Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing of Amendment No. 1 and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment No. 1, To Establish a Priority Queue for Auction Response Messages, 66673-66675 [2020-23137]

Download as PDF Federal Register / Vol. 85, No. 203 / Tuesday, October 20, 2020 / Notices SECURITIES AND EXCHANGE COMMISSION [Release No. 34–90173; File No. SR–CBOE– 2020–072] Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing of Amendment No. 1 and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment No. 1, To Establish a Priority Queue for Auction Response Messages October 14, 2020. I. Introduction On July 30, 2020, 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 establish a priority queue for auction response messages. The proposed rule change was published for comment in the Federal Register on August 18, 2020.3 On September 25, 2020, pursuant to Section 19(b)(2) of the Act,4 the Commission designated a longer period within which to approve the proposed rule change, disapprove the proposed rule change, or institute proceedings to determine whether to disapprove the proposed rule change.5 The Exchange filed Amendment No. 1 to the proposal on October 9, 2020.6 The Commission received no comments regarding the proposal. The Commission is publishing this notice to solicit comment on Amendment No. 1 and is 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 See Securities Exchange Act Release No. 89528 (August 12, 2020), 85 FR 50855 (‘‘Notice’’). 4 15 U.S.C. 78s(b)(2). 5 See Securities Exchange Act Release No. 90007 (September 25, 2020), 85 FR 62004 (October 1, 2020). The Commission designated November 16, 2020, as the date by which the Commission shall approve or disapprove, or institute proceedings to determine whether to disapprove, the proposed rule change. 6 In Amendment No. 1, the Exchange revised the proposal to: (1) State that the Exchange does not intend to assess a fee for use of the proposed priority queue; (2) indicate that messages to modify or cancel an auction response would not be processed through the proposed priority queue; (3) provide updated information regarding the number of auction responses that did not reach the auction to which they were submitted in time to participate in the auction; (4) clarify the current duration of the auction response period; (5) state that all market participants are permitted to submit auction responses to any of the Exchange’s auction mechanisms, and that all auction responses, to any auction mechanism, from any user, would be processed through the proposed priority queue; and (6) provide additional analysis to support the proposal. Amendment No. 1 will be available on the Commission’s website. 2 17 VerDate Sep<11>2014 18:08 Oct 19, 2020 Jkt 253001 approving the proposed rule change, as modified by Amendment No. 1, on an accelerated basis. II. Description of the Proposed Rule Change, as Modified by Amendment No. 1 As described more fully in the Notice,7 the Exchange currently offers several auction mechanisms that provide price improvement opportunities for eligible orders.8 Users 9 may submit responses to an auction during an auction response period determined by the Exchange.10 Trading Permit Holders (‘‘TPHs’’) submit auction responses through logical ports within the Exchange’s trading system that deliver and/or receive trading messages, including orders, cancels, and auction responses.11 Currently, the System 12 processes all messages through a single queue.13 Under certain circumstances, including when there is a deep queue of other message traffic, the auction response period may end before the System is able to process queued auction response messages, resulting in the auctioned order missing potential price improvement from the queued auction response(s) and the auction response(s) missing an execution opportunity.14 To reduce the latency associated with auction responses, the Exchange proposes to amend Cboe Rule 5.25 to establish a priority queue for the processing of auction response messages.15 All other messages, including new orders and quotes, cancel messages, and modify messages, will be 7 See note 3, supra. auction mechanisms include the Complex Order Auction (‘‘COA’’) (Cboe Rule 5.33(d)); the Step Up Mechanism (‘‘SUM’’) (Cboe Rule 5.35); the Automated Improvement Mechanism (‘‘AIM’’) (Cboe Rule 5.37); the Complex AIM (‘‘C–AIM’’) (Cboe Rule 5.38); the Solicitation Auction Mechanism (‘‘SAM’’) (Cboe Rule 5.39); the Complex SAM (‘‘C–SAM’’) (Cboe Rule 5.40); the FLEX Auction Process (Cboe Rule 5.72(c)); the FLEX AIM (Cboe Rule 5.73); and the FLEX SAM (Cboe Rule 5.74). See Notice, 85 FR at 50855. 9 A User is a Trading Permit Holder or Sponsored User who is authorized to obtain access to the System pursuant to Cboe Rule 5.5. See Cboe Rule 1.1. 10 See Notice, 85 FR at 50855–6. 11 See id. at 50856. 12 The System is the Exchange’s hybrid trading platform that integrates electronic and open outcry trading of option contracts on the Exchange, and includes any connectivity to the foregoing trading platform that is administered by or on behalf of the Exchange, such as a communications hub. See Cboe Rule 1.1. 13 See Notice, 85 FR at 50856. 14 See id. 15 Modifications or cancellations of auction responses will not be processed through the Priority Queue. See Amendment No. 1. 8 These PO 00000 Frm 00141 Fmt 4703 Sfmt 4703 66673 processed through a general queue.16 The System will process a certain number of messages, as determined by the Exchange, from each queue on an alternating basis, and will process the messages in each queue in time priority.17 The Exchange believes that the priority queue will provide for more timely processing of auction responses and will increase the likelihood that an auction response is able to participate in the auction to which it is submitted, thereby increasing execution opportunities for auction responses and enhancing the potential for price improvement for orders submitted to the Exchange’s auction mechanisms.18 The Exchanges notes that every market participant may submit a response message to any of the Exchange’s auction mechanisms and that all auction response messages would be processed through the proposed priority queue.19 The Exchange states that from March 30–April 3, 2020, approximately 17% of all auction responses and 47% of SPXW auction responses submitted during their auction response periods had no opportunity to execute in their respective auctions.20 During the period from September 1–September 21, 2020, approximately 3% of all auction responses, and 8% of auction responses in SPXW, had no opportunity to execute in their respective auctions, notwithstanding being submitted within the auction response period.21 Although there were fewer missed auction responses during the period from September 1–September 21, 2020, than during the week of March 30, the Exchange believes that both auction responders and market participants (including customers) whose orders are being auctioned benefit when the number of missed auction responses is as close to zero as possible because an auctioned order may miss an opportunity for price improvement if an auction response message is not processed in time.22 In addition, the Exchange states that, absent the proposed rule change, the percentage of missed auction responses could increase 16 See proposed Cboe Rule 5.25(c) and Notice, 85 FR at 50856. 17 See proposed Cboe Rule 5.25(c). 18 See Notice, 85 FR at 50856. 19 See Amendment No. 1. 20 See id. Effective March 9, 2020, the Exchange increased the auction response period for COA in classes SPX/SPXW from 100 milliseconds to 1,000 milliseconds. On March 16, 2020, the Exchange activated AIM for classes SPX/SPXW and set the auction response period for classes SPX/SPXW to 1,000 milliseconds. See Amendment No. 1. 21 The AIM and COA auction response period during this time was set at 1,000 milliseconds for SPX/SPXW. See id. 22 See id. E:\FR\FM\20OCN1.SGM 20OCN1 66674 Federal Register / Vol. 85, No. 203 / Tuesday, October 20, 2020 / Notices during periods of increased volatility because of the increased message traffic that occurs at such times.23 The Exchange also believes that the percentage of missed auction responses would likely increase if the Exchange reduced the auction response period back to 100 milliseconds.24 The Exchange believes that the proposed priority queue for auction response messages will not disadvantage other orders, including customer orders.25 The proposal does not modify the Exchange’s rules regarding allocations at the conclusion of an auction and, accordingly, priority customer orders in the Book 26 will continue to have first priority at each price level at the conclusion of a paired auction, even when an auction response is processed via a priority queue ahead of a priority customer order processed via the general queue.27 The Exchange states that the number of messages that would be processed via the proposed priority queue as compared to the general queue is small.28 The Exchange notes that during the period from March 9–March 13, 2020, auction responses across all of the Exchange’s auction mechanisms accounted for approximately 0.02% of the message traffic, while new order/quote messages accounted for approximately 40.3% of the message traffic, modify messages accounted for approximately 47.9% of the message traffic, and cancel messages accounted for approximately 11.7% of the message traffic.29 The Exchange further notes that only 0.007% of nonauction response messages were related 23 See id. Exchange believes that a shorter auction response period, such as 100 milliseconds, allows the Exchange to provide investors and other TPHs with more timely executions, thereby reducing their market risk. The Exchange notes that TPHs who initiate auction orders in AIM are required to guarantee an execution at the National Best Bid/ Offer (‘‘NBBO’’) or a better price based on market prices prior to the commencement of the auction and are subject to market risk while the order is exposed during the auction response period. The Exchange states that large price changes can occur in one second or less, leaving initiating TPHs vulnerable to trading losses. The Exchange further states that the initiating TPH’s willingness to guarantee its customer an execution at the NBBO or a better price is essential to the customer order gaining the opportunity for price improvement. Accordingly, the Exchange believes that an auction time as low as 100 milliseconds would provide investors and other market participants with more timely executions and reduce their market risk. See Amendment No. 1. 25 See Amendment No. 1. 26 The Book is the electronic book of simple orders and quotes maintained by the System, which single book is used during both the Regular Trading Hours and Global Trading Hours trading sessions. See Cboe Rule 1.1. 27 See Notice, 85 FR at 50856. 28 See id. 29 See id. 24 The VerDate Sep<11>2014 18:08 Oct 19, 2020 Jkt 253001 to a customer order.30 Accordingly, the Exchange believes that it is unlikely that a customer’s order would not be posted to the Book in time to receive a priority allocation because the System was processing messages in the priority queue.31 III. Discussion and Commission Findings After careful review, the Commission finds that the proposed rule change, as modified by Amendment No. 1, is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange and, in particular, with Section 6(b) of the Act.32 In particular, the Commission finds that the proposed rule change is consistent with Section 6(b)(5) of the Act,33 which requires, among other things, that the rules of a national securities exchange be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest, and that the rules of a national securities exchange not be designed to permit unfair discrimination between customers, issuers, brokers or dealers. The Commission believes that the proposed priority queue could help auction responses reach the auction to which they were submitted in time to participate in the auction, potentially enhancing competition in the Exchange’s auctions and increasing the likelihood that orders submitted to auctions, including customer orders, will receive price improvement. The Commission notes that all market participants may submit auction responses to any of the Exchange’s auction mechanisms and that all auction responses will be processed through the priority queue.34 In addition, the Exchange’s rules governing allocations at the conclusion of an auction remain unchanged and, accordingly, priority customer orders resting in the Book will continue to have first priority at each price level at the conclusion of a paired auction.35 30 See id. Amendment No. 1. 32 15 U.S.C. 78f(b). In approving this proposed rule change, the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 33 15 U.S.C. 78f(b)(5). 34 See Amendment No. 1. 35 See Notice, 85 FR 50856. 31 See PO 00000 Frm 00142 Fmt 4703 Sfmt 4703 IV. Solicitation of Comments on Amendment No. 1 to the Proposed Rule Change Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether Amendment No. 1 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–2020–072 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–2020–072. 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–2020–072, and should be submitted on or before November 10, 2020. E:\FR\FM\20OCN1.SGM 20OCN1 Federal Register / Vol. 85, No. 203 / Tuesday, October 20, 2020 / Notices V. Accelerated Approval of Proposed Rule Change, as Modified by Amendment No. 1 The Commission finds good cause to approve the proposed rule change, as modified by Amendment No. 1 prior to the thirtieth day after the date of publication of notice of the filing of Amendment No. 1 in the Federal Register. Amendment No. 1 does not modify the substance of the proposal or raise new regulatory issues. As described more fully above, Amendment No. 1 clarifies several aspects of the proposal and provides updated data and additional analysis to support the proposal. Among other things, Amendment No. 1 provides further analysis regarding the potential effect of the proposal on non-auction response message traffic, including customer orders. Amendment No. 1 also states that all market participants are permitted to submit auction responses to any of the Exchange’s auction mechanisms and that all auction responses will be processed through the priority queue. Accordingly, the Commission finds good cause, pursuant to Section 19(b)(2) of the Act,36 to approve the proposed rule change, as modified by Amendment No. 1, on an accelerated basis. VI. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act,37 that the proposed rule change (SR–CBOE–2020– 072), as modified by Amendment No. 1, is approved on an accelerated basis. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.38 J. Matthew DeLesDernier, Assistant Secretary. [FR Doc. 2020–23137 Filed 10–19–20; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION Self-Regulatory Organizations; NYSE American LLC; Notice of Filing and Immediate Effectiveness of Proposed Change To Modify the NYSE American Options Fee Schedule Pursuant to Section 19(b)(1) 1 of the Securities Exchange Act of 1934 (the U.S.C. 78s(b)(2). 37 15 U.S.C. 78s(b)(2). 38 17 CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1). 18:08 Oct 19, 2020 The Exchange proposes to modify the NYSE American Options Fee Schedule (‘‘Fee Schedule’’) to extend the waiver of certain Floor-based fixed fees. The Exchange proposes to implement the fee change effective October 8, 2020.4 The proposed change is available on the Exchange’s website at www.nyse.com, at the principal office of the Exchange, 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 self-regulatory organization 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 those 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 parts of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and the Statutory Basis for, the Proposed Rule Change The purpose of this filing is to modify the Fee Schedule to extend the waiver of certain Floor-based fixed fees for market participants that have been unable to resume their Floor operations to a certain capacity level, as discussed below. The Exchange proposes to implement the fee change effective October 8, 2020. On March 18, 2020, the Exchange announced that it would temporarily 2 15 U.S.C. 78a. CFR 240.19b–4. 4 The Exchange originally filed to amend the Fee Schedule on September 24, 2020. (SR– NYSEAMER–2020–70) and withdrew such filing on October 8, 2020. 3 17 36 15 VerDate Sep<11>2014 I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change 1. Purpose [Release No. 34–90185; File No. SR– NYSEAMER–2020–75] October 14, 2020. ‘‘Act’’) 2 and Rule 19b–4 thereunder,3 notice is hereby given that, on October 8, 2020, NYSE American LLC (‘‘NYSE American’’ or the ‘‘Exchange’’) 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 selfregulatory organization. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. Jkt 253001 PO 00000 Frm 00143 Fmt 4703 Sfmt 4703 66675 close the Trading Floor, effective Monday, March 23, 2020, as a precautionary measure to prevent the potential spread of COVID–19. Following the temporary closure of the Trading Floor, the Exchange waived certain Floor-based fixed fees for April, May and June 2020.5 Although the Trading Floor partially reopened on May 26, 2020 and Floor-based open outcry activity is supported, certain participants have been unable to resume pre-Floor closure levels of operations. As a result, the Exchange extended the fee waiver through July, August, and September 2020, but only for Floor Broker firms that were unable to operate at more than 50% of their March 2020 on-Floor staffing levels and for Market Maker firms that have vacant or ‘‘unmanned’’ Podia for the entire month due to COVID–19 related considerations (the ‘‘Qualifying Firms’’).6 Because the Trading Floor will continue to operate with reduced capacity, the Exchange proposes to extend the fee waiver for Qualifying Firms through the earlier of the first full month of a full reopening of the Trading Floor facilities to Floor personnel or December 2020.7 The Exchange also proposes to clarify that Qualifying Firms would include firms that began Floor operations after March 2020 that are unable to operate at more than 50% of their Exchange-approved on-Floor staffing levels.8 Specifically, as with the prior fee waivers, the proposed fee waiver covers the following fixed fees for Qualifying 5 See Securities Exchange Act Release Nos. 88595 (April 8, 2020), 85 FR 20737 (April 14, 2020) (SR– NYSEAMER–2020–25) (waiving Floor-based fixed fees); 88840 (May 8, 2020), 85 FR 28992 (May 14, 2020) (SR–NYSEAMER–2020–37) (extending April 2020 fee changes through May 2020); and 89049 (June 11, 2020), 85 FR 36649 (June 17, 2020) (SR– NYSEAMER–2020–44) (extending April and May fee changes through June 2020). See also Fee Schedule, Section III. Monthly Trading Permit, Rights, Floor Access and Premium Product Fees, and IV. Monthly Floor Communication, Connectivity, Equipment and Booth or Podia Fees. 6 See Securities Exchange Act Release Nos. 89241 (July 7, 2020), 85 FR 42034 (July 13, 2020) (SR– NYSEAMER–2020–47); 89482 (August 5, 2020), 85 FR 48577 (August 11, 2020) (SR–NYSEAMER– 2020–55); 89692 (August 27, 2020), 85 FR 54611 (September 2, 2020) (SR–NYSEAMER–2020–65). See also Fee Schedule, Section III., Monthly Trading Permit, Rights, Floor Access and Premium Product Fees, and IV. Monthly Floor Communication, Connectivity, Equipment and Booth or Podia Fees. 7 See proposed Fee Schedule, Section III., Monthly Trading Permit, Rights, Floor Access and Premium Product Fees, and IV. Monthly Floor Communication, Connectivity, Equipment and Booth or Podia Fees. 8 See id. The Exchange originally filed in September 2020 (see supra note 4) to make explicit the treatment of firms that began Floor operations after March 2020 and this change applies to firms that joined the Exchange on September 1st or thereafter. E:\FR\FM\20OCN1.SGM 20OCN1

Agencies

[Federal Register Volume 85, Number 203 (Tuesday, October 20, 2020)]
[Notices]
[Pages 66673-66675]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-23137]



[[Page 66673]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90173; File No. SR-CBOE-2020-072]


Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of 
Filing of Amendment No. 1 and Order Granting Accelerated Approval of a 
Proposed Rule Change, as Modified by Amendment No. 1, To Establish a 
Priority Queue for Auction Response Messages

October 14, 2020.

I. Introduction

    On July 30, 2020, 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 establish a priority queue for auction response 
messages. The proposed rule change was published for comment in the 
Federal Register on August 18, 2020.\3\ On September 25, 2020, pursuant 
to Section 19(b)(2) of the Act,\4\ the Commission designated a longer 
period within which to approve the proposed rule change, disapprove the 
proposed rule change, or institute proceedings to determine whether to 
disapprove the proposed rule change.\5\ The Exchange filed Amendment 
No. 1 to the proposal on October 9, 2020.\6\ The Commission received no 
comments regarding the proposal. The Commission is publishing this 
notice to solicit comment on Amendment No. 1 and is approving the 
proposed rule change, as modified by Amendment No. 1, on an accelerated 
basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 89528 (August 12, 
2020), 85 FR 50855 (``Notice'').
    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 90007 (September 25, 
2020), 85 FR 62004 (October 1, 2020). The Commission designated 
November 16, 2020, as the date by which the Commission shall approve 
or disapprove, or institute proceedings to determine whether to 
disapprove, the proposed rule change.
    \6\ In Amendment No. 1, the Exchange revised the proposal to: 
(1) State that the Exchange does not intend to assess a fee for use 
of the proposed priority queue; (2) indicate that messages to modify 
or cancel an auction response would not be processed through the 
proposed priority queue; (3) provide updated information regarding 
the number of auction responses that did not reach the auction to 
which they were submitted in time to participate in the auction; (4) 
clarify the current duration of the auction response period; (5) 
state that all market participants are permitted to submit auction 
responses to any of the Exchange's auction mechanisms, and that all 
auction responses, to any auction mechanism, from any user, would be 
processed through the proposed priority queue; and (6) provide 
additional analysis to support the proposal. Amendment No. 1 will be 
available on the Commission's website.
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II. Description of the Proposed Rule Change, as Modified by Amendment 
No. 1

    As described more fully in the Notice,\7\ the Exchange currently 
offers several auction mechanisms that provide price improvement 
opportunities for eligible orders.\8\ Users \9\ may submit responses to 
an auction during an auction response period determined by the 
Exchange.\10\ Trading Permit Holders (``TPHs'') submit auction 
responses through logical ports within the Exchange's trading system 
that deliver and/or receive trading messages, including orders, 
cancels, and auction responses.\11\ Currently, the System \12\ 
processes all messages through a single queue.\13\ Under certain 
circumstances, including when there is a deep queue of other message 
traffic, the auction response period may end before the System is able 
to process queued auction response messages, resulting in the auctioned 
order missing potential price improvement from the queued auction 
response(s) and the auction response(s) missing an execution 
opportunity.\14\
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    \7\ See note 3, supra.
    \8\ These auction mechanisms include the Complex Order Auction 
(``COA'') (Cboe Rule 5.33(d)); the Step Up Mechanism (``SUM'') (Cboe 
Rule 5.35); the Automated Improvement Mechanism (``AIM'') (Cboe Rule 
5.37); the Complex AIM (``C-AIM'') (Cboe Rule 5.38); the 
Solicitation Auction Mechanism (``SAM'') (Cboe Rule 5.39); the 
Complex SAM (``C-SAM'') (Cboe Rule 5.40); the FLEX Auction Process 
(Cboe Rule 5.72(c)); the FLEX AIM (Cboe Rule 5.73); and the FLEX SAM 
(Cboe Rule 5.74). See Notice, 85 FR at 50855.
    \9\ A User is a Trading Permit Holder or Sponsored User who is 
authorized to obtain access to the System pursuant to Cboe Rule 5.5. 
See Cboe Rule 1.1.
    \10\ See Notice, 85 FR at 50855-6.
    \11\ See id. at 50856.
    \12\ The System is the Exchange's hybrid trading platform that 
integrates electronic and open outcry trading of option contracts on 
the Exchange, and includes any connectivity to the foregoing trading 
platform that is administered by or on behalf of the Exchange, such 
as a communications hub. See Cboe Rule 1.1.
    \13\ See Notice, 85 FR at 50856.
    \14\ See id.
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    To reduce the latency associated with auction responses, the 
Exchange proposes to amend Cboe Rule 5.25 to establish a priority queue 
for the processing of auction response messages.\15\ All other 
messages, including new orders and quotes, cancel messages, and modify 
messages, will be processed through a general queue.\16\ The System 
will process a certain number of messages, as determined by the 
Exchange, from each queue on an alternating basis, and will process the 
messages in each queue in time priority.\17\ The Exchange believes that 
the priority queue will provide for more timely processing of auction 
responses and will increase the likelihood that an auction response is 
able to participate in the auction to which it is submitted, thereby 
increasing execution opportunities for auction responses and enhancing 
the potential for price improvement for orders submitted to the 
Exchange's auction mechanisms.\18\ The Exchanges notes that every 
market participant may submit a response message to any of the 
Exchange's auction mechanisms and that all auction response messages 
would be processed through the proposed priority queue.\19\
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    \15\ Modifications or cancellations of auction responses will 
not be processed through the Priority Queue. See Amendment No. 1.
    \16\ See proposed Cboe Rule 5.25(c) and Notice, 85 FR at 50856.
    \17\ See proposed Cboe Rule 5.25(c).
    \18\ See Notice, 85 FR at 50856.
    \19\ See Amendment No. 1.
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    The Exchange states that from March 30-April 3, 2020, approximately 
17% of all auction responses and 47% of SPXW auction responses 
submitted during their auction response periods had no opportunity to 
execute in their respective auctions.\20\ During the period from 
September 1-September 21, 2020, approximately 3% of all auction 
responses, and 8% of auction responses in SPXW, had no opportunity to 
execute in their respective auctions, notwithstanding being submitted 
within the auction response period.\21\ Although there were fewer 
missed auction responses during the period from September 1-September 
21, 2020, than during the week of March 30, the Exchange believes that 
both auction responders and market participants (including customers) 
whose orders are being auctioned benefit when the number of missed 
auction responses is as close to zero as possible because an auctioned 
order may miss an opportunity for price improvement if an auction 
response message is not processed in time.\22\ In addition, the 
Exchange states that, absent the proposed rule change, the percentage 
of missed auction responses could increase

[[Page 66674]]

during periods of increased volatility because of the increased message 
traffic that occurs at such times.\23\ The Exchange also believes that 
the percentage of missed auction responses would likely increase if the 
Exchange reduced the auction response period back to 100 
milliseconds.\24\
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    \20\ See id. Effective March 9, 2020, the Exchange increased the 
auction response period for COA in classes SPX/SPXW from 100 
milliseconds to 1,000 milliseconds. On March 16, 2020, the Exchange 
activated AIM for classes SPX/SPXW and set the auction response 
period for classes SPX/SPXW to 1,000 milliseconds. See Amendment No. 
1.
    \21\ The AIM and COA auction response period during this time 
was set at 1,000 milliseconds for SPX/SPXW. See id.
    \22\ See id.
    \23\ See id.
    \24\ The Exchange believes that a shorter auction response 
period, such as 100 milliseconds, allows the Exchange to provide 
investors and other TPHs with more timely executions, thereby 
reducing their market risk. The Exchange notes that TPHs who 
initiate auction orders in AIM are required to guarantee an 
execution at the National Best Bid/Offer (``NBBO'') or a better 
price based on market prices prior to the commencement of the 
auction and are subject to market risk while the order is exposed 
during the auction response period. The Exchange states that large 
price changes can occur in one second or less, leaving initiating 
TPHs vulnerable to trading losses. The Exchange further states that 
the initiating TPH's willingness to guarantee its customer an 
execution at the NBBO or a better price is essential to the customer 
order gaining the opportunity for price improvement. Accordingly, 
the Exchange believes that an auction time as low as 100 
milliseconds would provide investors and other market participants 
with more timely executions and reduce their market risk. See 
Amendment No. 1.
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    The Exchange believes that the proposed priority queue for auction 
response messages will not disadvantage other orders, including 
customer orders.\25\ The proposal does not modify the Exchange's rules 
regarding allocations at the conclusion of an auction and, accordingly, 
priority customer orders in the Book \26\ will continue to have first 
priority at each price level at the conclusion of a paired auction, 
even when an auction response is processed via a priority queue ahead 
of a priority customer order processed via the general queue.\27\ The 
Exchange states that the number of messages that would be processed via 
the proposed priority queue as compared to the general queue is 
small.\28\ The Exchange notes that during the period from March 9-March 
13, 2020, auction responses across all of the Exchange's auction 
mechanisms accounted for approximately 0.02% of the message traffic, 
while new order/quote messages accounted for approximately 40.3% of the 
message traffic, modify messages accounted for approximately 47.9% of 
the message traffic, and cancel messages accounted for approximately 
11.7% of the message traffic.\29\ The Exchange further notes that only 
0.007% of non-auction response messages were related to a customer 
order.\30\ Accordingly, the Exchange believes that it is unlikely that 
a customer's order would not be posted to the Book in time to receive a 
priority allocation because the System was processing messages in the 
priority queue.\31\
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    \25\ See Amendment No. 1.
    \26\ The Book is the electronic book of simple orders and quotes 
maintained by the System, which single book is used during both the 
Regular Trading Hours and Global Trading Hours trading sessions. See 
Cboe Rule 1.1.
    \27\ See Notice, 85 FR at 50856.
    \28\ See id.
    \29\ See id.
    \30\ See id.
    \31\ See Amendment No. 1.
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III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change, as modified by Amendment No. 1, is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to a national securities exchange and, in particular, with 
Section 6(b) of the Act.\32\ In particular, the Commission finds that 
the proposed rule change is consistent with Section 6(b)(5) of the 
Act,\33\ which requires, among other things, that the rules of a 
national securities exchange be designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, to remove impediments to and perfect the mechanism 
of a free and open market and a national market system, and, in 
general, to protect investors and the public interest, and that the 
rules of a national securities exchange not be designed to permit 
unfair discrimination between customers, issuers, brokers or dealers. 
The Commission believes that the proposed priority queue could help 
auction responses reach the auction to which they were submitted in 
time to participate in the auction, potentially enhancing competition 
in the Exchange's auctions and increasing the likelihood that orders 
submitted to auctions, including customer orders, will receive price 
improvement. The Commission notes that all market participants may 
submit auction responses to any of the Exchange's auction mechanisms 
and that all auction responses will be processed through the priority 
queue.\34\ In addition, the Exchange's rules governing allocations at 
the conclusion of an auction remain unchanged and, accordingly, 
priority customer orders resting in the Book will continue to have 
first priority at each price level at the conclusion of a paired 
auction.\35\
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    \32\ 15 U.S.C. 78f(b). In approving this proposed rule change, 
the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
    \33\ 15 U.S.C. 78f(b)(5).
    \34\ See Amendment No. 1.
    \35\ See Notice, 85 FR 50856.
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IV. Solicitation of Comments on Amendment No. 1 to the Proposed Rule 
Change

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether Amendment No. 1 
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-2020-072 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-2020-072. 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-2020-072, and should be submitted 
on or before November 10, 2020.

[[Page 66675]]

V. Accelerated Approval of Proposed Rule Change, as Modified by 
Amendment No. 1

    The Commission finds good cause to approve the proposed rule 
change, as modified by Amendment No. 1 prior to the thirtieth day after 
the date of publication of notice of the filing of Amendment No. 1 in 
the Federal Register. Amendment No. 1 does not modify the substance of 
the proposal or raise new regulatory issues. As described more fully 
above, Amendment No. 1 clarifies several aspects of the proposal and 
provides updated data and additional analysis to support the proposal. 
Among other things, Amendment No. 1 provides further analysis regarding 
the potential effect of the proposal on non-auction response message 
traffic, including customer orders. Amendment No. 1 also states that 
all market participants are permitted to submit auction responses to 
any of the Exchange's auction mechanisms and that all auction responses 
will be processed through the priority queue. Accordingly, the 
Commission finds good cause, pursuant to Section 19(b)(2) of the 
Act,\36\ to approve the proposed rule change, as modified by Amendment 
No. 1, on an accelerated basis.
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    \36\ 15 U.S.C. 78s(b)(2).
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VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\37\ that the proposed rule change (SR-CBOE-2020-072), as modified 
by Amendment No. 1, is approved on an accelerated basis.
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    \37\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\38\
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    \38\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-23137 Filed 10-19-20; 8:45 am]
BILLING CODE 8011-01-P
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