[Federal Register Volume 83, Number 95 (Wednesday, May 16, 2018)]
[Notices]
[Pages 22796-22829]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-10417]



[[Page 22795]]

Vol. 83

Wednesday,

No. 95

May 16, 2018

Part III





Securities and Exchange Commission





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Self-Regulatory Organizations; Cboe C2 Exchange, Inc.; Notice of Filing 
and Immediate Effectiveness of a Proposed Rule Change To Amend Rules in 
Connection With the Migration of Cboe C2 to Cboe EDGX Options 
Technology; Notice

  Federal Register / Vol. 83 , No. 95 / Wednesday, May 16, 2018 / 
Notices  

[[Page 22796]]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83214; File No. SR-C2-2018-005]


Self-Regulatory Organizations; Cboe C2 Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
Rules in Connection With the Migration of Cboe C2 to Cboe EDGX Options 
Technology

May 11, 2018.
    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 April 27, 2018, Cboe C2 Exchange, Inc. (the ``Exchange'' or 
``C2'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I and II 
below, which Items have been prepared by the 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

    The Exchange proposes to amend C2's rulebook in preparation for the 
technology migration of C2 onto the options platform of an Exchange's 
affiliated options exchange, Cboe EDGX Exchange, Inc. (``EDGX'' or 
``EDGX Options'').
    The text of the proposed rule change is also available on the 
Exchange's website (http://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
    In 2016, the Exchange's parent company, Cboe Global Markets, Inc. 
(formerly named CBOE Holdings, Inc.) (``Cboe Global''), which is also 
the parent company of Cboe Exchange, Inc. (``Cboe Options''), acquired 
EDGX and its affiliated exchanges, Cboe EDGA Exchange, Inc. (``EDGA'' 
or ``EDGA Options''), Cboe BZX Exchange, Inc. (``BZX''), and Cboe BYX 
Exchange, Inc. (``BYX'' and, together with C2, Cboe Options, EDGX, 
EDGA, and BZX, the ``Cboe Affiliated Exchanges''). C2 intends to 
migrate its technology onto the same trading platform as EDGX. In this 
context, C2 proposes to align certain system functionality with EDGX 
(and BZX in certain circumstances), while retaining certain C2 
functionality, as well as to make other nonsubstantive changes to the 
rules, retaining only intended differences between it and the Cboe 
Affiliated Exchanges. Although the Exchange intentionally offers 
certain features that differ from those offered by the Cboe Affiliated 
Exchanges and will continue to do so, the Exchange believes offering 
similar functionality to the extent practicable will reduce potential 
confusion for market participants. The proposed rule change modifies or 
adds certain system functionality currently offered by EDGX to provide 
a consistent technology offering for users of Cboe Affiliated 
Exchanges.
Chapter 1
    The proposed rule change makes the following changes to Chapter 1 
of the C2 Rulebook.
    The following table identifies the defined terms that are proposed 
to be added to or amended in C2 Rule 1.1, whether the proposed amended 
rule was moved from a current C2 rule or corresponds to the rule of 
EDGX or another exchange, and proposed substantive changes.

----------------------------------------------------------------------------------------------------------------
                                                                        Corresponding
    Defined term              Provision           Current C2 rule      other exchange     Description of change
                                                                            rule
----------------------------------------------------------------------------------------------------------------
ABBO................  best bid(s) or offer(s)   N/A................  EDGX Rule           Added to C2 Rule 1.1.
                       disseminated by other                          21.20(a)(1).
                       Eligible Exchanges \5\
                       and calculated by the
                       Exchange based on
                       market information the
                       Exchange receives from
                       OPRA.
Adjusted Series.....  series in which, as a     8.5(a)(1)..........  N/A...............  Moved to C2 Rule 1.1.
                       result of a corporate
                       action by the
                       underlying security,
                       one option contract in
                       the series represents
                       the delivery of other
                       than 100 shares of
                       underlying stock or
                       Units.
Bid.................  the price of a limit      N/A................  EDGX Rule           Added to C2 Rule 1.1.
                       order or quote to buy                          16.1(a)(6).
                       one or more options
                       contracts.
Book or Simple Book.  electronic book of        1.1................  EDGX Rule           Adding that Book may
                       simple orders and                              16.1(a)(9).         also be referred to as
                       quotes maintained by                                               Simple Book.
                       the System.
Call................  option contract under     1.1................  EDGX Rule           Added clarifying
                       which the holder of the                        16.1(a)(12).        language consistent
                       option has the right,                                              with put definition to
                       in accordance with the                                             conform to EDGX rule.
                       terms of the option and
                       Rules of the Clearing
                       Corporation, to
                       purchase from the
                       Clearing Corporation
                       the number of units of
                       the underlying security
                       or index covered by the
                       option contract, at a
                       price per unit equal to
                       the exercise price,
                       upon the timely
                       exercise of the option.

[[Page 22797]]

 
Capacity............  capacity in which a User  N/A................  N/A...............  C2 currently refers to
                       submits an order, which                                            capacity as origin
                       the User specifies by                                              code; current C2
                       applying the                                                       origin codes are in
                       corresponding code to                                              Regulatory Circular
                       the order, and includes                                            RG13-015, and are the
                       B (account of a broker                                             same as the proposed
                       or dealer, including a                                             Capacities, except the
                       Foreign Broker-Dealer),                                            proposed rule changes
                       C (Public Customer                                                 W to U (see EDGX
                       account), F (OCC                                                   specifications \6\),
                       clearing firm                                                      and adds L, which is
                       proprietary account), J                                            not currently
                       (joint back office                                                 permitted on C2 (see
                       account), L (non-                                                  Cboe Options
                       Trading Permit Holder                                              Regulatory Circular
                       affiliate account), M                                              RG13-038).
                       (Market-Maker account),
                       N (market-maker or
                       specialist on another
                       options exchange), U
                       (Professional account).
Cboe Trading........  Cboe Trading, Inc.,       3.18...............  EDGX Rule 2.11....  Moved to C2 Rule 1.1.
                       broker-dealer
                       affiliated with C2 and
                       will serve as inbound
                       and outbound router for
                       C2, as discussed below.
Class...............  all option contracts      1.1................  EDGX Rule           Deletes unnecessary
                       with the same unit of                          16.1(a)(13).        reference to options,
                       trading covering the                                               given only options
                       same underlying                                                    trade on C2; adds that
                       security or index.                                                 options may cover an
                                                                                          index (see C2 Chapter
                                                                                          24); deletes that a
                                                                                          class means options of
                                                                                          the same type
                                                                                          (currently defined as
                                                                                          put or call), as a
                                                                                          class is comprised of
                                                                                          both puts and calls;
                                                                                          adds that a class is
                                                                                          comprised of option
                                                                                          contracts with the
                                                                                          same unit of trading
                                                                                          covering the same
                                                                                          underlying security or
                                                                                          index (discussed
                                                                                          below).
Clearing Corporation  Options Clearing          1.1................  EDGX Rule 16.1(14)  Adding that the
 or OCC.               Corporation.                                                       Clearing Corporation
                                                                                          may also be referred
                                                                                          to as OCC.
Clearing Trading      a Trading Permit Holder   1.1................  EDGX Rule           Added that Clearing
 Permit Holder.        that has been admitted                         16.1(a)(15).        Trading Permit Holders
                       to membership in the                                               self-clear or clear on
                       Clearing Corporation                                               behalf of others
                       pursuant to the                                                    (consistent with C2
                       provisions of the rules                                            today).
                       of the Clearing
                       Corporation and is self-
                       clearing or that clears
                       transactions for other
                       Trading Permit Holders.
Commission or SEC...  U.S. Securities and       1.1................  EDGX Rule 1.5(g)..  Adding that the
                       Exchange Commission.                                               Commission may also be
                                                                                          referred to as SEC.
Complex Order.......  order involving the       6.13(a)(1).........  EDGX Rule           Moved to C2 Rule 1.1
                       concurrent execution of                        21.20(a)(5).        and 6.12(a); added
                       two or more different                                              that C2, like EDGX,
                       series in the same                                                 can impose a maximum
                       class (the ``legs'' or                                             number of legs and
                       ``components'' of the                                              determine in which
                       order), for the same                                               classes complex orders
                       account, occurring at                                              are available.
                       or near the same time
                       in a ratio greater than
                       or equal to one-to-
                       three and less than or
                       equal to three-to-one
                       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); the Exchange
                       determines in which
                       classes complex orders
                       are eligible for
                       processing.
Customer............  Public Customer or        N/A................  EDGX Rule           Added to C2 Rule 1.1;
                       broker-dealer.                                 16.1(a)(19).        new definition in C2
                                                                                          Rules, but concept of
                                                                                          customers exists
                                                                                          throughout current C2
                                                                                          rules (including in
                                                                                          priority rules).
Customer Order......  agency order for the      N/A................  EDGX Rule           Added to C2 Rule 1.1.
                       account of a Customer.                         16.1(a)(20).
Discretion..........  authority of a broker or  N/A................  EDGX Rule           Added to C2 Rule 1.1;
                       dealer to determine for                        16.1(a)(21).        substantively the same
                       a Customer the type of                                             as the EDGX
                       option, class or series                                            definition.
                       of options, the number
                       of contracts, or
                       whether options are to
                       be bought or sold.
EFID................  Executing Firm ID.......  N/A................  EDGX Rule           Added to C2 Rule 1.1;
                                                                      21.1(c)(1).         EDGX rule refers to
                                                                                          the term MPID, which
                                                                                          is generally
                                                                                          equivalent to EFID;
                                                                                          similar to the term
                                                                                          acronym, which is used
                                                                                          in current C2 rules;
                                                                                          EFID is the term used
                                                                                          in C2 technical
                                                                                          specification
                                                                                          following migration,
                                                                                          and thus more
                                                                                          appropriate for the C2
                                                                                          rules; as noted below,
                                                                                          a firm may have
                                                                                          multiple EFIDs.
Equity Option.......  option on an equity       N/A (equity options  EDGX Rule           Added to C2 Rule 1.1.
                       security or Unit.         permitted by C2      16.1(a)(27).
                                                 Chapter 5).
Exchange Act........  Securities Exchange Act   1.1................  EDGX Rule           Added rules and
                       of 1934, including                             16.1(a)(23).        regulations, which
                       rules and regulations                                              also apply to the
                       thereunder.                                                        Exchange rules.
Expiration Date.....  third Friday of           1.1................  N/A...............  Deleted language about
                       expiration month.                                                  series that expire on
                                                                                          Saturday rather than
                                                                                          Friday, as no more
                                                                                          grandfathered series
                                                                                          are listed on the
                                                                                          Exchange.
He, Him, His........  deemed to refer to        N/A................  EDGX Rule           Added to C2 Rule 1.1.
                       persons of female as                           16.1(a)(25).
                       well as male gender and
                       to include
                       organizations, as well
                       as individuals, when
                       the context requires.
Index Option........  option on a broad-based,  N/A (index options   EDGX Rule           Added to C2 Rule 1.1.
                       narrow-based, micro       permitted by C2      16.1(a)(26).
                       narrow-based or other     Chapter 24).
                       index of equity
                       securities prices.

[[Page 22798]]

 
Market Close........  time the Exchange         N/A (market close    EDGX Rule           Added to C2 Rule 1.1.
                       specifies for the end     time set forth in    16.1(a)(34).
                       of trading on the         C2 Rule 6.1).
                       Exchange on that
                       trading day.
Market Open.........  time the Exchange         N/A (market open     EDGX Rule           Added to C2 Rule 1.1.
                       specifies for the start   time set forth in    16.1(a)(35).
                       of trading on the         C2 Rules 6.1 and
                       Exchange on that          6.10).
                       trading day.
Notional Value......  value calculated by       6.15(e)(1)(C)......  EDGX Rule           Added to C2 Rule 1.1.
                       multiplying the number                         20.6(e)(1)(C).
                       of contracts (contract
                       size multiplied by the
                       contract multiplier) in
                       an order by the order's
                       limit price.
NBB, NBO, and NBBO..  national best bid,        1.1................  EDGX Rule           Added NBB and NBO to C2
                       national best offer,                           16.1(a)(29).        definition.
                       and national best bid
                       or offer the Exchange
                       calculates based on
                       market information it
                       receives from OPRA.
Offer...............  the price of a limit      N/A................  EDGX Rule           Added to C2 Rule 1.1.
                       order or quote to sell                         16.1(a)(30).
                       one more option
                       contracts.
OPRA................  Options Price Reporting   N/A................  EDGX Rule           Added to C2 Rule 1.1.
                       Authority.                                     16.1(a)(41).
Order...............  firm commitment to buy    1.1 and 6.10(a) and  EDGX Rule           Moved market order and
                       or sell option            (b).                 16.1(a)(42) and     limit order
                       contracts that the                             21.1(c).            definitions to C2 Rule
                       System receives from a                                             1.1, as all orders
                       User, which may be a                                               must be market or
                       limit order or market                                              limit.
                       order.
Order Entry Firm/OEF  Trading Permit Holder     N/A................  EDGX Rule           Added to C2 Rule 1.1.
                       representing as agent                          16.1(a)(36).
                       Customer Orders on the
                       Exchange and non-Market-
                       Maker Trading Permit
                       Holder conducting
                       proprietary trading.
Order Instruction...  processing instruction a  N/A................  EDGX Rule 21.1(d).  Added to C2 Rule 1.1
                       User may apply to an                                               (rules currently
                       order (multiple                                                    permit various
                       instructions may apply                                             instructions); various
                       to a single order) when                                            order instructions
                       entering it into the                                               substantively similar
                       System.                                                            to those available on
                                                                                          EDGX.
Attributable........  order a User designates   6.10(f)............  EDGX Rule           Moved to C2 Rule 1.1,
                       for display (price and                         21.1(c)(1).         Order Instruction.
                       size) that includes the
                       User's EFID or other
                       unique identifier.
Book Only...........  order the System ranks    6.10(j)............  EDGX Rule           Moved to C2 Rule 1.1,
                       and executes pursuant                          21.1(d)(7).         Order Instruction
                       to Rule 6.12, subjects                                             (previously called C2-
                       to the Price Adjust                                                Only Order).
                       process pursuant to
                       Rule 6.12, or cancels,
                       as applicable (in
                       accordance with User
                       instructions), without
                       routing away to another
                       exchange.
Cancel Back.........  order a User designates   N/A................  EDGX Rule 11.6(b).  Added to C2 Rule 1.1
                       to not be subject to                                               (consistent with Rule
                       the Price Adjust                                                   6.82) and
                       process pursuant to                                                substantively similar
                       Rule 6.12 that the                                                 EDGX Rule (further
                       System cancels or                                                  discussed below).
                       rejects (immediately at
                       the time the System
                       receives the order or
                       upon return to the
                       System after being
                       routed away) if
                       displaying the order on
                       the Book would create a
                       violation of Rule 6.82,
                       or if the order cannot
                       otherwise be executed
                       or displayed in the
                       Book at its limit price.
Intermarket Sweep     order that has the        6.10(g)............  EDGX Rule           Moved to C2 Rule 1.1
 Order/ISO.            meaning provided in                            21.1(d)(2).         (consistent with
                       Section E of Chapter 6,                                            current C2 system).
                       which may be executed
                       at one or multiple
                       price levels in the
                       System without regard
                       to Protected Quotations
                       at other options
                       exchanges; the Exchange
                       relies on the marking
                       of an order by a User
                       as an ISO order when
                       handling such order,
                       and thus, it is the
                       entering Trading Permit
                       Holder's
                       responsibility, not the
                       Exchange's
                       responsibility, to
                       comply with the
                       requirements relating
                       to ISOs.
Match Trade           order not executed        6.10(k)............  EDGX Rule 21.1(g).  Moved to C2 Rule 1.1
 Prevention/MTP        against a resting                                                  and conformed to EDGX
 Modifier.             opposite side order or                                             rule (further
                       quote also designated                                              discussed below).
                       with an MTP modifier
                       and originating from
                       the same EFID, Trading
                       Permit Holder
                       identifier, trading
                       group identifier, or
                       Sponsored User
                       identifier (``Unique
                       Identifier''), with
                       five types of modifiers
                       available.
Minimum Quantity....  order that requires a     N/A................  EDGX Rule           Added to C2 Rule 1.1
                       specified minimum                              21.1(d)(3).         (further discussed
                       quantity of contracts                                              below).
                       be executed or is
                       cancelled; Minimum
                       Quantity orders will
                       only execute against
                       multiple, aggregated
                       orders if such
                       executions would occur
                       simultaneously, and
                       only a Book Only order
                       with TIF designation of
                       IOC may have a Minimum
                       Quantity instruction
                       (the System disregards
                       a Minimum Quantity
                       instruction on any
                       other order).
Non-Attributable....  order a User designates   N/A................  EDGX Rule           Added to C2 Rule 1.1--
                       for display (price and                         21.1(c)(2).         orders currently not
                       size) on an anonymous                                              marked Attributable on
                       basis or not designated                                            C2 are non-
                       as an Attributable                                                 attributable; proposed
                       Order.                                                             rule change merely
                                                                                          permits Users to
                                                                                          affirmatively
                                                                                          designate orders as
                                                                                          non-attributable, and
                                                                                          specify the Exchange
                                                                                          will by default treat
                                                                                          orders as Non-
                                                                                          Attributable unless
                                                                                          the User designates it
                                                                                          as Attributable.

[[Page 22799]]

 
Post Only...........  order the System ranks    N/A................  EDGX Rule           Added to C2 Rule 1.1
                       and executes pursuant                          21.1(d)(8).         (further discussed
                       to Rule 6.12, subject                                              below).
                       to the Price Adjust
                       process pursuant to
                       Rule 6.12, or cancels
                       or rejects (including
                       if it is not subject to
                       the Price Adjust
                       process and locks or
                       crosses a Protected
                       Quotation of another
                       exchange), as
                       applicable, except the
                       order may not remove
                       liquidity from the Book
                       or route away to
                       another Exchange.
Price Adjust........  order a User designates   N/A................  EDGX Rule 21.1(i).  Added to C2 Rule 1.1
                       to be subject to the                                               (Price Adjust process
                       Price Adjust process                                               described further
                       pursuant to Rule 6.12,                                             below).
                       or an order a User does
                       not designate as Cancel
                       Back.
Reserve Order.......  limit order with both a   6.10(c)(8) and       BZX Rule            Moved to C2 Rule 1.1
                       portion of the quantity   6.12(c).             21.1(d)(1).         (further discussed
                       displayed (``Display                                               below).
                       Quantity'') and a
                       reserve portion of the
                       quantity (``Reserve
                       Quantity'') not
                       displayed; both display
                       quantity and reserve
                       quantity are available
                       for potential execution
                       against incoming
                       orders, with Max Floor
                       and replenishment
                       instructions available.
Stop (Stop-Loss)      order to buy (sell) that  6. 10(c)(3)........  BZX Rule            Moved to C2 Rule 1.1;
 Order.                becomes a market order                         21.1(d)(11).        modified to compare
                       when the consolidated                                              stop prices to
                       last sale price                                                    national prices rather
                       (excluding prices from                                             than Exchange prices
                       complex order trades if                                            (EDGX similarly uses
                       outside the NBBO) or                                               the NBBO), which
                       NBB (NBO) for a                                                    reflect price from
                       particular option                                                  entire market (similar
                       contract is equal to or                                            change in Rule 6.10(c)
                       above (below) the stop                                             provision regarding
                       price specified by the                                             stop orders).
                       User.
Stop-Limit Order....  order to buy (sell) that  6.10(c)(4).........  BZX Rule            Moved to C2 Rule 1.1;
                       becomes a limit order                          21.1(d)(12).        modified to compare
                       when the consolidated                                              stop prices to
                       last sale price                                                    national prices rather
                       (excluding prices from                                             than Exchange prices
                       complex order trades if                                            (EDGX similarly uses
                       outside the NBBO) or                                               the NBBO), which
                       NBB (NBO) for a                                                    reflect price from
                       particular option                                                  entire market (similar
                       contract is equal to or                                            change in Rule 6.10(c)
                       above (below) the stop                                             provision regarding
                       price specified by the                                             stop orders).
                       User.
Port................  adds definitions of       N/A................  EDGX Rule 21.1(j).  Added to C2 Rule 1.1
                       various types of ports                                             (further discussed
                       available in the new                                               below).
                       Exchange system.
Primary Market......  primary exchange on       N/A................  EDGX Rule           Added to C2 Rule 1.1
                       which an underlying                            16.1(a)(44).        (concept exists in
                       security is listed.                                                current C2 rules, such
                                                                                          a 6.11(b)).
Protected Quotation.  a Protected Bid or        6.80...............  EDGX Rule           Added to list of
                       Protected Offer, as                            16.1(a)(47).        defined terms in C2
                       each of those terms is                                             Rule 1.1.
                       defined in Rule 6.80.
Put.................  option contract under     1.1................  EDGX Rule           Added clarifying
                       which the holder of the                        16.1(a)(49).        language consistent
                       option has the right,                                              with put definition to
                       in accordance with the                                             conform to EDGX rule.
                       terms and provisions of
                       the option and Rules of
                       the Clearing
                       Corporation, to sell to
                       the Clearing
                       Corporation the number
                       of units of the
                       underlying security
                       covered by the option
                       contract, at a price
                       per unit equal to the
                       exercise price, upon
                       the timely exercise of
                       such option.
Quote or quotation..  bid or offer entered by   1.1................  EDGX Rule           Conforms C2 definition
                       a Market-Maker as a                            16.1(a)(51).        to EDGX definition
                       firm order, which                                                  (including to state
                       updates the Market-                                                that Market-Maker
                       Maker's previous bid or                                            quotes are entered
                       offer, if any.                                                     using order
                                                                                          functionality).
SBBO................  best bid and offer on     1.1................  EDGX Rule           Moved to proposed C2
                       the Exchange for a                             21.20(a)(11).       Rule 6.13(a);
                       complex strategy                                                   currently defined as
                       calculated using the                                               Exchange Spread Market
                       BBO for each component                                             in C2 Rule 1.1, which
                       of a complex strategy                                              definition is being
                       to establish the best                                              deleted.
                       net bid and offer for a
                       complex strategy.
Series..............  all option contracts of   1.1................  EDGX 16.1(a)(55)..  Clarified that a series
                       the same class that are                                            consists of options of
                       the same type of option                                            the same type (i.e.
                       and have the same                                                  options with the same
                       exercise price, and                                                exercise price and
                       expiration date.                                                   date that are calls
                                                                                          are a series, and
                                                                                          options with the same
                                                                                          exercise price and
                                                                                          date that are puts are
                                                                                          another series).
Size................  number of contracts up    N/A................  EDGX Rule 21.1(e).  Added to C2 Rule 1.1
                       to 999,999 associated                                              (consistent with
                       with an order or quote.                                            current C2 system).
SNBBO...............  national best bid and     1.1................  EDGX Rule           Moved to Rule 6.13(a);
                       offer for a complex                            21.20(a)(12).       currently defined as
                       strategy calculated                                                National Spread Market
                       using the NBBO for each                                            in C2 Rule 1.1, which
                       component of a complex                                             definition is being
                       strategy to establish                                              deleted.
                       the best net bid and
                       offer for a complex
                       strategy.
System Securities...  options that currently    N/A................  EDGX Rule 21.1(b).  Added to C2 Rule 1.1
                       trade on the Exchange                                              (additional term for
                       pursuant to Chapters 5                                             options listed for
                       and 24.                                                            trading).
Time-in-Force.......  period of time the        N/A................  EDGX Rule 21.1(f).  Added to C2 Rule 1.1
                       System will hold an                                                (general term to cover
                       order for potential                                                various time-in-force
                       execution.                                                         instructions).
Day.................  time-in-force that means  6.10(e)(1).........  EDGX Rule           Moved to C2 Rule 1.1.
                       an order to buy or sell                        21.1(f)(3).
                       that, if not executed,
                       expires at market close.
Fill-or-Kill/FOK....  time-in-force that means  6.10(c)(5).........  EDGX Rule           Moved to C2 Rule 1.1.
                       an order that is to be                         21.1(f)(5).
                       executed in its
                       entirety as soon as the
                       System receives it and,
                       if not so executed,
                       cancelled.

[[Page 22800]]

 
Good-til-Cancelled/   time-in-force that        6.10(c)(2).........  EDGX Rule           Moved to C2 Rule 1.1.
 GTC.                  means, if after entry                          21.1(f)(4).
                       into the System, the
                       order is not fully
                       executed, the order (or
                       unexecuted portion)
                       remains available for
                       potential display or
                       execution (with the
                       same timestamp) unless
                       cancelled by the
                       entering User, or until
                       the option expires,
                       whichever comes first.
Good-til-Date/GTD...  time-in-force that        N/A................  EDGX Rule           Added to C2 Rule 1.1
                       means, if after entry                          21.1(f)(1).         (similar to EDGX time-
                       into the System, the                                               in-force, as further
                       order is not fully                                                 discussed below).
                       executed, the order (or
                       unexecuted portion)
                       remains available for
                       potential display or
                       execution (with the
                       same timestamp) until a
                       date and time specified
                       by the entering User
                       unless cancelled by the
                       entering User.
Immediate-or-Cancel/  time-in-force for a       6.10(c)(6).........  EDGX Rule           Moved to C2 Rule 1.1.
 IOC.                  limit order that is to                         21.1(f)(2).
                       be executed in whole or
                       in part as soon as the
                       System receives it; the
                       System cancels and does
                       not post to the Book
                       any portion of an IOC
                       order (or unexecuted
                       portion) not executed
                       immediately on the
                       Exchange or another
                       options exchange.
At the Open/OPG.....  time-in-force means an    6.10(c)(7).........  EDGX Rule           Moved to C2 Rule 1.1.
                       order that may only                            21.1(f)(6).
                       participate in the
                       Opening Process on the
                       Exchange; the System
                       cancels an OPG order
                       (or unexecuted portion)
                       that does not execute
                       during the Opening
                       Process.
Trade Desk..........  Exchange operations       1.1................  N/A...............  Changed to Trade Desk,
                       staff authorized to                                                which is new term for
                       make certain trading                                               Help Desk at the
                       determinations on                                                  Exchange (which term
                       behalf of the Exchange.                                            is being deleted from
                                                                                          the Rules).
Transaction.........  transaction involving a   N/A................  EDGX Rule           Added to C2 Rule 1.1
                       contract effected on or                        16.1(a)(11).        (same as EDGX rule,
                       through the Exchange or                                            consistent with
                       its facilities or                                                  industry term).
                       systems.
Unit................  shares or other           5.3, Interpretation  EDGX Rule 19.3(i)   Added to list of
                       securities traded on a    and Policy .06.      (Units defined as   defined terms in C2
                       national securities                            Fund Shares in      Rule 1.1.
                       exchange and defined as                        EDGX Rules).
                       an ``NMS stock'' under
                       Rule 600 of Regulation
                       NMS, and that satisfy
                       the criteria in Rule
                       5.3, Interpretation and
                       Policy .06.
Unit of Trading.....  defined in Rule 6.2.....  6.2................  N/A...............  Added to list of
                                                                                          defined terms in C2
                                                                                          Rule 1.1 (discussed
                                                                                          below).
User................  any Trading Permit        N/A................  EDGX Rule           Added to C2 Rule 1.1
                       Holder or Sponsored                            16.1(a)(63).        (common term to apply
                       User who is authorized                                             to two types of market
                       to obtain access to the                                            participants defined
                       System pursuant to Rule                                            in C2 Rules, which are
                       6.8.                                                               the only two market
                                                                                          participants that may
                                                                                          access the System
                                                                                          under C2 Rules).
----------------------------------------------------------------------------------------------------------------

    The proposed rule change makes changes throughout C2 Rules to 
conform to the changes to defined terms.
---------------------------------------------------------------------------

    \5\ Eligible Exchange is defined in Cboe Rule 6.80(7).
    \6\ BOE Specifications, available at http://cdn.batstrading.com/resources/membership/BATS_US_Options_BOE2_Specification.pdf, and FIX 
Specifications, available at http://cdn.batstrading.com/resources/membership/BATS_US_Options_BZX_FIX_Specification.pdf.
---------------------------------------------------------------------------

    As noted above, the proposed rule change amends the definition of 
class to mean all option contracts with the same unit of trading 
(including adjusted series as determined by OCC) covering the same 
underlying security or index. The current definition states a class 
consists of options of the same type, which is defined as either a put 
or a call. However, the term class is generally understood to include 
both puts and calls, which are types of series, not separate classes, 
making this definition outdated. As described above, options with the 
same exercise price and expiration date that are puts constitute one 
series, and options with the same exercise price and expiration date 
that are calls constitute another series. Additionally, there are some 
exceptions for options that cover the same underlying but constitute a 
separate class, and the proposed definition incorporates this 
concept.\7\ For example, mini-options cover the same underlying 
security as standard options, but are considered as separate class 
since they have a different deliverable (10 shares of the underlying 
security rather than 100 shares of the underlying security, 
respectively). Additionally, when OCC adjusts series in connection with 
corporate actions (see Rule 5.7), it announces whether those series are 
part of the same existing class or a new class covering the same 
underlying security. The concept of unit of trading more accurately 
describes the series that constitute a class (e.g. the unit of trading 
for a mini-option is 10, and the unit of trading for a standard option 
is 100, making each a separate class under the proposed definition). 
The proposed definition accounts for these exceptions, and is a more 
accurate definition of what options constitute a class today on the 
Exchange.
---------------------------------------------------------------------------

    \7\ The proposed definition is based on the OCC definition of 
class. See OCC By-Laws Article I, C.(11). The proposed definition of 
unit of trading is consistent with C2 Rule 6.2.
---------------------------------------------------------------------------

    As noted above, the proposed rule change adds the following order 
instructions to C2 Rule 1.1, which order instructions are available on 
EDGX or BZX, as indicated.
     Cancel Back: A Book Only or Post Only order a User 
designates to not be subject to the Price Adjust Process pursuant to 
Rule 6.12, which the System cancels or rejects if it locks or crosses 
the opposite side of the ABBO. The System executes a Book Only--Cancel 
Back order against resting orders and quotes, and cancels or rejects a 
Post Only--Cancel Back order, that locks or crosses the opposite side 
of the BBO. The proposed functionality is partially included in the 
definition of Post Only in the EDGX rules.\8\ The proposed rule change 
extends the definition to Book Only orders and is consistent with

[[Page 22801]]

linkage rules included in Chapter 6, Section E of the Rules and is 
consistent with EDGX Rule 21.6(f). Book Only orders and Post Only 
orders do not route by definition, and the Cancel Back instruction 
provides an option for Users to determine how they will be handled 
within the System, consistent with their definitions.\9\
---------------------------------------------------------------------------

    \8\ See EDGX Rule 21.6(d)(8).
    \9\ EDGX Rule 11.6(b) (which relates to the EDGX Equities 
market) contains a similar Cancel Back instruction.
---------------------------------------------------------------------------

     Match Trade Prevention (MTP) Modifiers: Current C2 Rule 
6.10(k) defines a Market-Maker Trade Prevention Order as an IOC order 
market with the Market-Maker Trade Prevention designation. A Market-
Maker Trade Prevention Order that would trade against a resting quote 
or order for the same Market-Maker will be cancelled, as will the 
resting quote or order (unless the Market-Maker Trade Prevention Order 
is received while an order for the same Market-Maker is subject to an 
auction, in which case only the Market-Maker Trade Prevention Order 
will be cancelled). The Exchange proposes to adopt MTP modifiers 
substantively the same as those available on EDGX.\10\ The proposed MTP 
modifiers expand this functionality to all Users, rather than just 
Market-Makers, and provide Users with multiple options regarding how 
the System handles orders and quotes with the same Unique Identifiers. 
Pursuant to the proposed rule change, an order designated with any MTP 
modifier is not executed against a resting opposite side order or quote 
also designated with an MTP modifier and originating from the same 
Unique Identifier. Except for the MDC modifier described below, the MTP 
modifier on the incoming order controls the interaction between two 
orders marked with MTP modifiers:
---------------------------------------------------------------------------

    \10\ See EDGX Rule 21.1(g).
---------------------------------------------------------------------------

    [cir] MTP Cancel Newest (``MCN''): An incoming order marked with 
the ``MCN'' modifier does not execute against a resting order marked 
with any MTP modifier originating from the same Unique Identifier. The 
System cancels or rejects the incoming order, and the resting order 
remains in the Book.
    [cir] MTP Cancel Oldest (``MCO''): An incoming order marked with 
the ``MCO'' modifier does not execute against a resting order marked 
with any MTP modifier originating from the same Unique Identifier. The 
System cancels or rejects the resting order, and processes the incoming 
order in accordance with Rule 6.12.
    [cir] MTP Decrement and Cancel (``MDC''): An incoming order marked 
with the ``MDC'' modifier does not execute against a resting order 
marked with any MTP modifier originating from the same Unique 
Identifier. If both orders are equivalent in size, the System cancels 
or rejects both orders. If the orders are not equivalent in size, the 
System cancels or rejects the smaller of the two orders and decrements 
the size of the larger order by the size of the smaller order, which 
remaining balance remains on or processes in accordance with Rule 6.12, 
as applicable. Notwithstanding the foregoing, unless a User instructs 
the Exchange not to do so, the System cancels or rejects both orders if 
the resting order is marked with any MTP modifier other than MDC and 
the incoming order is smaller in size than the resting order.
    [cir] MTP Cancel Both (``MCB''): An incoming order marked with the 
``MCB'' modifier does not execute against a resting order marked with 
any MTP modifier originating from the same Unique Identifier. The 
System cancels or rejects both orders.
    [cir] MTP Cancel Smallest (``MCS''): An incoming order marked with 
the ``MCS'' modifier does not execute against a resting order marked 
with any MTP modifier originating from the same Unique Identifier. If 
both orders are equivalent in size, the System cancels or rejects both 
orders. If the orders are not equivalent in size, the System cancels or 
rejects the smaller of the two orders, and the larger order remains on 
the Book or processes in accordance with Rule 6.12, as applicable.
    The proposed MTP functionality is designed to prevent market 
participants from unintentionally causing a proprietary self-trade. The 
Exchange believes these modifiers will allow firms to better manage 
order flow and prevent undesirable executions with themselves. Trading 
Permit Holders may have multiple connections into the Exchange 
consistent with their business needs and function. As a result, orders 
routed by the same firm via different connections may, in certain 
circumstances, trade against each other. The proposed modifiers provide 
Trading Permit Holders with functionality (in addition to what is 
available on C2 today) with the opportunity to prevent these 
potentially undesirable trades. The Exchange notes that offering the 
MTP modifiers may streamline certain regulatory functions by reducing 
false positive results that may occur on Exchange generated wash 
trading surveillance reports when orders are executed under the same 
Unique Identifier. For these reasons, the Exchange believes the MTP 
modifiers offer users enhanced order processing functionality that may 
prevent potentially undesirable executions without negatively impacting 
broker-dealer best execution obligations.
     Minimum Quantity Order: An order that requires a specified 
minimum quantity of contracts be executed or is cancelled. Minimum 
Quantity orders will only execute against multiple, aggregated orders 
if such executions would occur simultaneously. Only a Book Only order 
with a time-in-force designation of IOC may have a Minimum Quantity 
instruction (the System disregards a Minimum Quantity instruction on 
any other order). This functionality ensures a User's order will not 
partially execute for less than the minimum amount of contracts a User 
desires to execute as part of its investment strategy. Only permitting 
this functionality for Book Only IOC order is consistent with the 
purpose of this functionality, as current Exchange functionality cannot 
guarantee that an order that routes or rests on the book to execute 
against incoming orders will be executed for the minimum requested 
amount.
     Post Only Order: An order the System ranks and executes 
pursuant to proposed Rule 6.12, subjects to the Price Adjust process 
pursuant to Rule 6.12, or cancels (including if it is not subject to 
the Price Adjust process and it would lock or cross a Protected 
Quotation on another exchange), as applicable (in accordance with User 
instructions), except the order may not remove liquidity from the Book 
or route away to another Exchange. This proposed instructions is nearly 
identical to the C2 Only/Book Only order instruction, except it will 
also not remove liquidity from the Book. The Exchange currently has a 
maker-taker fee structure, pursuant to which an execution taking 
liquidity from the Book is subject to a taker fee. This proposed 
instruction provides Users with flexibility to avoid incurring a taker 
fee if their intent is to submit an order to add liquidity to the Book.
     Reserve Order: A limit order with both a portion of the 
quantity displayed (``Display Quantity'') and a reserve portion of the 
quantity (``Reserve Quantity'') not displayed. Both the Display 
Quantity and Reserve Quantity of the Reserve Order are available for 
potential execution against incoming orders. When entering a Reserve 
Order, a User must instruct the Exchange as to the quantity of the 
order to be initially displayed by the System (``Max Floor''). If the 
Display Quantity of a Reserve Order is fully executed, the System will, 
in accordance with the User's instruction, replenish the Display 
Quantity from the Reserve Quantity

[[Page 22802]]

using one of the below replenishment instructions. If the remainder of 
an order is less than the replenishment amount, the System will display 
the entire remainder of the order. The System creates a new timestamp 
for both the Display Quantity and Reserve Quantity of the order each 
time it is replenished from reserve.
    [cir] Random Replenishment: An instruction that a User may attach 
to an order with Reserve Quantity where the System randomly replenishes 
the Display Quantity for the order with a number of contracts not 
outside a replenishment range, which equals the Max Floor plus and 
minus a replenishment value established by the User when entering a 
Reserve Order with a Random Replenishment instruction.
    [cir] Fixed Replenishment: For any order for that a User does not 
select Random Replenishment, the System will replenish the Display 
Quantity of an order with the number of contracts equal to the Max 
Floor.
    Current C2 Rule 6.10(c)(8) describes current reserve order 
functionality available on C2. The proposed functionality is generally 
the same as the current C2 functionality but enhances the use of 
reserve orders by providing flexibility for Users to determine whether 
the reserve replenishment amount is fixed or random. This proposed 
functionality is substantively the same as that available on BZX.\11\
---------------------------------------------------------------------------

    \11\ See BZX Rule 21.1(d)(1).
---------------------------------------------------------------------------

    The Exchange will provide access to the C2 System to Users through 
various ports, as is the case on EDGX. There are three different types 
of ports: Physical ports, logical ports, and bulk order ports. The 
Exchange notes a bulk order port is a type of logical port, and there 
are other types of logical ports not specifically identified in the 
proposed rule. The Exchange believes a separate definition is warranted 
for bulk order ports given the specific functionality provided through 
such ports but that other types of logical ports are sufficiently 
described in the proposed definition of logical port.
    The proposed rule change defines the term ``port'' to the Rule 1.1, 
including the following type of ports: \12\
---------------------------------------------------------------------------

    \12\ See EDGX Rule 21.1(j).
---------------------------------------------------------------------------

     A ``physical port'' provides a physical connection to the 
System. A physical port may provide access to multiple logical ports.
     A ``logical port'' or ``logical session'' provides the 
ability within the System to accomplish a specific function through a 
connection, such as order entry, data receipt, or access to information 
(for example, as discussed below, certain risk control settings may be 
input by port).
     A ``bulk order port'' is a dedicated logical port that 
provides Users with the ability to submit single and bulk order 
messages to enter, modify, or cancel orders designated as Post Only 
Orders with a Time-in-Force of Day or GTD with an expiration time on 
that trading day. As noted below, quoting functionality will not be 
available to Market-Makers after the technology migration. This bulk 
order functionality will provide Market-Makers with a way to submit 
orders that simulate current quoting functionality. Bulk order messages 
will not route to other exchanges with use of the Post Only 
instruction, which is consistent with current quoting functionality 
that does not route Market-Maker quotes. Additionally, Market-Makers 
generally enter new quotes at the beginning of each trading day based 
on then-current market conditions, and the Day or GTD (with an 
expiration time on that trading day) Time-in-Force instruction is 
consistent with this practice. Because these messages will be used to 
add liquidity to the Book, the Exchange will make this type of port 
available to all Users to encourage all Users to provide liquidity to 
the C2 market. This functionality is substantively the same as port 
functionality available on EDGX.
    Port is the term the Exchange will use to describe the connection a 
User will use to connect to the System following the technology 
migration. Currently, the Exchange refers to System connections as 
logins, but the functionality is generally the same.
    The proposed rule change restricts the type of messages that may be 
submitted through bulk order ports to orders designated as Post Only 
Orders with a Time-in-Force of Day or GTD with an expiration time on 
that trading day. Based on definitions described in this rule filing, 
Post Only Orders with a Time-in-Force of Day or GTD will be posted to 
and displayed by the Exchange, rather than remove liquidity or route to 
another options exchange. As a general matter, and as further described 
below, the proposed change is intended to limit the use of bulk order 
ports to liquidity provision, particularly by, but not limited to, 
Market-Makers. In turn, the Exchange believes it is unnecessary to 
allow orders entered via bulk order entry ports to be able to last 
beyond the trading day on which they were entered. The Exchange notes 
that while, as a general matter, bulk order entry provides an efficient 
way for a market participant to conduct business on the Exchange by 
allowing the bundling of multiple instructions in a single message, the 
main purpose of such functionality has always been to encourage quoting 
on exchanges.\13\
---------------------------------------------------------------------------

    \13\ For instance, when initially adopted by BZX, bulk order 
entry was described as a ``bulk-quoting interface'' and such 
functionality was limited to BZX market makers. See Securities 
Exchange Act Release No. 65133 (August 15, 2011), 76 FR 52032 
(August 19, 2011) (SR-BATS-2011-029). Bulk quoting was shortly 
thereafter expanded to be available to all participants on BZX's 
options platform but the focus remained on promoting liquidity 
provision on the Exchange, even though the types of messages 
permitted were not limited to liquidity providing orders. See 
Securities Exchange Act Release No. 65307 (September 9, 2011), 76 FR 
57092 (September 15, 2011) (SR-BATS-2011-034).
---------------------------------------------------------------------------

    The Exchange proposes to provide this functionality, which is more 
similar to quoting functionality currently available on C2. In 
particular, EDGX has never differentiated between a quote or an order 
on entry. Rather, Users on EDGX submit orders to the Exchange 
regardless of the Capacity (i.e., Customer, Market-Maker, or other Non-
Market-Maker professional) of the order and regardless of the intended 
result from submitting such order (e.g., to remove liquidity, post and 
display liquidity on EDGX, or route to another market). Following 
migration, C2 will similarly not differentiate between a quote or an 
order entry. Of course, an order that is posted and displayed on the 
Exchange is a quotation and the Exchange does maintain various 
requirements regarding quotations and quoting on the Exchange. The 
Exchange, however, reiterates that C2 currently distinguishes between 
orders and quotes, with quotes being required of and only available to 
registered Market-Makers. In contrast, following migration, in order to 
quote on the Exchange, a User (including a Market-Maker) will submit an 
order. While the Exchange does not propose to limit bulk order entry 
functionality to Market-Makers on the Exchange, the Exchange does 
propose to limit the type of messages that may be submitted through 
bulk order entry ports in order to mimic the quoting functionality 
offered by C2 today.
    As noted above, the proposed rule change adds the Time-in-Force 
option Good-til-Date, which is similar to Good-til-Date functionality 
available on EDGX.\14\ For an order so designated, if after entry into 
the System, the order is not fully executed, the order (or any 
unexecuted portion) remains available for potential display or 
execution until a date and time specified by the entering User unless 
cancelled by the entering User. This Time-in-Force option will

[[Page 22803]]

provide Users with additional flexibility regarding the handling of 
their orders on the System. It will permit Users' orders to be 
automatically cancelled at specified dates and times rather than 
require Users to manually cancel GTC orders at those times.
---------------------------------------------------------------------------

    \14\ See EDGX Rule 21.1(f)(1) and (3).
---------------------------------------------------------------------------

    The proposed rule change also deletes the following defined terms. 
While these terms are used in rules C2 incorporates by reference to 
Cboe Options rules, these terms are not currently used in the text of 
the C2 rulebook:

 Aggregate Exercise Price
 American-style Option
 Capped-style Option
 Closing Purchase Transaction
 Closing Writing Transaction
 Covered
 European-style Option
 Opening Purchase Transaction
 Opening Writing Transaction
 Principal Shareholder
 Quarterly Option Series
 Security Future-Option Order
 Uncovered

    The proposed rule change deletes the terms Participant and Permit 
Holder, which both mean a Trading Permit Holder, another defined term. 
To simplify the C2 rulebook, the Exchange proposes to have one term 
refer to a Trading Permit Holder and makes conforming changes 
throughout the Rules.
    The proposed rule change adds Interpretation and Policy .01 to Rule 
1.1, which states to the extent a term is used in any Rules 
incorporated by reference to Cboe Options rules and not otherwise 
defined in the Rules, the term will have the meaning set forth in the 
Cboe Options rules. To the extent a market participant is reviewing an 
incorporated by reference rule, the Exchange believes it is appropriate 
to direct market participants to the Cboe Options rulebook for the 
definitions of terms used in that rule, because that rule essentially 
incorporates the definition of any defined terms used in that rule. The 
Exchange believes it is simpler and less confusing to refer market 
participants to the Cboe Options rulebook for definitions than to refer 
them back to the C2 rulebook.
    The proposed rule change moves Interpretation and Policy .01 to the 
defined term Professional to Interpretation and Policy .02 at the end 
of Rule 1.1, as the Exchange believes it is less confusing to have all 
Interpretations and Policies to a rule located in the same place. The 
proposed rule change adds a cross-reference to this Interpretation and 
Policy to the definition of Professional.
    The proposed rule change deletes the term Voluntary Professional, 
as that Capacity designation will no longer be available on C2. It is 
currently unavailable on EDGX.
    Finally, the proposed rule change makes nonsubstantive changes 
throughout the definitions in Rule 1.1, including to conform language 
throughout the rules, to conform language to corresponding EDGX rules, 
and to use plain English.
    Proposed C2 Rule 1.2 states the Exchange announces to Trading 
Permit Holders all determinations it makes pursuant to the Rules via 
(a) specifications, Notices, or Regulatory Circulars with appropriate 
advanced notice, which will be posted on the Exchange's website, or as 
otherwise provided in the Rules, (b) electronic message, or (c) other 
communication method as provided in the Rules. Current C2 Rules states 
the Exchange will generally announce determinations by Regulatory 
Circular, and the proposed rule expands the different type of documents 
that may be used to announce determinations, consistent with EDGX. 
Proposed Rule 1.2 makes clear this information will be available on 
C2's website in an easily accessible manner, regardless of the manner 
in which the Exchange announces it. Additionally, certain 
determinations are made more real-time pursuant to electronic message 
received by Trading Permit Holders (e.g., providing intra-day relief 
for parameter settings in in price protection mechanisms described in 
proposed Rule 6.14, Interpretation and Policy .01, other determinations 
related to need to maintain fair and orderly market). This single rule 
simplifies the Rules by eliminating the need to repeatedly state in the 
rules how the Exchange will announce determinations. The proposed rule 
change makes conforming changes throughout the Rules.
    Proposed C2 Rule 1.3 states unless otherwise specified, all times 
in the Rules are Eastern Time, except for times in Rules incorporated 
by reference to Cboe Options rules, which are times as set forth in the 
applicable Cboe Options rules. Current C2 Rules are generally in 
Chicago time, so the proposed rule change makes conforming changes 
throughout the Rules. This single rule simplifies the Rules by 
eliminating the need to repeatedly state times are in Eastern Time.
Chapter 3
    The proposed rule change moves the provision regarding Exchange 
affiliations with Trading Permit Holders from current Rule 3.2(f) to 
proposed Rule 3.16. Current Rule 3.2(f) prohibits the Exchange from 
acquiring or maintaining an ownership interest in a Trading Permit 
Holder, as well as prohibits Trading Permit Holder affiliations with 
the Exchange or an affiliate of the Exchange without prior Commission 
approval. Current exceptions include equity interests in CBSX LLC and 
affiliations with OneChicago, LLC. EDGX Rule 2.10 contains similar 
restrictions on Exchange affiliations with EDGX Members, but also 
contains additional exceptions, including (a) a Member's acquisition of 
an equity interest in Cboe Global that is permitted by the ownership 
and voting limitations contained in the Certificate of Incorporation 
and Bylaws of Cboe Global, (b) affiliations solely by reason of a 
Member (or any officer, director, manager, managing member, partner, or 
affiliate of such Member) becoming a director of the Exchange or Cboe 
Global, or (c) affiliations with Cboe Trading or other Cboe-affiliated 
exchanges. Cboe Global and C2 governing documents (which have been 
filed with the Commission) describe any applicable restrictions on 
equity ownership of Cboe Global, as well as criteria for directors of 
C2 and Cboe Global Markets. Additionally, C2 governing documents are 
substantially similar to those of EDGX, and C2 and EDGX have the same 
parent company (C2 Global). As discussed below, C2's affiliation with 
Cboe Trading has recently been approved by the Commission. Therefore, 
the proposed rule change adds to Rule 3.16 similar exclusions from the 
affiliation prohibition contained in EDGX Rule 2.10, as the same 
affiliate restrictions apply to both exchanges and are consistent with 
governing documents of C2 and Cboe Global previously filed with the 
Commission.
    The proposed rule change adopts Rule 3.17 to govern the Exchange's 
use of Cboe Trading as an outbound router. Proposed Rule 3.17 is based 
on EDGX Rule 2.11. As long as Cboe Trading is affiliated with C2 and is 
providing outbound routing of orders from C2 to other securities 
exchanges, facilities of securities exchanges, automated trading 
systems, electronic communications networks or other brokers or dealers 
(``Trading Centers'' and, such function of Cboe Trading is referred to 
as the ``Outbound Router''), Cboe Trading's outbound routing services 
would be subject to the following conditions and limitations:
     C2 will regulate the Outbound Router function of Cboe 
Trading as a facility (subject to Section 6 of the Act),

[[Page 22804]]

and will, among other things, be responsible for filing with the 
Commission rule changes and fees relating to the Cboe Trading Outbound 
Router function and Cboe Trading will be subject to exchange non-
discrimination requirements; [sic]
     FINRA, a self-regulatory organization unaffiliated with 
the Exchange or any of its affiliates, will carry out oversight and 
enforcement responsibilities as the designated examining authority 
designated by the Commission pursuant to Rule 17d-1 of the Act with the 
responsibility for examining Cboe Trading for compliance with 
applicable financial responsibility rules.
     A Trading Permit Holder's use of Cboe Trading to route 
orders to another Trading Center will be optional. Any Trading Permit 
Holder that does not want to use Cboe Trading may use other routers to 
route orders to other Trading Centers.
     Cboe Trading will not engage in any business other than 
(a) its Outbound Router function, (b) its Inbound Router function as 
described in Rule 3.18, (c) its usage of an error account in compliance 
with proposed paragraph (a)(7) below, and (d) any other activities it 
may engage in as approved by the Commission.
     The Exchange will establish and maintain procedures and 
internal controls reasonably designed to adequately restrict the flow 
of confidential and proprietary information between the Exchange and 
its facilities (including Cboe Trading), and any other entity, 
including any affiliate of Cboe Trading, and, if Cboe Trading or any of 
its affiliates engages in any other business activities other than 
providing routing services to the Exchange, between the segment of Cboe 
Trading or its affiliate that provides the other business activities 
and the routing services.
     The Exchange or Cboe Trading may cancel orders as either 
deems to be necessary to maintain fair and orderly markets if a 
technical or systems issue occurs at the Exchange, Cboe Trading, or a 
routing destination. The Exchange or Cboe Trading will provide notice 
of the cancellation to affected Trading Permit Holders as soon as 
practicable.
     Cboe Trading will maintain an error account for the 
purpose of addressing positions that are the result of an execution or 
executions that are not clearly erroneous under Rule 6.29 and result 
from a technical or systems issue at Cboe Trading, the Exchange, a 
routing destination, or a non-affiliate third-party Routing Broker that 
affects one or more orders (``Error Positions'').
    [cir] For purposes of proposed Rule 3.17(a)(7), an Error Position 
will not include any position that results from an order submitted by a 
Trading Permit Holder to the Exchange that is executed on the Exchange 
and automatically processed for clearance and settlement on a locked-in 
basis.
    [cir] Except as provided in proposed subparagraph (7)(C) (described 
in the next bullet), Cboe Trading does not accept any positions in its 
error account of a Trading Permit Holder or permit any Trading Permit 
Holder to transfer any positions from the Trading Permit Holder's 
account to Cboe Trading's error account.
    [cir] If a technical or systems issue results in the Exchange not 
having valid clearing instructions for a Trading Permit Holder to a 
trade, Cboe Trading may assume the Trading Permit Holder's side of the 
trade so that the trade can be automatically processed for clearance 
and settlement on a locked-in basis.
    [cir] In connection with a particular technical or systems issue, 
Cboe Trading or the Exchange will either assign all resulting Error 
Positions to the Trading Permit Holders in accordance with proposed 
subparagraph (D)(i),\15\ or have all resulting Error Positions 
liquidated in accordance with proposed subparagraph (D)(ii).\16\ Any 
determination to assign or liquidate Error Positions, as well as any 
resulting assignments, will be made in a nondiscriminatory fashion.
---------------------------------------------------------------------------

    \15\ Proposed subparagraph (a)(7)(D)(i) states Cboe Trading or 
the Exchange will assign all Error Positions resulting from a 
particular technical or systems issue to the Trading Permit Holders 
affected by that technical or systems issue if Cboe Trading or the 
Exchange (a) determines it has accurate and sufficient information 
(including valid clearing information) to assign the positions to 
all of the Trading Permit Holders affected by that technical or 
systems issue; (b) determines it has sufficient time pursuant to 
normal clearance and settlement deadlines to evaluate the 
information necessary to assign the positions to all of the Trading 
Permit Holders affected by that technical or systems issue; and (c) 
has not determined to cancel all orders affected by that technical 
or systems issue in accordance with proposed subparagraph (a)(6).
    \16\ Proposed subparagraph (a)(7)(D)(ii) states if Cboe Trading 
or the Exchange is unable to assign all Error Positions resulting 
from a particular technical or systems issue to all of the affected 
Trading Permit Holders in accordance with proposed subparagraph (D), 
or if Cboe Trading or the Exchange determines to cancel all orders 
affected by the technical or systems issue in accordance with 
proposed subparagraph (a)(6), then Cboe Trading will liquidate any 
applicable Error Positions as soon as practicable. In liquidating 
such Error Positions, Cboe Trading will (a) provide complete time 
and price discretion for the trading to liquidate the Error 
Positions to a third-party broker-dealer and not attempt to exercise 
any influence or control over the timing or methods of such trading; 
and (b) establish and enforce policies and procedures that are 
reasonably designed to restrict the flow of confidential and 
proprietary information between the third-party broker-dealer and 
Cboe Trading/the Exchange associated with the liquidation of the 
Error Positions.
---------------------------------------------------------------------------

    [cir] Cboe Trading and the Exchange will make and keep records to 
document all determinations to treat positions as Error Positions and 
all determinations for the assignment of Error Positions to Trading 
Permit Holders or the liquidation of Error Positions, as well as 
records associated with the liquidation of Error Positions through the 
third-party broker-dealer.
     The books, records, premises, officers, agents, directors, 
and employees of Cboe Trading as a facility of the Exchange are deemed 
to be the books, records, premises, officers, agents, directors, and 
employees of the Exchange for purposes of, and subject to oversight 
pursuant to, the Exchange Act. The books and records of Cboe Trading as 
a facility of the Exchange are subject at all times to inspection and 
copying by the Exchange and the Commission. Nothing in the Rules 
precludes officers, agents, directors, or employees of the Exchange 
from also serving as officers, agents, directors, and employees of Cboe 
Trading.
    The Exchange will comply with the above-listed conditions prior to 
offering outbound routing from Cboe Trading. In meeting the conditions, 
the Exchange will have mechanisms in place to protect the independence 
of the Exchange's regulatory responsibility with respect to Cboe 
Trading, as well as demonstrate the Cboe Trading cannot use any 
information that it may have because of its affiliation with the 
Exchange to its advantage. Current Rule 3.2(f) and proposed Rule 3.16 
provide that without prior Commission approval, no Trading Permit 
Holder may be or become affiliated with the Exchange. The Commission 
recently approved the adoption of Rule 3.18 regarding Cboe Trading (a 
C2 Trading Permit Holder) as the Inbound Router for C2.\17\ Such 
approval satisfies the requirement in current Rule 3.2(f) (and proposed 
Rule 3.16) for Commission approval of the Exchange affiliation with 
Cboe Trading.\18\
---------------------------------------------------------------------------

    \17\ See Securities Exchange Act Release No. 82952 (March 27, 
2018), 83 FR 14096 (April 2, 2018) (SR-C2-2018-004).
    \18\ The proposed rule change makes nonsubstantive changes to 
Rule 3.18, including updating paragraph numbering and lettering and 
reflecting the defined term Cboe Trading and Cboe Exchange.
---------------------------------------------------------------------------

Chapter 6
    The proposed rule change adds a reference to C2 Rule 6.1 regarding 
the times at which the System accepts orders and quotes, which are set 
forth in

[[Page 22805]]

proposed C2 Rule 6.9 (as discussed below). The proposed rule change 
also adds Units to the list of options that the Exchange designates to 
remain open for trading beyond 4:00 p.m. but no later than 4:15 p.m., 
which is consistent with EDGX rules.\19\ The proposed rule change also 
deletes Interpretation and Policy .03 regarding the trading hours of 
Quarterly Index Expiration options, as they currently do not and will 
not trade on C2 upon the System migration.
---------------------------------------------------------------------------

    \19\ See, e.g., EDGX Rule 21.2(a) (referred to as Fund Shares 
and exchange-traded notes in that rule); see also Cboe Options Rule 
6.1, Interpretation and Policy .03.
---------------------------------------------------------------------------

    The proposed rule change reformats C2 Rule 6.4 regarding the 
minimum increments for bids and offers on simple orders for options 
traded on the Exchange into a table, which the Exchange believes is 
easier to read, and moves certain information into Interpretations and 
Policies .01 and .02. The only substantive change is to provide that 
Mini-SPX Index (XSP) options, for as long as SPDR options (SPY) 
participate in the Penny Pilot Program, will have a $0.01 increment for 
all series rather than $0.01 for all series quoting less than $3 and a 
$0.05 for all series quoting more than $3. The current minimum 
increments for bids and offers for SPY options, which is an exchange-
traded fund that tracks the performance of 1/10th the value of the S&P 
500 Index, is $0.01 regardless of whether option series is quoted 
above, at, or below $3. Because both XSP options and SPY options prices 
are based, in some manner, on 1/10th the price of the S&P 500 Index, 
the Exchange believes that it is important that these products have the 
same minimum increments for consistency and competitive reasons. This 
is also consistent with rules of other exchanges.\20\ The proposed rule 
change also modifies the paragraph formatting and moves certain 
provisions to the Interpretations and Policies.
---------------------------------------------------------------------------

    \20\ See, e.g., Cboe Options Rule 6.42, Interpretation and 
Policy .03.
---------------------------------------------------------------------------

    Current C2 Rule 6.34 describes current provisions regarding System 
access and connectivity, and the proposed rule change moves relevant 
provisions to proposed Rule 6.8. As stated in proposed Rule 6.8(a), 
only authorized Users and associated persons of Users may establish 
connectivity to and access the Exchange to submit orders and quotes and 
enter auction response in accordance with the Exchange's System access 
procedures, technical specifications, and requirements. This is 
consistent with current Rule 6.34(a), (d), and (e), which provides only 
authorized market participants (which may only be Trading Permit 
Holders and associated persons with authorized access, as well as 
Sponsored Users pursuant to C2 Rule 3.15) may access the Exchange 
electronically to facilitate quote and order entry as well as auction 
processing, in accordance with Exchange-prescribed technical 
specifications (to the extent any agreement is required to be signed, 
as indicated in current Rule 6.34(d), that would be indicated in such 
specifications).
    Proposed Rule 6.8(b) describes EFIDs. A Trading Permit Holder may 
obtain one or more EFIDs from the Exchange (in a form and manner 
determined by the Exchange). The Exchange assigns an EFID to a Trading 
Permit Holder, which the System uses to identify the Trading Permit 
Holder and clearing number for the execution of orders and quotes 
submitted to the System with that EFID. Each EFID corresponds to a 
single Trading Permit Holder and a single clearing number of a Clearing 
Trading Permit Holder with the Clearing Corporation. A Trading Permit 
Holder may obtain multiple EFIDs, which may be for the same or 
different clearing numbers. A Trading Permit Holder may only identify 
for any of its EFIDs the clearing number of a Clearing Trading Permit 
Holder that is a Designated Give Up or Guarantor of the Trading Permit 
Holder as set forth in Rule 6.30. A Trading Permit Holder is able (in a 
form and manner determined by the Exchange) to designate which of its 
EFIDs may be used for each of its ports. If a User submits an order or 
quote through a port with an EFID not enabled for that port, the System 
cancels or rejects the order or quote. The proposed rule change 
regarding EFIDs is similar to the current use of acronyms on the 
Exchange and consistent with the use of EFIDs on EDGX. The Exchange 
believes including a description of the use of EFIDs in the Rules adds 
transparency to the Rules.
    Consistent with the definition of port above, the proposed rule 
change adds Rule 6.8(c), which states a User may connect to the 
Exchange using a logical port available through an API, such as the 
industry-standard Financial Information eXchange (``FIX'') protocol or 
Binary Order Entry (``BOE'') protocol (Cboe Market Interface will no 
longer be available, as that is an API on C2's current system while BOE 
is an API available on the new technology platform). Users may use 
multiple logical ports. Additionally, this functionality is similar to 
bandwidth packets currently available on C2, as described in current 
Rule 6.35 (and therefore which the proposed rule change deletes). 
Bandwidth packets restrict the maximum number of orders and quotes per 
second in the same way logical ports do, and Users may similarly have 
multiple logical ports as they may have bandwidth packets to 
accommodate their order and quote entry needs. The Exchange believes it 
is reasonable to not limit bulk order ports, as the purpose of those 
ports is to submit message orders in bulk. As discussed below, the 
Exchange will be able to otherwise mitigate message traffic as 
necessary.
    Proposed Rule 6.9 describes the entry of orders. Users can enters 
into the System, or cancel previously entered orders, from 7:30 a.m. 
until market close, subject to the following requirements and 
conditions:
    (a) Users may transmit to the System multiple orders at a single 
price level or multiple price levels;
    (b) Each order a User submits to the Exchange must contain the 
minimum information identified in the Exchange's order entry 
specifications;
    (c) The System timestamps an order upon receipt, which determines 
the time ranking of the order for purposes of processing the order; and
    (d) For each System Security, the System transmits to OPRA for 
display the aggregate size of all orders in the System eligible for 
display at the best price to buy and sell.
    (e) After market close, Users may cancel orders with Time in Force 
of GTC or GTD that remain on the book until 4:45 p.m.
    Pursuant to current Rule 6.11(a), the Exchange begins accepting 
order and quotes no earlier than 2:00 a.m. Chicago time, so the 
proposed change amends this time to 7:30 a.m. Eastern time to be 
consistent with EDGX.\21\ The Exchange notes C2 currently begins 
accepting orders and quotes at approximately 6:30 a.m. Chicago time, 
which is consistent with the proposed rule change, and thus the 
proposed rule change will not modify the time at which the Exchange 
begins accepting orders and quotes. The provisions in paragraphs (a) 
through (d) above are consistent with current C2 System functionality, 
and the Exchange believes adding these provisions to the Rules provides 
additional transparency for market participants. They are also 
substantively the same as EDGX rules.\22\ Paragraph (e) above provides 
Users with additional flexibility to manage their orders that remain in 
the book following the market close. Cancelling a GTC or GTD order at 
4:30 p.m. has the same

[[Page 22806]]

effect as cancelling that order at 7:30 a.m. the following day--
ultimately, it accommodates the User's goal of cancelling an order 
prior to it potentially executing during the Opening Process the 
following morning.
---------------------------------------------------------------------------

    \21\ See EDGX Rule 21.7(a).
    \22\ See EDGX Rule 21.6(a) through (d).
---------------------------------------------------------------------------

    Proposed C2 Rule 6.10 states the Exchange may determine to make 
certain order types, Order Instructions, and Times in Force not 
available for all Exchange systems or classes. This provision is 
consistent with current C2 Rule 6.10, which provides the Exchange with 
similar flexibility. As discussed above, the proposed rule change moves 
definitions of order types that will be available on C2 following the 
technology migration to proposed C2 Rule 1.1. The proposed rule change 
deletes all-or-none and market-on-close orders from Rule 6.10, as they 
will no longer be available on C2 following the technology 
migration.\23\ Additionally, the proposed rule change maintains a 
general definition of complex order in proposed C2 Rule 1.1 (as 
discussed above), but deletes the specific types of complex orders set 
forth in current Rule 6.10(d) (i.e. spread order, combination order, 
straddle order, strangle order, ratio order, butterfly spread orders, 
box/roll spread orders, collar orders and risk reversals). While these 
types of orders will continue to be permitted, the Exchange does not 
believe it is necessary to limit complex orders to these specific 
definitions, as investors may determine complex orders of other types 
are more appropriate with their investment strategies. The EDGX rules 
do not contain similar definitions and instead only contain a general 
definition of complex orders. The proposed rule change moves the 
provisions in Interpretation .01(A) and (C) ((B) is deleted, as it 
relates to an order type that will no longer be available) to Rule 
6.12(c), which will consolidate all provisions regarding order handling 
in a single location in the Rules.
---------------------------------------------------------------------------

    \23\ The proposed rule change makes conforming changes 
throughout the rules to delete references to these order types and 
provisions solely related to these order types.
---------------------------------------------------------------------------

    The proposed rule change deletes current Rule 6.11 regarding the 
opening process on C2, as that opening process will not be available on 
C2 following the technology migration. Proposed Rule 6.11 describes the 
opening process that will apply to C2 following the technology 
migration, which is substantively the same as the current opening 
process on EDGX.\24\ The proposed opening process is generally similar 
to the current C2 opening process, as it provides for a pre-opening 
period and a determination of an opening price subject to certain 
restrictions to ensure the opening trading price for a series is 
reasonable and not too far away from the market price for a series. 
Additionally, the proposed process is used following a trading halt.
---------------------------------------------------------------------------

    \24\ See EDGX Rule 21.7.
---------------------------------------------------------------------------

    Proposed Rule 6.11(a) describes the order entry period. The System 
accepts orders and quotes (including GTC and GTD orders remaining on 
the Book from the previous trading day) for inclusion in the opening 
process (the ``Opening Process'') beginning at 7:30 a.m. and continues 
to accept market and limit orders and quotes until the time when the 
System initiates the Opening Process in that option series (the ``Order 
Entry Period''). The System does not accept IOC or FOK orders prior to 
the completion of the Opening Process. The System accepts but does not 
enforce MTP Modifiers during the Opening Process. Complex orders will 
not participate in the Opening Process described in proposed Rule 6.11, 
and instead may participate in the COB Opening Process described in 
proposed Rule 6.13(c). The System converts all ISOs received prior to 
the completion of the Opening Process into non-ISOs. Orders entered 
during the Order Entry Period are not eligible for execution until the 
opening trade occurs, as described below. Pursuant to current C2 Rule 
6.11(a), the System begins accepting orders and quotes no earlier than 
2:00 a.m. central time (that time is currently set to 7:30 a.m. eastern 
time). The Exchange believes beginning the order entry period at 7:30 
a.m. eastern time will provide Users with sufficient time to submit 
orders and quotes prior to the beginning of the Opening Process. This 
time is the same as when the order entry period on C2 (and EDGX) 
currently begins. C2 currently also does not accept IOC or FOK orders 
during the pre-opening period (see current Rule 6.11(a)(1)), and it 
also does not accept ISOs (see current Rule 6.11(a)(1)) (rather than 
convert them to non-ISOs). The proposed functionality to convert ISOs 
to non-ISOs is the same as functionality that exists on EDGX today, and 
the Exchange believes this may increase the opportunity for execution 
of these orders during the Opening Process.
    Following the technology migration, the C2 System will not have 
functionality available to disseminate opening messages as it does 
today, so the proposed rule change deletes current Rule 6.11(a)(2). 
Additionally, when the Opening Process begins, the System will not 
disseminate a notice as it does today, so the proposed rule change 
deletes current Rule 6.11(b) and (c)(2).
    Following the technology migration, the Opening Process will be 
initiated at a similar time as it is today on C2. Proposed Rule 6.11(a) 
states after a time period (which the Exchange determines for all 
classes) following the first transaction in the securities underlying 
the options on the primary market that is disseminated (``First Listing 
Market Transaction'') after 9:30 a.m. with respect to Equity Options, 
or following 9:30 a.m. with respect to Index Options, the related 
option series open automatically in a random order, staggered over 
regular intervals of time (the Exchange determines the length and 
number of these intervals for all classes) pursuant to proposed 
subparagraphs (2) through (5). This is substantively the same as EDGX 
Rule 21.7(a). The proposed times will be the same for all classes of 
Equity Options, and all classes of Index Options, unlike currently on 
C2 (see current Rule 6.11(b)), where the opening of certain equity 
classes is triggered by time rather than the First Listing Market 
Transaction, and the opening of certain index classes is triggered by 
the receipt of a disseminated index value. Additionally, current C2 
Rule 6.11(c) provides for a similar Exchange-configurable delay before 
a series opens and provides for series to open in a random, staggered 
order over Exchange-determined time intervals.
    Proposed Rule 6.11(a)(2) describes how the new C2 System will 
calculate the opening price of a series. The System determines a single 
price at which a particular option series will be opened (the ``Opening 
Price'') within 30 seconds of the First Listing Market Transaction or 
9:30 a.m., as applicable. If there are no contracts in a series that 
would execute at any price, the System will open the series for trading 
without determining an Opening Price. The Opening Price, if determined 
to be valid as described below, of a series will be:
    (a) If there is both an NBB and NBO, the midpoint of the NBBO (if 
the midpoint is a half increment, the System rounds down to the nearest 
minimum increment (the ``NBBO Midpoint'');
    (b) if the NBBO Midpoint is not valid, the last disseminated 
transaction price in the series after 9:30 a.m. (the ``Last Print''); 
or
    (c) if the NBBO Midpoint and the Last Print are not valid, the last 
disseminated transaction in the series from the previous trading day 
(the ``Previous Close'').
    If the NBBO Midpoint, Last Print, and Previous Close are not valid, 
the

[[Page 22807]]

Exchange in its discretion may extend the Order Entry Period by up to 
30 seconds or open the series for trading.
    For purposes of validating the Opening Price:
    (a) the NBBO Midpoint, the Last Print, or the Previous Close is a 
valid price if it is not outside the NBBO, and the price is no more 
than the following Minimum Amount away from the NBB or NBO for the 
series:

------------------------------------------------------------------------
                                                                Minimum
                             NBB                                 amount
------------------------------------------------------------------------
Below $2.00..................................................      $0.25
$2.00 to $5.00...............................................       0.40
Above $5.00 to $10.00........................................       0.50
Above $10.00 to $20.00.......................................       0.80
Above $20.00 to $50.00.......................................       1.00
Above $50.00 to $100.00......................................       1.50
Above $100.00................................................       2.00
------------------------------------------------------------------------

or
    (b) the Last Print or Previous Close is a valid price if there is 
no NBB and no NBO, or there is a NBB (NBO) and no NBO (NBB) and the 
price is equal to or greater (less) than the NBB (NBO).
    While these conditions to determine the validity of an opening 
price differ than the opening conditions currently applied on C2, the 
Exchange believes application of the proposed conditions will still 
determine a reasonable and fair opening price for series on C2. The 
proposed process to determine and validate an Opening Price is 
substantively the same as the process currently used on EDGX.\25\
---------------------------------------------------------------------------

    \25\ See EDGX Rule 21.7(a)(1) and (2).
---------------------------------------------------------------------------

    Proposed Rule 6.11(a)(4) states after establishing a valid Opening 
Price, the System matches orders and quotes in the System that are 
priced equal to or more aggressively than the Opening Price in 
accordance with priority applicable to the class pursuant to Rule 6.12. 
In other words, the System allocates orders and quotes in a class 
during the Opening Process using the same allocation from Rule 6.12(a) 
the Exchange applies to the class intraday. Matches occur until there 
is no remaining volume or an imbalance of orders. All orders and quotes 
(or unexecuted portions) matched pursuant to the Opening Process will 
be executed at the Opening Price. The System enters any non-executed 
orders and quotes (or unexecuted portions) into the Book in time 
sequence, where they may be processed in accordance with Rule 6.12. The 
System cancels any OPG orders (or unexecuted portions) that do not 
execute during the Opening Process. Proposed subparagraph (a)(5) states 
if the Exchange opens a series for trading when the NBBO Midpoint, Last 
Print, and Previous Close are not valid as described above, the System 
enters non-executed orders and quotes (or unexecuted portions) into the 
Book in time sequence, where they may be processed in accordance with 
Rule 6.12. This is similar to the opening rotation period described in 
current Rule 6.11(c) and Interpretation and Policy .01.\26\ While EDGX 
and C2 have different matching algorithms consistent with their market 
models, the proposed opening process represents a fair and objective 
manner to match orders during the opening. Additionally, proposed Rule 
6.11 indicates the opening process will generally occur within 30 
seconds (or an extended time at the discretion of the Exchange as noted 
above), while current Rule 6.11 indicates the opening process generally 
must occur within 60 seconds (subject to various opening conditions).
---------------------------------------------------------------------------

    \26\ The Exchange does not intend to have a different algorithm 
apply at the open and intraday, and therefore proposes to delete 
current Rule 6.11, Interpretation and Policy .01.
---------------------------------------------------------------------------

    Proposed Rule 6.11(a)(5) provides if the Exchange opens a series 
for trading when the NBBO Midpoint, Last Print, and Previous Close are 
not valid as described above, the System enters non-executed orders and 
quotes (or unexecuted portions) into the Book in time sequence, where 
they may be posted, cancelled, executed, or routed in accordance with 
proposed Rule 6.12. This is similar C2's current authority to compel 
opening in a series even if the opening conditions are not met, as set 
forth in current Rule 6.11(e).
    Proposed Rule 6.11(b) describes how the Opening Process will be 
used to reopen trading following a halt. The Opening Process following 
a trading halt will be the same as the one used for regular trading (as 
described above), except as modified by proposed paragraph (b). 
Proposed Rule 6.11(b)(1) states there will be an Order Entry Period 
that begins immediately when the Exchange halts trading in the series 
if there is a Regulatory Halt (i.e. if the primary market for the 
applicable underlying security declares a regulatory trading halt, 
suspension, or pause with respect to such security); however, there 
will be no Order Entry Period if the Exchange halts for another reason. 
This is consistent with current Rule 6.11(f), which permits the 
Exchange to shorten or eliminate the pre-opening period after a halt. 
Proposed Rule 6.11(b)(2) states the System queues a User's open orders 
upon a Regulatory Halt, unless the User entered instructions to cancel 
its open orders upon a Regulatory Halt, for participation in the 
Opening Process following the Regulatory Halt. The System cancels a 
User's open orders upon a halt that is not a Regulatory Halt. This 
functionality will provide Users with additional flexibility to 
instruct the System how to handle their orders in the event of a 
Regulatory Halt. Following a trading halt, the System opens a series 
once the primary market lifts the Regulatory Halt or upon the 
Exchange's determination that the conditions that led to the halt are 
no longer present or that the interests of a fair and orderly market 
are best served by a resumption of trading, as described in proposed 
Rule 6.11(b)(3). Pursuant to proposed Rule 6.11(b)(4), the System 
determines the Opening Price within 30 seconds of the Regulatory Halt 
or other trading halt being lifted. The Exchange believes this proposed 
process for opening following a halt will permit C2 to reopen as 
quickly as possible and in a fair and orderly manner following a halt. 
The proposed rule change regarding how the System will open following a 
trading halt is substantively similar to the Opening Process that may 
be used following a trading halt described in EDGX Rule 21.7(a).
    The proposed rule change moves current Rule 6.11(e) regarding the 
Exchange's ability to deviate from the standard opening procedure to 
proposed Rule 6.11(c).
    Current C2 Rule 6.11 may be used for closing; however, the proposed 
rule change only applies to openings. Because C2 generally does not use 
its current process for a closing, the Exchange does not believe the 
fact that the proposed process may only be used for openings following 
the technology migration will impact trading on C2. Therefore, the 
proposed rule change deletes current C2 Rule 6.11(g).
    The proposed rule change moves current Rule 6.11, Interpretation 
and Policy .03 regarding how the System handles market orders if the 
underlying security is in a limit up-limit down state during the 
opening process to proposed Rule 6.11(d).
    Proposed Rule 6.11 is substantively the same as EDGX Rule 21.7, and 
the Exchange believes the proposed opening process (based on current 
use on EDGX) is a fair and orderly way to open series on C2 following 
the technology migration.
    The proposed rule change deletes current Rule 6.11, Interpretation 
and Policy .02 regarding Exchange determinations made pursuant to Rule 
6.11, as that is replaced by proposed Rule 1.2.
    Proposed Rule 6.12 describes how the System will process, display, 
prioritize,

[[Page 22808]]

and execute orders and quotes entered into the Book. Current C2 Rule 
6.12 provides orders and quotes may be allocated pursuant to price-time 
or pro-rata, and those two options will also be available on the new 
System. The proposed rule change revises the description to be similar 
to EDGX and BZX Rules 21.8. Proposed Rule 6.12(a)(1) states resting 
orders and quotes \27\ in the Book with the highest bid and lowest 
offer have priority.\28\ Proposed Rule 6.12(a)(2) states if there are 
two or more resting orders or quotes at the best price, the Exchange 
will determine for each class whether the time or pro-rata allocation 
applies. Pursuant to time priority (i.e. price-time), the System 
prioritizes orders and quotes at the same price in the order in which 
the System receives them (i.e. in time priority).\29\ Pursuant to pro-
rata priority, the System allocates orders and quotes proportionally 
according to size (i.e. in a pro-rata basis).\30\ All classes on EDGX 
are allocated in a pro-rata manner; however, current C2 rules permit 
the Exchange to determine for each class whether price-time or pro-rata 
will apply, and the proposed rule change maintains that flexibility.
---------------------------------------------------------------------------

    \27\ Displayed orders and quotes always have priority over 
undisplayed orders and quotes, which is consistent with current C2 
functionality. See current Rule 6.12(c)(1) and proposed Rule 
6.12(a)(3). Since all-or-none orders will no longer be available on 
C2 following the technology migration, the only orders that will not 
be displayed on C2 are the reserve portions of Reserve Orders.
    \28\ See current C2 Rule 6.12(a)(1) and (2) (under both 
allocation algorithms, orders and quotes are first prioritized based 
on price); see also EDGX Rule 21.8(b).
    \29\ See current C2 Rule 6.12(a)(1); see also BZX Rule 21.8(a).
    \30\ See current C2 Rule 6.12(a)(2); see also EDGX Rule 21.8(c).
---------------------------------------------------------------------------

    Currently on C2, with respect to the pro-rata allocation algorithm, 
the System allocates contracts to the first resting order or quote 
proportionally according to size (based on the number of contracts to 
be allocated and the size of the resting orders and quotes). Then, the 
System recalculates the number of contracts to which each remaining 
resting order and quote is afforded proportionally according to size 
(based on the number of remaining contracts to be allocated and the 
size of the remaining resting orders and quotes) and allocates 
contracts to the next resting order or quote. The System repeats this 
process until it allocates all contracts from the incoming order or 
quote. Following the System migration, the System instead will allocate 
executable quantity to the nearest whole number, with fractions \1/2\ 
or greater rounded up (in size-time priority) and fractions less than 
\1/2\ rounded down. If the executable quantity cannot be evenly 
allocated, the System distributes remaining contracts one at a time in 
size-time priority to orders that were rounded down. The Exchange 
believes this is a fair, objective process and simple systematic 
process to allocate ``extra'' contracts when more than one market 
participant may be entitled to those extra contracts after rounding, 
and it is consistent with EDGX Rule 21.8(c).
    Proposed Rule 6.12(a)(3) states displayed orders have priority over 
nondisplayed orders. This is consistent with current C2 Rule 
6.12(c)(1). Following migration, the only nondisplayed orders will be 
the reserve portions of reserve orders (as discussed above, all-or-none 
orders will no longer be available).
    The proposed rule change deletes current C2 Rule 6.12(a)(3) and 
(b), which permit the Exchange to apply customer priority, trade 
participation rights, or additional priority overlays (small order and 
market turner) to classes. The Exchange does not currently, and does 
not intend to, apply any of these priority overlays to any class. 
Therefore, it is not necessary to include these Rules in the C2 
Rulebook, and deleting these rules will have no impact on C2 
trading.\31\ The proposed rule change makes conforming changes 
throughout the rules to delete references to these priority overlays.
---------------------------------------------------------------------------

    \31\ The Exchange notes EDGX Rule 21.8 includes customer 
priority and trade participation right overlays.
---------------------------------------------------------------------------

    Proposed Rule 6.12(b) describes a new Price Adjust process, which 
is a re-pricing mechanism offered to Users on EDGX.\32\ As discussed 
above, orders designated to be subject to the Price Adjust process or 
not designated as Cancel Back (and thus not subject to the Price Adjust 
process), will be handled pursuant to proposed Rule 6.12(b).\33\ If an 
order is subject to the Price Adjust process, the System ranks and 
displays a buy (sell) order that, at the time of entry, would lock or 
cross a Protected Quotation of the Exchange or another Exchange at one 
minimum price increment below (above) the current NBO (NBB).
---------------------------------------------------------------------------

    \32\ See EDGX Rule 21.1(i).
    \33\ Under EDGX rules, the price adjust process is not the 
default setting for orders, like it will be for C2. However, EDGX 
Users still have the option to use or not use the price adjust 
process with various order instructions. Therefore, this is not a 
significant difference.
---------------------------------------------------------------------------

    If the NBBO changes so that an order subject to Price Adjust would 
not lock or cross a Protected Quotation, the System gives the order a 
new timestamp and displays the order at the price that locked the 
Protected Quotation at the time of entry. All orders the System re-
ranked and re-displayed pursuant to Price Adjust retain their priority 
as compared to other orders subject to Price Adjust based upon the time 
the System initially received such orders. Following the initial 
ranking and display of an order subject to Price Adjust, the System 
will only re-rank and re-display an order to the extent it achieves a 
more aggressive price. The System adjusts the ranked and displayed 
price of an order subject to Price Adjust once or multiple times 
depending upon the User's instructions and changes to the prevailing 
NBBO. A limit order subject to the Price Adjust process will not be 
displayed at any price worse than its limit price. This re-pricing 
mechanism (in addition to the proposed Cancel Back instruction 
described above) is an additional way in which C2 will ensure 
compliance with locked and crossed market rules in Chapter 6, Section 
of the C2 Rulebook and is substantively the same as EDGX Rule 21.1(i). 
It also provides Users with additional flexibility regarding how they 
want the System to handle their orders.
    Proposed Rule 6.12(c) describes how the System will handle orders 
in additional circumstances. Proposed subparagraph (1) states, subject 
to the exceptions contained in Rule 6.82(b), the System does not 
execute an order at a price that trades through a Protected Quotation 
of another options exchange. The System routes an order a User 
designates as routable in compliance with applicable Trade-Through 
restrictions. The System cancels or rejects any order not eligible for 
routing or the Price Adjust process that is entered with a price that 
locks or crosses a Protected Quotation of another options exchange. 
C2's System currently will not execute orders at trade-through prices, 
consistent with Chapter 6, Section E of the Rules. This provision is 
substantively the same as EDGX Rule 21.6(e) and (f).
    Additionally, the proposed rule change modifies the handling of 
stop orders to state the System cancels or rejects a buy (sell) stop or 
stop-limit order if the NBB (NBO) at the time the System receives the 
order is equal to or above (below) the stop price, and accepts a buy 
(sell) stop or stop-limit order if the consolidated last sale price at 
the time the System receives the order is equal to or above (below) the 
stop price.\34\ The Exchange believes comparing the stop price of a 
stop or

[[Page 22809]]

stop-limit order to the NBBO and last consolidated sale price rather 
than prices available on the Exchange is appropriate, as the NBBO 
better reflects the market price of the series. This is similar to 
various price protections in the rules, as discussed below, that 
compare order prices to national prices rather than Exchange prices. 
This is also the same as EDGX Rule 21.1(d)(11) and (12), which provide 
that stop and stop-limit orders on EDGX compare the stop price to the 
NBBO and last consolidated sale price. The C2 System following the 
technology migration will be unable to compare the stop price of a stop 
or stop-limit order to the last consolidated sale price upon receipt of 
the order, which is why the order will still be accepted even if the 
stop price is above (below) the last consolidated sale price when the 
System receives it.
---------------------------------------------------------------------------

    \34\ Current description of the handling of stop orders is in 
current C2 Rule 6.11(i), which is being deleted.
---------------------------------------------------------------------------

    Proposed Rule 6.12(c)(3) states the System cancels or rejects a GTC 
or GTD order in an adjusted series.\35\ Pursuant to Rule 5.7, due to a 
corporate action by the issuer of the underlying, OCC may adjust the 
price of an underlying security. After a corporate action and a 
subsequent adjustment to the existing options, OPRA and OCC identify 
the series in question with a separate symbol consisting of the 
underlying symbol and a numerical appendage. As a standard procedure, 
exchanges listing options on an underlying security that undergoes a 
corporate action resulting in adjusted series will list new standard 
option series across all appropriate expiration months the day after 
the existing series are adjusted. The adjusted series are generally 
actively traded for a short period of time following adjustment, but 
prices of those series may have been impacted by the adjustment. As a 
result, any GTC or GTD orders submitted prior to the adjustment may no 
longer reflect the market price of the adjusted series, as the prices 
of the GTC or GTD orders do not factor in the adjustment. The Exchange 
believes any executions of such GTC and GTD orders in adjusted series 
may be at erroneous prices, and thus believes it is appropriate for the 
System to cancel these orders, which will permit Users to resubmit 
orders in the adjusted series at prices that reflect the adjustment and 
to submit orders in the new series.
---------------------------------------------------------------------------

    \35\ This is true on any trading day on which the adjusted 
series continues to trade.
---------------------------------------------------------------------------

    Proposed Rule 6.12(c)(4) states the System does not execute an 
order with an MTP Modifier entered into the System against an order 
entered with an MTP Modifier and the same Unique Identifier, and 
instead handles them in accordance with Rule 1.1, as discussed above. 
This is consistent with the definition of MTP Modifiers added to Rule 
1.1 above and substantively the same as EDGX Rule 21.8(k).
    The proposed rule change moves provisions regarding how the System 
handles market and stop orders during a limit up-limit down state from 
current Rule 6.10, Interpretation and Policy .01 to proposed Rule 
6.12(c)(5).
    The proposed rule change deletes current C2 Rule 6.12(c) related to 
contingency orders. The Exchange does not believe the introductory 
language and subparagraphs (c)(2) and (3) are necessary, as the order 
instruction definitions discussed above and order handling instructions 
below contain detail regarding how the System will handle orders 
designated as stop, stop-limit, or reserve.\36\ The proposed rule 
change moves the provision in subparagraph (c)(1) regarding priority of 
displayed orders over nondisplayed orders to proposed Rule 6.12(a)(3), 
as discussed above. Because all-or-none orders will no longer be 
available following the technology migration, the proposed rule change 
deletes subparagraph (c)(4), which relates to handling of all-or-none 
orders.
---------------------------------------------------------------------------

    \36\ Current C2 rules categorize all-or-none, market-on-close, 
stop, stop-limit, FOK, IOC, OPG, and reserve orders as contingency 
orders. As discussed above, the Exchange will no longer make all-or-
none and market-on-close orders available following the technology 
migration. Additionally, the Exchange believes FOK, IOC, and OPG 
relate to the time of execution of orders rather than a contingency, 
and thus the proposed rule change categorizes these instructions as 
Times-in-Force, as discussed above. Therefore, the only current 
orders that could be deemed contingency under current rules are 
stop, stop-limit, and reserve.
---------------------------------------------------------------------------

    The proposed rule change deletes current Rule 6.12(e)(2), which 
states if the price or quantity of one side of a quote is changed, the 
unchanged side retains its priority position. Additionally, the 
proposed rule change deletes the reference in Rule 6.12(e)(1) related 
to the changed side of a quote. Current C2 functionality provides 
Market-Maker with the ability to submit two-sided quotes, to which the 
above provisions relates. Following the technology migration, there 
will be no such functionality available. Market-Makers will submit 
quotes using order functionality, but it will only permit one-sided 
quotes to be input. Therefore, these provisions are no longer 
applicable.
    The proposed rule change deletes current Rule 6.12(g) regarding a 
complex order priority exception. Proposed Rule 6.13 (as described 
below) describes the priority rules related to the execution of complex 
orders, so current Rule 6.12(g) is not necessary. As further discussed 
below, complex orders will trade with leg markets prior to trading with 
other complex orders, and will never trade at the same price as the 
SBBO, which is consistent with current Rule 6.12(g).\37\
---------------------------------------------------------------------------

    \37\ See proposed C2 Rule 6.13(f)(2).
---------------------------------------------------------------------------

    The proposed rule change adds proposed Rule 6.12(g), which states 
options subject to a trading halt initiated pursuant to Rule 6.32 open 
for trading following the halt at the time specified in Rule 6.11, 
which is consistent with current Rule 6.11(f). Additionally, proposed 
Rule 6.12(g) states when trading resumes, the System places orders and 
quotes that do not execute during the Opening Process in the Book in 
time priority and processes or executes them as described in Rule 6.12. 
The Exchange believes this is a fair, objective process and simple 
systematic process to prioritize orders following a trading halt, and 
is consistent with EDGX Rule 21.8(j).
    Proposed Rule 6.13 modifies C2's current complex order 
functionality to substantially conform to functionality that will be 
available on C2's new System and is currently used on EDGX. Trading of 
complex orders will be subject to all other Rules applicable to trading 
of orders, unless otherwise provided in Rule 6.13 (which is currently 
the case).
    The proposed rule change moves the definitions of COA and COB to 
proposed paragraph (a). Additionally, the proposed rule change adds 
definitions of synthetic best bid or offer (``SBBO'') and synthetic 
national best bid or offer (``SNBBO'') to proposed paragraph (a), which 
are referred to in current C2 Rule 1.1 as derivative spread market and 
national spread market. The proposed rule change also adds the 
following terms to Rule 6.13(a):
     Complex strategy: The term ``complex strategy'' means a 
particular combination of components and their ratios to one another. 
New complex strategies can be created as the result of the receipt of a 
complex instrument creation request or complex order for a complex 
strategy that is not currently in the System. The Exchange is thus 
proposing two methods to create a new complex strategy, one of which is 
a message that a Trading Permit Holder can send to create the strategy 
and the other is a message a Trading Permit Holder can send that will 
generate the strategy and that is also an order in that same strategy. 
These methods will be equally available to all Trading Permit Holders, 
but the Exchange anticipates that Trading Permit Holders and other

[[Page 22810]]

liquidity providers who anticipate providing larger amounts of trading 
activity in complex strategies are the most likely to send in a complex 
instrument creation request (i.e., to prepare for their trading in the 
complex strategy throughout the day), whereas other participants are 
more likely to simply send a complex order that simultaneously creates 
a new strategy. The Exchange may limit the number of new complex 
strategies that may be in the System or entered for an EFID (which EFID 
limit would be the same for all Users) at a particular time.
     Regular trading: The term ``regular trading'' means 
trading of complex orders that occurs during a trading session other 
than (a) at the opening of the COB or re-opening of the COB for trading 
following a halt (described in paragraph (c) below) or (b) during the 
COA process (described in proposed Rule 6.13(d)).
    These proposed defined terms are the same as those included in EDGX 
Rule 21.20(a).
    Proposed Rule 6.13(b) describes the order types, Order 
Instructions, and Times-in-Force that are eligible for complex orders 
to be entered into and handled by the System. As an initial matter, 
proposed paragraph (b) states the Exchange determines which Times-in-
Force of Day, GTC, GTD, IOC, or OPG are available for complex orders 
(including for eligibility to enter the COB and initiate a COA). The 
proposed rule change is also consistent with EDGX Rule 21.20(b). 
Complex orders are Book Only and may be market or limit orders. Because 
complex orders are not routable, and may not be Post Only, Book Only is 
the only available Order Instruction related to whether an order is 
routable or not routable. The only other available Order Instruction 
for complex orders is Attributable/Non-Attributable. This relates only 
to information that User wants, or does not want, included when a 
complex order is displayed, and has no impact on how complex orders are 
processed or execute. As they do for simple orders, certain Users want 
the ability to track their orders, such as which of the resting orders 
in the COB or which COA'd [sic] order is theirs. The Attributable 
designation means this information will appear in market data feeds and 
auction messages, permitting these Users to track their own orders.
    Proposed paragraph (b) also adds the following instructions that 
are permissible for complex orders:
     Complex Only Orders: A Market-Maker may designate a Day or 
IOC order as ``Complex Only,'' which may execute only against complex 
orders in the COB and may not Leg into the Simple Book. Unless 
designated as Complex Only, and for all other Times-in-Force and 
Capacities, a complex order may execute against complex orders in the 
COB and may Leg into the Simple Book. The Complex Only Order option is 
analogous to functionality on EDGX. The Exchange also believes the 
proposed functionality is analogous to other types of functionality 
already offered by C2 that provides Trading Permit Holders, including 
Market-Makers, the ability to direct the Exchange not to route their 
orders away from the Exchange (Book Only). Similar to such analogous 
features, the Exchange believes that Market-Makers may utilize Complex 
Only Order functionality as part of their strategies to maintain 
additional control over their executions, in connection with their 
attempt to provide and not remove liquidity, or in connection with 
applicable fees for executions.
     COA-Eligible and Do-Not-COA Orders: The Exchange proposes 
to allow all types of orders to initiate a COA but proposes to have 
certain types of orders default to initiating a COA upon arrival with 
the ability to opt-out of initiating a COA and other types of orders 
default to not initiating a COA upon arrival with the ability to opt-in 
to initiating a COA. Upon receipt of an IOC complex order, the System 
does not initiate a COA unless a User marked the order to initiate a 
COA, in which case the System cancels any unexecuted portion at the end 
of the COA. Upon receipt of a complex order with any other Time-in-
Force (except OPG), the System initiates a COA unless a User marked the 
order to not initiate a COA. Buy (sell) complex orders with User 
instructions to (or which default to) initiate a COA that are higher 
(lower) than the SBB (SBO) and higher (lower) than the price of complex 
orders resting at the top of the COB are ``COA-eligible orders,'' while 
buy (sell) complex orders with User instructions not to (or which 
default not to) initiate a COA or that are priced equal to or lower 
(higher) than the SBB (SBO) or equal to or lower (higher) than the 
price of complex orders resting at the top of the COB are ``do-not-COA 
orders.'' The Exchange believes that this gives market participants 
extra flexibility to control the handling and execution of their 
complex orders by the System by giving them the additional ability to 
determine whether they wish to have their complex order initiate a COA. 
The Exchange further believes that the proposed default values are 
consistent with the terms of the orders (e.g., IOC is intended as an 
immediate execution or cancellation whereas COA is a process that 
includes a short delay in order to broadcast and provide participants 
time to respond). Current Rule 6.13(c)(1)(B) defines COA-eligible 
orders as orders the Exchange determines to be eligible for COA based 
on size, type, and origin type, so the proposed rule change is 
consistent with this flexibility. The Exchange determines which 
Capacities (i.e., non-broker-dealer customers, broker-dealers that are 
not Market-Makers on an options exchange, or Market-Makers on an 
options exchange) are eligible for entry onto the COB.\38\ This is 
consistent with EDGX Rule 21.20(c). Additionally, current Rule 
6.13(c)(2)(A) indicates a COA will initiate if the COA-eligible order 
is marketable against the BBO, so the proposed marketability 
requirement in the definition of a COA-eligible is consistent with 
current COA rules as well as the proposed priority rule. Current Rule 
6.13(c)(2)(B) provides Trading Permit Holders with ability to choose 
whether an order is COA-eligible or not, as the proposed rule does. The 
proposed definition of COA-eligible order is substantively the same as 
EDGX Rule 21.20, Interpretation and Policy .02.
---------------------------------------------------------------------------

    \38\ Currently, all Capacities may rest complex orders in the 
COB, which the Exchange plans to be the case following the 
technology migration.
---------------------------------------------------------------------------

     Complex Orders with MTP Modifiers: Users may apply the 
following MTP Modifiers to complex orders: MTP Cancel Newest, MTP 
Cancel Oldest, and MTP Cancel Both. If a complex order would execute 
against a complex order in the COB with an MTP Modifier and the same 
Unique Identifier, the System handles the complex orders with these MTP 
Modifiers as described in Rule 1.1. If a complex order with an MTP 
Modifier would Leg into the Simple Book and execute against any leg on 
the Simple Book with an MTP Modifier and the same Unique Identifier, 
the System cancels the complex order. This will allow a User to avoid 
trading complex orders against its own orders or orders of affiliates, 
providing Users with an additional way to maintain control over their 
complex order executions.
    Current Rules 6.10 and 6.13(b) and (c) provide C2 with authority to 
determine which order types are available for COB and COA (and current 
paragraph (b) states complex orders may be IOC, Day, or GTC, as GTD 
functionality is not currently available on C2). Proposed paragraph (b) 
is consistent with this current Exchange authority and expands the 
Times-in-Force the Exchange may

[[Page 22811]]

permit for complex orders to be consistent with the Times-in-Force 
available for complex orders on EDGX. Proposed Rule 6.13(b) is 
substantively the same as EDGX Rule 21.20(b). This authority enables 
the Exchange to modify complex order types available on the Exchange as 
market conditions change and remain competitive.
    Proposed Rule 6.13(c) describes the process of accepting orders 
prior to the opening of the COB for trading (and prior to re-opening 
after a halt), and the process by which the Exchange will open the COB 
or re-open the COB following a halt (the ``Opening Process''). The 
current COB opening process is described in current Rule 6.13, 
Interpretation and Policy .07, which the proposed rule change deletes. 
The proposed COB opening process is substantively the same as the EDGX 
COB opening process described in EDGX Rule 21.20(c)(A) through (D).
    The COB Opening Process will occur at the beginning of each trading 
day and after a trading halt (similar to the current COB opening 
process, as stated in current Interpretation and Policy .07(b)). There 
will be a complex order entry period, during which the System will 
accept complex orders for inclusion in the COB Opening Process at the 
times and in the manner set forth in proposed Rule 6.11(a), except the 
Order Entry Period for complex orders ends when the complex strategy 
opens. Currently, C2 similarly accepts complex orders prior to the COB 
opening, at the same time it begins to accept simple orders. As 
discussed above, this time is changing from no earlier than 2:00 a.m. 
central to 7:30 a.m. eastern (which time is consistent with the current 
pre-open period on C2). The Exchange believes this provides Users with 
sufficient time to enter complex orders prior to the open. Complex 
orders entered during the Order Entry Period will not be eligible for 
execution until the COB Opening Process occurs. Beginning at 7:30 a.m. 
and updated every five seconds thereafter until the initiation of the 
COB Opening Process, the Exchange will disseminate indicative prices 
and order imbalance information based on complex orders queued in the 
System for the COB Opening Process. This is new functionality that will 
provide Users with information regarding the expected COB opening, 
which is the same as functionality available on EDGX (see EDGX Rule 
21.20(c)(2)(A)).
    The System initiates the COB Opening Process for a complex strategy 
after a number of seconds (which number the Exchange determines) after 
all legs of the strategy in the Simple Book are open for trading. This 
is consistent with the current COB Opening Process, as set forth in 
current Interpretation and Policy .07(a). All complex orders the System 
receives prior to opening a complex strategy pursuant to the COB 
Opening Process, including any delay applied by the Exchange, are 
eligible to be matched in the COB Opening Process and not during the 
Opening Process described in Rule 6.11. The proposed delay is 
consistent with current EDGX functionality and is additional detail in 
the C2 Rules. C2 similarly applies a delay period during the regular 
Opening Process, as described above.
    If there are matching complex orders in a complex strategy, the 
System determines the COB opening price, which is the price at which 
the most complex orders can trade. If there are multiple prices that 
would result in the same number of complex orders executed, the System 
chooses the price that would result in the smallest remaining imbalance 
as the COB opening price. If there are multiple prices that would 
result in the same number of complex orders executed and the same 
``smallest'' imbalance, the System chooses the price closest to the 
midpoint of the (i) SNBBO or (ii) if there is no SNBBO available, the 
highest and lowest potential opening prices as the COB opening price. 
If the midpoint price would result in an invalid increment, the System 
rounds the COB opening price up to the nearest permissible increment. 
If the COB opening price equals the SBBO, the System adjust the COB 
opening price to a price that is better than the corresponding bid or 
offer in the Simple Book by $0.01. This is consistent with EDGX Rule 
21.20(c)(2)(C), except on EDGX, the opening price must improve the SBBO 
only if there are priority customers on the legs.
    After the System determines a COB opening price, the Exchange 
executes matching complex orders in accordance with the priority in 
proposed Rule 6.12(a) applicable to the class at the COB opening price. 
The System enters any remaining complex orders (or unexecuted portions) 
into the COB, subject to a User's instructions. If there are no 
matching complex orders in a complex strategy, the System opens the 
complex strategy without a trade. If after an Exchange-established 
period of time that may not exceed 30 seconds, the System cannot match 
orders because (i) the System cannot determine a COB opening price 
(i.e., all queued orders are market orders) or (ii) the COB opening 
price is outside the SNBBO, the System opens the complex strategy 
without a trade. In both case, the System enters any orders in the 
complex strategy in the COB (in time priority), except it Legs any 
complex orders it can into the Simple Book. The proposed rule change 
provides additional detail regarding how the COB will open if there are 
no matching trades. Additionally, the Exchange believes the proposed 
configurable time period is important because the opening price 
protections are relatively restrictive (i.e., based on the SNBBO), and 
the configurable time period provides the Exchange with the ability to 
periodically review the process and modify it as necessary to ensure 
there is sufficient opportunity to have Opening Process executions 
without also waiting too long to transition to regular trading. This is 
similar to EDGX Rule 21.20(c)(2)(D).
    Currently on C2, the System opens the COB in a similar manner, 
however it first attempts to match complex orders against orders in the 
Simple Book, then matches complex orders against each other. As 
proposed, and consistent with EDGX Rule 21.20(c)(2)(C), complex orders 
will not leg into the book upon the COB open (unless there are no 
matching complex orders and a complex strategy opens without a trade); 
however, the COB opening price must improve the SBBO by at least $0.01 
as described above, thus providing protection to the leg markets 
(including customers). The proposed matching process for complex orders 
on the COB is similar to the process in current Interpretation and 
Policy .07(a)(ii). Additionally, C2 currently restricts valid opening 
trade prices to be within the SBBO rather than the SNBBO as the 
proposed opening process does. The SNBBO more accurately reflects the 
then-current market, rather than the SBBO, and thus the Exchange 
believes it is a better measure to use for purposes of determining the 
reasonability of the prices of orders.
    Proposed Rule 6.13(d) describes the COA process for COA-eligible 
orders. Orders in all classes will be eligible to participate in COA. 
Upon receipt of a COA-eligible order, the System initiates the COA 
process by sending a COA auction message to all subscribers to the 
Exchange's data feeds that deliver COA auction messages. A COA auction 
message identifies the COA auction ID, instrument ID (i.e., complex 
strategy), Capacity, quantity, and side of the market of the COA-
eligible order. The Exchange may also determine to include the price in 
COA auction messages, which will be the limit order price or the SBBO 
(if initiated by a market complex order), or the drill-through price if 
the order is subject to the drill-through protection in Rule 6.14(b). 
This

[[Page 22812]]

is similar to the RFR message the Exchange currently sends to Trading 
Permit Holders as set forth in current subparagraph (c)(2)(A).
    The System may initiate a COA in a complex strategy even though 
another COA in that complex strategy is ongoing. This concurrent COA 
functionality is not currently available on C2, but is available on 
EDGX (see EDGX Rule 21.20(d)(1)). The Exchange believes it will 
increase price improvement and execution opportunities for complex 
orders following the technology migration. The Exchange notes at the 
outset that based on how Exchange Systems operate (and computer 
processes generally), it is impossible for COAs to occur 
``simultaneously'', meaning that they would commence and conclude at 
exactly the same time. Thus, although it is possible as proposed for 
one or more COAs to overlap, each COA will be started in a sequence and 
with a time that will determine its processing. Thus, even if there are 
two COAs that commence and conclude at nearly the same time, each COA 
will have a distinct conclusion at which time the COA will be 
allocated.
    If there are multiple COAs ongoing for a specific complex strategy, 
each COA concludes sequentially based on the time each COA commenced, 
unless terminated early as described below. At the time each COA 
concludes, the System allocates the COA-eligible order pursuant to 
proposed Rule 6.13(d)(5) and takes into account all COA Responses for 
that COA, orders in the Simple Book, and unrelated complex orders on 
the COB at the time the COA concludes. If there are multiple COAs 
ongoing for a specific complex strategy that are each terminated early 
as described below, the System processes the COAs sequentially based on 
the order in which they commenced. If a COA Response is not fully 
executed at the end of the identified COA to which the COA Response was 
submitted, the System cancels or rejects it at the conclusion of the 
specified COA.
    In turn, when the first COA concludes, orders on the Simple Book 
and unrelated complex orders that then exist will be considered for 
participation in the COA. If unrelated orders are fully executed in 
such COA, then there will be no unrelated orders for consideration when 
the subsequent COA is processed (unless new unrelated order interest 
has arrived). If instead there is remaining unrelated order interest 
after the first COA has been allocated, then such unrelated order 
interest will be considered for allocation when the subsequent COA is 
processed. As another example, each COA Response is required to 
specifically identify the COA for which it is targeted and if not fully 
executed will be cancelled at the conclusion of the COA. Thus, COA 
Responses will only be considered in the specified COA.
    The proposed COA process is substantively the same as the COA 
process described in EDGX Rule 21.20(d), except there will be no 
customer priority on C2 for simple or complex orders.
    Proposed subparagraph (d)(3) defines the Response Time Interval as 
the period of time during which Users may submit responses to the COA 
auction message (``COA Responses''). The Exchange determines the 
duration of the Response Time Interval, which may not exceed 500 
milliseconds. This is similar to current subparagraph (c)(3)(B), except 
the proposed rule change reduces the maximum time period from three 
seconds to 500 milliseconds. The Exchange believes that 500 
milliseconds is a reasonable amount of time within which participants 
can respond to a COA auction message, as it is the maximum timeframe in 
EDGX Rule 21.20(d)(3). The current timer on C2 is 20 milliseconds, and 
therefore the Exchange believes market believes a maximum response time 
of 500 milliseconds is sufficient to respond to auctions.
    However, the Response Time Interval terminates prior to the end of 
that time duration:
    (1) When the System receives a non-COA-eligible order on the same 
side as the COA-eligible order that initiated the COA but with a price 
better than the COA price, in which case the System terminates the COA 
and processes the COA-eligible order as described below and posts the 
new order to the COB; or
    (2) when the System receives an order in a leg of the complex order 
that would improve the SBBO on the same side as the COA-eligible order 
that initiated the COA to a price equal to or better than the COA 
price, in which case the System terminates the COA and processes the 
COA-eligible order as described below, posts the new order to the COB, 
and updates the SBBO.
    These circumstances that cause a Response Time Interval to 
terminate prior to the end of the above-noted time duration are 
substantively the same as EDGX Rule 21.20(d)(5)(C)(i) and (ii). EDGX 
Rule 21.20(d)(5)(C)(iii) does not apply to C2, as it relates to 
Priority Customer orders, which have no allocation priority on C2. 
Current C2 Rule 6.13(c)(8)(C) describes how the System currently 
handles incoming COA-eligible orders on the same side of the original 
COA order at a better price. The proposed rule change deletes that 
provision, as it is being replaced by the functionality above (which 
order terminates a COA in that circumstance rather than joins the COA, 
but still provides execution opportunities for the new incoming order 
by placing it on the COB). The proposed rule change deletes current C2 
Rule 6.13(c)(8), which describes current circumstances that cause a COA 
to end early, as those will no long apply following the technology 
migration. The proposed rule change deletes current Rule 6.13(c)(8)(A) 
and (B) regarding incoming COA-eligible orders received during the 
Response Time Interval, as those orders may initiate a separate COA 
under the proposed rule change that permits concurrent COAs. The 
proposed rule change deletes current Rule 6.13(c)(D) and (E) relating 
to incoming do-not-COA orders and changes in the leg markets that would 
terminate an ongoing COA, as under the proposed rules, those new orders 
would not terminate a COA but would be eligible to execute against the 
COA-eligible order at the end of the COA) (see proposed subparagraph 
(d)(2), which states execution will occur against orders in the Simple 
Book and COB at the time the COA concludes). Ultimately, these incoming 
orders are eligible for execution against a COA-eligible order under 
current and proposed rules. The proposed rule change merely changes the 
potential execution time to the end of the full response interval time 
from an abbreviated response interval time.
    Proposed subparagraph (d)(4) describes COA Responses that may be 
submitted during the Response Time Interval for a specific COA. The 
System accepts a COA Response(s) with any Capacity in $0.01 increments 
during the Response Time Interval. Current subparagraph (c)(3) permits 
the Exchange to determine whether Market-Makers assigned to a class and 
Trading Permit Holders acting as agent for orders resting on the top of 
the COB in the relevant series, or all Trading Permit Holders, may 
submit COA Responses. Currently, the Exchange permits all Trading 
Permit Holders to submit COA Responses, so the proposed rule change is 
consistent with current C2 practice and merely eliminates this 
flexibility.
    A COA Response must specify the price, size, side of the market 
(i.e., a response to a buy COA as a sell or a response to a sell COA as 
a buy) and COA auction ID for the COA to which the User is submitting 
the COA Response. While this is not included in current C2 rules, it is 
consistent with System entry requirements for COA

[[Page 22813]]

Responses. The System aggregates the size of COA Responses submitted at 
the same price for an EFID, and caps the size of the aggregated COA 
Responses at the size of the COA-eligible order. This provision is 
similar to Cboe Options Rule 6.53(d)(v), which caps order and response 
sizes for allocation purposes to prevent Trading Permit Holders from 
taking advantage of a pro-rata allocation by submitting responses 
larger than the COA-eligible order to obtain a larger allocation from 
that order.
    During the Response Time Interval, COA Responses are not firm, and 
Users can modify or withdraw them at any time prior to the end of the 
Response Time Interval, although the System applies a new timestamp to 
any modified COA Response (unless the modification was to decrease its 
size), which will result in loss of priority. The Exchange does not 
display COA Responses. At the end of the Response Time Interval, COA 
Responses are firm (i.e., guaranteed at their price and size). A COA 
Response may only execute against the COA-eligible order for the COA to 
which a User submitted the COA Response. The System cancels or rejects 
any unexecuted COA Responses (or unexecuted portions) at the conclusion 
of the COA. This is substantively the same as current subparagraph 
(c)(7) and EDGX Rule 21.20(d)(4).
    Proposed subparagraph (d)(5) describes how COA-eligible orders are 
processed at the end of the Response Time Interval. At the end of the 
Response Time Interval, the System executes a COA-eligible order (in 
whole or in part) against contra side interest in price priority. If 
there is contra side interest at the same price, the System allocates 
the contra side interest as follows:
    (1) Orders and quotes in the Simple Book for the individual leg 
components of the complex order through Legging (subject to proposed 
paragraph (g), as described below), which the System allocates in 
accordance with the priority in proposed Rule 6.12(a) applicable to the 
class.
    (2) COA Responses and unrelated orders posted to the COB, which the 
System allocates in accordance with the priority in proposed Rule 
6.12(a) applicable to the class.
    This allocation is similar to the current allocation priority on C2 
following a COA, as set forth in current C2 Rule 6.13(c)(5), except the 
proposed rule allocates COA-eligible orders to COA responses and 
resting complex orders in the same priority as it does simple orders, 
rather than providing public customer complex orders and COA response 
with priority. The Exchange believes it is appropriate for complex 
orders to allocate in the same manner as simple orders. Additionally, 
on EDGX, COA responses and unrelated orders on the COB allocate in time 
priority, and Leg into the Simple Book in pro-rata priority, as that is 
the only allocation algorithm available for simple orders on EDGX. EDGX 
prioritizes customer orders in the simple book. As discussed above, 
there will be no customer priority on C2--this applies to both the 
Simple Book and the COB. However, by trading with the legs first, this 
provides protection to customer orders in the legs as well, and ensure 
no complex orders will trade against the COB ahead of customer orders 
in the legs.
    Proposed subparagraph (d)(5)(B) states the System enters any COA-
eligible order (or unexecuted portion) that does not execute at the end 
of the COA into the COB (if eligible for entry), and applies a 
timestamp based on the time it enters the COB (see current C2 Rule 
6.13(c)(6)). The System cancels or rejects any COA-eligible order (or 
unexecuted portion) that does not execute at the end of the COA if not 
eligible for entry into the COB or in accordance with the User's 
instructions. Once in the COB, the order may execute pursuant to 
proposed paragraph (e) following evaluation pursuant to proposed 
paragraph (i), both as described below, and remain on the COB until 
they execute or are cancelled or rejected. These provisions are 
substantively the same as EDGX Rule 21.20(d)(5)(A) and (B).
    Proposed Rule 6.13(e) describes how the System will handle do-not-
COA orders (i.e. orders that do not initiate a COA upon entry to the 
System) and orders resting in the COB. Upon receipt of a do-not-COA 
order, or if the System determines an order resting on the COB is 
eligible for execution following evaluation as described below, the 
System executes it (in whole or in part) against contra side interest 
in price priority. If there is contra side interest at the same price, 
the System allocates the contra side interest as follows:
    (1) Orders and quotes in the Simple Book for the individual leg 
components of the complex order through Legging (as described below), 
which the System allocates in accordance with the priority in proposed 
Rule 6.12(a) applicable to the class.
    (2) Complex orders resting on the COB, which the System allocates 
in accordance with the priority in proposed Rule 6.12(a) applicable to 
the class.
    The System enters any do-not-COA order (or unexecuted portion) that 
cannot execute against the individual leg markets or complex orders 
into the COB (if eligible for entry), and applies a timestamp based on 
the time it enters the COB. The System cancels or rejects any do-not-
COA order (or unexecuted portion) that would execute at a price outside 
of the SBBO, if not eligible for entry into the COB, or in accordance 
with the User's instructions. Complex orders resting on the COB may 
execute pursuant to proposed paragraph (e) following evaluation 
pursuant to proposed paragraph (i), both as described below, and remain 
on the COB until they execute or are cancelled or rejected.
    The proposed rule change is similar to current C2 Rule 6.13(b)(1). 
Additionally, the proposed rule change is substantively the same as 
EDGX Rule 21.20(c)(3)(B) and (5)(D), except for the priority of 
execution. As discussed above, on C2, complex orders will trade against 
the leg markets ahead of the COB (including customer orders), but will 
not prioritize customer orders on the leg markets. As discussed above, 
this is consistent with C2's allocation, which provides no customer 
priority.
    Proposed Rule 6.13(f)(1) states the minimum increment for bids and 
offers on a complex order is $0.01, and the components of a complex 
order may be executed in $0.01 increments, regardless of the minimum 
increments otherwise applicable to the individual components of the 
complex order. This is consistent with current and proposed Rule 6.4. 
Proposed Rule 6.13(f)(2) provides the System does not execute a complex 
order pursuant to Rule 6.13 at a net price (1) that would cause any 
component of the complex strategy to be executed at a price of zero, 
(2) worse than the SBBO, (3) that would cause any component of the 
complex strategy to be executed at a price worse than the individual 
component price on the Simple Book, (4) worse than the price that would 
be available if the complex order Legged into the Simple Book, or (5) 
ahead of orders on the Simple Book without improving the BBO on at 
least one component by at least $0.01. The System executes complex 
orders without consideration of any prices for the complex strategy 
that might be available on other exchanges trading the same complex 
strategy; provided, however, that such complex order price may be 
subject to the drill-through price protection described below. This is 
substantively the same as EDGX Rule 21.20(c). However, because complex 
orders will execute against the leg markets (including customer orders 
on

[[Page 22814]]

the legs) prior to executing against complex orders at the same price, 
complex orders will not execute ahead of a customer order on the legs. 
Additionally, this provision is substantively the same as current C2 
Rules 6.12(g) and 6.13(c)(5).
    Proposed paragraph (g) adopts restrictions on the ability of 
complex orders to Leg into the Simple Book. Specifically, a complex 
order may Leg into the Simple Book pursuant to proposed subparagraphs 
(d)(5)(A)(i) and (e)(i), subject to the restrictions in proposed 
paragraph (g), if it can execute in full or in a permissible ratio and 
if it has no more than a maximum number of legs (which the Exchange 
determines on a class-by-class basis and may be two, three or four), 
subject to the following restrictions:
    (1) All two leg COA-eligible Customer complex orders may Leg into 
the Simple Book without restriction.
    (2) Complex orders for any other Capacity with two option legs that 
are both buy or both sell and that are both calls or both puts may not 
Leg into the Simple Book. These orders may execute against other 
complex orders on the COB.
    (3) All complex orders with three or four option legs that are all 
buy or all sell (regardless of whether the option legs are calls or 
puts) may not Leg into the Simple Book. These orders may execute 
against other complex orders on the COB.
    The proposed rule change is substantively the same as EDGX Rule 
21.20(c)(2)(F), except it does not include restrictions related to 
Customer orders, because Customer priority will not apply on C2. These 
restrictions serve the same purpose as the protection included in 
current C2 Rule 6.13(c)(2)(A), which is to ensure that Market-Makers 
providing liquidity do not trade above their established risk tolerance 
levels. Currently, liquidity providers (typically Market Makers, though 
such functionality is not currently limited to registered Market 
Makers) in the Simple Book are protected by way of the Risk Monitor 
Mechanism by limiting the number of contracts they execute as described 
above. The Risk Monitor Mechanism allows Market-Makers and other 
liquidity providers to provide liquidity across potentially hundreds of 
options series without executing the full cumulative size of all such 
quotes before being given adequate opportunity to adjust the price and/
or size of their quotes.
    All of a participant's quotes in each option class are considered 
firm until such time as the Risk Monitor Mechanism's threshold has been 
equaled or exceeded and the participant's quotes are removed by the 
Risk Monitor Mechanism in all series of that option class. Thus the 
Legging of complex orders presents higher risk to Market-Makers and 
other liquidity providers as compared to simple orders being entered in 
multiple series of an options class in the simple market, as it can 
result in such participants exceeding their established risk thresholds 
by a greater number of contracts. Although Market-Makers and other 
liquidity providers can limit their risk through the use of the Risk 
Monitor Mechanism, the participant's quotes are not removed until after 
a trade is executed. As a result, because of the way complex orders leg 
into the regular market as a single transaction, Market-Makers and 
other liquidity providers may end up trading more than the cumulative 
risk thresholds they have established, and are therefore exposed to 
greater risk. The Exchange believes that Market Makers and other 
liquidity providers may be compelled to change their quoting and 
trading behavior to account for this additional risk by widening their 
quotes and reducing the size associated with their quotes, which would 
diminish the Exchange's quality of markets and the quality of the 
markets in general.
    Proposed Rule 6.13(h) contains additional provisions regarding the 
handling of complex orders:
     A complex market order or a limit order with a price that 
locks or crosses the then-current opposite side SBBO and does not 
execute because the SBBO is the best price but not available for 
execution (because it does not satisfy the complex order ratio or the 
complex order cannot Leg into the Simple Book) enters the COB with a 
book and display price that improves the then-current opposite side 
SBBO by $0.01. If the SBBO changes, the System continuously reprices 
the complex order's book and display price based on the new SBBO (up to 
the limit price, if it is a limit order), subject to the drill-through 
price protection described in Rule 6.14(b), until: (A) The complex 
order has been executed in its entirety; or (B) the complex order (or 
unexecuted portion) of the complex order is cancelled or rejected. This 
provision is substantively the same as EDGX Rule 21.20(c)(4) and (6), 
except it improves the SBBO by $0.01 in all cases. This is consistent 
with the proposed C2 rule to trade with the leg markets ahead of the 
COB. The purpose of using the calculated SBBO is to enable the System 
to determine a valid trading price range for complex strategies and to 
protect orders resting on the Simple Book by ensuring that they are 
executed when entitled. Additionally, this process ensures the System 
will not execute any component of a complex order at a price that would 
trade through an order on the Simple Book. The Exchange believes that 
this is reasonable because it prevents the components of a complex 
order from trading at a price that is inferior to a price at which the 
individual components may be traded on the Exchange or ahead of the leg 
markets.
     If there is a zero NBO for any leg, the System replaces 
the zero with a price $0.01 above NBB to calculate the SNBBO, and 
complex orders with any buy legs do not Leg into the Simple Book. If 
there is a zero NBB, the System replaces the zero with a price of 
$0.01, and complex orders with any sell legs do not Leg into the Simple 
Book. If there is a zero NBB and zero NBO, the System replaces the zero 
NBB with a price of $0.01 and replaces the zero NBO with a price of 
$0.02, and complex orders do not Leg into the Simple Book. The SBBO and 
SNBBO may not be calculated if the NBB or NBO is zero (as noted above, 
if the best bid or offer on the Exchange is not available, the System 
uses the NBB or NBO when calculating the SBBO). As discussed above, 
permissible execution prices are based on the SBBO. If the SBBO is not 
available, the System cannot determine permissible posting or execution 
pricing for a complex order (which are based on the SBBO), which could 
reduce execution opportunities for complex orders. If the System were 
to use the zero bid or offer when calculating the SBBO, it may also 
result in executions at erroneous prices (since there is no market 
indication for the price at which the leg should execute). For example, 
if a complex order has a buy leg in a series with no offer, there is no 
order in the leg markets against which this leg component could 
execute. This is consistent with functionality on EDGX, and the 
proposed rule change is merely including this detail in the C2 rules. 
This is also consistent with the proposed rule change (and EDGX rule) 
that states complex order executions are not permitted if the price of 
a leg would be zero. Additionally, this is similar to the proposed rule 
change described above to improve the posting price of a complex order 
by $0.01 if it would otherwise lock the SBBO. The proposed rule change 
is a reasonable process to ensure complex orders receive execution 
opportunities, even if there is no interest in the leg markets.\39\
---------------------------------------------------------------------------

    \39\ Cboe Options Rule 6.13(b)(vi) states if a market order is 
received when the national best bid in a series is zero, if the 
Exchange best offer is less than or equal to $0.50, the Cboe Options 
system enters the market order into the book as a limit order with a 
price equal to the minimum trading increment for the series. Similar 
to the proposed rule change, this is an example of an exchange 
modifying an order price to provide execution opportunities for the 
order when there is a lack of contra-side interest when the order is 
received by the exchange.

---------------------------------------------------------------------------

[[Page 22815]]

    Proposed Rule 6.13(i) states the System evaluates an incoming 
complex order upon receipt after the open of trading to determine 
whether it is a COA-eligible order or a do-not-COA order and thus 
whether it should be processed pursuant to proposed paragraph (d) or 
(e), respectively. The System also re-evaluates a complex order resting 
on the COB (including an order (or unexecuted portion) that did not 
execute pursuant to proposed paragraph (d) or (e) upon initial receipt) 
(1) at time the COB opens, (2) following a halt, and (3) during the 
trading day when the leg market price or quantity changes to determine 
whether the complex order can execute (pursuant to proposed Rule 
6.13(e) described above), should be repriced (pursuant to proposed 
paragraph (h)), should remain resting on the COB, or should be 
cancelled. This is consistent with EDGX Rule 21.20(c)(2)(G) and (c)(5). 
This evaluation process ensures that the System is monitoring and 
assessing the COB for incoming complex orders, and changes in market 
conditions or events that cause complex orders to reprice or execute, 
and conditions or events that result in the cancellation of complex 
orders on the COB. This ensures the integrity of the Exchange's System 
in handling complex orders and results in a fair and orderly market for 
complex orders on the Exchange.
    Proposed Rule 6.13(j) states the System cancels or rejects a 
complex market order it receives when the underlying security is 
subject to a limit up-limit down state, as defined in Rule 6.39. If 
during a COA of a COA-eligible market order, the underlying security 
enters a limit up-limit down state, the System terminates the COA 
without trading and cancels or rejects all COA Responses. This is 
consistent with handling of simple market orders during a limit up-
limit down state, and is substantively the same as EDGX Rule 
21.20(d)(8) and current Rule 6.13(c)(9).
    Proposed Rule 6.13(k) describes the impact of trading halts on the 
trading of complex orders. If a trading halt exists for the underlying 
security or a component of a complex strategy, trading in the complex 
strategy will be suspended. The System queues a Trading Permit Holder's 
open orders during a Regulatory Halt, unless the Trading Permit Holder 
entered instructions to cancel its open complex orders upon a 
Regulatory Halt, for participation in the re-opening of the COB as 
described below. A Trading Permit Holder's complex orders are cancelled 
unless the Trading Permit Holder instructed the Exchange not to cancel 
its orders. The COB will remain available for Users to enter and manage 
complex orders that are not cancelled. Incoming complex orders that 
could otherwise execute or initiate a COA in the absence of a halt will 
be placed on the COB. Incoming complex orders with a time in force of 
IOC will be cancelled or rejected.
    If, during a COA, any component(s) and/or the underlying security 
of a COA-eligible order is halted, the COA ends early without trading 
and all COA Responses are cancelled or rejected. Remaining complex 
orders will be placed on the COB if eligible or will be cancelled. When 
trading in the halted component(s) and/or underlying security of the 
complex order resumes, the System will re-open the COB pursuant to 
proposed paragraph (c) (as described above). The System queues any 
complex orders designated for a re-opening following a halt until the 
halt has ended, at which time they are eligible for execution in the 
Opening Process. This proposed rule change regarding the handling of 
complex orders during a trading halt is substantively the same as EDGX 
Rule 21.20, Interpretation and Policy .05.
    The Exchange believes the proposed provisions described above 
regarding complex order handling and executions provide a framework 
that will enable the efficient trading of complex orders in a manner 
that is similar to current C2 functionality and substantively the same 
as EDGX functionality. As described above, complex order executions are 
designed to work in concert with a priority of allocation that 
continues to respect the priority of allocations on the Simple Book 
while protecting orders in the Simple Book.
    Proposed Interpretation and Policy .01 states Market-Makers are not 
required to quote on the COB. Complex strategies are not subject to any 
quoting requirements applicable to Market-Makers in the simple market. 
The Exchange does not take into account Market-Makers' volume executed 
in complex strategies when deterring whether Market-Makers meet their 
quoting obligations in the simple market. This codifies current C2 
practice and is identical to EDGX Rule 21.20, Interpretation and Policy 
.01.\40\
---------------------------------------------------------------------------

    \40\ The proposed rule change deletes current C2 Rule 6.13, 
Interpretation and Policy .01 regarding determinations made by the 
Exchange, which is being replaced by proposed Rule 1.2.
---------------------------------------------------------------------------

    The proposed rule change deletes current Rule 6.13, Interpretation 
and Policy .02, which describes how orders resting on the COB may 
initiate a COA under certain conditions. This ``re-COA'' functionality 
will not be available on C2 following the technology migration. 
However, as described above, the System continuously evaluates orders 
resting on the COB for execution opportunities against incoming complex 
orders or orders in the leg markets. Pursuant to EDGX Rule 
21.20(c)(5)(B), continual evaluation of orders on the COB does not 
determine whether orders may be subject to another COA. Therefore, the 
proposed rule change is consistent with EDGX rules, which do not permit 
``re-COA.''
    Proposed Interpretation and Policy .02 states a Trading Permit 
Holder's dissemination of information related to COA-eligible orders to 
third parties or a pattern or practice of submitting orders that cause 
a COA to conclude early will be deemed conduct inconsistent with just 
and equitable principles of trade and a violation of Rule 4.1. This 
combines EDGX Rule 21.20, Interpretation and Policy .02 and current C2 
Rule 6.13, Interpretation and Policy .03 into a single provision 
regarding behavior related to COAs that may be deemed inconsistent with 
just and equitable principles of trade.
    Stock-option orders will not be available on C2 following the 
technology migration, so the proposed rule change deletes all 
provisions related to, and references to, stock-option orders from Rule 
6.13 (including Interpretation and Policy .06) and elsewhere in the 
Rules. Stock-option order functionality is not currently available on 
C2, so this proposed rule change will have no impact on C2 market 
participants.
    As discussed above, proposed Rule 6.13 regarding complex orders is 
substantially the same as EDGX Rule 21.20 or current Rule 6.13, except 
for provisions related to priority, as C2 will not have customer 
priority. Proposed Rule 6.13 has nonsubstantive differences compared to 
EDGX Rule 21.20, which differences are intended to simplify the 
description of complex orders, re-organize the provisions, and 
eliminate duplicative language.
    Current C2 Rule 6.14 describes SAL, an electronic auction mechanism 
that provides price improvement for simple orders. Pursuant to this 
rule, the Exchange may determine whether to make SAL available on C2. 
The proposed rule change deletes this rule

[[Page 22816]]

(and makes conforming changes throughout the rules, including deleting 
references to SAL and Rule 6.14), as this functionality will not be 
available on C2 following the technology migration. Currently, the 
Exchange has not made SAL available for any classes on C2.
    Proposed C2 Rule 6.14 consolidates all order and quote price 
protection mechanisms and risk controls into a single rule, and states 
the System's acceptance and execution of orders and quotes pursuant to 
the Rules, including proposed Rules 6.11 through 6.13, are subject to 
the price protection mechanisms and risk controls in proposed Rule 
6.14. Proposed Rule 6.14 categorizes these mechanisms and controls as 
ones applicable to simple orders (proposed paragraph (a)), complex 
orders (proposed paragraph (b)), and all (i.e. simple and complex) 
orders (proposed paragraph (c)).
    The following table identifies the current price protection 
mechanism and risk control, the current C2 Rule, the proposed C2 Rule, 
the corresponding EDGX rule (if any), and any proposed changes:

--------------------------------------------------------------------------------------------------------------------------------------------------------
   Price protection/ risk control       Current C2 rule        Proposed C2 rule          EDGX rule                       Proposed changes
--------------------------------------------------------------------------------------------------------------------------------------------------------
Handling of market orders received   6.12(h)..............  6.14(a)(1)...........  N/A..................  Pursuant to the proposed rule change, the
 in no-bid series.                                                                                         System cancels or rejects a market order if
                                                                                                           there is no-bid and the Exchange best offer
                                                                                                           is less than or equal to $0.50. Under current
                                                                                                           functionality, the System would treat the
                                                                                                           sell order as a limit order with a price
                                                                                                           equal to the minimum increment in this
                                                                                                           situation. The proposed rule change also
                                                                                                           expands the same protection to market orders
                                                                                                           in no-offer series. The Exchange believes the
                                                                                                           proposed rule change will provide protection
                                                                                                           for these orders to prevent execution at
                                                                                                           potentially erroneous prices when a market
                                                                                                           order is entered in a series with no bid or
                                                                                                           offer.
Market order NBBO width protection.  6.17(a)(1)...........  6.14(a)(2)...........  21.17(a).............  The proposed functionality is generally the
                                                                                                           same as current functionality, except the
                                                                                                           acceptable amount away from NBBO a market
                                                                                                           order may execute will be determined by a
                                                                                                           percentage away from the NBBO midpoint
                                                                                                           (subject to a minimum and maximum dollar
                                                                                                           amount) rather than specified dollar ranges
                                                                                                           based on premium, providing the Exchange with
                                                                                                           flexibility it believes appropriate given
                                                                                                           previous experience with risk controls.
Buy order put check................  6.17(d)..............  6.14(a)(3)...........  21.17(c).............  The proposed rule change will apply to market
                                                                                                           order executions during the Opening Process,
                                                                                                           and deletes the call underlying value check
                                                                                                           in current Rule 6.17(d)(1)(B), as this
                                                                                                           functionality will not be available on C2's
                                                                                                           new system following the technology
                                                                                                           migration. The proposed rule change also
                                                                                                           deletes references to auctions because C2
                                                                                                           will have no simple order auctions following
                                                                                                           the migration.
Drill-through protection (simple)..  6.17(a)(2)...........  6.14(a)(4)...........  21.17(d).............  The proposed functionality is generally the
                                                                                                           same as current functionality, except the
                                                                                                           drill-through amount is a buffer amount
                                                                                                           determined by class and premium rather than a
                                                                                                           number ticks. The proposed rule change
                                                                                                           deletes the distinction between orders
                                                                                                           exposed via SAL or HAL, as those auction
                                                                                                           mechanisms will not be available on C2's new
                                                                                                           system following the technology migration.
                                                                                                           The proposed functionality applies to Day
                                                                                                           orders, as well as GTD and GTC orders that
                                                                                                           reenter the Book from the prior trading day,
                                                                                                           but not IOC or FOK, as resting in the Book
                                                                                                           for a period of time is inconsistent with
                                                                                                           their purpose (which is to cancel if not
                                                                                                           executed immediately).
Definitions of vertical spread,      6.13.04..............  6.14(b)(1)...........  21.20.04(a)..........  No substantive changes.
 butterfly spread, and box spread.
Credit-to-debit parameters.........  6.13.04(b)...........  6.14(b)(2)...........  21.20.04(b)..........  No substantive changes.
Debit/credit price reasonability     6.13.04(c)...........  6.17(b)(3)...........  21.20.04(c)..........  The proposed functionality is generally the
 checks.                                                                                                   same as current functionality, except the
                                                                                                           acceptable price is subject to a pre-set
                                                                                                           buffer amount, which flexibility is
                                                                                                           consistent with EDGX functionality. The
                                                                                                           proposed rule change also makes an additional
                                                                                                           change to conform to a Cboe Options rule, as
                                                                                                           described below.
Buy strategy parameters............  6.13.04(d)...........  6.17(b)(4)...........  21.20.04(d)..........  The proposed functionality is generally the
                                                                                                           same as current functionality, except the net
                                                                                                           credit price is subject to a buffer amount
                                                                                                           (consistent with EDGX functionality). The
                                                                                                           proposed rule change deletes the mechanism's
                                                                                                           applicability to sell strategies, as that
                                                                                                           functionality will not be available on C2
                                                                                                           following the technology migration.
Maximum value acceptable price       6.13.04(h)...........  6.17(b)(5)...........  21.20.04(e)..........  The proposed functionality is generally the
 range.                                                                                                    same as current functionality, except the
                                                                                                           price range is calculated using a buffer
                                                                                                           amount (consistent with EDGX functionality)
                                                                                                           rather than a percentage amount.

[[Page 22817]]

 
Drill-through protection (complex).  N/A..................  6.17(b)(6)...........  21.20.04(f)..........  The proposed functionality is generally the
                                                                                                           same as current functionality that applies to
                                                                                                           simple orders, and expands it to complex
                                                                                                           orders. The proposed rule change replaces
                                                                                                           market width parameter protection and
                                                                                                           acceptable percentage range parameter in
                                                                                                           current Rule 6.13.04(a) and (e),
                                                                                                           respectively, which currently protect C2
                                                                                                           complex orders from executing at potentially
                                                                                                           erroneous prices too far away from the
                                                                                                           order's price or the market's best price. The
                                                                                                           proposed rule is substantially similar to
                                                                                                           EDGX Rule 21.20(c)(2)(E), except as follows:
                                                                                                           (1) The proposed rule change adds the concept
                                                                                                           that a COA-eligible order would initiate a
                                                                                                           COA at the drill-through price (this is
                                                                                                           consistent with current EDGX functionality
                                                                                                           and is additional detail in the C2 Rules)
                                                                                                           (the prices for complex strategy executions
                                                                                                           may be subject to the drill-through
                                                                                                           protection, which is intended to capture the
                                                                                                           concept that the price of a COA may be
                                                                                                           impacted by the drill-through protection; the
                                                                                                           proposed rule change makes this explicit in
                                                                                                           the C2 rules); and (2) describes how a change
                                                                                                           in the SBBO prior to the end of the time
                                                                                                           period but the complex order cannot Leg, and
                                                                                                           the new SBO (SBB) crosses the drill-through
                                                                                                           price, the System changes the displayed price
                                                                                                           of the complex order to the new SBO (SBB)
                                                                                                           minus (plus) $0.01, and the order will not be
                                                                                                           cancelled at the end of the time period
                                                                                                           (consistent with EDGX functionality, and the
                                                                                                           proposed rule change adds this detail to the
                                                                                                           C2 Rules). The proposed rule change merely
                                                                                                           permits an order to remain on the COB since
                                                                                                           the market reflects interest to trade (but
                                                                                                           not currently executable due to Legging
                                                                                                           Restrictions) that was not there was not at
                                                                                                           the beginning of the time period, providing
                                                                                                           additional execution opportunities prior to
                                                                                                           cancellation.
Limit Order Fat Finger Check.......  6.13.04(g) and         6.14(c)(1)...........  21.17(b) and 21.20,    The proposed functionality is generally the
                                      6.17(b).                                      Interpretation and     same as current functionality, except the
                                                                                    Policy .06.            amount away from the NBBO a limit order price
                                                                                                           may be is a buffer amount rather than a
                                                                                                           number of ticks with no minimum, and Exchange
                                                                                                           may determine whether the check applies to
                                                                                                           simple orders prior to the conclusion of the
                                                                                                           Opening Process (current rules codify pre-
                                                                                                           open application), providing the Exchange
                                                                                                           with flexibility it believes appropriate
                                                                                                           given previous experience with risk controls.
                                                                                                           The proposed rule change does not apply to
                                                                                                           GTC or GTD orders that reenter the Book from
                                                                                                           the prior trading day, as this check only
                                                                                                           applies to orders when the System receives
                                                                                                           them. The proposed rule change provides Users
                                                                                                           with ability to set a different buffer amount
                                                                                                           to accommodate its own risk modeling; does
                                                                                                           not apply to adjusted series prior to the
                                                                                                           Opening Process, as prices may reflect the
                                                                                                           corporate action for the underlying but the
                                                                                                           previous day's NBBO would not reflect that
                                                                                                           action. If the check applies prior to the
                                                                                                           Opening Process, the System compares the
                                                                                                           order's price to the midpoint of the NBBO
                                                                                                           rather than the previous day's closing price,
                                                                                                           which the Exchange believes is another
                                                                                                           reasonable price comparison; will no longer
                                                                                                           exclude ISOs, which is consistent with EDGX
                                                                                                           functionality.
Maximum contract size..............  6.17(h)..............  6.14(c)(2)...........  N/A..................  The proposed functionality is generally the
                                                                                                           same as current functionality, except the
                                                                                                           Exchange will set a default amount rather
                                                                                                           than permit User to set amount. The proposed
                                                                                                           rule change applies per port rather than
                                                                                                           acronym or login. The functionality to cancel
                                                                                                           a resting order or quote if replacement order
                                                                                                           or quote is entered will not be available on
                                                                                                           C2 following the technology migration
                                                                                                           (however, a User can enable cancel on reject
                                                                                                           functionality described below to receive same
                                                                                                           result).
Maximum notional value.............  N/A..................  6.14(c)(3)...........  Technical              Voluntary functionality similar to maximum
                                                                                    specifications.        contract size, except the System cancels or
                                                                                                           rejects an incoming order or quote with a
                                                                                                           notional value that exceeds the maximum
                                                                                                           notional value a User establishes for each of
                                                                                                           its ports. The proposed rule change provides
                                                                                                           an additional, voluntary control for Users to
                                                                                                           manage their order and execution risk on C2.
Daily risk limits..................  N/A..................  6.14(c)(4)...........  Technical              Voluntary functionality pursuant to which a
                                                                                    specifications.        User may establish limits for cumulative
                                                                                                           notional booked bid (``CBB'') or offer
                                                                                                           (``CBO'') value, and cumulative notional
                                                                                                           executed bid (``CEB'') or offer (``CEO'')
                                                                                                           value for each of its ports on a net or gross
                                                                                                           basis, or both, and may establish limits for
                                                                                                           market or limit orders (counting both simple
                                                                                                           and complex), or both. If a User exceeds a
                                                                                                           cutoff value (by aggregating amounts across
                                                                                                           the User's ports), the System cancels or
                                                                                                           rejects incoming limit or market orders, or
                                                                                                           both, as applicable.41
Risk monitor mechanism.............  6.17(g) and 8.12.....  6.14(c)(5)...........  6.36.................  Similar functionality to current C2 quote risk
                                                                                                           monitor and order entry, execution, and price
                                                                                                           parameter rate checks, which will not be
                                                                                                           available on C2 following the technology
                                                                                                           migration (discussed below) [sic].

[[Page 22818]]

 
Cancel on reject...................  N/A..................  6.14(c)(6)...........  Technical              Additional, voluntary control for Users to
                                                                                    specifications.        manage their order and execution risk on C2,
                                                                                                           pursuant to which the System cancels a
                                                                                                           resting order or quote if the System rejects
                                                                                                           a cancel or modification instruction
                                                                                                           (because, for example, it had an invalid
                                                                                                           instruction) for that resting order or quote.
                                                                                                           The proposed rule change is consistent with
                                                                                                           the purpose of a cancel or modification,
                                                                                                           which is to cancel the resting order or
                                                                                                           quote, and carries out this purpose despite
                                                                                                           an erroneous instruction on the cancel/
                                                                                                           modification message.
Kill switch........................  6.17(i)..............  6.14(c)(7)...........  22.11................  The proposed functionality is generally the
                                                                                                           same as current functionality, except Users
                                                                                                           may apply it to different categories of
                                                                                                           orders by EFID rather than acronym or login
                                                                                                           (consistent with new System functionality),
                                                                                                           and block of incoming orders or quotes is a
                                                                                                           separate request by Users.
Cancel on disconnect...............  6.48.................  6.14(c)(8)...........  Technical              The proposed functionality is generally the
                                                                                    specifications.        same as current technical disconnect
                                                                                                           functionality, except it is the same for both
                                                                                                           APIs on the new C2 system. The proposed rule
                                                                                                           change will continue to protect Users against
                                                                                                           erroneous executions if it appears they are
                                                                                                           experiencing a system disruption. The
                                                                                                           proposed functionality will no longer provide
                                                                                                           TPHs with ability to determine length of
                                                                                                           interval, but does provide additional
                                                                                                           flexibility with respect to which order types
                                                                                                           may be cancelled--current functionality
                                                                                                           permits a choice of market-maker quotes and
                                                                                                           day orders, while the proposed functionality
                                                                                                           permits a choice of day and GTC/GTD orders,
                                                                                                           or just day orders.
Block new orders...................  N/A..................  N/A..................  22.11................  Similar to automatic functionality that occurs
                                                                                                           on C2 currently when a Trading Permit Holder
                                                                                                           uses kill switch functionality. The proposed
                                                                                                           rule change merely provides a separate way to
                                                                                                           achieve this result on the new System,
                                                                                                           providing Users with flexibility regarding
                                                                                                           how to manage their resting orders and
                                                                                                           quotes.
Duplicate order protection.........  N/A..................  N/A..................  Technical              Additional, voluntary control for Users to
                                                                                    specifications.        manage their order and execution risk on C2.
                                                                                                           The proposed rule change protects Users
                                                                                                           against execution of multiple orders that may
                                                                                                           have been erroneously entered.
--------------------------------------------------------------------------------------------------------------------------------------------------------

    The proposed rule change deletes the mechanisms related to 
execution of quotes that lock or cross the NBBO and quotes inverting 
the NBBO. Since there will be no separate order and quote 
functionality, orders submitted by Market-Makers will be subject to the 
protections described above.
---------------------------------------------------------------------------

    \41\ The System calculates a notional cutoff on a gross basis by 
summing CBB, CBO, CEB, and CEO. The System calculates a notional 
cutoff on a net basis by summing CEO and CBO, then subtracting the 
sum of CEB and CBB, and then taking the absolute value of the 
resulting amount.
---------------------------------------------------------------------------

    Under the current EDGX debit/credit price reasonability check (see 
EDGX Rule 21.20.04(c)), the System only pairs calls (puts) if they have 
the same expiration date but different exercise prices or the same 
exercise price but different expiration dates. Under the current C2 
debit/credit reasonability check, with respect to pairs with different 
expiration the System pairs of calls (puts) with different expiration 
dates if the exercise price for the call (put) with the farther 
expiration date is lower (higher) than the exercise price for the 
nearer expiration date in addition to those with different expiration 
dates and the same exercise price. The proposed rule change amends this 
check to pair orders in the same manner as EDGX, which is to pair calls 
(puts) if they have the same expiration date but different exercise 
prices or the same exercise price but different expiration dates.
    Additionally, the proposed rule change deletes the exception for 
complex orders with European-style exercise. The Exchange no longer 
believes this exception is necessary and will expand this check to 
index options with all exercise styles.
    The proposed Risk Monitor Mechanism is substantively the same as 
the functionality currently available on EDGX. Because there will no 
longer be separate order and quote functionality on C2 following the 
technology migration, there will no longer be separate mechanisms to 
monitor entry and execution rates, as there are on C2 today. Each User 
may establish limits for the following parameters in the Exchange's 
counting program. The System counts each of the following within a 
class (``class limit'') and across all classes for an EFID (``firm 
limit'') over a User-established time period (``interval'') on a 
rolling basis up to five minutes (except as set forth in (iv) below) 
and on an absolute basis for a trading day (``absolute limits''):
    (i) Number of contracts executed (``volume'');
    (ii) notional value of executions (``notional'');
    (iii) number of executions (``count''); and
    (iv) number of contracts executed as a percentage of number of 
contracts outstanding within an Exchange-designated time period or 
during the trading day, as applicable (``percentage''), which the 
System determines by calculating the percentage of a User's outstanding 
contracts that executed on each side of the market during the time 
period or trading day, as applicable, and then summing the series 
percentages on each side in the class.
    When the System determines the volume, notional, count, or 
percentage:
    (i) Exceeds a User's class limit within the interval or the 
absolute limit for the class, the Risk Monitor Mechanism cancels or 
rejects such User's orders or quotes in all series of the class and 
cancels or rejects any additional orders or quotes from the User in the 
class until the counting program resets (as described below).
    (ii) exceeds a User's firm limit within the interval or the 
absolute limit for the firm, the Risk Monitor Mechanism cancels or 
rejects such User's orders or quotes in all classes and cancels or 
rejects any additional orders or quotes from the User in all classes 
until the counting program resets (as described below).

[[Page 22819]]

    The Risk Monitor Mechanism will also attempt to cancel or reject 
any orders routed away to other exchanges.
    The System processes messages in the order in which they are 
received. Therefore, it will execute any marketable orders or quotes 
that are executable against a User's order or quote and received by the 
System prior to the time the Risk Monitor Mechanism is triggered at the 
price up to the size of the User's order or quote, even if such 
execution results in executions in excess of the User's parameters.
    The System will not accept new orders or quotes from a User after a 
class limit is reached until the User submits an electronic instruction 
to the System to reset the counting program for the class. The System 
will not accept new orders or quotes from a User after a firm limit is 
reached until the User manually notifies the Trade Desk to reset the 
counting program for the firm, unless the User instructs the Exchange 
to permit it to reset the counting program by submitting an electronic 
message to the System. The Exchange may restrict the number of User 
class and firm resets per second.
    The System counts executed COA responses as part of the Risk 
Monitor Mechanism. The System counts individual trades executed as part 
of a complex order when determining whether the volume, notional, or 
count limit has been reached. The System counts the percentage executed 
of a complex order when determining whether the percentage limit has 
been reached.
    The Risk Monitor Mechanism providers Users with similar ability to 
manage their order and execution risk to the quote risk monitor and 
rate checks currently available on C2. It merely uses different 
parameters and modifies the functionality to conform C2's new System.
    With respect to various price protections and risk controls in 
current Rules 6.13, Interpretation and Policy .04, and 6.17, the 
Exchange has the authority to provide intraday relief by widening or 
inactivating one or more of the parameter settings for the mechanisms 
in those rules. This authority is included in proposed Interpretation 
and Policy .01, to provide this flexibility for all price protections 
and risk controls for which the Exchange sets parameters, providing the 
Exchange with flexibility it believes appropriate given previous 
experience with risk controls. The Exchange will continue to make and 
keep records to document all determinations to grant intraday relief, 
and periodically review these determinations for consistency with the 
interest of a fair and orderly market.
    The proposed rule change moves the provision regarding the 
Exchange's ability to share User-designated risk settings in the System 
with a Clearing Trading Permit Holder that clears Exchange transactions 
on behalf of the User from the introduction of current Rule 6.17 to 
proposed Rule 6.14, Interpretation and Policy .02.
    Proposed Rule 6.15 replaces current Rule 6.36 regarding routing of 
orders to other exchanges. C2 will continue to support orders that are 
designated to be routed to the NBBO as well as orders that will execute 
only within C2 (as discussed above). Orders designated to execute at 
the NBBO will be routed to other options markets for execution when the 
Exchange is not at the NBBO, consistent with the Options Order 
Protection and Locked/Crossed Market Plan. Subject to the exceptions 
contained in Rule 6.81, the System will ensure that an order will not 
be executed at a price that trades through another options exchange. An 
order that is designated by a Trading Permit Holder as routable will be 
routed in compliance with applicable Trade-Through restrictions. Any 
order entered with a price that would lock or cross a Protected 
Quotation that is not eligible for either routing, or the Price Adjust 
process described above, will be cancelled.
    Proposed Rule 6.15 states for System securities, the order routing 
process is available to Users from 9:30 a.m. until market close. Users 
can designate an order as either available or not available for 
routing. Orders designated as not available for routing (either Book 
Only or Post Only) are processed pursuant to Rule 6.12. For an order 
designated as available for routing, the System first checks for the 
Book for available contracts for execution against the order pursuant 
to Rule 6.12. Unless otherwise instructed by the User, the System then 
designates the order (or unexecuted portion) as IOC and routes it to 
one or more options exchanges for potential execution, per the User's 
instructions. After the System receives responses to the order, to the 
extent it was not executed in full through the routing process, the 
System processes the order (or unexecuted portion) as follows, 
depending on parameters set by the User when the incoming order was 
originally entered:
     Cancels the order (or unexecuted portion) back to the 
User;
     posts the unfilled balance of the order to the Book, 
subject to the Price Adjust process described in proposed Rule 6.12(b), 
if applicable. [sic]
     repeats the process described above by executing against 
the Book and/or routing to the other options exchanges until the 
original, incoming order is executed in its entirety;
     repeats the process described above by executing against 
the Book and/or routing to the other options exchanges until the 
original, incoming order is executed in its entirety, or, if not 
executed in its entirety and a limit order, posts the unfilled balance 
of the order on the Book if the order's limit price is reached; or
     to the extent the System is unable to access a Protected 
Quotation and there are no other accessible Protected Quotations at the 
NBBO, cancels or rejects the order back to the User, provided, however, 
that this provision does not apply to Protected Quotations published by 
an options exchange against which the Exchange has declared self-help.
    Currently, C2 automatically routes intermarket sweep orders, 
consistent with the definition in Rule 6.80(8). This routing process is 
functionally equivalent to the current C2 routing process, and referred 
to as SWPA and is specifically described in proposed Rule 
6.15(a)(2)(B). Specifically, SWPA is a routing option (which will be 
the default routing option following migration, and thus, if no other 
routing option is specified by a User, a User's order subject to 
routing will be handled in the same way it is today). Following the 
technology migration, C2 will offer additional routing options 
identical to the routing options offered by EDGX.\42\ Routing options 
may be combined with all available Order Instructions and Times-in-
Force, with the exception of those whose terms are inconsistent with 
the terms of a particular routing option. The System considers the 
quotations only of accessible markets. The term ``System routing 
table'' refers to the proprietary process for determining the specific 
options exchanges to which the System routes orders and the order in 
which it routes them. The Exchanges reserves the right to maintain a 
different System routing table for different routing options and to 
modify the System routing table at any time without notice. These 
additional routing

[[Page 22820]]

options are ROUT, destination specific, and directed ISO:
---------------------------------------------------------------------------

    \42\ Users may mark orders as eligible for routing (with one of 
the four proposed routing instructions) or not eligible for routing 
(with either a Book Only or Post Only instruction). Separately, both 
routable and non-routable orders may be marked with re-pricing 
instructions (either Price Adjust (single or multiple) and Cancel 
Back), which instruction the System will apply when it receives the 
order from the User or receives any unexecuted portion of an order 
upon returning from routing.
---------------------------------------------------------------------------

     ROUT is a routing option under which the System checks the 
Book for available contracts to execute against an order and then sends 
it to destinations on the System routing table. A User may select 
either Route To Improve (``RTI'') or Route To Fill (``RTF'') for the 
ROUT routing option. RTI may route to multiple destinations at a single 
price level simultaneously while RTF may route to multiple destinations 
and at multiple price levels simultaneously.
     Destination specific is a routing option under which the 
System checks the Book for available contracts to execute against an 
order and then sends it to a specific away options exchange.
     Directed ISO is a routing option under which the System 
does not check the Book for available contracts and sends the order to 
another options exchange specified by the User. It is the enter Trading 
Permit Holder's responsibility, not the Exchanges responsibility, to 
comply with the requirements relating to Intermarket Sweep Orders.
    The Exchange also proposes to offer two options for Re-Route 
instructions, Aggressive Re-Route and Super Aggressive Re-Route, either 
of which can be assigned to routable orders:
     Pursuant to the Aggressive Re-Route instruction, if the 
remaining portion of a routable order has been posted to the Book 
pursuant proposed paragraph (a)(1) above, if the order's price is 
subsequently crossed by the quote of another accessible options 
exchange, the System routes the order to the crossing options exchange 
if the User has selected the Aggressive Re-Route instruction.
     Pursuant to the Super Aggressive Re-Route instruction, to 
the extent the unfilled balance of a routable order has been posted to 
the Book pursuant to subparagraph (a)(1) above, if the order's price is 
subsequently locked or crossed by the quote of another accessible 
options exchange, the System routes the order to the locking or 
crossing options exchange if the User has selected the Super Aggressive 
Re-Route instruction.
    Proposed Rule 6.15(b) states the System does not rank or maintain 
in the Book pursuant to Rule 6.12 orders it has routed to other options 
exchanges, and therefore those orders are not available to execute 
against incoming orders. Once routed by the System, an order becomes 
subject to the rules and procedures of the destination options exchange 
including, but not limited to, order cancellation. If a routed order 
(or unexecuted portion) is subsequently returned to the Exchange, the 
order (or unexecuted portion), the order receives a new time stamp 
reflected the time the System receives the returned order. Proposed 
Rule 6.15(c) states Users whose orders are routed to other options 
exchanges must honor trades of those orders executed on other options 
exchanges to the same extent they would be required to honor trades of 
those orders if they had executed on the Exchange. These provisions are 
consistent with current C2 functionality, and the proposed rule change 
adds this detail to the C2 Rules. They are also substantively the same 
as EDGX Rule 21.9(b) and (c).
    C2 will route orders in options via Cboe Trading, which will serve 
as the Outbound Router of the Exchange, as discussed above. The 
Outbound Router will route orders in options listed and open for 
trading on C2 to other options exchanges pursuant to C2 Rules solely on 
behalf of C2. The Outbound Router is subject to regulation as a 
facility of the Exchange, including the requirement to file proposed 
rule changes under Section 19 of the Exchange Act. Use of Cboe Trading 
or Routing Services as described below to route orders to other market 
centers is optional. Parties that do not desire to use Cboe Trading or 
other Routing Services provided by the Exchange must designate orders 
as not available for routing.
    In the event the Exchange is not able to provide Routing Services 
through its affiliated broker-dealer, the Exchange will route orders to 
other options exchanges in conjunction with one or more routing brokers 
that are not affiliated with the Exchange. C2 does not currently have 
an affiliated broker-dealer that provides routing services, and thus it 
currently routes orders to other options exchanges in conjunction with 
one or more routing brokers not affiliated with the Exchange, as 
provided in current Rule 6.36(a). In connection with Routing Services, 
the same conditions will apply to routing brokers that currently apply 
to C2 routing brokers pursuant to current Rule 6.36(a) (which are 
proposed to be moved to Rule 6.15(e)) and are the same as EDGX Rule 
21.9(e).
    Proposed Rule 6.15(f) states in addition to the Rules regarding 
routing to away options exchanges, Cboe Trading has, pursuant to Rule 
15c3-5 under the Exchange Act, implemented certain tests designed to 
mitigate the financial and regulatory risks associated with providing 
Trading Permit Holders with access to away options exchanges. Pursuant 
to the policies and procedures developed by Cboe Trading to comply with 
Rule 15c3-5, if an order or series of orders are deemed to be erroneous 
or duplicative, would cause the entering Trading Permit Holder's credit 
exposure to exceed a preset credit threshold, or are noncompliant with 
applicable pre-trade regulatory requirements, Cboe Trading will reject 
the orders prior to routing and/or seek to cancel any orders that have 
been routed. This provision is the same as EDGX Rule 21.9(f), and 
currently applies to Cboe Trading.
    The proposed rule, including the various routing options, is 
substantially the same as EDGX Rule 21.9. The various routing options 
will provide Users with additional flexibility to instruct the Exchange 
how to handle the routing of their orders. The Re-Route instructions 
will provide unexecuted orders resting on the Book with additional 
execution opportunities. The proposed routing process and options are 
identical to those available on EDGX.
    Current C2 Rule 6.18 describes HAL, a feature that automates 
handling of orders not at the NBBO by auctioning them at the NBBO for 
potential price improvement on the Exchange prior to routing. Pursuant 
to this rule, the Exchange may determine whether to make HAL available 
on C2. The proposed rule change deletes this rule (and makes conforming 
changes throughout the rules, including deleting references to HAL and 
Rule 6.18), as this functionality will not be available on C2 following 
the technology migration.
    The proposed rule change deletes current C2 Rule 6.19 regarding 
types of order formats, as these formats are available on the current 
C2 system but will not be applicable on C2's new system following the 
technology migration. Information regarding order formats are available 
in technical specifications on the Exchange's website.\43\
---------------------------------------------------------------------------

    \43\ See http://markets.cboe.com/us/options/support/technical/.
---------------------------------------------------------------------------

    Proposed C2 Rule 6.28 states the System sends to a User aggregated 
and individual transaction reports for the User's transactions, which 
reports include transaction details; the contra party's EFID, clearing 
Trading Permit Holder account number, and Capacity; and the name of any 
away exchange if an order was routed for execution. The Exchange 
reveals a User's identity (1) when a registered clearing agency ceases 
to act for a participant, or the User's Clearing Trading Permit Holder, 
and the registered clearing agency determines not to guarantee the 
settlement of the User's trades, or (2) for regulatory purposes or to 
comply with an order of

[[Page 22821]]

an arbitrator or court. C2 currently sends out transaction reports 
containing similar information, and the Exchange believes including 
this information in the Rules will provide more transparency to market 
participants about these reports. The proposed rule change is 
substantively the same as EDGX Rule 21.10 and is consistent with 
current Exchange and options industry practices, including the fact 
that clearing information available through OCC provides contra-party 
information, as well as the ability of a User to disclose its identify 
on orders.
    Current C2 Rule 6.49 describes the C2 Trade Match System (``CTM'') 
functionality available on C2's current System, which permits Trading 
Permit Holders to update transaction reports. The functionality 
available on C2's System following the technology migration is called 
the Clearing Editor. The Clearing Editor, like CTM, allows Trading 
Permit Holders to update executed trades on their trading date and 
revise them for clearing. The Clearing Editor may be used to correct 
certain bona fide errors. Trading Permit Holders may change the 
following fields through the Clearing Editor: executing firm and contra 
firm; executing broker and contra broker; CMTA; account and subaccount 
(not just market-maker account and subaccount, as is the case currently 
on CTM): Customer ID; position effect (open/close); or Capacity 
(because there will be no customer priority on C2, there is no need to 
restrict Capacity changes as set forth in current Rule 6.49). The 
proposed rule change deletes Rule 6.49(b), which are fields Trading 
Permit Holders may change only if they provide notice to the Exchange, 
as Clearing Editor does not permit Trading Permit Holders to change 
these fields. If a Trading Permit Holder must change the series, 
quantity, buy or sell, or premium price, it must contact the Exchange 
pursuant to proposed Rule 6.29 regarding obvious errors. Current Rule 
6.49(c) and Interpretation and Policy .01 are moved to Rule 6.31(c) and 
Interpretation and Policy .01 with no substantive changes.
    C2 Rule 6.32 describes when the Exchange may halt trading in a 
class and is substantially similar to EDGX Rules 20.3 and 20.4. Current 
Rule 6.32(a) lists various factors, among others, the Exchange may 
consider when determining whether to halt trading in a class, but adds 
the following two to be consistent with EDGX Rule 20.3:
     Occurrence of an act of God or other event outside the 
Exchange's control; and
     occurrence of a System technical failure or failures 
including, but not limited to, the failure of a part of the central 
processing system, a number of Trading Permit Holder applications, or 
the electrical power supply to the System itself or any related system 
(the Exchange believes this broader factor regarding system 
functionality covers the current factor in paragraph (a)(4) regarding 
the status of a rotation, which is a system process).
    As the current rule permits the Exchange to consider factors other 
than those currently listed, including the two factors proposed to be 
added (which the Exchange currently does consider when determining 
whether to halt a class), the proposed rule change is consistent 
current Rule 6.32(a). The proposed rule change moves the provision in 
Interpretation and Policy .02 to subparagraph (a)(1). The proposed rule 
change moves the provisions in current Interpretations and Policies .01 
and .05 to proposed paragraph (c).
    The proposed rule change adds proposed paragraph (b), which states 
if the Exchange determines to halt trading, all trading in the effected 
class(es) will be halted, and the System cancels all orders in the 
class(es) unless a User entered instructions to cancel all orders 
except GTC and GTD orders or not cancel orders during a halt. C2 
disseminates through its trading facilities and over OPRA a symbol with 
respect to the class(es) indicating that trading in the class(es) has 
been halted. The Exchange makes available to vendors a record of the 
time and duration of the halt. Following the technology migration, C2 
will have functionality availability that permits Trading Permit 
Holders to enter a standing instruction regarding the handling of its 
orders during a halt. The remainder of proposed paragraph (b) is 
consistent with C2's current practice. The proposed paragraph (b) is 
also substantively the same as EDGX Rule 20.3(b).
    C2's new technology platform is currently the platform for EDGX and 
other Cboe Affiliated Exchanges, and thus has an established disaster 
recovery plan. Therefore, the proposed rule change deletes the majority 
of C2's disaster recovery provisions, contained in current Rules 6.45 
and 6.34(f) (regarding mandatory testing), and adopts proposed Rule 
6.34, which is substantially similar to EDGX Rule 2.4. Proposed Rule 
6.34 states the Exchange maintains business continuity and disaster 
recovery plans, including backup systems, it may activate to maintain 
fair and orderly markets in the event of a systems failure, disaster, 
or other unusual circumstance that may threaten the ability to conduct 
business on the Exchange, which is consistent with current Rule 
6.45(a).
    Proposed Rule 6.34(b) states Trading Permit Holders that contribute 
a meaningful percentage of the Exchange's overall volume must connect 
to the Exchange's backup systems and participate in functional and 
performance testing as announced by the Exchange, which will occur at 
least once every 12 months. The Exchange has established the following 
standards to identify Trading Permit Holders that account for a 
meaningful percentage of the Exchange's overall volume and, taken as a 
whole, the constitute the minimum necessary for the maintenance of fair 
and orderly markets in the event of the activation of business 
continuity and disaster recovery plans:
     The Exchange will determine the percentage of volume it 
considers to be meaningful for purposes of this Rule.
     The Exchange will measure volume executed on the Exchange 
on a quarterly basis. The Exchange will also individually notify all 
Trading Permit Holders quarterly that are subject to this paragraph 
based on the prior calendar quarter's volume.
     If a Trading Permit Holder has not previously been subject 
to the requirements of this paragraph, such Trading Permit Holder will 
have until the next calendar quarter before such requirements are 
applicable.
    Proposed Rule 6.34(c) states all Trading Permit Holders may connect 
to the Exchange's backup systems and participate in testing of such 
systems. Current Rule 6.45 similarly requires certain Trading Permit 
Holders designated by the Exchange to connect to back-up systems and 
participate in testing (current Rule 6.34(f) also requires 
participation in mandatory systems testing). The proposed rule change 
designates different but reasonable criteria for determining which 
Trading Permit Holders must participate in mandatory testing.
    Proposed paragraphs (b) and (c) are consistent with Regulation SCI 
requirements, which apply to certain self-regulatory organizations 
(including the Exchange), alternative trading systems (``ATSs''), plan 
processors, and exempt clearing agencies (collectively, ``SCI 
entities''), and requires these SCI entities to comply with 
requirements with respect to the automated systems central to the 
performance of their regulated activities. The Exchange takes pride in 
the reliability and availability of its systems. C2 has, and the Cboe 
Affiliate Exchanges that operate on the

[[Page 22822]]

technology platform to which C2 will migrate have, put extensive time 
and resources toward planning for system failures and already maintain 
robust business continuity and disaster recovery BC/DR plans consistent 
with the Rule.
    Propose Rule 6.35 describes steps the Exchange may take to mitigate 
message traffic, based on C2's traffic with respect to target traffic 
levels and in accordance with C2's overall objective of reducing both 
peak and overall traffic. First, the System does not send an outbound 
message \44\ in a series that is about to be sent if a more current 
quote message for the same series is available for sending, but does 
not delay the sending of any messages (referred to in proposed Rule 
6.35 as ``replace on queue''). Second, the System will prioritize price 
update messages over size update messages in all series and in 
conjunction with the replace on queue functionality described above. 
Current C2 Rules contains various provisions the current system uses to 
mitigate message traffic, such as Rules 6.34(b) (permits the Exchange 
to limit the number of messages Trading Permit Holders may send) and 
(c) (newly received quotations and other changes to the BBO may not be 
disseminated for a period of up to, but no more than, one second), 6.35 
(regarding bandwidth packets), and 8.11.\45\ The proposed rule change 
essentially replaces these provisions. C2 does not have unlimited 
capacity to support unlimited messages, and the technology platform 
onto which it will migrates contains the above functionality, which are 
reasonable measures the Exchange may take to manage message traffic and 
protect the integrity of the System. The proposed change is 
substantively the same as EDGX Rule 21.14, except it does not include 
the provision regarding EDGX's ability to periodically delist options 
with an average daily volume of less than 100 contracts. Additionally, 
current C2 Rule 6.34(c) (which is being deleted and replaced by the 
message traffic mitigation provisions in proposed Rule 6.35) permits 
the Exchange to utilize a mechanism so that newly received quotes and 
other changes to the BBO are not disseminated for a period of up to but 
no more than one second in order to control the number of quotes the 
Exchange disseminates. Cboe Options Rule 5.4, Interpretation and Policy 
.13 (which is incorporated by reference into C2's Rules) permits the 
Exchange to delist any class immediately if the class is open for 
trading on another national securities exchange, or to not open any 
additional series for trading if the class is solely open for trading 
on C2. This provision achieves the same purpose as EDGX Rule 21.14(a), 
and thus it is unnecessary to add the EDGX provision to C2 Rules.
---------------------------------------------------------------------------

    \44\ This refers to outbound messages being sent to data feeds 
and OPRA.
    \45\ The proposed rule change deletes the remainder of current 
Rule 6.34(b), which states the Exchange may impose restrictions on 
the use of a computer connected through an API if necessary to 
ensure the proper performance of the System. The proposed rules do 
not contain a similar provision; however, to the extent C2 in the 
future wanted to impose any type of these restrictions, it would 
similarly submit a rule change for Commission approval.
---------------------------------------------------------------------------

    The proposed rule change adds Interpretations and Policies .01 
through .04 to Rule 6.50 regarding the order exposure requirement:
     Rule 6.50 prevents a Trading Permit Holder from executing 
agency orders to increase its economic gain from trading against the 
order without first giving other trading interest on the Exchange an 
opportunity to either trade with the agency order or to trade at the 
execution price when the Trading Permit Holder was already bidding or 
offering on the Book. Rule 6.50 imposes an exposure requirement of one 
second before such orders may execute. However, the Exchange recognizes 
that it may be possible for a Trading Permit Holder to establish a 
relationship with a customer or other person to deny agency orders the 
opportunity to interact on the Exchange and to realize similar economic 
benefits as it would achieve by executing agency orders as principal. 
It is a violation of the Rule for a Trading Permit Holder to be a party 
to any arrangement designed to circumvent this Rule by providing an 
opportunity for a customer to regularly execute against agency orders 
handled by the Trading Permit Holder immediately upon their entry into 
the System.
     It is a violation of Rule 6.50 for Trading Permit Holder 
to cause the execution of an order it represents as agent on C2 against 
orders it solicited from Trading Permit Holders and non-Trading Permit 
Holder broker-dealers, whether such solicited orders are entered into 
C2 directly by the Trading Permit Holder or by the solicited party 
(either directly or through another Trading Permit Holder), if the 
Trading Permit Holder fails to expose orders on C2 as required by the 
Rule.
     With respect to nondisplayed portions of reserve orders, 
the exposure requirement of Rule 6.50 is satisfied if the displayed 
portion of the order is displayed at its displayable price for one 
second.
     Prior to or after submitting an order to the System, a 
Trading Permit Holder cannot inform another Trading Permit Holder or 
any other third party of any of the terms of the order.
    While these provisions are not currently stated in the C2 Rules, 
they are consistent with the C2's interpretation of current Rule 6.50. 
Current C2 Rule 6.50 is substantively the same as EDGX Rule 22.12, and 
the following proposed Interpretations and Policies .01 through .04 are 
substantively the same as EDGX Rule 22.12, Interpretations and Policies 
.01 through .04.
    Current C2 Rule 6.51 describes the Automated Improvement Mechanism 
(``AIM''), an electronic auction mechanism that provides potential 
price improvement for eligible incoming orders, and current C2 Rule 
6.52 describes the Solicitation Auction Mechanism (``SAM''), an 
electronic auction mechanism that provides potential price improvement 
for the all-or-none orders with size of 500 or more. Pursuant to those 
rules, the Exchange may determine whether to make this functionality 
available on C2. The proposed rule change deletes these rules (and 
makes conforming changes throughout the rules, including deleting 
references to AIM, SAM, and the rules), as this functionality will not 
be available on C2 following the technology migration.
Chapter 8
    The proposed rule change adds paragraph (d) to Rule 8.1, which 
states a Trading Permit Holder or prospective Trading Permit Holder 
adversely affected by an Exchange determination under this Chapter 8, 
including the Exchange's termination or suspension of a Trading Permit 
Holder's status as a Market-Maker or a Market-Maker's appointment to a 
class, may obtain a review of such determination in accordance with the 
provisions of Chapter 19. Current Rule 8.2 contains a similar provision 
applicable to that Rule; however, the remaining rules in Chapter 8 
contain various provision that permit the Exchange to make 
determinations, which would be subject to review under Chapter 19. 
Therefore, the Exchange believes it is appropriate to include a similar 
provision applicable to the entire Chapter 8.
    The proposed rule change modifies rule provisions throughout 
Chapter 8 to clarify the distinction between Market-Maker registration 
and appointment. A Trading Permit Holder may register as a Market-Maker 
which is a function available on the Exchange. A Trading Permit Holder 
registered as a Market-Maker may select appointments to classes in 
which it agrees to satisfy obligations as a Market-Maker and

[[Page 22823]]

obtain Market-Maker treatment for its trading activity in those 
classes.
    The proposed rule change renames Rule 8.2 to be Market-Maker Class 
Appointments, as the rule generally describes how a Market-Maker may 
obtain appointments to classes, rather than continuing Market-Maker 
registration. To retain status as a registered Market-Maker, a Market-
Maker must satisfy its obligations in its appointed classes (as 
discussed below) and otherwise stay in good standing, as described in 
Rule 8.4 (as discussed below). Currently, and following the System 
migration, Market-Makers may select their own class appointments 
through an Exchange system. Rule 8.2(b) states a Market-Maker may 
register in one or more classes in a manner prescribed by the Exchange. 
The proposed rule change adds detail, which conforms to EDGX Rule 
22.3(b), which states a Market-Maker may enter an appointment request 
via an Exchange-approved electronic interface with the Exchange's 
systems by 9:00 a.m., which appointment will become effective on the 
day the Market-Maker enters the appointment request. The Exchange notes 
Market-Makers on EDGX may select appointments to series, while Market-
Makers on C2 will continue to be able to select appointments to a 
class, as they do today. This proposed process is similar to the one 
Market-Makers use on C2's current systems for selecting appointments. 
The proposed rule change deletes the language in current Rule 8.2(d) 
stating a Market-Maker may change its registered classes upon advance 
notification to the Exchange, as that is duplicative of proposed Rule 
8.2(b), which requires Market-Makers to select appointments prior to a 
trading day for that appointment to become effective on that trading 
day.
    The proposed rule change deletes the provision in current Rule 
8.2(b) that permits the Exchange to register a Market-Maker in one or 
more classes of option contracts, as the Exchange does not, and does 
not intend, to impose appointments on Market-Makers. Similarly, the 
proposed rule change deletes current Rule 8.2(c), which states no 
option class registration may be made without the Market-Maker's 
consent to such registration, provided that refusal to accept a 
registration may be deemed sufficient cause for termination or 
suspension of a Market-Maker. As noted above, Market-Makers select 
their own appointments. Rules 8.1(b) and 8.4(b), among others, describe 
circumstances under which the Exchange may suspend or terminate a 
Trading Permit Holder's registration as a Market-Maker or a Market-
Maker's appointment in a class. Additionally, the proposed rule change 
deletes the provision permitting it to arrange two or more classes of 
contracts into the groupings and make registrations to those groupings 
rather than to individual classes, as the Exchange does not, and does 
not intend, to create groups of registrations. Market-Makers only 
select appointments by class.
    Proposed Rule 8.2(c) states a Market-Maker's appointment in a class 
confers the right of the Market-Maker to quote (using order 
functionality) in that class. On C2's current system, there is separate 
quote functionality for quoting in appointed classes. Following the 
technology migration, the new System permits Market-Makers to quote in 
appointed classes using order functionality (which is the case today on 
EDGX). A similar provision is contained in current Rule 8.2(d).
    The proposed rule change adds proposed Rule 8.2(d), which 
references the Exchange's ability to limit appointments pursuant to 
proposed Rule 8.1(c), as described above.
    Current Rule 8.2(d) describes the appointment costs of Market-Maker 
class appointments. The proposed rule change merely moves the 
description of appointment costs to proposed Rule 8.3.
    The proposed rule change deletes current Rule 8.4(a)(2), which 
states a Market-Maker must continue to satisfy the Market-Maker 
qualification requirements specified by the Exchange, because it is 
redundant of the language in subparagraph (a)(1), which states a 
Market-Maker must continue to meet the general requirements for Trading 
Permit Holders set forth in Chapter 3 and Market-Maker requirements set 
forth in Chapter 8. These are generally the only requirements 
applicable to qualify as a Market-Maker.
    Rule 8.5 currently describes general obligations imposed on Market-
Makers, while Rule 8.6 describes requirements applicable to Market-
Maker quotes (the proposed rule change renames Rule 8.6 to apply to all 
quote requirements rather than the firm quote requirement, which is 
still included in proposed Rule 8.6(a)). The proposed rule moves the 
description of the continuous quoting obligation to proposed Rule 
8.6(d) from current Rule 8.5(a)(1), but there are no substantive 
changes to the continuous quoting obligation. The proposed rule change 
also adds that the Market-Maker continuous quoting obligations in 
proposed Rule 8.6(d) apply collectively to Market-Makers associated 
with the same Trading Permit Holder firm. This is consistent with the 
Exchange's current interpretation of this obligation, and the proposed 
rule change merely codifies it in the Rules to provide additional 
transparency. This structure conforms to EDGX Rules 22.5 and 22.6.\46\ 
The proposed rule change also moves current Rule 8.5(d) to proposed 
Rule 8.6(e), which permits the Exchange to call on a Market-Maker to 
submit a single quote or maintain continuous quotes in one or more 
series of a Market-Maker's appointed class whenever, in the judgment of 
the Exchange, it is necessary to do so in the interest of maintaining a 
fair and orderly market. The revised language is substantially the same 
as EDGX Rule 22.6(d)(2). The proposed rule change also moves current 
Rule 8.5, Interpretation and Policy .01 to proposed Rule 8.6(d)(4), 
which provides a Market-Maker has no quoting obligations while the 
underlying security for an appointed class is in a limit up-limit down 
state. The revised language is substantially similar to EDGX Rule 
22.6(d)(5).
---------------------------------------------------------------------------

    \46\ EDGX rules permit appointments by series, while C2 Rules 
will continue to permit appointments by class. Ultimately, an EDGX 
market-maker has the same flexibility to select its appointments, 
and is subject to the same quoting obligations, as C2 Market-Makers. 
The proposed rule change does not add the obligation in EDGX Rule 
22.5(a)(7), which states a Market-Maker must honor all orders the 
trading system routes to away markets. The Exchange believes this 
obligation is unnecessary, as it is true for all orders. 
Additionally, the Exchange expects Market-Makers will often use Post 
Only orders to add liquidity to the Book as quotes (including 
through use of the bulk order port), and those orders, like current 
quotes today, do not route to other exchanges.
---------------------------------------------------------------------------

    The proposed rule change adds the following quoting obligations to 
Rule 8.6, which are the same as obligations in EDGX Rule 22.6:

------------------------------------------------------------------------
                                            Proposed C2
               Obligation                      rule          EDGX rule
------------------------------------------------------------------------
A Market-Maker's bid (offer) for a                8.6(b)         22.6(a)
 series must be accompanied by the
 number of contracts at the price of the
 bid (offer) the Market-Maker is willing
 to buy (sell), and the best bid and
 best offer entered by a Market-Maker
 must have a size of at least one
 contract...............................

[[Page 22824]]

 
A Market-Maker that enters a bid (offer)          8.6(c)         22.6(b)
 on the Exchange in a series in an
 appointed class must enter an offer
 (bid)..................................
A Market-Maker is considered an OEF               8.6(f)         22.6(c)
 under the Rules in all classes in which
 the Market-Maker has no appointment.
 The total number of contracts a Market-
 Maker may execute in classes in which
 it has no appointment may not exceed
 25% of the total number of all
 contracts the Market-Maker executes on
 the Exchange in any calendar quarter...
------------------------------------------------------------------------

    The proposed size requirement in proposed Rule 8.6(b) is consistent 
with the firm quote rule, and, as a bid and offer currently cannot have 
size of zero, the minimum size requirement is consistent with current 
C2 System functionality.
    While there is no explicit requirement in current C2 rules that a 
Market-Maker must enter two-sided quotes in appointed series like the 
one in proposed Rule 8.6(c), the continuous quoting obligation requires 
a continuous two-sided market (see current Rule 8.5(a)(1)) and general 
obligations require a Market-Maker to, among other things, compete with 
other Market-Makers in its appointed classes, update quotes in response 
to changes market conditions, and maintain active markets in its 
appointed classes (see current Rule 8.5(a)(3) through (5)), which are 
consistent with the requirement to enter two-sided quotes. 
Additionally, current C2 System functionality permits Market-Makers to 
submit two-sided quotes.
    Current C2 Rules contain no specific requirement regarding the 
percentage of a Market-Makers executed volume that must be within their 
appointed classes. However, such a requirement is consistent with 
Market-Makers current obligations to maintain continuous two-sided 
quotes in their appointed classes for a significant part of the trading 
day, compete in their appointed classes, and update quotes and maintain 
active markets in their appointed classes.
    The Exchange believes these additional explicit requirements in the 
rules will continue to offset the benefits a Market-Maker receives in 
its appointed classes, as the proposed Market-Maker requirements are 
consistent with current C2 Market-maker obligations and observed 
quoting behavior, and they are the substantively the same as those in 
the EDGX rules. The Exchange believes having consistent Market-Maker 
obligations in the C2 and EDGX rules will simplify the regulatory 
requirements and increase the understanding of the Exchange's 
operations for Trading Permit Holders that are Market-Makers on both C2 
and EDGX.
    The proposed rule change combines Rules 8.8 and 8.10 regarding 
financial requirements and arrangements of Market-Makers into a single 
Rule 8.8.
    Current Rule 8.11 provides the Exchange may impose an upper limit 
on the aggregate number of Market-Makers that may quote in each product 
(the ``CQL''). Current and proposed Rule 8.1(c) permits the Exchange to 
limit the number of Market-Makers in a class and monitor quote 
capacity, in a similar manner as EDGX may impose any such limits.\47\ 
Therefore, the proposed rule change deletes Rule 8.11, since it is 
duplicative.
---------------------------------------------------------------------------

    \47\ See EDGX Rule 22.2(c).
---------------------------------------------------------------------------

    Currently, there are no Primary Market-Makers (``PMM'') (see Rule 
8.13) or Designated Primary Market-Makers (``DPM'') (see Rules 8.14 
through 8.21), and C2 does not intend to appoint any PMMs or DPMs in 
the future. Therefore, the proposed rule change deletes Rules 8.13 
through 8.21, as well as the definition of DPM in Rule 1.1. The 
proposed rule change makes corresponding changes throughout the rules 
to delete references to those rule numbers and to PMMs and DPMs.
Other Nonsubstantive Changes
    The proposed rule change deletes the supplemental rule (a) to 
Chapter 4 regarding proxy voting. C2 Chapter 4 incorporates Cboe 
Options Chapter IV by reference. Recently, Cboe Options adopted Cboe 
Options Rule 4.25, which is substantively identical to the C2 Chapter 4 
supplement rule (a). By virtue of the incorporation by reference of 
Cboe Options Chapter IV, including Rule 4.25, into C2 Chapter 4, Cboe 
Options Rule 4.25 applies to C2 Trading Permit Holders pursuant to C2 
Chapter 4. Therefore, the supplement rule (a) is now duplicative of 
Cboe Options Rule 4.25 and is no longer necessary.
    The proposed rule change deletes Rule 6.20, which is currently 
reserved and contains no rule text.
    The following rules contain language that the C2 board of directors 
may make certain trading decisions:
     Rule 6.1, Interpretations and Policies .01 and .02 
(proposed to be Rule 6.1(b)), which states the board determines trading 
hours and Exchange holidays.
     Rule 6.4 states the board will establish minimum quoting 
increments for options traded on the Exchange.
     Rule 6.33, which permits the board to designate persons 
other than the CEO or President to halt or suspend trading and take 
other action if necessary or appropriate for the maintenance of a fair 
and orderly market or the protection of investors, due to emergency 
conditions.
     Rule 8.1(c), which permits the board or its designee to 
limit access to the System, for a period to be determined in the 
board's discretion, pending any action required to address the issue of 
concern to the board, and to the extent the board places permanent 
limitations on access to the System on any Trading Permit Holder, such 
limits will be objectively determined and submitted to the Commission 
for approval pursuant to a rule change filing.
    These decisions relate to Exchange trading and operations, and thus 
are made by Exchange management, rather than the Board, which generally 
is not involved in determinations related to day-to-day operations of 
the Exchange. Therefore, the proposed rule change modifies these 
provisions to indicate the Exchange will make these determinations 
rather than the Board. The Exchange notes pursuant to corresponding 
EDGX rules, EDGX makes those determinations rather than EDGX's board.
    The proposed rule change deletes current Rule 6.38, which requires 
Trading Permit Holders to file with the Exchange trade information 
covering each Exchange transaction during a business day. Because all 
transactions on the Exchange are electronic, as soon as a transaction 
executes on the Exchange, the Exchange has all of the information 
indicated in Rule 6.38 and thus does not require Trading Permit Holders 
to submit a separate report with this information, as that is 
duplicative. The Exchange notes EDGX does not contain a similar rule.
    The proposed rule change deletes Rule 6.41, which states a Trading 
Permit Holder may not bid, offer, purchase, or write on the Exchange 
any security other than an option contract currently open for trading 
in accordance with the

[[Page 22825]]

provisions of Chapter 5. This rule is unnecessary, as the System would 
not permit the entry or execution of orders or quotes in securities not 
open for trading.
    The proposed rule change deletes Rule 6.46 regarding Trading Permit 
Holder Education, because it is duplicative of Rule 3.13.
    Attached as Exhibits 3A, 3B, and 3C are the following updated 
forms:
     C2 Trading Permit Holder Notification of Designated Give-
Ups;
     C2 Give Up Change Form; and
     C2 Give Up Change Form for Accepting Clearing Trading 
Permit Holders.
    These forms relate to the manner in which a Trading Permit Holder 
may designate Clearing Trading Permit Holder to be a Designated Give Up 
pursuant to Rule 6.30. The proposed rule change eliminates the term 
acronym from the forms (as noted above, that term will no longer be 
used from a system perspective following the technology migration) and 
makes other nonsubstantive clarifications (such as adding defined 
terms).
    The proposed rule change makes various nonsubstantive changes 
throughout the rules, in addition to nonsubstantive changes described 
above, to simplify or clarify rules, delete duplicative rule 
provisions, conform paragraph numbering and lettering throughout the 
rules, update Exchange department names, revise chapter and rule names, 
use plain English (e.g., change ``shall'' to ``must,'' change passive 
voice to active voice), and conform language to corresponding EDGX 
rules. In these cases, the Exchange intends no substantive changes to 
the meaning or application of the rules.
    Chapter 24 incorporates rules in Cboe Options Chapter XXIV by 
reference, but states certain rules do not apply to C2. One rule that 
is excluded is Rule 24.17 (RAES Eligibility in Broad-Based Index 
Options and Options on Exchange Traded funds on Broad Based Indexes). 
This rule has been deleted from Cboe Options Chapter XXIV, and thus the 
proposed rule change deletes the reference to that rule in Chapter 24.
    Additionally, the proposed rule change moves certain rules within 
the C2 rulebook as follows:

------------------------------------------------------------------------
                                 Current C2   Proposed    Corresponding
              Rule                  rule       C2 rule      EDGX rule
------------------------------------------------------------------------
Affiliates, order routing/error  3.2(f),     3.16, 3.17  2.10, 2.11, and
 accounts/order cancellation      6.36,       and 6.15.   21.9.
 and release.                     6.37, and
                                  6.47.
Nullification and adjustment of  6.15.       6.29.       20.6.
 options transactions including
 obvious errors.
Price binding despite erroneous  6.16.       6.26(b).    21.11.
 report.
Reporting of matched trades to   6.31.       6.27.       21.13.
 OCC.
Contract made on acceptance of   6.40.       6.26(a).    21.11.
 bid or offer.
Trading on knowledge of          6.55.       6.51.       N/A.
 imminent undisclosed solicited
 transaction.
------------------------------------------------------------------------

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.\48\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \49\ 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) \50\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
---------------------------------------------------------------------------

    \48\ 15 U.S.C. 78f(b).
    \49\ 15 U.S.C. 78f(b)(5).
    \50\ Id.
---------------------------------------------------------------------------

    The proposed rule changes are generally intended to add or align 
certain system functionality currently offered by EDGX and other Cboe 
Affiliated Exchanges in order to provide a consistent technology 
offering for the Cboe Affiliated Exchanges. A consistent technology 
offering, in turn, will simplify the technology implementation, changes 
and maintenance by Users of the Exchange that are also participants on 
Cboe Affiliated Exchanges. The proposed rule changes would also provide 
Users with access to functionality that is generally available on 
markets other than the Cboe Affiliated Exchanges and may result in the 
efficient execution of such orders and will provide additional 
flexibility as well as increased functionality to the Exchange's System 
and its Users. The proposed rule change does not propose to implement 
new or unique functionality that has not been previously filed with the 
Commission or is not available on Cboe Affiliated Exchanges. The 
Exchange notes that the proposed rule text is generally based on EDGX 
Rules and is different only to the extent necessary to conform to the 
Exchange's current rules, retain intended differences based on the 
Exchange's market model, or make other nonsubstantive changes to 
simplify, clarify, eliminate duplicative language, or make the rule 
provisions plain English.
    To the extent a proposed rule change is based on an existing Cboe 
Affiliated Exchange rule, the language of Exchange Rules and Cboe 
Affiliated Exchange rules may differ to extent necessary to conform 
with existing Exchange rule text or to account for details or 
descriptions included in the Exchange's Rules but not in the applicable 
EDGX rule. Where possible, the Exchange has substantively mirrored Cboe 
Affiliated Exchange rules, because consistent rules will simplify the 
regulatory requirements and increase the understanding of the 
Exchange's operations for Trading Permit Holders that are also 
participants on EDGX. The proposed rule change would provide greater 
harmonization between the rules of the Cboe Affiliated Exchanges, 
resulting in greater uniformity and less burdensome and more efficient 
regulatory compliance. As such, the proposed rule change would foster 
cooperation and coordination with persons engaged in facilitating 
transactions in securities and would remove impediments to and perfect 
the mechanism of a free and open market and a national market system. 
The Exchange also believes that the proposed amendments will contribute 
to the protection of investors and the public interest by making the 
Exchange's rules easier to understand. Where necessary, the Exchange 
has

[[Page 22826]]

proposed language consistent with the Exchange's operations on EDGX 
technology, even if there are specific details not contained in the 
current structure of EDGX rules. The Exchange believes it is consistent 
with the Act to maintain its current structure and such detail, rather 
than removing such details simply to conform to the structure or format 
of EDGX rules, again because the Exchange believes this will increase 
the understanding of the Exchange's operations for all Trading Permit 
Holders of the Exchange.
    The proposed order instructions and TIFs not currently available on 
C2 add functionality currently offered by EDGX in order to provide 
consistent order handling options across the Cboe Affiliated Exchanges. 
The proposed rule changes would also provide Users with access to 
optional functionality that may result in the efficient execution of 
such orders and will provide additional flexibility as well as 
increased functionality to the Exchange's System and its Users. As 
explained above, the proposed functionality is substantially similar to 
functionality on EDGX, and is optional for Users. The proposed rule 
change would provide greater harmonization between the order handling 
instructions available amongst the Cboe Affiliated Exchanges, resulting 
in greater uniformity and less burdensome and more efficient regulatory 
compliance. With respect to the proposed MTP modifier functionality, 
the Exchange believes the various proposed modifier options would allow 
firms to better manage order flow and prevent undesirable executions 
against themselves, and the proposed change described herein enhances 
the choices available to such firms in how they do so. The proposed 
rule change also is designed to support the principles of Section 
11A(a)(1) of the Act \51\ in that it seeks to assure fair competition 
among brokers and dealers and among exchange markets. The proposed rule 
change would also provide Users with access to functionality that may 
result in the efficient execution of such orders and will provide 
additional flexibility as well as increased functionality to the 
Exchange's System and its Users.
---------------------------------------------------------------------------

    \51\ 15 U.S.C. 78k-1(a)(1).
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    The proposed rule change to define ports will reduce complexity and 
increase understanding of the Exchange's operations for all Users of 
the Exchange following migration. As the ports are the same as used on 
certain Cboe Affiliated Exchanges, Users of the Exchange and these 
other exchanges will have access to similar functionality on all Cboe 
Affiliated exchanges. As such, the proposed rule change will foster 
cooperation and coordination with persons engaged in facilitating 
transactions in securities and would remove impediments to and perfect 
the mechanism of a free and open market and a national market system.
    The Exchange further believes that the proposed definition of bulk 
order entry ports to provide that only Post Only Orders with a time in 
force of DAY or GTD may be entered, modified, or cancelled through such 
ports will protect investors and the public interest and maintain fair 
and orderly markets by offering specific functionality through which 
Users can submit orders that will result in quotations on the Exchange. 
In particular, the options markets are quote driven markets dependent 
on liquidity providers to an even greater extent than equities markets. 
In contrast to the approximately 7,000 different securities traded in 
the U.S. equities markets each day, there are more than 500,000 unique, 
regularly quoted option series. Given this breadth in options series 
the options markets are more dependent on liquidity providers than 
equities markets; such liquidity is provided most commonly by 
registered market makers but also by other professional traders. As 
such, the Exchange believes maintaining specific functionality to 
maintain quotations on the Exchange through bulk order entry ports will 
protect investors and the public interest and the maintenance of fair 
and orderly markets by ensuring that an efficient process to enter and 
update quotations is available to Exchange Users. The Exchange also 
believes this is reasonable, as it will establish a marketplace that 
operates more similar to C2's current market, which is a quote-based 
market.
    The Exchange believes the proposed rule change to modify the 
minimum increment for XSP options with those for SPY options perfects 
the mechanism for a free and open market and a national market system 
because both products are based, in some manner, on 1/10th the price of 
the S&P 500 Index, and therefore it makes sense to have the same 
minimum increments of bids and offers for both. This proposed rule 
change is also substantively the same as a Cboe Options rule, as 
discussed above.
    The proposed Opening Process is designed to promote just and 
equitable principles of trade and remove impediments to, and perfect 
the mechanism of, a free and open market system because it would align 
with the EDGX Opening Process as it relates to: Which orders may 
participate in the process, how the price of the opening transaction is 
determined; and the process for late openings and re-openings. 
Conforming the C2 Opening Process to the EDGX opening process will 
contribute to the protection of investors and the public interest by 
avoiding investor confusion and providing consistent functionality 
across Cboe Affiliated Exchanges.
    Following the technology migration, orders and quotes will 
generally be allocated in the same manner as they are today on C2--
either pursuant to pro-rata or price-time priority. Deleting other 
priority overlays that are not used and will not be used on C2 protects 
investors by eliminating potential confusion regarding which rules 
apply to trading on C2. The proposed change regarding how the System 
rounds the number of contracts when they cannot be allocated 
proportionally in whole numbers pursuant to the pro-rata algorithm 
(which previously only addressed the situation if there one additional 
contract for two market participants) and proposed aggregated pro-rata 
algorithm (which previously was silent on this matter) adds detail to 
the rules regarding the allocation process and provides a fair, 
objective manner for rounding and distribution in all situations in 
which the number of contracts many not be allocated proportionally in 
whole numbers. Rounding and distributing contracts in the proposed 
manner is also substantively the same as an EDGX rule, as discussed 
above.
    The Exchange believes that the general provisions regarding the 
trading of complex orders provide a clear framework for trading of 
complex orders in a manner consistent with EDGX. This consistency 
should promote a fair and orderly national options market system. The 
proposed execution and priority rules will allow complex orders to 
interact with interest in the Simple Book and, conversely, interest on 
the Simple Book to interact with complex orders in an efficient and 
orderly manner. Consistent with C2's current rules and the rules of 
other exchanges, proposed Rule 6.13(f)(2) will not execute a complex 
order at a net price ahead of orders on the Simple Book without 
improving the BBO on at least one component of the complex strategy by 
at least $0.01. Additionally, before executing against another complex 
order, a complex order on the Exchange will execute first against 
orders on the Simple Book if that would result in the best price prior 
to executing against complex orders on the COB. The complex order 
priority pursuant to which complex orders will trade against

[[Page 22827]]

the leg markets prior to execution against complex orders is consistent 
with the complex order priority currently available on C2 and ensures 
protection of the leg markets.
    The Exchange proposes that complex orders may be submitted as limit 
orders and market orders, and orders with a Time in Force of GTD, IOC, 
DAY, GTC, or OPG, or as a Complex Only order, COA-eligible or do-not-
COA order. In particular, the Exchange believes that limit orders, GTD, 
IOC, DAY, GTC, and OPG orders all provide valuable limitations on 
execution price and time that help to protect Exchange participants and 
investors in both the Simple Book and the COB. In addition, the 
Exchange believes that offering participants the ability to utilize MTP 
Modifiers for complex orders in a similar way to the way they are used 
on the Simple Book provides such participants with the ability to 
protect themselves from inadvertently matching against their own 
interest. As discussed above, because complex orders do not route and 
may not be Post Only, all complex orders are Book Only, which is 
consistent with current C2 complex order functionality. The proposed 
rule change also clarifies that Attributable/Non-Attributable 
instructions are available for complex orders; however, these 
instructions merely apply to information that is displayed for the 
orders but do not impact how they execute.
    The Exchange believes that permitting complex orders to be entered 
with these varying order types and modifiers will give the Exchange 
participants greater control and flexibility over the manner and 
circumstances in which their orders may be executed, modified, or 
cancelled, and thus will provide for the protection of investors and 
contribute to market efficiency.
    In particular, the Exchange notes that while both the Complex Only 
Order and the do-not-COA instruction may reduce execution opportunities 
for the entering Market-Maker or User, respectively, similar features 
are already offered by EDGX (and C2 with respect to do-not-COA) in 
connection with complex order functionality and that they are 
reasonable limitations a Market-Maker or User, respectively, may wish 
to include on their order in order to participate on the COB.
    Evaluation of the executability of complex orders is central to the 
removal of impediments to, and the perfection of, the mechanisms of a 
free and open market and a national market system and, in general, the 
protection of investors and the public interest. The proposed 
evaluation process pursuant to proposed Rule 6.13(i) ensures that the 
System will capture and act upon complex orders that are due for 
execution. The regular and event-driven evaluation process removes 
potential impediments to the mechanisms of the free and open market and 
the national market system by ensuring that complex orders are given 
the best possible chance at execution at the best price, evaluating the 
availability of complex orders to be handled in a number of ways as 
described in this proposal. Any potential impediments to the order 
handling and execution process respecting complex orders are 
substantially removed due to their continual and event-driven 
evaluation for subsequent action to be taken by the System. This 
protects investors and the public interest by ensuring that complex 
orders in the System are continually monitored and evaluated for 
potential action(s) to be taken on behalf of investors that submit 
their complex orders to the Exchange.
    If a complex order is not priced equal to, or better than, the SBBO 
or is not priced to improve other complex orders resting at the top of 
the COB, the Exchange does not believe that it is reasonable to 
anticipate that it would generate a meaningful number of COA Responses 
such that there would be price improvement of the complex order's limit 
price. Promoting the orderly initiation of COAs is essential to 
maintaining a fair and orderly market for complex orders; otherwise, 
the initiation of COAs that are unlikely to result in price improvement 
could affect the orderliness of the marketplace in general.
    The Exchange believes that this removes impediments to and perfects 
the mechanisms of a free and open market and a national market system 
by promoting the orderly initiation of COAs, and by limiting the 
likelihood of unnecessary COAs that are not expected to result in price 
improvement.
    The Exchange believes the proposed maximum 500 millisecond Response 
Time Interval promotes just and equitable principles of trade and 
removes impediments to a free and open market because it allows 
sufficient time for Trading Permit Holders participating in a COA to 
submit COA Responses and would encourage competition among 
participants, thereby enhancing the potential for price improvement for 
complex orders in the COA to the benefit of investors and public 
interest. The Exchange believes the proposed rule change is not 
unfairly discriminatory because it establishes a Response Time Interval 
applicable to all Exchange participants participating in a COA, which 
is the same maximum Response Time Interval on EDGX.
    The Exchange again notes that it has not proposed to limit the 
frequency of COAs for a complex strategy and could have multiple COAs 
occurring concurrently with respect to a particular complex strategy. 
The Exchange represents that it has systems capacity to process 
multiple overlapping COAs consistent with the proposal, including 
systems necessary to conduct surveillance of activity occurring in such 
auctions. Further, EDGX may currently have multiple complex auctions in 
the same strategy run concurrently. EDGX Rule 21.20, Interpretation and 
Policy .02 similarly permits multiple complex auctions in the same 
strategy to run concurrently. The Exchange does not anticipate 
overlapping auctions necessarily to be a common occurrence, however, 
after considerable review, believes that such behavior is more fair and 
reasonable with respect to Trading Permit Holders who submit orders to 
the COB because the alternative presents other issues to such Trading 
Permit Holders. Specifically, if the Exchange does not permit 
overlapping COAs, then a Trading Permit Holder who wishes to submit a 
COA-eligible order but has its order rejected because another COA is 
already underway in the complex strategy must either wait for such COA 
to conclude and re-submit the order to the Exchange (possibly 
constantly resubmitting the complex order to ensure it is received by 
the Exchange before another COA commences) or must send the order to 
another options exchange that accepts complex orders.
    The Legging restrictions protects investors and the public interest 
by ensuring that Market-Makers and other liquidity providers do not 
trade above their established risk tolerance levels, as described 
above. Despite the enhanced execution opportunities provided by 
Legging, the Exchange believes it is reasonable and consistent with the 
Act to permit Market-Makers to submit orders designated as Complex Only 
Orders that will not leg into the Simple Book. This is analogous to 
functionality on EDGX,\52\ as well as other types of functionality 
offered by the Exchange that provides Trading Permit Holders the 
ability to direct the Exchange not to route their orders or remove 
liquidity from the Exchange. Similar to such analogous features, the 
Exchange believes that Market-Makers may utilize Complex Only Order 
functionality as part of their strategy to maintain additional control 
over their executions,

[[Page 22828]]

in connection with their attempt to provide and not remove liquidity, 
or in connection with applicable fees for executions.
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    \52\ See EDGX Rule 21.20(b)(1).
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    Based on the foregoing, the Exchange does not believe that the 
proposed complex order functionality raises any new or novel concepts 
under the Act, and instead is consistent with the goals of the Act to 
remove impediments to and to perfect the mechanism of a free and open 
market and a national market system, and to protect investors and the 
public interest.
    The proposed rule change regarding price adjust is consistent with 
linkage rules that require exchanges to reasonably avoid displaying 
quotations that lock or cross any Protected Quotation, as well as EDGX 
Rule 21.1(i). The proposed functionality will assist Users by 
displaying orders and quotes at permissible prices.
    The Exchange believes the additional and enhanced price protection 
mechanisms and risk controls will protect investors and the public 
interest and maintain fair and orderly markets by mitigating potential 
risks associated with market participants entering orders and quotes at 
unintended prices, and risks associated with orders and quotes trading 
at prices that are extreme and potentially erroneous, which may likely 
have resulted from human or operational error. While the Exchange 
currently offers many similar protections and controls, as described 
above, the Exchange believes Users will benefit from the additional 
functionality that will be available following the technology 
migration. The Exchange notes the proposed rule change does not 
establish outer boundaries or limits to the levels at which mechanisms 
can be set. The Exchange believes this is reasonable and necessary to 
afford the Exchange and Users flexibility to establish and modify the 
default parameters in order to protect investors and the public 
interest, and maintain a fair and orderly market. The Exchange notes 
any Exchange-determined parameters will always be available on C2's 
website via specification or Notice. The Exchange notes the proposed 
rule changes related to price protection mechanisms and risk controls 
are substantially the same as EDGX rules and specifications, as 
discussed above. The proposed rule change is also similar to current C2 
and Cboe Options Rules.
    The Exchange believes the proposed additional explicit Market-Maker 
requirements in the rules will continue to offset the benefits a 
Market-Maker receives in its appointed classes, as the proposed Market-
Maker requirements are consistent with current C2 Market-maker 
obligations and observed quoting behavior, and they are the 
substantively the same as Market-Maker requirements in the EDGX rules.
    The Exchange believes the proposed rule change regarding 
information to be provided to Users in transaction reports is 
consistent with current practice and provides market participants with 
additional transparency regarding these reports. It is also consistent 
with other Exchange and options industry practices, including the fact 
that clearing information available through OCC already provides 
contra-party information as well as the ability of a User on the 
Exchange to disclose its identify when quoting. The Exchange believes 
this is consistent with the Act, as it is designed to foster 
cooperation and coordination with persons engaged in clearing, 
settling, processing information with respect to, and facilitating 
transactions in securities.
    The proposed rule change makes various nonsubstantive changes 
throughout the rules, in addition to nonsubstantive changes described 
above, will protect investors and benefit market participants, as these 
changes simplify or clarify rules, delete duplicative rule provisions, 
conform paragraph numbering and lettering throughout the rules, update 
Exchange department names, use plain English, and conform language to 
corresponding EDGX rules.
    As described above, the fundamental premise of the proposal is that 
the Exchange will operate its options market in a similar manner to its 
affiliated options exchange, EDGX (which as discussed above in the 
purpose section, is similar in many ways to how C2 currently operates), 
with the exception of the priority model and certain other limited 
differences. The basis for the majority of the proposed rule changes in 
this filing are the approved rules of EDGX, which have already been 
found to be consistent with the Act. For instance, the Exchange does 
not believe that any of the proposed order types or order type 
functionality or allocation and priority provisions raise any new or 
novel issues that have not previously been considered.
    Thus, the Exchange further believes that the functionality that it 
proposes to offer is consistent with Section 6(b)(5) of the Act, 
because the System upon the technology migration is designed to 
continue to be efficient and its operation transparent, thereby 
facilitating transactions in securities, removing impediments to and 
perfecting the mechanism of a free and open market and a national 
market system.
    Proposed Rule 3.16 (related to Exchange affiliations with Trading 
Permit Holders) and 3.17 (related to Cboe Trading providing Outbound 
Router services) are substantially similar to EDGX Rule 2.10 and 2.11. 
Additionally, proposed Rule 3.16 incorporates the provisions in current 
C2 Rule 3.2(f) related to restrictions on Exchange affiliations with 
Trading Permit Holders. As noted above, the provisions related to 
Exchange affiliations with Trading Permit Holders (including exceptions 
to any restrictions in the Rules) are consistent with the governing 
documents of C2. Additionally, the Commission recently approved the 
Exchange affiliation with Cboe Trading related to its performing 
inbound routing services for C2. The Exchange believes proposed Rule 
3.17 promotes the maintenance of a fair and orderly market, the 
protection of investors and the public interest, and is in the best 
interests of the Exchange and its Trading Permit Holders as it will 
allow the routing of orders to Trading Centers (including affiliated 
exchanges BZX Options and EDGX Options) from the Exchange in the same 
manner as certain Cboe-affiliated exchanges currently route orders. 
Moreover, in meeting the requirements of Rule 3.17 (i.e., regulation as 
a facility, FINRA acting as the designated examining authority, 
optional use of Cboe Trading as an outbound router, restrictions on 
business of Cboe Trading, procedures and internal controls, 
cancellation of orders, maintenance of error account), the Exchange 
believes it will have mechanisms in place that protect the independence 
of the Exchange's regulatory responsibility with respect to Cboe 
Trading, as well as demonstrates that Cboe Trading cannot use any 
information that it may have because of its affiliation with the 
Exchange to its advantage. This will help prevent an unfair burden on 
competition and unfair discrimination between customers, issuers, 
brokers, or dealers.

B. Self-Regulatory Organization's Statement on Burden on Competition

    C2 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 reiterates that 
the proposed rule change is being proposed in the context of the 
technology integration of the Cboe Affiliated Exchanges. Thus, the 
Exchange believes this proposed rule change is necessary to permit fair 
competition among national securities exchanges. In addition, the 
Exchange believes the proposed rule change will

[[Page 22829]]

benefit Exchange participants in that it will provide a consistent 
technology offering for Users by the Cboe Affiliated Exchanges. 
Following the technology migration, the C2 System, as described in this 
proposed rule change, will apply to all Users and order and quotes 
submitted by Users in the same manner. As discussed above, the basis 
for the majority of the proposed rule changes in this filing are the 
approved rules of EDGX, while a few other changes are based on approved 
rules of Cboe Options and BZX, which have already been found to be 
consistent with the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange neither solicited nor received comments on the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A) of the Act \53\ and Rule 19b-4(f)(6) \54\ thereunder. 
Because the foregoing proposed rule change does not: (i) Significantly 
affect the protection of investors or the public interest; (ii) impose 
any significant burden on competition; and (iii) become operative for 
30 days from the date on which it was filed, or such shorter time as 
the Commission may designate, it has become effective pursuant to 
Section 19(b)(3)(A) of the Act \55\ and Rule 19b-4(f)(6) \56\ 
thereunder.
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    \53\ 15 U.S.C. 78(b)(3)(A).
    \54\ 17 CFR 240.19b-4(f)(6).
    \55\ 15 U.S.C. 78s(b)(3)(A).
    \56\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires the Exchange to give the Commission written notice of the 
Exchange's 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. The 
Exchange has satisfied this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) \57\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\58\ the Commission 
may designate a shorter time if such action is consistent with 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay so that the proposed 
rule change may become operative prior to the proposed C2 technology 
migration on May 14, 2018. In support of its waiver request, the 
Exchange states that many of the proposed rule changes are based on 
rules of EDGX Options and BZX Options and the proposed rule changes 
will align much of C2's System with that of those other Cboe Affiliated 
Changes, which will simplify the User experience for those firms that 
are members of one or more of the other Cboe Affiliated Exchanges, and 
also will promote stability across the affiliated trading platforms. 
The Commission notes that, because migrating C2's trading platform 
technology over to EDGX Options technology is a material event, the 
Exchange has publicized its plans well in advance by issuing periodic 
updates to Trading Permit Holders regarding the technology migration 
changes and the anticipated timeline in order to enable Trading Permit 
Holders to make and test system changes at the firm and User level to 
accommodate the transition and ensure uninterrupted access to the 
Exchange after the migration. In addition, as described in detail 
above, the Exchange's proposal does not raise any new or novel issues, 
as the nature of the changes are connected to the migration of C2 to 
the existing technology and functionality of the EDGX Options platform. 
Therefore, the Commission believes that waving the 30-day operative 
delay is consistent with the protection of investors and the public 
interest. Accordingly, the Commission hereby waives the 30-day 
operative delay and designates the proposal operative on May 11, 
2018.\59\
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    \57\ 17 CFR 240.19b-4(f)(6).
    \58\ 17 CFR 240.19b-4(f)(6).
    \59\ For purposes only of waving the 30-day operative delay, the 
Commission has considered the purposed rule's impact on efficiency, 
competition, and capital formation. See 15 U.S.C. 78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission will institute proceedings to 
determine whether the proposed rule change should be approved or 
disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-C2-2018-005 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-C2-2018-005. 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 (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549 on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-C2-2018-005 and should be submitted on 
or before June 6, 2018.
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    \60\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\60\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-10417 Filed 5-15-18; 8:45 am]
 BILLING CODE 8011-01-P


