Self-Regulatory Organizations; Cboe C2 Exchange, Inc.; Notice of Filing of a Proposed Rule Change Relating To Adopt Complex Reserve Order Functionality, 60916-60920 [2018-25884]

Agencies

• SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 83, Number 228 (Tuesday, November 27, 2018)]
[Notices]
[Pages 60916-60920]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-25884]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84643; File No. SR-C2-2018-022]


Self-Regulatory Organizations; Cboe C2 Exchange, Inc.; Notice of 
Filing of a Proposed Rule Change Relating To Adopt Complex Reserve 
Order Functionality

November 21, 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 November 8, 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, II, 
and III below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Cboe C2 Exchange, Inc. (the ``Exchange'' or ``C2'') proposes to 
adopt Complex Reserve Order functionality.

(additions are italic; deletions are [bracketed])
* * * * *

Rules of Cboe C2 Exchange, Inc.

* * * * *
Rule 6.13. Complex Orders
    Trading of complex orders is subject to all other Rules applicable 
to trading of orders, unless otherwise provided in this Rule 6.13.
    (a) No change.
    (b) Types of Complex Orders. 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 
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. Complex orders are Book Only and may be market or 
limit orders. Users may designate complex orders as Attributable or 
Non-Attributable. The System also accepts the following instructions 
for complex orders:
    (1)-(3) No change.
    (4) (Reserved)
    (5) (Reserved)
    (6) Complex Reserve Orders. A ``Complex Reserve Order'' is a 
complex 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 Complex Reserve Order are available for potential 
execution pursuant to paragraphs (c) through (e) below. When entering a 
Complex Reserve Order, a User must instruct the Exchange as to the 
quantity of the Complex Reserve Order to be initially displayed by the 
System (``Max Floor''). If the Display Quantity of a Complex Reserve 
Order is fully executed, the System will, in accordance with the User's 
instruction, replenish the Display Quantity from the Reserve Quantity 
using one of the below replenishment instructions. If the remainder of 
a Complex Reserve Order is less than the replenishment amount, the 
System will display the entire remainder of the Complex Reserve Order. 
The System creates a new timestamp for both the Display Quantity and 
Reserve Quantity of the Complex Reserve Order each time it is 
replenished from reserve.
    (A) Random Replenishment. An instruction that a User may attach to 
a Complex Reserve Order where the System randomly replenishes the 
Display Quantity for the Complex Reserve 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 Complex Reserve Order with a Random Replenishment 
instruction.
    (B) Fixed Replenishment. For any Complex Reserve Order for which a 
User does not select Random Replenishment, the System will replenish 
the Display Quantity of the Complex Reserve Order with the number of 
contracts equal to the Max Floor (or the entire remainder of the 
Complex Reserve Order if it is less than the replenishment amount).
    (c) No change.
    (d) Complex Order Auctions (COAs).
    (1) Commencement of 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. If the COA-eligible order is a 
Complex Reserve Order, the COA auction message only identifies the 
Display Quantity; however, the entire quantity (both the Display 
Quantity and Reserve Quantity) may execute following the COA pursuant 
to subparagraph (5) below. The Exchange may also determine to include 
the price in COA auction messages, which will be the limit order price 
or the SBO (SBB) (if initiated by a buy (sell) market complex order), 
or the drill-through price if the order is subject to the drill-through 
protection in Rule 6.14(b).
    (2)-(3) No change.
    (4) COA Responses. The System accepts a COA Response(s) with any 
Capacity in $0.01 increments during the Response Time Interval.
    (A) No change.
    (B) COA Responses may be larger than the COA-eligible order. 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 (including Display Quantity and Reserve 
Quantity if the COA-eligible order is a Complex Reserve Order).
    (C)-(D) No change.

[[Page 60917]]

    (5) Processing of COA-Eligible Orders.
    (A) 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:
    (i) Orders and quotes in the Simple Book (both displayed and 
nondisplayed orders) for the individual leg components of the complex 
order through Legging (subject to paragraph (g)), which the System 
allocates in accordance with the priority in Rule 6.12(a) applicable to 
the class.
    (ii) No change.
    (B) No change.
    (e) Processing of Do-Not-COA Orders/Orders Resting on 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 
pursuant to paragraph (i), 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 (both displayed and 
nondisplayed orders) for the individual leg components of the complex 
order through Legging (subject to paragraph (g)), which the System 
allocates in accordance with the priority in Rule 6.12(a) applicable to 
the class.
    (2) No change.
    The System enters any do-not-COA order (or unexecuted portion) that 
does not 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 complex 
order (or unexecuted portion) that would execute at a price outside of 
the SBBO, that is 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 this paragraph (e) following evaluation pursuant to 
paragraph (i) and remain on the COB until they execute or are cancelled 
or rejected.
    (f) No change.
    (g) Legging [Restrictions]. A complex order may execute against 
orders and quotes in the Simple Book pursuant to subparagraphs 
(d)(5)(A)(i) and (e)(1) 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) (``Legging''), subject to the following [restrictions]:
    (1)-(3) No change.
    (4) Reserved
    (5) The entire quantity of a Complex Reserve Order (both the 
Display Quantity and Reserve Quantity) Legs into the Simple Book at the 
same time, and any quantity that does not execute pursuant to paragraph 
(d) or (e) after Legging will rest in the COB in accordance with the 
Complex Reserve Order instruction.
    (h) Additional Complex Order Handling. Processing and execution of 
complex orders pursuant to this Rule 6.13 (including pursuant to 
paragraphs (d) and (e), and following evaluation pursuant to paragraph 
(i)) are subject to the following:
    (1) Order Locks/Crosses Opposite Side of SBBO. 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 book and display price of the complex 
order (or unexecuted portion) 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)-(B) No change.
    (2) Zero NBB, NBO, or NBBO. If there is a zero NBO for any leg, the 
System replaces the zero with a price $0.01 above the 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.
    (3) (Reserved)
    (4) Nondisplayed Orders. Displayed complex orders resting on the 
COB have priority over nondisplayed portions of Complex Reserve Orders 
resting on the COB.
* * * * *
    The text of the proposed rule change is also available on the 
Exchange's website (https://www.c2exchange.com/Legal/), 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 
Cboe EDGX Exchange, Inc. (``EDGX''), Cboe EDGA Exchange, Inc. 
(``EDGA''), Cboe BZX Exchange, Inc. (``BZX or BZX Options''), and Cboe 
BYX Exchange, Inc. (``BYX'' and, together with C2, Cboe Options, EDGX, 
EDGA, and BZX, the ``Cboe Affiliated Exchanges''). The Cboe Affiliated 
Exchanges are working to align certain system functionality, retaining 
only intended differences between the Cboe Affiliated Exchanges, in the 
context of the technology migration of Cboe Options to the same trading 
platform as the Exchange. Thus, the proposed rule change is intended to 
add certain functionality to the Exchange's System that is currently 
offered by Cboe Options in order to ultimately provide a consistent 
technology offering for market participants who interact with the Cboe 
Affiliated Exchanges. Although the Exchange intentionally offers 
certain features that differ from those offered by its affiliates and 
will continue to do so, the Exchange believes that offering similar 
functionality to the extent practicable will reduce potential confusion 
for Users.
    Currently, the Exchange offers Reserve Order functionality for 
simple orders.\3\ Reserve Orders permit Users to enter orders with both 
displayed and nondisplayed amounts. Reserve Orders provide Users with 
additional flexibility to manage and display their orders and

[[Page 60918]]

additional control over their executions on the Exchange.
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    \3\ See Rule 1.1, paragraph (j) in Order Instruction definition.
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    The Exchange proposes to adopt Complex Reserve Order 
functionality.\4\ Complex Reserve Orders would generally function in 
the same manner as simple Reserve Orders, as currently described in the 
definition of Reserve Orders in Rule 1.1(j) (under the definition of 
``Order Instruction''). Specifically, a ``Complex Reserve Order'' is a 
complex 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 a Complex Reserve Order are available for execution 
pursuant to Rule 6.13(c) through (e).\5\ When entering a Complex 
Reserve Order, a User must instruct the Exchange as to the quantity of 
the Complex Reserve Order to be initially displayed by the System 
(``Max Floor''). If the Display Quantity of a Complex Reserve Order is 
fully executed, the System will, in accordance with the User's 
instruction, replenish the Display Quantity from the Reserve Quantity 
using one of the below replenishment instructions. If the remainder of 
a Complex Reserve Order is less than the replenishment amount, the 
System will display the entire remainder of the Complex Reserve Order. 
The System creates a new timestamp for both the Display Quantity and 
Reserve Quantity of the Complex Reserve Order each time it is 
replenished from reserve.
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    \4\ See proposed Rule 6.13(b)(6). The Exchange recently proposed 
to amend its Rules to adopt Post Only complex order functionality. 
See Securities Exchange Act Release No. 34-84399 (October 10, 2018) 
(SR-C2-2018-021). The proposed rule text is based on the currently 
effective rule text (proposed reserved subparagraphs (b)(4) and (5), 
(g)(4), and (h)(3) accommodate proposed rule text the Exchange 
intends to include in an amendment to that rule filing). If SR-C2-
2018-021 is approved by the Securities and Exchange Commission (the 
``Commission'') prior to the date the Commission acts on this rule 
filing, the Exchange will amend this rule filing to update the 
proposed rule text to reflect the rule text as amended by that 
filing.
    \5\ Pursuant to Rule 6.13(c) through (e), complex orders 
(including the Display and Reserve Quantities of Complex Reserve 
Orders) may execute during the COB opening process, against incoming 
complex orders, simple orders in the Simple Book (via Legging), or 
following a COA (if the complex order is COA-eligible pursuant to 
Rule 21.20(b)(2)). Complex Reserve Orders will be COA-eligible, 
subject to a User's instructions.
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    A User may determine that a Complex Reserve Order it submits should 
be subject to ``Random Replenishment'' or ``Fixed Replenishment.'' If a 
Complex Reserve Order has a Random Replenishment instruction, the 
System randomly replenishes the Display Quantity for the Complex 
Reserve 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 Complex Reserve Order with a 
Random Replenishment instruction. For any Complex Reserve Order for 
which a User does not select Random Replenishment, the System will 
replenish the Display Quantity of the Complex Reserve Order with the 
number of contracts equal to the Max Floor (or the entire remainder of 
the Complex Reserve Order if it is less than the replenishment amount).
    Current Rule 6.13(d)(1) provides that upon receipt of a COA-
eligible order,\6\ the System initiates the complex order auction 
(``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 proposed rule change provides that if the COA-
eligible order is a Complex Reserve Order, the COA auction message only 
identifies the Display Quantity; however, the entire quantity (both the 
Display Quantity and Reserve Quantity) may execute following the COA 
pursuant to Rule 6.13(d)(5).\7\ The Exchange believes this is 
consistent with the purpose of a Reserve Order. If a User submits a 
Reserve Order (simple or complex), the User does so to only have a 
certain specified size publicly displayed. If the entire quantity of a 
Complex Reserve Order was auctioned in a COA, the entire size of the 
Complex Reserve Order would be publicly displayed,\8\ rather than the 
Display Quantity the User indicated it wanted publicly visible. 
Therefore, the Exchange believes it is appropriate to include only the 
Display Quantity of a Complex Reserve Order in a COA message.\9\
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    \6\ See Rule 6.13(b)(2) for the definition of a COA-eligible 
order.
    \7\ See proposed Rule 6.13(d)(1).
    \8\ See current Rule 6.13(d)(1) (COA auction messages identify, 
among other things, the quantity of the COA-eligible order).
    \9\ Making both the Display Quantity and Reserve Quantity 
available for execution at the end of a COA is consistent with the 
definition of the Reserve Order instruction for simple orders, which 
provides that both portions are available for potential execution 
against incoming orders. See Rule 1.1, paragraph (j) in Order 
Instruction definition. The proposed rule change provides the entire 
quantity of a Complex Reserve Order that initiates a COA with an 
opportunity to execute following a COA.
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    Proposed Rule 6.13(g)(5) states the entire quantity of a Complex 
Reserve Order (both the Display Quantity and Reserve Quantity) will Leg 
into the Simple Book at the same time, and any quantity that does not 
execute pursuant to Rule 6.13(d) or (e) after Legging will rest in the 
COB in accordance with the proposed Complex Reserve Order 
instruction.\10\ As stated in the definition of a Reserve Order and 
proposed definition of a Complex Reserve Order,\11\ both the Displayed 
Quantity and Reserve Quantity are eligible for execution against 
incoming orders. The Exchange believes it is appropriate to similarly 
make both the Displayed Quantity and Reserve Quantity eligible for 
execution against orders and quotes in the Simple Book as well. This 
will maximize the size of resting orders and quotes on the Simple Book 
that may execute when these orders Leg into the Simple Book, as well as 
provide the entire quantity of a Complex Reserve Order with an 
opportunity to execute against orders in the Simple Book. A Complex 
Reserve Order may Leg into the Simple Book after a COA, following 
submission to the System (if not COA-eligible), or following evaluation 
when resting in the COB.\12\ If any portion of a Complex Reserve Order 
does not execute in those circumstances, the remaining quantity will 
enter the COB with a Display Quantity and Reserve Quantity with amounts 
determined in accordance with proposed Rule 6.13(b)(6).
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    \10\ The proposed rule change also amends the heading name and 
introductory paragraph language of paragraph (g), as that paragraph 
does not necessarily describe restrictions on Legging, but rather 
describes additional handling for certain orders when they Leg into 
the Simple Book.
    \11\ See Rule 1.1, paragraph (j) in Order Instruction definition 
and proposed Rule 6.13(b)(6).
    \12\ See Rule 6.13(d)(5) (describing the processing of COA-
Eligible Orders following a COA), (e) (describing the processing of 
orders that do not initiate COA upon submission to the System or 
after resting on the COB), and (i) (describing the evaluation 
process).
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    The proposed rule change also amends Rule 6.13(d)(4)(B) to clarify 
that COA Responses may be larger than the COA-eligible order (in 
response to which the COA Response is submitted), and that when the 
System caps the size of aggregated COA Responses at the size of the 
COA-eligible order, the size of the COA-eligible order includes the 
Display Quantity and Reserve Quantity if the COA-eligible order is a 
Complex Reserve Order. Neither the System nor the Rules limit the 
initial size of COA Responses to the size of the COA-eligible order, 
and the Exchange believes this proposed change will provide Users with 
additional clarity. Because COA Responses are not limited to the size 
of COA-eligible orders, if a Complex Reserve Order initiates a COA, COA 
Responses with size larger than the

[[Page 60919]]

Display Quantity of the Complex Reserve Order (which the System will 
cap at the entire size of the Complex Reserve Order in the same manner 
that the System caps COA Responses at the size of another type of COA-
eligible order) will have the opportunity to execute against the entire 
size of the Complex Reserve Order.
    Processing and execution of Complex Reserve Orders will generally 
occur in the same manner as other complex orders in accordance with 
current Rule 6.13(c) through (e), subject to the current handling 
provisions in Rule 6.13(h).\13\ Proposed Rule 6.13(h)(4) states that 
displayed complex orders resting on the COB have priority over 
nondisplayed portions of Complex Reserve Orders resting on the COB. 
This is consistent with the current handling of simple Reserve 
Orders.\14\ The proposed rule change also clarifies in Rule 
6.13(d)(5)(A)(i) and (e)(1) that both displayed and nondisplayed orders 
and quotes in the Simple Book for the individual leg components of the 
complex order trade before complex orders (both displayed and 
nondisplayed orders) resting on the COB and COA Responses, if 
applicable, at the same price when a complex order Legs into the Simple 
Book. This is consistent with current functionality and current Rules. 
Specifically, Rule 6.13(d)(5)(A)(i) and (e)(1) states that the System 
executes a complex order against orders and quotes in the Simple Book 
for the individual leg components of the complex order through Legging, 
which the System allocates in accordance with the priority in Rule 
6.12(a). Rule 6.12(a) provides that resting orders and quotes are 
prioritized according to price and there [sic] are allocated in time 
priority or on a pro-rata basis, and that displayed orders have 
priority over nondisplayed orders. Therefore, if a complex order Legs 
in to the Simple Book, it would execute against displayed and then 
nondisplayed resting interest in the Simple Book at the applicable 
price before executing against other complex orders. The proposed rule 
change adds clarity to the priority of resting orders when a complex 
order Legs into the Simple Book, as well as describes how complex 
reserve orders will be prioritized.
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    \13\ The proposed rule change also adds headings to the current 
subparagraphs in paragraph (h).
    \14\ See Rule 6.12(a)(3).
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    If a complex order Legs into the Simple Book, the execution 
priority of contra-side interest will be as follows:

 Displayed simple orders
 Nondisplayed portions of simple orders
 Displayed complex orders and COA Responses, if applicable
 Nondisplayed portions of Complex Reserve Orders

    The Exchange believes this is reasonable, as it ensures protection 
of the leg markets while ensuring system stability. This priority order 
results in nondisplayed orders on the Simple Book ahead of displayed 
complex orders on the COB. While the Exchange generally prioritizes 
displayed orders over nondisplayed orders to encourage Users to submit 
displayed liquidity, executing complex orders first against displayed 
simple orders, second against displayed complex orders and COA 
responses, third against nondisplayed portions of simple orders, and 
fourth against nondisplayed portions of Complex Reserve Orders would 
significantly increase the complexity of the proposed functionality. 
The Simple Book and COB are entirely separate functioning books, and 
moving a complex order back and forth between the two books increases 
systematic risk related to Legging. Additionally, this would increase 
the execution time for complex orders that are able to Leg, which may 
harm Users. The Exchange believes the need to ensure system stability 
and efficient executions in connection with offering the proposed 
functionality to Users outweighs any potential benefits of prioritizing 
all displayed interest ahead of nondisplayed interest in this context.
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.\15\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \16\ 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) \17\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \15\ 15 U.S.C. 78f(b).
    \16\ 15 U.S.C. 78f(b)(5).
    \17\ Id.
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    In particular, the proposed rule change will remove impediments to 
and perfect the mechanism of a free and open national market system, as 
well as benefit investors, by providing Users with additional 
flexibility to manage and display their complex orders and additional 
control over their executions on the Exchange. This may encourage 
market participants to bring additional liquidity to the market, which 
benefits all investors.
    The Exchange notes that Reserve Order functionality is not new or 
unique and is already available in a similar capacity for simple 
orders. While the Reserve Order functionality is not currently 
available for complex orders, the Exchange has Reserve Order 
functionality for simple orders, which functions substantially in the 
same manner as the proposed Complex Reserve Order functionality. The 
purpose of a Complex Reserve Order is the same as the purpose of a 
simple Reserve Order.
    The proposed rule change to only include the Displayed Quantity of 
a Complex Reserve Order in a COA message protects investors, as it is 
consistent with the purpose of a Complex Reserve Order and the 
intention of a User that submits a Complex Reserve Order, which is to 
only have a certain specified size publicly displayed. This provides 
Complex Reserve Orders with the potential for price improvement in a 
manner consistent with the objective of a Reserve Order. Therefore, the 
Exchange believes it is appropriate to only include the Display 
Quantity of a Complex Reserve Order in a COA message.
    The Exchange believes the proposed rule change regarding how 
Complex Reserve Orders Leg into the Simple Book will benefit investors. 
The proposed rule change is consistent with the definition of a Reserve 
Order, which states that the entire quantity is eligible for potential 
execution against incoming orders, and thus provides the entire 
quantity of a Reserve Order with an opportunity to execute against 
orders and quotes in the Simple Book. Additionally, this will maximize 
the size of resting orders and quotes on the Simple Book that may 
execute when Complex Reserve Orders Leg into the Simple Book. 
Therefore, the Exchange believes the proposed rule change may

[[Page 60920]]

increase execution opportunities for both Complex Reserve Orders and 
simple orders and quotes resting on the Simple Book.
    The Exchange believes the proposed rule change related to the 
priority of Complex Reserve Orders promotes just and equitable 
principles of trade, as it is consistent with current priority in the 
Simple Book that provides displayed orders have priority over 
nondisplayed orders. The proposed rule change that displayed portions 
of complex orders resting on the COB have priority over nondisplayed 
portions of Complex Reserve Orders resting on the COB is reasonable, 
because it is consistent with the current handling of simple Reserve 
Orders, as discussed above. Additionally, the proposed rule change to 
clarify that displayed and nondisplayed orders and quotes resting on 
the Simple Book have priority over all displayed and nondisplayed 
orders resting on the COB when a complex order Legs into the Simple 
Book is consistent with current functionality and current Rules 
describing how complex orders Leg into the Simple Book. This additional 
clarity regarding the order in which resting orders and quotes on the 
Simple Book will trade when a complex order Legs into the Simple Book 
benefits investors, as it provides more detail regarding the priority 
of executions on the Exchange. The Exchange also believes the proposed 
priority ensures system stability and efficient executions outweighs 
[sic]. The Exchange notes it is not novel for nondisplayed interest to 
trade ahead of displayed interest.\18\
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    \18\ See supra note 15 [sic].
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    The proposed rule change is generally intended to add certain 
system functionality to the Exchange's System in order to provide a 
consistent technology offering for the Cboe Affiliated Exchanges, as 
Cboe Options currently offers (and intends to offer following its 
migration to the same technology platform as the Exchange) complex 
reserve order functionality. 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 change will provide Users with additional 
flexibility to manage and display their orders and control their 
executions on the Exchange. This may encourage market participants to 
bring additional liquidity to the market, which benefits all investors. 
Additionally, this will provide Users with greater harmonization 
between the order handling instructions available among the Cboe 
Affiliated Exchanges.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The Exchange believes the 
proposed rule change will not burden intramarket competition because 
the Reserve Order instruction on complex orders will be available to 
all market participants. Additionally, use of the Reserve Order 
instruction on complex orders is voluntary. The Exchange also believes 
the proposed rule change will not impose any burden on intermarket 
competition because this relates to an instruction on orders that are 
submitted to the Exchange and how the Exchange's System will handle and 
execute them. Additionally, nothing prevents other options exchanges 
that offer complex orders from adopting a Reserve Order functionality 
for complex orders. The Exchange also believes the proposed rule change 
will promote competition, as Complex Reserve Orders will provide Users 
with additional flexibility to manage and display their complex orders 
and additional control over their executions on the Exchange. This may 
encourage market participants to bring additional liquidity to the 
market, which benefits all investors.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange neither solicited nor received comments on the 
proposed rule change.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission will:
    A. by order approve or disapprove such proposed rule change, or
    B. institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     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-C2-2018-022 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-C2-2018-022. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (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-C2-2018-022, and should be submitted on 
or before December 18, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2018-25884 Filed 11-26-18; 8:45 am]
 BILLING CODE 8011-01-P