Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing of a Proposed Rule Change To Amend Exchange Rule 5.33, Complex Orders, 21548-21553 [2024-06587]
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Rule 5.33. Complex Orders
Trading of complex orders (as defined
in Rule 1.1) is subject to all other Rules
applicable to the trading of orders,
unless otherwise provided in this Rule
5.33.
(a) Definitions. For purposes of this
Rule 5.33, the following terms have the
meanings below. A term defined
elsewhere in the Rules has the same
meaning with respect to this Rule 5.33,
unless otherwise defined below.
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Complex Strategy
The term ‘‘complex strategy’’ means a
particular combination of components
and their ratios to one another. New
complex strategies can be created by the
Exchange or as the result of the receipt
of a complex instrument creation
request or complex order for a complex
strategy that is not currently in the
System. The Exchange may limit the
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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 5.33. The text of the proposed rule
change is provided below.
Rules of Cboe Exchange, Inc.
SUMMARY:
PO 00000
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 March 19,
2024, Cboe Exchange, Inc. (the
‘‘Exchange’’ or ‘‘Cboe Options’’) filed
with the Securities and Exchange
Commission (the ‘‘Commission’’) the
proposed rule change as described in
Items I, II, and III below, which Items
have been prepared by the Exchange.
The Commission is publishing this
notice to solicit comments on the
proposed rule change from interested
persons.
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Notice.
[FR Doc. 2024–06570 Filed 3–27–24; 8:45 am]
Jkt 262001
[Release No. 34–99838; File No. SR–CBOE–
2024–015]
Date of required notice: March
28, 2024.
DATES:
Sean Robinson,
Attorney, Corporate and Postal Business Law.
Sean Robinson,
Attorney, Corporate and Postal Business Law.
SECURITIES AND EXCHANGE
COMMISSION
Self-Regulatory Organizations; Cboe
Exchange, Inc.; Notice of Filing of a
Proposed Rule Change To Amend
Exchange Rule 5.33, Complex Orders
Product Change—Priority Mail and
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SUMMARY:
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The Postal Service gives
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Regulatory Commission to add a
domestic shipping services contract to
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SUMMARY:
U.S.C. 78s(b)(1).
CFR 240.19b–4.
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Federal Register / Vol. 89, No. 61 / Thursday, March 28, 2024 / Notices
number of new complex strategies that
may be in the System or entered for any
EFID (which EFID limit would be the
same for all Users) at a particular time.
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(b) Types of Complex Orders.
Complex orders are available in all
classes listed for trading on the
Exchange. Complex orders may be
market or limit orders.
(1) The Exchange determines which
Times-in-Force of Day, GTC, GTD, IOC,
or OPG as such terms are defined in
Rule 5.6(d) are available for complex
orders (including for eligibility to enter
the COB and initiate a COA).
(2) The Exchange determines which
Capacities are eligible for COA or for
entry into the COB. Complex orders
submitted to the Exchange with
Capacities not eligible for COA or entry
into the COB route to PAR for manual
handling or are cancelled, subject to a
User’s instructions. [(A)] In a class in
which the Exchange determines
complex orders with Capacity M or N
are not eligible for entry into the COB,
the Exchange may determine that a
complex order with Capacity M or N
may enter the COB:
(A) in complex strategies designated
by the Exchange or
(B) if:
(i) the complex order is on the
opposite side of (a) a Priority Customer
complex order(s) resting in the COB
with a price not outside the SNBBO; or
(b) orders on the same side of the market
in the same complex strategy that
initiated a COA(s) if there are ‘‘x’’
number of COAs within ‘‘y’’
milliseconds, counted on a rolling basis
(the Exchange determines the number
‘‘x’’ (which must be at least two) and the
time period ‘‘y’’ (which may be no more
than 2,000); and
(ii) the User cancels the complex
order, if it remains unexecuted, no later
than a specified time (which the
Exchange determines and may be no
more than five minutes) after the time
the COB receives the M or N complex
order.
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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.
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
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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 its
rules related to complex orders. Rule
5.33 governs the electronic processing of
complex orders on the Exchange, and
Rule 5.33(a) sets forth the definition of
‘‘complex strategy.’’ Rule 5.33(a) defines
complex strategy as a particular
combination of components and their
ratios to one another. Pursuant to Rule
5.33(a), new complex strategies may be
created as the result of the receipt of a
complex instrument creation request or
complex order for a complex strategy
that is not currently in the System.
Additionally, Rule 5.33(b)(2) states the
Exchange determines which Capacities
(i.e., non-broker-dealer public customer,
broker-dealers that are not marketmakers or specialists on an options
exchange, and/or Market-Makers or
specialists on an options exchange) are
eligible for COA or entry into the
Complex Order Book (‘‘COB’’).3 Further,
Rule 5.33(b)(2)(A) provides that, in a
class in which the Exchange determines
complex orders of Market-Makers and
away market-makers are not eligible for
entry into the COB,4 the Exchange may
determine that Market-Makers and away
market-makers may enter complex
orders into the COB if (1) their complex
orders are on the opposite side of (A) a
priority customer complex order(s)
resting in the COB with a price not
outside the national spread market
(‘‘NSM’’) 5 or (B) order(s) on the same
side of the market in the same strategy
that initiated a COA(s) if there are ‘‘x’’
3 Currently, orders entered with any capacity,
including Market-Maker (origin code ‘‘M’’) and
market-maker or specialist on another options
exchange (‘‘away market-makers’’) (origin code
‘‘N’’) orders, are eligible for entry and may rest on
the COB in all classes except in S&P 500 Index
options (‘‘SPX’’). In SPX options, M and N complex
orders are not eligible for entry into the COB except
as set forth in Rule 5.33(b)(2)(A). See US Options
Complex Book Process, Section 2.3.3.
4 As noted above, currently, the only class for
which the Exchange has determined that M and N
orders are not eligible for entry into the COB is SPX
options.
5 See Rule 1.1 (definition of ‘‘National Spread
Market’’).
PO 00000
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number of COAs within ‘‘y’’
milliseconds, counted on a rolling basis
(the Exchange will determine the
number ‘‘x’’ (which must be at least
two) and time period ‘‘y’’ (which may be
no more than 2,000)) and (2) they cancel
their complex orders, if such orders
remain unexecuted, no later than a
specified time (which the Exchange
determines and may be no more than
five minutes) after the time the COB
receives the order. To the extent an
origin type is not eligible for entry into
the COB or does not meet the
requirements of Rule 5.33(b)(2)(A),
complex orders with that origin type
may still be entered into the System as
opening-only or immediate-or-cancel, as
such orders would not rest in the COB
when the Exchange is open for trading.
The Exchange understands from
market participants that electronic
trading in complex strategies may be
limited for a variety of reasons,
including fragmentation of liquidity
across multiple customer-created
complex instruments expressing a
similar exposure (i.e., risk) profile and
the need to search for a desired complex
strategy. To enhance electronic trading
of commonly traded complex strategies,
the Exchange proposes to amend its
Rules to encourage increased,
consolidated liquidity in complex
strategies on the complex order book
(‘‘COB’’). Specifically, the Exchange first
proposes to amend the definition of
complex strategy in Rule 5.33(a) to
provide that new complex strategies can
be created by the Exchange in addition
to, as today, as the result of the receipt
of a complex instrument creation
request or complex order for a complex
strategy that is not currently in the
System. The Exchange believes that
permitting it to create complex
strategies, including commonly traded
ones, would allow for the consolidation
of liquidity within a single complex
strategy that is currently spread across
multiple customer-created complex
instruments expressing the same or
similar exposure profiles. For example,
if a market participant wishes to execute
a trade in a complex strategy to achieve
a certain level of risk exposure, if the
Exchange has created a complex strategy
that provides that level of risk exposure
already, then the market participant
may submit an order within that
strategy as opposed to creating a
separate one with different strikes that
would still result in the same level of
risk exposure. The Exchange regularly
observes consistencies in trading for
certain complex strategies, thus
highlighting a potential for
consolidation of liquidity. Specifically,
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the Exchange regularly observes in
various common complex strategies
that, while market participants may use
a large number of strikes to comprise a
specific complex strategy, a significant
amount of the trading volume within
that complex strategy occurs using a
small percentage of those strikes. For
example, in jelly rolls executed on the
Exchange in 2023 in SPX, the Exchange
observed that more than 90% of the
volume executed using a jelly roll
occurred using fewer than 20% of the
strikes used for all the jelly rolls
executed.6 The Exchange believes this
proposed change may aggregate
liquidity of market participants within a
single set of strikes for a complex
strategy (as opposed to across many
varying strikes) looking and willing to
take on that level of risk exposure,
which may increase execution
opportunities at more competitive
prices. Under the proposed rule change,
customers may continue to create
complex instruments as they do today.
Second, the Exchange proposes to
amend Rule 5.33(b)(2)(A). As noted
above, Rule 5.33(b)(2) states that the
Exchange may determine which
complex orders are eligible for entry
into the COB, based on Capacity. As
described above, Rule 5.33(b)(2)(A)
provides that, in a class in which the
Exchange determines that M and N
complex orders are not eligible for entry
into the COB,7 the Exchange may
determine that M and N complex orders
may rest in the COB in defined
circumstances. The Exchange proposes
to amend Rule 5.33(b)(2)(A) to provide
in a class in which it determines
complex orders of Market-Makers and
away market-makers are not eligible for
entry into the COB, the Exchange may
also determine that Market-Makers and
away market-makers may enter complex
orders into the COB if the complex
order is in a complex strategy
designated by the Exchange.8 The
Exchange believes that providing it with
the ability to designate complex
strategies in which M and N complex
orders are eligible for entry into the COB
6 A jelly roll is a trading strategy created by
entering into two separate positions
simultaneously: one position involves buying a put
and selling a call with the same strike price and
expiration and the second position involves selling
a put and buying a call, with the same strike price,
but with a different expiration from the first
position. The same delta effect may be achieved by
trading different strikes.
7 As noted above, the Exchange has determined
that M and N complex orders are not eligible for
entry into the COB only in SPX options.
8 Symbol reference data for those complex
strategies designated by the Exchange will be
publicly available on the Exchange’s website, and
disseminated to subscribers to the Exchange’s data
feeds that deliver complex order information.
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may further the consolidation of
liquidity within a single complex
strategy that is currently spread across
multiple customer-created complex
instruments expressing the same or
similar exposure profiles. The proposed
rule change permits the Exchange to
designate complex strategies created
either by users or by the Exchange in the
COB in which M and N complex orders
would be eligible to rest. Given that
market participants often execute the
same complex strategy within a small
number of strikes (as demonstrated by
the jelly roll example above), if the
Exchange designated a single
instrument for a common strategy in
which M and N orders could rest, the
Exchange believes a significant amount
of market participants looking to
execute that strategy may ultimately do
so with that specific instrument, given
the existence of liquidity and price
competition on the COB. The Exchange
believes this aggregation of liquidity of
market participants looking and willing
to take on that level of risk exposure,
which may increase execution
opportunities at more competitive
prices.
For example, as noted above, the
Exchange has determined that M or N
complex orders for SPX options are not
eligible for entry into the COB. Under
the proposed rule, the Exchange may
determine to permit M or N complex
orders for SPX options to be eligible for
entry into the COB in designated
complex strategies (either user or
Exchange-created) under the proposed
rule.9
Unlike leg markets, in which marketmakers provide liquidity through
regularly updated quotes that indicate to
customers the price at which liquidity
providers are willing to trade against
their orders, market-makers do not
quote on the COB.10 As a result, the
COB may contain limited resting orders
from liquidity providers within a
complex strategy to indicate to
customers the price at which many
liquidity providers are willing to trade
that complex strategy. The Exchange
believes that providing it with the
ability to permit M and N complex
orders to rest orders in the COB in
designated complex strategies would, as
discussed above, potentially consolidate
liquidity for complex strategies
(particularly commonly traded complex
strategies) with similar risk profiles
within a single strategy that provides
the same exposure. This may result in
9 This would be in addition to letting M and N
complex orders for SPX options enter the COB as
set forth in current Rule 5.33(b)(2)(A).
10 See Interpretation and Policy .01 to Rule 5.33.
PO 00000
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the COB for these complex strategies
(such as those that are commonly
traded) providing customers with this
information, which may ultimately
result in additional price competition
and execution opportunities for
customers. As previously noted, the
Exchange determines which Capacities
are eligible for entry into the COB, and
currently, in SPX options, M and N
complex orders are not eligible for entry
into the COB except as set forth in Rule
5.33(b)(2)(A). The Exchange believes
that it is more beneficial from a trading
and efficiency perspective to designate
strategies in which M and N orders are
eligible for COB entry, rather than
determine that M and N complex orders
in all complex strategies (including SPX
options) are eligible for COB entry, as
Market-Makers may not be willing to
rest in the number of large number of
complex strategies that exist in the COB.
The proposed changes would allow
the Exchange to create complex
strategies, in addition to those strategies
that are created today by users through
receipt of a complex instrument creation
request or complex order for a complex
strategy that is not currently in the
System. The proposed changes have no
impact on the current process for
complex strategy creation from a user
perspective, as users will still be able to
create complex strategies; however, the
changes may promote trading
efficiencies, as the user may (but is not
required to) choose to trade in an
Exchange-created strategy (rather than
create a new, additional strategy),
should it reflect the desired complex
strategy to be traded. The changes
would also provide the Exchange with
the ability to designate complex
strategies (which may be created by
users or, as proposed, created by the
Exchange) in which M and N complex
orders are eligible for entry into the
COB. Trading in strategies the Exchange
does not designate as being eligible for
M and N orders to rest will continue as
it does today. The Exchange will
maintain on its publicly available
website a list of designated complex
strategies. This will allow liquidity
providers to easily determine in which
complex strategies they are able to rest
their orders (if they so choose) and
better management their risk. Current
rules permit the Exchange to allow M
and N orders into the COB for complex
strategies in certain circumstances if the
Exchange has otherwise determined that
M and N orders are not eligible for COB
entry; the rule change merely provides
the Exchange with flexibility to allow
this also in designated complex
strategies. Such designated complex
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strategies may include, for example,
those strategies that are or may become
commonly traded, based on trading
activity and market feedback. As noted,
the COB may contain limited resting
orders from liquidity providers within a
complex strategy to indicate to
customers the price at which many
liquidity providers are willing to trade
that complex strategy. The Exchange
believes permitting M and N complex
orders to enter the COB for designated
complex strategies will create potential
execution opportunities for customers
in these designated complex strategies.
By way of illustration, consider the
following example:
Assume that on January 22, 2024, a
trader sells the following box spread for
$998.31, expiring on February 2, 2024,
for purposes of raising cash.
• Sell 2024–02–02 SPX call with a
strike of $4,000
• Buy 2024–02–02 SPX put with a
strike of $4,000
• Buy 2024–02–02 SPX call with a
strike of $5,000
• Sell 2024–02–02 SPX put with a strike
of $5,000
Upon the sale, the trader receives a
net premium (equivalent to a short-term
loan that is due on the expiration date
of February 2) of $99,831. At expiry, the
trader will have to pay $100,000, which
implies a rate of 5.5309%. However, this
box spread trade is not the only trade
that can provide this exposure. There
are many box spreads with this
expiration date that could replicate the
same exposure created by the above box
spread, such as box spreads with the
same expiry date and a strike distance
of 1,000, like the following Alternatives
1 and 2:
Alternative 1
• Sell 2024–02–02 SPX call with a
strike of $3,000
• Buy 2024–02–02 SPX put with a
strike of $3,000
• Buy 2024–02–02 SPX call with a
strike of $4,000
• Sell 2024–02–02 SPX put with a strike
of $4,000
ddrumheller on DSK120RN23PROD with NOTICES1
Alternative 2
• Sell 2024–02–02 SPX call with a
strike of $4,100
• Buy 2024–02–02 SPX put with a
strike of $4,100
• Buy 2024–02–02 SPX call with a
strike of $5,100
• Sell 2024–02–02 SPX put with a strike
of $5,100
While alternatives 1 and 2 may not
have the same quoted price as the
original order, they would offer the
same term of risk exposure. However,
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this demonstrates that liquidity for
commonly traded complex strategies
with similar risk profiles may be spread
across multiple complex strategies. This
may limit price competition and
execution opportunities for customers.
Pursuant to the proposed rule change,
the Exchange could permit M and N
complex orders to rest in the COB for
one of the above complex strategies,
which may permit the consolidation of
liquidity from liquidity providers
willing to assume the risk exposure of
the above box spreads.
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.11 Specifically,
the Exchange believes the proposed rule
change is consistent with the section
6(b)(5) 12 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) 13 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 will remove
impediments to and perfect the
mechanism of a free and open market
and a national market system, and, in
general, protect investors, by potentially
consolidating liquidity for complex
strategies and increasing execution
opportunities for customers. As noted
above, the Exchange understands from
market participants that electronic
trading in complex strategies may be
limited, in part due to the fragmentation
of liquidity across multiple customercreated complex instruments expressing
a similar exposure profile. The
Exchange believes that permitting it to
create complex strategies, including
commonly traded ones, would allow for
the consolidation of liquidity within a
11 15
12 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
13 Id.
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21551
single complex strategy that is currently
spread across multiple customer-created
complex instruments expressing the
same or similar exposure profiles,
which may increase execution
opportunities at more competitive
prices, to the benefit of investors. Under
the proposed change, if market
participants wish to execute a trade in
a complex strategy to achieve a certain
level of risk exposure and the Exchange
has created a complex strategy that
already provides that level of risk
exposure, then market participants
could choose to submit an order within
that strategy, as opposed to creating a
new one. As noted above, customers
may continue to create complex
instruments as they do today.
Additionally, the Exchange believes
the proposed change to allow it to
determine, in a class in which it
determines complex orders of MarketMakers and away market-makers are not
eligible for entry into the COB, that
Market-Makers and away market-makers
may enter complex orders into the COB
if the complex order is in a complex
strategy designated by the Exchange,
will remove impediments to and perfect
the mechanism of a free and open
market and a national market system,
and, in general, protect investors. The
Exchange believes that providing it with
the ability to permit M and N complex
orders to rest in the COB in designated
complex strategies (in addition to
resting in the COB for complex
strategies as set forth in current Rule
5.33(b)(2)(A)) would also potentially
consolidate liquidity for complex
strategies (particularly commonly traded
complex strategies) with similar risk
profiles within a single strategy that
provides the same exposure. As noted
above, unlike the leg markets, in which
market-makers provide liquidity
through quotes, the COB has no marketmaker quotes that indicate to customers
the price at which liquidity providers
are willing to trade against their orders,
market-makers do not quote on the COB.
As a result, the COB may contain
limited resting orders from liquidity
providers within a complex strategy to
indicate to customers the price at which
many liquidity providers are willing to
trade that complex strategy. The
Exchange believes that permitting it to
determine M and N complex orders in
designated complex strategies are
eligible for entry in the COB (which may
be created by users or, as proposed,
created by the Exchange) would
potentially consolidate liquidity for
complex strategies (particularly
commonly traded complex strategies)
with similar risk profiles within a single
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Federal Register / Vol. 89, No. 61 / Thursday, March 28, 2024 / Notices
strategy that provides the same
exposure, which may result in the COB
for these complex providing customers
with this information, which may
ultimately result in additional price
competition and execution
opportunities for customers. As
previously noted, current rules permit
the Exchange to allow M and N orders
into the COB for complex strategies in
certain circumstances if the Exchange
has otherwise determined that M and N
orders are not eligible for COB entry; the
rule change merely provides the
Exchange with flexibility to allow this
also in designated complex strategies.
Finally, the Exchange believes the
proposed changes are equitable and
non-discriminatory, as the changes will
apply to all market participants
uniformly. As noted above, under the
proposed rule change, customers may
continue to create complex instruments
as they do today. When determining
which complex strategies to create and
in which complex strategies M and N
orders are eligible for COB entry, the
Exchange represents it intends to make
such determinations based on objective,
nondiscriminatory factors, including
strategy type, orders and executions
within a strategy type using close by
strikes, and market participant feedback,
in order to incentive market participants
to trade within these strategies. The
Exchange believes determining such
strategies for this purpose would
increase the likelihood of achieving the
purpose of the proposed rule change.
ddrumheller on DSK120RN23PROD with NOTICES1
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 it will apply in the same
manner to all market participants. The
Exchange notes that any complex
strategy it could create under the
proposed rule change could be created
today by a user. Further, under current
rules, the Exchange may, in a class in
which the Exchange determines M and
N complex orders are not eligible for
entry into the COB, determine that such
orders may be entered into the COB in
complex strategies in defined
circumstances, as described above; the
proposed rule change provides the
Exchange with additional flexibility to
designate complex strategies in which
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M and N complex orders may be entered
into the COB.
The Exchange does not believe that
the proposed change will impose an
unnecessary or inappropriate burden on
intermarket competition, as it relates to
complex strategies that may be created
for trading on the Exchange and orders
that the Exchange permits to rest on the
COB. The Exchange notes that it
operates in a highly competitive market,
with many other options exchanges
offering the ability to trade complex
orders and at least one other options
exchange that has the authority to create
complex strategies.14
Additionally, current rules permit the
Exchange to allow M and N orders to
rest in the COB in designated classes
(and thus permit the Exchange to not
allow M and N orders to rest in the COB
in designated classes). The proposed
change related to orders that the
Exchange permits to rest in the COB
merely provides the Exchange with
flexibility to expand the defined
circumstances in those classes the
Exchange does not otherwise permit M
and N orders to do so, in addition to the
circumstances set forth in Rule
5.33(b)(2)(A). As noted above, Exchange
believes that it is more beneficial from
a trading and efficiency perspective to
designate strategies in which M and N
orders are eligible for COB entry, rather
than determine that M and N complex
orders in all complex strategies
(including SPX options) are eligible for
COB entry, as Market-Makers may not
be willing to rest in the number of large
number of complex strategies that exist
in the COB.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
The Exchange neither solicited nor
received comments on the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period
up to 90 days (i) as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding or (ii) as to which
the Exchange consents, the Commission
will:
A. by order approve or disapprove
such proposed rule change, or
14 See
PO 00000
MIAX Rule 518(a)(6).
Frm 00070
Fmt 4703
Sfmt 4703
B. institute proceedings to determine
whether the proposed rule change
should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include file number SR–
CBOE–2024–015 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–2024–015. 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
a.m. and 3 p.m. Copies of the filing also
will be available for inspection and
copying at the principal office of the
Exchange. Do not include personal
identifiable information in submissions;
you should submit only information
that you wish to make available
publicly. We may redact in part or
withhold entirely from publication
submitted material that is obscene or
subject to copyright protection. All
submissions should refer to file number
SR–CBOE–2024–015 and should be
submitted on or before April 18, 2024.
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Federal Register / Vol. 89, No. 61 / Thursday, March 28, 2024 / Notices
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.15
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Sherry R. Haywood,
The Exchange proposes to amend the
Connectivity Fee Schedule regarding
colocation services and fees to update
the list of included data products. The
proposed rule change is available on the
Exchange’s website at www.nyse.com, at
the principal office of the Exchange, and
at the Commission’s Public Reference
Room.
Assistant Secretary.
[FR Doc. 2024–06587 Filed 3–27–24; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–99849; File No. SR–
NYSEAMER–2024–20]
Self-Regulatory Organizations; NYSE
American LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Change To Amend the Connectivity
Fee Schedule
March 22, 2024.
Pursuant to section 19(b)(1) 1 of the
Securities Exchange Act of 1934
(‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that, on March
14, 2024, NYSE American LLC (‘‘NYSE
American’’ or the ‘‘Exchange’’) filed
with the Securities and Exchange
Commission (the ‘‘Commission’’) the
proposed rule change as described in
Items I and II below, which Items have
been prepared by the self-regulatory
organization. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
15 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
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1 15
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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
self-regulatory organization included
statements concerning the purpose of,
and basis for, the proposed rule change
and discussed any comments it received
on the proposed rule change. The text
of those statements may be examined at
the places specified in Item IV below.
The Exchange has prepared summaries,
set forth in sections A, B, and C below,
of the most significant parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend the
Connectivity Fee Schedule (‘‘Fee
Schedule’’) regarding colocation
services and fees to update the list of
included data products (‘‘Included Data
Products’’).
Currently, the table of Included Data
Products in Colocation Note 4 sets forth
PO 00000
Frm 00071
Fmt 4703
Sfmt 4703
21553
the market data feeds that Users 4 can
connect to at no additional cost when
they purchase a service that includes
access to the LCN or IP network.5
Each of the Exchange and the Affiliate
SROs has filed to establish an
‘‘Aggregated Lite’’ market data feed (the
‘‘Aggregated Lite Feeds’’).6 Accordingly,
the Exchange proposes to update the
table of Included Data Products to
include the Aggregated Lite Feeds. To
implement the change, the Exchange
proposes to update the table of Included
Data Products of the NYSE, NYSE
American and NYSE Arca as follows
(proposed additions underlined):
BILLING CODE 8011–01–P
4 For purposes of the Exchange’s colocation
services, a ‘‘User’’ means any market participant
that requests to receive colocation services directly
from the Exchange. See Securities Exchange Act
Release No. 76009 (September 29, 2015), 80 FR
60213 (October 5, 2015) (SR–NYSEMKT–2015–67).
As specified in the Fee Schedule, a User that incurs
colocation fees for a particular colocation service
pursuant thereto would not be subject to colocation
fees for the same colocation service charged by the
Exchange’s affiliates the New York Stock Exchange
LLC (‘‘NYSE’’), NYSE Arca, Inc. (‘‘NYSE Arca’’),
NYSE Chicago, Inc. (‘‘NYSE Chicago’’), and NYSE
National Inc. (‘‘NYSE National’’ and together, the
‘‘Affiliate SROs’’). Each Affiliate SRO has submitted
substantially the same proposed rule change to
propose the changes described herein. See SR–
NYSE–2024–17, SR–NYSEARCA–2024–28, SR–
NYSECHX–2024–13, and SR–NYSENAT–2024–11.
5 See Securities Exchange Act Release No. 79728
(January 4, 2017), 82 FR 3035 (January 10, 2017)
(SR–NYSEMKT–2016–126) (Notice of Filing and
Immediate Effectiveness of Proposed Rule Change
Amending the NYSE MKT Equities Price List and
the NYSE Amex Options Fee Schedule Related to
Colocation Services To Increase LCN and IP
Network Fees and Add a Description of Access To
Trading and Execution Services and Connectivity to
Included Data Products).
6 See Securities Exchange Act Release No. 99718
(March 12, 2024) (SR–NYSEAMER–2024–14).
E:\FR\FM\28MRN1.SGM
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]]>Agencies
[Federal Register Volume 89, Number 61 (Thursday, March 28, 2024)]
[Notices]
[Pages 21548-21553]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-06587]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-99838; File No. SR-CBOE-2024-015]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of
Filing of a Proposed Rule Change To Amend Exchange Rule 5.33, Complex
Orders
March 22, 2024.
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 March 19, 2024, Cboe Exchange, Inc. (the ``Exchange'' or ``Cboe
Options'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the Exchange. The
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.
---------------------------------------------------------------------------
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 5.33. The text of the proposed rule change is provided
below.
(additions are italicized; deletions are [bracketed])
* * * * *
Rules of Cboe Exchange, Inc.
* * * * *
Rule 5.33. Complex Orders
Trading of complex orders (as defined in Rule 1.1) is subject to
all other Rules applicable to the trading of orders, unless otherwise
provided in this Rule 5.33.
(a) Definitions. For purposes of this Rule 5.33, the following
terms have the meanings below. A term defined elsewhere in the Rules
has the same meaning with respect to this Rule 5.33, unless otherwise
defined below.
* * * * *
Complex Strategy
The term ``complex strategy'' means a particular combination of
components and their ratios to one another. New complex strategies can
be created by the Exchange or as the result of the receipt of a complex
instrument creation request or complex order for a complex strategy
that is not currently in the System. The Exchange may limit the
[[Page 21549]]
number of new complex strategies that may be in the System or entered
for any EFID (which EFID limit would be the same for all Users) at a
particular time.
* * * * *
(b) Types of Complex Orders. Complex orders are available in all
classes listed for trading on the Exchange. Complex orders may be
market or limit orders.
(1) The Exchange determines which Times-in-Force of Day, GTC, GTD,
IOC, or OPG as such terms are defined in Rule 5.6(d) are available for
complex orders (including for eligibility to enter the COB and initiate
a COA).
(2) The Exchange determines which Capacities are eligible for COA
or for entry into the COB. Complex orders submitted to the Exchange
with Capacities not eligible for COA or entry into the COB route to PAR
for manual handling or are cancelled, subject to a User's instructions.
[(A)] In a class in which the Exchange determines complex orders with
Capacity M or N are not eligible for entry into the COB, the Exchange
may determine that a complex order with Capacity M or N may enter the
COB:
(A) in complex strategies designated by the Exchange or
(B) if:
(i) the complex order is on the opposite side of (a) a Priority
Customer complex order(s) resting in the COB with a price not outside
the SNBBO; or (b) orders on the same side of the market in the same
complex strategy that initiated a COA(s) if there are ``x'' number of
COAs within ``y'' milliseconds, counted on a rolling basis (the
Exchange determines the number ``x'' (which must be at least two) and
the time period ``y'' (which may be no more than 2,000); and
(ii) the User cancels the complex order, if it remains unexecuted,
no later than a specified time (which the Exchange determines and may
be no more than five minutes) after the time the COB receives the M or
N complex order.
* * * * *
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 its rules related to complex orders.
Rule 5.33 governs the electronic processing of complex orders on the
Exchange, and Rule 5.33(a) sets forth the definition of ``complex
strategy.'' Rule 5.33(a) defines complex strategy as a particular
combination of components and their ratios to one another. Pursuant to
Rule 5.33(a), new complex strategies may be created as the result of
the receipt of a complex instrument creation request or complex order
for a complex strategy that is not currently in the System.
Additionally, Rule 5.33(b)(2) states the Exchange determines which
Capacities (i.e., non-broker-dealer public customer, broker-dealers
that are not market-makers or specialists on an options exchange, and/
or Market-Makers or specialists on an options exchange) are eligible
for COA or entry into the Complex Order Book (``COB'').\3\ Further,
Rule 5.33(b)(2)(A) provides that, in a class in which the Exchange
determines complex orders of Market-Makers and away market-makers are
not eligible for entry into the COB,\4\ the Exchange may determine that
Market-Makers and away market-makers may enter complex orders into the
COB if (1) their complex orders are on the opposite side of (A) a
priority customer complex order(s) resting in the COB with a price not
outside the national spread market (``NSM'') \5\ or (B) order(s) on the
same side of the market in the same strategy that initiated a COA(s) if
there are ``x'' number of COAs within ``y'' milliseconds, counted on a
rolling basis (the Exchange will determine the number ``x'' (which must
be at least two) and time period ``y'' (which may be no more than
2,000)) and (2) they cancel their complex orders, if such orders remain
unexecuted, no later than a specified time (which the Exchange
determines and may be no more than five minutes) after the time the COB
receives the order. To the extent an origin type is not eligible for
entry into the COB or does not meet the requirements of Rule
5.33(b)(2)(A), complex orders with that origin type may still be
entered into the System as opening-only or immediate-or-cancel, as such
orders would not rest in the COB when the Exchange is open for trading.
---------------------------------------------------------------------------
\3\ Currently, orders entered with any capacity, including
Market-Maker (origin code ``M'') and market-maker or specialist on
another options exchange (``away market-makers'') (origin code
``N'') orders, are eligible for entry and may rest on the COB in all
classes except in S&P 500 Index options (``SPX''). In SPX options, M
and N complex orders are not eligible for entry into the COB except
as set forth in Rule 5.33(b)(2)(A). See US Options Complex Book
Process, Section 2.3.3.
\4\ As noted above, currently, the only class for which the
Exchange has determined that M and N orders are not eligible for
entry into the COB is SPX options.
\5\ See Rule 1.1 (definition of ``National Spread Market'').
---------------------------------------------------------------------------
The Exchange understands from market participants that electronic
trading in complex strategies may be limited for a variety of reasons,
including fragmentation of liquidity across multiple customer-created
complex instruments expressing a similar exposure (i.e., risk) profile
and the need to search for a desired complex strategy. To enhance
electronic trading of commonly traded complex strategies, the Exchange
proposes to amend its Rules to encourage increased, consolidated
liquidity in complex strategies on the complex order book (``COB'').
Specifically, the Exchange first proposes to amend the definition of
complex strategy in Rule 5.33(a) to provide that new complex strategies
can be created by the Exchange in addition to, as today, as the result
of the receipt of a complex instrument creation request or complex
order for a complex strategy that is not currently in the System. The
Exchange believes that permitting it to create complex strategies,
including commonly traded ones, would allow for the consolidation of
liquidity within a single complex strategy that is currently spread
across multiple customer-created complex instruments expressing the
same or similar exposure profiles. For example, if a market participant
wishes to execute a trade in a complex strategy to achieve a certain
level of risk exposure, if the Exchange has created a complex strategy
that provides that level of risk exposure already, then the market
participant may submit an order within that strategy as opposed to
creating a separate one with different strikes that would still result
in the same level of risk exposure. The Exchange regularly observes
consistencies in trading for certain complex strategies, thus
highlighting a potential for consolidation of liquidity. Specifically,
[[Page 21550]]
the Exchange regularly observes in various common complex strategies
that, while market participants may use a large number of strikes to
comprise a specific complex strategy, a significant amount of the
trading volume within that complex strategy occurs using a small
percentage of those strikes. For example, in jelly rolls executed on
the Exchange in 2023 in SPX, the Exchange observed that more than 90%
of the volume executed using a jelly roll occurred using fewer than 20%
of the strikes used for all the jelly rolls executed.\6\ The Exchange
believes this proposed change may aggregate liquidity of market
participants within a single set of strikes for a complex strategy (as
opposed to across many varying strikes) looking and willing to take on
that level of risk exposure, which may increase execution opportunities
at more competitive prices. Under the proposed rule change, customers
may continue to create complex instruments as they do today.
---------------------------------------------------------------------------
\6\ A jelly roll is a trading strategy created by entering into
two separate positions simultaneously: one position involves buying
a put and selling a call with the same strike price and expiration
and the second position involves selling a put and buying a call,
with the same strike price, but with a different expiration from the
first position. The same delta effect may be achieved by trading
different strikes.
---------------------------------------------------------------------------
Second, the Exchange proposes to amend Rule 5.33(b)(2)(A). As noted
above, Rule 5.33(b)(2) states that the Exchange may determine which
complex orders are eligible for entry into the COB, based on Capacity.
As described above, Rule 5.33(b)(2)(A) provides that, in a class in
which the Exchange determines that M and N complex orders are not
eligible for entry into the COB,\7\ the Exchange may determine that M
and N complex orders may rest in the COB in defined circumstances. The
Exchange proposes to amend Rule 5.33(b)(2)(A) to provide in a class in
which it determines complex orders of Market-Makers and away market-
makers are not eligible for entry into the COB, the Exchange may also
determine that Market-Makers and away market-makers may enter complex
orders into the COB if the complex order is in a complex strategy
designated by the Exchange.\8\ The Exchange believes that providing it
with the ability to designate complex strategies in which M and N
complex orders are eligible for entry into the COB may further the
consolidation of liquidity within a single complex strategy that is
currently spread across multiple customer-created complex instruments
expressing the same or similar exposure profiles. The proposed rule
change permits the Exchange to designate complex strategies created
either by users or by the Exchange in the COB in which M and N complex
orders would be eligible to rest. Given that market participants often
execute the same complex strategy within a small number of strikes (as
demonstrated by the jelly roll example above), if the Exchange
designated a single instrument for a common strategy in which M and N
orders could rest, the Exchange believes a significant amount of market
participants looking to execute that strategy may ultimately do so with
that specific instrument, given the existence of liquidity and price
competition on the COB. The Exchange believes this aggregation of
liquidity of market participants looking and willing to take on that
level of risk exposure, which may increase execution opportunities at
more competitive prices.
---------------------------------------------------------------------------
\7\ As noted above, the Exchange has determined that M and N
complex orders are not eligible for entry into the COB only in SPX
options.
\8\ Symbol reference data for those complex strategies
designated by the Exchange will be publicly available on the
Exchange's website, and disseminated to subscribers to the
Exchange's data feeds that deliver complex order information.
---------------------------------------------------------------------------
For example, as noted above, the Exchange has determined that M or
N complex orders for SPX options are not eligible for entry into the
COB. Under the proposed rule, the Exchange may determine to permit M or
N complex orders for SPX options to be eligible for entry into the COB
in designated complex strategies (either user or Exchange-created)
under the proposed rule.\9\
---------------------------------------------------------------------------
\9\ This would be in addition to letting M and N complex orders
for SPX options enter the COB as set forth in current Rule
5.33(b)(2)(A).
---------------------------------------------------------------------------
Unlike leg markets, in which market-makers provide liquidity
through regularly updated quotes that indicate to customers the price
at which liquidity providers are willing to trade against their orders,
market-makers do not quote on the COB.\10\ As a result, the COB may
contain limited resting orders from liquidity providers within a
complex strategy to indicate to customers the price at which many
liquidity providers are willing to trade that complex strategy. The
Exchange believes that providing it with the ability to permit M and N
complex orders to rest orders in the COB in designated complex
strategies would, as discussed above, potentially consolidate liquidity
for complex strategies (particularly commonly traded complex
strategies) with similar risk profiles within a single strategy that
provides the same exposure. This may result in the COB for these
complex strategies (such as those that are commonly traded) providing
customers with this information, which may ultimately result in
additional price competition and execution opportunities for customers.
As previously noted, the Exchange determines which Capacities are
eligible for entry into the COB, and currently, in SPX options, M and N
complex orders are not eligible for entry into the COB except as set
forth in Rule 5.33(b)(2)(A). The Exchange believes that it is more
beneficial from a trading and efficiency perspective to designate
strategies in which M and N orders are eligible for COB entry, rather
than determine that M and N complex orders in all complex strategies
(including SPX options) are eligible for COB entry, as Market-Makers
may not be willing to rest in the number of large number of complex
strategies that exist in the COB.
---------------------------------------------------------------------------
\10\ See Interpretation and Policy .01 to Rule 5.33.
---------------------------------------------------------------------------
The proposed changes would allow the Exchange to create complex
strategies, in addition to those strategies that are created today by
users through receipt of a complex instrument creation request or
complex order for a complex strategy that is not currently in the
System. The proposed changes have no impact on the current process for
complex strategy creation from a user perspective, as users will still
be able to create complex strategies; however, the changes may promote
trading efficiencies, as the user may (but is not required to) choose
to trade in an Exchange-created strategy (rather than create a new,
additional strategy), should it reflect the desired complex strategy to
be traded. The changes would also provide the Exchange with the ability
to designate complex strategies (which may be created by users or, as
proposed, created by the Exchange) in which M and N complex orders are
eligible for entry into the COB. Trading in strategies the Exchange
does not designate as being eligible for M and N orders to rest will
continue as it does today. The Exchange will maintain on its publicly
available website a list of designated complex strategies. This will
allow liquidity providers to easily determine in which complex
strategies they are able to rest their orders (if they so choose) and
better management their risk. Current rules permit the Exchange to
allow M and N orders into the COB for complex strategies in certain
circumstances if the Exchange has otherwise determined that M and N
orders are not eligible for COB entry; the rule change merely provides
the Exchange with flexibility to allow this also in designated complex
strategies. Such designated complex
[[Page 21551]]
strategies may include, for example, those strategies that are or may
become commonly traded, based on trading activity and market feedback.
As noted, the COB may contain limited resting orders from liquidity
providers within a complex strategy to indicate to customers the price
at which many liquidity providers are willing to trade that complex
strategy. The Exchange believes permitting M and N complex orders to
enter the COB for designated complex strategies will create potential
execution opportunities for customers in these designated complex
strategies.
By way of illustration, consider the following example:
Assume that on January 22, 2024, a trader sells the following box
spread for $998.31, expiring on February 2, 2024, for purposes of
raising cash.
Sell 2024-02-02 SPX call with a strike of $4,000
Buy 2024-02-02 SPX put with a strike of $4,000
Buy 2024-02-02 SPX call with a strike of $5,000
Sell 2024-02-02 SPX put with a strike of $5,000
Upon the sale, the trader receives a net premium (equivalent to a
short-term loan that is due on the expiration date of February 2) of
$99,831. At expiry, the trader will have to pay $100,000, which implies
a rate of 5.5309%. However, this box spread trade is not the only trade
that can provide this exposure. There are many box spreads with this
expiration date that could replicate the same exposure created by the
above box spread, such as box spreads with the same expiry date and a
strike distance of 1,000, like the following Alternatives 1 and 2:
Alternative 1
Sell 2024-02-02 SPX call with a strike of $3,000
Buy 2024-02-02 SPX put with a strike of $3,000
Buy 2024-02-02 SPX call with a strike of $4,000
Sell 2024-02-02 SPX put with a strike of $4,000
Alternative 2
Sell 2024-02-02 SPX call with a strike of $4,100
Buy 2024-02-02 SPX put with a strike of $4,100
Buy 2024-02-02 SPX call with a strike of $5,100
Sell 2024-02-02 SPX put with a strike of $5,100
While alternatives 1 and 2 may not have the same quoted price as
the original order, they would offer the same term of risk exposure.
However, this demonstrates that liquidity for commonly traded complex
strategies with similar risk profiles may be spread across multiple
complex strategies. This may limit price competition and execution
opportunities for customers. Pursuant to the proposed rule change, the
Exchange could permit M and N complex orders to rest in the COB for one
of the above complex strategies, which may permit the consolidation of
liquidity from liquidity providers willing to assume the risk exposure
of the above box spreads.
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.\11\ Specifically, the
Exchange believes the proposed rule change is consistent with the
section 6(b)(5) \12\ 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) \13\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
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\11\ 15 U.S.C. 78f(b).
\12\ 15 U.S.C. 78f(b)(5).
\13\ Id.
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In particular, the Exchange believes the proposed rule change will
remove impediments to and perfect the mechanism of a free and open
market and a national market system, and, in general, protect
investors, by potentially consolidating liquidity for complex
strategies and increasing execution opportunities for customers. As
noted above, the Exchange understands from market participants that
electronic trading in complex strategies may be limited, in part due to
the fragmentation of liquidity across multiple customer-created complex
instruments expressing a similar exposure profile. The Exchange
believes that permitting it to create complex strategies, including
commonly traded ones, would allow for the consolidation of liquidity
within a single complex strategy that is currently spread across
multiple customer-created complex instruments expressing the same or
similar exposure profiles, which may increase execution opportunities
at more competitive prices, to the benefit of investors. Under the
proposed change, if market participants wish to execute a trade in a
complex strategy to achieve a certain level of risk exposure and the
Exchange has created a complex strategy that already provides that
level of risk exposure, then market participants could choose to submit
an order within that strategy, as opposed to creating a new one. As
noted above, customers may continue to create complex instruments as
they do today.
Additionally, the Exchange believes the proposed change to allow it
to determine, in a class in which it determines complex orders of
Market-Makers and away market-makers are not eligible for entry into
the COB, that Market-Makers and away market-makers may enter complex
orders into the COB if the complex order is in a complex strategy
designated by the Exchange, will remove impediments to and perfect the
mechanism of a free and open market and a national market system, and,
in general, protect investors. The Exchange believes that providing it
with the ability to permit M and N complex orders to rest in the COB in
designated complex strategies (in addition to resting in the COB for
complex strategies as set forth in current Rule 5.33(b)(2)(A)) would
also potentially consolidate liquidity for complex strategies
(particularly commonly traded complex strategies) with similar risk
profiles within a single strategy that provides the same exposure. As
noted above, unlike the leg markets, in which market-makers provide
liquidity through quotes, the COB has no market-maker quotes that
indicate to customers the price at which liquidity providers are
willing to trade against their orders, market-makers do not quote on
the COB. As a result, the COB may contain limited resting orders from
liquidity providers within a complex strategy to indicate to customers
the price at which many liquidity providers are willing to trade that
complex strategy. The Exchange believes that permitting it to determine
M and N complex orders in designated complex strategies are eligible
for entry in the COB (which may be created by users or, as proposed,
created by the Exchange) would potentially consolidate liquidity for
complex strategies (particularly commonly traded complex strategies)
with similar risk profiles within a single
[[Page 21552]]
strategy that provides the same exposure, which may result in the COB
for these complex providing customers with this information, which may
ultimately result in additional price competition and execution
opportunities for customers. As previously noted, current rules permit
the Exchange to allow M and N orders into the COB for complex
strategies in certain circumstances if the Exchange has otherwise
determined that M and N orders are not eligible for COB entry; the rule
change merely provides the Exchange with flexibility to allow this also
in designated complex strategies.
Finally, the Exchange believes the proposed changes are equitable
and non-discriminatory, as the changes will apply to all market
participants uniformly. As noted above, under the proposed rule change,
customers may continue to create complex instruments as they do today.
When determining which complex strategies to create and in which
complex strategies M and N orders are eligible for COB entry, the
Exchange represents it intends to make such determinations based on
objective, nondiscriminatory factors, including strategy type, orders
and executions within a strategy type using close by strikes, and
market participant feedback, in order to incentive market participants
to trade within these strategies. The Exchange believes determining
such strategies for this purpose would increase the likelihood of
achieving the purpose of the proposed rule change.
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 it will apply in the
same manner to all market participants. The Exchange notes that any
complex strategy it could create under the proposed rule change could
be created today by a user. Further, under current rules, the Exchange
may, in a class in which the Exchange determines M and N complex orders
are not eligible for entry into the COB, determine that such orders may
be entered into the COB in complex strategies in defined circumstances,
as described above; the proposed rule change provides the Exchange with
additional flexibility to designate complex strategies in which M and N
complex orders may be entered into the COB.
The Exchange does not believe that the proposed change will impose
an unnecessary or inappropriate burden on intermarket competition, as
it relates to complex strategies that may be created for trading on the
Exchange and orders that the Exchange permits to rest on the COB. The
Exchange notes that it operates in a highly competitive market, with
many other options exchanges offering the ability to trade complex
orders and at least one other options exchange that has the authority
to create complex strategies.\14\
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\14\ See MIAX Rule 518(a)(6).
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Additionally, current rules permit the Exchange to allow M and N
orders to rest in the COB in designated classes (and thus permit the
Exchange to not allow M and N orders to rest in the COB in designated
classes). The proposed change related to orders that the Exchange
permits to rest in the COB merely provides the Exchange with
flexibility to expand the defined circumstances in those classes the
Exchange does not otherwise permit M and N orders to do so, in addition
to the circumstances set forth in Rule 5.33(b)(2)(A). As noted above,
Exchange believes that it is more beneficial from a trading and
efficiency perspective to designate strategies in which M and N orders
are eligible for COB entry, rather than determine that M and N complex
orders in all complex strategies (including SPX options) are eligible
for COB entry, as Market-Makers may not be willing to rest in the
number of large number of complex strategies that exist in the COB.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received comments on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the Exchange consents, the Commission will:
A. by order approve or disapprove such proposed rule change, or
B. institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
file number SR-CBOE-2024-015 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-2024-015. 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
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. Do not
include personal identifiable information in submissions; you should
submit only information that you wish to make available publicly. We
may redact in part or withhold entirely from publication submitted
material that is obscene or subject to copyright protection. All
submissions should refer to file number SR-CBOE-2024-015 and should be
submitted on or before April 18, 2024.
[[Page 21553]]
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\15\
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\15\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-06587 Filed 3-27-24; 8:45 am]
BILLING CODE 8011-01-P
