Self-Regulatory Organizations; Cboe C2 Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Rule 5.34 Concerning Drill-Through Protection and Fat Finger Check, 62158-62161 [2022-22179]
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Federal Register / Vol. 87, No. 197 / Thursday, October 13, 2022 / Notices
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–95996; File No. SR–C2–
2022–017]
1. Purpose
Self-Regulatory Organizations; Cboe
C2 Exchange, Inc.; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Amend Rule 5.34
Concerning Drill-Through Protection
and Fat Finger Check
October 6, 2022.
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 October
4, 2022, Cboe C2 Exchange, Inc.
(‘‘Exchange’’ or ‘‘C2’’) 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 Exchange. 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 C2 Exchange, Inc. (the
‘‘Exchange’’ or ‘‘C2 Options’’) proposes
to amend Rule 5.34. The text of the
proposed rule change is provided in
Exhibit 5.
The text of the proposed rule change
is also available on the Exchange’s
website (https://markets.cboe.com/us/
options/regulation/rule_filings/ctwo/),
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.
1 15
2 17
U.S.C. 78s(b)(1).
CFR 240.19b–4.
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The Exchange proposes to amend
Rule 5.34. Specifically, the Exchange
proposes to amend its drill-through
protection mechanism for both simple
and complex orders and its limit order
fat finger check.
The Exchange proposes to amend
Rule 5.34(a)(4) and (b)(6) to update the
drill-through protection mechanism for
simple and complex orders,
respectively, to provide orders with
additional execution opportunities.
Pursuant to the current simple drillthrough protection, if a buy (sell) order
enters the Book at the conclusion of the
opening auction process or would
execute or post to the Book at the time
of order entry, the System executes the
order up to a buffer amount (the
Exchange determines the buffer amount
on a class and premium basis) above
(below) the offer (bid) limit of the
opening collar 3 or the national best bid
(‘‘NBO’’) (national best offer (‘‘NBB’’))
that existed at the time of order entry,
respectively (the ‘‘drill-through price’’).4
The System enters a limit order (as long
as it has a Time-in-Force of Day, Goodtil-Cancelled or Good-til-Day) (or
unexecuted portion) not executed
pursuant to the provision in the
immediately preceding sentence in the
Book with a displayed equal to the drillthrough price.5 The order (or
unexecuted portion) rests in the Book at
the drill-through price 6 until the earlier
to occur of its full execution and the end
of the duration of a number of
consecutive time periods (the Exchange
determines on a class-by-class basis the
number of periods, which may not
exceed five, and the length of the time
period in milliseconds, which may not
exceed three seconds).7
The proposed rule change amends
Rule 5.34(a)(4)(C)(i) to eliminate the
concept that there will be a maximum
number of time periods and proposes
that the order (or unexecuted portion)
will rest in the Book at the drill-through
price for the duration of consecutive
3 See Rule 5.31(a) for the definition of Opening
Collars.
4 See Rule 5.34(a)(4)(A).
5 See Rule 5.34(a)(4)(C).
6 The proposed rule change adds ‘‘at the drillthrough price’’ in the first sentence of subparagraph
(a)(4)(C)(i), which is a nonsubstantive change, as it
reflects current functionality and is stated in the
introductory paragraph to Rule 5.34(a)(4)(C). The
proposed rule change merely includes this detail in
the next portion of the rule for additional clarity.
7 See Rule 5.34(a)(4)(C)(i).
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time periods.8 The proposed rule
change makes conforming changes to
subparagraph (ii) by deleting references
to ‘‘the final period’’ and subparagraph
(iv) by deleting the reference to ‘‘any
remaining time period(s),’’ as there will
no longer be an Exchange-determined
limited number of time periods.
Currently, as set forth in current
subparagraph (i), the drill-through
mechanism will continue until the
earlier to occur of the order’s full
execution and the end of the duration of
the Exchange-determined number of
time periods. The Exchange proposes to
amend subparagraph (iv) to describe
when the drill-through process will
conclude. Specifically, proposed Rule
5.34(a)(4)(C)(iv) provides that the order
continues through the process described
in subparagraph (ii) (as proposed to be
amended) until the earliest of the
following to occur: (a) the order fully
executes; (b) the User cancels the order;
and (c) the order’s limit price equals or
is less than (if a buy order) or greater
than (if a sell order) the drill-through
price at any time during application of
the drill-through mechanism, in which
case the order rests in the Book at its
limit price, subject to a User’s
instructions. In other words, the order
will continue through consecutive time
periods until it fully executes (unless it
is cancelled by the User or reaches its
limit price prior to full execution),
compared to today when the order will
continue through consecutive time
periods until it fully executes or reaches
the Exchange-determined final time
period, at which time the order would
be cancelled (unless it reaches its limit
price prior to full execution). The
Exchange believes eliminating the limit
on the number of time periods may
increase execution opportunities for
limit orders, which will still continue to
be bound by their limit prices and
protected by the limit order fat finger
check.9
The proposed rule change makes a
similar change to the drill-through
protection mechanism for complex
orders. Specifically, the proposed rule
change eliminates the concept that, for
complex orders for which the user does
not establish a buffer amount (and
instead the Exchange-determined
default buffer amount applies),10 there
8 The Exchange will continue to determine on a
class-by-class basis the length of the time periods
in milliseconds, which may continue to not exceed
three seconds.
9 If a limit price is ‘‘too far away’’ from the
market, the order will continue to be subject to the
limit order fat finger protection set forth in Rule
5.34(c)(1) and thus will still be subject to protection
against a potentially erroneous execution due to an
order pricing error upon submission.
10 See Rule 5.34(b)(6)(A).
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Federal Register / Vol. 87, No. 197 / Thursday, October 13, 2022 / Notices
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will be a maximum number of time
periods and proposes that the complex
order (or unexecuted portion) will rest
in the Book at the drill-through price for
the duration of consecutive time
periods.11 Currently, similar to the drillthrough protection mechanism for
simple orders (as described above), if a
user enters a buy (sell) complex order
into the System (and does not enter its
own buffer amount), the System
executes the order 12 up to a buffer
amount above (below) the Synthetic
National Best Offer (‘‘SNBO’’) (Synthetic
National Best Bid (‘‘SNBB’’)) that
existed at the time of entry (the ‘‘drillthrough price’’) or initiates a complex
order auction (‘‘COA’’) at the drillthrough price if the order would initiate
a COA.13 For complex orders for which
the user did not establish a buffer
amount, the complex order (or
unexecuted portion) rests in the COB
with a displayed price equal to the drillthrough price until the earlier to occur
of the complex order’s full execution
and the end of the duration of a number
of time periods (the Exchange
determines on a class-by-class basis the
number of periods, which may not
exceed five, and the length of the time
period in milliseconds, which may not
exceed three seconds). Following the
end of each period prior to the final
period, the System adds (if a buy order)
or subtracts (if a sell order) one buffer
amount to the drill-through price
displayed during the immediately
preceding period (each new price
becomes the ‘‘drill-through price’’). The
complex order (or unexecuted portion)
rests in the COB at that new drillthrough price during the subsequent
period. Following the end of the final
period, the System cancels, the complex
order (or unexecuted portion) not
executed during any time period.14
The proposed rule change amends
Rule 5.34(b)(6)(B)(i) and (ii) to eliminate
the concept that there will be a
maximum number of time periods and
11 See proposed Rule 5.34(b)(6)(B). The proposed
rule change has no impact on how the drill-through
protection mechanism applies to a complex order
for which the inputting user establishes a buffer
amount, as in that situation, there is only a single
time period pursuant to the current rule (which will
continue to be the case).
12 Executions occur pursuant to Rule 5.33(e).
13 Unlike the simple order drill-through
protection mechanism, the complex order drillthrough protection mechanism permits users to
establish a buffer amount different than the
Exchange-determined default buffer amount. See
Rule 5.34(b)(6)(A). A description of COAs is located
in Rule 5.33(d).
14 See current Rule 5.34(b)(6)(B)(i) and (ii). As set
forth in current subparagraph (iv), if the complex
order’s limit price is reached during the application
of the drill-through mechanism, the order will rest
in the COB at its limit price.
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proposes that the order (or unexecuted
portion) will rest in the COB at the drillthrough price for the duration of
consecutive time periods when a User
does not establish its own buffer
amount.15 The proposed rule change
makes conforming changes to current
subparagraphs (i), (ii), and (iv)
(proposed subparagraphs (ii) and (iii))
by deleting references to ‘‘the final
period’’ and deleting the reference to
‘‘any remaining time period(s),’’ as there
will no longer be an Exchangedetermined limited number of time
periods. Currently, as set forth in
current subparagraphs (i), (ii), and (iv),
if the inputting User does not establish
a buffer amount for the complex order,
the drill-through mechanism will
continue until the earlier to occur of the
order’s full execution and the end of the
duration of the Exchange-determined
number of time periods (unless it
reaches its limit price prior to full
execution), at which time the order
would be cancelled. The Exchange
proposes to add to the end of proposed
subparagraph (ii) when the drill-through
process will conclude and what
happens at that time for complex orders
for which the user did not establish a
buffer amount. Specifically, proposed
Rule 5.34(b)(6)(B)(ii) provides that the
complex order continues through the
process described in proposed
subparagraph (ii) until the earliest of the
following to occur: (a) the complex
order fully executes; (b) the User cancels
the order; and (c) the complex order’s
limit price equals or is less than (if a buy
order) or greater than (if a sell order) the
drill-through price at any time during
application of the drill-through
mechanism, in which case the complex
order rests in the COB at its limit price,
subject to a User’s instructions.16 In
other words, a complex order for which
the User did not establish a buffer
amount will continue through
consecutive time periods until it fully
executes (or is cancelled or reaches its
limit price), compared to today when
the complex order will continue
through consecutive time periods until
it fully executes or reaches the
Exchange-determined final time period,
at which time the order would be
cancelled (unless it reaches its limit
price, as described in current
subparagraph (iv)). The Exchange
15 The Exchange will continue to determine on a
class-by-class basis the length of the time periods
in milliseconds, which may continue to not exceed
three seconds.
16 Proposed clause (c) is applicable today and
located in current subparagraph (iv). As described
below, the proposed rule change merely moves this
provision from current subparagraph (iv) to
proposed subparagraph (ii).
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62159
believes eliminating the limit on the
number of time periods may increase
execution opportunities for limit orders,
which will still continue to be bound by
their limit prices and protected by the
limit order fat finger check.17
The proposed rule change also makes
certain nonsubstantive changes to Rule
5.34(b)(6). Specifically, the proposed
rule change moves all provisions
specific to the application of the drillthrough mechanism if the user
establishes a buffer amount into Rule
5.34(b)(6)(B)(i) and moves all provisions
specific to the application of the drillthrough mechanism if the user does not
establish a buffer amount into Rule
5.34(b)(6)(B)(ii). This includes
incorporating into each of proposed
subparagraphs (i) and (ii) how the
System handles a complex order if its
limit price equals or less than (if a buy
order) or greater than (if a sell order) the
drill-through price, as described in
current subparagraph (iv). As a result,
the proposed rule change deletes
current subparagraph (iv). Additionally,
the proposed rule change moves certain
language regarding what happens if the
SBBO changes during any period, which
applies to all complex orders subject to
the drill-through protection mechanism,
regardless of whether the user input its
own buffer amount, to proposed
subparagraph (iii) from current
subparagraph (ii) and correspondingly
changes current subparagraph (iii) to
proposed subparagraph (iv). The
proposed rule change makes a
nonsubstantive change to the beginning
of proposed subparagraph (iii) by
changing ‘‘However’’ to
‘‘Notwithstanding the above,’’ as the
Exchange believes that phrase is more
appropriate.
In addition, the Exchange proposes to
amend Rule 5.34(c)(1)(D) to add Limiton-Close orders 18 to the list of orders to
which the limit order fat finger check
does not apply. Pursuant to the 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
17 If a limit price is ‘‘too far away’’ from the
market, the order will continue to be subject to the
limit order fat finger protection set forth in Rule
5.34(c)(1) and thus will still be subject to protection
against a potentially erroneous execution due to an
order pricing error upon submission.
18 A ‘‘Limit-on-Close’’ or ‘‘LOC’’ order is a limit
order that may not execute on the Exchange until
three minutes prior to market close. At that time,
the System enters LOC orders into the Book in time
sequence (based on the times at which the System
initially received them), where they may be
processed in accordance with Rule 5.32. The
System cancels an LOC order (or unexecuted
portion) that does not execute by the market close.
Users may not designate bulk messages as LOC. See
Rule 5.6(d) (definition of ‘‘Limit-on-Close’’ and
‘‘LOC’’ order).
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Federal Register / Vol. 87, No. 197 / Thursday, October 13, 2022 / Notices
amount 19 above (below) the NBO (NBB)
for simple orders or the SNBO (SNBB)
for complex orders, the System cancels
or rejects the order.20 Currently, the
limit order fat finger check does not
apply to bulk messages or stop-limit
orders.21 The Exchange proposes to also
not apply the limit order fat finger check
to Limit-on-Close orders. The limit
order fat finger check applies to orders
upon entry to the System. However, the
limit price of a Limit-on-Close order is
intended to relate to the price at the
market close, and thus may
intentionally be further away from the
NBBO or SNBBO, as applicable, at the
time the order is entered. This may
cause the order to be inadvertently
rejected pursuant to this check. The
Exchange believes it is not appropriate
for this limit order to be subject to the
fat finger check, as the check may
inadvertently cause rejections for orders
with limit prices that are intentionally
‘‘far away’’ from the market at the time
of order entry.
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2. Statutory Basis
The Exchange believes the proposed
rule change is consistent with the
Securities Exchange Act of 1934 (the
‘‘Act’’) and the rules and regulations
thereunder applicable to the Exchange
and, in particular, the requirements of
Section 6(b) of the Act.22 Specifically,
the Exchange believes the proposed rule
change is consistent with the Section
6(b)(5) 23 requirements that the rules of
an exchange be designed to prevent
fraudulent and manipulative acts and
practices, to promote just and equitable
principles of trade, to foster cooperation
and coordination with persons engaged
in regulating, clearing, settling,
processing information with respect to,
and facilitating transactions in
securities, to remove impediments to
and perfect the mechanism of a free and
open market and a national market
system, and, in general, to protect
investors and the public interest.
Additionally, the Exchange believes the
proposed rule change is consistent with
the Section 6(b)(5) 24 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 eliminate
the maximum number of time periods
19 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.
20 Rule 5.34(c)(1).
21 Rule 5.34(c)(1)(D).
22 15 U.S.C. 78f(b).
23 15 U.S.C. 78f(b)(5).
24 Id.
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for which a simple or complex order
will rest in the Book or COB,
respectively, during application of the
drill-through protection mechanism will
remove impediments to and perfect the
mechanism of a free and open market
and a national market system, and, in
general, protect investors, because it
will provide simple and complex orders
with additional execution opportunities.
These orders may continue to be
available on the Book or COB, as
applicable, for execution, at a wider
range of prices, as opposed to today
when such orders are cancelled after a
specified number of time periods
(depending on the User’s instructions
and if the order does not reach its limit
price prior to the end of those time
periods). The Exchange believes these
additional execution opportunities will
benefit investors that submit such
orders and believes such orders will
continue to receive protection against
potentially erroneous executions, as the
limit order fat finger check will
continue to apply to them.
The Exchange believes the proposed
nonsubstantive rule changes to the
complex order drill-through protection
mechanism will protect investors and
the public interest, because these
changes improve the organization of this
rule’s provisions by grouping all
provisions that apply when a User
establishes its own buffer and all
provisions that apply when a User does
not establish its own buffer, eliminating
potential confusion.
Finally, the Exchange believes
excluding Limit-on-Close orders from
the limit order fat finger check will
remove impediments to and perfect the
mechanism of a free and open market
and a national market system, and, in
general, protect investors, because it
may reduce inadvertent rejections of
Limit-on-Close orders, which may be
purposely priced further away from the
NBBO or SNBBO, as applicable, at the
time of entry, as their limit prices are
intended to relate to price at the market
close. Therefore, this proposed rule
change may increase execution
opportunities for Users that submit
Limit-on-Close orders.
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,
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because the amended drill-through
protection mechanism (for both simple
and complex orders) and limit order fat
finger check will continue to apply in
the same manner to orders of all Users
and may lead to increased execution
opportunities. 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 purposes
of the Act, because the proposed rule
change relates solely to Exchange risk
controls and how the Exchange handles
orders subject to those risk controls.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
The Exchange neither solicited nor
received comments on the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule
change does not:
A. significantly affect the protection
of investors or the public interest;
B. impose any significant burden on
competition; and
C. become operative for 30 days from
the date on which it was filed, or such
shorter time as the Commission may
designate, it has become effective
pursuant to Section 19(b)(3)(A) of the
Act 25 and Rule 19b–4(f)(6) 26
thereunder. At any time within 60 days
of the filing of the proposed rule change,
the Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission will institute proceedings
to determine whether the proposed rule
change should be approved or
disapproved.
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
25 15
26 17
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U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6).
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Federal Register / Vol. 87, No. 197 / Thursday, October 13, 2022 / Notices
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
C2–2022–017 on the subject line.
SECURITIES AND EXCHANGE
COMMISSION
Paper Comments
[Release No. 34–95993; File No. SR–Phlx–
2022–39]
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–C2–2022–017. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549 on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–C2–2022–017 and should
be submitted on or before November 3,
2022.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.27
J. Lynn Taylor,
Assistant Secretary.
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[FR Doc. 2022–22179 Filed 10–12–22; 8:45 am]
BILLING CODE 8011–01–P
Self-Regulatory Organizations; Nasdaq
PHLX LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Extend Two Pilot
Programs
October 6, 2022.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on
September 26, 2022, Nasdaq PHLX LLC
(‘‘Phlx’’ or ‘‘Exchange’’) 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 Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to extend the
pilot to permit the listing and trading of
options based on 1/100 the value of the
Nasdaq–100 Index (‘‘Nasdaq–100’’) and
the Exchange’s nonstandard expirations
pilot program, both currently set to
expire on November 4, 2022.
The text of the proposed rule change
is available on the Exchange’s website at
https://listingcenter.nasdaq.com/
rulebook/phlx/rules, 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
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.
1 15
27 17
CFR 200.30–3(a)(12).
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U.S.C. 78s(b)(1).
CFR 240.19b–4.
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62161
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
Phlx proposes to extend 2 pilots,
which are both set to expire on
November 4, 2022. The Exchange
proposes to extend (1) pilot to permit
the listing and trading of options based
on 1/100 the value of the Nasdaq–100
Index (‘‘XND Pilot’’), and (2) the
Exchange’s nonstandard expirations
pilot program (‘‘Nonstandard Pilot’’).
XND Pilot
Phlx filed a rule change to permit the
listing and trading of index options on
the Nasdaq 100 Micro Index Options
(‘‘XND’’) on a pilot basis.3 XND options
trade independently of and in addition
to NDX options, and the XND options
are subject to the same rules that
presently govern the trading of index
options based on the Nasdaq–100 Index,
including sales practice rules, margin
requirements, trading rules, and
position and exercise limits. Similar to
NDX, XND options are European-style
and cash-settled, and have a contract
multiplier of 100. The contract
specifications for XND options mirror in
all respects those of the NDX options
contract already listed on the Exchange,
except that XND options are based on 1/
100th of the value of the Nasdaq–100
Index, and are p.m.-settled pursuant to
Options 4A, Section 12(a)(5).
The Exchange proposes to amend
Phlx Options 4A, Section 12(a)(6) to
extend the current XND Pilot period to
May 4, 2023. This pilot was previously
extended and is currently extended
through November 4, 2022.4 The
Exchange continues to have sufficient
capacity to handle additional quotations
and message traffic associated with the
listing and trading of XND options. In
addition, index options are integrated
into the Exchange’s existing
surveillance system architecture and are
thus subject to the relevant surveillance
processes. The Exchange also continues
to have adequate surveillance
procedures to monitor trading in XND
options thereby aiding in the
maintenance of a fair and orderly
market. Additionally, there is continued
investor interest in these products and
this extension will provide additional
time to collect data related to the XND
3 See Securities Exchange Act Release No. 91524
(April 9, 2021), 86 FR 19909 (April 15, 2021) (SR–
Phlx–2021–07) (Approval Order).
4 See Securities Exchange Act Release No. 93447
(October 28, 2021), 86 FR 60719 (November 3, 2021)
(SR–Phlx–2021–66); and 94631 (April 7, 2022), 87
FR 21990 (April 13, 2022) (SR–Phlx–2022–16).
E:\FR\FM\13OCN1.SGM
13OCN1
]]>Agencies
[Federal Register Volume 87, Number 197 (Thursday, October 13, 2022)]
[Notices]
[Pages 62158-62161]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-22179]
[[Page 62158]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-95996; File No. SR-C2-2022-017]
Self-Regulatory Organizations; Cboe C2 Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
Rule 5.34 Concerning Drill-Through Protection and Fat Finger Check
October 6, 2022.
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 October 4, 2022, Cboe C2 Exchange, Inc. (``Exchange'' or ``C2'')
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 Exchange. The Commission is publishing
this notice to solicit comments on the proposed rule change from
interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Cboe C2 Exchange, Inc. (the ``Exchange'' or ``C2 Options'')
proposes to amend Rule 5.34. The text of the proposed rule change is
provided in Exhibit 5.
The text of the proposed rule change is also available on the
Exchange's website (https://markets.cboe.com/us/options/regulation/rule_filings/ctwo/), 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. Specifically, the
Exchange proposes to amend its drill-through protection mechanism for
both simple and complex orders and its limit order fat finger check.
The Exchange proposes to amend Rule 5.34(a)(4) and (b)(6) to update
the drill-through protection mechanism for simple and complex orders,
respectively, to provide orders with additional execution
opportunities. Pursuant to the current simple drill-through protection,
if a buy (sell) order enters the Book at the conclusion of the opening
auction process or would execute or post to the Book at the time of
order entry, the System executes the order up to a buffer amount (the
Exchange determines the buffer amount on a class and premium basis)
above (below) the offer (bid) limit of the opening collar \3\ or the
national best bid (``NBO'') (national best offer (``NBB'')) that
existed at the time of order entry, respectively (the ``drill-through
price'').\4\ The System enters a limit order (as long as it has a Time-
in-Force of Day, Good-til-Cancelled or Good-til-Day) (or unexecuted
portion) not executed pursuant to the provision in the immediately
preceding sentence in the Book with a displayed equal to the drill-
through price.\5\ The order (or unexecuted portion) rests in the Book
at the drill-through price \6\ until the earlier to occur of its full
execution and the end of the duration of a number of consecutive time
periods (the Exchange determines on a class-by-class basis the number
of periods, which may not exceed five, and the length of the time
period in milliseconds, which may not exceed three seconds).\7\
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\3\ See Rule 5.31(a) for the definition of Opening Collars.
\4\ See Rule 5.34(a)(4)(A).
\5\ See Rule 5.34(a)(4)(C).
\6\ The proposed rule change adds ``at the drill-through price''
in the first sentence of subparagraph (a)(4)(C)(i), which is a
nonsubstantive change, as it reflects current functionality and is
stated in the introductory paragraph to Rule 5.34(a)(4)(C). The
proposed rule change merely includes this detail in the next portion
of the rule for additional clarity.
\7\ See Rule 5.34(a)(4)(C)(i).
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The proposed rule change amends Rule 5.34(a)(4)(C)(i) to eliminate
the concept that there will be a maximum number of time periods and
proposes that the order (or unexecuted portion) will rest in the Book
at the drill-through price for the duration of consecutive time
periods.\8\ The proposed rule change makes conforming changes to
subparagraph (ii) by deleting references to ``the final period'' and
subparagraph (iv) by deleting the reference to ``any remaining time
period(s),'' as there will no longer be an Exchange-determined limited
number of time periods. Currently, as set forth in current subparagraph
(i), the drill-through mechanism will continue until the earlier to
occur of the order's full execution and the end of the duration of the
Exchange-determined number of time periods. The Exchange proposes to
amend subparagraph (iv) to describe when the drill-through process will
conclude. Specifically, proposed Rule 5.34(a)(4)(C)(iv) provides that
the order continues through the process described in subparagraph (ii)
(as proposed to be amended) until the earliest of the following to
occur: (a) the order fully executes; (b) the User cancels the order;
and (c) the order's limit price equals or is less than (if a buy order)
or greater than (if a sell order) the drill-through price at any time
during application of the drill-through mechanism, in which case the
order rests in the Book at its limit price, subject to a User's
instructions. In other words, the order will continue through
consecutive time periods until it fully executes (unless it is
cancelled by the User or reaches its limit price prior to full
execution), compared to today when the order will continue through
consecutive time periods until it fully executes or reaches the
Exchange-determined final time period, at which time the order would be
cancelled (unless it reaches its limit price prior to full execution).
The Exchange believes eliminating the limit on the number of time
periods may increase execution opportunities for limit orders, which
will still continue to be bound by their limit prices and protected by
the limit order fat finger check.\9\
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\8\ The Exchange will continue to determine on a class-by-class
basis the length of the time periods in milliseconds, which may
continue to not exceed three seconds.
\9\ If a limit price is ``too far away'' from the market, the
order will continue to be subject to the limit order fat finger
protection set forth in Rule 5.34(c)(1) and thus will still be
subject to protection against a potentially erroneous execution due
to an order pricing error upon submission.
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The proposed rule change makes a similar change to the drill-
through protection mechanism for complex orders. Specifically, the
proposed rule change eliminates the concept that, for complex orders
for which the user does not establish a buffer amount (and instead the
Exchange-determined default buffer amount applies),\10\ there
[[Page 62159]]
will be a maximum number of time periods and proposes that the complex
order (or unexecuted portion) will rest in the Book at the drill-
through price for the duration of consecutive time periods.\11\
Currently, similar to the drill-through protection mechanism for simple
orders (as described above), if a user enters a buy (sell) complex
order into the System (and does not enter its own buffer amount), the
System executes the order \12\ up to a buffer amount above (below) the
Synthetic National Best Offer (``SNBO'') (Synthetic National Best Bid
(``SNBB'')) that existed at the time of entry (the ``drill-through
price'') or initiates a complex order auction (``COA'') at the drill-
through price if the order would initiate a COA.\13\ For complex orders
for which the user did not establish a buffer amount, the complex order
(or unexecuted portion) rests in the COB with a displayed price equal
to the drill-through price until the earlier to occur of the complex
order's full execution and the end of the duration of a number of time
periods (the Exchange determines on a class-by-class basis the number
of periods, which may not exceed five, and the length of the time
period in milliseconds, which may not exceed three seconds). Following
the end of each period prior to the final period, the System adds (if a
buy order) or subtracts (if a sell order) one buffer amount to the
drill-through price displayed during the immediately preceding period
(each new price becomes the ``drill-through price''). The complex order
(or unexecuted portion) rests in the COB at that new drill-through
price during the subsequent period. Following the end of the final
period, the System cancels, the complex order (or unexecuted portion)
not executed during any time period.\14\
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\10\ See Rule 5.34(b)(6)(A).
\11\ See proposed Rule 5.34(b)(6)(B). The proposed rule change
has no impact on how the drill-through protection mechanism applies
to a complex order for which the inputting user establishes a buffer
amount, as in that situation, there is only a single time period
pursuant to the current rule (which will continue to be the case).
\12\ Executions occur pursuant to Rule 5.33(e).
\13\ Unlike the simple order drill-through protection mechanism,
the complex order drill-through protection mechanism permits users
to establish a buffer amount different than the Exchange-determined
default buffer amount. See Rule 5.34(b)(6)(A). A description of COAs
is located in Rule 5.33(d).
\14\ See current Rule 5.34(b)(6)(B)(i) and (ii). As set forth in
current subparagraph (iv), if the complex order's limit price is
reached during the application of the drill-through mechanism, the
order will rest in the COB at its limit price.
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The proposed rule change amends Rule 5.34(b)(6)(B)(i) and (ii) to
eliminate the concept that there will be a maximum number of time
periods and proposes that the order (or unexecuted portion) will rest
in the COB at the drill-through price for the duration of consecutive
time periods when a User does not establish its own buffer amount.\15\
The proposed rule change makes conforming changes to current
subparagraphs (i), (ii), and (iv) (proposed subparagraphs (ii) and
(iii)) by deleting references to ``the final period'' and deleting the
reference to ``any remaining time period(s),'' as there will no longer
be an Exchange-determined limited number of time periods. Currently, as
set forth in current subparagraphs (i), (ii), and (iv), if the
inputting User does not establish a buffer amount for the complex
order, the drill-through mechanism will continue until the earlier to
occur of the order's full execution and the end of the duration of the
Exchange-determined number of time periods (unless it reaches its limit
price prior to full execution), at which time the order would be
cancelled. The Exchange proposes to add to the end of proposed
subparagraph (ii) when the drill-through process will conclude and what
happens at that time for complex orders for which the user did not
establish a buffer amount. Specifically, proposed Rule
5.34(b)(6)(B)(ii) provides that the complex order continues through the
process described in proposed subparagraph (ii) until the earliest of
the following to occur: (a) the complex order fully executes; (b) the
User cancels the order; and (c) the complex order's limit price equals
or is less than (if a buy order) or greater than (if a sell order) the
drill-through price at any time during application of the drill-through
mechanism, in which case the complex order rests in the COB at its
limit price, subject to a User's instructions.\16\ In other words, a
complex order for which the User did not establish a buffer amount will
continue through consecutive time periods until it fully executes (or
is cancelled or reaches its limit price), compared to today when the
complex order will continue through consecutive time periods until it
fully executes or reaches the Exchange-determined final time period, at
which time the order would be cancelled (unless it reaches its limit
price, as described in current subparagraph (iv)). The Exchange
believes eliminating the limit on the number of time periods may
increase execution opportunities for limit orders, which will still
continue to be bound by their limit prices and protected by the limit
order fat finger check.\17\
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\15\ The Exchange will continue to determine on a class-by-class
basis the length of the time periods in milliseconds, which may
continue to not exceed three seconds.
\16\ Proposed clause (c) is applicable today and located in
current subparagraph (iv). As described below, the proposed rule
change merely moves this provision from current subparagraph (iv) to
proposed subparagraph (ii).
\17\ If a limit price is ``too far away'' from the market, the
order will continue to be subject to the limit order fat finger
protection set forth in Rule 5.34(c)(1) and thus will still be
subject to protection against a potentially erroneous execution due
to an order pricing error upon submission.
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The proposed rule change also makes certain nonsubstantive changes
to Rule 5.34(b)(6). Specifically, the proposed rule change moves all
provisions specific to the application of the drill-through mechanism
if the user establishes a buffer amount into Rule 5.34(b)(6)(B)(i) and
moves all provisions specific to the application of the drill-through
mechanism if the user does not establish a buffer amount into Rule
5.34(b)(6)(B)(ii). This includes incorporating into each of proposed
subparagraphs (i) and (ii) how the System handles a complex order if
its limit price equals or less than (if a buy order) or greater than
(if a sell order) the drill-through price, as described in current
subparagraph (iv). As a result, the proposed rule change deletes
current subparagraph (iv). Additionally, the proposed rule change moves
certain language regarding what happens if the SBBO changes during any
period, which applies to all complex orders subject to the drill-
through protection mechanism, regardless of whether the user input its
own buffer amount, to proposed subparagraph (iii) from current
subparagraph (ii) and correspondingly changes current subparagraph
(iii) to proposed subparagraph (iv). The proposed rule change makes a
nonsubstantive change to the beginning of proposed subparagraph (iii)
by changing ``However'' to ``Notwithstanding the above,'' as the
Exchange believes that phrase is more appropriate.
In addition, the Exchange proposes to amend Rule 5.34(c)(1)(D) to
add Limit-on-Close orders \18\ to the list of orders to which the limit
order fat finger check does not apply. Pursuant to the 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
[[Page 62160]]
amount \19\ above (below) the NBO (NBB) for simple orders or the SNBO
(SNBB) for complex orders, the System cancels or rejects the order.\20\
Currently, the limit order fat finger check does not apply to bulk
messages or stop-limit orders.\21\ The Exchange proposes to also not
apply the limit order fat finger check to Limit-on-Close orders. The
limit order fat finger check applies to orders upon entry to the
System. However, the limit price of a Limit-on-Close order is intended
to relate to the price at the market close, and thus may intentionally
be further away from the NBBO or SNBBO, as applicable, at the time the
order is entered. This may cause the order to be inadvertently rejected
pursuant to this check. The Exchange believes it is not appropriate for
this limit order to be subject to the fat finger check, as the check
may inadvertently cause rejections for orders with limit prices that
are intentionally ``far away'' from the market at the time of order
entry.
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\18\ A ``Limit-on-Close'' or ``LOC'' order is a limit order that
may not execute on the Exchange until three minutes prior to market
close. At that time, the System enters LOC orders into the Book in
time sequence (based on the times at which the System initially
received them), where they may be processed in accordance with Rule
5.32. The System cancels an LOC order (or unexecuted portion) that
does not execute by the market close. Users may not designate bulk
messages as LOC. See Rule 5.6(d) (definition of ``Limit-on-Close''
and ``LOC'' order).
\19\ 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.
\20\ Rule 5.34(c)(1).
\21\ Rule 5.34(c)(1)(D).
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2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Securities Exchange Act of 1934 (the ``Act'') and the rules and
regulations thereunder applicable to the Exchange and, in particular,
the requirements of Section 6(b) of the Act.\22\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \23\ requirements that the rules of an exchange be
designed to prevent fraudulent and manipulative acts and practices, to
promote just and equitable principles of trade, to foster cooperation
and coordination with persons engaged in regulating, clearing,
settling, processing information with respect to, and facilitating
transactions in securities, to remove impediments to and perfect the
mechanism of a free and open market and a national market system, and,
in general, to protect investors and the public interest. Additionally,
the Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \24\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
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\22\ 15 U.S.C. 78f(b).
\23\ 15 U.S.C. 78f(b)(5).
\24\ Id.
---------------------------------------------------------------------------
In particular, the Exchange believes the proposed rule change to
eliminate the maximum number of time periods for which a simple or
complex order will rest in the Book or COB, respectively, during
application of the drill-through protection mechanism will remove
impediments to and perfect the mechanism of a free and open market and
a national market system, and, in general, protect investors, because
it will provide simple and complex orders with additional execution
opportunities. These orders may continue to be available on the Book or
COB, as applicable, for execution, at a wider range of prices, as
opposed to today when such orders are cancelled after a specified
number of time periods (depending on the User's instructions and if the
order does not reach its limit price prior to the end of those time
periods). The Exchange believes these additional execution
opportunities will benefit investors that submit such orders and
believes such orders will continue to receive protection against
potentially erroneous executions, as the limit order fat finger check
will continue to apply to them.
The Exchange believes the proposed nonsubstantive rule changes to
the complex order drill-through protection mechanism will protect
investors and the public interest, because these changes improve the
organization of this rule's provisions by grouping all provisions that
apply when a User establishes its own buffer and all provisions that
apply when a User does not establish its own buffer, eliminating
potential confusion.
Finally, the Exchange believes excluding Limit-on-Close orders from
the limit order fat finger check will remove impediments to and perfect
the mechanism of a free and open market and a national market system,
and, in general, protect investors, because it may reduce inadvertent
rejections of Limit-on-Close orders, which may be purposely priced
further away from the NBBO or SNBBO, as applicable, at the time of
entry, as their limit prices are intended to relate to price at the
market close. Therefore, this proposed rule change may increase
execution opportunities for Users that submit Limit-on-Close orders.
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 the amended drill-
through protection mechanism (for both simple and complex orders) and
limit order fat finger check will continue to apply in the same manner
to orders of all Users and may lead to increased execution
opportunities. 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 purposes of the Act, because
the proposed rule change relates solely to Exchange risk controls and
how the Exchange handles orders subject to those risk controls.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received comments on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not:
A. significantly affect the protection of investors or the public
interest;
B. impose any significant burden on competition; and
C. become operative for 30 days from the date on which it was
filed, or such shorter time as the Commission may designate, it has
become effective pursuant to Section 19(b)(3)(A) of the Act \25\ and
Rule 19b-4(f)(6) \26\ thereunder. At any time within 60 days of the
filing of the proposed rule change, the Commission summarily may
temporarily suspend such rule change if it appears to the Commission
that such action is necessary or appropriate in the public interest,
for the protection of investors, or otherwise in furtherance of the
purposes of the Act. If the Commission takes such action, the
Commission will institute proceedings to determine whether the proposed
rule change should be approved or disapproved.
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\25\ 15 U.S.C. 78s(b)(3)(A).
\26\ 17 CFR 240.19b-4(f)(6).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
[[Page 62161]]
Send an email to [email protected]. Please include
File Number SR-C2-2022-017 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-C2-2022-017. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549 on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-C2-2022-017 and should be submitted on
or before November 3, 2022.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\27\
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\27\ 17 CFR 200.30-3(a)(12).
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J. Lynn Taylor,
Assistant Secretary.
[FR Doc. 2022-22179 Filed 10-12-22; 8:45 am]
BILLING CODE 8011-01-P
