Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing of a Proposed Rule Change To Amend Its Rules Regarding the Types of Complex Orders Available for Flexible Exchange Options (“FLEX”) Trading at the Exchange, 86393-86398 [2024-25145]
Download as PDF
<![CDATA[
Federal Register / Vol. 89, No. 210 / Wednesday, October 30, 2024 / Notices
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act.
IV. Solicitation of Comments
[FR Doc. 2024–25142 Filed 10–29–24; 8:45 am]
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–
NYSE–2024–66 on the subject line.
ddrumheller on DSK120RN23PROD with NOTICES1
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–NYSE–2024–66. 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–NYSE–2024–66, and should be
submitted on or before November 20,
2024.
VerDate Sep<11>2014
17:59 Oct 29, 2024
Jkt 265001
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.12
Sherry R. Haywood,
Assistant Secretary.
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–101422; File No. SR–
CboeBZX–2024–026]
Self-Regulatory Organizations; Cboe
BZX Exchange, Inc.; Notice of
Designation of a Longer Period for
Commission Action on Proceedings To
Determine Whether To Approve or
Disapprove a Proposed Rule Change
To Permit the Generic Listing and
Trading of Multi-Class ETF Shares
October 23, 2024.
On April 15, 2024, Cboe BZX
Exchange, Inc. (‘‘BZX’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’), pursuant to Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Act’’) 1 and Rule 19b–4
thereunder,2 a proposed rule change to
amend BZX Rule 14.11(l) to permit the
generic listing and trading of MultiClass ETF Shares. The proposed rule
change was published for comment in
the Federal Register on May 1, 2024.3
On May 30, 2024, pursuant to Section
19(b)(2) of the Act,4 the Commission
designated a longer period within which
to approve the proposed rule change,
disapprove the proposed rule change, or
institute proceedings to determine
whether to disapprove the proposed
rule change.5 On July 12, 2024, the
Commission instituted proceedings
pursuant to Section 19(b)(2)(B) of the
Act 6 to determine whether to approve
or disapprove the proposed rule
change.7
Section 19(b)(2) of the Act 8 provides
that, after initiating disapproval
proceedings, the Commission shall issue
an order approving or disapproving the
proposed rule change not later than 180
days after the date of publication of
12 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 See Securities Exchange Act Release No. 100034
(April 25, 2024), 89 FR 35255. Comments on the
proposed rule change are available at: https://
www.sec.gov/comments/sr-cboebzx-2024-026/
srcboebzx2024026.htm.
4 15 U.S.C. 78s(b)(2).
5 See Securities Exchange Act Release No.
100248, 89 FR 48202 (June 5, 2024).
6 15 U.S.C. 78s(b)(2)(B).
7 See Securities Exchange Act Release No.
100522, 89 FR 58463 (July 18, 2024).
8 15 U.S.C. 78s(b)(2).
1 15
PO 00000
Frm 00084
Fmt 4703
Sfmt 4703
86393
notice of filing of the proposed rule
change. The Commission may extend
the period for issuing an order
approving or disapproving the proposed
rule change, however, by not more than
60 days if the Commission determines
that a longer period is appropriate and
publishes the reasons for such
determination. The proposed rule
change was published for notice and
comment in the Federal Register on
May 1, 2024. October 28, 2024 is 180
days from that date, and December 27,
2024 is 240 days from that date.
The Commission finds it appropriate
to designate a longer period within
which to issue an order approving or
disapproving the proposed rule change
so that it has sufficient time to consider
the proposed rule change. Accordingly,
the Commission, pursuant to Section
19(b)(2) of the Act,9 designates
December 27, 2024 as the date by which
the Commission shall either approve or
disapprove the proposed rule change
(File No. SR–CboeBZX–2024–026).
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.10
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024–25060 Filed 10–29–24; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–101428; File No. SR–
CBOE–2024–047]
Self-Regulatory Organizations; Cboe
Exchange, Inc.; Notice of Filing of a
Proposed Rule Change To Amend Its
Rules Regarding the Types of Complex
Orders Available for Flexible Exchange
Options (‘‘FLEX’’) Trading at the
Exchange
October 24, 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 October
11, 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
9 Id.
10 17
CFR 200.30–3(a)(57).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
E:\FR\FM\30OCN1.SGM
30OCN1
86394
Federal Register / Vol. 89, No. 210 / Wednesday, October 30, 2024 / Notices
proposed rule change from interested
persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Cboe Exchange, Inc. (the ‘‘Exchange’’
or ‘‘Cboe Options’’) proposes to amend
its Rules regarding the types of complex
orders available for flexible exchange
options (‘‘FLEX’’) trading at the
Exchange. The text of the proposed rule
change is provided in Exhibit 5.
The text of the proposed rule change
is also available on the Exchange’s
website (https://www.cboe.com/About
CBOE/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
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
ddrumheller on DSK120RN23PROD with NOTICES1
1. Purpose
The Exchange proposes to adopt rules
to govern a new type of complex FLEX
Order. Specifically, the Exchange
proposes to amend Rules 4.21 (Series of
FLEX Options), 5.70 (Availability of
Orders), 5.72 (FLEX Trading), and 6.5
(Nullification and Adjustment of
Options Transactions Including Obvious
Errors).
FLEX Options are customized equity
or index option contracts that allow
investors to tailor contract terms for
exchange-listed equity and index
options. The Exchange may make
simple FLEX Orders and complex FLEX
Orders (see Rule 5.70(b)), including
security future-option orders and stockoption orders, available for FLEX
trading. Currently, the legs of a complex
FLEX Order are limited to FLEX Option
series only. An investor wishing to trade
a complex strategy containing both
FLEX Option series and non-FLEX
Option series must execute such
strategy using two or more separate
VerDate Sep<11>2014
17:59 Oct 29, 2024
Jkt 265001
orders. The Exchange now proposes to
amend its rules to allow for the legs of
a complex FLEX Order to include a
combination of FLEX Option series and
non-FLEX Option series (‘‘FLEX v. NonFLEX Order’’).
The Exchange notes that, with
exception of the rules proposed in this
rule filing, FLEX v. Non-FLEX Orders
will be subject to the same trading rules
and procedures that currently govern
the trading of other complex FLEX
Orders on the Exchange. There are no
changes in regards to complex FLEX
Orders with FLEX Option legs only as
a result of the proposed rule change. To
permit the trading of FLEX v. Non-FLEX
Orders, the Exchange proposes to
amend its rules as follows.
First, the Exchange proposes to
amend Rule 5.70 (Availability of Orders)
to add FLEX v. Non-FLEX Orders to the
types of complex orders available for
FLEX trading.3 Specifically, the
Exchange proposes to amend Rule
5.70(b) to state that the legs of a
complex FLEX Order may be for FLEX
Option series only or a combination of
FLEX Option series and non-FLEX
Option series (‘‘FLEX v. Non-FLEX
Order’’).4 As noted above, FLEX v. NonFLEX Orders will be considered
complex FLEX instruments, which will
be subject to the same trading rules and
procedures that govern the trading of
other FLEX Orders on the Exchange
(unless otherwise noted herein). The
Exchange also proposes to amend Rule
5.70(b) to remove the requirement that
each leg(s) of a complex FLEX Order
must be for a FLEX Option series
authorized for FLEX trading with the
same underlying equity security or
index and must have the same exercise
style. The proposed change will allow
for the trading of the proposed FLEX v.
Non-FLEX Orders and will, in general,
provide FLEX Traders with more
3 As part of the proposed rule change, the
Exchange proposes to amend Rule 5.70(b) to add a
cite to the definition of complex order in Rule 1.1;
this is not a substantive change, but rather merely
adds a cross-reference to the defined term for
purposes of clarity. Per Rule 1.1, the term ‘‘complex
order’’ means an order involving the concurrent
execution of two or more different series in the
same underlying security or index (the ‘‘legs’’ or
‘‘components’’ of the complex order), for the same
account, occurring at or near the same time and for
the purpose of executing a particular investment
strategy with no more than the applicable number
of legs (which number the Exchange determines on
a class-by-class basis).
4 Under the proposed rule change, complex FLEX
Orders could include both listed instruments as
well as FLEX instruments (if at least one leg is for
a FLEX Option series), with an optional stock leg.
Per the definition of complex order, the legs of all
complex FLEX Orders (including FLEX v. NonFLEX options) must have the same underlying
security or index. See Rule 1.1 (definition of
complex order).
PO 00000
Frm 00085
Fmt 4703
Sfmt 4703
flexibility and opportunities for
customization via FLEX trading.
The Exchange also proposes to add
Rule 5.70(d), which states that, in
classes determined by the Exchange, a
nonconforming FLEX v. Non-FLEX
Order is not eligible for electronic
processing, in which case the
nonconforming FLEX v. Non-FLEX
Order may only be submitted for
manual handling and open outcry
trading. For reference, a
‘‘nonconforming complex order’’ is
defined as a complex order with a ratio
on the options legs less than one-tothree (.333) or greater than three-to-one
(3.00).5 The proposed language is the
same as language currently included in
the definition of ‘‘complex order’’ in
Rule 5.33(a), the intent of which is to
permit the Exchange to determine in
which classes nonconforming complex
orders (including stock-option orders)
may be submitted for electronic
processing on the Exchange pursuant to
Rule 5.33.
The Exchange also proposes to add
Rule 5.70(e), which states that the nonFLEX Option leg(s) of a FLEX v. NonFLEX Order may not Leg into the
Simple Book, to provide for more
efficient execution and processing of
FLEX v. Non-FLEX Orders. The series
that would comprise a FLEX v. NonFLEX Order are parts of different classes
and thus are subject to different trading
setting and parameters pursuant to the
Rules. Currently, electronic trading is
not possible ‘‘across’’ classes given these
different settings. Non-FLEX classes also
have separate market data inputs, as the
System must read market data for each
class in connection with potential
executions in non-FLEX classes. If the
System receives a FLEX v. Non-FLEX
Order, it would need to trade the NonFLEX leg against the appropriate leg in
the book; however, there is no book
with resting simple FLEX orders against
which the FLEX leg could execute. If
this were to occur, execution
opportunities for FLEX v. Non-FLEX
Orders may be prevented. As discussed
below, the Non-FLEX legs of FLEX v.
Non-FLEX Orders will protect Priority
Customer orders in the simple book for
the Non-FLEX classes.6
The Exchange proposes to amend
Rule 5.72 (FLEX Trading) to distinguish
criteria for a complex order with only
FLEX Option legs and to add criteria for
FLEX and non-FLEX Option legs of a
FLEX v. Non-FLEX Order. First, the
5 See
Rule 1.1.
proposed change is consistent with current
Rules that do not permit legging of complex orders
consisting of legs in different groups of series in a
class, as the System handles groups of series as
different classes. See Rule 5.33(g)(6).
6 This
E:\FR\FM\30OCN1.SGM
30OCN1
86395
Federal Register / Vol. 89, No. 210 / Wednesday, October 30, 2024 / Notices
Exchange proposes to amend Rule
5.72(b)(2) to specify that each FLEX
Option leg of the FLEX Option complex
strategy must include all terms for a
FLEX Option series set forth in Rule
4.21 (including that a non-FLEX Option
series with identical terms is not listed
for trading), subject to the order entry
requirements set forth in Rule 5.7.
Additionally, the Exchange proposes
changes to distinguish the criteria for a
complex order with only FLEX Option
leg(s) from that proposed for FLEX v.
Non-FLEX Orders, noting that there are
no changes to the criteria to those FLEX
Orders containing only FLEX Option
leg(s) as a result of the proposed rule
change. The Exchange proposes to
amend Rule 5.72(b)(2)(A) to specifically
reference the pricing requirements for
complex FLEX Orders with FLEX
Option legs only. As proposed Rule
5.72(b)(2)(A)(i) contains the
requirements for a complex FLEX Order
with only FLEX Option legs submitted
into the System for an electronic FLEX
Auction pursuant to Rule 5.72(c) or
Rules 5.73 or 5.74, which must include
a bid or offer price for each leg, which
leg prices must add together to equal the
net price. Proposed Rule
5.72(b)(2)(A)(ii) sets forth the
requirements for a complex FLEX Order
with only FLEX Option legs submitted
Instrument ID
Legs
Symbol
Side
CI0001 ................................
Leg 1 ................
Leg 2 ................
XYZ ...................
1XYZ .................
Buy ...................
Sell ....................
FLEX Order Auction (‘‘FOA’’): Buy 10
CI0001 @1.25.
Leg 1 (Non-FLEX Option Leg) Price:
N/A
Leg 1 Market: (Exchange Market-Maker)
2.20 × 2.30 (Exchange Market-Maker)
Leg 2 (FLEX Option Leg) Price: 1.00
Ratio
1
1
Symbol
Side
CI0001 ................................
Leg 1 ................
Leg 2 ................
XYZ ...................
1XYZ .................
Buy ...................
Sell ....................
Strike
December .........................
November .........................
FOA trades 5 with Response 1 at 1.19.
The legs print at 2.20 and 1.01.
FOA trades 5 with Response 2 at 1.25.
The legs print at 2.25 and 1.00.
Legs
each non-FLEX Option leg, and a net
price. By allowing flexibility in open
outcry trading, FLEX Traders may
achieve their desired net price for the
order.
To achieve the desired net execution
price for a FLEX v. Non-FLEX Order (1)
the execution leg price of each nonFLEX Option leg may not be worse than
the NBBO,7 worse than the BBO,8 or
equal to the BBO if there is a Priority
Customer order(s) on the Simple Book;
and (2) the execution leg price of each
FLEX Option leg(s) may be adjusted so
that the prices of the FLEX Option legs
combined with the prices of the nonFLEX Option legs add together to equal
the net price. If a non-FLEX Option leg
of a FLEX v. Non-FLEX Order cannot
execute at a price permissible that meets
the requirements set forth in proposed
Rule 5.72(b)(2)(B)(i), the entire FLEX v.
Non-FLEX Order will be cancelled.
The below examples are designed to
illustrate the pricing of a FLEX v. NonFLEX Order. Assume for each example
a FLEX Trader wishes to execute a
complex FLEX Order with two legs (one
FLEX Option leg and one non-FLEX
Option leg).
Example 1: Listed (i.e., non-FLEX) legs
are adjusted to their NBBO first, FLEX
Option leg is then adjusted residually to
meet net execution price.
Expiration
Response 1: Sell 5 @1.19
Response 2: Sell 5 @1.25
Instrument ID
Ratio
Call.
Call.
Example 2: Listed (i.e., Non-FLEX)
legs are adjusted up/down to their
NBBO first, FLEX Option leg retains
specified price, as no further adjustment
is needed to meet net price.
Expiration
1
1
10
10.01
Type
Strike
December .........................
November .........................
10
10.01
Type
Call.
Call.
Leg 1 (Non-FLEX Option Leg) Price:
N/A
Leg 1 Market: (Exchange Market-Maker)
2.15 × 2.30 (Exchange Market-Maker)
Leg 2 (FLEX Option Leg) Price: 1.00
Response 1: Sell 5 @1.19
Response 2: Sell 5 @1.25
FOA trades 5 with Response 1 at 1.19.
The legs print at 2.19 and 1.00.
FOA trades 5 with Response 2 at 1.25.
The legs print at 2.25 and 1.00.
The Exchange proposes to amend
Rule 4.21 (Series of FLEX Options).9
The Exchange proposes to add Rule
4.21(a)(4) to state that the Exchange may
halt trading in a FLEX complex strategy
(whether comprised of all FLEX Option
legs or FLEX and non-FLEX Option legs)
if any leg of the strategy is halted. The
System does not accept a FLEX complex
order for a series while trading in the
class is halted. A FLEX complex strategy
may not execute until all legs are no
longer halted.
7 See Rule 1.1. The term ‘‘NBBO’’ means the
national best bid or offer the Exchange calculates
based on market information it receives from OPRA.
8 See Rule 1.1. The term ‘‘BBO’’ means the best
bid or offer disseminated on the Exchange.
9 As part of the proposed changes, the Exchange
proposes to add a ‘‘FLEX Option series’’ as a
defined term in Rule 4.21(a). Further, to enhance
comprehension, the Exchange proposes to amend
Rule 4.21(a)(2) to add a missing word (‘‘be’’), as
well as clarify that a FLEX Order for a new FLEX
Option series may be submitted on any trading day
prior to the expiration date. Such changes are nonsubstantive, clarifying changes.
FOA: Buy 10 CI0001 @1.25.
ddrumheller on DSK120RN23PROD with NOTICES1
into the System prior to representation
in an open outcry FLEX Auction
pursuant to Rule 5.72 (d), namely that
the order may include a bid or offer
price on one or more of the legs (subject
to a FLEX Trader’s responsibilities
pursuant to Rule 5.91 and Chapter 9).
The execution leg prices must be
entered or modified, as necessary, via
PAR following execution of the order,
which prices must add together to equal
the net execution price.
The Exchange proposes to add Rule
5.72(b)(2)(B) containing certain
requirements for a FLEX v. Non-FLEX
Order. Under the proposed rule, a FLEX
v. Non-FLEX Order submitted in the
System for an electronic FLEX Auction
pursuant to Rule 5.72(c) must include a
bid or offer price for each FLEX Option
leg but no bid or offer price for each
non-FLEX Option leg, and a net price.
By allowing the System the ability to
adjust the price of the legs, FLEX
Traders may achieve their desired net
price for the order, while ensuring the
non-FLEX Option legs fit within pricing
requirements of the non-FLEX markets.
A FLEX v. Non-FLEX Order submitted
into the System prior to representation
in an open outcry FLEX Auction
pursuant to Rule 5.72(d) below [sic] may
include a bid or offer price for any FLEX
Option leg but no bid or offer price for
VerDate Sep<11>2014
17:59 Oct 29, 2024
Jkt 265001
PO 00000
Frm 00086
Fmt 4703
Sfmt 4703
E:\FR\FM\30OCN1.SGM
30OCN1
86396
Federal Register / Vol. 89, No. 210 / Wednesday, October 30, 2024 / Notices
ddrumheller on DSK120RN23PROD with NOTICES1
Finally, the Exchange proposes to
amend Rule 6.5 (Nullification and
Adjustment of Option Transactions
Including Obvious Errors),
Interpretation and Policy .07.
Specifically, the Exchange proposes to
add Rule 6.5, Interpretation and Policy.
07(d), to state that if a non-FLEX Option
leg of a FLEX v. Non-FLEX Order
qualifies as an Obvious Error under Rule
6.5(c)(1) or a Catastrophic Error under
Rule 6.5(d)(1), then the non-FLEX
Option leg that is an Obvious or
Catastrophic Error will be adjusted in
accordance with Rules 6.5(c)(4)(A) or
(d)(3), respectively, regardless of
whether one of the parties is a
Customer. However, the non-FLEX
Option leg of any Customer order
subject to proposed Rule 6.5,
Interpretation and Policy. 07(d) will be
nullified if the adjustment would result
in an execution price higher (for buy
transactions) or lower (for sell
transactions) than the Customer’s net
execution price of the non-FLEX Option
leg. If any leg of a FLEX v. Non-FLEX
Order is nullified, the entire transaction
is nullified. This is consistent with the
Exchange’s handling of other complex
orders, including stock-option orders,
and ensures protections in the event of
an Obvious or Catastrophic error.
The Exchange believes that its
existing surveillance and reporting
safeguards in place are adequate to deter
and detect possible manipulative
behavior which might arise from trading
FLEX v. Non-FLEX Orders and will
support the protection of investors and
the public interest. The Exchange also
represents that it has the necessary
system capacity to support the new
complex FLEX Order type. Finally, the
Exchange does not believe that any
market disruptions will be encountered
with the introduction of this complex
FLEX Order type.
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.10 Specifically,
the Exchange believes the proposed rule
change is consistent with the Section
6(b)(5) 11 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,
10 15
11 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
VerDate Sep<11>2014
17:59 Oct 29, 2024
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) 12 requirement that
the rules of an exchange not be designed
to permit unfair discrimination between
customers, issuers, brokers, or dealers.
Specifically, the Exchange believes
the proposed rule change will benefit
investors by expanding investors’
choices and flexibility with respect to
the trading of FLEX Options. The
Exchange believes that introducing
FLEX v. Non-FLEX Orders will increase
order flow to the Exchange, increase the
variety of options products available for
trading, and provide a valuable tool for
investors to manage risk.
The Exchange believes that the
proposed rule change would remove
impediments to and perfect the
mechanism of a free and open market as
FLEX v. Non-FLEX Orders would enable
market participants to execute a
complex strategy including a
combination of FLEX Option series and
non-FLEX Option series, which would,
in turn, provide greater opportunities
for market participants to manage risk
through the use of a complex FLEX
Order to the benefit of investors and the
public interest. The proposed rule
change will benefit TPHs by providing
a more efficient mechanism for TPHs to
provide and seek liquidity for
customized or complex FLEX strategies
which include a non-FLEX Option
leg(s).
Further, trading FLEX Options,
including FLEX v. Non-FLEX Orders, on
an exchange is an alternative to trading
customized options in OTC markets and
carries with it the advantages of
exchange markets such as transparency,
parameters and procedures for clearance
and settlement, and a centralized
counterparty clearing agency. Therefore,
the Exchange believes the proposed rule
change will promote these same benefits
for the market as a whole by providing
an additional venue for market
participants to seek liquidity for
customized, large-sized, or complex
FLEX option orders, including those
with a non-FLEX Option leg(s). The
Exchange believes that providing an
additional venue for these FLEX orders,
rather than potentially splitting the
orders across OTC and exchange
markets, will benefit investors by
increasing competition for order flow
12 Id.
Jkt 265001
PO 00000
Frm 00087
Fmt 4703
Sfmt 4703
and executions, and thereby potentially
result in more competitive pricing
related to FLEX Options.
The Exchange believes that the
proposed changes to Rule 5.70(b), to add
FLEX v. Non-FLEX Orders to the list of
complex orders available for FLEX
trading, are consistent with the Act and
remove impediments to and perfect the
mechanism of a free and open market
and a national market system because
the changes will allow investors to trade
in a more efficient manner, allowing
investors to better customize their
trading strategies and implement more
precise trading strategies which are not
available under current rules. Currently,
a market participant is unable to trade
a FLEX Option and a listed option as
part of the same complex strategy; such
user must submit an order containing
the FLEX Option(s) and an order
containing the listed option. This may
introduce additional complexities such
as price and legging risk, which would
be eliminated under the proposed rule
change. These complexities may
unnecessarily limit market participants’
ability to trade in an exchange
environment that offers the added
benefits of transparency, price
discovery, liquidity, and financial
stability. These investors may have
improved capability under the proposed
rule change to execute strategies to meet
their specific investment objectives by
using a single order with customized
FLEX Option legs with non-FLEX
Option legs.
Similarly, the Exchange also believes
the proposed changes to Rule 5.70(b), to
remove the requirements that each leg of
a complex FLEX Order must be for a
FLEX Option series authorized for FLEX
trading with the same underlying equity
security or index and have the same
exercise style, will remove impediments
to and perfect the mechanism of a free
and open market and benefit investors,
because it will provide TPHs with
additional flexibility and precision in
their investment strategies, by allowing
TPHs to trade complex strategies that
would otherwise be required to split
into multiple, separate orders.
The proposed change to Rule 5.70(b)
to add a cite to Rule 1.1 for the
definition of complex orders provides
further clarity within the Rules, to the
benefit of investors.
The Exchange believes the proposed
changes to Rule 4.21(a), which address
when the Exchange may halt trading in
a FLEX complex strategy (whether
comprised of all FLEX Option legs or
FLEX and non-FLEX Option legs), are
consistent with the Act and promotes
the public interest and the protection of
investors by clarifying the Exchange’s
E:\FR\FM\30OCN1.SGM
30OCN1
ddrumheller on DSK120RN23PROD with NOTICES1
Federal Register / Vol. 89, No. 210 / Wednesday, October 30, 2024 / Notices
authority with respect to FLEX complex
strategies comprised of all FLEX Option
legs and providing a consistent and
transparent procedure with respect to
FLEX complex strategies comprised of
FLEX and non-FLEX Option legs, that
would be applied by the Exchange,
similar to trading halt authority under
current rules.13 Further, the proposed
change to add the defined term ‘‘FLEX
Option series’’ provides further clarity
within the Rules and eliminates
potential confusion by providing a
definition of ‘‘FLEX Option series’’ to
the benefit of investors.
The Exchange believes the proposed
changes to Rule 5.72(b)(2)(A), which
provide clarity with respect to the
criteria required for complex FLEX
Orders with FLEX Option legs only,
helps [sic] will help promote a fair and
orderly national options market system.
As noted above, there are no changes in
regards to complex FLEX Orders with
FLEX Option legs only as a result of the
proposed rule changes. As such, the
changes proposed under Rule
5.72(b)(2)(A), to separate out the
requirements for complex FLEX Orders
with FLEX Option legs only, provide
clarity regarding the requirements for
complex FLEX Orders with FLEX
Option legs only, as compared to the
proposed requirements for complex
FLEX Orders with FLEX and non-FLEX
Option legs.
Additionally, the Exchange believes
the proposed rule change to add Rule
5.70(d) will 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,
because it will provide market
participants with the same flexibility
with respect to all their complex trading
strategies. The proposed rule change
eliminates confusion regarding what
types of FLEX v. Non-FLEX Orders are
permissible for electronic processing. As
noted above, the proposed rule changes
regarding execution of nonconforming
FLEX v. Non-FLEX Orders are
consistent with the Exchange’s
previously adopted rules regarding
execution of other nonconforming
complex orders.
The Exchange believes the proposed
pricing requirements for FLEX v. NonFLEX Orders, set forth in proposed Rule
5.72(b)(2)(B), would remove
impediments to and perfect the
mechanism of a free and open market,
as the proposed trading process for
FLEX v. Non-FLEX Orders will provide
the ability for investors to achieve the
desired net package price for those
13 See,
e.g., Rule 4.21(a)(3).
VerDate Sep<11>2014
17:59 Oct 29, 2024
Jkt 265001
orders while protecting customers with
resting interest in the non-FLEX Simple
Book. By requiring a FLEX v. Non-FLEX
Order submitted into a FLEX Auction
(whether electronically or in open
outcry) to include a bid or offer price for
each FLEX Option leg, but no bid or
offer for each non-FLEX Option leg, and
a net price, the requirements ensure that
the non-FLEX Option leg will be subject
to the same pricing requirements as they
would if not part of a FLEX v. NonFLEX Order. Specifically, the price of
any non-FLEX Option leg that is part of
a FLEX v. Non-FLEX Order may not be
outside of the BBO or NBBO. The
Exchange’s proposal will continue to
protect Priority Customer interest on the
Exchange, as the non-FLEX Option legs
of a FLEX v. Non-FLEX Order will
always trade at a price better than BBO
if there is a customer on a leg.
The Exchange believes this proposed
trading process will ensure user who
chooses to submit a listed (i.e., NonFLEX) leg as part of a FLEX v. NonFLEX Order is subject to the same
pricing requirements as they would be
if the listed leg was not submitted with
FLEX Option legs for execution.
Ultimately, FLEX v. Non-FLEX Orders
will trade in the same manner as FLEX
complex orders do today, and execution
of the non-FLEX Option legs of these
orders will continue to comply with
linkage requirements (by not permitting
trade-throughs of the NBBO) and protect
resting customer interest in the Simple
Book. Further, the Exchange believes
that the proposal to not permit the nonFLEX Option legs of a FLEX v. NonFLEX Order to leg into the Simple Book
is consistent with the Act and promotes
the public interest and the protection of
investors, because it will provide for
more efficient execution and processing
of FLEX v. Non-FLEX Orders, as legging
would prevent execution opportunities
for these orders (as discussed above).
Finally, the Exchange believes that
the proposed rule change is designed to
not permit unfair discrimination among
market participants as all TPHs may, but
are not required to, trade FLEX v. NonFLEX 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,
as all TPHs that are registered as FLEX
PO 00000
Frm 00088
Fmt 4703
Sfmt 4703
86397
Traders in accordance with the
Exchange’s Rules will be able to trade
FLEX v. Non-FLEX Orders in the same
manner.
The Exchange does not believe that
the proposed rule change will impose
any burden on intermarket competition
that is not necessary or appropriate in
furtherance of the purposes of the Act,
as the proposal is designed to increase
competition for order flow on the
Exchange in a manner that is beneficial
to investors because it is designed to
provide investors seeking to execute
both a FLEX Option(s) and a listed
option(s) with a more effective method
of executing the trades, which may
result in trade efficiencies (i.e., pricing
or reporting efficiencies) and reduced
risk (i.e., pricing and legging risk). The
Exchange believes the proposed rule
change will encourage competition, as it
may broaden the base of investors that
use FLEX Options to manage their
trading and investment risk, including
investors that currently trade in the OTC
market for customized options. The
Exchange believes the proposed rule
change may increase competition as it
may lead to the migration of options
currently trading in the OTC market to
trading on the Exchange. Also, any
migration to the Exchange from the OTC
market would result in increased market
transparency and thus increased price
competition.
The Exchange further notes that it
operates in a highly competitive market
in which market participants can
readily direct order flow to competing
venues who offer similar functionality.
All TPHs may, but are not required to,
trade FLEX v. Non-FLEX Orders at the
Exchange.
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
E:\FR\FM\30OCN1.SGM
30OCN1
86398
Federal Register / Vol. 89, No. 210 / Wednesday, October 30, 2024 / Notices
(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
[FR Doc. 2024–25145 Filed 10–29–24; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–101426; File No. SR–
CboeEDGX–2024–068]
• 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–2024–047 on the subject line.
Self-Regulatory Organizations; Cboe
EDGX Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of a
Proposed Rule Change To Amend Its
Fee Schedule
Paper Comments
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 October
18, 2024, Cboe EDGX Exchange, Inc.
(the ‘‘Exchange’’ or ‘‘EDGX’’) 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.
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
ddrumheller on DSK120RN23PROD with NOTICES1
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.14
Sherry R. Haywood,
Assistant Secretary.
All submissions should refer to file
number SR–CBOE–2024–047. 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–2024–047 and should be
submitted on or before November 20,
2024.
VerDate Sep<11>2014
17:59 Oct 29, 2024
Jkt 265001
October 24, 2024.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Cboe EDGX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘EDGX’’) proposes to
amend its Fee Schedule. 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/edgx/),
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
14 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
PO 00000
Frm 00089
Fmt 4703
Sfmt 4703
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 update its
Fee Schedule to provide a temporary
20% discount on fees assessed to EDGX
Members (‘‘Members’’) 3 and nonMembers that purchase $20,000 or more
of ad hoc purchases of EDGX Historical
Depth Data (‘‘Historical Depth
Reports’’), effective October 18, 2024
through December 31, 2024.
By way of background, the Exchange
currently makes available for purchase
Depth Data, which is a daily archive of
the Exchange’s depth of book real-time
feed, which provides depth-of-book
quotations and execution information
based on equity orders entered into the
System. The Exchange also offers
Historical Depth Data, which offers such
data on a historical basis, i.e. T+1 or
later. The Historical Depth Report is a
completely voluntary product, in that
the Exchange is not required by any rule
or regulation to make this data available
and that potential customers may
purchase it on an ad-hoc basis only if
they voluntarily choose to do so.
Cboe LiveVol, LLC (‘‘LiveVol’’), a
wholly owned subsidiary of the
Exchange’s parent company, Cboe
Global Markets, Inc., makes the
Historical Depth Report available for
purchase to Users on the LiveVol
DataShop website (datashop.cboe.com).
The Historical Depth Data is available
for purchase to Members and NonMembers; the Exchange charges a fee
per month of historical data of $1,000.
The Historical Depth Report provided
on a historical basis is only provided to
data recipients for internal use only, and
thus, no redistribution will be
permitted. The Exchange notes that the
Historical Depth Report is subject to
direct competition from other
exchanges, as other exchanges offer
similar products for a fee.4
3 See Rule 1.5(n) (‘‘Member’’). The term
‘‘Member’’ shall mean any registered broker or
dealer that has been admitted to membership in the
Exchange. A Member will have the status of a
‘‘member’’ of the Exchange as that term is defined
in Section 3(a)(3) of the Act. Membership may be
granted to a sole proprietor, partnership,
corporation, limited liability company or other
organization which is a registered broker or dealer
pursuant to Section 15 of the Act, and which has
been approved by the Exchange.
4 See, e.g., https://www.nasdaqtrader.com/
Trader.aspx?id=DPPriceListOptions#nom; and
E:\FR\FM\30OCN1.SGM
30OCN1
]]>Agencies
[Federal Register Volume 89, Number 210 (Wednesday, October 30, 2024)]
[Notices]
[Pages 86393-86398]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-25145]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-101428; File No. SR-CBOE-2024-047]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of
Filing of a Proposed Rule Change To Amend Its Rules Regarding the Types
of Complex Orders Available for Flexible Exchange Options (``FLEX'')
Trading at the Exchange
October 24, 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 October 11, 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
[[Page 86394]]
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 its Rules regarding the types of complex orders available for
flexible exchange options (``FLEX'') trading at the Exchange. The text
of the proposed rule change is provided in Exhibit 5.
The text of the proposed rule change is also available on the
Exchange's website (https://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx), at the Exchange's Office of the
Secretary, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to adopt rules to govern a new type of
complex FLEX Order. Specifically, the Exchange proposes to amend Rules
4.21 (Series of FLEX Options), 5.70 (Availability of Orders), 5.72
(FLEX Trading), and 6.5 (Nullification and Adjustment of Options
Transactions Including Obvious Errors).
FLEX Options are customized equity or index option contracts that
allow investors to tailor contract terms for exchange-listed equity and
index options. The Exchange may make simple FLEX Orders and complex
FLEX Orders (see Rule 5.70(b)), including security future-option orders
and stock-option orders, available for FLEX trading. Currently, the
legs of a complex FLEX Order are limited to FLEX Option series only. An
investor wishing to trade a complex strategy containing both FLEX
Option series and non-FLEX Option series must execute such strategy
using two or more separate orders. The Exchange now proposes to amend
its rules to allow for the legs of a complex FLEX Order to include a
combination of FLEX Option series and non-FLEX Option series (``FLEX v.
Non-FLEX Order'').
The Exchange notes that, with exception of the rules proposed in
this rule filing, FLEX v. Non-FLEX Orders will be subject to the same
trading rules and procedures that currently govern the trading of other
complex FLEX Orders on the Exchange. There are no changes in regards to
complex FLEX Orders with FLEX Option legs only as a result of the
proposed rule change. To permit the trading of FLEX v. Non-FLEX Orders,
the Exchange proposes to amend its rules as follows.
First, the Exchange proposes to amend Rule 5.70 (Availability of
Orders) to add FLEX v. Non-FLEX Orders to the types of complex orders
available for FLEX trading.\3\ Specifically, the Exchange proposes to
amend Rule 5.70(b) to state that the legs of a complex FLEX Order may
be for FLEX Option series only or a combination of FLEX Option series
and non-FLEX Option series (``FLEX v. Non-FLEX Order'').\4\ As noted
above, FLEX v. Non-FLEX Orders will be considered complex FLEX
instruments, which will be subject to the same trading rules and
procedures that govern the trading of other FLEX Orders on the Exchange
(unless otherwise noted herein). The Exchange also proposes to amend
Rule 5.70(b) to remove the requirement that each leg(s) of a complex
FLEX Order must be for a FLEX Option series authorized for FLEX trading
with the same underlying equity security or index and must have the
same exercise style. The proposed change will allow for the trading of
the proposed FLEX v. Non-FLEX Orders and will, in general, provide FLEX
Traders with more flexibility and opportunities for customization via
FLEX trading.
---------------------------------------------------------------------------
\3\ As part of the proposed rule change, the Exchange proposes
to amend Rule 5.70(b) to add a cite to the definition of complex
order in Rule 1.1; this is not a substantive change, but rather
merely adds a cross-reference to the defined term for purposes of
clarity. Per Rule 1.1, the term ``complex order'' means an order
involving the concurrent execution of two or more different series
in the same underlying security or index (the ``legs'' or
``components'' of the complex order), for the same account,
occurring at or near the same time and for the purpose of executing
a particular investment strategy with no more than the applicable
number of legs (which number the Exchange determines on a class-by-
class basis).
\4\ Under the proposed rule change, complex FLEX Orders could
include both listed instruments as well as FLEX instruments (if at
least one leg is for a FLEX Option series), with an optional stock
leg. Per the definition of complex order, the legs of all complex
FLEX Orders (including FLEX v. Non-FLEX options) must have the same
underlying security or index. See Rule 1.1 (definition of complex
order).
---------------------------------------------------------------------------
The Exchange also proposes to add Rule 5.70(d), which states that,
in classes determined by the Exchange, a nonconforming FLEX v. Non-FLEX
Order is not eligible for electronic processing, in which case the
nonconforming FLEX v. Non-FLEX Order may only be submitted for manual
handling and open outcry trading. For reference, a ``nonconforming
complex order'' is defined as a complex order with a ratio on the
options legs less than one-to-three (.333) or greater than three-to-one
(3.00).\5\ The proposed language is the same as language currently
included in the definition of ``complex order'' in Rule 5.33(a), the
intent of which is to permit the Exchange to determine in which classes
nonconforming complex orders (including stock-option orders) may be
submitted for electronic processing on the Exchange pursuant to Rule
5.33.
---------------------------------------------------------------------------
\5\ See Rule 1.1.
---------------------------------------------------------------------------
The Exchange also proposes to add Rule 5.70(e), which states that
the non-FLEX Option leg(s) of a FLEX v. Non-FLEX Order may not Leg into
the Simple Book, to provide for more efficient execution and processing
of FLEX v. Non-FLEX Orders. The series that would comprise a FLEX v.
Non-FLEX Order are parts of different classes and thus are subject to
different trading setting and parameters pursuant to the Rules.
Currently, electronic trading is not possible ``across'' classes given
these different settings. Non-FLEX classes also have separate market
data inputs, as the System must read market data for each class in
connection with potential executions in non-FLEX classes. If the System
receives a FLEX v. Non-FLEX Order, it would need to trade the Non-FLEX
leg against the appropriate leg in the book; however, there is no book
with resting simple FLEX orders against which the FLEX leg could
execute. If this were to occur, execution opportunities for FLEX v.
Non-FLEX Orders may be prevented. As discussed below, the Non-FLEX legs
of FLEX v. Non-FLEX Orders will protect Priority Customer orders in the
simple book for the Non-FLEX classes.\6\
---------------------------------------------------------------------------
\6\ This proposed change is consistent with current Rules that
do not permit legging of complex orders consisting of legs in
different groups of series in a class, as the System handles groups
of series as different classes. See Rule 5.33(g)(6).
---------------------------------------------------------------------------
The Exchange proposes to amend Rule 5.72 (FLEX Trading) to
distinguish criteria for a complex order with only FLEX Option legs and
to add criteria for FLEX and non-FLEX Option legs of a FLEX v. Non-FLEX
Order. First, the
[[Page 86395]]
Exchange proposes to amend Rule 5.72(b)(2) to specify that each FLEX
Option leg of the FLEX Option complex strategy must include all terms
for a FLEX Option series set forth in Rule 4.21 (including that a non-
FLEX Option series with identical terms is not listed for trading),
subject to the order entry requirements set forth in Rule 5.7.
Additionally, the Exchange proposes changes to distinguish the
criteria for a complex order with only FLEX Option leg(s) from that
proposed for FLEX v. Non-FLEX Orders, noting that there are no changes
to the criteria to those FLEX Orders containing only FLEX Option leg(s)
as a result of the proposed rule change. The Exchange proposes to amend
Rule 5.72(b)(2)(A) to specifically reference the pricing requirements
for complex FLEX Orders with FLEX Option legs only. As proposed Rule
5.72(b)(2)(A)(i) contains the requirements for a complex FLEX Order
with only FLEX Option legs submitted into the System for an electronic
FLEX Auction pursuant to Rule 5.72(c) or Rules 5.73 or 5.74, which must
include a bid or offer price for each leg, which leg prices must add
together to equal the net price. Proposed Rule 5.72(b)(2)(A)(ii) sets
forth the requirements for a complex FLEX Order with only FLEX Option
legs submitted into the System prior to representation in an open
outcry FLEX Auction pursuant to Rule 5.72 (d), namely that the order
may include a bid or offer price on one or more of the legs (subject to
a FLEX Trader's responsibilities pursuant to Rule 5.91 and Chapter 9).
The execution leg prices must be entered or modified, as necessary, via
PAR following execution of the order, which prices must add together to
equal the net execution price.
The Exchange proposes to add Rule 5.72(b)(2)(B) containing certain
requirements for a FLEX v. Non-FLEX Order. Under the proposed rule, a
FLEX v. Non-FLEX Order submitted in the System for an electronic FLEX
Auction pursuant to Rule 5.72(c) must include a bid or offer price for
each FLEX Option leg but no bid or offer price for each non-FLEX Option
leg, and a net price. By allowing the System the ability to adjust the
price of the legs, FLEX Traders may achieve their desired net price for
the order, while ensuring the non-FLEX Option legs fit within pricing
requirements of the non-FLEX markets. A FLEX v. Non-FLEX Order
submitted into the System prior to representation in an open outcry
FLEX Auction pursuant to Rule 5.72(d) below [sic] may include a bid or
offer price for any FLEX Option leg but no bid or offer price for each
non-FLEX Option leg, and a net price. By allowing flexibility in open
outcry trading, FLEX Traders may achieve their desired net price for
the order.
To achieve the desired net execution price for a FLEX v. Non-FLEX
Order (1) the execution leg price of each non-FLEX Option leg may not
be worse than the NBBO,\7\ worse than the BBO,\8\ or equal to the BBO
if there is a Priority Customer order(s) on the Simple Book; and (2)
the execution leg price of each FLEX Option leg(s) may be adjusted so
that the prices of the FLEX Option legs combined with the prices of the
non-FLEX Option legs add together to equal the net price. If a non-FLEX
Option leg of a FLEX v. Non-FLEX Order cannot execute at a price
permissible that meets the requirements set forth in proposed Rule
5.72(b)(2)(B)(i), the entire FLEX v. Non-FLEX Order will be cancelled.
---------------------------------------------------------------------------
\7\ See Rule 1.1. The term ``NBBO'' means the national best bid
or offer the Exchange calculates based on market information it
receives from OPRA.
\8\ See Rule 1.1. The term ``BBO'' means the best bid or offer
disseminated on the Exchange.
---------------------------------------------------------------------------
The below examples are designed to illustrate the pricing of a FLEX
v. Non-FLEX Order. Assume for each example a FLEX Trader wishes to
execute a complex FLEX Order with two legs (one FLEX Option leg and one
non-FLEX Option leg).
Example 1: Listed (i.e., non-FLEX) legs are adjusted to their NBBO
first, FLEX Option leg is then adjusted residually to meet net
execution price.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Instrument ID Legs Symbol Side Ratio Expiration Strike Type
--------------------------------------------------------------------------------------------------------------------------------------------------------
CI0001........................ Leg 1............ XYZ.............. Buy.............. 1 December........ 10 Call.
Leg 2............ 1XYZ............. Sell............. 1 November........ 10.01 Call.
--------------------------------------------------------------------------------------------------------------------------------------------------------
FLEX Order Auction (``FOA''): Buy 10 CI0001 @1.25.
Leg 1 (Non-FLEX Option Leg) Price:
N/A
Leg 1 Market: (Exchange Market-Maker) 2.20 x 2.30 (Exchange Market-
Maker)
Leg 2 (FLEX Option Leg) Price: 1.00
Response 1: Sell 5 @1.19
Response 2: Sell 5 @1.25
FOA trades 5 with Response 1 at 1.19. The legs print at 2.20 and
1.01.
FOA trades 5 with Response 2 at 1.25. The legs print at 2.25 and
1.00.
Example 2: Listed (i.e., Non-FLEX) legs are adjusted up/down to
their NBBO first, FLEX Option leg retains specified price, as no
further adjustment is needed to meet net price.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Instrument ID Legs Symbol Side Ratio Expiration Strike Type
--------------------------------------------------------------------------------------------------------------------------------------------------------
CI0001........................ Leg 1............ XYZ.............. Buy.............. 1 December........ 10 Call.
Leg 2............ 1XYZ............. Sell............. 1 November........ 10.01 Call.
--------------------------------------------------------------------------------------------------------------------------------------------------------
FOA: Buy 10 CI0001 @1.25.
Leg 1 (Non-FLEX Option Leg) Price:
N/A
Leg 1 Market: (Exchange Market-Maker) 2.15 x 2.30 (Exchange Market-
Maker)
Leg 2 (FLEX Option Leg) Price: 1.00
Response 1: Sell 5 @1.19
Response 2: Sell 5 @1.25
FOA trades 5 with Response 1 at 1.19. The legs print at 2.19 and
1.00.
FOA trades 5 with Response 2 at 1.25. The legs print at 2.25 and
1.00.
The Exchange proposes to amend Rule 4.21 (Series of FLEX
Options).\9\ The Exchange proposes to add Rule 4.21(a)(4) to state that
the Exchange may halt trading in a FLEX complex strategy (whether
comprised of all FLEX Option legs or FLEX and non-FLEX Option legs) if
any leg of the strategy is halted. The System does not accept a FLEX
complex order for a series while trading in the class is halted. A FLEX
complex strategy may not execute until all legs are no longer halted.
---------------------------------------------------------------------------
\9\ As part of the proposed changes, the Exchange proposes to
add a ``FLEX Option series'' as a defined term in Rule 4.21(a).
Further, to enhance comprehension, the Exchange proposes to amend
Rule 4.21(a)(2) to add a missing word (``be''), as well as clarify
that a FLEX Order for a new FLEX Option series may be submitted on
any trading day prior to the expiration date. Such changes are non-
substantive, clarifying changes.
---------------------------------------------------------------------------
[[Page 86396]]
Finally, the Exchange proposes to amend Rule 6.5 (Nullification and
Adjustment of Option Transactions Including Obvious Errors),
Interpretation and Policy .07. Specifically, the Exchange proposes to
add Rule 6.5, Interpretation and Policy. 07(d), to state that if a non-
FLEX Option leg of a FLEX v. Non-FLEX Order qualifies as an Obvious
Error under Rule 6.5(c)(1) or a Catastrophic Error under Rule
6.5(d)(1), then the non-FLEX Option leg that is an Obvious or
Catastrophic Error will be adjusted in accordance with Rules
6.5(c)(4)(A) or (d)(3), respectively, regardless of whether one of the
parties is a Customer. However, the non-FLEX Option leg of any Customer
order subject to proposed Rule 6.5, Interpretation and Policy. 07(d)
will be nullified if the adjustment would result in an execution price
higher (for buy transactions) or lower (for sell transactions) than the
Customer's net execution price of the non-FLEX Option leg. If any leg
of a FLEX v. Non-FLEX Order is nullified, the entire transaction is
nullified. This is consistent with the Exchange's handling of other
complex orders, including stock-option orders, and ensures protections
in the event of an Obvious or Catastrophic error.
The Exchange believes that its existing surveillance and reporting
safeguards in place are adequate to deter and detect possible
manipulative behavior which might arise from trading FLEX v. Non-FLEX
Orders and will support the protection of investors and the public
interest. The Exchange also represents that it has the necessary system
capacity to support the new complex FLEX Order type. Finally, the
Exchange does not believe that any market disruptions will be
encountered with the introduction of this complex FLEX Order type.
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.\10\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \11\ 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) \12\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
---------------------------------------------------------------------------
\10\ 15 U.S.C. 78f(b).
\11\ 15 U.S.C. 78f(b)(5).
\12\ Id.
---------------------------------------------------------------------------
Specifically, the Exchange believes the proposed rule change will
benefit investors by expanding investors' choices and flexibility with
respect to the trading of FLEX Options. The Exchange believes that
introducing FLEX v. Non-FLEX Orders will increase order flow to the
Exchange, increase the variety of options products available for
trading, and provide a valuable tool for investors to manage risk.
The Exchange believes that the proposed rule change would remove
impediments to and perfect the mechanism of a free and open market as
FLEX v. Non-FLEX Orders would enable market participants to execute a
complex strategy including a combination of FLEX Option series and non-
FLEX Option series, which would, in turn, provide greater opportunities
for market participants to manage risk through the use of a complex
FLEX Order to the benefit of investors and the public interest. The
proposed rule change will benefit TPHs by providing a more efficient
mechanism for TPHs to provide and seek liquidity for customized or
complex FLEX strategies which include a non-FLEX Option leg(s).
Further, trading FLEX Options, including FLEX v. Non-FLEX Orders,
on an exchange is an alternative to trading customized options in OTC
markets and carries with it the advantages of exchange markets such as
transparency, parameters and procedures for clearance and settlement,
and a centralized counterparty clearing agency. Therefore, the Exchange
believes the proposed rule change will promote these same benefits for
the market as a whole by providing an additional venue for market
participants to seek liquidity for customized, large-sized, or complex
FLEX option orders, including those with a non-FLEX Option leg(s). The
Exchange believes that providing an additional venue for these FLEX
orders, rather than potentially splitting the orders across OTC and
exchange markets, will benefit investors by increasing competition for
order flow and executions, and thereby potentially result in more
competitive pricing related to FLEX Options.
The Exchange believes that the proposed changes to Rule 5.70(b), to
add FLEX v. Non-FLEX Orders to the list of complex orders available for
FLEX trading, are consistent with the Act and remove impediments to and
perfect the mechanism of a free and open market and a national market
system because the changes will allow investors to trade in a more
efficient manner, allowing investors to better customize their trading
strategies and implement more precise trading strategies which are not
available under current rules. Currently, a market participant is
unable to trade a FLEX Option and a listed option as part of the same
complex strategy; such user must submit an order containing the FLEX
Option(s) and an order containing the listed option. This may introduce
additional complexities such as price and legging risk, which would be
eliminated under the proposed rule change. These complexities may
unnecessarily limit market participants' ability to trade in an
exchange environment that offers the added benefits of transparency,
price discovery, liquidity, and financial stability. These investors
may have improved capability under the proposed rule change to execute
strategies to meet their specific investment objectives by using a
single order with customized FLEX Option legs with non-FLEX Option
legs.
Similarly, the Exchange also believes the proposed changes to Rule
5.70(b), to remove the requirements that each leg of a complex FLEX
Order must be for a FLEX Option series authorized for FLEX trading with
the same underlying equity security or index and have the same exercise
style, will remove impediments to and perfect the mechanism of a free
and open market and benefit investors, because it will provide TPHs
with additional flexibility and precision in their investment
strategies, by allowing TPHs to trade complex strategies that would
otherwise be required to split into multiple, separate orders.
The proposed change to Rule 5.70(b) to add a cite to Rule 1.1 for
the definition of complex orders provides further clarity within the
Rules, to the benefit of investors.
The Exchange believes the proposed changes to Rule 4.21(a), which
address when the Exchange may halt trading in a FLEX complex strategy
(whether comprised of all FLEX Option legs or FLEX and non-FLEX Option
legs), are consistent with the Act and promotes the public interest and
the protection of investors by clarifying the Exchange's
[[Page 86397]]
authority with respect to FLEX complex strategies comprised of all FLEX
Option legs and providing a consistent and transparent procedure with
respect to FLEX complex strategies comprised of FLEX and non-FLEX
Option legs, that would be applied by the Exchange, similar to trading
halt authority under current rules.\13\ Further, the proposed change to
add the defined term ``FLEX Option series'' provides further clarity
within the Rules and eliminates potential confusion by providing a
definition of ``FLEX Option series'' to the benefit of investors.
---------------------------------------------------------------------------
\13\ See, e.g., Rule 4.21(a)(3).
---------------------------------------------------------------------------
The Exchange believes the proposed changes to Rule 5.72(b)(2)(A),
which provide clarity with respect to the criteria required for complex
FLEX Orders with FLEX Option legs only, helps [sic] will help promote a
fair and orderly national options market system. As noted above, there
are no changes in regards to complex FLEX Orders with FLEX Option legs
only as a result of the proposed rule changes. As such, the changes
proposed under Rule 5.72(b)(2)(A), to separate out the requirements for
complex FLEX Orders with FLEX Option legs only, provide clarity
regarding the requirements for complex FLEX Orders with FLEX Option
legs only, as compared to the proposed requirements for complex FLEX
Orders with FLEX and non-FLEX Option legs.
Additionally, the Exchange believes the proposed rule change to add
Rule 5.70(d) will 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, because it will provide
market participants with the same flexibility with respect to all their
complex trading strategies. The proposed rule change eliminates
confusion regarding what types of FLEX v. Non-FLEX Orders are
permissible for electronic processing. As noted above, the proposed
rule changes regarding execution of nonconforming FLEX v. Non-FLEX
Orders are consistent with the Exchange's previously adopted rules
regarding execution of other nonconforming complex orders.
The Exchange believes the proposed pricing requirements for FLEX v.
Non-FLEX Orders, set forth in proposed Rule 5.72(b)(2)(B), would remove
impediments to and perfect the mechanism of a free and open market, as
the proposed trading process for FLEX v. Non-FLEX Orders will provide
the ability for investors to achieve the desired net package price for
those orders while protecting customers with resting interest in the
non-FLEX Simple Book. By requiring a FLEX v. Non-FLEX Order submitted
into a FLEX Auction (whether electronically or in open outcry) to
include a bid or offer price for each FLEX Option leg, but no bid or
offer for each non-FLEX Option leg, and a net price, the requirements
ensure that the non-FLEX Option leg will be subject to the same pricing
requirements as they would if not part of a FLEX v. Non-FLEX Order.
Specifically, the price of any non-FLEX Option leg that is part of a
FLEX v. Non-FLEX Order may not be outside of the BBO or NBBO. The
Exchange's proposal will continue to protect Priority Customer interest
on the Exchange, as the non-FLEX Option legs of a FLEX v. Non-FLEX
Order will always trade at a price better than BBO if there is a
customer on a leg.
The Exchange believes this proposed trading process will ensure
user who chooses to submit a listed (i.e., Non-FLEX) leg as part of a
FLEX v. Non-FLEX Order is subject to the same pricing requirements as
they would be if the listed leg was not submitted with FLEX Option legs
for execution. Ultimately, FLEX v. Non-FLEX Orders will trade in the
same manner as FLEX complex orders do today, and execution of the non-
FLEX Option legs of these orders will continue to comply with linkage
requirements (by not permitting trade-throughs of the NBBO) and protect
resting customer interest in the Simple Book. Further, the Exchange
believes that the proposal to not permit the non-FLEX Option legs of a
FLEX v. Non-FLEX Order to leg into the Simple Book is consistent with
the Act and promotes the public interest and the protection of
investors, because it will provide for more efficient execution and
processing of FLEX v. Non-FLEX Orders, as legging would prevent
execution opportunities for these orders (as discussed above).
Finally, the Exchange believes that the proposed rule change is
designed to not permit unfair discrimination among market participants
as all TPHs may, but are not required to, trade FLEX v. Non-FLEX
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, as all TPHs that are registered
as FLEX Traders in accordance with the Exchange's Rules will be able to
trade FLEX v. Non-FLEX Orders in the same manner.
The Exchange does not believe that the proposed rule change will
impose any burden on intermarket competition that is not necessary or
appropriate in furtherance of the purposes of the Act, as the proposal
is designed to increase competition for order flow on the Exchange in a
manner that is beneficial to investors because it is designed to
provide investors seeking to execute both a FLEX Option(s) and a listed
option(s) with a more effective method of executing the trades, which
may result in trade efficiencies (i.e., pricing or reporting
efficiencies) and reduced risk (i.e., pricing and legging risk). The
Exchange believes the proposed rule change will encourage competition,
as it may broaden the base of investors that use FLEX Options to manage
their trading and investment risk, including investors that currently
trade in the OTC market for customized options. The Exchange believes
the proposed rule change may increase competition as it may lead to the
migration of options currently trading in the OTC market to trading on
the Exchange. Also, any migration to the Exchange from the OTC market
would result in increased market transparency and thus increased price
competition.
The Exchange further notes that it operates in a highly competitive
market in which market participants can readily direct order flow to
competing venues who offer similar functionality. All TPHs may, but are
not required to, trade FLEX v. Non-FLEX Orders at the Exchange.
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
[[Page 86398]]
(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-2024-047 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-2024-047. 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-2024-047 and should be
submitted on or before November 20, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\14\
---------------------------------------------------------------------------
\14\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-25145 Filed 10-29-24; 8:45 am]
BILLING CODE 8011-01-P
