Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Exchange Rules Regarding Routing Services, Including the Hybrid Agency Liaison System, and Move Those Rules From the Currently Effective Rulebook to the Shell Rulebook To Be Effective Upon Migration, 47977-47984 [2019-19610]
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Federal Register / Vol. 84, No. 176 / Wednesday, September 11, 2019 / Notices
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) 9 requirement that
the rules of an exchange not be designed
to permit unfair discrimination between
customers, issuers, brokers, or dealers.
The Exchange believes the proposed
rule change to update the Fees Schedule
to remove obsolete fees and references,
maintains clarity in the Fees Schedule
and will alleviate potential confusion,
thereby removing impediments to and
perfecting the mechanism of a free and
open market and a national market
system and protecting investors and the
public interest. As noted above, the
proposed filing does not substantively
change any transaction fees or rebates,
but merely removes unnecessary and
obsolete language that the Exchange
inadvertently failed to update upon the
elimination of the corresponding fees,
services and exams. Particularly,
Exchange has not assessed any of the
above-referenced fees since the
elimination of the respective service/
exam/rule.
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
proposed rule change does not address
competitive issues, but rather, as
discussed above, is merely intended to
correct inadvertent omissions to update
the Fees Schedule to remove obsolete
fees and references, which will alleviate
potential confusion.
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C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
The Exchange neither solicited nor
received comments on the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act 10 and paragraph (f) of Rule
19b–4 11 thereunder. At any time within
9 Id.
10 15
11 17
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f).
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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.
47977
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–CBOE–2019–052, and
should be submitted on or before
October 2, 2019.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.12
Jill M. Petereson,
Assistant Secretary.
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:
[FR Doc. 2019–19612 Filed 9–10–19; 8:45 am]
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–
CBOE–2019–052 on the subject line.
Self-Regulatory Organizations; Cboe
Exchange, Inc.; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Amend Exchange
Rules Regarding Routing Services,
Including the Hybrid Agency Liaison
System, and Move Those Rules From
the Currently Effective Rulebook to the
Shell Rulebook To Be Effective Upon
Migration
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–CBOE–2019–052. 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 such
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
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BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–86878; File No. SR–CBOE–
2019–050]
September 5, 2019.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on August
23, 2019, Cboe Exchange, Inc. (the
‘‘Exchange’’ or ‘‘Cboe Options’’) filed
with the Securities and Exchange
Commission (the ‘‘Commission’’) the
proposed rule change as described in
Items I, II, and III below, which Items
have been prepared by the Exchange.
The 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 the
Exchange’s Rules regarding routing
services, including the Hybrid Agency
Liaison (‘‘HAL’’) system, and move
those Rules from the currently effective
Rulebook (‘‘current Rulebook’’) to the
12 17
CFR 200.30–3(a)(12).
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).
1 15
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shell structure for the Exchange’s
Rulebook that will become effective
upon the migration of the Exchange’s
trading platform to the same system
used by the Cboe Affiliated Exchanges
(as defined below) (‘‘shell Rulebook’’).
The text of the proposed rule change is
provided in Exhibit 5.
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 the
Statutory Basis for, the Proposed Rule
Change
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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 C2 Exchange,
Inc. (‘‘C2’’), acquired Cboe EDGA
Exchange, Inc. (‘‘EDGA’’), Cboe EDGX
Exchange, Inc. (‘‘EDGX’’ or ‘‘EDGX
Options’’), Cboe BZX Exchange, Inc.
(‘‘BZX’’ or ‘‘BZX Options’’), and Cboe
BYX Exchange, Inc. (‘‘BYX’’ and,
together with Cboe Options, C2, 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 a
technology migration. Cboe Options
intends to migrate its trading platform to
the same system used by the Cboe
Affiliated Exchanges, which the
Exchange expects to complete on
October 7, 2019. In connection with this
technology migration, the Exchange has
a shell Rulebook that resides alongside
its current Rulebook, which shell
Rulebook will contain the Rules that
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will be in place upon completion of the
Cboe Options technology migration.
The Exchange proposes to harmonize
its rules in connection with routing
functions on the Exchange to that of the
Cboe Affiliated Exchanges. Specifically,
the Exchange proposes to update and
amend current Rule 6.14A, which
governs the operation of the HAL
system to be consistent with of the
corresponding rule of EDGX Options,
Rule 21.18, which governs the operation
of the Step Up Mechanism (‘‘SUM’’).
The Exchange also proposes to
harmonize Rule 6.6A, Rule 6.14B, and
Rule 6.14C with that of its affiliate
option exchange, C2, Rule 6.15, as well
as EDGX and BZX Rule(s) 21.9, which
provide for order routing rules of the
exchange. The Exchange proposes these
amendments to reflect the routing
functions rule language of the Cboe
Affiliated Exchange rules, retaining only
slight differences regarding Exchangespecific language/definitions. In
conforming its routing rules to that of
the Cboe Affiliated Exchanges’ rules, the
Exchange proposes few substantive
changes, namely amending the rules to
allow for all Users 5 to respond to a SUM
(the Exchange proposes to rename HAL
as SUM, and refers to SUM herein)
exposure message, to allow a User to opt
out of having its exposed order routed
to other exchanges at the conclusion of
a SUM exposure period, to update the
scenarios in which a SUM auction will
terminate early (which includes
incorporating provisions that account
for All-or-None orders), and, finally, to
adopt the order routing functionality
currently in place on the Cboe Affiliated
Exchanges.
The Exchange also proposes to make
non-substantive changes to simplify,
clarify, and generally update its routing
rules by consolidating its routing
provisions into a single rule, simplify
rule language, update the rule text to
read in plain English, reformat the
paragraph lettering and/or numbering,
and update cross-references to rules not
yet in the shell Rulebook but that will
be in the shell Rulebook and
implemented upon migration.
Proposed Rule 5.35
Current Rule 6.14A governs the
operation of HAL. SUM is the EDGX
Options equivalent of the Exchange’s
HAL. Both systems allow for orders not
automatically executed by the
respective exchange to ‘‘step up’’ to
meet the NBBO in order to interact with
orders sent to the Exchange. Both rules
5 The term ‘‘User’’ means any TPH or Sponsored
User who is authorized to obtain access to the
System. See Rule 1.1 in the shell Rulebook.
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govern the current handling of orders
eligible for such automatic handling,
which include (i) an order that is
marketable against the Exchange’s
disseminated quotation (the ‘‘BBO’’, as
specifically defined in the Exchange’s
Rules) while not the NBBO and (ii) an
order that would improve the BBO and
that is marketable against quotations
disseminated by other exchanges (the
‘‘ABBO’’) that are participants in the
Options Order Protection and Locked/
Crossed Plan (the ‘‘Linkage Plan’’).6 In
anticipation of migration, the Exchange
proposes to move Rule 6.14A to
proposed Rule 5.35 (and subsequently
delete Rule 6.14A upon migration) and
amend the current provisions under
Rule 6.14A to be consistent with EDGX
Option’s corresponding Rule 21.18. This
includes renaming ‘‘HAL’’ to be called
‘‘SUM’’, which, as stated, is a
substantially similar system for
processing orders not automatically
executed by the respective exchanges.
The automatic handling systems across
the affiliated exchanges will function in
a substantively identical manner upon
migration, therefore updating HAL to be
called SUM will mitigate any potential
investor confusion and provide for
uniform rules regarding the same
functionality.
Currently on HAL, pursuant to Rule
6.14A(b), only Market-Makers with an
appointment in the relevant option class
and Trading Permit Holders (‘‘TPHs’’)
acting as agent for orders resting at the
top of the Book in the relevant option
series opposite the order submitted to
HAL may submit responses to the
exposure message during the exposure
period (unless the Exchange determines,
on a class-by-class basis, to allow all
TPHs to submit responses to the
exposure message). The proposed rule
change updates this provision to align
with the manner in which SUM
responses function on EDGX Options;
all Users may submit responses to the
exposure message during the exposure
period.7 The Exchange currently allows
all TPHs to respond to all classes during
the exposure period, therefore this
change does not change or impact the
manner in which the SUM process
currently functions, but instead merely
removes the flexibility for the Exchange
to allow all TPHs to respond on a classby-class basis, as this is the manner in
which the Exchange intends for the
6 The proposed rule deletes an additional eligible
order provision that will no longer apply the rules
and functionality on Cboe Options upon migration
because the drill through provision referenced will
mirror that of EDGX Options, which is not SUM
specific.
7 See proposed 5.35(b)(2).
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SUM process to continue to function
upon migration.
The Exchange notes that as a result of
this proposed change, the proposed rule
also removes: (i) The current rule text
which provides that an order will not be
exposed if the Exchange quotation
contains resting orders and does not
contain sufficient Market Maker
quotation interest to satisfy the entire
order; (ii) the early termination
provision that terminate an exposure
period if Market Maker interest
decrements to an amount equal to the
size of the exposed order; and (iii) the
current Interpretation and Policy .01
which prohibits the redistribution of
exposure messages to market
participants not eligible to respond to
such messages. The proposed rule
change removes these provisions
because the Exchange proposes for SUM
to not be dependent only on MarketMaker interest in any way and all Users
will be permitted to respond to all
exposure messages.
The proposed rule change also
amends the current provision regarding
allocation of exposed orders to allow for
a User to opt out of having the
remaining portion of its exposed order
routed to other exchanges following the
exposure period.8 This is consistent
with the EDGX Options SUM rule and
the manner in which Users on EDGX
Options may currently opt out of having
their remaining portion of SUM exposed
orders routed away.
The proposed rule change also
updates the rule to be consistent with
how EDGX Options SUM process
handles an All or None (‘‘AON’’) order,9
which is currently an order type
available on the Exchange. Currently
(and as proposed), any responses priced
at the prevailing NBBO or better, and
any unrelated order or quote on the
opposite side of the market from the
exposed order that could trade against
the exposed order at the prevailing
NBBO or better, will immediately trade
against the exposed order, and the
exposure period will continue. A SUM
(current HAL) exposure period will
currently terminate upon the receipt of
a response (or unrelated order or quote)
to trade the entire exposed order at the
NBBO or better. Because an AON order
cannot partially execute pursuant to its
terms, the proposed rule change makes
it explicit that during the exposure of an
AON order, the System will hold
responses priced at or better than the
8 See
proposed Rule 5.35(c)(4).
to Rule 1.1 in shell Rulebook an ‘‘Allor-None’’ or ‘‘AON’’ order is an order to be executed
in its entirety or not at all. An AON order may be
a market or limit order.
9 Pursuant
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prevailing NBBO (rather than trade
against the exposed AON immediately)
until there is sufficient aggregate size to
satisfy the AON order,10 and that a SUM
exposure period will terminate upon the
receipt of multiple responses with
sufficient aggregate size to satisfy the
AON order.11 This is the manner in
which the HAL system currently
functions, and the proposed change
merely codifies this in the proposed
rule. In addition to this, the proposed
rule change provides that if an AON
order is exposed and the Exchange
receives an unrelated order or quote that
would be displayed at a price at or
better than the NBBO with insufficient
size to satisfy the exposed order, the
SUM exposure period terminates and
the exposed order is processed pursuant
to the allocation of exposed orders
provision 12 under the SUM process.13
This is consistent with current HAL
functionality, to which an order is
eligible for the process if its price is
marketable against the Exchange’s
disseminated quotation that is not at the
NBBO. Because a SUM auction would
not have begun if the Exchange
displayed a contra-side order at the
NBBO, the Exchange believes it is
appropriate to terminate the exposure
period if that situation arises in
connection with exposed AON orders
during the exposure period.14 As stated,
this is consistent with the way in which
the current HAL system and SUM on
EDGX Options function.
The Exchange amends the other
provisions in connection with early
termination of exposure period to be
consistent with the EDGX Option’s SUM
rule. The proposed rule change amends
these provisions to include early
termination when the exposed order is
no longer marketable against the NBBO
or if a resting order on the Exchange is
locked or crossed by another options
exchange.15 In addition to aligning with
10 See
proposed Rule 5.35(c)(1).
proposed Rule 5.35(d).
12 See proposed Rule 5.35(c).
13 If an AON order is exposed and the Exchange
receives an unrelated AON order with a price at or
better than the NBBO with insufficient size to
satisfy the exposed order the exposure period will
continue because the incoming AON order would
not be displayed at a price at or better than the
NBBO.
14 For example, suppose the NBBO is 1.00 × 1.20
and the Cboe Options BBO is 1.00 × 1.25, and an
AON order to buy 10 at 1.20 is exposed at 1.20
pursuant to SUM. During the exposure period, the
Exchange receives an order to sell 5 at 1.20. The
incoming order cannot satisfy the size of the
exposed AON order, so it would enter the Cboe
Options Book and would cause the Cboe Options
BBO to become 1.00 × 1.20. Therefore, upon receipt
of that order, the exposure period terminates and
the exposed AON order will be process pursuant to
proposed Rule 5.35(c).
15 See proposed Rule 5.35(d)(1)–(2).
11 See
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47979
the reasons a SUM auction may
currently terminate on EDGX Options,
the Exchange believes that these
scenarios are reasonable to terminate the
SUM process because if an order is no
longer marketable, then it cannot be
executed through the SUM process and
no longer benefit from exposure, and
continuing to expose a resting order
resting in a locked or crossed market
may likely presents difficulties with
respect to the handling of the resting
order, particularly if an exposed,
routable order should be routed for
potential price improvement to another
options exchange that has published a
crossing quotation. The proposed rule
change also removes current early
termination provisions which would
terminate an exposure period when a
same-side order is received by the
Exchange and if the underlying security
enters a limit up limit down state. The
Exchange believes because a User will
have the ability to cancel its order after
the SUM process is initiated coupled
with the fact that the Exchange will only
execute an order that has been exposed
via the SUM process to the extent the
order is marketable against the NBBO
(as proposed below) will mitigate any
potential concern in removing these
early termination provisions. As stated,
this is consistent with the scenarios for
early termination currently on EDGX
Options and the Exchange does not
believe that the proposed updates
present any new or novel changes or
significantly impact functionality of the
step up process as it will operate in
substantially the same manner as it
currently does.
The Exchange notes other proposed
changes such as making explicit that
bulk messages will not be eligible for
SUM. Cboe Options intends to
implement bulk message functionality
upon migration, therefore now proposes
to reflect this functionality in its
proposed SUM rule (as well as in
proposed Rule 5.36 for order routing,
described in detail below).16 Bulk
messages are the equivalent of the
Exchange’s current quoting
functionality. Currently, quotes do not
route to other exchanges, and thus are
not eligible for HAL. Therefore, the
proposed rule change is consistent with
current functionality. EDGX Options
Rule 21.18 also states that bulk
messages are not eligible for SUM. The
proposed change also includes a few
additional details that are consistent
with EDGX Options SUM rule and the
manner in which the HAL process
currently functions but are not made
explicit in the current HAL rule. This
16 See
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includes making clear that responses are
‘‘cancelled back’’ at the end of the
exposure period if unexecuted,17 that
responses may become executable based
on changes to the prevailing NBBO,18
and that the Exchange will not initiate
the SUM process if the NBBO is
crossed.19 These updates do not alter
the manner in which HAL currently
functions but merely make explicit in
the rules the operation of the proposed
SUM process.20
Proposed Rule 5.36
The Exchange proposes to adopt the
order routing rule of its affiliated
options exchange, C2 Rule 6.15, under
proposed Rule 5.36 in the shell
Rulebook. The Exchange will continue
to support orders that are designated to
be routed to the NBBO as well as orders
that will execute only within Cboe
Options.
Proposed Rule 5.36(a) 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
and bulk messages, which will not be
for routing, are processed pursuant to
Rule 5.32 21 (which will be the rule
governing order and quote Book
processing, display, priority, and
execution upon migration). 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 5.32. Unless
otherwise instructed by the User, the
System then designates the order (or
unexecuted portion) as Immediate-orCancel (‘‘IOC’’) 22 and routes it to one or
more options exchanges for potential
execution, per the User’s instructions.
After the System receives responses to
17 See
proposed Rule 5.35(b)(3).
proposed Rule 5.35(c)(3).
19 See proposed Rule 5.35(a). The Exchange notes
that this is current EDGX Rule 21.18.02.
20 The Exchange also removes Interpretation and
Policy .01 which provides that all pronouncements
regarding determinations by the Exchange pursuant
to Rule 6.14A and the Interpretations and Policies
thereunder will be announced to Trading Permit
Holders via Regulatory Circular as upon migration
all Exchange determinations under the Rules will
automatically be made pursuant to specifications,
Notices, or Regulatory Circulars with appropriate
advanced notice, which are posted on the
Exchange’s website, or electronic message. See Rule
1.5 in the shell Rulebook.
21 See Rule 5.32 in the shell Rulebook.
22 Pursuant to Rule 1.1 in the shell Rulebook, the
terms ‘‘Immediate-or-Cancel’’ and ‘‘IOC’’ mean, for
an order so designated, a limit order that must
execute in whole or in part as soon as the System
receives it; the System cancels and does not post
to the Book an IOC order (or unexecuted portion)
not executed immediately on the Exchange or
another options exchange.
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18 See
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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:
(i) 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 5.32(b), if
applicable;
(ii) 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;
(iii) 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
(iv) 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, the Exchange automatically
routes intermarket sweep orders,
consistent with the definition in current
Rule 6.80(8).23 This routing process is
functionally equivalent to the current
Exchange routing process, and, as
proposed, referred to as SWPA and is
specifically described in proposed Rule
5.36(a)(2)(B), which is a routing option
(and 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 migration, the
Exchange will offer additional routing
options identical to the routing options
offered by C2 Rule 6.15, as well as by
EDGX Options and BZX Options Rule(s)
23 Pursuant to Rule 6.80(8), an ‘‘Intermarket
Sweep Order (‘‘ISO’’)’’ means a Limit Order for an
options series that, simultaneously with the routing
of the ISO, one or more additional ISOs, as
necessary, are routed to execute against the full
displayed size of any Protected Bid, in the case of
a limit order to sell, or any Protected Offer, in the
case of a limit order to buy, for the options series
with a price that is 290 superior to the limit price
of the ISO. See also Rule 1.1 in the shell Rulebook.
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 User’s responsibility, not
the Exchange’s responsibility, to comply with the
requirements relating to ISOs.
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21.9. Under proposed Rule 5.36(a)(2),
routing options may be combined with
all available Order Instructions 24 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
options are ROUT, destination specific,
and directed ISO:
(i) 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.
(ii) 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.
(iii) 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
entering User’s responsibility, not the
Exchanges responsibility, to comply
with the requirements relating to
Intermarket Sweep Orders.
Proposed Rule 5.36(a)(3) offers two
options for Re-Route instructions,
Aggressive Re-Route and Super
Aggressive Re-Route, either of which
can be assigned to routable orders:
(i) Pursuant to the Aggressive ReRoute instruction, if the remaining
portion of a routable order has been
posted to the Book pursuant proposed
subparagraph (a)(1) (i.e., routing away to
options exchanges), 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.
(ii) 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
24 See
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subparagraph (a)(1), 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 5.36(b) states the
System does not rank or maintain in the
Book pursuant to Rule 5.32 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 5.36(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 the corresponding rules
of its affiliated options exchanges, they
are substantively identical to the current
rule text and functionality of C2 Rule
6.15 and also substantively the same as
EDGX Options and BZX Options Rule(s)
21.9.
Proposed Rule 5.36(d) and (f) make
explicit certain requirements in
connection with Cboe Trading, which,
pursuant to current Exchange rules,25 is
an affiliate of the Exchange that
provides inbound and outbound routing
services, which currently apply to Cboe
Trading today. Proposed Rule 5.36(d)
states that the Exchange will route
orders in options via Cboe Trading,
which currently serves as the Outbound
Router of the Exchange. The Outbound
Router will route orders in options
listed and open for trading on the
Exchange to other options exchanges
pursuant to Exchange Rules solely on
behalf of the Exchange. 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 (under current Rule
6.14B and proposed Rule 5.36(e)) 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
25 See
Rule 3.11(c), Rule 3.12; and Rule 3.13.
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routing. Proposed Rule 5.35(f) states that
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 pretrade regulatory requirements, Cboe
Trading will reject the orders prior to
routing and/or seek to cancel any orders
that have been routed. As stated, these
provisions are the same as C2 Rule
6.15(d) and (f) and EDGX Options and
BZX Options Rule(s) 21.9(f), and
currently apply to Cboe Trading,
therefore the proposed change just
makes these provisions in connection
with Cboe Trading explicit as well as
harmonizes its order routing rules with
that of its affiliated options exchanges’
routing rules.
The proposed rule change moves
current Rule 6.14B which governs the
routing services provided by nonaffiliated routing brokers, to proposed
Rule 5.36(e) which is consistent with
the corresponding rules of the
Exchanges’ affiliated options exchanges,
C2, EDGX Options, and BZX Options.
The Exchange does not proposed any
substantive changes to the rule. The
Exchange deletes current Interpretation
and Policy .01 which states that a
routing broker is not prohibited from
designating a preferred market-maker at
the other exchange to which the order
is being routed, which is consistent with
the agreements currently in place
between the Exchange and its routing
brokers, which do not allow for routing
broker discretion in connection with
order flow. The Exchange also notes that
this proposed change is consistent with
the corresponding order routing rules of
the Exchange’s affiliated options
exchanges, C2, EDGX Options, and BZX
Options.
Finally, the Exchange deletes current
Rule 6.6A and current Rule 6.14C
because they are duplicative of
Exchange Rules and/or routing broker
agreements already in place. Current
Rule 6.6A provides for the Exchange to
cancel or release orders as it deems
necessary to maintain fair and orderly
markets if a technical or systems issue
occurs. These provisions are already
covered under other Exchange Rules:
PO 00000
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47981
Rule 6.6A(a) and (b) are already
provided for under current Rule
3.12(a)(6) 26 and current Rule 6.14B(f)
(proposed Rule 5.36(e)(6)); and Rule
6.6A(c) is already provided for under
current Rule 3.12(a)(7)(C). Current Rule
6.14C provides for rules in connection
with Routing Service Error Accounts.
The provisions in connection with the
Exchange’s Error Account are currently
provided for under Rule 3.12(7), which
already requires Cboe Trading, as the
Exchange’s affiliated outbound router,
to maintain an Error Account, provides
the Exchange with the authority to
assign resulting Error Positions to TPHs
or have resulting Error Positions
liquidated, and prohibits Cboe Trading
from accepting any positions in its error
account from an account of a TPH, or
permitting any TPH to transfer any
positions from the TPH’s account to
Cboe Trading’s error account. The
provisions regarding a routing broker’s
Error Account are already in place in all
contracts between the Exchange and its
routing brokers pursuant to current Rule
6.14B(a) and (h) (proposed Rule
5.36(e)(1) and (8)). As a result, the
proposed rule change deletes current
Rules 6.6A and 6.14C as they are
duplicative of the current Exchange
Rules. The Exchange also notes that this
proposed change aligns the Exchange’s
Rules with that of its affiliated options
exchanges, C2, EDGX Options, and BZX
Options.
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.27 Specifically,
the Exchange believes the proposed rule
change is consistent with the Section
6(b)(5) 28 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
26 The Exchange notes that the Exchange’s
discretion to cancel orders as either it deems
necessary to maintain fair and orderly markets if a
technical or systems issue occurs pursuant to Rule
3.12(a)(6) entails its discretion to ‘‘release’’ orders
being held awaiting an away exchange execution,
that is such orders are cancelled back to Users if
a technical or systems issue occurs at the Exchange,
a routing broker, or another exchange to which an
Exchange order has been routed.
27 15 U.S.C. 78f(b).
28 15 U.S.C. 78f(b)(5).
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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) 29 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
certain system functionality currently
offered by the Exchange and the 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
change does not propose to implement
new or unique functionality that has not
been previously filed with the
Commission, found to be consistent
with the Act, or is not available on Cboe
Affiliated Exchanges. The Exchange
notes that the proposed rule text is
primarily based on EDGX Options
Rules, as well as substantially the same
as BZX and C2 Options rules, and is
different only to the extent that it makes
non-substantive changes to retain some
Exchange-specific language/definitions,
simplify language and make the rule
provisions plain English. The Exchange
believes that 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 the Cboe Affiliated Exchanges. The
proposed rule change seeks to provide
greater harmonization between the rules
of the Cboe Affiliated Exchanges, which
would result 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.
The Exchange believes that the
proposed rule change to make the
current HAL process consistent with the
EDGX Options SUM process will serve
to remove impediments to and perfect
29 Id.
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the mechanism of a free and open
market and national market system and
facilitate transactions in securities
because the current HAL process is
already equivalent to the EDGX Options
SUM process and the proposed rule
changes do not raise any new or
significant policy concerns, but instead
serve to harmonize functionality and the
rules across the affiliate exchanges so as
to provide market participants with the
same product offerings and bolster
collective understanding of the rules
upon migration.
In addition to protecting and
benefitting market participants by
providing consistent functionality and
rules, the proposed change will
continue to allow all Users to submit
responses to the exposure message
during the exposure period, which the
Exchange already does, which will
remove impediments to and perfect the
mechanism of a free and open national
market system in that it will continue to
provide all Users with the opportunity
to improve their prices and ‘‘step up’’ to
meet the NBBO and interact with
exposure messages and allow the market
participant sending an order to the
Exchange to increase its chances of
receiving an execution on the preferred
venue in which it has chosen to
participate (i.e., Cboe Options), thereby
benefitting all market participants. In
addition to this, the proposed rule
change that allows for a User to opt out
of having the remaining portion of their
exposed order routed to other exchanges
following the exposure period will
remove impediments to and perfect the
mechanism of a free and open national
market system by providing Users with
additional control regarding the
execution of their orders and by
providing them with consistent
opportunities and functionality across
the affiliated exchanges upon migration.
The Exchange also believes the
proposed rule change regarding the
handling of AON orders exposed in a
SUM auction will protect investors
because it is identical to the handling of
AON orders exposed in the EDGX
Options SUM process. Additionally, the
proposed rule change will provide AON
orders with execution opportunities
when the Exchange is not at the NBBO
in a manner consistent with the current
SUM process and makes it explicit that
the exposure period for an AON order
will terminate when there is sufficient
aggregate contra-side interest to satisfy
the exposed AON order (except it will
not execute any incoming contra-side
interest immediately against the
exposed AON order, unless it has
sufficient size which will prevent a
partial execution in conflict with the
PO 00000
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AON size contingency), which is the
manner in which the current HAL
process already functions. This benefits
market participants by providing them
with rules that accurately reflect current
functionality (as well as functionality
that will be provided on the Exchange
upon migration). The proposed rule
change regarding an early termination of
the exposure period of an AON order is
consistent with current reasons that will
cause an exposure period to terminate;
it will prevent an exposure period from
continuing when new conditions arise
that would have prevented an exposure
period from initiating in the first place.
The proposed rule change will remove
impediments to and perfect the
mechanism of free and open market and
a national market system, because it
ensures an AON order will be handled
in a manner consistent with the current
SUM process.
The proposed rule changes to the
other provisions in connection with
early termination of exposure period
align with the reasons a SUM auction
may currently terminate on EDGX
Options and will remove impediments
to and perfect the mechanism of a free
and open market and national market
system by terminating an orders that
would no longer benefit from exposure
or would likely present order handling
difficulties, which could impact market
participants. In addition to this, because
a User will have the ability to cancel its
order after the SUM process is initiated
coupled with the fact that the Exchange
will only execute an order that has been
exposed via the SUM process to the
extent the order is marketable against
the NBBO will mitigate any potential
concern in removing other early
termination provisions. The Exchange
believes that the other updates proposed
to align the Exchange’s proposed rule
with that of the EDGX Options SUM
process do not alter the manner in
which HAL currently functions but
merely make explicit in the rules the
operation of the proposed SUM process.
The proposed change to adopt C2’s
order routing rules (which are also
substantially the same as the routing
rules on EDGX Options and BZX
Options) will likewise serve to protect
and benefit market participants by
providing consistent functionality and
rules in connection with order routing.
As stated, the order routing rule of the
Exchange’s affiliated options exchanges
have previously been filed with the
Commission. Proposed Rule 5.36 will
serve to remove impediments to and
perfect the mechanism of a free and
open market and national market system
because it will allow Users to route
orders in much the same way in which
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they may already route ISO orders on
the Exchange today, and in the same
manner as Users may already route
orders on the Exchange’s affiliated
options exchanges, C2, EDGX Options,
and BZX Options. Under the proposed
rules the System will still process,
display and prioritize orders as it
currently does as well as ensure the
same price protections currently in
place, thereby protecting investors. The
additional routing options that the
proposed rule change offers are the
same routing options already available
to Users on the Exchange’s affiliated
options exchange, therefore these
options do not raise any new or novel
functionality for market participants but
ensure that upon migration market
participants across the Cboe Affiliated
Exchanges will have access to the same
functionality and product offerings.
The proposed provisions regarding
Cboe Trading will benefit market
participants by making explicit certain
rules that already apply to Cboe Trading
on the Exchange, as well as serve to
harmonize the Exchange’s routing rules
with the corresponding rules of C2 and
EDGX Options, as well as BZX Options.
The other proposed changes will also
remove impediments to and perfect the
mechanism of a free and open national
market system by removing rules that
are duplicative of other Exchange rules
that currently provide for the same and
are already effectively provided for in
the contracts between the Exchange and
its non-affiliated routing brokers. This,
in turn, provides market participants
with up-to-date, streamlined rules with
are easy to understand, and mirror the
corresponding rules of C2 and EDGX
Options, as well as BZX Options.
The proposed rule change makes
other various non-substantive changes
throughout the rules that will protect
investors and benefit market
participants as these changes simplify
the rules and use plain English
throughout the rules.
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 reiterates that the proposed
rule change is being proposed in the
context of a technology migration of the
Cboe Affiliated Exchanges. As stated,
the proposed changes to the rules that
reflect functionality that will be in place
come October 7, 2019 provide clear,
consistent rules for market participants
upon the completion of migration. The
Exchange believes the proposed rule
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change will benefit Exchange
participants in that it will provide a
consistent technology offering for Users
by the Cboe Affiliated Exchanges.
The Exchange does not believe the
proposed rule change will impose any
burden on intramarket competition. The
proposed SUM process and order
routing functionality will apply to all
Users and order and quotes submitted
by Users in the same manner. Like HAL
currently, the Exchange’s proposed
SUM is open to all Users. Additionally,
all Users will have the option to route
orders to away exchanges, and apply the
different proposed routing instructions,
under the proposed order routing
provisions.
The Exchange does not believe that
the proposed rules change will impose
any burden on intermarket
competitions. As discussed above, the
basis for the proposed rule changes in
this filing are the rules of C2 and EDGX
Options, as well as substantial
similarities to the approved rules of
BZX Options, which have already been
filed with the Commission. The
Exchange also notes that market
participants on other exchanges are
welcome to become participants on the
Exchange if they determine that this
proposed rule change has made Cboe
Options a more attractive or favorable
venue.
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
Because the foregoing proposed rule
change does not:
A. Significantly affect the protection
of investors or the public interest;
B. impose any significant burden on
competition; and
C. 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 30 and Rule 19b–4(f)(6) 31
thereunder. 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
30 15
31 17
PO 00000
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CFR 240.19b–4(f)(6).
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47983
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 rule-comments@
sec.gov. Please include File Number SR–
CBOE–2019–050 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–CBOE–2019–050. 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–CBOE–2019–050 and
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should be submitted on or before
October 2, 2019.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.32
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019–19610 Filed 9–10–19; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–86879; File No. SR–CBOE–
2019–034]
Self-Regulatory Organizations; Cboe
Exchange, Inc.; Notice of Filing of
Amendment Nos. 1, 2, and 3 and Order
Granting Accelerated Approval of a
Proposed Rule Change, as Modified by
Amendment Nos. 1, 2, and 3, To
Amend the Exchange’s Opening
Process, Including on VIX Settlement
Days
September 5, 2019.
I. Introduction
On July 2, 2019, Cboe Exchange, Inc.
(the ‘‘Exchange’’ or ‘‘Cboe Options’’)
filed with the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’) 1 and Rule
19b–4 thereunder,2 a proposed rule
change to amend the Exchange’s
opening auction process for options as
well as the modified opening auction
process used to calculate the exercise or
final settlement value of expiring
volatility index derivatives. The
proposed rule change was published for
comment in the Federal Register on July
22, 2019.3 On August 15, 2019, the
Exchange filed Amendment No. 1 to the
proposed rule change.4 The Exchange
32 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 See Securities Exchange Act Release No. 86387
(July 22, 2019), 84 FR 35147 (‘‘Notice’’).
4 In Amendment No. 1, the Exchange: Revised the
proposal to make clear that a series is ineligible to
open if the Composite Market of the series is
crossed; modified the application of the Maximum
Composite Width Check for constituent series on
exercise settlement value determination days to
provide additional price protection to the opening
prices of constituent option series; provided
additional detail regarding the proposed settlement
strip; clarified the timing and frequency for the
Exchange’s dissemination of opening auction
updates, including for constituent option series on
exercise settlement value determination days;
correct a typographical error in proposed Exchange
Rule 5.31(c); indicated that the Exchange maintains
and reviews records of any determinations made
pursuant to proposed Exchange Rule 5.31(j)(2) with
respect to the modified opening process in
accordance with proposed Exchange Rule 5.31;
clarified that All Sessions orders will rest on the
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filed Amendment Nos. 2 and 3 to the
proposal on August 20, 2019, and
August 28, 2019, respectively.5 The
Commission has received no comments
regarding the proposal. The Commission
is publishing this notice to solicit
comment on Amendment Nos. 1, 2, and
3 and is approving the proposed rule
change, as modified by Amendment
Nos. 1, 2, and 3, on an accelerated basis.
II. Description of the Proposed Rule
Change
As described more fully in the
Notice,6 the Exchange proposes to
amend (1) the opening auction process
used to open options on the Exchange;
and (2) the modified opening auction
process used to calculate the exercise or
final settlement value of expiring Cboe
Volatility Index (‘‘VIX’’) derivatives.7
The Exchange states that the proposed
opening auction process, other than the
modified opening auction process for
expiring VIX derivatives, is ‘‘virtually
identical’’ to the opening auction
process used on two of the Exchange’s
GTH Queuing Book starting at 2:00 a.m., rather than
7:30 a.m., to participate in the GTH opening auction
process; indicated that the term ‘‘primary market’’
means the primary exchange on which an
underlying security is listed, and that the term
‘‘equity option’’ includes options on exchangetraded products; and indicated that the VIX
methodology is available on the Exchange’s
website. Amendment No. 1 replaced and
superseded the original filing in its entirety. When
it filed Amendment No. 1 with the Commission, the
Exchange simultaneously submitted it as a
comment letter on the proposal and the
Commission publicly posted it here: https://
www.sec.gov/comments/sr-cboe-2019-034/
srcboe2019034-5977238-190214.pdf.
5 In Amendment No. 2, the Exchange revised the
definition of Maximum Composite Width in
proposed Exchange Rules 5.31(a) and 5.31(j)(1) to
replace references to ‘‘Market Composite Widths’’
with references to ‘‘Maximum Composite Widths.’’
When it filed Amendment No. 2 with the
Commission, the Exchange simultaneously
submitted it as a comment letter on the proposal
and the Commission publicly posted it here:
https://www.sec.gov/comments/sr-cboe-2019-034/
srcboe2019034-5994750-190368.pdf. In
Amendment No. 3, the Exchange deleted two
sentences that were erroneously retained in
proposed Exchange Rule 5.31(j)(5) following
modifications to that paragraph by Amendment No.
1. The deletion of the sentences makes clear that on
exercise settlement value determination days, the
System performs the Maximum Composite Width
check and determines the opening trade price
pursuant to proposed Exchange Rule 5.31(j)(5) in
lieu of propose Exchange Rules 5.31(e)(1) and (2).
When it filed Amendment No. 3 with the
Commission, the Exchange simultaneously
submitted it as a comment letter on the proposal
and the Commission publicly posted it here:
https://www.sec.gov/comments/sr-cboe-2019-034/
srcboe2019034-6034336-191248.pdf.
6 See note 3, supra.
7 See proposed Exchange Rule 5.31(j) (defining
‘‘VIX derivatives’’). The Exchange notes that
options expire on an expiration date and settle to
an exercise settlement value, and futures settle on
a final settlement date to a final settlement value.
See Notice, supra note 3, 84 FR at 35152, n. 51.
PO 00000
Frm 00054
Fmt 4703
Sfmt 4703
affiliated exchanges.8 The Exchange
states that the proposed modified
opening auction process for expiring
VIX derivatives ‘‘will function in
substantially similar manner as the
current modified opening auction
process’’ for expiring VIX derivatives.9
A. Standard Opening Auction Process
Under the proposed opening auction
process, the Queuing Period 10 will
begin at 2:00 a.m. for All Sessions
Classes 11 and at 7:30 a.m. for Regular
Trading Hours (‘‘Regular Trading
Hours’’ or ‘‘RTH’’) classes.12 During the
Queuing Period, the System will accept
orders and quotes pursuant to Exchange
Rule 5.30, and they will be eligible for
execution during the opening rotation,
with certain limitations.13 Orders and
8 Id. at 35164 (citing C2 Rule 6.11 and EDGX
Options Rule 21.7).
9 Id. at 35163. See also Exchange Rule 6.2,
Interpretation and Policy .01.
10 The Queuing Period is the time period prior to
the initiation of an opening rotation during which
the System accepts orders and quotes in the
Queuing Book for participation in the opening
rotation for the applicable trading session. The
Queuing Book is the book into which Users may
submit orders and quotes (and onto which Goodtil-Cancelled and Good-til-Date orders remaining on
the Book from the previous trading session or
trading day, as applicable, are entered) during the
Queuing Period for participation in the applicable
opening rotation. Orders and quotes on the Queuing
Book may not execute until the applicable opening
rotation commences. The Queuing Book for the
Global Trading Hours (‘‘Global Trading Hours’’ or
‘‘GTH’’) opening auction process is distinguished
from the Queuing Book for the RTH opening
auction process. See proposed Exchange Rule
5.31(a).
11 An All Sessions Class is an options class that
the Exchange lists for trading during both Global
Trading Hours and Regular Trading Hours. See
Exchange Rule 1.1. At the time of this order, Cboe
only trades certain SPX and VIX options during
GTH. See https://www.cboe.com/micro/eth/pdf/
global-trading-hours.pdf. Regular Trading Hours
and Global Trading Hours are set forth in Exchange
Rule 5.1.
12 See proposed Exchange Rule 5.31(b)(1). At 2:00
a.m., All Sessions Orders will rest on the GTH
Queuing Book and will be eligible to participate in
the GTH opening auction process. In addition,
Users may enter orders into the RTH Queuing Book
beginning at 2:00 a.m., and these orders will rest
on the RTH Queuing Book and be eligible to
participate in the RTH opening auction process
once it begins. See Amendment No. 1.
13 See proposed Exchange Rule 5.31(b)(2). The
following limitations apply to orders and quotes
entered during the Queuing Period: (1) The System
rejects Immediate-or-Cancel and Fill-or-Kill orders
during the Queuing Period; (2) the System accepts
orders and quotes with Match Trade Prevention
(‘‘MTP’’) Modifiers during the Queuing Period, but
does not enforce them during the opening rotation;
(3) the System accepts all-or-none, stop, and stoplimit orders during the Queuing Period, but they do
not participate in the opening rotation. The System
enters any of these orders it receives during the
Queuing Period into the Book following completion
of the opening rotation (in time priority); (4) the
System converts all intermarket sweep orders
(‘‘ISOs’’) received prior to the completion of the
opening rotation into non-ISOs; and (5) complex
orders do not participate in the opening auction
E:\FR\FM\11SEN1.SGM
11SEN1
]]>Agencies
[Federal Register Volume 84, Number 176 (Wednesday, September 11, 2019)]
[Notices]
[Pages 47977-47984]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-19610]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-86878; File No. SR-CBOE-2019-050]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
Exchange Rules Regarding Routing Services, Including the Hybrid Agency
Liaison System, and Move Those Rules From the Currently Effective
Rulebook to the Shell Rulebook To Be Effective Upon Migration
September 5, 2019.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on August 23, 2019, Cboe Exchange, Inc. (the ``Exchange'' or
``Cboe Options'') filed with the Securities and Exchange Commission
(the ``Commission'') the proposed rule change as described in Items I,
II, and III below, which Items have been prepared by the Exchange. The
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 the Exchange's Rules regarding
routing services, including the Hybrid Agency Liaison (``HAL'') system,
and move those Rules from the currently effective Rulebook (``current
Rulebook'') to the
[[Page 47978]]
shell structure for the Exchange's Rulebook that will become effective
upon the migration of the Exchange's trading platform to the same
system used by the Cboe Affiliated Exchanges (as defined below)
(``shell Rulebook''). The text of the proposed rule change is provided
in Exhibit 5.
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 the
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 C2 Exchange, Inc. (``C2''), acquired Cboe
EDGA Exchange, Inc. (``EDGA''), Cboe EDGX Exchange, Inc. (``EDGX'' or
``EDGX Options''), Cboe BZX Exchange, Inc. (``BZX'' or ``BZX
Options''), and Cboe BYX Exchange, Inc. (``BYX'' and, together with
Cboe Options, C2, 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 a technology
migration. Cboe Options intends to migrate its trading platform to the
same system used by the Cboe Affiliated Exchanges, which the Exchange
expects to complete on October 7, 2019. In connection with this
technology migration, the Exchange has a shell Rulebook that resides
alongside its current Rulebook, which shell Rulebook will contain the
Rules that will be in place upon completion of the Cboe Options
technology migration.
The Exchange proposes to harmonize its rules in connection with
routing functions on the Exchange to that of the Cboe Affiliated
Exchanges. Specifically, the Exchange proposes to update and amend
current Rule 6.14A, which governs the operation of the HAL system to be
consistent with of the corresponding rule of EDGX Options, Rule 21.18,
which governs the operation of the Step Up Mechanism (``SUM''). The
Exchange also proposes to harmonize Rule 6.6A, Rule 6.14B, and Rule
6.14C with that of its affiliate option exchange, C2, Rule 6.15, as
well as EDGX and BZX Rule(s) 21.9, which provide for order routing
rules of the exchange. The Exchange proposes these amendments to
reflect the routing functions rule language of the Cboe Affiliated
Exchange rules, retaining only slight differences regarding Exchange-
specific language/definitions. In conforming its routing rules to that
of the Cboe Affiliated Exchanges' rules, the Exchange proposes few
substantive changes, namely amending the rules to allow for all Users
\5\ to respond to a SUM (the Exchange proposes to rename HAL as SUM,
and refers to SUM herein) exposure message, to allow a User to opt out
of having its exposed order routed to other exchanges at the conclusion
of a SUM exposure period, to update the scenarios in which a SUM
auction will terminate early (which includes incorporating provisions
that account for All-or-None orders), and, finally, to adopt the order
routing functionality currently in place on the Cboe Affiliated
Exchanges.
---------------------------------------------------------------------------
\5\ The term ``User'' means any TPH or Sponsored User who is
authorized to obtain access to the System. See Rule 1.1 in the shell
Rulebook.
---------------------------------------------------------------------------
The Exchange also proposes to make non-substantive changes to
simplify, clarify, and generally update its routing rules by
consolidating its routing provisions into a single rule, simplify rule
language, update the rule text to read in plain English, reformat the
paragraph lettering and/or numbering, and update cross-references to
rules not yet in the shell Rulebook but that will be in the shell
Rulebook and implemented upon migration.
Proposed Rule 5.35
Current Rule 6.14A governs the operation of HAL. SUM is the EDGX
Options equivalent of the Exchange's HAL. Both systems allow for orders
not automatically executed by the respective exchange to ``step up'' to
meet the NBBO in order to interact with orders sent to the Exchange.
Both rules govern the current handling of orders eligible for such
automatic handling, which include (i) an order that is marketable
against the Exchange's disseminated quotation (the ``BBO'', as
specifically defined in the Exchange's Rules) while not the NBBO and
(ii) an order that would improve the BBO and that is marketable against
quotations disseminated by other exchanges (the ``ABBO'') that are
participants in the Options Order Protection and Locked/Crossed Plan
(the ``Linkage Plan'').\6\ In anticipation of migration, the Exchange
proposes to move Rule 6.14A to proposed Rule 5.35 (and subsequently
delete Rule 6.14A upon migration) and amend the current provisions
under Rule 6.14A to be consistent with EDGX Option's corresponding Rule
21.18. This includes renaming ``HAL'' to be called ``SUM'', which, as
stated, is a substantially similar system for processing orders not
automatically executed by the respective exchanges. The automatic
handling systems across the affiliated exchanges will function in a
substantively identical manner upon migration, therefore updating HAL
to be called SUM will mitigate any potential investor confusion and
provide for uniform rules regarding the same functionality.
---------------------------------------------------------------------------
\6\ The proposed rule deletes an additional eligible order
provision that will no longer apply the rules and functionality on
Cboe Options upon migration because the drill through provision
referenced will mirror that of EDGX Options, which is not SUM
specific.
---------------------------------------------------------------------------
Currently on HAL, pursuant to Rule 6.14A(b), only Market-Makers
with an appointment in the relevant option class and Trading Permit
Holders (``TPHs'') acting as agent for orders resting at the top of the
Book in the relevant option series opposite the order submitted to HAL
may submit responses to the exposure message during the exposure period
(unless the Exchange determines, on a class-by-class basis, to allow
all TPHs to submit responses to the exposure message). The proposed
rule change updates this provision to align with the manner in which
SUM responses function on EDGX Options; all Users may submit responses
to the exposure message during the exposure period.\7\ The Exchange
currently allows all TPHs to respond to all classes during the exposure
period, therefore this change does not change or impact the manner in
which the SUM process currently functions, but instead merely removes
the flexibility for the Exchange to allow all TPHs to respond on a
class-by-class basis, as this is the manner in which the Exchange
intends for the
[[Page 47979]]
SUM process to continue to function upon migration.
---------------------------------------------------------------------------
\7\ See proposed 5.35(b)(2).
---------------------------------------------------------------------------
The Exchange notes that as a result of this proposed change, the
proposed rule also removes: (i) The current rule text which provides
that an order will not be exposed if the Exchange quotation contains
resting orders and does not contain sufficient Market Maker quotation
interest to satisfy the entire order; (ii) the early termination
provision that terminate an exposure period if Market Maker interest
decrements to an amount equal to the size of the exposed order; and
(iii) the current Interpretation and Policy .01 which prohibits the
redistribution of exposure messages to market participants not eligible
to respond to such messages. The proposed rule change removes these
provisions because the Exchange proposes for SUM to not be dependent
only on Market-Maker interest in any way and all Users will be
permitted to respond to all exposure messages.
The proposed rule change also amends the current provision
regarding allocation of exposed orders to allow for a User to opt out
of having the remaining portion of its exposed order routed to other
exchanges following the exposure period.\8\ This is consistent with the
EDGX Options SUM rule and the manner in which Users on EDGX Options may
currently opt out of having their remaining portion of SUM exposed
orders routed away.
---------------------------------------------------------------------------
\8\ See proposed Rule 5.35(c)(4).
---------------------------------------------------------------------------
The proposed rule change also updates the rule to be consistent
with how EDGX Options SUM process handles an All or None (``AON'')
order,\9\ which is currently an order type available on the Exchange.
Currently (and as proposed), any responses priced at the prevailing
NBBO or better, and any unrelated order or quote on the opposite side
of the market from the exposed order that could trade against the
exposed order at the prevailing NBBO or better, will immediately trade
against the exposed order, and the exposure period will continue. A SUM
(current HAL) exposure period will currently terminate upon the receipt
of a response (or unrelated order or quote) to trade the entire exposed
order at the NBBO or better. Because an AON order cannot partially
execute pursuant to its terms, the proposed rule change makes it
explicit that during the exposure of an AON order, the System will hold
responses priced at or better than the prevailing NBBO (rather than
trade against the exposed AON immediately) until there is sufficient
aggregate size to satisfy the AON order,\10\ and that a SUM exposure
period will terminate upon the receipt of multiple responses with
sufficient aggregate size to satisfy the AON order.\11\ This is the
manner in which the HAL system currently functions, and the proposed
change merely codifies this in the proposed rule. In addition to this,
the proposed rule change provides that if an AON order is exposed and
the Exchange receives an unrelated order or quote that would be
displayed at a price at or better than the NBBO with insufficient size
to satisfy the exposed order, the SUM exposure period terminates and
the exposed order is processed pursuant to the allocation of exposed
orders provision \12\ under the SUM process.\13\ This is consistent
with current HAL functionality, to which an order is eligible for the
process if its price is marketable against the Exchange's disseminated
quotation that is not at the NBBO. Because a SUM auction would not have
begun if the Exchange displayed a contra-side order at the NBBO, the
Exchange believes it is appropriate to terminate the exposure period if
that situation arises in connection with exposed AON orders during the
exposure period.\14\ As stated, this is consistent with the way in
which the current HAL system and SUM on EDGX Options function.
---------------------------------------------------------------------------
\9\ Pursuant to Rule 1.1 in shell Rulebook an ``All-or-None'' or
``AON'' order is an order to be executed in its entirety or not at
all. An AON order may be a market or limit order.
\10\ See proposed Rule 5.35(c)(1).
\11\ See proposed Rule 5.35(d).
\12\ See proposed Rule 5.35(c).
\13\ If an AON order is exposed and the Exchange receives an
unrelated AON order with a price at or better than the NBBO with
insufficient size to satisfy the exposed order the exposure period
will continue because the incoming AON order would not be displayed
at a price at or better than the NBBO.
\14\ For example, suppose the NBBO is 1.00 x 1.20 and the Cboe
Options BBO is 1.00 x 1.25, and an AON order to buy 10 at 1.20 is
exposed at 1.20 pursuant to SUM. During the exposure period, the
Exchange receives an order to sell 5 at 1.20. The incoming order
cannot satisfy the size of the exposed AON order, so it would enter
the Cboe Options Book and would cause the Cboe Options BBO to become
1.00 x 1.20. Therefore, upon receipt of that order, the exposure
period terminates and the exposed AON order will be process pursuant
to proposed Rule 5.35(c).
---------------------------------------------------------------------------
The Exchange amends the other provisions in connection with early
termination of exposure period to be consistent with the EDGX Option's
SUM rule. The proposed rule change amends these provisions to include
early termination when the exposed order is no longer marketable
against the NBBO or if a resting order on the Exchange is locked or
crossed by another options exchange.\15\ In addition to aligning with
the reasons a SUM auction may currently terminate on EDGX Options, the
Exchange believes that these scenarios are reasonable to terminate the
SUM process because if an order is no longer marketable, then it cannot
be executed through the SUM process and no longer benefit from
exposure, and continuing to expose a resting order resting in a locked
or crossed market may likely presents difficulties with respect to the
handling of the resting order, particularly if an exposed, routable
order should be routed for potential price improvement to another
options exchange that has published a crossing quotation. The proposed
rule change also removes current early termination provisions which
would terminate an exposure period when a same-side order is received
by the Exchange and if the underlying security enters a limit up limit
down state. The Exchange believes because a User will have the ability
to cancel its order after the SUM process is initiated coupled with the
fact that the Exchange will only execute an order that has been exposed
via the SUM process to the extent the order is marketable against the
NBBO (as proposed below) will mitigate any potential concern in
removing these early termination provisions. As stated, this is
consistent with the scenarios for early termination currently on EDGX
Options and the Exchange does not believe that the proposed updates
present any new or novel changes or significantly impact functionality
of the step up process as it will operate in substantially the same
manner as it currently does.
---------------------------------------------------------------------------
\15\ See proposed Rule 5.35(d)(1)-(2).
---------------------------------------------------------------------------
The Exchange notes other proposed changes such as making explicit
that bulk messages will not be eligible for SUM. Cboe Options intends
to implement bulk message functionality upon migration, therefore now
proposes to reflect this functionality in its proposed SUM rule (as
well as in proposed Rule 5.36 for order routing, described in detail
below).\16\ Bulk messages are the equivalent of the Exchange's current
quoting functionality. Currently, quotes do not route to other
exchanges, and thus are not eligible for HAL. Therefore, the proposed
rule change is consistent with current functionality. EDGX Options Rule
21.18 also states that bulk messages are not eligible for SUM. The
proposed change also includes a few additional details that are
consistent with EDGX Options SUM rule and the manner in which the HAL
process currently functions but are not made explicit in the current
HAL rule. This
[[Page 47980]]
includes making clear that responses are ``cancelled back'' at the end
of the exposure period if unexecuted,\17\ that responses may become
executable based on changes to the prevailing NBBO,\18\ and that the
Exchange will not initiate the SUM process if the NBBO is crossed.\19\
These updates do not alter the manner in which HAL currently functions
but merely make explicit in the rules the operation of the proposed SUM
process.\20\
---------------------------------------------------------------------------
\16\ See Rule 5.5(c).
\17\ See proposed Rule 5.35(b)(3).
\18\ See proposed Rule 5.35(c)(3).
\19\ See proposed Rule 5.35(a). The Exchange notes that this is
current EDGX Rule 21.18.02.
\20\ The Exchange also removes Interpretation and Policy .01
which provides that all pronouncements regarding determinations by
the Exchange pursuant to Rule 6.14A and the Interpretations and
Policies thereunder will be announced to Trading Permit Holders via
Regulatory Circular as upon migration all Exchange determinations
under the Rules will automatically be made pursuant to
specifications, Notices, or Regulatory Circulars with appropriate
advanced notice, which are posted on the Exchange's website, or
electronic message. See Rule 1.5 in the shell Rulebook.
---------------------------------------------------------------------------
Proposed Rule 5.36
The Exchange proposes to adopt the order routing rule of its
affiliated options exchange, C2 Rule 6.15, under proposed Rule 5.36 in
the shell Rulebook. The Exchange will continue to support orders that
are designated to be routed to the NBBO as well as orders that will
execute only within Cboe Options.
Proposed Rule 5.36(a) 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
and bulk messages, which will not be for routing, are processed
pursuant to Rule 5.32 \21\ (which will be the rule governing order and
quote Book processing, display, priority, and execution upon
migration). 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 5.32. Unless otherwise instructed by
the User, the System then designates the order (or unexecuted portion)
as Immediate-or-Cancel (``IOC'') \22\ 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:
---------------------------------------------------------------------------
\21\ See Rule 5.32 in the shell Rulebook.
\22\ Pursuant to Rule 1.1 in the shell Rulebook, the terms
``Immediate-or-Cancel'' and ``IOC'' mean, for an order so
designated, a limit order that must execute in whole or in part as
soon as the System receives it; the System cancels and does not post
to the Book an IOC order (or unexecuted portion) not executed
immediately on the Exchange or another options exchange.
---------------------------------------------------------------------------
(i) 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 5.32(b), if applicable;
(ii) 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;
(iii) 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
(iv) 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, the Exchange automatically routes intermarket sweep
orders, consistent with the definition in current Rule 6.80(8).\23\
This routing process is functionally equivalent to the current Exchange
routing process, and, as proposed, referred to as SWPA and is
specifically described in proposed Rule 5.36(a)(2)(B), which is a
routing option (and 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 migration, the Exchange will offer additional
routing options identical to the routing options offered by C2 Rule
6.15, as well as by EDGX Options and BZX Options Rule(s) 21.9. Under
proposed Rule 5.36(a)(2), routing options may be combined with all
available Order Instructions \24\ 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 options are
ROUT, destination specific, and directed ISO:
---------------------------------------------------------------------------
\23\ Pursuant to Rule 6.80(8), an ``Intermarket Sweep Order
(``ISO'')'' means a Limit Order for an options series that,
simultaneously with the routing of the ISO, one or more additional
ISOs, as necessary, are routed to execute against the full displayed
size of any Protected Bid, in the case of a limit order to sell, or
any Protected Offer, in the case of a limit order to buy, for the
options series with a price that is 290 superior to the limit price
of the ISO. See also Rule 1.1 in the shell Rulebook. 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 User's
responsibility, not the Exchange's responsibility, to comply with
the requirements relating to ISOs.
\24\ See Rule 5.6 in shell Rulebook.
---------------------------------------------------------------------------
(i) 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.
(ii) 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.
(iii) 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 entering
User's responsibility, not the Exchanges responsibility, to comply with
the requirements relating to Intermarket Sweep Orders.
Proposed Rule 5.36(a)(3) offers two options for Re-Route
instructions, Aggressive Re-Route and Super Aggressive Re-Route, either
of which can be assigned to routable orders:
(i) Pursuant to the Aggressive Re-Route instruction, if the
remaining portion of a routable order has been posted to the Book
pursuant proposed subparagraph (a)(1) (i.e., routing away to options
exchanges), 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.
(ii) 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
[[Page 47981]]
subparagraph (a)(1), 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 5.36(b) states the System does not rank or maintain
in the Book pursuant to Rule 5.32 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 5.36(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 the corresponding rules of its affiliated options
exchanges, they are substantively identical to the current rule text
and functionality of C2 Rule 6.15 and also substantively the same as
EDGX Options and BZX Options Rule(s) 21.9.
Proposed Rule 5.36(d) and (f) make explicit certain requirements in
connection with Cboe Trading, which, pursuant to current Exchange
rules,\25\ is an affiliate of the Exchange that provides inbound and
outbound routing services, which currently apply to Cboe Trading today.
Proposed Rule 5.36(d) states that the Exchange will route orders in
options via Cboe Trading, which currently serves as the Outbound Router
of the Exchange. The Outbound Router will route orders in options
listed and open for trading on the Exchange to other options exchanges
pursuant to Exchange Rules solely on behalf of the Exchange. 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 (under
current Rule 6.14B and proposed Rule 5.36(e)) 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. Proposed Rule 5.35(f)
states that 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. As stated, these provisions are the same as C2 Rule 6.15(d) and
(f) and EDGX Options and BZX Options Rule(s) 21.9(f), and currently
apply to Cboe Trading, therefore the proposed change just makes these
provisions in connection with Cboe Trading explicit as well as
harmonizes its order routing rules with that of its affiliated options
exchanges' routing rules.
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\25\ See Rule 3.11(c), Rule 3.12; and Rule 3.13.
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The proposed rule change moves current Rule 6.14B which governs the
routing services provided by non-affiliated routing brokers, to
proposed Rule 5.36(e) which is consistent with the corresponding rules
of the Exchanges' affiliated options exchanges, C2, EDGX Options, and
BZX Options. The Exchange does not proposed any substantive changes to
the rule. The Exchange deletes current Interpretation and Policy .01
which states that a routing broker is not prohibited from designating a
preferred market-maker at the other exchange to which the order is
being routed, which is consistent with the agreements currently in
place between the Exchange and its routing brokers, which do not allow
for routing broker discretion in connection with order flow. The
Exchange also notes that this proposed change is consistent with the
corresponding order routing rules of the Exchange's affiliated options
exchanges, C2, EDGX Options, and BZX Options.
Finally, the Exchange deletes current Rule 6.6A and current Rule
6.14C because they are duplicative of Exchange Rules and/or routing
broker agreements already in place. Current Rule 6.6A provides for the
Exchange to cancel or release orders as it deems necessary to maintain
fair and orderly markets if a technical or systems issue occurs. These
provisions are already covered under other Exchange Rules: Rule 6.6A(a)
and (b) are already provided for under current Rule 3.12(a)(6) \26\ and
current Rule 6.14B(f) (proposed Rule 5.36(e)(6)); and Rule 6.6A(c) is
already provided for under current Rule 3.12(a)(7)(C). Current Rule
6.14C provides for rules in connection with Routing Service Error
Accounts. The provisions in connection with the Exchange's Error
Account are currently provided for under Rule 3.12(7), which already
requires Cboe Trading, as the Exchange's affiliated outbound router, to
maintain an Error Account, provides the Exchange with the authority to
assign resulting Error Positions to TPHs or have resulting Error
Positions liquidated, and prohibits Cboe Trading from accepting any
positions in its error account from an account of a TPH, or permitting
any TPH to transfer any positions from the TPH's account to Cboe
Trading's error account. The provisions regarding a routing broker's
Error Account are already in place in all contracts between the
Exchange and its routing brokers pursuant to current Rule 6.14B(a) and
(h) (proposed Rule 5.36(e)(1) and (8)). As a result, the proposed rule
change deletes current Rules 6.6A and 6.14C as they are duplicative of
the current Exchange Rules. The Exchange also notes that this proposed
change aligns the Exchange's Rules with that of its affiliated options
exchanges, C2, EDGX Options, and BZX Options.
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\26\ The Exchange notes that the Exchange's discretion to cancel
orders as either it deems necessary to maintain fair and orderly
markets if a technical or systems issue occurs pursuant to Rule
3.12(a)(6) entails its discretion to ``release'' orders being held
awaiting an away exchange execution, that is such orders are
cancelled back to Users if a technical or systems issue occurs at
the Exchange, a routing broker, or another exchange to which an
Exchange order has been routed.
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2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Securities Exchange Act of 1934 (the ``Act'') and the rules and
regulations thereunder applicable to the Exchange and, in particular,
the requirements of Section 6(b) of the Act.\27\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \28\ 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
[[Page 47982]]
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) \29\ requirement that the rules
of an exchange not be designed to permit unfair discrimination between
customers, issuers, brokers, or dealers.
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\27\ 15 U.S.C. 78f(b).
\28\ 15 U.S.C. 78f(b)(5).
\29\ Id.
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The proposed rule changes are generally intended to add or align
certain system functionality currently offered by the Exchange and the
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 change does not propose to
implement new or unique functionality that has not been previously
filed with the Commission, found to be consistent with the Act, or is
not available on Cboe Affiliated Exchanges. The Exchange notes that the
proposed rule text is primarily based on EDGX Options Rules, as well as
substantially the same as BZX and C2 Options rules, and is different
only to the extent that it makes non-substantive changes to retain some
Exchange-specific language/definitions, simplify language and make the
rule provisions plain English. The Exchange believes that 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 the Cboe Affiliated Exchanges. The
proposed rule change seeks to provide greater harmonization between the
rules of the Cboe Affiliated Exchanges, which would result 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.
The Exchange believes that the proposed rule change to make the
current HAL process consistent with the EDGX Options SUM process will
serve to remove impediments to and perfect the mechanism of a free and
open market and national market system and facilitate transactions in
securities because the current HAL process is already equivalent to the
EDGX Options SUM process and the proposed rule changes do not raise any
new or significant policy concerns, but instead serve to harmonize
functionality and the rules across the affiliate exchanges so as to
provide market participants with the same product offerings and bolster
collective understanding of the rules upon migration.
In addition to protecting and benefitting market participants by
providing consistent functionality and rules, the proposed change will
continue to allow all Users to submit responses to the exposure message
during the exposure period, which the Exchange already does, which will
remove impediments to and perfect the mechanism of a free and open
national market system in that it will continue to provide all Users
with the opportunity to improve their prices and ``step up'' to meet
the NBBO and interact with exposure messages and allow the market
participant sending an order to the Exchange to increase its chances of
receiving an execution on the preferred venue in which it has chosen to
participate (i.e., Cboe Options), thereby benefitting all market
participants. In addition to this, the proposed rule change that allows
for a User to opt out of having the remaining portion of their exposed
order routed to other exchanges following the exposure period will
remove impediments to and perfect the mechanism of a free and open
national market system by providing Users with additional control
regarding the execution of their orders and by providing them with
consistent opportunities and functionality across the affiliated
exchanges upon migration.
The Exchange also believes the proposed rule change regarding the
handling of AON orders exposed in a SUM auction will protect investors
because it is identical to the handling of AON orders exposed in the
EDGX Options SUM process. Additionally, the proposed rule change will
provide AON orders with execution opportunities when the Exchange is
not at the NBBO in a manner consistent with the current SUM process and
makes it explicit that the exposure period for an AON order will
terminate when there is sufficient aggregate contra-side interest to
satisfy the exposed AON order (except it will not execute any incoming
contra-side interest immediately against the exposed AON order, unless
it has sufficient size which will prevent a partial execution in
conflict with the AON size contingency), which is the manner in which
the current HAL process already functions. This benefits market
participants by providing them with rules that accurately reflect
current functionality (as well as functionality that will be provided
on the Exchange upon migration). The proposed rule change regarding an
early termination of the exposure period of an AON order is consistent
with current reasons that will cause an exposure period to terminate;
it will prevent an exposure period from continuing when new conditions
arise that would have prevented an exposure period from initiating in
the first place. The proposed rule change will remove impediments to
and perfect the mechanism of free and open market and a national market
system, because it ensures an AON order will be handled in a manner
consistent with the current SUM process.
The proposed rule changes to the other provisions in connection
with early termination of exposure period align with the reasons a SUM
auction may currently terminate on EDGX Options and will remove
impediments to and perfect the mechanism of a free and open market and
national market system by terminating an orders that would no longer
benefit from exposure or would likely present order handling
difficulties, which could impact market participants. In addition to
this, because a User will have the ability to cancel its order after
the SUM process is initiated coupled with the fact that the Exchange
will only execute an order that has been exposed via the SUM process to
the extent the order is marketable against the NBBO will mitigate any
potential concern in removing other early termination provisions. The
Exchange believes that the other updates proposed to align the
Exchange's proposed rule with that of the EDGX Options SUM process do
not alter the manner in which HAL currently functions but merely make
explicit in the rules the operation of the proposed SUM process.
The proposed change to adopt C2's order routing rules (which are
also substantially the same as the routing rules on EDGX Options and
BZX Options) will likewise serve to protect and benefit market
participants by providing consistent functionality and rules in
connection with order routing. As stated, the order routing rule of the
Exchange's affiliated options exchanges have previously been filed with
the Commission. Proposed Rule 5.36 will serve to remove impediments to
and perfect the mechanism of a free and open market and national market
system because it will allow Users to route orders in much the same way
in which
[[Page 47983]]
they may already route ISO orders on the Exchange today, and in the
same manner as Users may already route orders on the Exchange's
affiliated options exchanges, C2, EDGX Options, and BZX Options. Under
the proposed rules the System will still process, display and
prioritize orders as it currently does as well as ensure the same price
protections currently in place, thereby protecting investors. The
additional routing options that the proposed rule change offers are the
same routing options already available to Users on the Exchange's
affiliated options exchange, therefore these options do not raise any
new or novel functionality for market participants but ensure that upon
migration market participants across the Cboe Affiliated Exchanges will
have access to the same functionality and product offerings.
The proposed provisions regarding Cboe Trading will benefit market
participants by making explicit certain rules that already apply to
Cboe Trading on the Exchange, as well as serve to harmonize the
Exchange's routing rules with the corresponding rules of C2 and EDGX
Options, as well as BZX Options. The other proposed changes will also
remove impediments to and perfect the mechanism of a free and open
national market system by removing rules that are duplicative of other
Exchange rules that currently provide for the same and are already
effectively provided for in the contracts between the Exchange and its
non-affiliated routing brokers. This, in turn, provides market
participants with up-to-date, streamlined rules with are easy to
understand, and mirror the corresponding rules of C2 and EDGX Options,
as well as BZX Options.
The proposed rule change makes other various non-substantive
changes throughout the rules that will protect investors and benefit
market participants as these changes simplify the rules and use plain
English throughout the rules.
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 reiterates that
the proposed rule change is being proposed in the context of a
technology migration of the Cboe Affiliated Exchanges. As stated, the
proposed changes to the rules that reflect functionality that will be
in place come October 7, 2019 provide clear, consistent rules for
market participants upon the completion of migration. The Exchange
believes the proposed rule change will benefit Exchange participants in
that it will provide a consistent technology offering for Users by the
Cboe Affiliated Exchanges.
The Exchange does not believe the proposed rule change will impose
any burden on intramarket competition. The proposed SUM process and
order routing functionality will apply to all Users and order and
quotes submitted by Users in the same manner. Like HAL currently, the
Exchange's proposed SUM is open to all Users. Additionally, all Users
will have the option to route orders to away exchanges, and apply the
different proposed routing instructions, under the proposed order
routing provisions.
The Exchange does not believe that the proposed rules change will
impose any burden on intermarket competitions. As discussed above, the
basis for the proposed rule changes in this filing are the rules of C2
and EDGX Options, as well as substantial similarities to the approved
rules of BZX Options, which have already been filed with the
Commission. The Exchange also notes that market participants on other
exchanges are welcome to become participants on the Exchange if they
determine that this proposed rule change has made Cboe Options a more
attractive or favorable venue.
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
Because the foregoing proposed rule change does not:
A. Significantly affect the protection of investors or the public
interest;
B. impose any significant burden on competition; and
C. 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 \30\ and
Rule 19b-4(f)(6) \31\ thereunder. 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.
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\30\ 15 U.S.C. 78s(b)(3)(A).
\31\ 17 CFR 240.19b-4(f)(6).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
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-CBOE-2019-050 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-CBOE-2019-050. 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-CBOE-2019-050 and
[[Page 47984]]
should be submitted on or before October 2, 2019.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\32\
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\32\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-19610 Filed 9-10-19; 8:45 am]
BILLING CODE 8011-01-P
