Self-Regulatory Organizations; Cboe C2 Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Adopt New Functionality Relating to the Processing of Auction Responses, 95846-95851 [2024-28342]
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Federal Register / Vol. 89, No. 232 / Tuesday, December 3, 2024 / Notices
in the clearance and settlement of
securities transactions. Accordingly, the
Proposed Rule Changes are consistent
with Section 17A(b)(3)(A) and (F) of the
Act.
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B. Consistency With Rule 17Ad–25(g)
and (h) Under the Act
Rule 17Ad–25(g) requires each
registered clearing agency to establish,
implement, maintain and enforce
written policies and procedures
reasonably designed to identify and
document, and mitigate or eliminate
existing or potential conflicts of interest
in the decision-making process of the
directors or senior managers of the
registered clearing agency. Also, Rule
17Ad–25(h) requires each registered
clearing agency to establish, implement,
maintain, and enforce written policies
and procedures reasonably designed to
require a director to document and
inform the registered clearing agency
promptly of the existence of any
relationship or interest that reasonably
could affect the independent judgment
or decision-making of the director.
As described above, the Proposed
Rule Changes outline the written
policies and procedures that provide
that the Clearing agencies identify,
document, and mitigate or eliminate
existing or potential conflicts of interest
in the decision-making process
involving directors or senior managers.
The Proposed Rule Changes require
directors to document and inform the
Corporate Secretary promptly of any
relationship or interest that reasonably
could affect the independent judgment
or decision-making of the director. This
is then escalated to the General
Counsel’s office who shall notify the
Non-Executive Chairman if it is
determined that a conflict exists. These
conflicts may be addressed in several
pre-established ways. Based on the
foregoing, the proposed changes are
consistent with the requirements of
Rules 17ad–25(g) and (h).
C. Consistency With Rule 17Ad–25(i)
Under the Act
Rule 17Ad–25(i) requires each
registered clearing agency to establish,
implement, maintain, and enforce
written policies and procedures
reasonably designed to require senior
management to: (1) evaluate and
document the risks related to an
agreement with a service provider for
core services, including under changes
to circumstances and potential
disruptions, and whether the risks can
be managed in a manner consistent with
the clearing agency’s risk management
framework; (2) submit to the board for
review and approval any agreement that
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would establish a relationship with a
service provider for core services; (3) be
responsible for establishing the policies
and procedures that govern
relationships and manage risks related
to such agreements with service
providers for core services and require
the board of directors to be responsible
for reviewing and approving such
policies and procedures; and (4)
perform ongoing monitoring of the
relationship, and report to the board of
directors for its evaluation of any action
taken by senior management to remedy
significant deterioration in performance
or address changing risks or material
issues identified through such
monitoring; or if the risks or issues
cannot be remedied, require senior
management to assess and document
weaknesses or deficiencies in the
relationship with the service provider
for submission to the board of
directors.28 As described above in
Section III.C, the Proposed Rule
Changes require senior management to
evaluate and document risks related to
agreements with services providers for
core services, perform ongoing
monitoring of the relationship, and
report to the Boards for their evaluation
of any action taken by senior
management to remedy significant
deterioration in performance or address
changing risks or material issues
identified through such monitoring,
consistent with Rule 17Ad–25(i)(1) and
(4). The Proposed Rule Changes also
state that the Boards would review and
approve the procedures regarding, and
any agreements that establish a
relationship with, service providers for
core services, consistent with Rule
17Ad–25(i)(2) and (3). The Proposed
Rule Changes further state that if the
risk or material issues identified cannot
be remedied, senior management is
required to assess and document
weaknesses or deficiencies in the
relationship with the service provider
for core services for submission to the
Board for evaluation, consistent with
Rule 17Ad–25(i)(4). Based on the
foregoing, the proposed changes are
consistent with the requirements of Rule
17Ad–25(i).
D. Consistency With Rule 17Ad–25(j)
Under the Act
Rule 17Ad–25(j) requires registered
clearing agencies to establish,
implement, maintain, and enforce
written policies and procedures
reasonably designed to require the board
of directors to solicit, consider, and
document its consideration of the views
of participants and other relevant
28 17
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stakeholders of the registered clearing
agency regarding material developments
in its risk management and operations
on a recurring basis. The Proposed Rule
Changes require a formal and regular
process for solicitation, consideration,
and documenting the consideration of
participants and other relevant
stakeholders. Based on the foregoing,
the proposed changes are consistent
with the requirements of Rules 17ad–
25(j).
Accordingly, the Commission finds
these proposed changes consistent with
the requirements of Rule 17Ad–25.29
V. Conclusion
On the basis of the foregoing, the
Commission finds that the Proposed
Rule Changes are consistent with the
requirements of the Act and in
particular with the requirements of and
in particular, Section 17A(b)(3)(A) and
(F) of the Act 30 and Rule 17Ad–25
thereunder.31
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act 32 that
proposed rule changes SR–NSCC–2024–
006, SR–DTC–2024–009, and SR–FICC–
2024–010 be, and hereby are,
approved.33
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.34
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024–28256 Filed 12–2–24; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–101774; File No. SR–C2–
2024–021]
Self-Regulatory Organizations; Cboe
C2 Exchange, Inc.; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Adopt New
Functionality Relating to the
Processing of Auction Responses
November 27, 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 November
18, 2024, Cboe C2 Exchange, Inc. (the
‘‘Exchange’’ or ‘‘C2’’) filed with the
29 17
CFR 240.17ad–25.
U.S.C. 78q–1(b)(3)(A).
31 17 CFR 240.17ad–25.
32 15 U.S.C. 78s(b)(2).
33 In approving the Proposed Rule Changes, the
Commission considered its impact on efficiency,
competition, and capital formation. 15 U.S.C. 78c(f).
34 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
30 15
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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 Exchange. The Exchange filed the
proposal as a ‘‘non-controversial’’
proposed rule change pursuant to
Section 19(b)(3)(A)(iii) of the Act 3 and
Rule 19b–4(f)(6) thereunder.4 The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Cboe C2 Exchange, Inc. (the
‘‘Exchange’’ or ‘‘C2’’) proposes to adopt
new functionality relating to the
processing of auction responses. The
text of the proposed rule change is
provided in Exhibit 5.
The text of the proposed rule change
is also available on the Exchange’s
website (https://markets.cboe.com/us/
options/regulation/rule_filings/ctwo/),
at the Exchange’s Office of the
Secretary, and at the Commission’s
Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
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A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange currently offers an
auction mechanism which provides
price improvement opportunities for
eligible orders. Particularly, the
Exchange offers the Complex Order
Auction (‘‘COA’’).5 The Exchange notes
that eligible orders (‘‘auctioned order’’)
are electronically exposed for an
Exchange-determined period (referred to
herein as ‘‘auction response period’’) in
accordance with the applicable
Exchange Rule, during which time
Users may submit responses (referred to
3 15
U.S.C. 78s(b)(3)(A)(iii).
CFR 240.19b–4(f)(6).
5 See Rule 5.33(d).
4 17
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herein as ‘‘auction responses’’ or
‘‘auction response messages’’) to an
auction message. An auction response
may only execute in the auction and is
cancelled if it does not execute during
an auction. If an auction response is
unable to be processed by the System
during the auction response period, that
auction response is unable to receive
any execution opportunity or provide
liquidity (and possible price
improvement) on the Exchange.6
By way of further background,
Trading Permit Holders (‘‘TPHs’’) may
submit auction responses via logical
port connectivity.7 Each logical port
corresponds to a single running order
handler application.8 Each order
handler application processes the
messages it receives from the connected
TPH. This processing includes
determining whether the message
contains the required information to
enter the System and where to send that
message within the System (i.e., to
which matching engine). Messages are
sent from an order handler application
to a matching engine via User Datagram
Protocol (‘‘UDP’’). The Exchange has
multiple matching engines, each of
which controls the book for one or more
classes of options listed for trading on
the Exchange. The Exchange may run
multiple matching engine applications
on a single server. Once at a matching
engine, the message is received at a
server Network Interface Card (‘‘NIC’’),
which timestamps each message upon
arrival and places it in a queue.
Currently, each matching engine
processes all messages it receives from
a single queue from the NIC and
prioritizes the processing of all message
traffic, including auction responses, in
the order in which the NIC received
each message (i.e., in time priority).
Auction response messages
historically have waited in the same
queue as all other order and quote
message traffic. As such, if an auction
response is submitted at a time where
6 The Exchange notes that its review of auction
responses during August 2024 indicated that
approximately 0.19% of auction responses had no
opportunity to execute in their respective auctions,
notwithstanding being submitted within the auction
response period.
7 A User connects to the Exchange using a logical
port available through an API, such as the industrystandard FIX or BOE protocol. Logical ports
represent a technical port established by the
Exchange within the Exchange’s trading system for
the delivery and/or receipt of trading messages,
including orders, cancels, and auction responses.
8 The Exchange has numerous order handlers and
uses an algorithm to determine at random which
ports connect to which order handlers This
algorithm attempts to spread out a single TPH’s
ports across order handlers as well as balance the
number of ports that connect to a single order
handler.
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there is a deep queue of other message
traffic such as mass cancellation
messages or other orders and quotes, it
is possible that the auction response
may not be ‘‘processed’’ by the System
in sufficient time (i.e., prior to the end
of the auction response period).9
Particularly, the queued auction
response may not be able to participate
in the applicable auction mechanism
because the System had unprocessed
(queued) messages at the time of the
auction execution despite the fact that
the User submitted the auction response
prior to the end of the auction response
period. Auctioned orders may therefore
be missing out on potential price
improvement that may have otherwise
resulted if queued timely auction
response(s) were able to participate in
the auction.
The Exchange proposes to adopt new
functionality under Rule 5.25, new
subparagraph (c), which would apply to
the Exchange’s auction mechanism (i.e.,
COA) to increase the likelihood that
timely submitted auction responses may
participate in the auction, even during
periods of high message traffic. Under
the proposed functionality, at the time
an auction response period ends, the
System will continue to process its
inbound queue for any messages that
were received by the System before the
end of the auction period (including
auction messages) for up to an
Exchange-determined period of time,
not to exceed 100 milliseconds (which
the Exchange may determine on a classby-class basis which would apply to all
auction mechanisms and which would
be announced with reasonable advanced
notice via Exchange Notice). That is,
any auction responses that were in the
queue before the conclusion of the
auction (as identified by the NIC
timestamp on the message) would be
processed as long as the Exchangedetermined time on a class-by-class
basis (not to exceed 100 milliseconds) is
not exceeded. Only auction messages
received prior to the execution of the
applicable auction are eligible to be
processed for that auction. The
applicable auction will execute once all
messages, including auction responses,
received before the end time of the
auction response period have been
processed or the Exchange-determined
9 For example, it currently takes the Exchange’s
system an approximate average of 13 microseconds
to process a single order/quote or auction response
message and, on average, approximately 35
microseconds to process a mass cancel message. As
such, under the current system, an auction response
that is entered after a mass cancel message is more
likely to be detrimentally delayed as compared to
a mass cancel message that is entered after an
auction response (i.e., a 35 microsecond ‘‘wait
time’’ versus a 13 microsecond ‘‘wait time’’).
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maximum time limit of up to 100
milliseconds has elapsed, whichever
occurs first. This continuation of
processing the queue for an additional
amount of time for messages that were
received before the end of the auction
allows for auction responses that would
otherwise have been canceled due to the
conclusion of the auction response
period to still have an opportunity to
participate in the auction. This provides
such responses with increased
opportunities to participate in the
auction, even during periods of high
message traffic, thereby potentially
providing customers with additional
opportunities for price improvement,
while still providing a processing cut off
time to ensure auction executions aren’t
unduly delayed.
By way of an example, if an auction
with an auction response period set to
100 milliseconds were to start at 9:00:00
a.m., only auction responses that were
able to be processed by the System by
the conclusion of the auction at 9:00:100
would participate in the auction.
Accordingly, if, for example, an auction
response that was submitted at 9:00:090
(within the auction time response
period), is still in the message queue at
9:00:100, that response under the
current System functionality would be
canceled and not eligible to participate
in the auction. Under the proposal, at
9:00:100, because the System continues
to process all messages timestamped
before 9:00:100, that same auction
response submitted at 9:00:090 would
not automatically be canceled but rather
included in the auction as long as it was
able to be processed within an
additional 50 milliseconds, which is the
additional processing time set by the
Exchange and announced to market
participants with reasonable advance
notice via Exchange Notice for that class
in this example. Once that auction
response is up for processing (because
the System processes messages
sequentially in time order sequence),
the response will be able to participate
in the auction so long as it’s processed
by 9:00:150, notwithstanding such
processing would occur after the 100millisecond auction response period has
concluded. Any auction responses for
the pending auction that are still
pending after the execution of the
auction would be canceled.10 The
Exchange notes that using the same
example, if an auction response was
submitted at 9:00:120, it would not be
10 If, for example, the System processed all
messages received before 9:00:100 by 9:00:110, then
the auction would execute at 9:00:110 (i.e., the
System does not need to wait until 9:00:150 to
execute an auction if all messages submitted prior
to the end time of the auction have been processed).
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eligible for processing because the
timestamp would identify it as being
submitted outside the auction response
period which was otherwise set to
conclude at 9:00:100.
The Exchange believes the proposed
rule change will result in increased
execution opportunities for liquidity
providers that submit auction responses
and enhance the potential for price
improvement for orders submitted to
COA to the benefit of investors and
public interest. Indeed, the Exchange
believes the proposed functionality will
increase the possibility that timely
submitted auction responses are
processed by the Exchange and have an
opportunity for execution in the
Exchange’s auction mechanism, even if
there is a deep pending message queue.
The Exchange believes the proposed
maximum amount of additional time for
processing (i.e., 100 milliseconds) is
both an adequate amount of time to
provide pending auction responses with
such execution opportunity, but also an
amount minimal enough that impact to
other message traffic, if any, would be
de minimis. The Exchange also notes
that it previously discussed the
proposed maximum amount with
market participants who indicated that
100 milliseconds was acceptable to
them. The Exchange anticipates that in
the vast majority of cases, the additional
time needed after the conclusion of
auction response period, if any, to
process all pending auction responses
will be shorter than the maximum 100
milliseconds. To the extent the
Exchange determines a lesser amount of
time would be sufficient, the Exchange
could implement an additional amount
of time for processing auction responses
that is less than 100 milliseconds,
which time would be announced with
reasonable advance notice to market
participants via Exchange Notice.
Additionally, all message traffic
(including auction responses) will
continue to be processed in timepriority.
The Exchange also believes the
proposal will continue to allow the
Exchange to set the auction response
period to an amount of time that
provides TPHs submitting responses
with sufficient time to respond to,
compete for, and provide price
improvement for orders, but also
continues to provide auctioned orders
with quick executions that may reduce
market and execution risk. Further, the
Exchange believes some market
participants choose to submit auction
responses towards the end of an auction
response period to better ensure the
response is at a price that the market
participant is willing to trade given the
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market at the time the auction response
period concludes. As such, merely
extending the auction response period
in each auction would not itself prevent
auction responses from continuing to
miss the auction notwithstanding being
timely submitted.
Moreover, the Exchange notes that it
recently adopted the same functionality
on its affiliated exchanges, Cboe
Exchange, Inc (‘‘Cboe Options’’) and
Cboe EDGX Exchange, Inc. (‘‘EDGX
Options’’).11
Implementation
The Exchange will announce via
Exchange Notice the implementation
date of implement the proposed rule
change, which shall be no later than 60
days after the operative date of this rule
filing.
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.12 Specifically,
the Exchange believes the proposed rule
change is consistent with the Section
6(b)(5) 13 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) 14 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
modifying its System to allow it to
potentially process more, if not all,
timely submitted auction responses may
provide further opportunities for
auctioned orders to receive price
11 See Securities Exchange Act Release No. 97738
(June 15, 2023) 88 FR 40878 (June 22, 2023) (SR–
CBOE–2022–051) (Order Granting Accelerated
Approval of Proposed Rule Change as Modified by
Amendment Nos. 1 and 2 Relating to the Processing
of Auction Responses). See also Securities
Exchange Act Release No. 101434 (October 25,
2024) 89 FR 86856 (October 31, 2024) (SR–
CboeEDGX–2024–067).
12 15 U.S.C. 78f(b).
13 15 U.S.C. 78f(b)(5).
14 Id.
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improvement, which removes
impediments to a free and open market
and ultimately protects and benefits
investors. In particular, the proposed
rule change will continue to provide
investors with timely processing of their
options quote and order messages, while
providing investors who submit auction
orders with additional auction liquidity.
Indeed, the proposed rule change may
allow more investors additional
opportunities to receive price
improvement through an auction
mechanism. Additionally, because the
proposed functionality may provide
liquidity providers that submit auction
responses with additional execution
opportunities in auctions, the Exchange
believes they may be further encouraged
to submit more auction responses,
which may contribute to a deeper, more
liquid auction process that provides
investors with additional price
improvement opportunities.
The Exchange believes the proposed
rule change will result in increased
execution opportunities for liquidity
providers that submit auction responses
and enhance the potential for price
improvement for orders submitted to
each mechanism to the benefit of
investors and public interest. As
described above, the Exchange believes
the proposed functionality will increase
the possibility that timely submitted
auction responses are processed by the
Exchange and have an opportunity for
execution in the Exchange’s auction
mechanism, even if there is a deep
pending message queue. The Exchange
believes the proposed maximum
amount of additional time for
processing (i.e., 100 milliseconds) is
both an adequate amount of time to
provide pending auction responses with
such execution opportunity, but also an
amount minimal enough that impact to
other message traffic, if any, would be
de minimis. The Exchange also
discussed the proposed maximum
amount of time with market participants
who indicated that 100 milliseconds
was acceptable to them. As represented
above, the Exchange anticipates that in
the vast majority of cases, the additional
time needed after the conclusion of
auction response period, if any, to
process all pending auction responses
will be shorter than the maximum 100
milliseconds. To the extent the
Exchange determines a lesser amount of
time would be sufficient, the Exchange
could implement an additional amount
of time for processing auction responses
that is less than 100 milliseconds,
which time would be announced with
reasonable advance notice to market
participants via Exchange Notice.
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Additionally, all message traffic
(including auction responses) will
continue to be processed in timepriority.
While the Exchange may increase the
length of the auction response period to
accommodate more auction responses,
the Exchange believes the proposed
functionality better addresses the issue
of missed auction responses.
Particularly, the Exchange believes the
proposed rule change will accommodate
more auction responses while also
mitigating market risk that may
accompany a longer auction period by
setting the length of an auction response
period to a timeframe that allows an
adequate amount of time for TPHs to
respond to an auction message and
provides the auctioned order with fast
executions. Additionally, the Exchange
believes TPHs may wait until the end of
an auction response period regardless of
how long the Exchange sets it to in
order to ensure they are comfortable
with the price the response may execute
at the conclusion of such auction. As
such, extending the auction response
period in each auction would not itself
prevent auction responses from
continuing to miss the auction
notwithstanding being timely
submitted.
The Exchange believes adopting the
proposed functionality for auction
responses would also better provide
customers with additional opportunities
for price improvements with little to no
impact to non-auction response message
traffic. Currently, auction responses
account for an incredibly small fraction
of message traffic submitted to the
Exchange. Indeed, based on the
Exchange’s analysis in August 2024,
auction response messages accounted
for a mere 0.07% of all message traffic
submitted to the Exchange. The
Exchange believe the processing of such
a small amount of message traffic, even
after the conclusion of an auction
response period, would therefore have
de minimis, if any, impact on the
processing of non-auction response
messages waiting in the queue. The
Exchange also notes that all messages
are currently processed one at a time by
the System. Therefore, the System still
needs to ‘‘process’’ all pending auction
responses, regardless of whether that
processing involves canceling the
pending auction response because it
wasn’t processed in time to participate
in the auction or actually processing the
response to participate in the auction.
Either way, the non-auction response
messages will still have to wait for
processing of any pending responses
ahead of it. Conversely, the current
system may cause investors to miss out
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95849
on opportunities to receive price
improvement through the Exchange’s
auction mechanism as the System is
configured to cancel pending auction
responses that ‘‘miss’’ the auction
execution, even if such responses were
timely submitted but not processed due
to the System being otherwise occupied
processing messages in queue ahead of
it. The Exchange therefore believes its
proposal will make it more likely that
the System processes timely submitted
auction responses and includes them in
its auction mechanism, thus providing
them with more opportunities to
execute against auctioned orders, even
during periods of high message traffic.
The Exchange believes the proposed
rule change is not designed to permit
unfair discrimination between market
participants as all market participants
are allowed to submit auction
responses. Additionally, the Exchange
believes it’s reasonable to adopt the
proposed functionality for auction
responses as compared to other
messages because auction responses are
submitted only for the purpose of
executing (and possibly providing price
improvement) in auctions with short
durations, whereas other messages are
generally submitted to rest in or execute
against the book (and generally not used
to submit liquidity into auctions). As
discussed above, the Exchange believes
the benefits that result from the
adoption of the proposed functionality
for auction responses would outweigh
any potential negative impact to other
message traffic, including customer
orders, which have an incredibly low
chance of being affected by the
proposed change as discussed above
and which continue to receive priority
allocation in any event.
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 changes will impose any
burden on intra-market competition that
is not necessary or appropriate in
furtherance of the purposes of the Act,
as the proposed rule change would
apply equally to all TPHs that submit
auction responses. As noted above, all
market participants are able to submit
auction responses. Additionally, the
Exchange believes the adoption of the
proposed functionality for auction
responses would have little to no impact
on non-auction response message traffic.
As discussed, auction response
messages account for an incredibly
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small fraction of message traffic
submitted to the Exchange. The
Exchange therefore believes the
processing of such a small amount of
message traffic by using the
functionality would have a de minimis,
if any, impact on the processing of nonauction response messages. Moreover,
the Exchange believes it’s reasonable to
adopt the proposed functionality for
auction responses as compared to other
messages because auction responses are
submitted only for the purpose of
executing (and possibly providing price
improvement) in auctions with short
durations, whereas other messages are
generally submitted to rest in or execute
against the book (and generally not used
to submit liquidity into auctions).
Lastly, the Exchange does not believe
the proposed rule change will impose
any burden on inter-market competition
that is not necessary or appropriate in
furtherance of the purposes of the Act,
as the proposed change affects how the
System processes auction responses that
may only participate in auctions that
occur on the Exchange.
lotter on DSK11XQN23PROD with NOTICES1
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
The Exchange neither solicited nor
received comments on the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The Exchange designates that the
proposed rule change effects a change
that (i) does not significantly affect the
protection of investors or the public
interest; (ii) does not impose any
significant burden on competition; and
(iii) by its terms, does not become
operative for 30 days after the date of
the filing, or such shorter time as the
Commission may designate if consistent
with the protection of investors and the
public interest. Additionally, the
Exchange has given the Commission
written notice of its intent to file the
proposed rule change, along with a brief
description and text of the proposed
rule change, at least five business days
prior to the date of filing of the
proposed rule change, or such shorter
time as designated by the Commission.
As described above, the Exchange has
observed a number of auction responses
missing opportunities to execute
auctions, notwithstanding being timely
submitted within the auction response
period. The Exchange believes adopting
the proposed functionality for auction
responses would better provide market
participants with additional
VerDate Sep<11>2014
17:09 Dec 02, 2024
Jkt 265001
opportunities for price improvements
with very little, if any, impact to nonauction response message traffic,
thereby removing impediments to a free
and open market and ultimately
protecting and benefiting investors.
Additionally, because the proposed
functionality may provide liquidity
providers that submit auction responses
with additional execution opportunities
in auctions, the Exchange believes they
may be further encouraged to submit
more auction responses, which may
contribute to a deeper, more liquid
auction process that provides investors
with additional price improvement
opportunities.
The Exchange also believes the
proposed rule change does not impose
any significant burden on competition,
as the proposed functionality would
apply equally to all TPHs that submit
auction responses and as the proposed
change only affects how the Exchange’s
System processes auction responses that
participate in auctions that occur only
on the Exchange.
Finally, the Exchange does not believe
the proposed functionality raises any
novel legal or regulatory issues as the
Exchange’s affiliate Cboe Options
currently maintains the same
timestamping functionality, which was
reviewed and approved by the
Commission prior to its implementation
and the same functionality was recently
adopted on the Exchange’s affiliate and
EDGX Options, which was also
reviewed by the Commission.15
For the foregoing reasons, this rule
filing qualifies as a ‘‘non-controversial’’
rule change under Rule 19b–4(f)(6),
which renders the proposed rule change
effective upon filing with the
Commission. At any time within 60
days of the filing of this proposed rule
change, the Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission will institute proceedings
to determine whether the proposed rule
change should be approved or
disapproved. The Exchange respectfully
requests that the Commission waive the
30-day operative delay period after
which a proposed rule change under
Rule 19b–4(f)(6) becomes effective. The
Exchange believes waiver of the
operative delay will benefit investors
because it will permit the proposed rule
change to be operative as soon as
practicable. As previously noted, the
15
PO 00000
Supra note 11.
Frm 00119
Fmt 4703
Exchange’s affiliate, Cboe Options
recently received Commission approval
of a substantively identical functionality
and the Exchange’s affiliate EDGX
Options also recently adopted the same
functionality.16 Moreover, no comments
to either of those filings were submitted
during the respective public comment
periods. Therefore, given that the
Commission has noticed for public
comment substantively identical filings
and received no comments to such
filings, the Exchange believes an
operative delay is not necessary for this
filing. Additionally, waiver of the
operative delay will permit the
Exchange to implement the proposed
functionality as soon as possible, which
will benefit investors as the System will
potentially process more, if not all,
timely submitted auction responses,
thereby provide further opportunities
for auctioned orders to receive price
improvement, which removes
impediments to a free and open market
and ultimately protects and benefits
investors.
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–
C2–2024–021 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to file
number SR–C2–2024–021. 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
16
Sfmt 4703
Supra note 11.
E:\FR\FM\03DEN1.SGM
03DEN1
Federal Register / Vol. 89, No. 232 / Tuesday, December 3, 2024 / Notices
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–C2–2024–021 and should be
submitted on or before December 24,
2024.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.17
Stephanie J. Fouse,
Assistant Secretary.
[FR Doc. 2024–28342 Filed 12–2–24; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–101765; File No. SR–ISE–
2024–55]
Self-Regulatory Organizations; Nasdaq
ISE, LLC; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Amend FLEX Options
Listing
November 26, 2024.
lotter on DSK11XQN23PROD with NOTICES1
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on November
25, 2024, Nasdaq ISE LLC (‘‘ISE’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the Exchange. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange [sic] to amend Options
3A, Section 3, FLEX Options Listings.
17 CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
17:09 Dec 02, 2024
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
Options 3A, Section 3, FLEX Options
Listings, to reflect the addition of the
listing of options on: (1) the Fidelity
Wise Origin Bitcoin Fund; (2) the
ARK21Shares Bitcoin ETF; (3) the
Grayscale Bitcoin Trust (BTC); (4) the
Grayscale Bitcoin Mini Trust BTC; (5)
and the Bitwise Bitcoin ETF
(collectively ‘‘Bitcoin Trusts’’).
Specifically, ISE proposes to except
FLEX Options on the Bitcoin Trusts
from trading as a [sic] FLEX Options
contracts. ISE separately filed a rule
proposal to list and trade the options on
the Bitcoin Trusts.3
ISE recently received approval to list
and trade Flexible Exchange Options
(‘‘FLEX Options’’) on the Exchange’s
electronic market.4 At this time, the
Exchange proposes to amend Options
3A, Section 3, FLEX Options Listings, to
specify that ISE will not authorize for
trading a FLEX Option on each of the
Bitcoin Trusts. For clarity, this
exclusion will apply to both physicallysettled and cash-settled FLEX ETF
options, such that options on the
Bitcoin Trusts will be excluded from
being eligible to trade as a physicallysettled or a cash-settled FLEX ETF
option. Options 3A, Section 3 currently
provides that the Exchange will not
authorize FLEX Options on shares of the
3 See
SR–ISE–2024–054 (not yet noticed).
Securities Exchange Act Release No. 101720
(November 22, 2024), (SR–ISE–2024–12) (not yet
noticed). This rule change is approved, but not yet
implemented.
4 See
17
VerDate Sep<11>2014
The text of the proposed rule change
is available on the Exchange’s website at
https://listingcenter.nasdaq.com/
rulebook/ise/rules, at the principal
office of the Exchange, and at the
Commission’s Public Reference Room.
Jkt 265001
PO 00000
Frm 00120
Fmt 4703
Sfmt 4703
95851
iShares Bitcoin Trust ETF.5 The
Exchange proposes this amendment in
light of the position and exercise limits
of 25,000 contracts that were set for the
Fidelity Wise Origin Bitcoin Fund, the
ARK21Shares Bitcoin ETF, the
Grayscale Bitcoin Trust (BTC), the
Grayscale Bitcoin Mini Trust BTC, and
the Bitwise Bitcoin ETF in the Cboe
Approval Order 6 and the NYSE
American Approval Order,7
respectively. If the Exchange determines
to allow FLEX Options on the Bitcoin
Trusts at a later date, it will do so by
submitting a 19b–4 rule change with the
Commission.
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act,8 in general, and furthers the
objectives of Section 6(b)(5) of the Act,9
in particular, in that it is designed to
promote just and equitable principles of
trade, to remove impediments to and
perfect the mechanism of a free and
open market and a national market
system, and, in general to protect
investors and the public interest.
The Exchange’s proposal to amend
Options 3A, Section 3, FLEX Options
Listings, to note that it will not
authorize for trading a FLEX Option on
each of the Bitcoin Trusts is consistent
with the spirit of the Cboe Approval
Order 10 and the NYSE American
Approval Order,11 respectively, that
limited the position and exercise limits
for each of the Bitcoin Trusts to 25,000
contracts. The proposal will protect
investors and the general public because
without this prohibition, trading a FLEX
Option on the Bitcoin Trusts would
otherwise establish different position
and exercise limits than those set by the
aforementioned approval orders. For
clarity, this exclusion will apply to both
physically-settled and cash-settled
FLEX ETF options, such that options on
the Bitcoin Trusts will be excluded from
5 Id.
6 See Securities Exchange Act Release No. 101387
(October 18, 2024), 89 FR 84948 (October 24, 2024)
(SR–Cboe–2024–035) (Notice of Filing of
Amendment Nos. 2 and 3 and Order Granting
Accelerated Approval of a Proposed Rule Change,
as Modified by Amendment Nos. 2 and 3, To Permit
the Listing and Trading of Options on Bitcoin
Exchange-Traded Funds) (‘‘Cboe Approval Order’’).
7 See Securities Exchange Act Release No. 101386
(October 18, 2024), 89 FR 84960 (October 24, 2024)
(SR–NYSEAMER–2024–49) (Notice of Filing of
Amendment No. 3 and Order Granting Accelerated
Approval of a Proposed Rule Change, as Modified
by Amendment No. 3, To Permit the Listing and
Trading of Options on Bitcoin Exchange-Traded
Funds) (‘‘NYSE American Approval Order’’).
8 15 U.S.C. 78f(b).
9 15 U.S.C. 78f(b)(5).
10 See supra note 5.
11 See supra note 6.
E:\FR\FM\03DEN1.SGM
03DEN1
]]>Agencies
[Federal Register Volume 89, Number 232 (Tuesday, December 3, 2024)]
[Notices]
[Pages 95846-95851]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-28342]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-101774; File No. SR-C2-2024-021]
Self-Regulatory Organizations; Cboe C2 Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Adopt
New Functionality Relating to the Processing of Auction Responses
November 27, 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 November 18, 2024, Cboe C2 Exchange, Inc. (the ``Exchange'' or
``C2'') filed with the
[[Page 95847]]
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 Exchange. The Exchange filed the proposal as a ``non-
controversial'' proposed rule change pursuant to Section
19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-4(f)(6) thereunder.\4\ The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A)(iii).
\4\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Cboe C2 Exchange, Inc. (the ``Exchange'' or ``C2'') proposes to
adopt new functionality relating to the processing of auction
responses. The text of the proposed rule change is provided in Exhibit
5.
The text of the proposed rule change is also available on the
Exchange's website (https://markets.cboe.com/us/options/regulation/rule_filings/ctwo/), at the Exchange's Office of the Secretary, and at
the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange currently offers an auction mechanism which provides
price improvement opportunities for eligible orders. Particularly, the
Exchange offers the Complex Order Auction (``COA'').\5\ The Exchange
notes that eligible orders (``auctioned order'') are electronically
exposed for an Exchange-determined period (referred to herein as
``auction response period'') in accordance with the applicable Exchange
Rule, during which time Users may submit responses (referred to herein
as ``auction responses'' or ``auction response messages'') to an
auction message. An auction response may only execute in the auction
and is cancelled if it does not execute during an auction. If an
auction response is unable to be processed by the System during the
auction response period, that auction response is unable to receive any
execution opportunity or provide liquidity (and possible price
improvement) on the Exchange.\6\
---------------------------------------------------------------------------
\5\ See Rule 5.33(d).
\6\ The Exchange notes that its review of auction responses
during August 2024 indicated that approximately 0.19% of auction
responses had no opportunity to execute in their respective
auctions, notwithstanding being submitted within the auction
response period.
---------------------------------------------------------------------------
By way of further background, Trading Permit Holders (``TPHs'') may
submit auction responses via logical port connectivity.\7\ Each logical
port corresponds to a single running order handler application.\8\ Each
order handler application processes the messages it receives from the
connected TPH. This processing includes determining whether the message
contains the required information to enter the System and where to send
that message within the System (i.e., to which matching engine).
Messages are sent from an order handler application to a matching
engine via User Datagram Protocol (``UDP''). The Exchange has multiple
matching engines, each of which controls the book for one or more
classes of options listed for trading on the Exchange. The Exchange may
run multiple matching engine applications on a single server. Once at a
matching engine, the message is received at a server Network Interface
Card (``NIC''), which timestamps each message upon arrival and places
it in a queue. Currently, each matching engine processes all messages
it receives from a single queue from the NIC and prioritizes the
processing of all message traffic, including auction responses, in the
order in which the NIC received each message (i.e., in time priority).
---------------------------------------------------------------------------
\7\ A User connects to the Exchange using a logical port
available through an API, such as the industry-standard FIX or BOE
protocol. Logical ports represent a technical port established by
the Exchange within the Exchange's trading system for the delivery
and/or receipt of trading messages, including orders, cancels, and
auction responses.
\8\ The Exchange has numerous order handlers and uses an
algorithm to determine at random which ports connect to which order
handlers This algorithm attempts to spread out a single TPH's ports
across order handlers as well as balance the number of ports that
connect to a single order handler.
---------------------------------------------------------------------------
Auction response messages historically have waited in the same
queue as all other order and quote message traffic. As such, if an
auction response is submitted at a time where there is a deep queue of
other message traffic such as mass cancellation messages or other
orders and quotes, it is possible that the auction response may not be
``processed'' by the System in sufficient time (i.e., prior to the end
of the auction response period).\9\ Particularly, the queued auction
response may not be able to participate in the applicable auction
mechanism because the System had unprocessed (queued) messages at the
time of the auction execution despite the fact that the User submitted
the auction response prior to the end of the auction response period.
Auctioned orders may therefore be missing out on potential price
improvement that may have otherwise resulted if queued timely auction
response(s) were able to participate in the auction.
---------------------------------------------------------------------------
\9\ For example, it currently takes the Exchange's system an
approximate average of 13 microseconds to process a single order/
quote or auction response message and, on average, approximately 35
microseconds to process a mass cancel message. As such, under the
current system, an auction response that is entered after a mass
cancel message is more likely to be detrimentally delayed as
compared to a mass cancel message that is entered after an auction
response (i.e., a 35 microsecond ``wait time'' versus a 13
microsecond ``wait time'').
---------------------------------------------------------------------------
The Exchange proposes to adopt new functionality under Rule 5.25,
new subparagraph (c), which would apply to the Exchange's auction
mechanism (i.e., COA) to increase the likelihood that timely submitted
auction responses may participate in the auction, even during periods
of high message traffic. Under the proposed functionality, at the time
an auction response period ends, the System will continue to process
its inbound queue for any messages that were received by the System
before the end of the auction period (including auction messages) for
up to an Exchange-determined period of time, not to exceed 100
milliseconds (which the Exchange may determine on a class-by-class
basis which would apply to all auction mechanisms and which would be
announced with reasonable advanced notice via Exchange Notice). That
is, any auction responses that were in the queue before the conclusion
of the auction (as identified by the NIC timestamp on the message)
would be processed as long as the Exchange-determined time on a class-
by-class basis (not to exceed 100 milliseconds) is not exceeded. Only
auction messages received prior to the execution of the applicable
auction are eligible to be processed for that auction. The applicable
auction will execute once all messages, including auction responses,
received before the end time of the auction response period have been
processed or the Exchange-determined
[[Page 95848]]
maximum time limit of up to 100 milliseconds has elapsed, whichever
occurs first. This continuation of processing the queue for an
additional amount of time for messages that were received before the
end of the auction allows for auction responses that would otherwise
have been canceled due to the conclusion of the auction response period
to still have an opportunity to participate in the auction. This
provides such responses with increased opportunities to participate in
the auction, even during periods of high message traffic, thereby
potentially providing customers with additional opportunities for price
improvement, while still providing a processing cut off time to ensure
auction executions aren't unduly delayed.
By way of an example, if an auction with an auction response period
set to 100 milliseconds were to start at 9:00:00 a.m., only auction
responses that were able to be processed by the System by the
conclusion of the auction at 9:00:100 would participate in the auction.
Accordingly, if, for example, an auction response that was submitted at
9:00:090 (within the auction time response period), is still in the
message queue at 9:00:100, that response under the current System
functionality would be canceled and not eligible to participate in the
auction. Under the proposal, at 9:00:100, because the System continues
to process all messages timestamped before 9:00:100, that same auction
response submitted at 9:00:090 would not automatically be canceled but
rather included in the auction as long as it was able to be processed
within an additional 50 milliseconds, which is the additional
processing time set by the Exchange and announced to market
participants with reasonable advance notice via Exchange Notice for
that class in this example. Once that auction response is up for
processing (because the System processes messages sequentially in time
order sequence), the response will be able to participate in the
auction so long as it's processed by 9:00:150, notwithstanding such
processing would occur after the 100-millisecond auction response
period has concluded. Any auction responses for the pending auction
that are still pending after the execution of the auction would be
canceled.\10\ The Exchange notes that using the same example, if an
auction response was submitted at 9:00:120, it would not be eligible
for processing because the timestamp would identify it as being
submitted outside the auction response period which was otherwise set
to conclude at 9:00:100.
---------------------------------------------------------------------------
\10\ If, for example, the System processed all messages received
before 9:00:100 by 9:00:110, then the auction would execute at
9:00:110 (i.e., the System does not need to wait until 9:00:150 to
execute an auction if all messages submitted prior to the end time
of the auction have been processed).
---------------------------------------------------------------------------
The Exchange believes the proposed rule change will result in
increased execution opportunities for liquidity providers that submit
auction responses and enhance the potential for price improvement for
orders submitted to COA to the benefit of investors and public
interest. Indeed, the Exchange believes the proposed functionality will
increase the possibility that timely submitted auction responses are
processed by the Exchange and have an opportunity for execution in the
Exchange's auction mechanism, even if there is a deep pending message
queue. The Exchange believes the proposed maximum amount of additional
time for processing (i.e., 100 milliseconds) is both an adequate amount
of time to provide pending auction responses with such execution
opportunity, but also an amount minimal enough that impact to other
message traffic, if any, would be de minimis. The Exchange also notes
that it previously discussed the proposed maximum amount with market
participants who indicated that 100 milliseconds was acceptable to
them. The Exchange anticipates that in the vast majority of cases, the
additional time needed after the conclusion of auction response period,
if any, to process all pending auction responses will be shorter than
the maximum 100 milliseconds. To the extent the Exchange determines a
lesser amount of time would be sufficient, the Exchange could implement
an additional amount of time for processing auction responses that is
less than 100 milliseconds, which time would be announced with
reasonable advance notice to market participants via Exchange Notice.
Additionally, all message traffic (including auction responses) will
continue to be processed in time-priority.
The Exchange also believes the proposal will continue to allow the
Exchange to set the auction response period to an amount of time that
provides TPHs submitting responses with sufficient time to respond to,
compete for, and provide price improvement for orders, but also
continues to provide auctioned orders with quick executions that may
reduce market and execution risk. Further, the Exchange believes some
market participants choose to submit auction responses towards the end
of an auction response period to better ensure the response is at a
price that the market participant is willing to trade given the market
at the time the auction response period concludes. As such, merely
extending the auction response period in each auction would not itself
prevent auction responses from continuing to miss the auction
notwithstanding being timely submitted.
Moreover, the Exchange notes that it recently adopted the same
functionality on its affiliated exchanges, Cboe Exchange, Inc (``Cboe
Options'') and Cboe EDGX Exchange, Inc. (``EDGX Options'').\11\
---------------------------------------------------------------------------
\11\ See Securities Exchange Act Release No. 97738 (June 15,
2023) 88 FR 40878 (June 22, 2023) (SR-CBOE-2022-051) (Order Granting
Accelerated Approval of Proposed Rule Change as Modified by
Amendment Nos. 1 and 2 Relating to the Processing of Auction
Responses). See also Securities Exchange Act Release No. 101434
(October 25, 2024) 89 FR 86856 (October 31, 2024) (SR-CboeEDGX-2024-
067).
---------------------------------------------------------------------------
Implementation
The Exchange will announce via Exchange Notice the implementation
date of implement the proposed rule change, which shall be no later
than 60 days after the operative date of this rule filing.
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.\12\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \13\ 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) \14\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
---------------------------------------------------------------------------
\12\ 15 U.S.C. 78f(b).
\13\ 15 U.S.C. 78f(b)(5).
\14\ Id.
---------------------------------------------------------------------------
In particular, the Exchange believes modifying its System to allow
it to potentially process more, if not all, timely submitted auction
responses may provide further opportunities for auctioned orders to
receive price
[[Page 95849]]
improvement, which removes impediments to a free and open market and
ultimately protects and benefits investors. In particular, the proposed
rule change will continue to provide investors with timely processing
of their options quote and order messages, while providing investors
who submit auction orders with additional auction liquidity. Indeed,
the proposed rule change may allow more investors additional
opportunities to receive price improvement through an auction
mechanism. Additionally, because the proposed functionality may provide
liquidity providers that submit auction responses with additional
execution opportunities in auctions, the Exchange believes they may be
further encouraged to submit more auction responses, which may
contribute to a deeper, more liquid auction process that provides
investors with additional price improvement opportunities.
The Exchange believes the proposed rule change will result in
increased execution opportunities for liquidity providers that submit
auction responses and enhance the potential for price improvement for
orders submitted to each mechanism to the benefit of investors and
public interest. As described above, the Exchange believes the proposed
functionality will increase the possibility that timely submitted
auction responses are processed by the Exchange and have an opportunity
for execution in the Exchange's auction mechanism, even if there is a
deep pending message queue. The Exchange believes the proposed maximum
amount of additional time for processing (i.e., 100 milliseconds) is
both an adequate amount of time to provide pending auction responses
with such execution opportunity, but also an amount minimal enough that
impact to other message traffic, if any, would be de minimis. The
Exchange also discussed the proposed maximum amount of time with market
participants who indicated that 100 milliseconds was acceptable to
them. As represented above, the Exchange anticipates that in the vast
majority of cases, the additional time needed after the conclusion of
auction response period, if any, to process all pending auction
responses will be shorter than the maximum 100 milliseconds. To the
extent the Exchange determines a lesser amount of time would be
sufficient, the Exchange could implement an additional amount of time
for processing auction responses that is less than 100 milliseconds,
which time would be announced with reasonable advance notice to market
participants via Exchange Notice. Additionally, all message traffic
(including auction responses) will continue to be processed in time-
priority.
While the Exchange may increase the length of the auction response
period to accommodate more auction responses, the Exchange believes the
proposed functionality better addresses the issue of missed auction
responses. Particularly, the Exchange believes the proposed rule change
will accommodate more auction responses while also mitigating market
risk that may accompany a longer auction period by setting the length
of an auction response period to a timeframe that allows an adequate
amount of time for TPHs to respond to an auction message and provides
the auctioned order with fast executions. Additionally, the Exchange
believes TPHs may wait until the end of an auction response period
regardless of how long the Exchange sets it to in order to ensure they
are comfortable with the price the response may execute at the
conclusion of such auction. As such, extending the auction response
period in each auction would not itself prevent auction responses from
continuing to miss the auction notwithstanding being timely submitted.
The Exchange believes adopting the proposed functionality for
auction responses would also better provide customers with additional
opportunities for price improvements with little to no impact to non-
auction response message traffic. Currently, auction responses account
for an incredibly small fraction of message traffic submitted to the
Exchange. Indeed, based on the Exchange's analysis in August 2024,
auction response messages accounted for a mere 0.07% of all message
traffic submitted to the Exchange. The Exchange believe the processing
of such a small amount of message traffic, even after the conclusion of
an auction response period, would therefore have de minimis, if any,
impact on the processing of non-auction response messages waiting in
the queue. The Exchange also notes that all messages are currently
processed one at a time by the System. Therefore, the System still
needs to ``process'' all pending auction responses, regardless of
whether that processing involves canceling the pending auction response
because it wasn't processed in time to participate in the auction or
actually processing the response to participate in the auction. Either
way, the non-auction response messages will still have to wait for
processing of any pending responses ahead of it. Conversely, the
current system may cause investors to miss out on opportunities to
receive price improvement through the Exchange's auction mechanism as
the System is configured to cancel pending auction responses that
``miss'' the auction execution, even if such responses were timely
submitted but not processed due to the System being otherwise occupied
processing messages in queue ahead of it. The Exchange therefore
believes its proposal will make it more likely that the System
processes timely submitted auction responses and includes them in its
auction mechanism, thus providing them with more opportunities to
execute against auctioned orders, even during periods of high message
traffic.
The Exchange believes the proposed rule change is not designed to
permit unfair discrimination between market participants as all market
participants are allowed to submit auction responses. Additionally, the
Exchange believes it's reasonable to adopt the proposed functionality
for auction responses as compared to other messages because auction
responses are submitted only for the purpose of executing (and possibly
providing price improvement) in auctions with short durations, whereas
other messages are generally submitted to rest in or execute against
the book (and generally not used to submit liquidity into auctions). As
discussed above, the Exchange believes the benefits that result from
the adoption of the proposed functionality for auction responses would
outweigh any potential negative impact to other message traffic,
including customer orders, which have an incredibly low chance of being
affected by the proposed change as discussed above and which continue
to receive priority allocation in any event.
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 changes will impose any burden on intra-
market competition that is not necessary or appropriate in furtherance
of the purposes of the Act, as the proposed rule change would apply
equally to all TPHs that submit auction responses. As noted above, all
market participants are able to submit auction responses. Additionally,
the Exchange believes the adoption of the proposed functionality for
auction responses would have little to no impact on non-auction
response message traffic. As discussed, auction response messages
account for an incredibly
[[Page 95850]]
small fraction of message traffic submitted to the Exchange. The
Exchange therefore believes the processing of such a small amount of
message traffic by using the functionality would have a de minimis, if
any, impact on the processing of non-auction response messages.
Moreover, the Exchange believes it's reasonable to adopt the proposed
functionality for auction responses as compared to other messages
because auction responses are submitted only for the purpose of
executing (and possibly providing price improvement) in auctions with
short durations, whereas other messages are generally submitted to rest
in or execute against the book (and generally not used to submit
liquidity into auctions). Lastly, the Exchange does not believe the
proposed rule change will impose any burden on inter-market competition
that is not necessary or appropriate in furtherance of the purposes of
the Act, as the proposed change affects how the System processes
auction responses that may only participate in auctions that occur on
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
The Exchange designates that the proposed rule change effects a
change that (i) does not significantly affect the protection of
investors or the public interest; (ii) does not impose any significant
burden on competition; and (iii) by its terms, does not become
operative for 30 days after the date of the filing, or such shorter
time as the Commission may designate if consistent with the protection
of investors and the public interest. Additionally, the Exchange has
given the Commission written notice of its intent to file the proposed
rule change, along with a brief description and text of the proposed
rule change, at least five business days prior to the date of filing of
the proposed rule change, or such shorter time as designated by the
Commission.
As described above, the Exchange has observed a number of auction
responses missing opportunities to execute auctions, notwithstanding
being timely submitted within the auction response period. The Exchange
believes adopting the proposed functionality for auction responses
would better provide market participants with additional opportunities
for price improvements with very little, if any, impact to non-auction
response message traffic, thereby removing impediments to a free and
open market and ultimately protecting and benefiting investors.
Additionally, because the proposed functionality may provide liquidity
providers that submit auction responses with additional execution
opportunities in auctions, the Exchange believes they may be further
encouraged to submit more auction responses, which may contribute to a
deeper, more liquid auction process that provides investors with
additional price improvement opportunities.
The Exchange also believes the proposed rule change does not impose
any significant burden on competition, as the proposed functionality
would apply equally to all TPHs that submit auction responses and as
the proposed change only affects how the Exchange's System processes
auction responses that participate in auctions that occur only on the
Exchange.
Finally, the Exchange does not believe the proposed functionality
raises any novel legal or regulatory issues as the Exchange's affiliate
Cboe Options currently maintains the same timestamping functionality,
which was reviewed and approved by the Commission prior to its
implementation and the same functionality was recently adopted on the
Exchange's affiliate and EDGX Options, which was also reviewed by the
Commission.\15\
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\15\ Supra note 11.
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For the foregoing reasons, this rule filing qualifies as a ``non-
controversial'' rule change under Rule 19b-4(f)(6), which renders the
proposed rule change effective upon filing with the Commission. At any
time within 60 days of the filing of this proposed rule change, the
Commission summarily may temporarily suspend such rule change if it
appears to the Commission that such action is necessary or appropriate
in the public interest, for the protection of investors, or otherwise
in furtherance of the purposes of the Act. If the Commission takes such
action, the Commission will institute proceedings to determine whether
the proposed rule change should be approved or disapproved. The
Exchange respectfully requests that the Commission waive the 30-day
operative delay period after which a proposed rule change under Rule
19b-4(f)(6) becomes effective. The Exchange believes waiver of the
operative delay will benefit investors because it will permit the
proposed rule change to be operative as soon as practicable. As
previously noted, the Exchange's affiliate, Cboe Options recently
received Commission approval of a substantively identical functionality
and the Exchange's affiliate EDGX Options also recently adopted the
same functionality.\16\ Moreover, no comments to either of those
filings were submitted during the respective public comment periods.
Therefore, given that the Commission has noticed for public comment
substantively identical filings and received no comments to such
filings, the Exchange believes an operative delay is not necessary for
this filing. Additionally, waiver of the operative delay will permit
the Exchange to implement the proposed functionality as soon as
possible, which will benefit investors as the System will potentially
process more, if not all, timely submitted auction responses, thereby
provide further opportunities for auctioned orders to receive price
improvement, which removes impediments to a free and open market and
ultimately protects and benefits investors.
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\16\ Supra note 11.
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
file number SR-C2-2024-021 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to file number SR-C2-2024-021. 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
[[Page 95851]]
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-C2-2024-021 and should be submitted on or before December 24, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
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\17\ 17 CFR 200.30-3(a)(12).
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Stephanie J. Fouse,
Assistant Secretary.
[FR Doc. 2024-28342 Filed 12-2-24; 8:45 am]
BILLING CODE 8011-01-P
