[Federal Register Volume 83, Number 200 (Tuesday, October 16, 2018)]
[Notices]
[Pages 52253-52255]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-22429]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84399; File No. SR-C2-2018-021]


Self-Regulatory Organizations; Cboe C2 Exchange, Inc.; Notice of 
Filing of a Proposed Rule Change To Amend C2's Rulebook To Allow the 
Post Only Order Instruction on Complex Orders That Route to Its 
Electronic Book

October 10, 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 October 1, 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, II, 
and III below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Cboe C2 Exchange, Inc. (the ``Exchange'' or ``C2'') proposes to 
amend C2's rulebook to allow the Post Only order instruction on complex 
orders that route to its electronic book.
    The text of the proposed rule change is available on the Exchange's 
website (http://www.c2exchange.com/Legal/), 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
    C2 recently adopted the Post Only order instruction on simple 
orders that route to its electronic book (``Simple Book''),\3\ and C2 
now proposes to adopt the Post Only order instruction on complex orders 
that route to its electronic book (``COB'').
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    \3\ See Securities Exchange Act Release No. 83214 (May 11, 
2018), 83 FR 22796 (May 16, 2018) (SR-C2-2018-005).
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Background
    Pursuant to C2 Rule 1.1, ``[a] ``Post Only'' order is an order the 
System ranks and executes pursuant to Rule 6.12, subjects 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 (in accordance 
with User instructions), except the order may not remove liquidity from 
the [Simple] Book or route away to another Exchange.'' In other words, 
if a Post Only order is entered into C2's automated trading system 
(``System''), it will not execute against an order resting in the 
Simple Book or route to another exchange. The purpose of the Post Only 
order is to add liquidity to the Simple Book.
    Because C2 has a maker-taker fee structure, pursuant to which an 
execution taking liquidity from the Simple Book is subject to a taker 
fee, the Post Only order instruction provides Trading Permit Holders 
(``TPHs'' or ``Users'') with the flexibility to avoid incurring a taker 
fee if the TPH's intent is to submit an order to add liquidity to the 
Simple Book. Additionally, under C2's maker-taker fee structure, if a 
TPH submits an order that adds liquidity to the Simple Book (for both 
penny and non-penny classes of options), it receives a rebate in 
connection with the execution of that order. For example, a Public 
Customer order that adds liquidity to the Simple Book in a non-penny 
class receives a rebate of $0.80, whereas a Public Customer order that 
removes liquidity from the Simple Book in a non-penny class incurs a 
fee of $0.85. Similar rebates and fees are also applied to Professional 
Customers, Firms, and Broker/Dealers orders, among others.
Complex Orders
    C2 does not currently offer Post Only complex orders. Like in the 
Simple Book, execution of a complex order taking liquidity from the COB 
is subject to a taker fee and execution of an order adding liquidity is 
subject to a maker rebate. For example, a Public Customer order that 
adds liquidity to the COB in a non-penny class receives a rebate of 
$0.75, whereas a Public Customer order that removes liquidity from the 
COB in a non-penny class incurs a fee of $0.83. Unlike in the Simple 
Book, however, a TPH that intends to submit a complex order to add 
liquidity to the COB is not given the same flexibility to avoid 
incurring a taker fee. Accordingly, C2 is proposing to add Post Only to 
the permissible types of complex orders submitted to the Exchange in C2 
Rule 6.13(b).
    Proposed C2 Rule 6.13(b)(2) states that upon receipt of a Post Only 
complex order with any Time-in-Force, the System does not initiate a 
complex order auction (``COA''), and if a User marks the Post Only 
complex order to initiate a COA, the System cancels the order. Not 
permitting a Post Only complex order to COA is consistent with the 
purposes of a Post Only order, which as discussed above is to add 
liquidity to the COB. Proposed C2 Rule 6.13(g)(4) states that Post Only 
complex orders may not Leg into the Simple Book and proposed C2 Rule 
6.13(h)(3) states that the System cancels or rejects a Post Only 
complex order if it locks or crosses a resting complex order in the COB 
or the then-current opposite side synthetic best bid or offer 
(``SBBO''). For example, assume there are no orders for a specific 
strategy resting on the COB, the synthetic national best bid or offer 
(``SNBBO'') is $3.00 by $3.15, and the SBBO is $2.95 by $3.15. Assume 
next that Complex Order 1 enters the COB to sell 10 contracts of that 
strategy at $3.14 and such order is posted to the COB. If Complex Order 
2 then enters the COB to buy 10 contracts of that strategy at $3.14, 
but Complex Order 2 also contains the Post Only instruction, Complex 
Order 2 is rejected since it locks the resting contra order. Similarly, 
assume there are no orders for a specific strategy resting on the COB, 
the SNBBO is $3.00 by $3.15, and the SBBO is $2.95 by $3.20. If a two-
leg Complex Order with the Post Only instruction enters the COB to buy 
10 contracts of that strategy at $3.20, that Complex Order is rejected 
since it cannot leg in to the Simple Book and it locks the contra side 
SBBO. This proposed functionality is consistent with the purpose of the 
Post Only instruction and ensures a Post

[[Page 52254]]

Only complex order will not remove liquidity from the Book. This is 
also consistent with the functionality and purpose of the Post Only 
order instruction on simple orders.
    By adding the Post Only order instruction for complex orders, TPHs 
will be given the ability to exercise more control over the 
circumstances in which their complex orders are executed and be 
encouraged to add liquidity in the complex order market. Any additional 
liquidity will subsequently benefit all participants who trade complex 
orders on the Exchange.
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.\4\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \5\ 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) \6\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \4\ 15 U.S.C. 78f(b).
    \5\ 15 U.S.C. 78f(b)(5).
    \6\ Id.
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    Specifically, the Post Only order instruction on complex orders is 
designed to encourage market participants to add liquidity in the 
complex order market, which will benefit investors. By giving market 
participants the flexibility to manage their execution costs and the 
circumstances in which their complex orders are executed, the Exchange 
believes the proposed rule change would remove impediments to perfect 
the mechanism of a free and open market and a national market system 
and protect investors. The Exchange also believes that the proposed 
rule change will contribute to the protection of investors and the 
public interest by assuring compliance with rules related to locked and 
crossed markets.
    Additionally, the Exchange notes that Post Only functionality is 
not new or unique functionality and is already available in a similar 
capacity. While the Post Only complex order type is not currently 
available in the market, C2 and other exchanges have implemented the 
Post Only simple order type, which functions in the same manner as the 
proposed Post Only complex order type. The purpose of a Post Only 
complex order is the same as the purpose of a Post Only simple order, 
given C2's maker-taker fee structure with respect to executions of 
complex orders.

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

    C2 does not believe that the proposed rule change will impose any 
burden on intramarket or intermarket competition that is not necessary 
or appropriate in furtherance of the purposes of the Act. In 
particular, the Exchange believes the proposed rule change will not 
burden intramarket competition because the Post Only order instruction 
on complex orders will be available to all market participants. 
Additionally, use of the Post Only order instruction on complex orders 
is voluntary. The Exchange also believes the proposed rule change will 
not impose any burden on intermarket competition because this relates 
to an instruction on orders that are submitted to the Exchange and may 
only execute on the Exchange. Additionally, nothing prevents other 
options exchanges that offer complex orders from adopting a Post Only 
complex order type. The Exchange also believes the proposed rule change 
will promote competition, as the Exchange believes it will encourage 
the provision of additional liquidity in the complex order market, 
which benefits all market participants.

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

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

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission will:
    A. By order approve or disapprove such proposed rule change, or
    B. institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-C2-2018-021 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-C2-2018-021. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (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-C2-2018-021, and should be submitted on 
or before November 6, 2018.


[[Page 52255]]


    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\7\
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    \7\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-22429 Filed 10-15-18; 8:45 am]
 BILLING CODE 8011-04-P


