determinations related to day-to-day operations of the Exchange. Therefore, the proposed rule change modifies these provisions to indicate the Exchange will make these determinations rather than the Board. The Exchange notes pursuant to corresponding EDGX rules, EDGX makes those determinations rather than EDGX’s board. The proposed rule change deletes current Rule 6.38, which requires Trading Permit Holders to file with the Exchange trade information covering each Exchange transaction during a business day. Because all transactions on the Exchange are electronic, as soon as a transaction executes on the Exchange, the Exchange has all of the information indicated in Rule 6.38 and thus does not require Trading Permit Holders to submit a separate report with this information, as that is duplicative. The Exchange notes EDGX does not contain a similar rule. The proposed rule change deletes Rule 6.41, which states a Trading Permit Holder may not bid, offer, purchase, or write on the Exchange any security other than an option contract currently open for trading in accordance with the E:\FR\FM\16MYN2.SGM 16MYN2 Federal Register / Vol. 83, No. 95 / Wednesday, May 16, 2018 / Notices provisions of Chapter 5. This rule is unnecessary, as the System would not permit the entry or execution of orders or quotes in securities not open for trading. The proposed rule change deletes Rule 6.46 regarding Trading Permit Holder Education, because it is duplicative of Rule 3.13. Attached as Exhibits 3A, 3B, and 3C are the following updated forms: • C2 Trading Permit Holder Notification of Designated Give-Ups; • C2 Give Up Change Form; and • C2 Give Up Change Form for Accepting Clearing Trading Permit Holders. These forms relate to the manner in which a Trading Permit Holder may designate Clearing Trading Permit Holder to be a Designated Give Up pursuant to Rule 6.30. The proposed rule change eliminates the term acronym from the forms (as noted above, that term will no longer be used from a system perspective following the technology migration) and makes other nonsubstantive clarifications (such as adding defined terms). The proposed rule change makes various nonsubstantive changes throughout the rules, in addition to nonsubstantive changes described above, to simplify or clarify rules, delete duplicative rule provisions, conform paragraph numbering and lettering throughout the rules, update Exchange department names, revise chapter and rule names, use plain English (e.g., change ‘‘shall’’ to ‘‘must,’’ change Affiliates, order routing/error accounts/order cancellation and release ................ Nullification and adjustment of options transactions including obvious errors .... Price binding despite erroneous report ................................................................ Reporting of matched trades to OCC ................................................................... Contract made on acceptance of bid or offer ...................................................... Trading on knowledge of imminent undisclosed solicited transaction ................. sradovich on DSK3GMQ082PROD with NOTICES2 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.48 Specifically, the Exchange believes the proposed rule change is consistent with the Section 6(b)(5) 49 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) 50 requirement that the rules of an exchange not be designed to permit unfair discrimination between customers, issuers, brokers, or dealers. The proposed rule changes are generally intended to add or align 48 15 49 15 U.S.C. 78f(b). U.S.C. 78f(b)(5). 50 Id. VerDate Sep<11>2014 18:43 May 15, 2018 Jkt 244001 passive voice to active voice), and conform language to corresponding EDGX rules. In these cases, the Exchange intends no substantive changes to the meaning or application of the rules. Chapter 24 incorporates rules in Cboe Options Chapter XXIV by reference, but states certain rules do not apply to C2. One rule that is excluded is Rule 24.17 (RAES Eligibility in Broad-Based Index Options and Options on Exchange Traded funds on Broad Based Indexes). This rule has been deleted from Cboe Options Chapter XXIV, and thus the proposed rule change deletes the reference to that rule in Chapter 24. Additionally, the proposed rule change moves certain rules within the C2 rulebook as follows: Current C2 rule Rule PO 00000 Frm 00031 Fmt 4701 Proposed C2 rule 3.2(f), 6.36, 6.37, and 6.47. 6.15. 6.16. 6.31. 6.40. 6.55. certain system functionality currently offered by EDGX and other Cboe Affiliated Exchanges in order to provide a consistent technology offering for the Cboe Affiliated Exchanges. A consistent technology offering, in turn, will simplify the technology implementation, changes and maintenance by Users of the Exchange that are also participants on Cboe Affiliated Exchanges. The proposed rule changes would also provide Users with access to functionality that is generally available on markets other than the Cboe Affiliated Exchanges and may result in the efficient execution of such orders and will provide additional flexibility as well as increased functionality to the Exchange’s System and its Users. The proposed rule change does not propose to implement new or unique functionality that has not been previously filed with the Commission or is not available on Cboe Affiliated Exchanges. The Exchange notes that the proposed rule text is generally based on EDGX Rules and is different only to the extent necessary to conform to the Exchange’s current rules, retain intended differences based on the Exchange’s market model, or make other nonsubstantive changes to simplify, clarify, eliminate duplicative language, or make the rule provisions plain English. Sfmt 4703 22825 3.16, 3.17 and 6.15. 6.29. 6.26(b). 6.27. 6.26(a). 6.51. Corresponding EDGX rule 2.10, 2.11, and 21.9. 20.6. 21.11. 21.13. 21.11. N/A. To the extent a proposed rule change is based on an existing Cboe Affiliated Exchange rule, the language of Exchange Rules and Cboe Affiliated Exchange rules may differ to extent necessary to conform with existing Exchange rule text or to account for details or descriptions included in the Exchange’s Rules but not in the applicable EDGX rule. Where possible, the Exchange has substantively mirrored Cboe Affiliated Exchange rules, because consistent rules will simplify the regulatory requirements and increase the understanding of the Exchange’s operations for Trading Permit Holders that are also participants on EDGX. The proposed rule change would provide greater harmonization between the rules of the Cboe Affiliated Exchanges, resulting in greater uniformity and less burdensome and more efficient regulatory compliance. As such, the proposed rule change would foster cooperation and coordination with persons engaged in facilitating transactions in securities and would remove impediments to and perfect the mechanism of a free and open market and a national market system. The Exchange also believes that the proposed amendments will contribute to the protection of investors and the public interest by making the Exchange’s rules easier to understand. Where necessary, the Exchange has E:\FR\FM\16MYN2.SGM 16MYN2 sradovich on DSK3GMQ082PROD with NOTICES2 22826 Federal Register / Vol. 83, No. 95 / Wednesday, May 16, 2018 / Notices proposed language consistent with the Exchange’s operations on EDGX technology, even if there are specific details not contained in the current structure of EDGX rules. The Exchange believes it is consistent with the Act to maintain its current structure and such detail, rather than removing such details simply to conform to the structure or format of EDGX rules, again because the Exchange believes this will increase the understanding of the Exchange’s operations for all Trading Permit Holders of the Exchange. The proposed order instructions and TIFs not currently available on C2 add functionality currently offered by EDGX in order to provide consistent order handling options across the Cboe Affiliated Exchanges. The proposed rule changes would also provide Users with access to optional functionality that may result in the efficient execution of such orders and will provide additional flexibility as well as increased functionality to the Exchange’s System and its Users. As explained above, the proposed functionality is substantially similar to functionality on EDGX, and is optional for Users. The proposed rule change would provide greater harmonization between the order handling instructions available amongst the Cboe Affiliated Exchanges, resulting in greater uniformity and less burdensome and more efficient regulatory compliance. With respect to the proposed MTP modifier functionality, the Exchange believes the various proposed modifier options would allow firms to better manage order flow and prevent undesirable executions against themselves, and the proposed change described herein enhances the choices available to such firms in how they do so. The proposed rule change also is designed to support the principles of Section 11A(a)(1) of the Act 51 in that it seeks to assure fair competition among brokers and dealers and among exchange markets. The proposed rule change would also provide Users with access to functionality that may result in the efficient execution of such orders and will provide additional flexibility as well as increased functionality to the Exchange’s System and its Users. The proposed rule change to define ports will reduce complexity and increase understanding of the Exchange’s operations for all Users of the Exchange following migration. As the ports are the same as used on certain Cboe Affiliated Exchanges, Users of the Exchange and these other exchanges will have access to similar functionality 51 15 U.S.C. 78k–1(a)(1). VerDate Sep<11>2014 18:43 May 15, 2018 Jkt 244001 on all Cboe Affiliated exchanges. As such, the proposed rule change will foster cooperation and coordination with persons engaged in facilitating transactions in securities and would remove impediments to and perfect the mechanism of a free and open market and a national market system. The Exchange further believes that the proposed definition of bulk order entry ports to provide that only Post Only Orders with a time in force of DAY or GTD may be entered, modified, or cancelled through such ports will protect investors and the public interest and maintain fair and orderly markets by offering specific functionality through which Users can submit orders that will result in quotations on the Exchange. In particular, the options markets are quote driven markets dependent on liquidity providers to an even greater extent than equities markets. In contrast to the approximately 7,000 different securities traded in the U.S. equities markets each day, there are more than 500,000 unique, regularly quoted option series. Given this breadth in options series the options markets are more dependent on liquidity providers than equities markets; such liquidity is provided most commonly by registered market makers but also by other professional traders. As such, the Exchange believes maintaining specific functionality to maintain quotations on the Exchange through bulk order entry ports will protect investors and the public interest and the maintenance of fair and orderly markets by ensuring that an efficient process to enter and update quotations is available to Exchange Users. The Exchange also believes this is reasonable, as it will establish a marketplace that operates more similar to C2’s current market, which is a quotebased market. The Exchange believes the proposed rule change to modify the minimum increment for XSP options with those for SPY options perfects the mechanism for a free and open market and a national market system because both products are based, in some manner, on 1/10th the price of the S&P 500 Index, and therefore it makes sense to have the same minimum increments of bids and offers for both. This proposed rule change is also substantively the same as a Cboe Options rule, as discussed above. The proposed Opening Process is designed to promote just and equitable principles of trade and remove impediments to, and perfect the mechanism of, a free and open market system because it would align with the EDGX Opening Process as it relates to: Which orders may participate in the PO 00000 Frm 00032 Fmt 4701 Sfmt 4703 process, how the price of the opening transaction is determined; and the process for late openings and reopenings. Conforming the C2 Opening Process to the EDGX opening process will contribute to the protection of investors and the public interest by avoiding investor confusion and providing consistent functionality across Cboe Affiliated Exchanges. Following the technology migration, orders and quotes will generally be allocated in the same manner as they are today on C2—either pursuant to pro-rata or price-time priority. Deleting other priority overlays that are not used and will not be used on C2 protects investors by eliminating potential confusion regarding which rules apply to trading on C2. The proposed change regarding how the System rounds the number of contracts when they cannot be allocated proportionally in whole numbers pursuant to the pro-rata algorithm (which previously only addressed the situation if there one additional contract for two market participants) and proposed aggregated pro-rata algorithm (which previously was silent on this matter) adds detail to the rules regarding the allocation process and provides a fair, objective manner for rounding and distribution in all situations in which the number of contracts many not be allocated proportionally in whole numbers. Rounding and distributing contracts in the proposed manner is also substantively the same as an EDGX rule, as discussed above. The Exchange believes that the general provisions regarding the trading of complex orders provide a clear framework for trading of complex orders in a manner consistent with EDGX. This consistency should promote a fair and orderly national options market system. The proposed execution and priority rules will allow complex orders to interact with interest in the Simple Book and, conversely, interest on the Simple Book to interact with complex orders in an efficient and orderly manner. Consistent with C2’s current rules and the rules of other exchanges, proposed Rule 6.13(f)(2) will not execute a complex order at a net price ahead of orders on the Simple Book without improving the BBO on at least one component of the complex strategy by at least $0.01. Additionally, before executing against another complex order, a complex order on the Exchange will execute first against orders on the Simple Book if that would result in the best price prior to executing against complex orders on the COB. The complex order priority pursuant to which complex orders will trade against E:\FR\FM\16MYN2.SGM 16MYN2 sradovich on DSK3GMQ082PROD with NOTICES2 Federal Register / Vol. 83, No. 95 / Wednesday, May 16, 2018 / Notices the leg markets prior to execution against complex orders is consistent with the complex order priority currently available on C2 and ensures protection of the leg markets. The Exchange proposes that complex orders may be submitted as limit orders and market orders, and orders with a Time in Force of GTD, IOC, DAY, GTC, or OPG, or as a Complex Only order, COA-eligible or do-not-COA order. In particular, the Exchange believes that limit orders, GTD, IOC, DAY, GTC, and OPG orders all provide valuable limitations on execution price and time that help to protect Exchange participants and investors in both the Simple Book and the COB. In addition, the Exchange believes that offering participants the ability to utilize MTP Modifiers for complex orders in a similar way to the way they are used on the Simple Book provides such participants with the ability to protect themselves from inadvertently matching against their own interest. As discussed above, because complex orders do not route and may not be Post Only, all complex orders are Book Only, which is consistent with current C2 complex order functionality. The proposed rule change also clarifies that Attributable/ Non-Attributable instructions are available for complex orders; however, these instructions merely apply to information that is displayed for the orders but do not impact how they execute. The Exchange believes that permitting complex orders to be entered with these varying order types and modifiers will give the Exchange participants greater control and flexibility over the manner and circumstances in which their orders may be executed, modified, or cancelled, and thus will provide for the protection of investors and contribute to market efficiency. In particular, the Exchange notes that while both the Complex Only Order and the do-not-COA instruction may reduce execution opportunities for the entering Market-Maker or User, respectively, similar features are already offered by EDGX (and C2 with respect to do-notCOA) in connection with complex order functionality and that they are reasonable limitations a Market-Maker or User, respectively, may wish to include on their order in order to participate on the COB. Evaluation of the executability of complex orders is central to the removal of impediments to, and the perfection of, the mechanisms of a free and open market and a national market system and, in general, the protection of investors and the public interest. The proposed evaluation process pursuant to VerDate Sep<11>2014 18:43 May 15, 2018 Jkt 244001 proposed Rule 6.13(i) ensures that the System will capture and act upon complex orders that are due for execution. The regular and event-driven evaluation process removes potential impediments to the mechanisms of the free and open market and the national market system by ensuring that complex orders are given the best possible chance at execution at the best price, evaluating the availability of complex orders to be handled in a number of ways as described in this proposal. Any potential impediments to the order handling and execution process respecting complex orders are substantially removed due to their continual and event-driven evaluation for subsequent action to be taken by the System. This protects investors and the public interest by ensuring that complex orders in the System are continually monitored and evaluated for potential action(s) to be taken on behalf of investors that submit their complex orders to the Exchange. If a complex order is not priced equal to, or better than, the SBBO or is not priced to improve other complex orders resting at the top of the COB, the Exchange does not believe that it is reasonable to anticipate that it would generate a meaningful number of COA Responses such that there would be price improvement of the complex order’s limit price. Promoting the orderly initiation of COAs is essential to maintaining a fair and orderly market for complex orders; otherwise, the initiation of COAs that are unlikely to result in price improvement could affect the orderliness of the marketplace in general. The Exchange believes that this removes impediments to and perfects the mechanisms of a free and open market and a national market system by promoting the orderly initiation of COAs, and by limiting the likelihood of unnecessary COAs that are not expected to result in price improvement. The Exchange believes the proposed maximum 500 millisecond Response Time Interval promotes just and equitable principles of trade and removes impediments to a free and open market because it allows sufficient time for Trading Permit Holders participating in a COA to submit COA Responses and would encourage competition among participants, thereby enhancing the potential for price improvement for complex orders in the COA to the benefit of investors and public interest. The Exchange believes the proposed rule change is not unfairly discriminatory because it establishes a Response Time Interval applicable to all Exchange participants participating in a PO 00000 Frm 00033 Fmt 4701 Sfmt 4703 22827 COA, which is the same maximum Response Time Interval on EDGX. The Exchange again notes that it has not proposed to limit the frequency of COAs for a complex strategy and could have multiple COAs occurring concurrently with respect to a particular complex strategy. The Exchange represents that it has systems capacity to process multiple overlapping COAs consistent with the proposal, including systems necessary to conduct surveillance of activity occurring in such auctions. Further, EDGX may currently have multiple complex auctions in the same strategy run concurrently. EDGX Rule 21.20, Interpretation and Policy .02 similarly permits multiple complex auctions in the same strategy to run concurrently. The Exchange does not anticipate overlapping auctions necessarily to be a common occurrence, however, after considerable review, believes that such behavior is more fair and reasonable with respect to Trading Permit Holders who submit orders to the COB because the alternative presents other issues to such Trading Permit Holders. Specifically, if the Exchange does not permit overlapping COAs, then a Trading Permit Holder who wishes to submit a COA-eligible order but has its order rejected because another COA is already underway in the complex strategy must either wait for such COA to conclude and re-submit the order to the Exchange (possibly constantly resubmitting the complex order to ensure it is received by the Exchange before another COA commences) or must send the order to another options exchange that accepts complex orders. The Legging restrictions protects investors and the public interest by ensuring that Market-Makers and other liquidity providers do not trade above their established risk tolerance levels, as described above. Despite the enhanced execution opportunities provided by Legging, the Exchange believes it is reasonable and consistent with the Act to permit Market-Makers to submit orders designated as Complex Only Orders that will not leg into the Simple Book. This is analogous to functionality on EDGX,52 as well as other types of functionality offered by the Exchange that provides Trading Permit Holders the ability to direct the Exchange not to route their orders or remove liquidity from the Exchange. Similar to such analogous features, the Exchange believes that Market-Makers may utilize Complex Only Order functionality as part of their strategy to maintain additional control over their executions, 52 See E:\FR\FM\16MYN2.SGM EDGX Rule 21.20(b)(1). 16MYN2 sradovich on DSK3GMQ082PROD with NOTICES2 22828 Federal Register / Vol. 83, No. 95 / Wednesday, May 16, 2018 / Notices in connection with their attempt to provide and not remove liquidity, or in connection with applicable fees for executions. Based on the foregoing, the Exchange does not believe that the proposed complex order functionality raises any new or novel concepts under the Act, and instead is consistent with the goals of the Act to remove impediments to and to perfect the mechanism of a free and open market and a national market system, and to protect investors and the public interest. The proposed rule change regarding price adjust is consistent with linkage rules that require exchanges to reasonably avoid displaying quotations that lock or cross any Protected Quotation, as well as EDGX Rule 21.1(i). The proposed functionality will assist Users by displaying orders and quotes at permissible prices. The Exchange believes the additional and enhanced price protection mechanisms and risk controls will protect investors and the public interest and maintain fair and orderly markets by mitigating potential risks associated with market participants entering orders and quotes at unintended prices, and risks associated with orders and quotes trading at prices that are extreme and potentially erroneous, which may likely have resulted from human or operational error. While the Exchange currently offers many similar protections and controls, as described above, the Exchange believes Users will benefit from the additional functionality that will be available following the technology migration. The Exchange notes the proposed rule change does not establish outer boundaries or limits to the levels at which mechanisms can be set. The Exchange believes this is reasonable and necessary to afford the Exchange and Users flexibility to establish and modify the default parameters in order to protect investors and the public interest, and maintain a fair and orderly market. The Exchange notes any Exchange-determined parameters will always be available on C2’s website via specification or Notice. The Exchange notes the proposed rule changes related to price protection mechanisms and risk controls are substantially the same as EDGX rules and specifications, as discussed above. The proposed rule change is also similar to current C2 and Cboe Options Rules. The Exchange believes the proposed additional explicit Market-Maker requirements in the rules will continue to offset the benefits a Market-Maker receives in its appointed classes, as the proposed Market-Maker requirements are consistent with current C2 Market- VerDate Sep<11>2014 18:43 May 15, 2018 Jkt 244001 maker obligations and observed quoting behavior, and they are the substantively the same as Market-Maker requirements in the EDGX rules. The Exchange believes the proposed rule change regarding information to be provided to Users in transaction reports is consistent with current practice and provides market participants with additional transparency regarding these reports. It is also consistent with other Exchange and options industry practices, including the fact that clearing information available through OCC already provides contra-party information as well as the ability of a User on the Exchange to disclose its identify when quoting. The Exchange believes this is consistent with the Act, as it is designed to foster cooperation and coordination with persons engaged in clearing, settling, processing information with respect to, and facilitating transactions in securities. The proposed rule change makes various nonsubstantive changes throughout the rules, in addition to nonsubstantive changes described above, will protect investors and benefit market participants, as these changes simplify or clarify rules, delete duplicative rule provisions, conform paragraph numbering and lettering throughout the rules, update Exchange department names, use plain English, and conform language to corresponding EDGX rules. As described above, the fundamental premise of the proposal is that the Exchange will operate its options market in a similar manner to its affiliated options exchange, EDGX (which as discussed above in the purpose section, is similar in many ways to how C2 currently operates), with the exception of the priority model and certain other limited differences. The basis for the majority of the proposed rule changes in this filing are the approved rules of EDGX, which have already been found to be consistent with the Act. For instance, the Exchange does not believe that any of the proposed order types or order type functionality or allocation and priority provisions raise any new or novel issues that have not previously been considered. Thus, the Exchange further believes that the functionality that it proposes to offer is consistent with Section 6(b)(5) of the Act, because the System upon the technology migration is designed to continue to be efficient and its operation transparent, thereby facilitating transactions in securities, removing impediments to and perfecting the mechanism of a free and open market and a national market system. PO 00000 Frm 00034 Fmt 4701 Sfmt 4703 Proposed Rule 3.16 (related to Exchange affiliations with Trading Permit Holders) and 3.17 (related to Cboe Trading providing Outbound Router services) are substantially similar to EDGX Rule 2.10 and 2.11. Additionally, proposed Rule 3.16 incorporates the provisions in current C2 Rule 3.2(f) related to restrictions on Exchange affiliations with Trading Permit Holders. As noted above, the provisions related to Exchange affiliations with Trading Permit Holders (including exceptions to any restrictions in the Rules) are consistent with the governing documents of C2. Additionally, the Commission recently approved the Exchange affiliation with Cboe Trading related to its performing inbound routing services for C2. The Exchange believes proposed Rule 3.17 promotes the maintenance of a fair and orderly market, the protection of investors and the public interest, and is in the best interests of the Exchange and its Trading Permit Holders as it will allow the routing of orders to Trading Centers (including affiliated exchanges BZX Options and EDGX Options) from the Exchange in the same manner as certain Cboe-affiliated exchanges currently route orders. Moreover, in meeting the requirements of Rule 3.17 (i.e., regulation as a facility, FINRA acting as the designated examining authority, optional use of Cboe Trading as an outbound router, restrictions on business of Cboe Trading, procedures and internal controls, cancellation of orders, maintenance of error account), the Exchange believes it will have mechanisms in place that protect the independence of the Exchange’s regulatory responsibility with respect to Cboe Trading, as well as demonstrates that Cboe Trading cannot use any information that it may have because of its affiliation with the Exchange to its advantage. This will help prevent an unfair burden on competition and unfair discrimination between customers, issuers, brokers, or dealers. B. Self-Regulatory Organization’s Statement on Burden on Competition C2 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 reiterates that the proposed rule change is being proposed in the context of the technology integration of the Cboe Affiliated Exchanges. Thus, the Exchange believes this proposed rule change is necessary to permit fair competition among national securities exchanges. In addition, the Exchange believes the proposed rule change will E:\FR\FM\16MYN2.SGM 16MYN2 Federal Register / Vol. 83, No. 95 / Wednesday, May 16, 2018 / Notices benefit Exchange participants in that it will provide a consistent technology offering for Users by the Cboe Affiliated Exchanges. Following the technology migration, the C2 System, as described in this proposed rule change, will apply to all Users and order and quotes submitted by Users in the same manner. As discussed above, the basis for the majority of the proposed rule changes in this filing are the approved rules of EDGX, while a few other changes are based on approved rules of Cboe Options and BZX, which have already been found to be consistent with 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 comments on the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The Exchange has filed the proposed rule change pursuant to Section 19(b)(3)(A) of the Act 53 and Rule 19b– 4(f)(6) 54 thereunder. 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 55 and Rule 19b– 4(f)(6) 56 thereunder. A proposed rule change filed under Rule 19b–4(f)(6) 57 normally does not become operative prior to 30 days after the date of the filing. However, pursuant to Rule 19b–4(f)(6)(iii),58 the Commission may designate a shorter time if such action is consistent with protection of investors and the public interest. The Exchange has asked the Commission to waive the 30-day operative delay so that the proposed 53 15 U.S.C. 78(b)(3)(A). CFR 240.19b–4(f)(6). 55 15 U.S.C. 78s(b)(3)(A). 56 17 CFR 240.19b–4(f)(6). In addition, Rule 19b– 4(f)(6)(iii) requires the Exchange to give the Commission written notice of the Exchange’s 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. 57 17 CFR 240.19b–4(f)(6). 58 17 CFR 240.19b–4(f)(6). sradovich on DSK3GMQ082PROD with NOTICES2 54 17 VerDate Sep<11>2014 18:43 May 15, 2018 Jkt 244001 rule change may become operative prior to the proposed C2 technology migration on May 14, 2018. In support of its waiver request, the Exchange states that many of the proposed rule changes are based on rules of EDGX Options and BZX Options and the proposed rule changes will align much of C2’s System with that of those other Cboe Affiliated Changes, which will simplify the User experience for those firms that are members of one or more of the other Cboe Affiliated Exchanges, and also will promote stability across the affiliated trading platforms. The Commission notes that, because migrating C2’s trading platform technology over to EDGX Options technology is a material event, the Exchange has publicized its plans well in advance by issuing periodic updates to Trading Permit Holders regarding the technology migration changes and the anticipated timeline in order to enable Trading Permit Holders to make and test system changes at the firm and User level to accommodate the transition and ensure uninterrupted access to the Exchange after the migration. In addition, as described in detail above, the Exchange’s proposal does not raise any new or novel issues, as the nature of the changes are connected to the migration of C2 to the existing technology and functionality of the EDGX Options platform. Therefore, the Commission believes that waving the 30-day operative delay is consistent with the protection of investors and the public interest. Accordingly, the Commission hereby waives the 30-day operative delay and designates the proposal operative on May 11, 2018.59 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 will 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 59 For purposes only of waving the 30-day operative delay, the Commission has considered the purposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). PO 00000 Frm 00035 Fmt 4701 Sfmt 9990 22829 change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– C2–2018–005 on the subject line. Paper Comments • 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–C2–2018–005. 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 (https://www.sec.gov/ rules/sro.shtml). 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 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–C2–2018–005 and should be submitted on or before June 6, 2018. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.60 Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2018–10417 Filed 5–15–18; 8:45 am] BILLING CODE 8011–01–P 60 17 E:\FR\FM\16MYN2.SGM CFR 200.30–3(a)(12). 16MYN2

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 83, Number 95 (Wednesday, May 16, 2018)]
[Notices]
[Pages 22796-22829]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-10417]

[[Page 22795]]

Vol. 83

Wednesday,

No. 95

May 16, 2018

Part III

Securities and Exchange Commission

-----------------------------------------------------------------------

Self-Regulatory Organizations; Cboe C2 Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of a Proposed Rule Change To Amend Rules in
Connection With the Migration of Cboe C2 to Cboe EDGX Options
Technology; Notice

Federal Register / Vol. 83 , No. 95 / Wednesday, May 16, 2018 /
Notices

[[Page 22796]]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83214; File No. SR-C2-2018-005]

Self-Regulatory Organizations; Cboe C2 Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
Rules in Connection With the Migration of Cboe C2 to Cboe EDGX Options
Technology

May 11, 2018.
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 April 27, 2018, 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 Exchange
filed the proposal as a ``non-controversial'' proposed rule change
pursuant to Section 19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-
4(f)(6) thereunder.\4\ The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------

\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).
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

The Exchange proposes to amend C2's rulebook in preparation for the
technology migration of C2 onto the options platform of an Exchange's
affiliated options exchange, Cboe EDGX Exchange, Inc. (``EDGX'' or
``EDGX Options'').
The text of the proposed rule change is also available on the
Exchange's website (https://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx), 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
In 2016, the Exchange's parent company, Cboe Global Markets, Inc.
(formerly named CBOE Holdings, Inc.) (``Cboe Global''), which is also
the parent company of Cboe Exchange, Inc. (``Cboe Options''), acquired
EDGX and its affiliated exchanges, Cboe EDGA Exchange, Inc. (``EDGA''
or ``EDGA Options''), Cboe BZX Exchange, Inc. (``BZX''), and Cboe BYX
Exchange, Inc. (``BYX'' and, together with C2, Cboe Options, EDGX,
EDGA, and BZX, the ``Cboe Affiliated Exchanges''). C2 intends to
migrate its technology onto the same trading platform as EDGX. In this
context, C2 proposes to align certain system functionality with EDGX
(and BZX in certain circumstances), while retaining certain C2
functionality, as well as to make other nonsubstantive changes to the
rules, retaining only intended differences between it and the Cboe
Affiliated Exchanges. Although the Exchange intentionally offers
certain features that differ from those offered by the Cboe Affiliated
Exchanges and will continue to do so, the Exchange believes offering
similar functionality to the extent practicable will reduce potential
confusion for market participants. The proposed rule change modifies or
adds certain system functionality currently offered by EDGX to provide
a consistent technology offering for users of Cboe Affiliated
Exchanges.
Chapter 1
The proposed rule change makes the following changes to Chapter 1
of the C2 Rulebook.
The following table identifies the defined terms that are proposed
to be added to or amended in C2 Rule 1.1, whether the proposed amended
rule was moved from a current C2 rule or corresponds to the rule of
EDGX or another exchange, and proposed substantive changes.

----------------------------------------------------------------------------------------------------------------
Corresponding
Defined term Provision Current C2 rule other exchange Description of change
rule
----------------------------------------------------------------------------------------------------------------
ABBO................ best bid(s) or offer(s) N/A................ EDGX Rule Added to C2 Rule 1.1.
disseminated by other 21.20(a)(1).
Eligible Exchanges \5\
and calculated by the
Exchange based on
market information the
Exchange receives from
OPRA.
Adjusted Series..... series in which, as a 8.5(a)(1).......... N/A............... Moved to C2 Rule 1.1.
result of a corporate
action by the
underlying security,
one option contract in
the series represents
the delivery of other
than 100 shares of
underlying stock or
Units.
Bid................. the price of a limit N/A................ EDGX Rule Added to C2 Rule 1.1.
order or quote to buy 16.1(a)(6).
one or more options
contracts.
Book or Simple Book. electronic book of 1.1................ EDGX Rule Adding that Book may
simple orders and 16.1(a)(9). also be referred to as
quotes maintained by Simple Book.
the System.
Call................ option contract under 1.1................ EDGX Rule Added clarifying
which the holder of the 16.1(a)(12). language consistent
option has the right, with put definition to
in accordance with the conform to EDGX rule.
terms of the option and
Rules of the Clearing
Corporation, to
purchase from the
Clearing Corporation
the number of units of
the underlying security
or index covered by the
option contract, at a
price per unit equal to
the exercise price,
upon the timely
exercise of the option.

[[Page 22797]]

Capacity............ capacity in which a User N/A................ N/A............... C2 currently refers to
submits an order, which capacity as origin
the User specifies by code; current C2
applying the origin codes are in
corresponding code to Regulatory Circular
the order, and includes RG13-015, and are the
B (account of a broker same as the proposed
or dealer, including a Capacities, except the
Foreign Broker-Dealer), proposed rule changes
C (Public Customer W to U (see EDGX
account), F (OCC specifications \6\),
clearing firm and adds L, which is
proprietary account), J not currently
(joint back office permitted on C2 (see
account), L (non- Cboe Options
Trading Permit Holder Regulatory Circular
affiliate account), M RG13-038).
(Market-Maker account),
N (market-maker or
specialist on another
options exchange), U
(Professional account).
Cboe Trading........ Cboe Trading, Inc., 3.18............... EDGX Rule 2.11.... Moved to C2 Rule 1.1.
broker-dealer
affiliated with C2 and
will serve as inbound
and outbound router for
C2, as discussed below.
Class............... all option contracts 1.1................ EDGX Rule Deletes unnecessary
with the same unit of 16.1(a)(13). reference to options,
trading covering the given only options
same underlying trade on C2; adds that
security or index. options may cover an
index (see C2 Chapter
24); deletes that a
class means options of
the same type
(currently defined as
put or call), as a
class is comprised of
both puts and calls;
adds that a class is
comprised of option
contracts with the
same unit of trading
covering the same
underlying security or
index (discussed
below).
Clearing Corporation Options Clearing 1.1................ EDGX Rule 16.1(14) Adding that the
or OCC. Corporation. Clearing Corporation
may also be referred
to as OCC.
Clearing Trading a Trading Permit Holder 1.1................ EDGX Rule Added that Clearing
Permit Holder. that has been admitted 16.1(a)(15). Trading Permit Holders
to membership in the self-clear or clear on
Clearing Corporation behalf of others
pursuant to the (consistent with C2
provisions of the rules today).
of the Clearing
Corporation and is self-
clearing or that clears
transactions for other
Trading Permit Holders.
Commission or SEC... U.S. Securities and 1.1................ EDGX Rule 1.5(g).. Adding that the
Exchange Commission. Commission may also be
referred to as SEC.
Complex Order....... order involving the 6.13(a)(1)......... EDGX Rule Moved to C2 Rule 1.1
concurrent execution of 21.20(a)(5). and 6.12(a); added
two or more different that C2, like EDGX,
series in the same can impose a maximum
class (the ``legs'' or number of legs and
``components'' of the determine in which
order), for the same classes complex orders
account, occurring at are available.
or near the same time
in a ratio greater than
or equal to one-to-
three and less than or
equal to three-to-one
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.
Customer............ Public Customer or N/A................ EDGX Rule Added to C2 Rule 1.1;
broker-dealer. 16.1(a)(19). new definition in C2
Rules, but concept of
customers exists
throughout current C2
rules (including in
priority rules).
Customer Order...... agency order for the N/A................ EDGX Rule Added to C2 Rule 1.1.
account of a Customer. 16.1(a)(20).
Discretion.......... authority of a broker or N/A................ EDGX Rule Added to C2 Rule 1.1;
dealer to determine for 16.1(a)(21). substantively the same
a Customer the type of as the EDGX
option, class or series definition.
of options, the number
of contracts, or
whether options are to
be bought or sold.
EFID................ Executing Firm ID....... N/A................ EDGX Rule Added to C2 Rule 1.1;
21.1(c)(1). EDGX rule refers to
the term MPID, which
is generally
equivalent to EFID;
similar to the term
acronym, which is used
in current C2 rules;
EFID is the term used
in C2 technical
specification
following migration,
and thus more
appropriate for the C2
rules; as noted below,
a firm may have
multiple EFIDs.
Equity Option....... option on an equity N/A (equity options EDGX Rule Added to C2 Rule 1.1.
security or Unit. permitted by C2 16.1(a)(27).
Chapter 5).
Exchange Act........ Securities Exchange Act 1.1................ EDGX Rule Added rules and
of 1934, including 16.1(a)(23). regulations, which
rules and regulations also apply to the
thereunder. Exchange rules.
Expiration Date..... third Friday of 1.1................ N/A............... Deleted language about
expiration month. series that expire on
Saturday rather than
Friday, as no more
grandfathered series
are listed on the
Exchange.
He, Him, His........ deemed to refer to N/A................ EDGX Rule Added to C2 Rule 1.1.
persons of female as 16.1(a)(25).
well as male gender and
to include
organizations, as well
as individuals, when
the context requires.
Index Option........ option on a broad-based, N/A (index options EDGX Rule Added to C2 Rule 1.1.
narrow-based, micro permitted by C2 16.1(a)(26).
narrow-based or other Chapter 24).
index of equity
securities prices.

[[Page 22798]]

Market Close........ time the Exchange N/A (market close EDGX Rule Added to C2 Rule 1.1.
specifies for the end time set forth in 16.1(a)(34).
of trading on the C2 Rule 6.1).
Exchange on that
trading day.
Market Open......... time the Exchange N/A (market open EDGX Rule Added to C2 Rule 1.1.
specifies for the start time set forth in 16.1(a)(35).
of trading on the C2 Rules 6.1 and
Exchange on that 6.10).
trading day.
Notional Value...... value calculated by 6.15(e)(1)(C)...... EDGX Rule Added to C2 Rule 1.1.
multiplying the number 20.6(e)(1)(C).
of contracts (contract
size multiplied by the
contract multiplier) in
an order by the order's
limit price.
NBB, NBO, and NBBO.. national best bid, 1.1................ EDGX Rule Added NBB and NBO to C2
national best offer, 16.1(a)(29). definition.
and national best bid
or offer the Exchange
calculates based on
market information it
receives from OPRA.
Offer............... the price of a limit N/A................ EDGX Rule Added to C2 Rule 1.1.
order or quote to sell 16.1(a)(30).
one more option
contracts.
OPRA................ Options Price Reporting N/A................ EDGX Rule Added to C2 Rule 1.1.
Authority. 16.1(a)(41).
Order............... firm commitment to buy 1.1 and 6.10(a) and EDGX Rule Moved market order and
or sell option (b). 16.1(a)(42) and limit order
contracts that the 21.1(c). definitions to C2 Rule
System receives from a 1.1, as all orders
User, which may be a must be market or
limit order or market limit.
order.
Order Entry Firm/OEF Trading Permit Holder N/A................ EDGX Rule Added to C2 Rule 1.1.
representing as agent 16.1(a)(36).
Customer Orders on the
Exchange and non-Market-
Maker Trading Permit
Holder conducting
proprietary trading.
Order Instruction... processing instruction a N/A................ EDGX Rule 21.1(d). Added to C2 Rule 1.1
User may apply to an (rules currently
order (multiple permit various
instructions may apply instructions); various
to a single order) when order instructions
entering it into the substantively similar
System. to those available on
EDGX.
Attributable........ order a User designates 6.10(f)............ EDGX Rule Moved to C2 Rule 1.1,
for display (price and 21.1(c)(1). Order Instruction.
size) that includes the
User's EFID or other
unique identifier.
Book Only........... order the System ranks 6.10(j)............ EDGX Rule Moved to C2 Rule 1.1,
and executes pursuant 21.1(d)(7). Order Instruction
to Rule 6.12, subjects (previously called C2-
to the Price Adjust Only Order).
process pursuant to
Rule 6.12, or cancels,
as applicable (in
accordance with User
instructions), without
routing away to another
exchange.
Cancel Back......... order a User designates N/A................ EDGX Rule 11.6(b). Added to C2 Rule 1.1
to not be subject to (consistent with Rule
the Price Adjust 6.82) and
process pursuant to substantively similar
Rule 6.12 that the EDGX Rule (further
System cancels or discussed below).
rejects (immediately at
the time the System
receives the order or
upon return to the
System after being
routed away) if
displaying the order on
the Book would create a
violation of Rule 6.82,
or if the order cannot
otherwise be executed
or displayed in the
Book at its limit price.
Intermarket Sweep order that has the 6.10(g)............ EDGX Rule Moved to C2 Rule 1.1
Order/ISO. meaning provided in 21.1(d)(2). (consistent with
Section E of Chapter 6, current C2 system).
which may be executed
at one or multiple
price levels in the
System without regard
to Protected Quotations
at other options
exchanges; the Exchange
relies on the marking
of an order by a User
as an ISO order when
handling such order,
and thus, it is the
entering Trading Permit
Holder's
responsibility, not the
Exchange's
responsibility, to
comply with the
requirements relating
to ISOs.
Match Trade order not executed 6.10(k)............ EDGX Rule 21.1(g). Moved to C2 Rule 1.1
Prevention/MTP against a resting and conformed to EDGX
Modifier. opposite side order or rule (further
quote also designated discussed below).
with an MTP modifier
and originating from
the same EFID, Trading
Permit Holder
identifier, trading
group identifier, or
Sponsored User
identifier (``Unique
Identifier''), with
five types of modifiers
available.
Minimum Quantity.... order that requires a N/A................ EDGX Rule Added to C2 Rule 1.1
specified minimum 21.1(d)(3). (further discussed
quantity of contracts below).
be executed or is
cancelled; Minimum
Quantity orders will
only execute against
multiple, aggregated
orders if such
executions would occur
simultaneously, and
only a Book Only order
with TIF designation of
IOC may have a Minimum
Quantity instruction
(the System disregards
a Minimum Quantity
instruction on any
other order).
Non-Attributable.... order a User designates N/A................ EDGX Rule Added to C2 Rule 1.1--
for display (price and 21.1(c)(2). orders currently not
size) on an anonymous marked Attributable on
basis or not designated C2 are non-
as an Attributable attributable; proposed
Order. rule change merely
permits Users to
affirmatively
designate orders as
non-attributable, and
specify the Exchange
will by default treat
orders as Non-
Attributable unless
the User designates it
as Attributable.

[[Page 22799]]

Post Only........... order the System ranks N/A................ EDGX Rule Added to C2 Rule 1.1
and executes pursuant 21.1(d)(8). (further discussed
to Rule 6.12, subject below).
to the Price Adjust
process pursuant to
Rule 6.12, or cancels
or rejects (including
if it is not subject to
the Price Adjust
process and locks or
crosses a Protected
Quotation of another
exchange), as
applicable, except the
order may not remove
liquidity from the Book
or route away to
another Exchange.
Price Adjust........ order a User designates N/A................ EDGX Rule 21.1(i). Added to C2 Rule 1.1
to be subject to the (Price Adjust process
Price Adjust process described further
pursuant to Rule 6.12, below).
or an order a User does
not designate as Cancel
Back.
Reserve Order....... limit order with both a 6.10(c)(8) and BZX Rule Moved to C2 Rule 1.1
portion of the quantity 6.12(c). 21.1(d)(1). (further discussed
displayed (``Display below).
Quantity'') and a
reserve portion of the
quantity (``Reserve
Quantity'') not
displayed; both display
quantity and reserve
quantity are available
for potential execution
against incoming
orders, with Max Floor
and replenishment
instructions available.
Stop (Stop-Loss) order to buy (sell) that 6. 10(c)(3)........ BZX Rule Moved to C2 Rule 1.1;
Order. becomes a market order 21.1(d)(11). modified to compare
when the consolidated stop prices to
last sale price national prices rather
(excluding prices from than Exchange prices
complex order trades if (EDGX similarly uses
outside the NBBO) or the NBBO), which
NBB (NBO) for a reflect price from
particular option entire market (similar
contract is equal to or change in Rule 6.10(c)
above (below) the stop provision regarding
price specified by the stop orders).
User.
Stop-Limit Order.... order to buy (sell) that 6.10(c)(4)......... BZX Rule Moved to C2 Rule 1.1;
becomes a limit order 21.1(d)(12). modified to compare
when the consolidated stop prices to
last sale price national prices rather
(excluding prices from than Exchange prices
complex order trades if (EDGX similarly uses
outside the NBBO) or the NBBO), which
NBB (NBO) for a reflect price from
particular option entire market (similar
contract is equal to or change in Rule 6.10(c)
above (below) the stop provision regarding
price specified by the stop orders).
User.
Port................ adds definitions of N/A................ EDGX Rule 21.1(j). Added to C2 Rule 1.1
various types of ports (further discussed
available in the new below).
Exchange system.
Primary Market...... primary exchange on N/A................ EDGX Rule Added to C2 Rule 1.1
which an underlying 16.1(a)(44). (concept exists in
security is listed. current C2 rules, such
a 6.11(b)).
Protected Quotation. a Protected Bid or 6.80............... EDGX Rule Added to list of
Protected Offer, as 16.1(a)(47). defined terms in C2
each of those terms is Rule 1.1.
defined in Rule 6.80.
Put................. option contract under 1.1................ EDGX Rule Added clarifying
which the holder of the 16.1(a)(49). language consistent
option has the right, with put definition to
in accordance with the conform to EDGX rule.
terms and provisions of
the option and Rules of
the Clearing
Corporation, to sell to
the Clearing
Corporation the number
of units of the
underlying security
covered by the option
contract, at a price
per unit equal to the
exercise price, upon
the timely exercise of
such option.
Quote or quotation.. bid or offer entered by 1.1................ EDGX Rule Conforms C2 definition
a Market-Maker as a 16.1(a)(51). to EDGX definition
firm order, which (including to state
updates the Market- that Market-Maker
Maker's previous bid or quotes are entered
offer, if any. using order
functionality).
SBBO................ best bid and offer on 1.1................ EDGX Rule Moved to proposed C2
the Exchange for a 21.20(a)(11). Rule 6.13(a);
complex strategy currently defined as
calculated using the Exchange Spread Market
BBO for each component in C2 Rule 1.1, which
of a complex strategy definition is being
to establish the best deleted.
net bid and offer for a
complex strategy.
Series.............. all option contracts of 1.1................ EDGX 16.1(a)(55).. Clarified that a series
the same class that are consists of options of
the same type of option the same type (i.e.
and have the same options with the same
exercise price, and exercise price and
expiration date. date that are calls
are a series, and
options with the same
exercise price and
date that are puts are
another series).
Size................ number of contracts up N/A................ EDGX Rule 21.1(e). Added to C2 Rule 1.1
to 999,999 associated (consistent with
with an order or quote. current C2 system).
SNBBO............... national best bid and 1.1................ EDGX Rule Moved to Rule 6.13(a);
offer for a complex 21.20(a)(12). currently defined as
strategy calculated National Spread Market
using the NBBO for each in C2 Rule 1.1, which
component of a complex definition is being
strategy to establish deleted.
the best net bid and
offer for a complex
strategy.
System Securities... options that currently N/A................ EDGX Rule 21.1(b). Added to C2 Rule 1.1
trade on the Exchange (additional term for
pursuant to Chapters 5 options listed for
and 24. trading).
Time-in-Force....... period of time the N/A................ EDGX Rule 21.1(f). Added to C2 Rule 1.1
System will hold an (general term to cover
order for potential various time-in-force
execution. instructions).
Day................. time-in-force that means 6.10(e)(1)......... EDGX Rule Moved to C2 Rule 1.1.
an order to buy or sell 21.1(f)(3).
that, if not executed,
expires at market close.
Fill-or-Kill/FOK.... time-in-force that means 6.10(c)(5)......... EDGX Rule Moved to C2 Rule 1.1.
an order that is to be 21.1(f)(5).
executed in its
entirety as soon as the
System receives it and,
if not so executed,
cancelled.

[[Page 22800]]

Good-til-Cancelled/ time-in-force that 6.10(c)(2)......... EDGX Rule Moved to C2 Rule 1.1.
GTC. means, if after entry 21.1(f)(4).
into the System, the
order is not fully
executed, the order (or
unexecuted portion)
remains available for
potential display or
execution (with the
same timestamp) unless
cancelled by the
entering User, or until
the option expires,
whichever comes first.
Good-til-Date/GTD... time-in-force that N/A................ EDGX Rule Added to C2 Rule 1.1
means, if after entry 21.1(f)(1). (similar to EDGX time-
into the System, the in-force, as further
order is not fully discussed below).
executed, the order (or
unexecuted portion)
remains available for
potential display or
execution (with the
same timestamp) until a
date and time specified
by the entering User
unless cancelled by the
entering User.
Immediate-or-Cancel/ time-in-force for a 6.10(c)(6)......... EDGX Rule Moved to C2 Rule 1.1.
IOC. limit order that is to 21.1(f)(2).
be executed in whole or
in part as soon as the
System receives it; the
System cancels and does
not post to the Book
any portion of an IOC
order (or unexecuted
portion) not executed
immediately on the
Exchange or another
options exchange.
At the Open/OPG..... time-in-force means an 6.10(c)(7)......... EDGX Rule Moved to C2 Rule 1.1.
order that may only 21.1(f)(6).
participate in the
Opening Process on the
Exchange; the System
cancels an OPG order
(or unexecuted portion)
that does not execute
during the Opening
Process.
Trade Desk.......... Exchange operations 1.1................ N/A............... Changed to Trade Desk,
staff authorized to which is new term for
make certain trading Help Desk at the
determinations on Exchange (which term
behalf of the Exchange. is being deleted from
the Rules).
Transaction......... transaction involving a N/A................ EDGX Rule Added to C2 Rule 1.1
contract effected on or 16.1(a)(11). (same as EDGX rule,
through the Exchange or consistent with
its facilities or industry term).
systems.
Unit................ shares or other 5.3, Interpretation EDGX Rule 19.3(i) Added to list of
securities traded on a and Policy .06. (Units defined as defined terms in C2
national securities Fund Shares in Rule 1.1.
exchange and defined as EDGX Rules).
an ``NMS stock'' under
Rule 600 of Regulation
NMS, and that satisfy
the criteria in Rule
5.3, Interpretation and
Policy .06.
Unit of Trading..... defined in Rule 6.2..... 6.2................ N/A............... Added to list of
defined terms in C2
Rule 1.1 (discussed
below).
User................ any Trading Permit N/A................ EDGX Rule Added to C2 Rule 1.1
Holder or Sponsored 16.1(a)(63). (common term to apply
User who is authorized to two types of market
to obtain access to the participants defined
System pursuant to Rule in C2 Rules, which are
6.8. the only two market
participants that may
access the System
under C2 Rules).
----------------------------------------------------------------------------------------------------------------

The proposed rule change makes changes throughout C2 Rules to
conform to the changes to defined terms.
---------------------------------------------------------------------------

\5\ Eligible Exchange is defined in Cboe Rule 6.80(7).
\6\ BOE Specifications, available at https://cdn.batstrading.com/resources/membership/BATS_US_Options_BOE2_Specification.pdf, and FIX
Specifications, available at https://cdn.batstrading.com/resources/membership/BATS_US_Options_BZX_FIX_Specification.pdf.
---------------------------------------------------------------------------

As noted above, the proposed rule change amends the definition of
class to mean all option contracts with the same unit of trading
(including adjusted series as determined by OCC) covering the same
underlying security or index. The current definition states a class
consists of options of the same type, which is defined as either a put
or a call. However, the term class is generally understood to include
both puts and calls, which are types of series, not separate classes,
making this definition outdated. As described above, options with the
same exercise price and expiration date that are puts constitute one
series, and options with the same exercise price and expiration date
that are calls constitute another series. Additionally, there are some
exceptions for options that cover the same underlying but constitute a
separate class, and the proposed definition incorporates this
concept.\7\ For example, mini-options cover the same underlying
security as standard options, but are considered as separate class
since they have a different deliverable (10 shares of the underlying
security rather than 100 shares of the underlying security,
respectively). Additionally, when OCC adjusts series in connection with
corporate actions (see Rule 5.7), it announces whether those series are
part of the same existing class or a new class covering the same
underlying security. The concept of unit of trading more accurately
describes the series that constitute a class (e.g. the unit of trading
for a mini-option is 10, and the unit of trading for a standard option
is 100, making each a separate class under the proposed definition).
The proposed definition accounts for these exceptions, and is a more
accurate definition of what options constitute a class today on the
Exchange.
---------------------------------------------------------------------------

\7\ The proposed definition is based on the OCC definition of
class. See OCC By-Laws Article I, C.(11). The proposed definition of
unit of trading is consistent with C2 Rule 6.2.
---------------------------------------------------------------------------

As noted above, the proposed rule change adds the following order
instructions to C2 Rule 1.1, which order instructions are available on
EDGX or BZX, as indicated.
Cancel Back: A Book Only or Post Only order a User
designates to not be subject to the Price Adjust Process pursuant to
Rule 6.12, which the System cancels or rejects if it locks or crosses
the opposite side of the ABBO. The System executes a Book Only--Cancel
Back order against resting orders and quotes, and cancels or rejects a
Post Only--Cancel Back order, that locks or crosses the opposite side
of the BBO. The proposed functionality is partially included in the
definition of Post Only in the EDGX rules.\8\ The proposed rule change
extends the definition to Book Only orders and is consistent with

[[Page 22801]]

linkage rules included in Chapter 6, Section E of the Rules and is
consistent with EDGX Rule 21.6(f). Book Only orders and Post Only
orders do not route by definition, and the Cancel Back instruction
provides an option for Users to determine how they will be handled
within the System, consistent with their definitions.\9\
---------------------------------------------------------------------------

\8\ See EDGX Rule 21.6(d)(8).
\9\ EDGX Rule 11.6(b) (which relates to the EDGX Equities
market) contains a similar Cancel Back instruction.
---------------------------------------------------------------------------

Match Trade Prevention (MTP) Modifiers: Current C2 Rule
6.10(k) defines a Market-Maker Trade Prevention Order as an IOC order
market with the Market-Maker Trade Prevention designation. A Market-
Maker Trade Prevention Order that would trade against a resting quote
or order for the same Market-Maker will be cancelled, as will the
resting quote or order (unless the Market-Maker Trade Prevention Order
is received while an order for the same Market-Maker is subject to an
auction, in which case only the Market-Maker Trade Prevention Order
will be cancelled). The Exchange proposes to adopt MTP modifiers
substantively the same as those available on EDGX.\10\ The proposed MTP
modifiers expand this functionality to all Users, rather than just
Market-Makers, and provide Users with multiple options regarding how
the System handles orders and quotes with the same Unique Identifiers.
Pursuant to the proposed rule change, an order designated with any MTP
modifier is not executed against a resting opposite side order or quote
also designated with an MTP modifier and originating from the same
Unique Identifier. Except for the MDC modifier described below, the MTP
modifier on the incoming order controls the interaction between two
orders marked with MTP modifiers:
---------------------------------------------------------------------------

\10\ See EDGX Rule 21.1(g).
---------------------------------------------------------------------------

[cir] MTP Cancel Newest (``MCN''): An incoming order marked with
the ``MCN'' modifier does not execute against a resting order marked
with any MTP modifier originating from the same Unique Identifier. The
System cancels or rejects the incoming order, and the resting order
remains in the Book.
[cir] MTP Cancel Oldest (``MCO''): An incoming order marked with
the ``MCO'' modifier does not execute against a resting order marked
with any MTP modifier originating from the same Unique Identifier. The
System cancels or rejects the resting order, and processes the incoming
order in accordance with Rule 6.12.
[cir] MTP Decrement and Cancel (``MDC''): An incoming order marked
with the ``MDC'' modifier does not execute against a resting order
marked with any MTP modifier originating from the same Unique
Identifier. If both orders are equivalent in size, the System cancels
or rejects both orders. If the orders are not equivalent in size, the
System cancels or rejects the smaller of the two orders and decrements
the size of the larger order by the size of the smaller order, which
remaining balance remains on or processes in accordance with Rule 6.12,
as applicable. Notwithstanding the foregoing, unless a User instructs
the Exchange not to do so, the System cancels or rejects both orders if
the resting order is marked with any MTP modifier other than MDC and
the incoming order is smaller in size than the resting order.
[cir] MTP Cancel Both (``MCB''): An incoming order marked with the
``MCB'' modifier does not execute against a resting order marked with
any MTP modifier originating from the same Unique Identifier. The
System cancels or rejects both orders.
[cir] MTP Cancel Smallest (``MCS''): An incoming order marked with
the ``MCS'' modifier does not execute against a resting order marked
with any MTP modifier originating from the same Unique Identifier. If
both orders are equivalent in size, the System cancels or rejects both
orders. If the orders are not equivalent in size, the System cancels or
rejects the smaller of the two orders, and the larger order remains on
the Book or processes in accordance with Rule 6.12, as applicable.
The proposed MTP functionality is designed to prevent market
participants from unintentionally causing a proprietary self-trade. The
Exchange believes these modifiers will allow firms to better manage
order flow and prevent undesirable executions with themselves. Trading
Permit Holders may have multiple connections into the Exchange
consistent with their business needs and function. As a result, orders
routed by the same firm via different connections may, in certain
circumstances, trade against each other. The proposed modifiers provide
Trading Permit Holders with functionality (in addition to what is
available on C2 today) with the opportunity to prevent these
potentially undesirable trades. The Exchange notes that offering the
MTP modifiers may streamline certain regulatory functions by reducing
false positive results that may occur on Exchange generated wash
trading surveillance reports when orders are executed under the same
Unique Identifier. For these reasons, the Exchange believes the MTP
modifiers offer users enhanced order processing functionality that may
prevent potentially undesirable executions without negatively impacting
broker-dealer best execution obligations.
Minimum Quantity Order: An order that requires a specified
minimum quantity of contracts be executed or is cancelled. Minimum
Quantity orders will only execute against multiple, aggregated orders
if such executions would occur simultaneously. Only a Book Only order
with a time-in-force designation of IOC may have a Minimum Quantity
instruction (the System disregards a Minimum Quantity instruction on
any other order). This functionality ensures a User's order will not
partially execute for less than the minimum amount of contracts a User
desires to execute as part of its investment strategy. Only permitting
this functionality for Book Only IOC order is consistent with the
purpose of this functionality, as current Exchange functionality cannot
guarantee that an order that routes or rests on the book to execute
against incoming orders will be executed for the minimum requested
amount.
Post Only Order: An order the System ranks and executes
pursuant to proposed Rule 6.12, subjects to the Price Adjust process
pursuant to Rule 6.12, or cancels (including if it is not subject to
the Price Adjust process and it would lock or cross a Protected
Quotation on another exchange), as applicable (in accordance with User
instructions), except the order may not remove liquidity from the Book
or route away to another Exchange. This proposed instructions is nearly
identical to the C2 Only/Book Only order instruction, except it will
also not remove liquidity from the Book. The Exchange currently has a
maker-taker fee structure, pursuant to which an execution taking
liquidity from the Book is subject to a taker fee. This proposed
instruction provides Users with flexibility to avoid incurring a taker
fee if their intent is to submit an order to add liquidity to the Book.
Reserve Order: A limit order with both a portion of the
quantity displayed (``Display Quantity'') and a reserve portion of the
quantity (``Reserve Quantity'') not displayed. Both the Display
Quantity and Reserve Quantity of the Reserve Order are available for
potential execution against incoming orders. When entering a Reserve
Order, a User must instruct the Exchange as to the quantity of the
order to be initially displayed by the System (``Max Floor''). If the
Display Quantity of a Reserve Order is fully executed, the System will,
in accordance with the User's instruction, replenish the Display
Quantity from the Reserve Quantity

[[Page 22802]]

using one of the below replenishment instructions. If the remainder of
an order is less than the replenishment amount, the System will display
the entire remainder of the order. The System creates a new timestamp
for both the Display Quantity and Reserve Quantity of the order each
time it is replenished from reserve.
[cir] Random Replenishment: An instruction that a User may attach
to an order with Reserve Quantity where the System randomly replenishes
the Display Quantity for the order with a number of contracts not
outside a replenishment range, which equals the Max Floor plus and
minus a replenishment value established by the User when entering a
Reserve Order with a Random Replenishment instruction.
[cir] Fixed Replenishment: For any order for that a User does not
select Random Replenishment, the System will replenish the Display
Quantity of an order with the number of contracts equal to the Max
Floor.
Current C2 Rule 6.10(c)(8) describes current reserve order
functionality available on C2. The proposed functionality is generally
the same as the current C2 functionality but enhances the use of
reserve orders by providing flexibility for Users to determine whether
the reserve replenishment amount is fixed or random. This proposed
functionality is substantively the same as that available on BZX.\11\
---------------------------------------------------------------------------

\11\ See BZX Rule 21.1(d)(1).
---------------------------------------------------------------------------

The Exchange will provide access to the C2 System to Users through
various ports, as is the case on EDGX. There are three different types
of ports: Physical ports, logical ports, and bulk order ports. The
Exchange notes a bulk order port is a type of logical port, and there
are other types of logical ports not specifically identified in the
proposed rule. The Exchange believes a separate definition is warranted
for bulk order ports given the specific functionality provided through
such ports but that other types of logical ports are sufficiently
described in the proposed definition of logical port.
The proposed rule change defines the term ``port'' to the Rule 1.1,
including the following type of ports: \12\
---------------------------------------------------------------------------

\12\ See EDGX Rule 21.1(j).
---------------------------------------------------------------------------

A ``physical port'' provides a physical connection to the
System. A physical port may provide access to multiple logical ports.
A ``logical port'' or ``logical session'' provides the
ability within the System to accomplish a specific function through a
connection, such as order entry, data receipt, or access to information
(for example, as discussed below, certain risk control settings may be
input by port).
A ``bulk order port'' is a dedicated logical port that
provides Users with the ability to submit single and bulk order
messages to enter, modify, or cancel orders designated as Post Only
Orders with a Time-in-Force of Day or GTD with an expiration time on
that trading day. As noted below, quoting functionality will not be
available to Market-Makers after the technology migration. This bulk
order functionality will provide Market-Makers with a way to submit
orders that simulate current quoting functionality. Bulk order messages
will not route to other exchanges with use of the Post Only
instruction, which is consistent with current quoting functionality
that does not route Market-Maker quotes. Additionally, Market-Makers
generally enter new quotes at the beginning of each trading day based
on then-current market conditions, and the Day or GTD (with an
expiration time on that trading day) Time-in-Force instruction is
consistent with this practice. Because these messages will be used to
add liquidity to the Book, the Exchange will make this type of port
available to all Users to encourage all Users to provide liquidity to
the C2 market. This functionality is substantively the same as port
functionality available on EDGX.
Port is the term the Exchange will use to describe the connection a
User will use to connect to the System following the technology
migration. Currently, the Exchange refers to System connections as
logins, but the functionality is generally the same.
The proposed rule change restricts the type of messages that may be
submitted through bulk order ports to orders designated as Post Only
Orders with a Time-in-Force of Day or GTD with an expiration time on
that trading day. Based on definitions described in this rule filing,
Post Only Orders with a Time-in-Force of Day or GTD will be posted to
and displayed by the Exchange, rather than remove liquidity or route to
another options exchange. As a general matter, and as further described
below, the proposed change is intended to limit the use of bulk order
ports to liquidity provision, particularly by, but not limited to,
Market-Makers. In turn, the Exchange believes it is unnecessary to
allow orders entered via bulk order entry ports to be able to last
beyond the trading day on which they were entered. The Exchange notes
that while, as a general matter, bulk order entry provides an efficient
way for a market participant to conduct business on the Exchange by
allowing the bundling of multiple instructions in a single message, the
main purpose of such functionality has always been to encourage quoting
on exchanges.\13\
---------------------------------------------------------------------------

\13\ For instance, when initially adopted by BZX, bulk order
entry was described as a ``bulk-quoting interface'' and such
functionality was limited to BZX market makers. See Securities
Exchange Act Release No. 65133 (August 15, 2011), 76 FR 52032
(August 19, 2011) (SR-BATS-2011-029). Bulk quoting was shortly
thereafter expanded to be available to all participants on BZX's
options platform but the focus remained on promoting liquidity
provision on the Exchange, even though the types of messages
permitted were not limited to liquidity providing orders. See
Securities Exchange Act Release No. 65307 (September 9, 2011), 76 FR
57092 (September 15, 2011) (SR-BATS-2011-034).
---------------------------------------------------------------------------

The Exchange proposes to provide this functionality, which is more
similar to quoting functionality currently available on C2. In
particular, EDGX has never differentiated between a quote or an order
on entry. Rather, Users on EDGX submit orders to the Exchange
regardless of the Capacity (i.e., Customer, Market-Maker, or other Non-
Market-Maker professional) of the order and regardless of the intended
result from submitting such order (e.g., to remove liquidity, post and
display liquidity on EDGX, or route to another market). Following
migration, C2 will similarly not differentiate between a quote or an
order entry. Of course, an order that is posted and displayed on the
Exchange is a quotation and the Exchange does maintain various
requirements regarding quotations and quoting on the Exchange. The
Exchange, however, reiterates that C2 currently distinguishes between
orders and quotes, with quotes being required of and only available to
registered Market-Makers. In contrast, following migration, in order to
quote on the Exchange, a User (including a Market-Maker) will submit an
order. While the Exchange does not propose to limit bulk order entry
functionality to Market-Makers on the Exchange, the Exchange does
propose to limit the type of messages that may be submitted through
bulk order entry ports in order to mimic the quoting functionality
offered by C2 today.
As noted above, the proposed rule change adds the Time-in-Force
option Good-til-Date, which is similar to Good-til-Date functionality
available on EDGX.\14\ For an order so designated, if after entry into
the System, the order is not fully executed, the order (or any
unexecuted portion) remains available for potential display or
execution until a date and time specified by the entering User unless
cancelled by the entering User. This Time-in-Force option will

[[Page 22803]]

provide Users with additional flexibility regarding the handling of
their orders on the System. It will permit Users' orders to be
automatically cancelled at specified dates and times rather than
require Users to manually cancel GTC orders at those times.
---------------------------------------------------------------------------

\14\ See EDGX Rule 21.1(f)(1) and (3).
---------------------------------------------------------------------------

The proposed rule change also deletes the following defined terms.
While these terms are used in rules C2 incorporates by reference to
Cboe Options rules, these terms are not currently used in the text of
the C2 rulebook:

Aggregate Exercise Price
American-style Option
Capped-style Option
Closing Purchase Transaction
Closing Writing Transaction
Covered
European-style Option
Opening Purchase Transaction
Opening Writing Transaction
Principal Shareholder
Quarterly Option Series
Security Future-Option Order
Uncovered

The proposed rule change deletes the terms Participant and Permit
Holder, which both mean a Trading Permit Holder, another defined term.
To simplify the C2 rulebook, the Exchange proposes to have one term
refer to a Trading Permit Holder and makes conforming changes
throughout the Rules.
The proposed rule change adds Interpretation and Policy .01 to Rule
1.1, which states to the extent a term is used in any Rules
incorporated by reference to Cboe Options rules and not otherwise
defined in the Rules, the term will have the meaning set forth in the
Cboe Options rules. To the extent a market participant is reviewing an
incorporated by reference rule, the Exchange believes it is appropriate
to direct market participants to the Cboe Options rulebook for the
definitions of terms used in that rule, because that rule essentially
incorporates the definition of any defined terms used in that rule. The
Exchange believes it is simpler and less confusing to refer market
participants to the Cboe Options rulebook for definitions than to refer
them back to the C2 rulebook.
The proposed rule change moves Interpretation and Policy .01 to the
defined term Professional to Interpretation and Policy .02 at the end
of Rule 1.1, as the Exchange believes it is less confusing to have all
Interpretations and Policies to a rule located in the same place. The
proposed rule change adds a cross-reference to this Interpretation and
Policy to the definition of Professional.
The proposed rule change deletes the term Voluntary Professional,
as that Capacity designation will no longer be available on C2. It is
currently unavailable on EDGX.
Finally, the proposed rule change makes nonsubstantive changes
throughout the definitions in Rule 1.1, including to conform language
throughout the rules, to conform language to corresponding EDGX rules,
and to use plain English.
Proposed C2 Rule 1.2 states the Exchange announces to Trading
Permit Holders all determinations it makes pursuant to the Rules via
(a) specifications, Notices, or Regulatory Circulars with appropriate
advanced notice, which will be posted on the Exchange's website, or as
otherwise provided in the Rules, (b) electronic message, or (c) other
communication method as provided in the Rules. Current C2 Rules states
the Exchange will generally announce determinations by Regulatory
Circular, and the proposed rule expands the different type of documents
that may be used to announce determinations, consistent with EDGX.
Proposed Rule 1.2 makes clear this information will be available on
C2's website in an easily accessible manner, regardless of the manner
in which the Exchange announces it. Additionally, certain
determinations are made more real-time pursuant to electronic message
received by Trading Permit Holders (e.g., providing intra-day relief
for parameter settings in in price protection mechanisms described in
proposed Rule 6.14, Interpretation and Policy .01, other determinations
related to need to maintain fair and orderly market). This single rule
simplifies the Rules by eliminating the need to repeatedly state in the
rules how the Exchange will announce determinations. The proposed rule
change makes conforming changes throughout the Rules.
Proposed C2 Rule 1.3 states unless otherwise specified, all times
in the Rules are Eastern Time, except for times in Rules incorporated
by reference to Cboe Options rules, which are times as set forth in the
applicable Cboe Options rules. Current C2 Rules are generally in
Chicago time, so the proposed rule change makes conforming changes
throughout the Rules. This single rule simplifies the Rules by
eliminating the need to repeatedly state times are in Eastern Time.
Chapter 3
The proposed rule change moves the provision regarding Exchange
affiliations with Trading Permit Holders from current Rule 3.2(f) to
proposed Rule 3.16. Current Rule 3.2(f) prohibits the Exchange from
acquiring or maintaining an ownership interest in a Trading Permit
Holder, as well as prohibits Trading Permit Holder affiliations with
the Exchange or an affiliate of the Exchange without prior Commission
approval. Current exceptions include equity interests in CBSX LLC and
affiliations with OneChicago, LLC. EDGX Rule 2.10 contains similar
restrictions on Exchange affiliations with EDGX Members, but also
contains additional exceptions, including (a) a Member's acquisition of
an equity interest in Cboe Global that is permitted by the ownership
and voting limitations contained in the Certificate of Incorporation
and Bylaws of Cboe Global, (b) affiliations solely by reason of a
Member (or any officer, director, manager, managing member, partner, or
affiliate of such Member) becoming a director of the Exchange or Cboe
Global, or (c) affiliations with Cboe Trading or other Cboe-affiliated
exchanges. Cboe Global and C2 governing documents (which have been
filed with the Commission) describe any applicable restrictions on
equity ownership of Cboe Global, as well as criteria for directors of
C2 and Cboe Global Markets. Additionally, C2 governing documents are
substantially similar to those of EDGX, and C2 and EDGX have the same
parent company (C2 Global). As discussed below, C2's affiliation with
Cboe Trading has recently been approved by the Commission. Therefore,
the proposed rule change adds to Rule 3.16 similar exclusions from the
affiliation prohibition contained in EDGX Rule 2.10, as the same
affiliate restrictions apply to both exchanges and are consistent with
governing documents of C2 and Cboe Global previously filed with the
Commission.
The proposed rule change adopts Rule 3.17 to govern the Exchange's
use of Cboe Trading as an outbound router. Proposed Rule 3.17 is based
on EDGX Rule 2.11. As long as Cboe Trading is affiliated with C2 and is
providing outbound routing of orders from C2 to other securities
exchanges, facilities of securities exchanges, automated trading
systems, electronic communications networks or other brokers or dealers
(``Trading Centers'' and, such function of Cboe Trading is referred to
as the ``Outbound Router''), Cboe Trading's outbound routing services
would be subject to the following conditions and limitations:
C2 will regulate the Outbound Router function of Cboe
Trading as a facility (subject to Section 6 of the Act),

[[Page 22804]]

and will, among other things, be responsible for filing with the
Commission rule changes and fees relating to the Cboe Trading Outbound
Router function and Cboe Trading will be subject to exchange non-
discrimination requirements; [sic]
FINRA, a self-regulatory organization unaffiliated with
the Exchange or any of its affiliates, will carry out oversight and
enforcement responsibilities as the designated examining authority
designated by the Commission pursuant to Rule 17d-1 of the Act with the
responsibility for examining Cboe Trading for compliance with
applicable financial responsibility rules.
A Trading Permit Holder's use of Cboe Trading to route
orders to another Trading Center will be optional. Any Trading Permit
Holder that does not want to use Cboe Trading may use other routers to
route orders to other Trading Centers.
Cboe Trading will not engage in any business other than
(a) its Outbound Router function, (b) its Inbound Router function as
described in Rule 3.18, (c) its usage of an error account in compliance
with proposed paragraph (a)(7) below, and (d) any other activities it
may engage in as approved by the Commission.
The Exchange will establish and maintain procedures and
internal controls reasonably designed to adequately restrict the flow
of confidential and proprietary information between the Exchange and
its facilities (including Cboe Trading), and any other entity,
including any affiliate of Cboe Trading, and, if Cboe Trading or any of
its affiliates engages in any other business activities other than
providing routing services to the Exchange, between the segment of Cboe
Trading or its affiliate that provides the other business activities
and the routing services.
The Exchange or Cboe Trading may cancel orders as either
deems to be necessary to maintain fair and orderly markets if a
technical or systems issue occurs at the Exchange, Cboe Trading, or a
routing destination. The Exchange or Cboe Trading will provide notice
of the cancellation to affected Trading Permit Holders as soon as
practicable.
Cboe Trading will maintain an error account for the
purpose of addressing positions that are the result of an execution or
executions that are not clearly erroneous under Rule 6.29 and result
from a technical or systems issue at Cboe Trading, the Exchange, a
routing destination, or a non-affiliate third-party Routing Broker that
affects one or more orders (``Error Positions'').
[cir] For purposes of proposed Rule 3.17(a)(7), an Error Position
will not include any position that results from an order submitted by a
Trading Permit Holder to the Exchange that is executed on the Exchange
and automatically processed for clearance and settlement on a locked-in
basis.
[cir] Except as provided in proposed subparagraph (7)(C) (described
in the next bullet), Cboe Trading does not accept any positions in its
error account of a Trading Permit Holder or permit any Trading Permit
Holder to transfer any positions from the Trading Permit Holder's
account to Cboe Trading's error account.
[cir] If a technical or systems issue results in the Exchange not
having valid clearing instructions for a Trading Permit Holder to a
trade, Cboe Trading may assume the Trading Permit Holder's side of the
trade so that the trade can be automatically processed for clearance
and settlement on a locked-in basis.
[cir] In connection with a particular technical or systems issue,
Cboe Trading or the Exchange will either assign all resulting Error
Positions to the Trading Permit Holders in accordance with proposed
subparagraph (D)(i),\15\ or have all resulting Error Positions
liquidated in accordance with proposed subparagraph (D)(ii).\16\ Any
determination to assign or liquidate Error Positions, as well as any
resulting assignments, will be made in a nondiscriminatory fashion.
---------------------------------------------------------------------------

\15\ Proposed subparagraph (a)(7)(D)(i) states Cboe Trading or
the Exchange will assign all Error Positions resulting from a
particular technical or systems issue to the Trading Permit Holders
affected by that technical or systems issue if Cboe Trading or the
Exchange (a) determines it has accurate and sufficient information
(including valid clearing information) to assign the positions to
all of the Trading Permit Holders affected by that technical or
systems issue; (b) determines it has sufficient time pursuant to
normal clearance and settlement deadlines to evaluate the
information necessary to assign the positions to all of the Trading
Permit Holders affected by that technical or systems issue; and (c)
has not determined to cancel all orders affected by that technical
or systems issue in accordance with proposed subparagraph (a)(6).
\16\ Proposed subparagraph (a)(7)(D)(ii) states if Cboe Trading
or the Exchange is unable to assign all Error Positions resulting
from a particular technical or systems issue to all of the affected
Trading Permit Holders in accordance with proposed subparagraph (D),
or if Cboe Trading or the Exchange determines to cancel all orders
affected by the technical or systems issue in accordance with
proposed subparagraph (a)(6), then Cboe Trading will liquidate any
applicable Error Positions as soon as practicable. In liquidating
such Error Positions, Cboe Trading will (a) provide complete time
and price discretion for the trading to liquidate the Error
Positions to a third-party broker-dealer and not attempt to exercise
any influence or control over the timing or methods of such trading;
and (b) establish and enforce policies and procedures that are
reasonably designed to restrict the flow of confidential and
proprietary information between the third-party broker-dealer and
Cboe Trading/the Exchange associated with the liquidation of the
Error Positions.
---------------------------------------------------------------------------

[cir] Cboe Trading and the Exchange will make and keep records to
document all determinations to treat positions as Error Positions and
all determinations for the assignment of Error Positions to Trading
Permit Holders or the liquidation of Error Positions, as well as
records associated with the liquidation of Error Positions through the
third-party broker-dealer.
The books, records, premises, officers, agents, directors,
and employees of Cboe Trading as a facility of the Exchange are deemed
to be the books, records, premises, officers, agents, directors, and
employees of the Exchange for purposes of, and subject to oversight
pursuant to, the Exchange Act. The books and records of Cboe Trading as
a facility of the Exchange are subject at all times to inspection and
copying by the Exchange and the Commission. Nothing in the Rules
precludes officers, agents, directors, or employees of the Exchange
from also serving as officers, agents, directors, and employees of Cboe
Trading.
The Exchange will comply with the above-listed conditions prior to
offering outbound routing from Cboe Trading. In meeting the conditions,
the Exchange will have mechanisms in place to protect the independence
of the Exchange's regulatory responsibility with respect to Cboe
Trading, as well as demonstrate the Cboe Trading cannot use any
information that it may have because of its affiliation with the
Exchange to its advantage. Current Rule 3.2(f) and proposed Rule 3.16
provide that without prior Commission approval, no Trading Permit
Holder may be or become affiliated with the Exchange. The Commission
recently approved the adoption of Rule 3.18 regarding Cboe Trading (a
C2 Trading Permit Holder) as the Inbound Router for C2.\17\ Such
approval satisfies the requirement in current Rule 3.2(f) (and proposed
Rule 3.16) for Commission approval of the Exchange affiliation with
Cboe Trading.\18\
---------------------------------------------------------------------------

\17\ See Securities Exchange Act Release No. 82952 (March 27,
2018), 83 FR 14096 (April 2, 2018) (SR-C2-2018-004).
\18\ The proposed rule change makes nonsubstantive changes to
Rule 3.18, including updating paragraph numbering and lettering and
reflecting the defined term Cboe Trading and Cboe Exchange.
---------------------------------------------------------------------------

Chapter 6
The proposed rule change adds a reference to C2 Rule 6.1 regarding
the times at which the System accepts orders and quotes, which are set
forth in

[[Page 22805]]

proposed C2 Rule 6.9 (as discussed below). The proposed rule change
also adds Units to the list of options that the Exchange designates to
remain open for trading beyond 4:00 p.m. but no later than 4:15 p.m.,
which is consistent with EDGX rules.\19\ The proposed rule change also
deletes Interpretation and Policy .03 regarding the trading hours of
Quarterly Index Expiration options, as they currently do not and will
not trade on C2 upon the System migration.
---------------------------------------------------------------------------

\19\ See, e.g., EDGX Rule 21.2(a) (referred to as Fund Shares
and exchange-traded notes in that rule); see also Cboe Options Rule
6.1, Interpretation and Policy .03.
---------------------------------------------------------------------------

The proposed rule change reformats C2 Rule 6.4 regarding the
minimum increments for bids and offers on simple orders for options
traded on the Exchange into a table, which the Exchange believes is
easier to read, and moves certain information into Interpretations and
Policies .01 and .02. The only substantive change is to provide that
Mini-SPX Index (XSP) options, for as long as SPDR options (SPY)
participate in the Penny Pilot Program, will have a $0.01 increment for
all series rather than $0.01 for all series quoting less than $3 and a
$0.05 for all series quoting more than $3. The current minimum
increments for bids and offers for SPY options, which is an exchange-
traded fund that tracks the performance of 1/10th the value of the S&P
500 Index, is $0.01 regardless of whether option series is quoted
above, at, or below $3. Because both XSP options and SPY options prices
are based, in some manner, on 1/10th the price of the S&P 500 Index,
the Exchange believes that it is important that these products have the
same minimum increments for consistency and competitive reasons. This
is also consistent with rules of other exchanges.\20\ The proposed rule
change also modifies the paragraph formatting and moves certain
provisions to the Interpretations and Policies.
---------------------------------------------------------------------------

\20\ See, e.g., Cboe Options Rule 6.42, Interpretation and
Policy .03.
---------------------------------------------------------------------------

Current C2 Rule 6.34 describes current provisions regarding System
access and connectivity, and the proposed rule change moves relevant
provisions to proposed Rule 6.8. As stated in proposed Rule 6.8(a),
only authorized Users and associated persons of Users may establish
connectivity to and access the Exchange to submit orders and quotes and
enter auction response in accordance with the Exchange's System access
procedures, technical specifications, and requirements. This is
consistent with current Rule 6.34(a), (d), and (e), which provides only
authorized market participants (which may only be Trading Permit
Holders and associated persons with authorized access, as well as
Sponsored Users pursuant to C2 Rule 3.15) may access the Exchange
electronically to facilitate quote and order entry as well as auction
processing, in accordance with Exchange-prescribed technical
specifications (to the extent any agreement is required to be signed,
as indicated in current Rule 6.34(d), that would be indicated in such
specifications).
Proposed Rule 6.8(b) describes EFIDs. A Trading Permit Holder may
obtain one or more EFIDs from the Exchange (in a form and manner
determined by the Exchange). The Exchange assigns an EFID to a Trading
Permit Holder, which the System uses to identify the Trading Permit
Holder and clearing number for the execution of orders and quotes
submitted to the System with that EFID. Each EFID corresponds to a
single Trading Permit Holder and a single clearing number of a Clearing
Trading Permit Holder with the Clearing Corporation. A Trading Permit
Holder may obtain multiple EFIDs, which may be for the same or
different clearing numbers. A Trading Permit Holder may only identify
for any of its EFIDs the clearing number of a Clearing Trading Permit
Holder that is a Designated Give Up or Guarantor of the Trading Permit
Holder as set forth in Rule 6.30. A Trading Permit Holder is able (in a
form and manner determined by the Exchange) to designate which of its
EFIDs may be used for each of its ports. If a User submits an order or
quote through a port with an EFID not enabled for that port, the System
cancels or rejects the order or quote. The proposed rule change
regarding EFIDs is similar to the current use of acronyms on the
Exchange and consistent with the use of EFIDs on EDGX. The Exchange
believes including a description of the use of EFIDs in the Rules adds
transparency to the Rules.
Consistent with the definition of port above, the proposed rule
change adds Rule 6.8(c), which states a User may connect to the
Exchange using a logical port available through an API, such as the
industry-standard Financial Information eXchange (``FIX'') protocol or
Binary Order Entry (``BOE'') protocol (Cboe Market Interface will no
longer be available, as that is an API on C2's current system while BOE
is an API available on the new technology platform). Users may use
multiple logical ports. Additionally, this functionality is similar to
bandwidth packets currently available on C2, as described in current
Rule 6.35 (and therefore which the proposed rule change deletes).
Bandwidth packets restrict the maximum number of orders and quotes per
second in the same way logical ports do, and Users may similarly have
multiple logical ports as they may have bandwidth packets to
accommodate their order and quote entry needs. The Exchange believes it
is reasonable to not limit bulk order ports, as the purpose of those
ports is to submit message orders in bulk. As discussed below, the
Exchange will be able to otherwise mitigate message traffic as
necessary.
Proposed Rule 6.9 describes the entry of orders. Users can enters
into the System, or cancel previously entered orders, from 7:30 a.m.
until market close, subject to the following requirements and
conditions:
(a) Users may transmit to the System multiple orders at a single
price level or multiple price levels;
(b) Each order a User submits to the Exchange must contain the
minimum information identified in the Exchange's order entry
specifications;
(c) The System timestamps an order upon receipt, which determines
the time ranking of the order for purposes of processing the order; and
(d) For each System Security, the System transmits to OPRA for
display the aggregate size of all orders in the System eligible for
display at the best price to buy and sell.
(e) After market close, Users may cancel orders with Time in Force
of GTC or GTD that remain on the book until 4:45 p.m.
Pursuant to current Rule 6.11(a), the Exchange begins accepting
order and quotes no earlier than 2:00 a.m. Chicago time, so the
proposed change amends this time to 7:30 a.m. Eastern time to be
consistent with EDGX.\21\ The Exchange notes C2 currently begins
accepting orders and quotes at approximately 6:30 a.m. Chicago time,
which is consistent with the proposed rule change, and thus the
proposed rule change will not modify the time at which the Exchange
begins accepting orders and quotes. The provisions in paragraphs (a)
through (d) above are consistent with current C2 System functionality,
and the Exchange believes adding these provisions to the Rules provides
additional transparency for market participants. They are also
substantively the same as EDGX rules.\22\ Paragraph (e) above provides
Users with additional flexibility to manage their orders that remain in
the book following the market close. Cancelling a GTC or GTD order at
4:30 p.m. has the same

[[Page 22806]]

effect as cancelling that order at 7:30 a.m. the following day--
ultimately, it accommodates the User's goal of cancelling an order
prior to it potentially executing during the Opening Process the
following morning.
---------------------------------------------------------------------------

\21\ See EDGX Rule 21.7(a).
\22\ See EDGX Rule 21.6(a) through (d).
---------------------------------------------------------------------------

Proposed C2 Rule 6.10 states the Exchange may determine to make
certain order types, Order Instructions, and Times in Force not
available for all Exchange systems or classes. This provision is
consistent with current C2 Rule 6.10, which provides the Exchange with
similar flexibility. As discussed above, the proposed rule change moves
definitions of order types that will be available on C2 following the
technology migration to proposed C2 Rule 1.1. The proposed rule change
deletes all-or-none and market-on-close orders from Rule 6.10, as they
will no longer be available on C2 following the technology
migration.\23\ Additionally, the proposed rule change maintains a
general definition of complex order in proposed C2 Rule 1.1 (as
discussed above), but deletes the specific types of complex orders set
forth in current Rule 6.10(d) (i.e. spread order, combination order,
straddle order, strangle order, ratio order, butterfly spread orders,
box/roll spread orders, collar orders and risk reversals). While these
types of orders will continue to be permitted, the Exchange does not
believe it is necessary to limit complex orders to these specific
definitions, as investors may determine complex orders of other types
are more appropriate with their investment strategies. The EDGX rules
do not contain similar definitions and instead only contain a general
definition of complex orders. The proposed rule change moves the
provisions in Interpretation .01(A) and (C) ((B) is deleted, as it
relates to an order type that will no longer be available) to Rule
6.12(c), which will consolidate all provisions regarding order handling
in a single location in the Rules.
---------------------------------------------------------------------------

\23\ The proposed rule change makes conforming changes
throughout the rules to delete references to these order types and
provisions solely related to these order types.
---------------------------------------------------------------------------

The proposed rule change deletes current Rule 6.11 regarding the
opening process on C2, as that opening process will not be available on
C2 following the technology migration. Proposed Rule 6.11 describes the
opening process that will apply to C2 following the technology
migration, which is substantively the same as the current opening
process on EDGX.\24\ The proposed opening process is generally similar
to the current C2 opening process, as it provides for a pre-opening
period and a determination of an opening price subject to certain
restrictions to ensure the opening trading price for a series is
reasonable and not too far away from the market price for a series.
Additionally, the proposed process is used following a trading halt.
---------------------------------------------------------------------------

\24\ See EDGX Rule 21.7.
---------------------------------------------------------------------------

Proposed Rule 6.11(a) describes the order entry period. The System
accepts orders and quotes (including GTC and GTD orders remaining on
the Book from the previous trading day) for inclusion in the opening
process (the ``Opening Process'') beginning at 7:30 a.m. and continues
to accept market and limit orders and quotes until the time when the
System initiates the Opening Process in that option series (the ``Order
Entry Period''). The System does not accept IOC or FOK orders prior to
the completion of the Opening Process. The System accepts but does not
enforce MTP Modifiers during the Opening Process. Complex orders will
not participate in the Opening Process described in proposed Rule 6.11,
and instead may participate in the COB Opening Process described in
proposed Rule 6.13(c). The System converts all ISOs received prior to
the completion of the Opening Process into non-ISOs. Orders entered
during the Order Entry Period are not eligible for execution until the
opening trade occurs, as described below. Pursuant to current C2 Rule
6.11(a), the System begins accepting orders and quotes no earlier than
2:00 a.m. central time (that time is currently set to 7:30 a.m. eastern
time). The Exchange believes beginning the order entry period at 7:30
a.m. eastern time will provide Users with sufficient time to submit
orders and quotes prior to the beginning of the Opening Process. This
time is the same as when the order entry period on C2 (and EDGX)
currently begins. C2 currently also does not accept IOC or FOK orders
during the pre-opening period (see current Rule 6.11(a)(1)), and it
also does not accept ISOs (see current Rule 6.11(a)(1)) (rather than
convert them to non-ISOs). The proposed functionality to convert ISOs
to non-ISOs is the same as functionality that exists on EDGX today, and
the Exchange believes this may increase the opportunity for execution
of these orders during the Opening Process.
Following the technology migration, the C2 System will not have
functionality available to disseminate opening messages as it does
today, so the proposed rule change deletes current Rule 6.11(a)(2).
Additionally, when the Opening Process begins, the System will not
disseminate a notice as it does today, so the proposed rule change
deletes current Rule 6.11(b) and (c)(2).
Following the technology migration, the Opening Process will be
initiated at a similar time as it is today on C2. Proposed Rule 6.11(a)
states after a time period (which the Exchange determines for all
classes) following the first transaction in the securities underlying
the options on the primary market that is disseminated (``First Listing
Market Transaction'') after 9:30 a.m. with respect to Equity Options,
or following 9:30 a.m. with respect to Index Options, the related
option series open automatically in a random order, staggered over
regular intervals of time (the Exchange determines the length and
number of these intervals for all classes) pursuant to proposed
subparagraphs (2) through (5). This is substantively the same as EDGX
Rule 21.7(a). The proposed times will be the same for all classes of
Equity Options, and all classes of Index Options, unlike currently on
C2 (see current Rule 6.11(b)), where the opening of certain equity
classes is triggered by time rather than the First Listing Market
Transaction, and the opening of certain index classes is triggered by
the receipt of a disseminated index value. Additionally, current C2
Rule 6.11(c) provides for a similar Exchange-configurable delay before
a series opens and provides for series to open in a random, staggered
order over Exchange-determined time intervals.
Proposed Rule 6.11(a)(2) describes how the new C2 System will
calculate the opening price of a series. The System determines a single
price at which a particular option series will be opened (the ``Opening
Price'') within 30 seconds of the First Listing Market Transaction or
9:30 a.m., as applicable. If there are no contracts in a series that
would execute at any price, the System will open the series for trading
without determining an Opening Price. The Opening Price, if determined
to be valid as described below, of a series will be:
(a) If there is both an NBB and NBO, the midpoint of the NBBO (if
the midpoint is a half increment, the System rounds down to the nearest
minimum increment (the ``NBBO Midpoint'');
(b) if the NBBO Midpoint is not valid, the last disseminated
transaction price in the series after 9:30 a.m. (the ``Last Print'');
or
(c) if the NBBO Midpoint and the Last Print are not valid, the last
disseminated transaction in the series from the previous trading day
(the ``Previous Close'').
If the NBBO Midpoint, Last Print, and Previous Close are not valid,
the

[[Page 22807]]

Exchange in its discretion may extend the Order Entry Period by up to
30 seconds or open the series for trading.
For purposes of validating the Opening Price:
(a) the NBBO Midpoint, the Last Print, or the Previous Close is a
valid price if it is not outside the NBBO, and the price is no more
than the following Minimum Amount away from the NBB or NBO for the
series:

------------------------------------------------------------------------
Minimum
NBB amount
------------------------------------------------------------------------
Below $2.00.................................................. $0.25
$2.00 to $5.00............................................... 0.40
Above $5.00 to $10.00........................................ 0.50
Above $10.00 to $20.00....................................... 0.80
Above $20.00 to $50.00....................................... 1.00
Above $50.00 to $100.00...................................... 1.50
Above $100.00................................................ 2.00
------------------------------------------------------------------------

or
(b) the Last Print or Previous Close is a valid price if there is
no NBB and no NBO, or there is a NBB (NBO) and no NBO (NBB) and the
price is equal to or greater (less) than the NBB (NBO).
While these conditions to determine the validity of an opening
price differ than the opening conditions currently applied on C2, the
Exchange believes application of the proposed conditions will still
determine a reasonable and fair opening price for series on C2. The
proposed process to determine and validate an Opening Price is
substantively the same as the process currently used on EDGX.\25\
---------------------------------------------------------------------------

\25\ See EDGX Rule 21.7(a)(1) and (2).
---------------------------------------------------------------------------

Proposed Rule 6.11(a)(4) states after establishing a valid Opening
Price, the System matches orders and quotes in the System that are
priced equal to or more aggressively than the Opening Price in
accordance with priority applicable to the class pursuant to Rule 6.12.
In other words, the System allocates orders and quotes in a class
during the Opening Process using the same allocation from Rule 6.12(a)
the Exchange applies to the class intraday. Matches occur until there
is no remaining volume or an imbalance of orders. All orders and quotes
(or unexecuted portions) matched pursuant to the Opening Process will
be executed at the Opening Price. The System enters any non-executed
orders and quotes (or unexecuted portions) into the Book in time
sequence, where they may be processed in accordance with Rule 6.12. The
System cancels any OPG orders (or unexecuted portions) that do not
execute during the Opening Process. Proposed subparagraph (a)(5) states
if the Exchange opens a series for trading when the NBBO Midpoint, Last
Print, and Previous Close are not valid as described above, the System
enters non-executed orders and quotes (or unexecuted portions) into the
Book in time sequence, where they may be processed in accordance with
Rule 6.12. This is similar to the opening rotation period described in
current Rule 6.11(c) and Interpretation and Policy .01.\26\ While EDGX
and C2 have different matching algorithms consistent with their market
models, the proposed opening process represents a fair and objective
manner to match orders during the opening. Additionally, proposed Rule
6.11 indicates the opening process will generally occur within 30
seconds (or an extended time at the discretion of the Exchange as noted
above), while current Rule 6.11 indicates the opening process generally
must occur within 60 seconds (subject to various opening conditions).
---------------------------------------------------------------------------

\26\ The Exchange does not intend to have a different algorithm
apply at the open and intraday, and therefore proposes to delete
current Rule 6.11, Interpretation and Policy .01.
---------------------------------------------------------------------------

Proposed Rule 6.11(a)(5) provides if the Exchange opens a series
for trading when the NBBO Midpoint, Last Print, and Previous Close are
not valid as described above, the System enters non-executed orders and
quotes (or unexecuted portions) into the Book in time sequence, where
they may be posted, cancelled, executed, or routed in accordance with
proposed Rule 6.12. This is similar C2's current authority to compel
opening in a series even if the opening conditions are not met, as set
forth in current Rule 6.11(e).
Proposed Rule 6.11(b) describes how the Opening Process will be
used to reopen trading following a halt. The Opening Process following
a trading halt will be the same as the one used for regular trading (as
described above), except as modified by proposed paragraph (b).
Proposed Rule 6.11(b)(1) states there will be an Order Entry Period
that begins immediately when the Exchange halts trading in the series
if there is a Regulatory Halt (i.e. if the primary market for the
applicable underlying security declares a regulatory trading halt,
suspension, or pause with respect to such security); however, there
will be no Order Entry Period if the Exchange halts for another reason.
This is consistent with current Rule 6.11(f), which permits the
Exchange to shorten or eliminate the pre-opening period after a halt.
Proposed Rule 6.11(b)(2) states the System queues a User's open orders
upon a Regulatory Halt, unless the User entered instructions to cancel
its open orders upon a Regulatory Halt, for participation in the
Opening Process following the Regulatory Halt. The System cancels a
User's open orders upon a halt that is not a Regulatory Halt. This
functionality will provide Users with additional flexibility to
instruct the System how to handle their orders in the event of a
Regulatory Halt. Following a trading halt, the System opens a series
once the primary market lifts the Regulatory Halt or upon the
Exchange's determination that the conditions that led to the halt are
no longer present or that the interests of a fair and orderly market
are best served by a resumption of trading, as described in proposed
Rule 6.11(b)(3). Pursuant to proposed Rule 6.11(b)(4), the System
determines the Opening Price within 30 seconds of the Regulatory Halt
or other trading halt being lifted. The Exchange believes this proposed
process for opening following a halt will permit C2 to reopen as
quickly as possible and in a fair and orderly manner following a halt.
The proposed rule change regarding how the System will open following a
trading halt is substantively similar to the Opening Process that may
be used following a trading halt described in EDGX Rule 21.7(a).
The proposed rule change moves current Rule 6.11(e) regarding the
Exchange's ability to deviate from the standard opening procedure to
proposed Rule 6.11(c).
Current C2 Rule 6.11 may be used for closing; however, the proposed
rule change only applies to openings. Because C2 generally does not use
its current process for a closing, the Exchange does not believe the
fact that the proposed process may only be used for openings following
the technology migration will impact trading on C2. Therefore, the
proposed rule change deletes current C2 Rule 6.11(g).
The proposed rule change moves current Rule 6.11, Interpretation
and Policy .03 regarding how the System handles market orders if the
underlying security is in a limit up-limit down state during the
opening process to proposed Rule 6.11(d).
Proposed Rule 6.11 is substantively the same as EDGX Rule 21.7, and
the Exchange believes the proposed opening process (based on current
use on EDGX) is a fair and orderly way to open series on C2 following
the technology migration.
The proposed rule change deletes current Rule 6.11, Interpretation
and Policy .02 regarding Exchange determinations made pursuant to Rule
6.11, as that is replaced by proposed Rule 1.2.
Proposed Rule 6.12 describes how the System will process, display,
prioritize,

[[Page 22808]]

and execute orders and quotes entered into the Book. Current C2 Rule
6.12 provides orders and quotes may be allocated pursuant to price-time
or pro-rata, and those two options will also be available on the new
System. The proposed rule change revises the description to be similar
to EDGX and BZX Rules 21.8. Proposed Rule 6.12(a)(1) states resting
orders and quotes \27\ in the Book with the highest bid and lowest
offer have priority.\28\ Proposed Rule 6.12(a)(2) states if there are
two or more resting orders or quotes at the best price, the Exchange
will determine for each class whether the time or pro-rata allocation
applies. Pursuant to time priority (i.e. price-time), the System
prioritizes orders and quotes at the same price in the order in which
the System receives them (i.e. in time priority).\29\ Pursuant to pro-
rata priority, the System allocates orders and quotes proportionally
according to size (i.e. in a pro-rata basis).\30\ All classes on EDGX
are allocated in a pro-rata manner; however, current C2 rules permit
the Exchange to determine for each class whether price-time or pro-rata
will apply, and the proposed rule change maintains that flexibility.
---------------------------------------------------------------------------

\27\ Displayed orders and quotes always have priority over
undisplayed orders and quotes, which is consistent with current C2
functionality. See current Rule 6.12(c)(1) and proposed Rule
6.12(a)(3). Since all-or-none orders will no longer be available on
C2 following the technology migration, the only orders that will not
be displayed on C2 are the reserve portions of Reserve Orders.
\28\ See current C2 Rule 6.12(a)(1) and (2) (under both
allocation algorithms, orders and quotes are first prioritized based
on price); see also EDGX Rule 21.8(b).
\29\ See current C2 Rule 6.12(a)(1); see also BZX Rule 21.8(a).
\30\ See current C2 Rule 6.12(a)(2); see also EDGX Rule 21.8(c).
---------------------------------------------------------------------------

Currently on C2, with respect to the pro-rata allocation algorithm,
the System allocates contracts to the first resting order or quote
proportionally according to size (based on the number of contracts to
be allocated and the size of the resting orders and quotes). Then, the
System recalculates the number of contracts to which each remaining
resting order and quote is afforded proportionally according to size
(based on the number of remaining contracts to be allocated and the
size of the remaining resting orders and quotes) and allocates
contracts to the next resting order or quote. The System repeats this
process until it allocates all contracts from the incoming order or
quote. Following the System migration, the System instead will allocate
executable quantity to the nearest whole number, with fractions \1/2\
or greater rounded up (in size-time priority) and fractions less than
\1/2\ rounded down. If the executable quantity cannot be evenly
allocated, the System distributes remaining contracts one at a time in
size-time priority to orders that were rounded down. The Exchange
believes this is a fair, objective process and simple systematic
process to allocate ``extra'' contracts when more than one market
participant may be entitled to those extra contracts after rounding,
and it is consistent with EDGX Rule 21.8(c).
Proposed Rule 6.12(a)(3) states displayed orders have priority over
nondisplayed orders. This is consistent with current C2 Rule
6.12(c)(1). Following migration, the only nondisplayed orders will be
the reserve portions of reserve orders (as discussed above, all-or-none
orders will no longer be available).
The proposed rule change deletes current C2 Rule 6.12(a)(3) and
(b), which permit the Exchange to apply customer priority, trade
participation rights, or additional priority overlays (small order and
market turner) to classes. The Exchange does not currently, and does
not intend to, apply any of these priority overlays to any class.
Therefore, it is not necessary to include these Rules in the C2
Rulebook, and deleting these rules will have no impact on C2
trading.\31\ The proposed rule change makes conforming changes
throughout the rules to delete references to these priority overlays.
---------------------------------------------------------------------------

\31\ The Exchange notes EDGX Rule 21.8 includes customer
priority and trade participation right overlays.
---------------------------------------------------------------------------

Proposed Rule 6.12(b) describes a new Price Adjust process, which
is a re-pricing mechanism offered to Users on EDGX.\32\ As discussed
above, orders designated to be subject to the Price Adjust process or
not designated as Cancel Back (and thus not subject to the Price Adjust
process), will be handled pursuant to proposed Rule 6.12(b).\33\ If an
order is subject to the Price Adjust process, the System ranks and
displays a buy (sell) order that, at the time of entry, would lock or
cross a Protected Quotation of the Exchange or another Exchange at one
minimum price increment below (above) the current NBO (NBB).
---------------------------------------------------------------------------

\32\ See EDGX Rule 21.1(i).
\33\ Under EDGX rules, the price adjust process is not the
default setting for orders, like it will be for C2. However, EDGX
Users still have the option to use or not use the price adjust
process with various order instructions. Therefore, this is not a
significant difference.
---------------------------------------------------------------------------

If the NBBO changes so that an order subject to Price Adjust would
not lock or cross a Protected Quotation, the System gives the order a
new timestamp and displays the order at the price that locked the
Protected Quotation at the time of entry. All orders the System re-
ranked and re-displayed pursuant to Price Adjust retain their priority
as compared to other orders subject to Price Adjust based upon the time
the System initially received such orders. Following the initial
ranking and display of an order subject to Price Adjust, the System
will only re-rank and re-display an order to the extent it achieves a
more aggressive price. The System adjusts the ranked and displayed
price of an order subject to Price Adjust once or multiple times
depending upon the User's instructions and changes to the prevailing
NBBO. A limit order subject to the Price Adjust process will not be
displayed at any price worse than its limit price. This re-pricing
mechanism (in addition to the proposed Cancel Back instruction
described above) is an additional way in which C2 will ensure
compliance with locked and crossed market rules in Chapter 6, Section
of the C2 Rulebook and is substantively the same as EDGX Rule 21.1(i).
It also provides Users with additional flexibility regarding how they
want the System to handle their orders.
Proposed Rule 6.12(c) describes how the System will handle orders
in additional circumstances. Proposed subparagraph (1) states, subject
to the exceptions contained in Rule 6.82(b), the System does not
execute an order at a price that trades through a Protected Quotation
of another options exchange. The System routes an order a User
designates as routable in compliance with applicable Trade-Through
restrictions. The System cancels or rejects any order not eligible for
routing or the Price Adjust process that is entered with a price that
locks or crosses a Protected Quotation of another options exchange.
C2's System currently will not execute orders at trade-through prices,
consistent with Chapter 6, Section E of the Rules. This provision is
substantively the same as EDGX Rule 21.6(e) and (f).
Additionally, the proposed rule change modifies the handling of
stop orders to state the System cancels or rejects a buy (sell) stop or
stop-limit order if the NBB (NBO) at the time the System receives the
order is equal to or above (below) the stop price, and accepts a buy
(sell) stop or stop-limit order if the consolidated last sale price at
the time the System receives the order is equal to or above (below) the
stop price.\34\ The Exchange believes comparing the stop price of a
stop or

[[Page 22809]]

stop-limit order to the NBBO and last consolidated sale price rather
than prices available on the Exchange is appropriate, as the NBBO
better reflects the market price of the series. This is similar to
various price protections in the rules, as discussed below, that
compare order prices to national prices rather than Exchange prices.
This is also the same as EDGX Rule 21.1(d)(11) and (12), which provide
that stop and stop-limit orders on EDGX compare the stop price to the
NBBO and last consolidated sale price. The C2 System following the
technology migration will be unable to compare the stop price of a stop
or stop-limit order to the last consolidated sale price upon receipt of
the order, which is why the order will still be accepted even if the
stop price is above (below) the last consolidated sale price when the
System receives it.
---------------------------------------------------------------------------

\34\ Current description of the handling of stop orders is in
current C2 Rule 6.11(i), which is being deleted.
---------------------------------------------------------------------------

Proposed Rule 6.12(c)(3) states the System cancels or rejects a GTC
or GTD order in an adjusted series.\35\ Pursuant to Rule 5.7, due to a
corporate action by the issuer of the underlying, OCC may adjust the
price of an underlying security. After a corporate action and a
subsequent adjustment to the existing options, OPRA and OCC identify
the series in question with a separate symbol consisting of the
underlying symbol and a numerical appendage. As a standard procedure,
exchanges listing options on an underlying security that undergoes a
corporate action resulting in adjusted series will list new standard
option series across all appropriate expiration months the day after
the existing series are adjusted. The adjusted series are generally
actively traded for a short period of time following adjustment, but
prices of those series may have been impacted by the adjustment. As a
result, any GTC or GTD orders submitted prior to the adjustment may no
longer reflect the market price of the adjusted series, as the prices
of the GTC or GTD orders do not factor in the adjustment. The Exchange
believes any executions of such GTC and GTD orders in adjusted series
may be at erroneous prices, and thus believes it is appropriate for the
System to cancel these orders, which will permit Users to resubmit
orders in the adjusted series at prices that reflect the adjustment and
to submit orders in the new series.
---------------------------------------------------------------------------

\35\ This is true on any trading day on which the adjusted
series continues to trade.
---------------------------------------------------------------------------

Proposed Rule 6.12(c)(4) states the System does not execute an
order with an MTP Modifier entered into the System against an order
entered with an MTP Modifier and the same Unique Identifier, and
instead handles them in accordance with Rule 1.1, as discussed above.
This is consistent with the definition of MTP Modifiers added to Rule
1.1 above and substantively the same as EDGX Rule 21.8(k).
The proposed rule change moves provisions regarding how the System
handles market and stop orders during a limit up-limit down state from
current Rule 6.10, Interpretation and Policy .01 to proposed Rule
6.12(c)(5).
The proposed rule change deletes current C2 Rule 6.12(c) related to
contingency orders. The Exchange does not believe the introductory
language and subparagraphs (c)(2) and (3) are necessary, as the order
instruction definitions discussed above and order handling instructions
below contain detail regarding how the System will handle orders
designated as stop, stop-limit, or reserve.\36\ The proposed rule
change moves the provision in subparagraph (c)(1) regarding priority of
displayed orders over nondisplayed orders to proposed Rule 6.12(a)(3),
as discussed above. Because all-or-none orders will no longer be
available following the technology migration, the proposed rule change
deletes subparagraph (c)(4), which relates to handling of all-or-none
orders.
---------------------------------------------------------------------------

\36\ Current C2 rules categorize all-or-none, market-on-close,
stop, stop-limit, FOK, IOC, OPG, and reserve orders as contingency
orders. As discussed above, the Exchange will no longer make all-or-
none and market-on-close orders available following the technology
migration. Additionally, the Exchange believes FOK, IOC, and OPG
relate to the time of execution of orders rather than a contingency,
and thus the proposed rule change categorizes these instructions as
Times-in-Force, as discussed above. Therefore, the only current
orders that could be deemed contingency under current rules are
stop, stop-limit, and reserve.
---------------------------------------------------------------------------

The proposed rule change deletes current Rule 6.12(e)(2), which
states if the price or quantity of one side of a quote is changed, the
unchanged side retains its priority position. Additionally, the
proposed rule change deletes the reference in Rule 6.12(e)(1) related
to the changed side of a quote. Current C2 functionality provides
Market-Maker with the ability to submit two-sided quotes, to which the
above provisions relates. Following the technology migration, there
will be no such functionality available. Market-Makers will submit
quotes using order functionality, but it will only permit one-sided
quotes to be input. Therefore, these provisions are no longer
applicable.
The proposed rule change deletes current Rule 6.12(g) regarding a
complex order priority exception. Proposed Rule 6.13 (as described
below) describes the priority rules related to the execution of complex
orders, so current Rule 6.12(g) is not necessary. As further discussed
below, complex orders will trade with leg markets prior to trading with
other complex orders, and will never trade at the same price as the
SBBO, which is consistent with current Rule 6.12(g).\37\
---------------------------------------------------------------------------

\37\ See proposed C2 Rule 6.13(f)(2).
---------------------------------------------------------------------------

The proposed rule change adds proposed Rule 6.12(g), which states
options subject to a trading halt initiated pursuant to Rule 6.32 open
for trading following the halt at the time specified in Rule 6.11,
which is consistent with current Rule 6.11(f). Additionally, proposed
Rule 6.12(g) states when trading resumes, the System places orders and
quotes that do not execute during the Opening Process in the Book in
time priority and processes or executes them as described in Rule 6.12.
The Exchange believes this is a fair, objective process and simple
systematic process to prioritize orders following a trading halt, and
is consistent with EDGX Rule 21.8(j).
Proposed Rule 6.13 modifies C2's current complex order
functionality to substantially conform to functionality that will be
available on C2's new System and is currently used on EDGX. Trading of
complex orders will be subject to all other Rules applicable to trading
of orders, unless otherwise provided in Rule 6.13 (which is currently
the case).
The proposed rule change moves the definitions of COA and COB to
proposed paragraph (a). Additionally, the proposed rule change adds
definitions of synthetic best bid or offer (``SBBO'') and synthetic
national best bid or offer (``SNBBO'') to proposed paragraph (a), which
are referred to in current C2 Rule 1.1 as derivative spread market and
national spread market. The proposed rule change also adds the
following terms to Rule 6.13(a):
Complex strategy: The term ``complex strategy'' means a
particular combination of components and their ratios to one another.
New complex strategies can be created as the result of the receipt of a
complex instrument creation request or complex order for a complex
strategy that is not currently in the System. The Exchange is thus
proposing two methods to create a new complex strategy, one of which is
a message that a Trading Permit Holder can send to create the strategy
and the other is a message a Trading Permit Holder can send that will
generate the strategy and that is also an order in that same strategy.
These methods will be equally available to all Trading Permit Holders,
but the Exchange anticipates that Trading Permit Holders and other

[[Page 22810]]

liquidity providers who anticipate providing larger amounts of trading
activity in complex strategies are the most likely to send in a complex
instrument creation request (i.e., to prepare for their trading in the
complex strategy throughout the day), whereas other participants are
more likely to simply send a complex order that simultaneously creates
a new strategy. The Exchange may limit the number of new complex
strategies that may be in the System or entered for an EFID (which EFID
limit would be the same for all Users) at a particular time.
Regular trading: The term ``regular trading'' means
trading of complex orders that occurs during a trading session other
than (a) at the opening of the COB or re-opening of the COB for trading
following a halt (described in paragraph (c) below) or (b) during the
COA process (described in proposed Rule 6.13(d)).
These proposed defined terms are the same as those included in EDGX
Rule 21.20(a).
Proposed Rule 6.13(b) describes the order types, Order
Instructions, and Times-in-Force that are eligible for complex orders
to be entered into and handled by the System. As an initial matter,
proposed paragraph (b) states the Exchange determines which Times-in-
Force of Day, GTC, GTD, IOC, or OPG are available for complex orders
(including for eligibility to enter the COB and initiate a COA). The
proposed rule change is also consistent with EDGX Rule 21.20(b).
Complex orders are Book Only and may be market or limit orders. Because
complex orders are not routable, and may not be Post Only, Book Only is
the only available Order Instruction related to whether an order is
routable or not routable. The only other available Order Instruction
for complex orders is Attributable/Non-Attributable. This relates only
to information that User wants, or does not want, included when a
complex order is displayed, and has no impact on how complex orders are
processed or execute. As they do for simple orders, certain Users want
the ability to track their orders, such as which of the resting orders
in the COB or which COA'd [sic] order is theirs. The Attributable
designation means this information will appear in market data feeds and
auction messages, permitting these Users to track their own orders.
Proposed paragraph (b) also adds the following instructions that
are permissible for complex orders:
Complex Only Orders: A Market-Maker may designate a Day or
IOC order as ``Complex Only,'' which may execute only against complex
orders in the COB and may not Leg into the Simple Book. Unless
designated as Complex Only, and for all other Times-in-Force and
Capacities, a complex order may execute against complex orders in the
COB and may Leg into the Simple Book. The Complex Only Order option is
analogous to functionality on EDGX. The Exchange also believes the
proposed functionality is analogous to other types of functionality
already offered by C2 that provides Trading Permit Holders, including
Market-Makers, the ability to direct the Exchange not to route their
orders away from the Exchange (Book Only). Similar to such analogous
features, the Exchange believes that Market-Makers may utilize Complex
Only Order functionality as part of their strategies to maintain
additional control over their executions, in connection with their
attempt to provide and not remove liquidity, or in connection with
applicable fees for executions.
COA-Eligible and Do-Not-COA Orders: The Exchange proposes
to allow all types of orders to initiate a COA but proposes to have
certain types of orders default to initiating a COA upon arrival with
the ability to opt-out of initiating a COA and other types of orders
default to not initiating a COA upon arrival with the ability to opt-in
to initiating a COA. Upon receipt of an IOC complex order, the System
does not initiate a COA unless a User marked the order to initiate a
COA, in which case the System cancels any unexecuted portion at the end
of the COA. Upon receipt of a complex order with any other Time-in-
Force (except OPG), the System initiates a COA unless a User marked the
order to not initiate a COA. Buy (sell) complex orders with User
instructions to (or which default to) initiate a COA that are higher
(lower) than the SBB (SBO) and higher (lower) than the price of complex
orders resting at the top of the COB are ``COA-eligible orders,'' while
buy (sell) complex orders with User instructions not to (or which
default not to) initiate a COA or that are priced equal to or lower
(higher) than the SBB (SBO) or equal to or lower (higher) than the
price of complex orders resting at the top of the COB are ``do-not-COA
orders.'' The Exchange believes that this gives market participants
extra flexibility to control the handling and execution of their
complex orders by the System by giving them the additional ability to
determine whether they wish to have their complex order initiate a COA.
The Exchange further believes that the proposed default values are
consistent with the terms of the orders (e.g., IOC is intended as an
immediate execution or cancellation whereas COA is a process that
includes a short delay in order to broadcast and provide participants
time to respond). Current Rule 6.13(c)(1)(B) defines COA-eligible
orders as orders the Exchange determines to be eligible for COA based
on size, type, and origin type, so the proposed rule change is
consistent with this flexibility. The Exchange determines which
Capacities (i.e., non-broker-dealer customers, broker-dealers that are
not Market-Makers on an options exchange, or Market-Makers on an
options exchange) are eligible for entry onto the COB.\38\ This is
consistent with EDGX Rule 21.20(c). Additionally, current Rule
6.13(c)(2)(A) indicates a COA will initiate if the COA-eligible order
is marketable against the BBO, so the proposed marketability
requirement in the definition of a COA-eligible is consistent with
current COA rules as well as the proposed priority rule. Current Rule
6.13(c)(2)(B) provides Trading Permit Holders with ability to choose
whether an order is COA-eligible or not, as the proposed rule does. The
proposed definition of COA-eligible order is substantively the same as
EDGX Rule 21.20, Interpretation and Policy .02.
---------------------------------------------------------------------------

\38\ Currently, all Capacities may rest complex orders in the
COB, which the Exchange plans to be the case following the
technology migration.
---------------------------------------------------------------------------

Complex Orders with MTP Modifiers: Users may apply the
following MTP Modifiers to complex orders: MTP Cancel Newest, MTP
Cancel Oldest, and MTP Cancel Both. If a complex order would execute
against a complex order in the COB with an MTP Modifier and the same
Unique Identifier, the System handles the complex orders with these MTP
Modifiers as described in Rule 1.1. If a complex order with an MTP
Modifier would Leg into the Simple Book and execute against any leg on
the Simple Book with an MTP Modifier and the same Unique Identifier,
the System cancels the complex order. This will allow a User to avoid
trading complex orders against its own orders or orders of affiliates,
providing Users with an additional way to maintain control over their
complex order executions.
Current Rules 6.10 and 6.13(b) and (c) provide C2 with authority to
determine which order types are available for COB and COA (and current
paragraph (b) states complex orders may be IOC, Day, or GTC, as GTD
functionality is not currently available on C2). Proposed paragraph (b)
is consistent with this current Exchange authority and expands the
Times-in-Force the Exchange may

[[Page 22811]]

permit for complex orders to be consistent with the Times-in-Force
available for complex orders on EDGX. Proposed Rule 6.13(b) is
substantively the same as EDGX Rule 21.20(b). This authority enables
the Exchange to modify complex order types available on the Exchange as
market conditions change and remain competitive.
Proposed Rule 6.13(c) describes the process of accepting orders
prior to the opening of the COB for trading (and prior to re-opening
after a halt), and the process by which the Exchange will open the COB
or re-open the COB following a halt (the ``Opening Process''). The
current COB opening process is described in current Rule 6.13,
Interpretation and Policy .07, which the proposed rule change deletes.
The proposed COB opening process is substantively the same as the EDGX
COB opening process described in EDGX Rule 21.20(c)(A) through (D).
The COB Opening Process will occur at the beginning of each trading
day and after a trading halt (similar to the current COB opening
process, as stated in current Interpretation and Policy .07(b)). There
will be a complex order entry period, during which the System will
accept complex orders for inclusion in the COB Opening Process at the
times and in the manner set forth in proposed Rule 6.11(a), except the
Order Entry Period for complex orders ends when the complex strategy
opens. Currently, C2 similarly accepts complex orders prior to the COB
opening, at the same time it begins to accept simple orders. As
discussed above, this time is changing from no earlier than 2:00 a.m.
central to 7:30 a.m. eastern (which time is consistent with the current
pre-open period on C2). The Exchange believes this provides Users with
sufficient time to enter complex orders prior to the open. Complex
orders entered during the Order Entry Period will not be eligible for
execution until the COB Opening Process occurs. Beginning at 7:30 a.m.
and updated every five seconds thereafter until the initiation of the
COB Opening Process, the Exchange will disseminate indicative prices
and order imbalance information based on complex orders queued in the
System for the COB Opening Process. This is new functionality that will
provide Users with information regarding the expected COB opening,
which is the same as functionality available on EDGX (see EDGX Rule
21.20(c)(2)(A)).
The System initiates the COB Opening Process for a complex strategy
after a number of seconds (which number the Exchange determines) after
all legs of the strategy in the Simple Book are open for trading. This
is consistent with the current COB Opening Process, as set forth in
current Interpretation and Policy .07(a). All complex orders the System
receives prior to opening a complex strategy pursuant to the COB
Opening Process, including any delay applied by the Exchange, are
eligible to be matched in the COB Opening Process and not during the
Opening Process described in Rule 6.11. The proposed delay is
consistent with current EDGX functionality and is additional detail in
the C2 Rules. C2 similarly applies a delay period during the regular
Opening Process, as described above.
If there are matching complex orders in a complex strategy, the
System determines the COB opening price, which is the price at which
the most complex orders can trade. If there are multiple prices that
would result in the same number of complex orders executed, the System
chooses the price that would result in the smallest remaining imbalance
as the COB opening price. If there are multiple prices that would
result in the same number of complex orders executed and the same
``smallest'' imbalance, the System chooses the price closest to the
midpoint of the (i) SNBBO or (ii) if there is no SNBBO available, the
highest and lowest potential opening prices as the COB opening price.
If the midpoint price would result in an invalid increment, the System
rounds the COB opening price up to the nearest permissible increment.
If the COB opening price equals the SBBO, the System adjust the COB
opening price to a price that is better than the corresponding bid or
offer in the Simple Book by $0.01. This is consistent with EDGX Rule
21.20(c)(2)(C), except on EDGX, the opening price must improve the SBBO
only if there are priority customers on the legs.
After the System determines a COB opening price, the Exchange
executes matching complex orders in accordance with the priority in
proposed Rule 6.12(a) applicable to the class at the COB opening price.
The System enters any remaining complex orders (or unexecuted portions)
into the COB, subject to a User's instructions. If there are no
matching complex orders in a complex strategy, the System opens the
complex strategy without a trade. If after an Exchange-established
period of time that may not exceed 30 seconds, the System cannot match
orders because (i) the System cannot determine a COB opening price
(i.e., all queued orders are market orders) or (ii) the COB opening
price is outside the SNBBO, the System opens the complex strategy
without a trade. In both case, the System enters any orders in the
complex strategy in the COB (in time priority), except it Legs any
complex orders it can into the Simple Book. The proposed rule change
provides additional detail regarding how the COB will open if there are
no matching trades. Additionally, the Exchange believes the proposed
configurable time period is important because the opening price
protections are relatively restrictive (i.e., based on the SNBBO), and
the configurable time period provides the Exchange with the ability to
periodically review the process and modify it as necessary to ensure
there is sufficient opportunity to have Opening Process executions
without also waiting too long to transition to regular trading. This is
similar to EDGX Rule 21.20(c)(2)(D).
Currently on C2, the System opens the COB in a similar manner,
however it first attempts to match complex orders against orders in the
Simple Book, then matches complex orders against each other. As
proposed, and consistent with EDGX Rule 21.20(c)(2)(C), complex orders
will not leg into the book upon the COB open (unless there are no
matching complex orders and a complex strategy opens without a trade);
however, the COB opening price must improve the SBBO by at least $0.01
as described above, thus providing protection to the leg markets
(including customers). The proposed matching process for complex orders
on the COB is similar to the process in current Interpretation and
Policy .07(a)(ii). Additionally, C2 currently restricts valid opening
trade prices to be within the SBBO rather than the SNBBO as the
proposed opening process does. The SNBBO more accurately reflects the
then-current market, rather than the SBBO, and thus the Exchange
believes it is a better measure to use for purposes of determining the
reasonability of the prices of orders.
Proposed Rule 6.13(d) describes the COA process for COA-eligible
orders. Orders in all classes will be eligible to participate in COA.
Upon receipt of a COA-eligible order, the System initiates the COA
process by sending a COA auction message to all subscribers to the
Exchange's data feeds that deliver COA auction messages. A COA auction
message identifies the COA auction ID, instrument ID (i.e., complex
strategy), Capacity, quantity, and side of the market of the COA-
eligible order. The Exchange may also determine to include the price in
COA auction messages, which will be the limit order price or the SBBO
(if initiated by a market complex order), or the drill-through price if
the order is subject to the drill-through protection in Rule 6.14(b).
This

[[Page 22812]]

is similar to the RFR message the Exchange currently sends to Trading
Permit Holders as set forth in current subparagraph (c)(2)(A).
The System may initiate a COA in a complex strategy even though
another COA in that complex strategy is ongoing. This concurrent COA
functionality is not currently available on C2, but is available on
EDGX (see EDGX Rule 21.20(d)(1)). The Exchange believes it will
increase price improvement and execution opportunities for complex
orders following the technology migration. The Exchange notes at the
outset that based on how Exchange Systems operate (and computer
processes generally), it is impossible for COAs to occur
``simultaneously'', meaning that they would commence and conclude at
exactly the same time. Thus, although it is possible as proposed for
one or more COAs to overlap, each COA will be started in a sequence and
with a time that will determine its processing. Thus, even if there are
two COAs that commence and conclude at nearly the same time, each COA
will have a distinct conclusion at which time the COA will be
allocated.
If there are multiple COAs ongoing for a specific complex strategy,
each COA concludes sequentially based on the time each COA commenced,
unless terminated early as described below. At the time each COA
concludes, the System allocates the COA-eligible order pursuant to
proposed Rule 6.13(d)(5) and takes into account all COA Responses for
that COA, orders in the Simple Book, and unrelated complex orders on
the COB at the time the COA concludes. If there are multiple COAs
ongoing for a specific complex strategy that are each terminated early
as described below, the System processes the COAs sequentially based on
the order in which they commenced. If a COA Response is not fully
executed at the end of the identified COA to which the COA Response was
submitted, the System cancels or rejects it at the conclusion of the
specified COA.
In turn, when the first COA concludes, orders on the Simple Book
and unrelated complex orders that then exist will be considered for
participation in the COA. If unrelated orders are fully executed in
such COA, then there will be no unrelated orders for consideration when
the subsequent COA is processed (unless new unrelated order interest
has arrived). If instead there is remaining unrelated order interest
after the first COA has been allocated, then such unrelated order
interest will be considered for allocation when the subsequent COA is
processed. As another example, each COA Response is required to
specifically identify the COA for which it is targeted and if not fully
executed will be cancelled at the conclusion of the COA. Thus, COA
Responses will only be considered in the specified COA.
The proposed COA process is substantively the same as the COA
process described in EDGX Rule 21.20(d), except there will be no
customer priority on C2 for simple or complex orders.
Proposed subparagraph (d)(3) defines the Response Time Interval as
the period of time during which Users may submit responses to the COA
auction message (``COA Responses''). The Exchange determines the
duration of the Response Time Interval, which may not exceed 500
milliseconds. This is similar to current subparagraph (c)(3)(B), except
the proposed rule change reduces the maximum time period from three
seconds to 500 milliseconds. The Exchange believes that 500
milliseconds is a reasonable amount of time within which participants
can respond to a COA auction message, as it is the maximum timeframe in
EDGX Rule 21.20(d)(3). The current timer on C2 is 20 milliseconds, and
therefore the Exchange believes market believes a maximum response time
of 500 milliseconds is sufficient to respond to auctions.
However, the Response Time Interval terminates prior to the end of
that time duration:
(1) When the System receives a non-COA-eligible order on the same
side as the COA-eligible order that initiated the COA but with a price
better than the COA price, in which case the System terminates the COA
and processes the COA-eligible order as described below and posts the
new order to the COB; or
(2) when the System receives an order in a leg of the complex order
that would improve the SBBO on the same side as the COA-eligible order
that initiated the COA to a price equal to or better than the COA
price, in which case the System terminates the COA and processes the
COA-eligible order as described below, posts the new order to the COB,
and updates the SBBO.
These circumstances that cause a Response Time Interval to
terminate prior to the end of the above-noted time duration are
substantively the same as EDGX Rule 21.20(d)(5)(C)(i) and (ii). EDGX
Rule 21.20(d)(5)(C)(iii) does not apply to C2, as it relates to
Priority Customer orders, which have no allocation priority on C2.
Current C2 Rule 6.13(c)(8)(C) describes how the System currently
handles incoming COA-eligible orders on the same side of the original
COA order at a better price. The proposed rule change deletes that
provision, as it is being replaced by the functionality above (which
order terminates a COA in that circumstance rather than joins the COA,
but still provides execution opportunities for the new incoming order
by placing it on the COB). The proposed rule change deletes current C2
Rule 6.13(c)(8), which describes current circumstances that cause a COA
to end early, as those will no long apply following the technology
migration. The proposed rule change deletes current Rule 6.13(c)(8)(A)
and (B) regarding incoming COA-eligible orders received during the
Response Time Interval, as those orders may initiate a separate COA
under the proposed rule change that permits concurrent COAs. The
proposed rule change deletes current Rule 6.13(c)(D) and (E) relating
to incoming do-not-COA orders and changes in the leg markets that would
terminate an ongoing COA, as under the proposed rules, those new orders
would not terminate a COA but would be eligible to execute against the
COA-eligible order at the end of the COA) (see proposed subparagraph
(d)(2), which states execution will occur against orders in the Simple
Book and COB at the time the COA concludes). Ultimately, these incoming
orders are eligible for execution against a COA-eligible order under
current and proposed rules. The proposed rule change merely changes the
potential execution time to the end of the full response interval time
from an abbreviated response interval time.
Proposed subparagraph (d)(4) describes COA Responses that may be
submitted during the Response Time Interval for a specific COA. The
System accepts a COA Response(s) with any Capacity in $0.01 increments
during the Response Time Interval. Current subparagraph (c)(3) permits
the Exchange to determine whether Market-Makers assigned to a class and
Trading Permit Holders acting as agent for orders resting on the top of
the COB in the relevant series, or all Trading Permit Holders, may
submit COA Responses. Currently, the Exchange permits all Trading
Permit Holders to submit COA Responses, so the proposed rule change is
consistent with current C2 practice and merely eliminates this
flexibility.
A COA Response must specify the price, size, side of the market
(i.e., a response to a buy COA as a sell or a response to a sell COA as
a buy) and COA auction ID for the COA to which the User is submitting
the COA Response. While this is not included in current C2 rules, it is
consistent with System entry requirements for COA

[[Page 22813]]

Responses. The System aggregates the size of COA Responses submitted at
the same price for an EFID, and caps the size of the aggregated COA
Responses at the size of the COA-eligible order. This provision is
similar to Cboe Options Rule 6.53(d)(v), which caps order and response
sizes for allocation purposes to prevent Trading Permit Holders from
taking advantage of a pro-rata allocation by submitting responses
larger than the COA-eligible order to obtain a larger allocation from
that order.
During the Response Time Interval, COA Responses are not firm, and
Users can modify or withdraw them at any time prior to the end of the
Response Time Interval, although the System applies a new timestamp to
any modified COA Response (unless the modification was to decrease its
size), which will result in loss of priority. The Exchange does not
display COA Responses. At the end of the Response Time Interval, COA
Responses are firm (i.e., guaranteed at their price and size). A COA
Response may only execute against the COA-eligible order for the COA to
which a User submitted the COA Response. The System cancels or rejects
any unexecuted COA Responses (or unexecuted portions) at the conclusion
of the COA. This is substantively the same as current subparagraph
(c)(7) and EDGX Rule 21.20(d)(4).
Proposed subparagraph (d)(5) describes how COA-eligible orders are
processed at the end of the Response Time Interval. At the end of the
Response Time Interval, the System executes a COA-eligible order (in
whole or in part) against contra side interest in price priority. If
there is contra side interest at the same price, the System allocates
the contra side interest as follows:
(1) Orders and quotes in the Simple Book for the individual leg
components of the complex order through Legging (subject to proposed
paragraph (g), as described below), which the System allocates in
accordance with the priority in proposed Rule 6.12(a) applicable to the
class.
(2) COA Responses and unrelated orders posted to the COB, which the
System allocates in accordance with the priority in proposed Rule
6.12(a) applicable to the class.
This allocation is similar to the current allocation priority on C2
following a COA, as set forth in current C2 Rule 6.13(c)(5), except the
proposed rule allocates COA-eligible orders to COA responses and
resting complex orders in the same priority as it does simple orders,
rather than providing public customer complex orders and COA response
with priority. The Exchange believes it is appropriate for complex
orders to allocate in the same manner as simple orders. Additionally,
on EDGX, COA responses and unrelated orders on the COB allocate in time
priority, and Leg into the Simple Book in pro-rata priority, as that is
the only allocation algorithm available for simple orders on EDGX. EDGX
prioritizes customer orders in the simple book. As discussed above,
there will be no customer priority on C2--this applies to both the
Simple Book and the COB. However, by trading with the legs first, this
provides protection to customer orders in the legs as well, and ensure
no complex orders will trade against the COB ahead of customer orders
in the legs.
Proposed subparagraph (d)(5)(B) states the System enters any COA-
eligible order (or unexecuted portion) that does not execute at the end
of the COA into the COB (if eligible for entry), and applies a
timestamp based on the time it enters the COB (see current C2 Rule
6.13(c)(6)). The System cancels or rejects any COA-eligible order (or
unexecuted portion) that does not execute at the end of the COA if not
eligible for entry into the COB or in accordance with the User's
instructions. Once in the COB, the order may execute pursuant to
proposed paragraph (e) following evaluation pursuant to proposed
paragraph (i), both as described below, and remain on the COB until
they execute or are cancelled or rejected. These provisions are
substantively the same as EDGX Rule 21.20(d)(5)(A) and (B).
Proposed Rule 6.13(e) describes how the System will handle do-not-
COA orders (i.e. orders that do not initiate a COA upon entry to the
System) and orders resting in the COB. Upon receipt of a do-not-COA
order, or if the System determines an order resting on the COB is
eligible for execution following evaluation as described below, the
System executes it (in whole or in part) against contra side interest
in price priority. If there is contra side interest at the same price,
the System allocates the contra side interest as follows:
(1) Orders and quotes in the Simple Book for the individual leg
components of the complex order through Legging (as described below),
which the System allocates in accordance with the priority in proposed
Rule 6.12(a) applicable to the class.
(2) Complex orders resting on the COB, which the System allocates
in accordance with the priority in proposed Rule 6.12(a) applicable to
the class.
The System enters any do-not-COA order (or unexecuted portion) that
cannot execute against the individual leg markets or complex orders
into the COB (if eligible for entry), and applies a timestamp based on
the time it enters the COB. The System cancels or rejects any do-not-
COA order (or unexecuted portion) that would execute at a price outside
of the SBBO, if not eligible for entry into the COB, or in accordance
with the User's instructions. Complex orders resting on the COB may
execute pursuant to proposed paragraph (e) following evaluation
pursuant to proposed paragraph (i), both as described below, and remain
on the COB until they execute or are cancelled or rejected.
The proposed rule change is similar to current C2 Rule 6.13(b)(1).
Additionally, the proposed rule change is substantively the same as
EDGX Rule 21.20(c)(3)(B) and (5)(D), except for the priority of
execution. As discussed above, on C2, complex orders will trade against
the leg markets ahead of the COB (including customer orders), but will
not prioritize customer orders on the leg markets. As discussed above,
this is consistent with C2's allocation, which provides no customer
priority.
Proposed Rule 6.13(f)(1) states the minimum increment for bids and
offers on a complex order is $0.01, and the components of a complex
order may be executed in $0.01 increments, regardless of the minimum
increments otherwise applicable to the individual components of the
complex order. This is consistent with current and proposed Rule 6.4.
Proposed Rule 6.13(f)(2) provides the System does not execute a complex
order pursuant to Rule 6.13 at a net price (1) that would cause any
component of the complex strategy to be executed at a price of zero,
(2) worse than the SBBO, (3) that would cause any component of the
complex strategy to be executed at a price worse than the individual
component price on the Simple Book, (4) worse than the price that would
be available if the complex order Legged into the Simple Book, or (5)
ahead of orders on the Simple Book without improving the BBO on at
least one component by at least $0.01. The System executes complex
orders without consideration of any prices for the complex strategy
that might be available on other exchanges trading the same complex
strategy; provided, however, that such complex order price may be
subject to the drill-through price protection described below. This is
substantively the same as EDGX Rule 21.20(c). However, because complex
orders will execute against the leg markets (including customer orders
on

[[Page 22814]]

the legs) prior to executing against complex orders at the same price,
complex orders will not execute ahead of a customer order on the legs.
Additionally, this provision is substantively the same as current C2
Rules 6.12(g) and 6.13(c)(5).
Proposed paragraph (g) adopts restrictions on the ability of
complex orders to Leg into the Simple Book. Specifically, a complex
order may Leg into the Simple Book pursuant to proposed subparagraphs
(d)(5)(A)(i) and (e)(i), subject to the restrictions in proposed
paragraph (g), if it can execute in full or in a permissible ratio and
if it has no more than a maximum number of legs (which the Exchange
determines on a class-by-class basis and may be two, three or four),
subject to the following restrictions:
(1) All two leg COA-eligible Customer complex orders may Leg into
the Simple Book without restriction.
(2) Complex orders for any other Capacity with two option legs that
are both buy or both sell and that are both calls or both puts may not
Leg into the Simple Book. These orders may execute against other
complex orders on the COB.
(3) All complex orders with three or four option legs that are all
buy or all sell (regardless of whether the option legs are calls or
puts) may not Leg into the Simple Book. These orders may execute
against other complex orders on the COB.
The proposed rule change is substantively the same as EDGX Rule
21.20(c)(2)(F), except it does not include restrictions related to
Customer orders, because Customer priority will not apply on C2. These
restrictions serve the same purpose as the protection included in
current C2 Rule 6.13(c)(2)(A), which is to ensure that Market-Makers
providing liquidity do not trade above their established risk tolerance
levels. Currently, liquidity providers (typically Market Makers, though
such functionality is not currently limited to registered Market
Makers) in the Simple Book are protected by way of the Risk Monitor
Mechanism by limiting the number of contracts they execute as described
above. The Risk Monitor Mechanism allows Market-Makers and other
liquidity providers to provide liquidity across potentially hundreds of
options series without executing the full cumulative size of all such
quotes before being given adequate opportunity to adjust the price and/
or size of their quotes.
All of a participant's quotes in each option class are considered
firm until such time as the Risk Monitor Mechanism's threshold has been
equaled or exceeded and the participant's quotes are removed by the
Risk Monitor Mechanism in all series of that option class. Thus the
Legging of complex orders presents higher risk to Market-Makers and
other liquidity providers as compared to simple orders being entered in
multiple series of an options class in the simple market, as it can
result in such participants exceeding their established risk thresholds
by a greater number of contracts. Although Market-Makers and other
liquidity providers can limit their risk through the use of the Risk
Monitor Mechanism, the participant's quotes are not removed until after
a trade is executed. As a result, because of the way complex orders leg
into the regular market as a single transaction, Market-Makers and
other liquidity providers may end up trading more than the cumulative
risk thresholds they have established, and are therefore exposed to
greater risk. The Exchange believes that Market Makers and other
liquidity providers may be compelled to change their quoting and
trading behavior to account for this additional risk by widening their
quotes and reducing the size associated with their quotes, which would
diminish the Exchange's quality of markets and the quality of the
markets in general.
Proposed Rule 6.13(h) contains additional provisions regarding the
handling of complex orders:
A complex market order or a limit order with a price that
locks or crosses the then-current opposite side SBBO and does not
execute because the SBBO is the best price but not available for
execution (because it does not satisfy the complex order ratio or the
complex order cannot Leg into the Simple Book) enters the COB with a
book and display price that improves the then-current opposite side
SBBO by $0.01. If the SBBO changes, the System continuously reprices
the complex order's book and display price based on the new SBBO (up to
the limit price, if it is a limit order), subject to the drill-through
price protection described in Rule 6.14(b), until: (A) The complex
order has been executed in its entirety; or (B) the complex order (or
unexecuted portion) of the complex order is cancelled or rejected. This
provision is substantively the same as EDGX Rule 21.20(c)(4) and (6),
except it improves the SBBO by $0.01 in all cases. This is consistent
with the proposed C2 rule to trade with the leg markets ahead of the
COB. The purpose of using the calculated SBBO is to enable the System
to determine a valid trading price range for complex strategies and to
protect orders resting on the Simple Book by ensuring that they are
executed when entitled. Additionally, this process ensures the System
will not execute any component of a complex order at a price that would
trade through an order on the Simple Book. The Exchange believes that
this is reasonable because it prevents the components of a complex
order from trading at a price that is inferior to a price at which the
individual components may be traded on the Exchange or ahead of the leg
markets.
If there is a zero NBO for any leg, the System replaces
the zero with a price $0.01 above NBB to calculate the SNBBO, and
complex orders with any buy legs do not Leg into the Simple Book. If
there is a zero NBB, the System replaces the zero with a price of
$0.01, and complex orders with any sell legs do not Leg into the Simple
Book. If there is a zero NBB and zero NBO, the System replaces the zero
NBB with a price of $0.01 and replaces the zero NBO with a price of
$0.02, and complex orders do not Leg into the Simple Book. The SBBO and
SNBBO may not be calculated if the NBB or NBO is zero (as noted above,
if the best bid or offer on the Exchange is not available, the System
uses the NBB or NBO when calculating the SBBO). As discussed above,
permissible execution prices are based on the SBBO. If the SBBO is not
available, the System cannot determine permissible posting or execution
pricing for a complex order (which are based on the SBBO), which could
reduce execution opportunities for complex orders. If the System were
to use the zero bid or offer when calculating the SBBO, it may also
result in executions at erroneous prices (since there is no market
indication for the price at which the leg should execute). For example,
if a complex order has a buy leg in a series with no offer, there is no
order in the leg markets against which this leg component could
execute. This is consistent with functionality on EDGX, and the
proposed rule change is merely including this detail in the C2 rules.
This is also consistent with the proposed rule change (and EDGX rule)
that states complex order executions are not permitted if the price of
a leg would be zero. Additionally, this is similar to the proposed rule
change described above to improve the posting price of a complex order
by $0.01 if it would otherwise lock the SBBO. The proposed rule change
is a reasonable process to ensure complex orders receive execution
opportunities, even if there is no interest in the leg markets.\39\
---------------------------------------------------------------------------

\39\ Cboe Options Rule 6.13(b)(vi) states if a market order is
received when the national best bid in a series is zero, if the
Exchange best offer is less than or equal to $0.50, the Cboe Options
system enters the market order into the book as a limit order with a
price equal to the minimum trading increment for the series. Similar
to the proposed rule change, this is an example of an exchange
modifying an order price to provide execution opportunities for the
order when there is a lack of contra-side interest when the order is
received by the exchange.

---------------------------------------------------------------------------

[[Page 22815]]

Proposed Rule 6.13(i) states the System evaluates an incoming
complex order upon receipt after the open of trading to determine
whether it is a COA-eligible order or a do-not-COA order and thus
whether it should be processed pursuant to proposed paragraph (d) or
(e), respectively. The System also re-evaluates a complex order resting
on the COB (including an order (or unexecuted portion) that did not
execute pursuant to proposed paragraph (d) or (e) upon initial receipt)
(1) at time the COB opens, (2) following a halt, and (3) during the
trading day when the leg market price or quantity changes to determine
whether the complex order can execute (pursuant to proposed Rule
6.13(e) described above), should be repriced (pursuant to proposed
paragraph (h)), should remain resting on the COB, or should be
cancelled. This is consistent with EDGX Rule 21.20(c)(2)(G) and (c)(5).
This evaluation process ensures that the System is monitoring and
assessing the COB for incoming complex orders, and changes in market
conditions or events that cause complex orders to reprice or execute,
and conditions or events that result in the cancellation of complex
orders on the COB. This ensures the integrity of the Exchange's System
in handling complex orders and results in a fair and orderly market for
complex orders on the Exchange.
Proposed Rule 6.13(j) states the System cancels or rejects a
complex market order it receives when the underlying security is
subject to a limit up-limit down state, as defined in Rule 6.39. If
during a COA of a COA-eligible market order, the underlying security
enters a limit up-limit down state, the System terminates the COA
without trading and cancels or rejects all COA Responses. This is
consistent with handling of simple market orders during a limit up-
limit down state, and is substantively the same as EDGX Rule
21.20(d)(8) and current Rule 6.13(c)(9).
Proposed Rule 6.13(k) describes the impact of trading halts on the
trading of complex orders. If a trading halt exists for the underlying
security or a component of a complex strategy, trading in the complex
strategy will be suspended. The System queues a Trading Permit Holder's
open orders during a Regulatory Halt, unless the Trading Permit Holder
entered instructions to cancel its open complex orders upon a
Regulatory Halt, for participation in the re-opening of the COB as
described below. A Trading Permit Holder's complex orders are cancelled
unless the Trading Permit Holder instructed the Exchange not to cancel
its orders. The COB will remain available for Users to enter and manage
complex orders that are not cancelled. Incoming complex orders that
could otherwise execute or initiate a COA in the absence of a halt will
be placed on the COB. Incoming complex orders with a time in force of
IOC will be cancelled or rejected.
If, during a COA, any component(s) and/or the underlying security
of a COA-eligible order is halted, the COA ends early without trading
and all COA Responses are cancelled or rejected. Remaining complex
orders will be placed on the COB if eligible or will be cancelled. When
trading in the halted component(s) and/or underlying security of the
complex order resumes, the System will re-open the COB pursuant to
proposed paragraph (c) (as described above). The System queues any
complex orders designated for a re-opening following a halt until the
halt has ended, at which time they are eligible for execution in the
Opening Process. This proposed rule change regarding the handling of
complex orders during a trading halt is substantively the same as EDGX
Rule 21.20, Interpretation and Policy .05.
The Exchange believes the proposed provisions described above
regarding complex order handling and executions provide a framework
that will enable the efficient trading of complex orders in a manner
that is similar to current C2 functionality and substantively the same
as EDGX functionality. As described above, complex order executions are
designed to work in concert with a priority of allocation that
continues to respect the priority of allocations on the Simple Book
while protecting orders in the Simple Book.
Proposed Interpretation and Policy .01 states Market-Makers are not
required to quote on the COB. Complex strategies are not subject to any
quoting requirements applicable to Market-Makers in the simple market.
The Exchange does not take into account Market-Makers' volume executed
in complex strategies when deterring whether Market-Makers meet their
quoting obligations in the simple market. This codifies current C2
practice and is identical to EDGX Rule 21.20, Interpretation and Policy
.01.\40\
---------------------------------------------------------------------------

\40\ The proposed rule change deletes current C2 Rule 6.13,
Interpretation and Policy .01 regarding determinations made by the
Exchange, which is being replaced by proposed Rule 1.2.
---------------------------------------------------------------------------

The proposed rule change deletes current Rule 6.13, Interpretation
and Policy .02, which describes how orders resting on the COB may
initiate a COA under certain conditions. This ``re-COA'' functionality
will not be available on C2 following the technology migration.
However, as described above, the System continuously evaluates orders
resting on the COB for execution opportunities against incoming complex
orders or orders in the leg markets. Pursuant to EDGX Rule
21.20(c)(5)(B), continual evaluation of orders on the COB does not
determine whether orders may be subject to another COA. Therefore, the
proposed rule change is consistent with EDGX rules, which do not permit
``re-COA.''
Proposed Interpretation and Policy .02 states a Trading Permit
Holder's dissemination of information related to COA-eligible orders to
third parties or a pattern or practice of submitting orders that cause
a COA to conclude early will be deemed conduct inconsistent with just
and equitable principles of trade and a violation of Rule 4.1. This
combines EDGX Rule 21.20, Interpretation and Policy .02 and current C2
Rule 6.13, Interpretation and Policy .03 into a single provision
regarding behavior related to COAs that may be deemed inconsistent with
just and equitable principles of trade.
Stock-option orders will not be available on C2 following the
technology migration, so the proposed rule change deletes all
provisions related to, and references to, stock-option orders from Rule
6.13 (including Interpretation and Policy .06) and elsewhere in the
Rules. Stock-option order functionality is not currently available on
C2, so this proposed rule change will have no impact on C2 market
participants.
As discussed above, proposed Rule 6.13 regarding complex orders is
substantially the same as EDGX Rule 21.20 or current Rule 6.13, except
for provisions related to priority, as C2 will not have customer
priority. Proposed Rule 6.13 has nonsubstantive differences compared to
EDGX Rule 21.20, which differences are intended to simplify the
description of complex orders, re-organize the provisions, and
eliminate duplicative language.
Current C2 Rule 6.14 describes SAL, an electronic auction mechanism
that provides price improvement for simple orders. Pursuant to this
rule, the Exchange may determine whether to make SAL available on C2.
The proposed rule change deletes this rule

[[Page 22816]]

(and makes conforming changes throughout the rules, including deleting
references to SAL and Rule 6.14), as this functionality will not be
available on C2 following the technology migration. Currently, the
Exchange has not made SAL available for any classes on C2.
Proposed C2 Rule 6.14 consolidates all order and quote price
protection mechanisms and risk controls into a single rule, and states
the System's acceptance and execution of orders and quotes pursuant to
the Rules, including proposed Rules 6.11 through 6.13, are subject to
the price protection mechanisms and risk controls in proposed Rule
6.14. Proposed Rule 6.14 categorizes these mechanisms and controls as
ones applicable to simple orders (proposed paragraph (a)), complex
orders (proposed paragraph (b)), and all (i.e. simple and complex)
orders (proposed paragraph (c)).
The following table identifies the current price protection
mechanism and risk control, the current C2 Rule, the proposed C2 Rule,
the corresponding EDGX rule (if any), and any proposed changes:

--------------------------------------------------------------------------------------------------------------------------------------------------------
Price protection/ risk control Current C2 rule Proposed C2 rule EDGX rule Proposed changes
--------------------------------------------------------------------------------------------------------------------------------------------------------
Handling of market orders received 6.12(h).............. 6.14(a)(1)........... N/A.................. Pursuant to the proposed rule change, the
in no-bid series. System cancels or rejects a market order if
there is no-bid and the Exchange best offer
is less than or equal to $0.50. Under current
functionality, the System would treat the
sell order as a limit order with a price
equal to the minimum increment in this
situation. The proposed rule change also
expands the same protection to market orders
in no-offer series. The Exchange believes the
proposed rule change will provide protection
for these orders to prevent execution at
potentially erroneous prices when a market
order is entered in a series with no bid or
offer.
Market order NBBO width protection. 6.17(a)(1)........... 6.14(a)(2)........... 21.17(a)............. The proposed functionality is generally the
same as current functionality, except the
acceptable amount away from NBBO a market
order may execute will be determined by a
percentage away from the NBBO midpoint
(subject to a minimum and maximum dollar
amount) rather than specified dollar ranges
based on premium, providing the Exchange with
flexibility it believes appropriate given
previous experience with risk controls.
Buy order put check................ 6.17(d).............. 6.14(a)(3)........... 21.17(c)............. The proposed rule change will apply to market
order executions during the Opening Process,
and deletes the call underlying value check
in current Rule 6.17(d)(1)(B), as this
functionality will not be available on C2's
new system following the technology
migration. The proposed rule change also
deletes references to auctions because C2
will have no simple order auctions following
the migration.
Drill-through protection (simple).. 6.17(a)(2)........... 6.14(a)(4)........... 21.17(d)............. The proposed functionality is generally the
same as current functionality, except the
drill-through amount is a buffer amount
determined by class and premium rather than a
number ticks. The proposed rule change
deletes the distinction between orders
exposed via SAL or HAL, as those auction
mechanisms will not be available on C2's new
system following the technology migration.
The proposed functionality applies to Day
orders, as well as GTD and GTC orders that
reenter the Book from the prior trading day,
but not IOC or FOK, as resting in the Book
for a period of time is inconsistent with
their purpose (which is to cancel if not
executed immediately).
Definitions of vertical spread, 6.13.04.............. 6.14(b)(1)........... 21.20.04(a).......... No substantive changes.
butterfly spread, and box spread.
Credit-to-debit parameters......... 6.13.04(b)........... 6.14(b)(2)........... 21.20.04(b).......... No substantive changes.
Debit/credit price reasonability 6.13.04(c)........... 6.17(b)(3)........... 21.20.04(c).......... The proposed functionality is generally the
checks. same as current functionality, except the
acceptable price is subject to a pre-set
buffer amount, which flexibility is
consistent with EDGX functionality. The
proposed rule change also makes an additional
change to conform to a Cboe Options rule, as
described below.
Buy strategy parameters............ 6.13.04(d)........... 6.17(b)(4)........... 21.20.04(d).......... The proposed functionality is generally the
same as current functionality, except the net
credit price is subject to a buffer amount
(consistent with EDGX functionality). The
proposed rule change deletes the mechanism's
applicability to sell strategies, as that
functionality will not be available on C2
following the technology migration.
Maximum value acceptable price 6.13.04(h)........... 6.17(b)(5)........... 21.20.04(e).......... The proposed functionality is generally the
range. same as current functionality, except the
price range is calculated using a buffer
amount (consistent with EDGX functionality)
rather than a percentage amount.

[[Page 22817]]

Drill-through protection (complex). N/A.................. 6.17(b)(6)........... 21.20.04(f).......... The proposed functionality is generally the
same as current functionality that applies to
simple orders, and expands it to complex
orders. The proposed rule change replaces
market width parameter protection and
acceptable percentage range parameter in
current Rule 6.13.04(a) and (e),
respectively, which currently protect C2
complex orders from executing at potentially
erroneous prices too far away from the
order's price or the market's best price. The
proposed rule is substantially similar to
EDGX Rule 21.20(c)(2)(E), except as follows:
(1) The proposed rule change adds the concept
that a COA-eligible order would initiate a
COA at the drill-through price (this is
consistent with current EDGX functionality
and is additional detail in the C2 Rules)
(the prices for complex strategy executions
may be subject to the drill-through
protection, which is intended to capture the
concept that the price of a COA may be
impacted by the drill-through protection; the
proposed rule change makes this explicit in
the C2 rules); and (2) describes how a change
in the SBBO prior to the end of the time
period but the complex order cannot Leg, and
the new SBO (SBB) crosses the drill-through
price, the System changes the displayed price
of the complex order to the new SBO (SBB)
minus (plus) $0.01, and the order will not be
cancelled at the end of the time period
(consistent with EDGX functionality, and the
proposed rule change adds this detail to the
C2 Rules). The proposed rule change merely
permits an order to remain on the COB since
the market reflects interest to trade (but
not currently executable due to Legging
Restrictions) that was not there was not at
the beginning of the time period, providing
additional execution opportunities prior to
cancellation.
Limit Order Fat Finger Check....... 6.13.04(g) and 6.14(c)(1)........... 21.17(b) and 21.20, The proposed functionality is generally the
6.17(b). Interpretation and same as current functionality, except the
Policy .06. amount away from the NBBO a limit order price
may be is a buffer amount rather than a
number of ticks with no minimum, and Exchange
may determine whether the check applies to
simple orders prior to the conclusion of the
Opening Process (current rules codify pre-
open application), providing the Exchange
with flexibility it believes appropriate
given previous experience with risk controls.
The proposed rule change does not apply to
GTC or GTD orders that reenter the Book from
the prior trading day, as this check only
applies to orders when the System receives
them. The proposed rule change provides Users
with ability to set a different buffer amount
to accommodate its own risk modeling; does
not apply to adjusted series prior to the
Opening Process, as prices may reflect the
corporate action for the underlying but the
previous day's NBBO would not reflect that
action. If the check applies prior to the
Opening Process, the System compares the
order's price to the midpoint of the NBBO
rather than the previous day's closing price,
which the Exchange believes is another
reasonable price comparison; will no longer
exclude ISOs, which is consistent with EDGX
functionality.
Maximum contract size.............. 6.17(h).............. 6.14(c)(2)........... N/A.................. The proposed functionality is generally the
same as current functionality, except the
Exchange will set a default amount rather
than permit User to set amount. The proposed
rule change applies per port rather than
acronym or login. The functionality to cancel
a resting order or quote if replacement order
or quote is entered will not be available on
C2 following the technology migration
(however, a User can enable cancel on reject
functionality described below to receive same
result).
Maximum notional value............. N/A.................. 6.14(c)(3)........... Technical Voluntary functionality similar to maximum
specifications. contract size, except the System cancels or
rejects an incoming order or quote with a
notional value that exceeds the maximum
notional value a User establishes for each of
its ports. The proposed rule change provides
an additional, voluntary control for Users to
manage their order and execution risk on C2.
Daily risk limits.................. N/A.................. 6.14(c)(4)........... Technical Voluntary functionality pursuant to which a
specifications. User may establish limits for cumulative
notional booked bid (``CBB'') or offer
(``CBO'') value, and cumulative notional
executed bid (``CEB'') or offer (``CEO'')
value for each of its ports on a net or gross
basis, or both, and may establish limits for
market or limit orders (counting both simple
and complex), or both. If a User exceeds a
cutoff value (by aggregating amounts across
the User's ports), the System cancels or
rejects incoming limit or market orders, or
both, as applicable.41
Risk monitor mechanism............. 6.17(g) and 8.12..... 6.14(c)(5)........... 6.36................. Similar functionality to current C2 quote risk
monitor and order entry, execution, and price
parameter rate checks, which will not be
available on C2 following the technology
migration (discussed below) [sic].

[[Page 22818]]

Cancel on reject................... N/A.................. 6.14(c)(6)........... Technical Additional, voluntary control for Users to
specifications. manage their order and execution risk on C2,
pursuant to which the System cancels a
resting order or quote if the System rejects
a cancel or modification instruction
(because, for example, it had an invalid
instruction) for that resting order or quote.
The proposed rule change is consistent with
the purpose of a cancel or modification,
which is to cancel the resting order or
quote, and carries out this purpose despite
an erroneous instruction on the cancel/
modification message.
Kill switch........................ 6.17(i).............. 6.14(c)(7)........... 22.11................ The proposed functionality is generally the
same as current functionality, except Users
may apply it to different categories of
orders by EFID rather than acronym or login
(consistent with new System functionality),
and block of incoming orders or quotes is a
separate request by Users.
Cancel on disconnect............... 6.48................. 6.14(c)(8)........... Technical The proposed functionality is generally the
specifications. same as current technical disconnect
functionality, except it is the same for both
APIs on the new C2 system. The proposed rule
change will continue to protect Users against
erroneous executions if it appears they are
experiencing a system disruption. The
proposed functionality will no longer provide
TPHs with ability to determine length of
interval, but does provide additional
flexibility with respect to which order types
may be cancelled--current functionality
permits a choice of market-maker quotes and
day orders, while the proposed functionality
permits a choice of day and GTC/GTD orders,
or just day orders.
Block new orders................... N/A.................. N/A.................. 22.11................ Similar to automatic functionality that occurs
on C2 currently when a Trading Permit Holder
uses kill switch functionality. The proposed
rule change merely provides a separate way to
achieve this result on the new System,
providing Users with flexibility regarding
how to manage their resting orders and
quotes.
Duplicate order protection......... N/A.................. N/A.................. Technical Additional, voluntary control for Users to
specifications. manage their order and execution risk on C2.
The proposed rule change protects Users
against execution of multiple orders that may
have been erroneously entered.
--------------------------------------------------------------------------------------------------------------------------------------------------------

The proposed rule change deletes the mechanisms related to
execution of quotes that lock or cross the NBBO and quotes inverting
the NBBO. Since there will be no separate order and quote
functionality, orders submitted by Market-Makers will be subject to the
protections described above.
---------------------------------------------------------------------------

\41\ The System calculates a notional cutoff on a gross basis by
summing CBB, CBO, CEB, and CEO. The System calculates a notional
cutoff on a net basis by summing CEO and CBO, then subtracting the
sum of CEB and CBB, and then taking the absolute value of the
resulting amount.
---------------------------------------------------------------------------

Under the current EDGX debit/credit price reasonability check (see
EDGX Rule 21.20.04(c)), the System only pairs calls (puts) if they have
the same expiration date but different exercise prices or the same
exercise price but different expiration dates. Under the current C2
debit/credit reasonability check, with respect to pairs with different
expiration the System pairs of calls (puts) with different expiration
dates if the exercise price for the call (put) with the farther
expiration date is lower (higher) than the exercise price for the
nearer expiration date in addition to those with different expiration
dates and the same exercise price. The proposed rule change amends this
check to pair orders in the same manner as EDGX, which is to pair calls
(puts) if they have the same expiration date but different exercise
prices or the same exercise price but different expiration dates.
Additionally, the proposed rule change deletes the exception for
complex orders with European-style exercise. The Exchange no longer
believes this exception is necessary and will expand this check to
index options with all exercise styles.
The proposed Risk Monitor Mechanism is substantively the same as
the functionality currently available on EDGX. Because there will no
longer be separate order and quote functionality on C2 following the
technology migration, there will no longer be separate mechanisms to
monitor entry and execution rates, as there are on C2 today. Each User
may establish limits for the following parameters in the Exchange's
counting program. The System counts each of the following within a
class (``class limit'') and across all classes for an EFID (``firm
limit'') over a User-established time period (``interval'') on a
rolling basis up to five minutes (except as set forth in (iv) below)
and on an absolute basis for a trading day (``absolute limits''):
(i) Number of contracts executed (``volume'');
(ii) notional value of executions (``notional'');
(iii) number of executions (``count''); and
(iv) number of contracts executed as a percentage of number of
contracts outstanding within an Exchange-designated time period or
during the trading day, as applicable (``percentage''), which the
System determines by calculating the percentage of a User's outstanding
contracts that executed on each side of the market during the time
period or trading day, as applicable, and then summing the series
percentages on each side in the class.
When the System determines the volume, notional, count, or
percentage:
(i) Exceeds a User's class limit within the interval or the
absolute limit for the class, the Risk Monitor Mechanism cancels or
rejects such User's orders or quotes in all series of the class and
cancels or rejects any additional orders or quotes from the User in the
class until the counting program resets (as described below).
(ii) exceeds a User's firm limit within the interval or the
absolute limit for the firm, the Risk Monitor Mechanism cancels or
rejects such User's orders or quotes in all classes and cancels or
rejects any additional orders or quotes from the User in all classes
until the counting program resets (as described below).

[[Page 22819]]

The Risk Monitor Mechanism will also attempt to cancel or reject
any orders routed away to other exchanges.
The System processes messages in the order in which they are
received. Therefore, it will execute any marketable orders or quotes
that are executable against a User's order or quote and received by the
System prior to the time the Risk Monitor Mechanism is triggered at the
price up to the size of the User's order or quote, even if such
execution results in executions in excess of the User's parameters.
The System will not accept new orders or quotes from a User after a
class limit is reached until the User submits an electronic instruction
to the System to reset the counting program for the class. The System
will not accept new orders or quotes from a User after a firm limit is
reached until the User manually notifies the Trade Desk to reset the
counting program for the firm, unless the User instructs the Exchange
to permit it to reset the counting program by submitting an electronic
message to the System. The Exchange may restrict the number of User
class and firm resets per second.
The System counts executed COA responses as part of the Risk
Monitor Mechanism. The System counts individual trades executed as part
of a complex order when determining whether the volume, notional, or
count limit has been reached. The System counts the percentage executed
of a complex order when determining whether the percentage limit has
been reached.
The Risk Monitor Mechanism providers Users with similar ability to
manage their order and execution risk to the quote risk monitor and
rate checks currently available on C2. It merely uses different
parameters and modifies the functionality to conform C2's new System.
With respect to various price protections and risk controls in
current Rules 6.13, Interpretation and Policy .04, and 6.17, the
Exchange has the authority to provide intraday relief by widening or
inactivating one or more of the parameter settings for the mechanisms
in those rules. This authority is included in proposed Interpretation
and Policy .01, to provide this flexibility for all price protections
and risk controls for which the Exchange sets parameters, providing the
Exchange with flexibility it believes appropriate given previous
experience with risk controls. The Exchange will continue to make and
keep records to document all determinations to grant intraday relief,
and periodically review these determinations for consistency with the
interest of a fair and orderly market.
The proposed rule change moves the provision regarding the
Exchange's ability to share User-designated risk settings in the System
with a Clearing Trading Permit Holder that clears Exchange transactions
on behalf of the User from the introduction of current Rule 6.17 to
proposed Rule 6.14, Interpretation and Policy .02.
Proposed Rule 6.15 replaces current Rule 6.36 regarding routing of
orders to other exchanges. C2 will continue to support orders that are
designated to be routed to the NBBO as well as orders that will execute
only within C2 (as discussed above). Orders designated to execute at
the NBBO will be routed to other options markets for execution when the
Exchange is not at the NBBO, consistent with the Options Order
Protection and Locked/Crossed Market Plan. Subject to the exceptions
contained in Rule 6.81, the System will ensure that an order will not
be executed at a price that trades through another options exchange. An
order that is designated by a Trading Permit Holder as routable will be
routed in compliance with applicable Trade-Through restrictions. Any
order entered with a price that would lock or cross a Protected
Quotation that is not eligible for either routing, or the Price Adjust
process described above, will be cancelled.
Proposed Rule 6.15 states for System securities, the order routing
process is available to Users from 9:30 a.m. until market close. Users
can designate an order as either available or not available for
routing. Orders designated as not available for routing (either Book
Only or Post Only) are processed pursuant to Rule 6.12. For an order
designated as available for routing, the System first checks for the
Book for available contracts for execution against the order pursuant
to Rule 6.12. Unless otherwise instructed by the User, the System then
designates the order (or unexecuted portion) as IOC and routes it to
one or more options exchanges for potential execution, per the User's
instructions. After the System receives responses to the order, to the
extent it was not executed in full through the routing process, the
System processes the order (or unexecuted portion) as follows,
depending on parameters set by the User when the incoming order was
originally entered:
Cancels the order (or unexecuted portion) back to the
User;
posts the unfilled balance of the order to the Book,
subject to the Price Adjust process described in proposed Rule 6.12(b),
if applicable. [sic]
repeats the process described above by executing against
the Book and/or routing to the other options exchanges until the
original, incoming order is executed in its entirety;
repeats the process described above by executing against
the Book and/or routing to the other options exchanges until the
original, incoming order is executed in its entirety, or, if not
executed in its entirety and a limit order, posts the unfilled balance
of the order on the Book if the order's limit price is reached; or
to the extent the System is unable to access a Protected
Quotation and there are no other accessible Protected Quotations at the
NBBO, cancels or rejects the order back to the User, provided, however,
that this provision does not apply to Protected Quotations published by
an options exchange against which the Exchange has declared self-help.
Currently, C2 automatically routes intermarket sweep orders,
consistent with the definition in Rule 6.80(8). This routing process is
functionally equivalent to the current C2 routing process, and referred
to as SWPA and is specifically described in proposed Rule
6.15(a)(2)(B). Specifically, SWPA is a routing option (which will be
the default routing option following migration, and thus, if no other
routing option is specified by a User, a User's order subject to
routing will be handled in the same way it is today). Following the
technology migration, C2 will offer additional routing options
identical to the routing options offered by EDGX.\42\ Routing options
may be combined with all available Order Instructions and Times-in-
Force, with the exception of those whose terms are inconsistent with
the terms of a particular routing option. The System considers the
quotations only of accessible markets. The term ``System routing
table'' refers to the proprietary process for determining the specific
options exchanges to which the System routes orders and the order in
which it routes them. The Exchanges reserves the right to maintain a
different System routing table for different routing options and to
modify the System routing table at any time without notice. These
additional routing

[[Page 22820]]

options are ROUT, destination specific, and directed ISO:
---------------------------------------------------------------------------

\42\ Users may mark orders as eligible for routing (with one of
the four proposed routing instructions) or not eligible for routing
(with either a Book Only or Post Only instruction). Separately, both
routable and non-routable orders may be marked with re-pricing
instructions (either Price Adjust (single or multiple) and Cancel
Back), which instruction the System will apply when it receives the
order from the User or receives any unexecuted portion of an order
upon returning from routing.
---------------------------------------------------------------------------

ROUT is a routing option under which the System checks the
Book for available contracts to execute against an order and then sends
it to destinations on the System routing table. A User may select
either Route To Improve (``RTI'') or Route To Fill (``RTF'') for the
ROUT routing option. RTI may route to multiple destinations at a single
price level simultaneously while RTF may route to multiple destinations
and at multiple price levels simultaneously.
Destination specific is a routing option under which the
System checks the Book for available contracts to execute against an
order and then sends it to a specific away options exchange.
Directed ISO is a routing option under which the System
does not check the Book for available contracts and sends the order to
another options exchange specified by the User. It is the enter Trading
Permit Holder's responsibility, not the Exchanges responsibility, to
comply with the requirements relating to Intermarket Sweep Orders.
The Exchange also proposes to offer two options for Re-Route
instructions, Aggressive Re-Route and Super Aggressive Re-Route, either
of which can be assigned to routable orders:
Pursuant to the Aggressive Re-Route instruction, if the
remaining portion of a routable order has been posted to the Book
pursuant proposed paragraph (a)(1) above, if the order's price is
subsequently crossed by the quote of another accessible options
exchange, the System routes the order to the crossing options exchange
if the User has selected the Aggressive Re-Route instruction.
Pursuant to the Super Aggressive Re-Route instruction, to
the extent the unfilled balance of a routable order has been posted to
the Book pursuant to subparagraph (a)(1) above, if the order's price is
subsequently locked or crossed by the quote of another accessible
options exchange, the System routes the order to the locking or
crossing options exchange if the User has selected the Super Aggressive
Re-Route instruction.
Proposed Rule 6.15(b) states the System does not rank or maintain
in the Book pursuant to Rule 6.12 orders it has routed to other options
exchanges, and therefore those orders are not available to execute
against incoming orders. Once routed by the System, an order becomes
subject to the rules and procedures of the destination options exchange
including, but not limited to, order cancellation. If a routed order
(or unexecuted portion) is subsequently returned to the Exchange, the
order (or unexecuted portion), the order receives a new time stamp
reflected the time the System receives the returned order. Proposed
Rule 6.15(c) states Users whose orders are routed to other options
exchanges must honor trades of those orders executed on other options
exchanges to the same extent they would be required to honor trades of
those orders if they had executed on the Exchange. These provisions are
consistent with current C2 functionality, and the proposed rule change
adds this detail to the C2 Rules. They are also substantively the same
as EDGX Rule 21.9(b) and (c).
C2 will route orders in options via Cboe Trading, which will serve
as the Outbound Router of the Exchange, as discussed above. The
Outbound Router will route orders in options listed and open for
trading on C2 to other options exchanges pursuant to C2 Rules solely on
behalf of C2. The Outbound Router is subject to regulation as a
facility of the Exchange, including the requirement to file proposed
rule changes under Section 19 of the Exchange Act. Use of Cboe Trading
or Routing Services as described below to route orders to other market
centers is optional. Parties that do not desire to use Cboe Trading or
other Routing Services provided by the Exchange must designate orders
as not available for routing.
In the event the Exchange is not able to provide Routing Services
through its affiliated broker-dealer, the Exchange will route orders to
other options exchanges in conjunction with one or more routing brokers
that are not affiliated with the Exchange. C2 does not currently have
an affiliated broker-dealer that provides routing services, and thus it
currently routes orders to other options exchanges in conjunction with
one or more routing brokers not affiliated with the Exchange, as
provided in current Rule 6.36(a). In connection with Routing Services,
the same conditions will apply to routing brokers that currently apply
to C2 routing brokers pursuant to current Rule 6.36(a) (which are
proposed to be moved to Rule 6.15(e)) and are the same as EDGX Rule
21.9(e).
Proposed Rule 6.15(f) states in addition to the Rules regarding
routing to away options exchanges, Cboe Trading has, pursuant to Rule
15c3-5 under the Exchange Act, implemented certain tests designed to
mitigate the financial and regulatory risks associated with providing
Trading Permit Holders with access to away options exchanges. Pursuant
to the policies and procedures developed by Cboe Trading to comply with
Rule 15c3-5, if an order or series of orders are deemed to be erroneous
or duplicative, would cause the entering Trading Permit Holder's credit
exposure to exceed a preset credit threshold, or are noncompliant with
applicable pre-trade regulatory requirements, Cboe Trading will reject
the orders prior to routing and/or seek to cancel any orders that have
been routed. This provision is the same as EDGX Rule 21.9(f), and
currently applies to Cboe Trading.
The proposed rule, including the various routing options, is
substantially the same as EDGX Rule 21.9. The various routing options
will provide Users with additional flexibility to instruct the Exchange
how to handle the routing of their orders. The Re-Route instructions
will provide unexecuted orders resting on the Book with additional
execution opportunities. The proposed routing process and options are
identical to those available on EDGX.
Current C2 Rule 6.18 describes HAL, a feature that automates
handling of orders not at the NBBO by auctioning them at the NBBO for
potential price improvement on the Exchange prior to routing. Pursuant
to this rule, the Exchange may determine whether to make HAL available
on C2. The proposed rule change deletes this rule (and makes conforming
changes throughout the rules, including deleting references to HAL and
Rule 6.18), as this functionality will not be available on C2 following
the technology migration.
The proposed rule change deletes current C2 Rule 6.19 regarding
types of order formats, as these formats are available on the current
C2 system but will not be applicable on C2's new system following the
technology migration. Information regarding order formats are available
in technical specifications on the Exchange's website.\43\
---------------------------------------------------------------------------

\43\ See https://markets.cboe.com/us/options/support/technical/.
---------------------------------------------------------------------------

Proposed C2 Rule 6.28 states the System sends to a User aggregated
and individual transaction reports for the User's transactions, which
reports include transaction details; the contra party's EFID, clearing
Trading Permit Holder account number, and Capacity; and the name of any
away exchange if an order was routed for execution. The Exchange
reveals a User's identity (1) when a registered clearing agency ceases
to act for a participant, or the User's Clearing Trading Permit Holder,
and the registered clearing agency determines not to guarantee the
settlement of the User's trades, or (2) for regulatory purposes or to
comply with an order of

[[Page 22821]]

an arbitrator or court. C2 currently sends out transaction reports
containing similar information, and the Exchange believes including
this information in the Rules will provide more transparency to market
participants about these reports. The proposed rule change is
substantively the same as EDGX Rule 21.10 and is consistent with
current Exchange and options industry practices, including the fact
that clearing information available through OCC provides contra-party
information, as well as the ability of a User to disclose its identify
on orders.
Current C2 Rule 6.49 describes the C2 Trade Match System (``CTM'')
functionality available on C2's current System, which permits Trading
Permit Holders to update transaction reports. The functionality
available on C2's System following the technology migration is called
the Clearing Editor. The Clearing Editor, like CTM, allows Trading
Permit Holders to update executed trades on their trading date and
revise them for clearing. The Clearing Editor may be used to correct
certain bona fide errors. Trading Permit Holders may change the
following fields through the Clearing Editor: executing firm and contra
firm; executing broker and contra broker; CMTA; account and subaccount
(not just market-maker account and subaccount, as is the case currently
on CTM): Customer ID; position effect (open/close); or Capacity
(because there will be no customer priority on C2, there is no need to
restrict Capacity changes as set forth in current Rule 6.49). The
proposed rule change deletes Rule 6.49(b), which are fields Trading
Permit Holders may change only if they provide notice to the Exchange,
as Clearing Editor does not permit Trading Permit Holders to change
these fields. If a Trading Permit Holder must change the series,
quantity, buy or sell, or premium price, it must contact the Exchange
pursuant to proposed Rule 6.29 regarding obvious errors. Current Rule
6.49(c) and Interpretation and Policy .01 are moved to Rule 6.31(c) and
Interpretation and Policy .01 with no substantive changes.
C2 Rule 6.32 describes when the Exchange may halt trading in a
class and is substantially similar to EDGX Rules 20.3 and 20.4. Current
Rule 6.32(a) lists various factors, among others, the Exchange may
consider when determining whether to halt trading in a class, but adds
the following two to be consistent with EDGX Rule 20.3:
Occurrence of an act of God or other event outside the
Exchange's control; and
occurrence of a System technical failure or failures
including, but not limited to, the failure of a part of the central
processing system, a number of Trading Permit Holder applications, or
the electrical power supply to the System itself or any related system
(the Exchange believes this broader factor regarding system
functionality covers the current factor in paragraph (a)(4) regarding
the status of a rotation, which is a system process).
As the current rule permits the Exchange to consider factors other
than those currently listed, including the two factors proposed to be
added (which the Exchange currently does consider when determining
whether to halt a class), the proposed rule change is consistent
current Rule 6.32(a). The proposed rule change moves the provision in
Interpretation and Policy .02 to subparagraph (a)(1). The proposed rule
change moves the provisions in current Interpretations and Policies .01
and .05 to proposed paragraph (c).
The proposed rule change adds proposed paragraph (b), which states
if the Exchange determines to halt trading, all trading in the effected
class(es) will be halted, and the System cancels all orders in the
class(es) unless a User entered instructions to cancel all orders
except GTC and GTD orders or not cancel orders during a halt. C2
disseminates through its trading facilities and over OPRA a symbol with
respect to the class(es) indicating that trading in the class(es) has
been halted. The Exchange makes available to vendors a record of the
time and duration of the halt. Following the technology migration, C2
will have functionality availability that permits Trading Permit
Holders to enter a standing instruction regarding the handling of its
orders during a halt. The remainder of proposed paragraph (b) is
consistent with C2's current practice. The proposed paragraph (b) is
also substantively the same as EDGX Rule 20.3(b).
C2's new technology platform is currently the platform for EDGX and
other Cboe Affiliated Exchanges, and thus has an established disaster
recovery plan. Therefore, the proposed rule change deletes the majority
of C2's disaster recovery provisions, contained in current Rules 6.45
and 6.34(f) (regarding mandatory testing), and adopts proposed Rule
6.34, which is substantially similar to EDGX Rule 2.4. Proposed Rule
6.34 states the Exchange maintains business continuity and disaster
recovery plans, including backup systems, it may activate to maintain
fair and orderly markets in the event of a systems failure, disaster,
or other unusual circumstance that may threaten the ability to conduct
business on the Exchange, which is consistent with current Rule
6.45(a).
Proposed Rule 6.34(b) states Trading Permit Holders that contribute
a meaningful percentage of the Exchange's overall volume must connect
to the Exchange's backup systems and participate in functional and
performance testing as announced by the Exchange, which will occur at
least once every 12 months. The Exchange has established the following
standards to identify Trading Permit Holders that account for a
meaningful percentage of the Exchange's overall volume and, taken as a
whole, the constitute the minimum necessary for the maintenance of fair
and orderly markets in the event of the activation of business
continuity and disaster recovery plans:
The Exchange will determine the percentage of volume it
considers to be meaningful for purposes of this Rule.
The Exchange will measure volume executed on the Exchange
on a quarterly basis. The Exchange will also individually notify all
Trading Permit Holders quarterly that are subject to this paragraph
based on the prior calendar quarter's volume.
If a Trading Permit Holder has not previously been subject
to the requirements of this paragraph, such Trading Permit Holder will
have until the next calendar quarter before such requirements are
applicable.
Proposed Rule 6.34(c) states all Trading Permit Holders may connect
to the Exchange's backup systems and participate in testing of such
systems. Current Rule 6.45 similarly requires certain Trading Permit
Holders designated by the Exchange to connect to back-up systems and
participate in testing (current Rule 6.34(f) also requires
participation in mandatory systems testing). The proposed rule change
designates different but reasonable criteria for determining which
Trading Permit Holders must participate in mandatory testing.
Proposed paragraphs (b) and (c) are consistent with Regulation SCI
requirements, which apply to certain self-regulatory organizations
(including the Exchange), alternative trading systems (``ATSs''), plan
processors, and exempt clearing agencies (collectively, ``SCI
entities''), and requires these SCI entities to comply with
requirements with respect to the automated systems central to the
performance of their regulated activities. The Exchange takes pride in
the reliability and availability of its systems. C2 has, and the Cboe
Affiliate Exchanges that operate on the

[[Page 22822]]

technology platform to which C2 will migrate have, put extensive time
and resources toward planning for system failures and already maintain
robust business continuity and disaster recovery BC/DR plans consistent
with the Rule.
Propose Rule 6.35 describes steps the Exchange may take to mitigate
message traffic, based on C2's traffic with respect to target traffic
levels and in accordance with C2's overall objective of reducing both
peak and overall traffic. First, the System does not send an outbound
message \44\ in a series that is about to be sent if a more current
quote message for the same series is available for sending, but does
not delay the sending of any messages (referred to in proposed Rule
6.35 as ``replace on queue''). Second, the System will prioritize price
update messages over size update messages in all series and in
conjunction with the replace on queue functionality described above.
Current C2 Rules contains various provisions the current system uses to
mitigate message traffic, such as Rules 6.34(b) (permits the Exchange
to limit the number of messages Trading Permit Holders may send) and
(c) (newly received quotations and other changes to the BBO may not be
disseminated for a period of up to, but no more than, one second), 6.35
(regarding bandwidth packets), and 8.11.\45\ The proposed rule change
essentially replaces these provisions. C2 does not have unlimited
capacity to support unlimited messages, and the technology platform
onto which it will migrates contains the above functionality, which are
reasonable measures the Exchange may take to manage message traffic and
protect the integrity of the System. The proposed change is
substantively the same as EDGX Rule 21.14, except it does not include
the provision regarding EDGX's ability to periodically delist options
with an average daily volume of less than 100 contracts. Additionally,
current C2 Rule 6.34(c) (which is being deleted and replaced by the
message traffic mitigation provisions in proposed Rule 6.35) permits
the Exchange to utilize a mechanism so that newly received quotes and
other changes to the BBO are not disseminated for a period of up to but
no more than one second in order to control the number of quotes the
Exchange disseminates. Cboe Options Rule 5.4, Interpretation and Policy
.13 (which is incorporated by reference into C2's Rules) permits the
Exchange to delist any class immediately if the class is open for
trading on another national securities exchange, or to not open any
additional series for trading if the class is solely open for trading
on C2. This provision achieves the same purpose as EDGX Rule 21.14(a),
and thus it is unnecessary to add the EDGX provision to C2 Rules.
---------------------------------------------------------------------------

\44\ This refers to outbound messages being sent to data feeds
and OPRA.
\45\ The proposed rule change deletes the remainder of current
Rule 6.34(b), which states the Exchange may impose restrictions on
the use of a computer connected through an API if necessary to
ensure the proper performance of the System. The proposed rules do
not contain a similar provision; however, to the extent C2 in the
future wanted to impose any type of these restrictions, it would
similarly submit a rule change for Commission approval.
---------------------------------------------------------------------------

The proposed rule change adds Interpretations and Policies .01
through .04 to Rule 6.50 regarding the order exposure requirement:
Rule 6.50 prevents a Trading Permit Holder from executing
agency orders to increase its economic gain from trading against the
order without first giving other trading interest on the Exchange an
opportunity to either trade with the agency order or to trade at the
execution price when the Trading Permit Holder was already bidding or
offering on the Book. Rule 6.50 imposes an exposure requirement of one
second before such orders may execute. However, the Exchange recognizes
that it may be possible for a Trading Permit Holder to establish a
relationship with a customer or other person to deny agency orders the
opportunity to interact on the Exchange and to realize similar economic
benefits as it would achieve by executing agency orders as principal.
It is a violation of the Rule for a Trading Permit Holder to be a party
to any arrangement designed to circumvent this Rule by providing an
opportunity for a customer to regularly execute against agency orders
handled by the Trading Permit Holder immediately upon their entry into
the System.
It is a violation of Rule 6.50 for Trading Permit Holder
to cause the execution of an order it represents as agent on C2 against
orders it solicited from Trading Permit Holders and non-Trading Permit
Holder broker-dealers, whether such solicited orders are entered into
C2 directly by the Trading Permit Holder or by the solicited party
(either directly or through another Trading Permit Holder), if the
Trading Permit Holder fails to expose orders on C2 as required by the
Rule.
With respect to nondisplayed portions of reserve orders,
the exposure requirement of Rule 6.50 is satisfied if the displayed
portion of the order is displayed at its displayable price for one
second.
Prior to or after submitting an order to the System, a
Trading Permit Holder cannot inform another Trading Permit Holder or
any other third party of any of the terms of the order.
While these provisions are not currently stated in the C2 Rules,
they are consistent with the C2's interpretation of current Rule 6.50.
Current C2 Rule 6.50 is substantively the same as EDGX Rule 22.12, and
the following proposed Interpretations and Policies .01 through .04 are
substantively the same as EDGX Rule 22.12, Interpretations and Policies
.01 through .04.
Current C2 Rule 6.51 describes the Automated Improvement Mechanism
(``AIM''), an electronic auction mechanism that provides potential
price improvement for eligible incoming orders, and current C2 Rule
6.52 describes the Solicitation Auction Mechanism (``SAM''), an
electronic auction mechanism that provides potential price improvement
for the all-or-none orders with size of 500 or more. Pursuant to those
rules, the Exchange may determine whether to make this functionality
available on C2. The proposed rule change deletes these rules (and
makes conforming changes throughout the rules, including deleting
references to AIM, SAM, and the rules), as this functionality will not
be available on C2 following the technology migration.
Chapter 8
The proposed rule change adds paragraph (d) to Rule 8.1, which
states a Trading Permit Holder or prospective Trading Permit Holder
adversely affected by an Exchange determination under this Chapter 8,
including the Exchange's termination or suspension of a Trading Permit
Holder's status as a Market-Maker or a Market-Maker's appointment to a
class, may obtain a review of such determination in accordance with the
provisions of Chapter 19. Current Rule 8.2 contains a similar provision
applicable to that Rule; however, the remaining rules in Chapter 8
contain various provision that permit the Exchange to make
determinations, which would be subject to review under Chapter 19.
Therefore, the Exchange believes it is appropriate to include a similar
provision applicable to the entire Chapter 8.
The proposed rule change modifies rule provisions throughout
Chapter 8 to clarify the distinction between Market-Maker registration
and appointment. A Trading Permit Holder may register as a Market-Maker
which is a function available on the Exchange. A Trading Permit Holder
registered as a Market-Maker may select appointments to classes in
which it agrees to satisfy obligations as a Market-Maker and

[[Page 22823]]

obtain Market-Maker treatment for its trading activity in those
classes.
The proposed rule change renames Rule 8.2 to be Market-Maker Class
Appointments, as the rule generally describes how a Market-Maker may
obtain appointments to classes, rather than continuing Market-Maker
registration. To retain status as a registered Market-Maker, a Market-
Maker must satisfy its obligations in its appointed classes (as
discussed below) and otherwise stay in good standing, as described in
Rule 8.4 (as discussed below). Currently, and following the System
migration, Market-Makers may select their own class appointments
through an Exchange system. Rule 8.2(b) states a Market-Maker may
register in one or more classes in a manner prescribed by the Exchange.
The proposed rule change adds detail, which conforms to EDGX Rule
22.3(b), which states a Market-Maker may enter an appointment request
via an Exchange-approved electronic interface with the Exchange's
systems by 9:00 a.m., which appointment will become effective on the
day the Market-Maker enters the appointment request. The Exchange notes
Market-Makers on EDGX may select appointments to series, while Market-
Makers on C2 will continue to be able to select appointments to a
class, as they do today. This proposed process is similar to the one
Market-Makers use on C2's current systems for selecting appointments.
The proposed rule change deletes the language in current Rule 8.2(d)
stating a Market-Maker may change its registered classes upon advance
notification to the Exchange, as that is duplicative of proposed Rule
8.2(b), which requires Market-Makers to select appointments prior to a
trading day for that appointment to become effective on that trading
day.
The proposed rule change deletes the provision in current Rule
8.2(b) that permits the Exchange to register a Market-Maker in one or
more classes of option contracts, as the Exchange does not, and does
not intend, to impose appointments on Market-Makers. Similarly, the
proposed rule change deletes current Rule 8.2(c), which states no
option class registration may be made without the Market-Maker's
consent to such registration, provided that refusal to accept a
registration may be deemed sufficient cause for termination or
suspension of a Market-Maker. As noted above, Market-Makers select
their own appointments. Rules 8.1(b) and 8.4(b), among others, describe
circumstances under which the Exchange may suspend or terminate a
Trading Permit Holder's registration as a Market-Maker or a Market-
Maker's appointment in a class. Additionally, the proposed rule change
deletes the provision permitting it to arrange two or more classes of
contracts into the groupings and make registrations to those groupings
rather than to individual classes, as the Exchange does not, and does
not intend, to create groups of registrations. Market-Makers only
select appointments by class.
Proposed Rule 8.2(c) states a Market-Maker's appointment in a class
confers the right of the Market-Maker to quote (using order
functionality) in that class. On C2's current system, there is separate
quote functionality for quoting in appointed classes. Following the
technology migration, the new System permits Market-Makers to quote in
appointed classes using order functionality (which is the case today on
EDGX). A similar provision is contained in current Rule 8.2(d).
The proposed rule change adds proposed Rule 8.2(d), which
references the Exchange's ability to limit appointments pursuant to
proposed Rule 8.1(c), as described above.
Current Rule 8.2(d) describes the appointment costs of Market-Maker
class appointments. The proposed rule change merely moves the
description of appointment costs to proposed Rule 8.3.
The proposed rule change deletes current Rule 8.4(a)(2), which
states a Market-Maker must continue to satisfy the Market-Maker
qualification requirements specified by the Exchange, because it is
redundant of the language in subparagraph (a)(1), which states a
Market-Maker must continue to meet the general requirements for Trading
Permit Holders set forth in Chapter 3 and Market-Maker requirements set
forth in Chapter 8. These are generally the only requirements
applicable to qualify as a Market-Maker.
Rule 8.5 currently describes general obligations imposed on Market-
Makers, while Rule 8.6 describes requirements applicable to Market-
Maker quotes (the proposed rule change renames Rule 8.6 to apply to all
quote requirements rather than the firm quote requirement, which is
still included in proposed Rule 8.6(a)). The proposed rule moves the
description of the continuous quoting obligation to proposed Rule
8.6(d) from current Rule 8.5(a)(1), but there are no substantive
changes to the continuous quoting obligation. The proposed rule change
also adds that the Market-Maker continuous quoting obligations in
proposed Rule 8.6(d) apply collectively to Market-Makers associated
with the same Trading Permit Holder firm. This is consistent with the
Exchange's current interpretation of this obligation, and the proposed
rule change merely codifies it in the Rules to provide additional
transparency. This structure conforms to EDGX Rules 22.5 and 22.6.\46\
The proposed rule change also moves current Rule 8.5(d) to proposed
Rule 8.6(e), which permits the Exchange to call on a Market-Maker to
submit a single quote or maintain continuous quotes in one or more
series of a Market-Maker's appointed class whenever, in the judgment of
the Exchange, it is necessary to do so in the interest of maintaining a
fair and orderly market. The revised language is substantially the same
as EDGX Rule 22.6(d)(2). The proposed rule change also moves current
Rule 8.5, Interpretation and Policy .01 to proposed Rule 8.6(d)(4),
which provides a Market-Maker has no quoting obligations while the
underlying security for an appointed class is in a limit up-limit down
state. The revised language is substantially similar to EDGX Rule
22.6(d)(5).
---------------------------------------------------------------------------

\46\ EDGX rules permit appointments by series, while C2 Rules
will continue to permit appointments by class. Ultimately, an EDGX
market-maker has the same flexibility to select its appointments,
and is subject to the same quoting obligations, as C2 Market-Makers.
The proposed rule change does not add the obligation in EDGX Rule
22.5(a)(7), which states a Market-Maker must honor all orders the
trading system routes to away markets. The Exchange believes this
obligation is unnecessary, as it is true for all orders.
Additionally, the Exchange expects Market-Makers will often use Post
Only orders to add liquidity to the Book as quotes (including
through use of the bulk order port), and those orders, like current
quotes today, do not route to other exchanges.
---------------------------------------------------------------------------

The proposed rule change adds the following quoting obligations to
Rule 8.6, which are the same as obligations in EDGX Rule 22.6:

------------------------------------------------------------------------
Proposed C2
Obligation rule EDGX rule
------------------------------------------------------------------------
A Market-Maker's bid (offer) for a 8.6(b) 22.6(a)
series must be accompanied by the
number of contracts at the price of the
bid (offer) the Market-Maker is willing
to buy (sell), and the best bid and
best offer entered by a Market-Maker
must have a size of at least one
contract...............................

[[Page 22824]]

A Market-Maker that enters a bid (offer) 8.6(c) 22.6(b)
on the Exchange in a series in an
appointed class must enter an offer
(bid)..................................
A Market-Maker is considered an OEF 8.6(f) 22.6(c)
under the Rules in all classes in which
the Market-Maker has no appointment.
The total number of contracts a Market-
Maker may execute in classes in which
it has no appointment may not exceed
25% of the total number of all
contracts the Market-Maker executes on
the Exchange in any calendar quarter...
------------------------------------------------------------------------

The proposed size requirement in proposed Rule 8.6(b) is consistent
with the firm quote rule, and, as a bid and offer currently cannot have
size of zero, the minimum size requirement is consistent with current
C2 System functionality.
While there is no explicit requirement in current C2 rules that a
Market-Maker must enter two-sided quotes in appointed series like the
one in proposed Rule 8.6(c), the continuous quoting obligation requires
a continuous two-sided market (see current Rule 8.5(a)(1)) and general
obligations require a Market-Maker to, among other things, compete with
other Market-Makers in its appointed classes, update quotes in response
to changes market conditions, and maintain active markets in its
appointed classes (see current Rule 8.5(a)(3) through (5)), which are
consistent with the requirement to enter two-sided quotes.
Additionally, current C2 System functionality permits Market-Makers to
submit two-sided quotes.
Current C2 Rules contain no specific requirement regarding the
percentage of a Market-Makers executed volume that must be within their
appointed classes. However, such a requirement is consistent with
Market-Makers current obligations to maintain continuous two-sided
quotes in their appointed classes for a significant part of the trading
day, compete in their appointed classes, and update quotes and maintain
active markets in their appointed classes.
The Exchange believes these additional explicit requirements in the
rules will continue to offset the benefits a Market-Maker receives in
its appointed classes, as the proposed Market-Maker requirements are
consistent with current C2 Market-maker obligations and observed
quoting behavior, and they are the substantively the same as those in
the EDGX rules. The Exchange believes having consistent Market-Maker
obligations in the C2 and EDGX rules will simplify the regulatory
requirements and increase the understanding of the Exchange's
operations for Trading Permit Holders that are Market-Makers on both C2
and EDGX.
The proposed rule change combines Rules 8.8 and 8.10 regarding
financial requirements and arrangements of Market-Makers into a single
Rule 8.8.
Current Rule 8.11 provides the Exchange may impose an upper limit
on the aggregate number of Market-Makers that may quote in each product
(the ``CQL''). Current and proposed Rule 8.1(c) permits the Exchange to
limit the number of Market-Makers in a class and monitor quote
capacity, in a similar manner as EDGX may impose any such limits.\47\
Therefore, the proposed rule change deletes Rule 8.11, since it is
duplicative.
---------------------------------------------------------------------------

\47\ See EDGX Rule 22.2(c).
---------------------------------------------------------------------------

Currently, there are no Primary Market-Makers (``PMM'') (see Rule
8.13) or Designated Primary Market-Makers (``DPM'') (see Rules 8.14
through 8.21), and C2 does not intend to appoint any PMMs or DPMs in
the future. Therefore, the proposed rule change deletes Rules 8.13
through 8.21, as well as the definition of DPM in Rule 1.1. The
proposed rule change makes corresponding changes throughout the rules
to delete references to those rule numbers and to PMMs and DPMs.
Other Nonsubstantive Changes
The proposed rule change deletes the supplemental rule (a) to
Chapter 4 regarding proxy voting. C2 Chapter 4 incorporates Cboe
Options Chapter IV by reference. Recently, Cboe Options adopted Cboe
Options Rule 4.25, which is substantively identical to the C2 Chapter 4
supplement rule (a). By virtue of the incorporation by reference of
Cboe Options Chapter IV, including Rule 4.25, into C2 Chapter 4, Cboe
Options Rule 4.25 applies to C2 Trading Permit Holders pursuant to C2
Chapter 4. Therefore, the supplement rule (a) is now duplicative of
Cboe Options Rule 4.25 and is no longer necessary.
The proposed rule change deletes Rule 6.20, which is currently
reserved and contains no rule text.
The following rules contain language that the C2 board of directors
may make certain trading decisions:
Rule 6.1, Interpretations and Policies .01 and .02
(proposed to be Rule 6.1(b)), which states the board determines trading
hours and Exchange holidays.
Rule 6.4 states the board will establish minimum quoting
increments for options traded on the Exchange.
Rule 6.33, which permits the board to designate persons
other than the CEO or President to halt or suspend trading and take
other action if necessary or appropriate for the maintenance of a fair
and orderly market or the protection of investors, due to emergency
conditions.
Rule 8.1(c), which permits the board or its designee to
limit access to the System, for a period to be determined in the
board's discretion, pending any action required to address the issue of
concern to the board, and to the extent the board places permanent
limitations on access to the System on any Trading Permit Holder, such
limits will be objectively determined and submitted to the Commission
for approval pursuant to a rule change filing.
These decisions relate to Exchange trading and operations, and thus
are made by Exchange management, rather than the Board, which generally
is not involved in determinations related to day-to-day operations of
the Exchange. Therefore, the proposed rule change modifies these
provisions to indicate the Exchange will make these determinations
rather than the Board. The Exchange notes pursuant to corresponding
EDGX rules, EDGX makes those determinations rather than EDGX's board.
The proposed rule change deletes current Rule 6.38, which requires
Trading Permit Holders to file with the Exchange trade information
covering each Exchange transaction during a business day. Because all
transactions on the Exchange are electronic, as soon as a transaction
executes on the Exchange, the Exchange has all of the information
indicated in Rule 6.38 and thus does not require Trading Permit Holders
to submit a separate report with this information, as that is
duplicative. The Exchange notes EDGX does not contain a similar rule.
The proposed rule change deletes Rule 6.41, which states a Trading
Permit Holder may not bid, offer, purchase, or write on the Exchange
any security other than an option contract currently open for trading
in accordance with the

[[Page 22825]]

provisions of Chapter 5. This rule is unnecessary, as the System would
not permit the entry or execution of orders or quotes in securities not
open for trading.
The proposed rule change deletes Rule 6.46 regarding Trading Permit
Holder Education, because it is duplicative of Rule 3.13.
Attached as Exhibits 3A, 3B, and 3C are the following updated
forms:
C2 Trading Permit Holder Notification of Designated Give-
Ups;
C2 Give Up Change Form; and
C2 Give Up Change Form for Accepting Clearing Trading
Permit Holders.
These forms relate to the manner in which a Trading Permit Holder
may designate Clearing Trading Permit Holder to be a Designated Give Up
pursuant to Rule 6.30. The proposed rule change eliminates the term
acronym from the forms (as noted above, that term will no longer be
used from a system perspective following the technology migration) and
makes other nonsubstantive clarifications (such as adding defined
terms).
The proposed rule change makes various nonsubstantive changes
throughout the rules, in addition to nonsubstantive changes described
above, to simplify or clarify rules, delete duplicative rule
provisions, conform paragraph numbering and lettering throughout the
rules, update Exchange department names, revise chapter and rule names,
use plain English (e.g., change ``shall'' to ``must,'' change passive
voice to active voice), and conform language to corresponding EDGX
rules. In these cases, the Exchange intends no substantive changes to
the meaning or application of the rules.
Chapter 24 incorporates rules in Cboe Options Chapter XXIV by
reference, but states certain rules do not apply to C2. One rule that
is excluded is Rule 24.17 (RAES Eligibility in Broad-Based Index
Options and Options on Exchange Traded funds on Broad Based Indexes).
This rule has been deleted from Cboe Options Chapter XXIV, and thus the
proposed rule change deletes the reference to that rule in Chapter 24.
Additionally, the proposed rule change moves certain rules within
the C2 rulebook as follows:

------------------------------------------------------------------------
Current C2 Proposed Corresponding
Rule rule C2 rule EDGX rule
------------------------------------------------------------------------
Affiliates, order routing/error 3.2(f), 3.16, 3.17 2.10, 2.11, and
accounts/order cancellation 6.36, and 6.15. 21.9.
and release. 6.37, and
6.47.
Nullification and adjustment of 6.15. 6.29. 20.6.
options transactions including
obvious errors.
Price binding despite erroneous 6.16. 6.26(b). 21.11.
report.
Reporting of matched trades to 6.31. 6.27. 21.13.
OCC.
Contract made on acceptance of 6.40. 6.26(a). 21.11.
bid or offer.
Trading on knowledge of 6.55. 6.51. N/A.
imminent undisclosed solicited
transaction.
------------------------------------------------------------------------

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.\48\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \49\ 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) \50\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
---------------------------------------------------------------------------

\48\ 15 U.S.C. 78f(b).
\49\ 15 U.S.C. 78f(b)(5).
\50\ Id.
---------------------------------------------------------------------------

The proposed rule changes are generally intended to add or align
certain system functionality currently offered by EDGX and other Cboe
Affiliated Exchanges in order to provide a consistent technology
offering for the Cboe Affiliated Exchanges. A consistent technology
offering, in turn, will simplify the technology implementation, changes
and maintenance by Users of the Exchange that are also participants on
Cboe Affiliated Exchanges. The proposed rule changes would also provide
Users with access to functionality that is generally available on
markets other than the Cboe Affiliated Exchanges and may result in the
efficient execution of such orders and will provide additional
flexibility as well as increased functionality to the Exchange's System
and its Users. The proposed rule change does not propose to implement
new or unique functionality that has not been previously filed with the
Commission or is not available on Cboe Affiliated Exchanges. The
Exchange notes that the proposed rule text is generally based on EDGX
Rules and is different only to the extent necessary to conform to the
Exchange's current rules, retain intended differences based on the
Exchange's market model, or make other nonsubstantive changes to
simplify, clarify, eliminate duplicative language, or make the rule
provisions plain English.
To the extent a proposed rule change is based on an existing Cboe
Affiliated Exchange rule, the language of Exchange Rules and Cboe
Affiliated Exchange rules may differ to extent necessary to conform
with existing Exchange rule text or to account for details or
descriptions included in the Exchange's Rules but not in the applicable
EDGX rule. Where possible, the Exchange has substantively mirrored Cboe
Affiliated Exchange rules, because consistent rules will simplify the
regulatory requirements and increase the understanding of the
Exchange's operations for Trading Permit Holders that are also
participants on EDGX. The proposed rule change would provide greater
harmonization between the rules of the Cboe Affiliated Exchanges,
resulting in greater uniformity and less burdensome and more efficient
regulatory compliance. As such, the proposed rule change would foster
cooperation and coordination with persons engaged in facilitating
transactions in securities and would remove impediments to and perfect
the mechanism of a free and open market and a national market system.
The Exchange also believes that the proposed amendments will contribute
to the protection of investors and the public interest by making the
Exchange's rules easier to understand. Where necessary, the Exchange
has

[[Page 22826]]

proposed language consistent with the Exchange's operations on EDGX
technology, even if there are specific details not contained in the
current structure of EDGX rules. The Exchange believes it is consistent
with the Act to maintain its current structure and such detail, rather
than removing such details simply to conform to the structure or format
of EDGX rules, again because the Exchange believes this will increase
the understanding of the Exchange's operations for all Trading Permit
Holders of the Exchange.
The proposed order instructions and TIFs not currently available on
C2 add functionality currently offered by EDGX in order to provide
consistent order handling options across the Cboe Affiliated Exchanges.
The proposed rule changes would also provide Users with access to
optional functionality that may result in the efficient execution of
such orders and will provide additional flexibility as well as
increased functionality to the Exchange's System and its Users. As
explained above, the proposed functionality is substantially similar to
functionality on EDGX, and is optional for Users. The proposed rule
change would provide greater harmonization between the order handling
instructions available amongst the Cboe Affiliated Exchanges, resulting
in greater uniformity and less burdensome and more efficient regulatory
compliance. With respect to the proposed MTP modifier functionality,
the Exchange believes the various proposed modifier options would allow
firms to better manage order flow and prevent undesirable executions
against themselves, and the proposed change described herein enhances
the choices available to such firms in how they do so. The proposed
rule change also is designed to support the principles of Section
11A(a)(1) of the Act \51\ in that it seeks to assure fair competition
among brokers and dealers and among exchange markets. The proposed rule
change would also provide Users with access to functionality that may
result in the efficient execution of such orders and will provide
additional flexibility as well as increased functionality to the
Exchange's System and its Users.
---------------------------------------------------------------------------

\51\ 15 U.S.C. 78k-1(a)(1).
---------------------------------------------------------------------------

The proposed rule change to define ports will reduce complexity and
increase understanding of the Exchange's operations for all Users of
the Exchange following migration. As the ports are the same as used on
certain Cboe Affiliated Exchanges, Users of the Exchange and these
other exchanges will have access to similar functionality on all Cboe
Affiliated exchanges. As such, the proposed rule change will foster
cooperation and coordination with persons engaged in facilitating
transactions in securities and would remove impediments to and perfect
the mechanism of a free and open market and a national market system.
The Exchange further believes that the proposed definition of bulk
order entry ports to provide that only Post Only Orders with a time in
force of DAY or GTD may be entered, modified, or cancelled through such
ports will protect investors and the public interest and maintain fair
and orderly markets by offering specific functionality through which
Users can submit orders that will result in quotations on the Exchange.
In particular, the options markets are quote driven markets dependent
on liquidity providers to an even greater extent than equities markets.
In contrast to the approximately 7,000 different securities traded in
the U.S. equities markets each day, there are more than 500,000 unique,
regularly quoted option series. Given this breadth in options series
the options markets are more dependent on liquidity providers than
equities markets; such liquidity is provided most commonly by
registered market makers but also by other professional traders. As
such, the Exchange believes maintaining specific functionality to
maintain quotations on the Exchange through bulk order entry ports will
protect investors and the public interest and the maintenance of fair
and orderly markets by ensuring that an efficient process to enter and
update quotations is available to Exchange Users. The Exchange also
believes this is reasonable, as it will establish a marketplace that
operates more similar to C2's current market, which is a quote-based
market.
The Exchange believes the proposed rule change to modify the
minimum increment for XSP options with those for SPY options perfects
the mechanism for a free and open market and a national market system
because both products are based, in some manner, on 1/10th the price of
the S&P 500 Index, and therefore it makes sense to have the same
minimum increments of bids and offers for both. This proposed rule
change is also substantively the same as a Cboe Options rule, as
discussed above.
The proposed Opening Process is designed to promote just and
equitable principles of trade and remove impediments to, and perfect
the mechanism of, a free and open market system because it would align
with the EDGX Opening Process as it relates to: Which orders may
participate in the process, how the price of the opening transaction is
determined; and the process for late openings and re-openings.
Conforming the C2 Opening Process to the EDGX opening process will
contribute to the protection of investors and the public interest by
avoiding investor confusion and providing consistent functionality
across Cboe Affiliated Exchanges.
Following the technology migration, orders and quotes will
generally be allocated in the same manner as they are today on C2--
either pursuant to pro-rata or price-time priority. Deleting other
priority overlays that are not used and will not be used on C2 protects
investors by eliminating potential confusion regarding which rules
apply to trading on C2. The proposed change regarding how the System
rounds the number of contracts when they cannot be allocated
proportionally in whole numbers pursuant to the pro-rata algorithm
(which previously only addressed the situation if there one additional
contract for two market participants) and proposed aggregated pro-rata
algorithm (which previously was silent on this matter) adds detail to
the rules regarding the allocation process and provides a fair,
objective manner for rounding and distribution in all situations in
which the number of contracts many not be allocated proportionally in
whole numbers. Rounding and distributing contracts in the proposed
manner is also substantively the same as an EDGX rule, as discussed
above.
The Exchange believes that the general provisions regarding the
trading of complex orders provide a clear framework for trading of
complex orders in a manner consistent with EDGX. This consistency
should promote a fair and orderly national options market system. The
proposed execution and priority rules will allow complex orders to
interact with interest in the Simple Book and, conversely, interest on
the Simple Book to interact with complex orders in an efficient and
orderly manner. Consistent with C2's current rules and the rules of
other exchanges, proposed Rule 6.13(f)(2) will not execute a complex
order at a net price ahead of orders on the Simple Book without
improving the BBO on at least one component of the complex strategy by
at least $0.01. Additionally, before executing against another complex
order, a complex order on the Exchange will execute first against
orders on the Simple Book if that would result in the best price prior
to executing against complex orders on the COB. The complex order
priority pursuant to which complex orders will trade against

[[Page 22827]]

the leg markets prior to execution against complex orders is consistent
with the complex order priority currently available on C2 and ensures
protection of the leg markets.
The Exchange proposes that complex orders may be submitted as limit
orders and market orders, and orders with a Time in Force of GTD, IOC,
DAY, GTC, or OPG, or as a Complex Only order, COA-eligible or do-not-
COA order. In particular, the Exchange believes that limit orders, GTD,
IOC, DAY, GTC, and OPG orders all provide valuable limitations on
execution price and time that help to protect Exchange participants and
investors in both the Simple Book and the COB. In addition, the
Exchange believes that offering participants the ability to utilize MTP
Modifiers for complex orders in a similar way to the way they are used
on the Simple Book provides such participants with the ability to
protect themselves from inadvertently matching against their own
interest. As discussed above, because complex orders do not route and
may not be Post Only, all complex orders are Book Only, which is
consistent with current C2 complex order functionality. The proposed
rule change also clarifies that Attributable/Non-Attributable
instructions are available for complex orders; however, these
instructions merely apply to information that is displayed for the
orders but do not impact how they execute.
The Exchange believes that permitting complex orders to be entered
with these varying order types and modifiers will give the Exchange
participants greater control and flexibility over the manner and
circumstances in which their orders may be executed, modified, or
cancelled, and thus will provide for the protection of investors and
contribute to market efficiency.
In particular, the Exchange notes that while both the Complex Only
Order and the do-not-COA instruction may reduce execution opportunities
for the entering Market-Maker or User, respectively, similar features
are already offered by EDGX (and C2 with respect to do-not-COA) in
connection with complex order functionality and that they are
reasonable limitations a Market-Maker or User, respectively, may wish
to include on their order in order to participate on the COB.
Evaluation of the executability of complex orders is central to the
removal of impediments to, and the perfection of, the mechanisms of a
free and open market and a national market system and, in general, the
protection of investors and the public interest. The proposed
evaluation process pursuant to proposed Rule 6.13(i) ensures that the
System will capture and act upon complex orders that are due for
execution. The regular and event-driven evaluation process removes
potential impediments to the mechanisms of the free and open market and
the national market system by ensuring that complex orders are given
the best possible chance at execution at the best price, evaluating the
availability of complex orders to be handled in a number of ways as
described in this proposal. Any potential impediments to the order
handling and execution process respecting complex orders are
substantially removed due to their continual and event-driven
evaluation for subsequent action to be taken by the System. This
protects investors and the public interest by ensuring that complex
orders in the System are continually monitored and evaluated for
potential action(s) to be taken on behalf of investors that submit
their complex orders to the Exchange.
If a complex order is not priced equal to, or better than, the SBBO
or is not priced to improve other complex orders resting at the top of
the COB, the Exchange does not believe that it is reasonable to
anticipate that it would generate a meaningful number of COA Responses
such that there would be price improvement of the complex order's limit
price. Promoting the orderly initiation of COAs is essential to
maintaining a fair and orderly market for complex orders; otherwise,
the initiation of COAs that are unlikely to result in price improvement
could affect the orderliness of the marketplace in general.
The Exchange believes that this removes impediments to and perfects
the mechanisms of a free and open market and a national market system
by promoting the orderly initiation of COAs, and by limiting the
likelihood of unnecessary COAs that are not expected to result in price
improvement.
The Exchange believes the proposed maximum 500 millisecond Response
Time Interval promotes just and equitable principles of trade and
removes impediments to a free and open market because it allows
sufficient time for Trading Permit Holders participating in a COA to
submit COA Responses and would encourage competition among
participants, thereby enhancing the potential for price improvement for
complex orders in the COA to the benefit of investors and public
interest. The Exchange believes the proposed rule change is not
unfairly discriminatory because it establishes a Response Time Interval
applicable to all Exchange participants participating in a COA, which
is the same maximum Response Time Interval on EDGX.
The Exchange again notes that it has not proposed to limit the
frequency of COAs for a complex strategy and could have multiple COAs
occurring concurrently with respect to a particular complex strategy.
The Exchange represents that it has systems capacity to process
multiple overlapping COAs consistent with the proposal, including
systems necessary to conduct surveillance of activity occurring in such
auctions. Further, EDGX may currently have multiple complex auctions in
the same strategy run concurrently. EDGX Rule 21.20, Interpretation and
Policy .02 similarly permits multiple complex auctions in the same
strategy to run concurrently. The Exchange does not anticipate
overlapping auctions necessarily to be a common occurrence, however,
after considerable review, believes that such behavior is more fair and
reasonable with respect to Trading Permit Holders who submit orders to
the COB because the alternative presents other issues to such Trading
Permit Holders. Specifically, if the Exchange does not permit
overlapping COAs, then a Trading Permit Holder who wishes to submit a
COA-eligible order but has its order rejected because another COA is
already underway in the complex strategy must either wait for such COA
to conclude and re-submit the order to the Exchange (possibly
constantly resubmitting the complex order to ensure it is received by
the Exchange before another COA commences) or must send the order to
another options exchange that accepts complex orders.
The Legging restrictions protects investors and the public interest
by ensuring that Market-Makers and other liquidity providers do not
trade above their established risk tolerance levels, as described
above. Despite the enhanced execution opportunities provided by
Legging, the Exchange believes it is reasonable and consistent with the
Act to permit Market-Makers to submit orders designated as Complex Only
Orders that will not leg into the Simple Book. This is analogous to
functionality on EDGX,\52\ as well as other types of functionality
offered by the Exchange that provides Trading Permit Holders the
ability to direct the Exchange not to route their orders or remove
liquidity from the Exchange. Similar to such analogous features, the
Exchange believes that Market-Makers may utilize Complex Only Order
functionality as part of their strategy to maintain additional control
over their executions,

[[Page 22828]]

in connection with their attempt to provide and not remove liquidity,
or in connection with applicable fees for executions.
---------------------------------------------------------------------------

\52\ See EDGX Rule 21.20(b)(1).
---------------------------------------------------------------------------

Based on the foregoing, the Exchange does not believe that the
proposed complex order functionality raises any new or novel concepts
under the Act, and instead is consistent with the goals of the Act to
remove impediments to and to perfect the mechanism of a free and open
market and a national market system, and to protect investors and the
public interest.
The proposed rule change regarding price adjust is consistent with
linkage rules that require exchanges to reasonably avoid displaying
quotations that lock or cross any Protected Quotation, as well as EDGX
Rule 21.1(i). The proposed functionality will assist Users by
displaying orders and quotes at permissible prices.
The Exchange believes the additional and enhanced price protection
mechanisms and risk controls will protect investors and the public
interest and maintain fair and orderly markets by mitigating potential
risks associated with market participants entering orders and quotes at
unintended prices, and risks associated with orders and quotes trading
at prices that are extreme and potentially erroneous, which may likely
have resulted from human or operational error. While the Exchange
currently offers many similar protections and controls, as described
above, the Exchange believes Users will benefit from the additional
functionality that will be available following the technology
migration. The Exchange notes the proposed rule change does not
establish outer boundaries or limits to the levels at which mechanisms
can be set. The Exchange believes this is reasonable and necessary to
afford the Exchange and Users flexibility to establish and modify the
default parameters in order to protect investors and the public
interest, and maintain a fair and orderly market. The Exchange notes
any Exchange-determined parameters will always be available on C2's
website via specification or Notice. The Exchange notes the proposed
rule changes related to price protection mechanisms and risk controls
are substantially the same as EDGX rules and specifications, as
discussed above. The proposed rule change is also similar to current C2
and Cboe Options Rules.
The Exchange believes the proposed additional explicit Market-Maker
requirements in the rules will continue to offset the benefits a
Market-Maker receives in its appointed classes, as the proposed Market-
Maker requirements are consistent with current C2 Market-maker
obligations and observed quoting behavior, and they are the
substantively the same as Market-Maker requirements in the EDGX rules.
The Exchange believes the proposed rule change regarding
information to be provided to Users in transaction reports is
consistent with current practice and provides market participants with
additional transparency regarding these reports. It is also consistent
with other Exchange and options industry practices, including the fact
that clearing information available through OCC already provides
contra-party information as well as the ability of a User on the
Exchange to disclose its identify when quoting. The Exchange believes
this is consistent with the Act, as it is designed to foster
cooperation and coordination with persons engaged in clearing,
settling, processing information with respect to, and facilitating
transactions in securities.
The proposed rule change makes various nonsubstantive changes
throughout the rules, in addition to nonsubstantive changes described
above, will protect investors and benefit market participants, as these
changes simplify or clarify rules, delete duplicative rule provisions,
conform paragraph numbering and lettering throughout the rules, update
Exchange department names, use plain English, and conform language to
corresponding EDGX rules.
As described above, the fundamental premise of the proposal is that
the Exchange will operate its options market in a similar manner to its
affiliated options exchange, EDGX (which as discussed above in the
purpose section, is similar in many ways to how C2 currently operates),
with the exception of the priority model and certain other limited
differences. The basis for the majority of the proposed rule changes in
this filing are the approved rules of EDGX, which have already been
found to be consistent with the Act. For instance, the Exchange does
not believe that any of the proposed order types or order type
functionality or allocation and priority provisions raise any new or
novel issues that have not previously been considered.
Thus, the Exchange further believes that the functionality that it
proposes to offer is consistent with Section 6(b)(5) of the Act,
because the System upon the technology migration is designed to
continue to be efficient and its operation transparent, thereby
facilitating transactions in securities, removing impediments to and
perfecting the mechanism of a free and open market and a national
market system.
Proposed Rule 3.16 (related to Exchange affiliations with Trading
Permit Holders) and 3.17 (related to Cboe Trading providing Outbound
Router services) are substantially similar to EDGX Rule 2.10 and 2.11.
Additionally, proposed Rule 3.16 incorporates the provisions in current
C2 Rule 3.2(f) related to restrictions on Exchange affiliations with
Trading Permit Holders. As noted above, the provisions related to
Exchange affiliations with Trading Permit Holders (including exceptions
to any restrictions in the Rules) are consistent with the governing
documents of C2. Additionally, the Commission recently approved the
Exchange affiliation with Cboe Trading related to its performing
inbound routing services for C2. The Exchange believes proposed Rule
3.17 promotes the maintenance of a fair and orderly market, the
protection of investors and the public interest, and is in the best
interests of the Exchange and its Trading Permit Holders as it will
allow the routing of orders to Trading Centers (including affiliated
exchanges BZX Options and EDGX Options) from the Exchange in the same
manner as certain Cboe-affiliated exchanges currently route orders.
Moreover, in meeting the requirements of Rule 3.17 (i.e., regulation as
a facility, FINRA acting as the designated examining authority,
optional use of Cboe Trading as an outbound router, restrictions on
business of Cboe Trading, procedures and internal controls,
cancellation of orders, maintenance of error account), the Exchange
believes it will have mechanisms in place that protect the independence
of the Exchange's regulatory responsibility with respect to Cboe
Trading, as well as demonstrates that Cboe Trading cannot use any
information that it may have because of its affiliation with the
Exchange to its advantage. This will help prevent an unfair burden on
competition and unfair discrimination between customers, issuers,
brokers, or dealers.

B. Self-Regulatory Organization's Statement on Burden on Competition

C2 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 reiterates that
the proposed rule change is being proposed in the context of the
technology integration of the Cboe Affiliated Exchanges. Thus, the
Exchange believes this proposed rule change is necessary to permit fair
competition among national securities exchanges. In addition, the
Exchange believes the proposed rule change will

[[Page 22829]]

benefit Exchange participants in that it will provide a consistent
technology offering for Users by the Cboe Affiliated Exchanges.
Following the technology migration, the C2 System, as described in this
proposed rule change, will apply to all Users and order and quotes
submitted by Users in the same manner. As discussed above, the basis
for the majority of the proposed rule changes in this filing are the
approved rules of EDGX, while a few other changes are based on approved
rules of Cboe Options and BZX, which have already been found to be
consistent with 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 comments on the
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action

The Exchange has filed the proposed rule change pursuant to Section
19(b)(3)(A) of the Act \53\ and Rule 19b-4(f)(6) \54\ thereunder.
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 \55\ and Rule 19b-4(f)(6) \56\
thereunder.
---------------------------------------------------------------------------

\53\ 15 U.S.C. 78(b)(3)(A).
\54\ 17 CFR 240.19b-4(f)(6).
\55\ 15 U.S.C. 78s(b)(3)(A).
\56\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires the Exchange to give the Commission written notice of the
Exchange's 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.
---------------------------------------------------------------------------

A proposed rule change filed under Rule 19b-4(f)(6) \57\ normally
does not become operative prior to 30 days after the date of the
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\58\ the Commission
may designate a shorter time if such action is consistent with
protection of investors and the public interest. The Exchange has asked
the Commission to waive the 30-day operative delay so that the proposed
rule change may become operative prior to the proposed C2 technology
migration on May 14, 2018. In support of its waiver request, the
Exchange states that many of the proposed rule changes are based on
rules of EDGX Options and BZX Options and the proposed rule changes
will align much of C2's System with that of those other Cboe Affiliated
Changes, which will simplify the User experience for those firms that
are members of one or more of the other Cboe Affiliated Exchanges, and
also will promote stability across the affiliated trading platforms.
The Commission notes that, because migrating C2's trading platform
technology over to EDGX Options technology is a material event, the
Exchange has publicized its plans well in advance by issuing periodic
updates to Trading Permit Holders regarding the technology migration
changes and the anticipated timeline in order to enable Trading Permit
Holders to make and test system changes at the firm and User level to
accommodate the transition and ensure uninterrupted access to the
Exchange after the migration. In addition, as described in detail
above, the Exchange's proposal does not raise any new or novel issues,
as the nature of the changes are connected to the migration of C2 to
the existing technology and functionality of the EDGX Options platform.
Therefore, the Commission believes that waving the 30-day operative
delay is consistent with the protection of investors and the public
interest. Accordingly, the Commission hereby waives the 30-day
operative delay and designates the proposal operative on May 11,
2018.\59\
---------------------------------------------------------------------------

\57\ 17 CFR 240.19b-4(f)(6).
\58\ 17 CFR 240.19b-4(f)(6).
\59\ For purposes only of waving the 30-day operative delay, the
Commission has considered the purposed rule's impact on efficiency,
competition, and capital formation. See 15 U.S.C. 78c(f).
---------------------------------------------------------------------------

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 will 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

Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-C2-2018-005 on the subject line.

Paper Comments

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-C2-2018-005. 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 (https://www.sec.gov/rules/sro.shtml).
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 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-C2-2018-005 and should be submitted on
or before June 6, 2018.
---------------------------------------------------------------------------

\60\ 17 CFR 200.30-3(a)(12).

For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\60\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-10417 Filed 5-15-18; 8:45 am]
BILLING CODE 8011-01-P

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.