Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Rule 5.34 Relating to Its Fat Finger Check in Connection With Multi-Class Spread Orders, 17428-17432 [2021-06776]
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Federal Register / Vol. 86, No. 62 / Friday, April 2, 2021 / Notices
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risks that could lead to losses. The
Wind-down Plan would be triggered by
a determination by the Board that
recovery efforts have not been, or are
unlikely to be, successful in returning
DTC to viability as a going concern.
Once triggered, the Wind-down Plan
sets forth clear mechanisms for the
transfer of DTC’s membership and
business, and is designed to facilitate
continued access to DTC’s critical
services and to minimize market impact
of the transfer. By establishing the
framework and strategy for the
execution of the transfer and winddown of DTC in order to facilitate
continuous access to its critical services,
the Wind-down Plan establishes a plan
for the orderly wind-down of DTC.
As described above, the proposed rule
change would update the R&W Plan to
(i) reflect business and product
developments, (ii) make certain
clarifications, (iii) remove provisions
covering certain ‘‘business-as-usual’’
actions, and (iv) make certain technical
corrections. By ensuring that material
provisions of the Plan are current, clear,
and technically correct, DTC believes
that the proposed amendments are
designed to support the maintenance of
the Plan for the recovery and orderly
wind-down of the covered clearing
agency necessitated by credit losses,
liquidity shortfalls, losses from general
business risk, or any other losses, and,
as such, meets the requirements of Rule
17Ad–22(e)(3)(ii) under the Act.39
Therefore, the proposed changes would
help DTC to maintain the Plan in a way
that continues to be consistent with the
requirements of Rule 17Ad–22(e)(3)(ii).
(B) Clearing Agency’s Statement on
Burden on Competition
DTC does not believe that the
proposed rule change would have any
impact, or impose any burden, on
competition. DTC does not anticipate
that the proposal would affect its dayto-day operations under normal
circumstances, or in the management of
a typical Participant default scenario or
non-default event. The R&W Plan was
developed and documented in order to
satisfy applicable regulatory
requirements, as discussed above. The
proposal is intended to enhance and
update the Plan to ensure it is clear and
remains current in the event it is ever
necessary to be implemented. The
proposed revisions would not effect any
changes to the overall structure or
operation of the Plan or DTC’s recovery
and wind-down strategy as set forth
under the current Plan. As such, DTC
believes the proposal would not have
any impact, or impose any burden, on
competition.
(C) Clearing Agency’s Statement on
Comments on the Proposed Rule
Change Received From Members,
Participants, or Others
DTC has not received or solicited any
written comments relating to this
proposal. DTC will notify the
Commission of any written comments
received by DTC.
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) 40 of the Act and paragraph
(f) 41 of Rule 19b–4 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.
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–
DTC–2021–004 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549.
All submissions should refer to File
Number SR–DTC–2021–004. 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
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[FR Doc. 2021–06777 Filed 4–1–21; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–91431; File No. SR–CBOE–
2021–018]
Self-Regulatory Organizations; Cboe
Exchange, Inc.; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Amend Rule 5.34
Relating to Its Fat Finger Check in
Connection With Multi-Class Spread
Orders
March 29, 2021.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on March 17,
2021, Cboe Exchange, Inc. (the
‘‘Exchange’’ or ‘‘Cboe Options’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I and II below, which Items have
been prepared by the Exchange. The
Exchange filed the proposed rule change
pursuant to Section 19(b)(3)(A)(iii) of
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
U.S.C 78s(b)(3)(A).
41 17 CFR 240.19b–4(f).
23:04 Apr 01, 2021
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.42
J. Matthew DeLesDernier,
Assistant Secretary.
42 17
40 15
39 Id.
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 DTC and on DTCC’s website
(https://dtcc.com/legal/sec-rulefilings.aspx). 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–DTC–
2021–004 and should be submitted on
or before April 23, 2021.
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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
Cboe Exchange, Inc. (the ‘‘Exchange’’
or ‘‘Cboe Options’’) proposes to amend
Rule 5.34 in connection with its fat
finger check in connection with MultiClass Spread Orders. The text of the
proposed rule change is provided
below.
(additions are italicized; deletions are
[bracketed])
*
*
*
*
*
Rules of Cboe Exchange, Inc.
*
*
*
*
*
Rule 5.34. Order and Quote Price
Protection Mechanisms and Risk Controls
(a)–(b) No change.
(c) All Orders.
(1) Limit Order Fat Finger Check. If a User
submits a buy (sell) limit order to the System
with a price that is more than a buffer
amount above (below) the NBO (NBB) for
simple orders or the SNBO (SNBB) for
complex orders, the System cancels or rejects
the order. The Exchange determines a default
buffer amount on a class-by-class basis;
however, a User may establish a higher or
lower amount than the Exchange default for
a class.
(A)–(D) No change.
(E) This check does not apply to MultiClass Spread Orders.
*
*
*
*
*
The text of the proposed rule change
is also available on the Exchange’s
website (https://www.cboe.com/
AboutCBOE/CBOELegalRegulatory
Home.aspx), at the Exchange’s Office of
the Secretary, and at the Commission’s
Public Reference Room.
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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.
3 15
4 17
U.S.C. 78s(b)(3)(A)(iii).
CFR 240.19b–4(f)(6).
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A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend
Rule 5.34(c)(1), which governs its fat
finger check, to provide that the check
will not apply to Multi-Class Spread
Orders.5
Currently, Rule 5.34 provides for a fat
finger check applicable to both simple
and complex orders, including those
that are routed to PAR. Specifically,
Rule 5.34(c)(1) provides that, if a User
submits a buy (sell) limit order to the
System with a price that is more than a
buffer amount above (below) the NBO
(NBB) for simple orders or the SNBO
(SNBB) for complex orders,6 the System
cancels or rejects the order. The
Exchange determines a default buffer
amount on a class-by-class basis;
however, a User may establish a higher
or lower amount than the Exchange
default for a class. Pursuant to Rule
5.34(c)(1)(B) through (D), the check
currently does not apply to complex
orders prior to the conclusion of the
Opening Process, when no NBBO or
SNBBO, as applicable, is available, or to
bulk messages or Stop-Limit orders. The
Exchange proposes to adopt
subparagraph (c)(1)(E) which adds
Multi-Class Spread Orders as additional
orders to which the fat finger check does
not apply.
Specifically, a Multi-Class Spread
Order is an order or quote to buy a
stated number of contracts of a BroadBased Index Option 7 and to sell an
equal number, or an equivalent number,
of contracts of a related Broad-Based
Index Option. For example, a MultiClass Spread Order could be composed
of a leg to buy 10 contracts in iShares
Russell 2000 ETF (‘‘IWM’’) options and
a leg to sell one contract in Russell 2000
Index (‘‘RUT’’) options, as IWM is an
exchange-traded fund (‘‘ETF’’) that
tracks the performance of the RUT Index
and is 1/10th the value of the RUT
Index. Therefore, a spread order with a
10:1 ratio in IWM and RUT options
creates an equivalent number of
contracts of related Broad-Based Index
Options and constitutes a Multi-Class
Spread Order pursuant to the Exchange
Rules. Multi-Class Spread Orders may
only execute on the Exchange’s trading
5 See
Rules 5.6(c) and 5.85(d).
SNBBO is the national best bid and offer for
a complex strategy calculated using the NBBO for
each component of a complex strategy. See Rule
5.33(a).
7 For the purposes of a Multi-Class Spread Order,
a Broad-Based Index Option includes Broad-Based
Indexes, ETF and ETNs. See Rule 5.6(c).
6 The
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17429
floor and are therefore routed to PAR for
manual handling (and open outcry
trading).8 Specifically, Rule 5.34
provides that the System’s acceptance
and execution of orders, quotes, and
bulk messages, as applicable, pursuant
to the Rules, including Rules 5.31
through 5.33, and orders routed to PAR
pursuant to Rule 5.82 are subject to the
price protection mechanisms and risk
controls (provided in Rule 5.34), as
applicable. As such, the price
protections and risk mechanisms under
Rule 5.34, including the fat finger check,
currently apply to Multi-Class Spread
Orders upon routing to PAR.
Currently, separate servers (i.e., match
engines) in the System have direct
access to and are able to process market
information for individual classes and
orders in those classes. For example,
one match engine has direct access to
the Exchange’s BBO 9 for RUT options
and sends that BBO information to the
Options Price Reporting Authority
(‘‘OPRA’’) for consolidation into and
dissemination of the NBBO, and also
processes incoming orders (including
complex orders) in RUT options, while
another match engine does the same for
IWM options. Each single-class match
engine also continuously intakes away
market pricing information (i.e. the
ABBO) 10 from OPRA applicable to the
class that resides on it. As such, the
pricing information regarding the NBBO
(that is, the BBO and the ABBO)
necessary to calculate the SNBBO
applicable to a complex order in an
individual class essentially ‘‘lives’’ on a
particular match engine, thereby
allowing that particular match engine to
continuously calculate the SNBBO for
8 Like any other order submitted for open outcry
execution, a Multi-Class Spread Order is
systematized and submitted to PAR (and the
applicable price protection mechanisms and risk
controls are applied upon submission to PAR).
Once on a PAR workstation, a Floor Broker or PAR
Official, as applicable, may then represent the order
to a trading crowd. The trading crowd provides a
range of the prices at which they are willing to
trade. Specifically, a Multi-Class Spread Order may
be represented at a trading station at which one of
the applicable classes trades (i.e., a primary trading
station). Immediately after (or concurrent with) the
announcement of the order at the primary trading
station, the representing TPH must contact the
Designated Primary Market-Maker (DPM), Lead
Market-Maker (LMM) or appropriate Exchange staff
at the trading station where the other applicable
class trades to announce the order to the other
trading crowd. See Rule 5.85(d). The Floor Broker
may then execute the Multi-Class Spread Order
against quotes provided from the crowd, in
accordance with priority principles set forth in Rule
5.85(a).
9 The term ‘‘BBO’’ means the best bid or offer
disseminated on the Exchange. See Rule 1.1.
10 The term ‘‘ABBO’’ means the best bid(s) or
offer(s) disseminated by other Eligible Exchanges
(as defined in Rule 5.65) and calculated by the
Exchange based on market information the
Exchange receives from OPRA. See Rule 1.1.
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complex orders in that individual class
without delay.
There is also a separate match engine
in the System that is specifically
dedicated to cross-class orders. This
match engine would process, for
example, an incoming RUT/IWM MultiClass Spread Order. Unlike the singleclass match engines, the pricing
information regarding the NBBOs that
are necessary to calculate the SNBBOs
applicable to Multi-Class Spread Orders
do not ‘‘live’’ on the cross-class match
engine. That is, the cross-class match
engine does not have direct access to the
BBOs that reside on the Exchange’s
single class match engines, nor does it
continuously stream the necessary away
market ABBO pricing information from
OPRA, for each class that could possibly
comprise the legs of a Multi-Class
Spread Order.11 The Exchange notes
that technical limitations prevent the
different, single-class match engines
from directly sending the Exchange’s
BBO information to the cross-class
match engine, or the cross-class match
engine from continuously receiving
ABBO pricing information from OPRA
that may be applicable to the leg
markets of a Multi-Class Spread Order
given the significant amount of ABBO
leg market information from OPRA that
would be necessary to apply the fat
finger check to all possible leg
combinations for Multi-Class Spread
Orders.12 As a result, the cross-class
match engine does not receive all of the
necessary pricing information regarding
the NBBOs from OPRA for each leg of
an incoming Multi-Class Spread Order
to generate an SNBBO for that order.
Because the cross-class match engine
has no NBBOs for the leg markets of an
incoming Multi-Class Spread Order at
11 The only NBBO information that the cross-class
match engine streams directly from OPRA is for
SPX/SPXW. The match engine dedicated to SPX/
SPXW first sends to OPRA the SPX/SPXW BBOs
from that match engine, and OPRA then
disseminates to the wider market the NBBO pricing
information for SPX/SPXW (which are also the
BBOs for SPX/SPXW) at which point the cross-class
match engine then receives the SPX/SPXW NBBO
information from OPRA.
12 The Exchange notes that the substantial
possible combinations of classes that may comprise
Multi-Class Spread Orders results in a significant
amount of market information that must be
funneled into the one match engine dedicated to
cross-class orders. The System does not have
unlimited capacity and is unable to directly feed all
leg market prices that could potentially comprise a
Multi-Class Spread Order into the single cross-class
match engine without potentially creating a delay
in the cross-class match engine’s processing
capacity. The Exchange notes that there are
currently 32 different classes eligible to comprise
the legs of a Multi-Class Spread Order. The
Exchange believes it would be an inefficient use of
capacity to stream data for all classes into the crossclass match engine, as most of that information
would not be used.
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the time it receives the order, it assumes
that the NBBOs applicable to the leg
markets of an incoming Multi-Class
Spread Order are zero. As such, when
the cross-class match engine receives a
Multi-Class Spread Order, it then
attempts to calculate the SNBBO for the
legs of a Multi-Class Spread Order
pursuant to Rule 5.33(h)(3). Rule
5.33(h)(3) provides that, in relevant part,
if there is a zero NBB and zero NBO, the
System replaces the zero NBB with a
price equal to one minimum increment
and replaces the zero NBO with a price
equal to two minimum increments.
Such a resulting SNBBO is unlikely to
represent the actual market for a MultiClass Spread Order. Therefore, the
cross-class match engine is currently
unable to determine an SNBBO that
accurately reflects leg market prices that
comprise Multi-Class Spread Orders. As
a result, this match engine regularly
rejects Multi-Class Spread Orders that
may otherwise be appropriately priced
around the current leg market NBBOs.
The Exchange has received feedback
from Users that the current application
of the fat finger check to Multi-Class
Spread Orders (which are floor-only) is
too limited.13 Indeed, the primary
purpose of the fat finger check is to
prevent limit orders from executing at
potentially erroneous prices upon entry
if the limit prices are too far away from
the then-current SNBBO. As stated, the
System is unable to calculate the
SNBBO for the fat finger check in a
manner that accurately reflects current
leg market prices for Multi-Class Spread
Orders due to the technical limitations
that prevent the cross-class match
engine from receiving all possible
NBBOs necessary to calculate the
SNBBOs applicable to Multi-Class
Spread Orders. As a result, the crossclass match engine calculates SNBBOs
for the fat finger check applicable an
incoming Multi-Class Spread Order
under the assumption that the NBBO
values for the orders’ leg markets are
zero. That is, it attempts to substitute
the minimum increment spread for each
leg market of the Multi-Class Spread
Order to calculate an SNBBO for the fat
finger check and, therefore, the fat finger
check applied may not provide the most
accurate reflection of the best prices
currently available in those leg markets.
As a result, the System may reject MultiClass Spread Orders for being too far
away from the substitute SNBBO, even
though such orders may otherwise be
13 The Exchange notes that such instances and,
consequently, User feedback given to the Exchange
regarding the fat finger limitations in connection
with their Multi-Class Spread Orders, have
occurred as a result of the Exchange’s technology
migration completed in October 2019.
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legitimately priced around the leg
markets at the time those orders were
entered.
The Exchange notes that a User’s
Multi-Class Spread Orders would still
be subject to other price protections
already in place on the Exchange.
Particularly, all Multi-Class Spread
Orders are always subject to manual
handling, which permits opportunities
for brokers to evaluate the prices of
orders based on then-existing market
conditions and, thus, creates minimal
risk of executions at erroneous prices.
Additionally, the System applies
various price checks for complex orders,
such as: A debit/credit reasonability
check (which rejects a complex order
that is a limit order for a debit (credit)
strategy with a net credit (debit) price
that exceeds a pre-set buffer or a market
order for a credit strategy that would
execute at a net debit price that exceeds
a pre-set buffer); 14 and a maximum
value acceptable price range check
(which rejects an order that is a vertical,
true butterfly, or box spread and is a
limit order with, or a market order that
would execute at, a price that is outside
of an acceptable price range, set by the
minimum and maximum possible value
of the spread, subject to an additional
buffer amount).15 Overall, the Exchange
believes the proposed rule change will
provide additional execution
opportunities for Multi-Class Spread
Orders while continuing to provide
protection against executions at prices
that may be erroneous.
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.16 Specifically,
the Exchange believes the proposed rule
change is consistent with the Section
6(b)(5) 17 requirements that the rules of
an exchange be designed to prevent
fraudulent and manipulative acts and
practices, to promote just and equitable
principles of trade, to foster cooperation
and coordination with persons engaged
in regulating, clearing, settling,
processing information with respect to,
and facilitating transactions in
securities, to remove impediments to
and perfect the mechanism of a free and
open market and a national market
system, and, in general, to protect
investors and the public interest.
14 See
Rule 5.34(b)(3).
Rule 5.34(b)(5).
16 15 U.S.C. 78f(b).
17 15 U.S.C. 78f(b)(5).
15 See
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Additionally, the Exchange believes the
proposed rule change is consistent with
the Section 6(b)(5) 18 requirement that
the rules of an exchange not be designed
to permit unfair discrimination between
customers, issuers, brokers, or dealers.
In particular, the Exchange believes
the proposed rule change to exclude
Multi-Class Spread Orders from the fat
finger check removes impediments to
and perfects the mechanism of a free
and open market and a national market
system, and, in general, protects
investors and the public interest by
providing additional execution
opportunities for cross-class orders that
may be appropriately priced in
connection with current leg market
prices. The proposed change is intended
to benefit investors, from which the
Exchange has received feedback
regarding the current limitations of the
fat finger check for Multi-Class Spread
Orders. The Exchange believes the
proposed rule change will permit the
System to accept these investors’ orders
that may be submitted with prices that
accurately reflect current leg markets
instead of rejecting them because of the
fat finger check’s substitution of NBBO
information to calculate an applicable
SNBBO due to technical limitations that
prevent the cross-class match engine
from receiving the pricing information
regarding the NBBOs for the applicable
leg markets of an incoming Multi-Class
Spread Order, as it cannot directly
access and continuously intake the same
information through the System. As a
result, the Exchange believes the
proposed rule change may increase
execution opportunities for investors by
allowing their floor-based orders an
opportunity to be manually represented
in open outcry instead of being rejected
by the System before even arriving at
PAR for manual handling.19
Moreover, the Exchange believes that
the proposed rule change is consistent
with the general protection of investors
because, pursuant to Rule 5.34(c)(1)(C),
the System currently does not apply the
fat finger check in instances in which
the SNBBO is not available and the
System therefore cannot apply an
appropriate buffer. Similarly, due to
technical limitations, the SNBBO is not
available for Multi-Class Spread Orders
and while the System uses an available
substitute, this may not accurately
reflect current leg market prices.
Therefore, the proposed rule change
excludes such orders from the fat finger
for essentially the same reasons as Rule
5.34(c)(1)(C)—that the SNBBO may not
be available in order to provide the
18 Id.
19 See
supra note 8.
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System with an accurate measure to
which it may apply an appropriate fat
finger buffer. Additionally, other price
protections and safeguards, such as realtime broker evaluation of floor-based
pricing and other System-applied price
checks, will continue to apply to MultiClass Spread Orders, and thereby will
continue to provide protection against
executions at prices that may be
erroneous.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. The
Exchange does not believe that the
proposed rule change will impose any
burden on intramarket competition that
is not necessary or appropriate in
furtherance of the purposes of the Act
because all Users’ Multi-Class Spread
Orders will be excluded from the fat
finger check in the same manner. The
Exchange notes that the Rules currently
exclude other types of orders from the
fat finger check. Also, as described
above, all Users’ Multi-Class Spread
Orders will continue to be subject to
other specific price controls or
safeguards, such as real-time broker
evaluation of floor-based pricing and
other System-applied price checks,
which provide protection against
executions at prices that may be
erroneous.
The Exchange does not believe that
the proposed rule change will impose
any burden on intermarket competition
that is not necessary or appropriate in
furtherance of the purposes of the Act
because it relates solely to whether the
System will accept certain orders for
execution on the Exchange [sic] The
Exchange believes the proposed rule
change would provide all market
participants with additional execution
opportunities in connection with their
Multi-Class Spread Orders while still
providing protection from anomalous or
erroneous executions. To the extent that
market participants find the proposed
exclusion of the fat finger check to their
complex strategies more favorable for
execution of such orders, other
exchanges may adopt functionality to
similarly handle such complex
strategies.
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.
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17431
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The Exchange has filed the proposed
rule change pursuant to Section
19(b)(3)(A)(iii) of the Act 20 and Rule
19b–4(f)(6) thereunder.21 Because the
proposed rule change does not: (i)
Significantly affect the protection of
investors or the public interest; (ii)
impose any significant burden on
competition; and (iii) become operative
prior to 30 days from the date on which
it was filed, or such shorter time as the
Commission may designate, if
consistent with the protection of
investors and the public interest, the
proposed rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act and Rule 19b–4(f)(6)(iii)
thereunder.
A proposed rule change filed under
Rule 19b–4(f)(6) 22 normally does not
become operative prior to 30 days after
the date of the filing. However, pursuant
to Rule 19b–4(f)(6)(iii),23 the
Commission may designate a shorter
time if such action is consistent with the
protection of investors and the public
interest. The Exchange has asked the
Commission to waive the 30-day
operative delay so that the proposal may
become operative immediately upon
filing. The Exchange states that waiver
of the operative delay will allow the
Exchange to mitigate as soon as
practicable the limitations associated
with the fat finger check by permitting
the System to accept legitimately priced
Multi-Class Spreads Orders that the
System currently rejects inappropriately
because it uses an SNBBO calculated
with substitute NBBO information. The
System’s acceptance of these MultiClass Spread Orders will allow
additional execution opportunities for
these orders. The Exchange notes that
Multi-Class Spread Orders will continue
to be subject to other price protections
and safeguards that serve to protect
against executions at prices that may be
erroneous. The Commission believes
that excluding Multi-Class Spread
Orders from the fat finger check will
benefit investors by providing execution
opportunities for Multi-Class Spread
Orders that are priced accurately based
on current leg market prices but that the
System currently rejects because, as
described above, the System determines
the SNBBO required by the price check
using a substitute NBBO calculation, as
provided in Cboe Rule 5.33(h)(3), as a
result of system limitations that prevent
20 15
U.S.C. 78s(b)(3)(A)(iii).
CFR 240.19b–4(f)(6).
22 17 CFR 240.19b–4(f)(6).
23 17 CFR 240.19b–4(f)(6)(iii).
21 17
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02APN1
17432
Federal Register / Vol. 86, No. 62 / Friday, April 2, 2021 / Notices
the cross-class server from receiving
BBO and ABBO information for the
classes that could be components of a
Multi-Class Spread Order. The proposal
will allow accurately priced Multi-Class
Spread Orders to be represented in open
outcry rather than being rejected
inappropriately when they are
submitted to PAR. The Commission
notes that the Exchange has received
feedback from investors indicating that
the current application of the fat finger
check to Multi-Class Spread Orders is
too limited. In addition, the
Commission notes that Multi-Class
Spread Orders, which trade only on the
Exchange’s floor, will continue to be
subject to other safeguards, including
real-time broker evaluation of floorbased pricing and other System-applied
price checks that are designed to
provide protection against executions at
prices that may be erroneous. The
Commission also notes that the
Exchange will announce the
implementation of the proposal to
Trading Permit Holders in advance via
Trade Desk Notice. For these reasons,
the Commission believes that waiver of
the 30-day operative delay is consistent
with the protection of investors and the
public interest. Accordingly, the
Commission hereby waives the 30-day
operative delay and designates the
proposal operative upon filing.24
At any time within 60 days of the
filing of such proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
under Section 19(b)(2)(B) 25 of the Act to
determine whether the proposed rule
change should be approved or
disapproved.
jbell on DSKJLSW7X2PROD with NOTICES
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:
Jkt 253001
Paper Comments
[Release No. 34–91430; File No. SR–FICC–
2021–002]
• 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–2021–018. 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–2021–018, and
should be submitted on or before April
23, 2021.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.26
J. Matthew DeLesDernier,
Assistant Secretary.
BILLING CODE 8011–01–P
24 For purposes only of waiving the 30-day
operative delay, the Commission has considered the
proposed rule’s impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
25 15 U.S.C. 78s(b)(2)(B).
23:04 Apr 01, 2021
SECURITIES AND EXCHANGE
COMMISSION
[FR Doc. 2021–06776 Filed 4–1–21; 8:45 am]
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
VerDate Sep<11>2014
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
CBOE–2021–018 on the subject line.
26 17
PO 00000
CFR 200.30–3(a)(12).
Frm 00084
Fmt 4703
Sfmt 4703
Self-Regulatory Organizations; Fixed
Income Clearing Corporation; Notice of
Filing and Immediate Effectiveness of
a Proposed Rule Change To Amend
the Recovery & Wind-Down Plan
March 29, 2021.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2
notice is hereby given that on March 23,
2021, Fixed Income Clearing
Corporation (‘‘FICC’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I, II and III
below, which Items have been prepared
by the clearing agency. FICC filed the
proposed rule change pursuant to
Section 19(b)(3)(A) of the Act 3 and Rule
19b–4(f)(4) thereunder.4 The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Clearing Agency’s Statement of the
Terms of Substance of the Proposed
Rule Change
The proposed rule change 5 consists of
amendments to the R&W Plan to (i)
reflect business and product
developments, (ii) make certain changes
to improve the clarity of the Plan, (iii)
remove provisions covering certain
‘‘business-as-usual’’ actions, and (iv)
make certain technical corrections, as
described in greater detail below.
II. Clearing Agency’s Statement of the
Purpose of, and Statutory Basis for, the
Proposed Rule Change
In its filing with the Commission, the
clearing agency 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
clearing agency has prepared
summaries, set forth in sections A, B,
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A).
4 17 CFR 240.19b–4(f)(4).
5 Capitalized terms not defined herein are defined
in the FICC Government Securities Division
(‘‘GSD’’) Rulebook (the ‘‘GSD Rules’’) or the FICC
Mortgage-Backed Securities Division (‘‘MBSD’’)
Clearing Rules (the ‘‘MBSD Rules,’’ and collectively
with the GSD Rules, the ‘‘Rules’’), available at
https://www.dtcc.com/legal/rules-and-procedures,
or in the Recovery & Wind-down Plan of FICC (the
‘‘R&W Plan’’ or ‘‘Plan’’).
2 17
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]]>Agencies
[Federal Register Volume 86, Number 62 (Friday, April 2, 2021)]
[Notices]
[Pages 17428-17432]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-06776]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-91431; File No. SR-CBOE-2021-018]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
Rule 5.34 Relating to Its Fat Finger Check in Connection With Multi-
Class Spread Orders
March 29, 2021.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on March 17, 2021, Cboe Exchange, Inc. (the ``Exchange'' or ``Cboe
Options'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I and
II below, which Items have been prepared by the Exchange. The Exchange
filed the proposed rule change pursuant to Section 19(b)(3)(A)(iii) of
[[Page 17429]]
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
Cboe Exchange, Inc. (the ``Exchange'' or ``Cboe Options'') proposes
to amend Rule 5.34 in connection with its fat finger check in
connection with Multi-Class Spread Orders. The text of the proposed
rule change is provided below.
(additions are italicized; deletions are [bracketed])
* * * * *
Rules of Cboe Exchange, Inc.
* * * * *
Rule 5.34. Order and Quote Price Protection Mechanisms and Risk
Controls
(a)-(b) No change.
(c) All Orders.
(1) Limit Order Fat Finger Check. If a User submits a buy (sell)
limit order to the System with a price that is more than a buffer
amount above (below) the NBO (NBB) for simple orders or the SNBO
(SNBB) for complex orders, the System cancels or rejects the order.
The Exchange determines a default buffer amount on a class-by-class
basis; however, a User may establish a higher or lower amount than
the Exchange default for a class.
(A)-(D) No change.
(E) This check does not apply to Multi-Class Spread Orders.
* * * * *
The text of the proposed rule change is also available on the
Exchange's website (https://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx), at the Exchange's Office of the
Secretary, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend Rule 5.34(c)(1), which governs its
fat finger check, to provide that the check will not apply to Multi-
Class Spread Orders.\5\
---------------------------------------------------------------------------
\5\ See Rules 5.6(c) and 5.85(d).
---------------------------------------------------------------------------
Currently, Rule 5.34 provides for a fat finger check applicable to
both simple and complex orders, including those that are routed to PAR.
Specifically, Rule 5.34(c)(1) provides that, if a User submits a buy
(sell) limit order to the System with a price that is more than a
buffer amount above (below) the NBO (NBB) for simple orders or the SNBO
(SNBB) for complex orders,\6\ the System cancels or rejects the order.
The Exchange determines a default buffer amount on a class-by-class
basis; however, a User may establish a higher or lower amount than the
Exchange default for a class. Pursuant to Rule 5.34(c)(1)(B) through
(D), the check currently does not apply to complex orders prior to the
conclusion of the Opening Process, when no NBBO or SNBBO, as
applicable, is available, or to bulk messages or Stop-Limit orders. The
Exchange proposes to adopt subparagraph (c)(1)(E) which adds Multi-
Class Spread Orders as additional orders to which the fat finger check
does not apply.
---------------------------------------------------------------------------
\6\ The SNBBO is the national best bid and offer for a complex
strategy calculated using the NBBO for each component of a complex
strategy. See Rule 5.33(a).
---------------------------------------------------------------------------
Specifically, a Multi-Class Spread Order is an order or quote to
buy a stated number of contracts of a Broad-Based Index Option \7\ and
to sell an equal number, or an equivalent number, of contracts of a
related Broad-Based Index Option. For example, a Multi-Class Spread
Order could be composed of a leg to buy 10 contracts in iShares Russell
2000 ETF (``IWM'') options and a leg to sell one contract in Russell
2000 Index (``RUT'') options, as IWM is an exchange-traded fund
(``ETF'') that tracks the performance of the RUT Index and is 1/10th
the value of the RUT Index. Therefore, a spread order with a 10:1 ratio
in IWM and RUT options creates an equivalent number of contracts of
related Broad-Based Index Options and constitutes a Multi-Class Spread
Order pursuant to the Exchange Rules. Multi-Class Spread Orders may
only execute on the Exchange's trading floor and are therefore routed
to PAR for manual handling (and open outcry trading).\8\ Specifically,
Rule 5.34 provides that the System's acceptance and execution of
orders, quotes, and bulk messages, as applicable, pursuant to the
Rules, including Rules 5.31 through 5.33, and orders routed to PAR
pursuant to Rule 5.82 are subject to the price protection mechanisms
and risk controls (provided in Rule 5.34), as applicable. As such, the
price protections and risk mechanisms under Rule 5.34, including the
fat finger check, currently apply to Multi-Class Spread Orders upon
routing to PAR.
---------------------------------------------------------------------------
\7\ For the purposes of a Multi-Class Spread Order, a Broad-
Based Index Option includes Broad-Based Indexes, ETF and ETNs. See
Rule 5.6(c).
\8\ Like any other order submitted for open outcry execution, a
Multi-Class Spread Order is systematized and submitted to PAR (and
the applicable price protection mechanisms and risk controls are
applied upon submission to PAR). Once on a PAR workstation, a Floor
Broker or PAR Official, as applicable, may then represent the order
to a trading crowd. The trading crowd provides a range of the prices
at which they are willing to trade. Specifically, a Multi-Class
Spread Order may be represented at a trading station at which one of
the applicable classes trades (i.e., a primary trading station).
Immediately after (or concurrent with) the announcement of the order
at the primary trading station, the representing TPH must contact
the Designated Primary Market-Maker (DPM), Lead Market-Maker (LMM)
or appropriate Exchange staff at the trading station where the other
applicable class trades to announce the order to the other trading
crowd. See Rule 5.85(d). The Floor Broker may then execute the
Multi-Class Spread Order against quotes provided from the crowd, in
accordance with priority principles set forth in Rule 5.85(a).
---------------------------------------------------------------------------
Currently, separate servers (i.e., match engines) in the System
have direct access to and are able to process market information for
individual classes and orders in those classes. For example, one match
engine has direct access to the Exchange's BBO \9\ for RUT options and
sends that BBO information to the Options Price Reporting Authority
(``OPRA'') for consolidation into and dissemination of the NBBO, and
also processes incoming orders (including complex orders) in RUT
options, while another match engine does the same for IWM options. Each
single-class match engine also continuously intakes away market pricing
information (i.e. the ABBO) \10\ from OPRA applicable to the class that
resides on it. As such, the pricing information regarding the NBBO
(that is, the BBO and the ABBO) necessary to calculate the SNBBO
applicable to a complex order in an individual class essentially
``lives'' on a particular match engine, thereby allowing that
particular match engine to continuously calculate the SNBBO for
[[Page 17430]]
complex orders in that individual class without delay.
---------------------------------------------------------------------------
\9\ The term ``BBO'' means the best bid or offer disseminated on
the Exchange. See Rule 1.1.
\10\ The term ``ABBO'' means the best bid(s) or offer(s)
disseminated by other Eligible Exchanges (as defined in Rule 5.65)
and calculated by the Exchange based on market information the
Exchange receives from OPRA. See Rule 1.1.
---------------------------------------------------------------------------
There is also a separate match engine in the System that is
specifically dedicated to cross-class orders. This match engine would
process, for example, an incoming RUT/IWM Multi-Class Spread Order.
Unlike the single-class match engines, the pricing information
regarding the NBBOs that are necessary to calculate the SNBBOs
applicable to Multi-Class Spread Orders do not ``live'' on the cross-
class match engine. That is, the cross-class match engine does not have
direct access to the BBOs that reside on the Exchange's single class
match engines, nor does it continuously stream the necessary away
market ABBO pricing information from OPRA, for each class that could
possibly comprise the legs of a Multi-Class Spread Order.\11\ The
Exchange notes that technical limitations prevent the different,
single-class match engines from directly sending the Exchange's BBO
information to the cross-class match engine, or the cross-class match
engine from continuously receiving ABBO pricing information from OPRA
that may be applicable to the leg markets of a Multi-Class Spread Order
given the significant amount of ABBO leg market information from OPRA
that would be necessary to apply the fat finger check to all possible
leg combinations for Multi-Class Spread Orders.\12\ As a result, the
cross-class match engine does not receive all of the necessary pricing
information regarding the NBBOs from OPRA for each leg of an incoming
Multi-Class Spread Order to generate an SNBBO for that order. Because
the cross-class match engine has no NBBOs for the leg markets of an
incoming Multi-Class Spread Order at the time it receives the order, it
assumes that the NBBOs applicable to the leg markets of an incoming
Multi-Class Spread Order are zero. As such, when the cross-class match
engine receives a Multi-Class Spread Order, it then attempts to
calculate the SNBBO for the legs of a Multi-Class Spread Order pursuant
to Rule 5.33(h)(3). Rule 5.33(h)(3) provides that, in relevant part, if
there is a zero NBB and zero NBO, the System replaces the zero NBB with
a price equal to one minimum increment and replaces the zero NBO with a
price equal to two minimum increments. Such a resulting SNBBO is
unlikely to represent the actual market for a Multi-Class Spread Order.
Therefore, the cross-class match engine is currently unable to
determine an SNBBO that accurately reflects leg market prices that
comprise Multi-Class Spread Orders. As a result, this match engine
regularly rejects Multi-Class Spread Orders that may otherwise be
appropriately priced around the current leg market NBBOs.
---------------------------------------------------------------------------
\11\ The only NBBO information that the cross-class match engine
streams directly from OPRA is for SPX/SPXW. The match engine
dedicated to SPX/SPXW first sends to OPRA the SPX/SPXW BBOs from
that match engine, and OPRA then disseminates to the wider market
the NBBO pricing information for SPX/SPXW (which are also the BBOs
for SPX/SPXW) at which point the cross-class match engine then
receives the SPX/SPXW NBBO information from OPRA.
\12\ The Exchange notes that the substantial possible
combinations of classes that may comprise Multi-Class Spread Orders
results in a significant amount of market information that must be
funneled into the one match engine dedicated to cross-class orders.
The System does not have unlimited capacity and is unable to
directly feed all leg market prices that could potentially comprise
a Multi-Class Spread Order into the single cross-class match engine
without potentially creating a delay in the cross-class match
engine's processing capacity. The Exchange notes that there are
currently 32 different classes eligible to comprise the legs of a
Multi-Class Spread Order. The Exchange believes it would be an
inefficient use of capacity to stream data for all classes into the
cross-class match engine, as most of that information would not be
used.
---------------------------------------------------------------------------
The Exchange has received feedback from Users that the current
application of the fat finger check to Multi-Class Spread Orders (which
are floor-only) is too limited.\13\ Indeed, the primary purpose of the
fat finger check is to prevent limit orders from executing at
potentially erroneous prices upon entry if the limit prices are too far
away from the then-current SNBBO. As stated, the System is unable to
calculate the SNBBO for the fat finger check in a manner that
accurately reflects current leg market prices for Multi-Class Spread
Orders due to the technical limitations that prevent the cross-class
match engine from receiving all possible NBBOs necessary to calculate
the SNBBOs applicable to Multi-Class Spread Orders. As a result, the
cross-class match engine calculates SNBBOs for the fat finger check
applicable an incoming Multi-Class Spread Order under the assumption
that the NBBO values for the orders' leg markets are zero. That is, it
attempts to substitute the minimum increment spread for each leg market
of the Multi-Class Spread Order to calculate an SNBBO for the fat
finger check and, therefore, the fat finger check applied may not
provide the most accurate reflection of the best prices currently
available in those leg markets. As a result, the System may reject
Multi-Class Spread Orders for being too far away from the substitute
SNBBO, even though such orders may otherwise be legitimately priced
around the leg markets at the time those orders were entered.
---------------------------------------------------------------------------
\13\ The Exchange notes that such instances and, consequently,
User feedback given to the Exchange regarding the fat finger
limitations in connection with their Multi-Class Spread Orders, have
occurred as a result of the Exchange's technology migration
completed in October 2019.
---------------------------------------------------------------------------
The Exchange notes that a User's Multi-Class Spread Orders would
still be subject to other price protections already in place on the
Exchange. Particularly, all Multi-Class Spread Orders are always
subject to manual handling, which permits opportunities for brokers to
evaluate the prices of orders based on then-existing market conditions
and, thus, creates minimal risk of executions at erroneous prices.
Additionally, the System applies various price checks for complex
orders, such as: A debit/credit reasonability check (which rejects a
complex order that is a limit order for a debit (credit) strategy with
a net credit (debit) price that exceeds a pre-set buffer or a market
order for a credit strategy that would execute at a net debit price
that exceeds a pre-set buffer); \14\ and a maximum value acceptable
price range check (which rejects an order that is a vertical, true
butterfly, or box spread and is a limit order with, or a market order
that would execute at, a price that is outside of an acceptable price
range, set by the minimum and maximum possible value of the spread,
subject to an additional buffer amount).\15\ Overall, the Exchange
believes the proposed rule change will provide additional execution
opportunities for Multi-Class Spread Orders while continuing to provide
protection against executions at prices that may be erroneous.
---------------------------------------------------------------------------
\14\ See Rule 5.34(b)(3).
\15\ See Rule 5.34(b)(5).
---------------------------------------------------------------------------
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.\16\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \17\ requirements that the rules of an exchange be
designed to prevent fraudulent and manipulative acts and practices, to
promote just and equitable principles of trade, to foster cooperation
and coordination with persons engaged in regulating, clearing,
settling, processing information with respect to, and facilitating
transactions in securities, to remove impediments to and perfect the
mechanism of a free and open market and a national market system, and,
in general, to protect investors and the public interest.
[[Page 17431]]
Additionally, the Exchange believes the proposed rule change is
consistent with the Section 6(b)(5) \18\ requirement that the rules of
an exchange not be designed to permit unfair discrimination between
customers, issuers, brokers, or dealers.
---------------------------------------------------------------------------
\16\ 15 U.S.C. 78f(b).
\17\ 15 U.S.C. 78f(b)(5).
\18\ Id.
---------------------------------------------------------------------------
In particular, the Exchange believes the proposed rule change to
exclude Multi-Class Spread Orders from the fat finger check removes
impediments to and perfects the mechanism of a free and open market and
a national market system, and, in general, protects investors and the
public interest by providing additional execution opportunities for
cross-class orders that may be appropriately priced in connection with
current leg market prices. The proposed change is intended to benefit
investors, from which the Exchange has received feedback regarding the
current limitations of the fat finger check for Multi-Class Spread
Orders. The Exchange believes the proposed rule change will permit the
System to accept these investors' orders that may be submitted with
prices that accurately reflect current leg markets instead of rejecting
them because of the fat finger check's substitution of NBBO information
to calculate an applicable SNBBO due to technical limitations that
prevent the cross-class match engine from receiving the pricing
information regarding the NBBOs for the applicable leg markets of an
incoming Multi-Class Spread Order, as it cannot directly access and
continuously intake the same information through the System. As a
result, the Exchange believes the proposed rule change may increase
execution opportunities for investors by allowing their floor-based
orders an opportunity to be manually represented in open outcry instead
of being rejected by the System before even arriving at PAR for manual
handling.\19\
---------------------------------------------------------------------------
\19\ See supra note 8.
---------------------------------------------------------------------------
Moreover, the Exchange believes that the proposed rule change is
consistent with the general protection of investors because, pursuant
to Rule 5.34(c)(1)(C), the System currently does not apply the fat
finger check in instances in which the SNBBO is not available and the
System therefore cannot apply an appropriate buffer. Similarly, due to
technical limitations, the SNBBO is not available for Multi-Class
Spread Orders and while the System uses an available substitute, this
may not accurately reflect current leg market prices. Therefore, the
proposed rule change excludes such orders from the fat finger for
essentially the same reasons as Rule 5.34(c)(1)(C)--that the SNBBO may
not be available in order to provide the System with an accurate
measure to which it may apply an appropriate fat finger buffer.
Additionally, other price protections and safeguards, such as real-time
broker evaluation of floor-based pricing and other System-applied price
checks, will continue to apply to Multi-Class Spread Orders, and
thereby will continue to provide protection against executions at
prices that may be erroneous.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The Exchange does not
believe that the proposed rule change will impose any burden on
intramarket competition that is not necessary or appropriate in
furtherance of the purposes of the Act because all Users' Multi-Class
Spread Orders will be excluded from the fat finger check in the same
manner. The Exchange notes that the Rules currently exclude other types
of orders from the fat finger check. Also, as described above, all
Users' Multi-Class Spread Orders will continue to be subject to other
specific price controls or safeguards, such as real-time broker
evaluation of floor-based pricing and other System-applied price
checks, which provide protection against executions at prices that may
be erroneous.
The Exchange does not believe that the proposed rule change will
impose any burden on intermarket competition that is not necessary or
appropriate in furtherance of the purposes of the Act because it
relates solely to whether the System will accept certain orders for
execution on the Exchange [sic] The Exchange believes the proposed rule
change would provide all market participants with additional execution
opportunities in connection with their Multi-Class Spread Orders while
still providing protection from anomalous or erroneous executions. To
the extent that market participants find the proposed exclusion of the
fat finger check to their complex strategies more favorable for
execution of such orders, other exchanges may adopt functionality to
similarly handle such complex strategies.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received comments on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The Exchange has filed the proposed rule change pursuant to Section
19(b)(3)(A)(iii) of the Act \20\ and Rule 19b-4(f)(6) thereunder.\21\
Because the proposed rule change does not: (i) Significantly affect the
protection of investors or the public interest; (ii) impose any
significant burden on competition; and (iii) become operative prior to
30 days from the date on which it was filed, or such shorter time as
the Commission may designate, if consistent with the protection of
investors and the public interest, the proposed rule change has become
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6)(iii) thereunder.
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\20\ 15 U.S.C. 78s(b)(3)(A)(iii).
\21\ 17 CFR 240.19b-4(f)(6).
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A proposed rule change filed under Rule 19b-4(f)(6) \22\ normally
does not become operative prior to 30 days after the date of the
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\23\ the Commission
may designate a shorter time if such action is consistent with the
protection of investors and the public interest. The Exchange has asked
the Commission to waive the 30-day operative delay so that the proposal
may become operative immediately upon filing. The Exchange states that
waiver of the operative delay will allow the Exchange to mitigate as
soon as practicable the limitations associated with the fat finger
check by permitting the System to accept legitimately priced Multi-
Class Spreads Orders that the System currently rejects inappropriately
because it uses an SNBBO calculated with substitute NBBO information.
The System's acceptance of these Multi-Class Spread Orders will allow
additional execution opportunities for these orders. The Exchange notes
that Multi-Class Spread Orders will continue to be subject to other
price protections and safeguards that serve to protect against
executions at prices that may be erroneous. The Commission believes
that excluding Multi-Class Spread Orders from the fat finger check will
benefit investors by providing execution opportunities for Multi-Class
Spread Orders that are priced accurately based on current leg market
prices but that the System currently rejects because, as described
above, the System determines the SNBBO required by the price check
using a substitute NBBO calculation, as provided in Cboe Rule
5.33(h)(3), as a result of system limitations that prevent
[[Page 17432]]
the cross-class server from receiving BBO and ABBO information for the
classes that could be components of a Multi-Class Spread Order. The
proposal will allow accurately priced Multi-Class Spread Orders to be
represented in open outcry rather than being rejected inappropriately
when they are submitted to PAR. The Commission notes that the Exchange
has received feedback from investors indicating that the current
application of the fat finger check to Multi-Class Spread Orders is too
limited. In addition, the Commission notes that Multi-Class Spread
Orders, which trade only on the Exchange's floor, will continue to be
subject to other safeguards, including real-time broker evaluation of
floor-based pricing and other System-applied price checks that are
designed to provide protection against executions at prices that may be
erroneous. The Commission also notes that the Exchange will announce
the implementation of the proposal to Trading Permit Holders in advance
via Trade Desk Notice. For these reasons, the Commission believes that
waiver of the 30-day operative delay is consistent with the protection
of investors and the public interest. Accordingly, the Commission
hereby waives the 30-day operative delay and designates the proposal
operative upon filing.\24\
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\22\ 17 CFR 240.19b-4(f)(6).
\23\ 17 CFR 240.19b-4(f)(6)(iii).
\24\ For purposes only of waiving the 30-day operative delay,
the Commission has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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At any time within 60 days of the filing of such proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings under
Section 19(b)(2)(B) \25\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\25\ 15 U.S.C. 78s(b)(2)(B).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
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-2021-018 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-2021-018. 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-2021-018, and should be submitted
on or before April 23, 2021.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\26\
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\26\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-06776 Filed 4-1-21; 8:45 am]
BILLING CODE 8011-01-P
