
[Federal Register Volume 84, Number 41 (Friday, March 1, 2019)]
[Notices]
[Pages 7159-7160]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-03632]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-85191; File No. SR-C2-2018-022]


Self-Regulatory Organizations; Cboe C2 Exchange, Inc.; Order 
Approving a Proposed Rule Change To Provide for the Trading of Complex 
Reserve Orders

February 25, 2019.

I. Introduction

    On November 8, 2018, Cboe C2 Exchange, Inc. (``C2'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to provide for the trading of Complex Reserve 
Orders. The proposed rule change was published for comment in the 
Federal Register on November 27, 2018.\3\ On December 19, 2018, the 
Commission designated a longer period within which to approve the 
proposed rule change, disapprove the proposed rule change, or institute 
proceedings to determine whether to approve or disapprove the proposed 
rule change.\4\ The Commission has received no comment letters 
regarding the proposed rule change. This order approves the proposed 
rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 84643 (November 21, 
2018), 83 FR 60916 (``Notice''). In addition to the changes 
described herein, the proposal makes non-substantive changes to 
revise the heading of C2 Rule 6.13(g) and to add headings to C2 Rule 
6.13(h)(1) and (2). See id. at nn. 10 and 13.
    \4\ See Securities Exchange Act Release No. 84867, 83 FR 66811 
(December 27, 2018). The Commission designated February 25, 2019, as 
the date by which the Commission shall approve the proposed rule 
change, disapprove the proposed rule change, or institute 
proceedings to determine whether to approve or disapprove the 
proposed rule change.
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II. Description of the Proposed Rule Change

    As described more fully in the Notice,\5\ C2 proposes to amend its 
rules to provide for the trading of Complex Reserve Orders. C2 notes 
that it currently offers Reserve Order functionality for simple 
orders.\6\ C2 states that Reserve Orders provide Users with additional 
flexibility to manage and display their orders and additional control 
over their executions on C2.\7\
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    \5\ See note 3, supra.
    \6\ See Notice, 83 FR at 60917, and C2 Rule 6.10.
    \7\ See Notice, 83 FR at 60917-8.
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    A Complex Reserve Order is a complex limit order with both a 
portion of the quantity displayed (``Display Quantity'') and a reserve 
portion of the quantity (``Reserve Quantity'') not displayed.\8\ Both 
the Display Quantity and Reserve Quantity of the Complex Reserve Order 
are available for potential execution pursuant to C2 Rules 6.13(c)-
(e).\9\ Displayed complex orders resting on the Complex Order Book 
(``COB'') have priority over non-displayed portions of Complex Reserve 
Orders resting on the COB.\10\ When entering a Complex Reserve Order, a 
User must instruct the Exchange as to the quantity of the Complex 
Reserve Order to be initially displayed by C2's System (``Max 
Floor'').\11\ If the Display Quantity of a Complex Reserve Order is 
fully executed, the System will replenish the display quantity in 
accordance with the User's instruction.\12\ If the remainder of a 
Complex Reserve Order is less than the replenishment amount, the System 
will display the entire remainder of the Complex Reserve Order.\13\ The 
System creates a new timestamp for both the Display Quantity and 
Reserve Quantity of the Complex Reserve Order each time it is 
replenished from reserve.\14\
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    \8\ See proposed C2 Rule 6.13(b)(6).
    \9\ See id. Pursuant to C2 Rules 6.13(c)-(e), complex orders 
(including the Display and Reserve Quantities of Complex Reserve 
Orders) may execute during the Complex Order Book opening process, 
against incoming complex orders, against simple orders in the Simple 
Book (via Legging), or following a Complex Order Auction. Complex 
Reserve Orders will be COA-eligible, subject to a User's 
instructions. See Notice, 83 FR at n.5.
    \10\ See proposed C2 Rule 6.13(h)(4). The COB is the Exchange's 
electronic book of complex orders. See C2 Rule 6.13
    \11\ See proposed C2 Rule 6.13(b)(6). The System is the 
automated trading system the Exchange uses for the trading of option 
contracts. See C2 Rule 100.
    \12\ The proposed rule provides two replenishment instructions. 
Under the Random Replenishment instruction, the System randomly 
replenishes the Display Quantity for the Complex Reserve 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 Complex Reserve Order with a 
Random Replenishment instruction. For any Complex Reserve Order for 
which a User does not select Random Replenishment, the System will 
replenish the Display Quantity of the Complex Reserve Order with the 
number of contracts equal to the Max Floor (or the entire remainder 
of the Complex Reserve Order if it is less than the replenishment 
amount). See proposed C2 Rule 6.13(b)(6).
    \13\ See id.
    \14\ See id.
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    The proposal addresses the participation of Complex Reserve Orders 
in the Complex Order Auction (``COA''). If a COA-eligible order is a 
Complex Reserve Order, the COA auction message will identify only the 
Display Quantity, although the entire quantity of the order (both the 
Display Quantity and Reserve Quantity) may execute following the COA 
pursuant to C2 Rule 6.13(d)(5).\15\ COA Responses may be larger than 
the COA-eligible order.\16\ The System caps the size of aggregated COA 
Responses for an Executing Firm ID (``EFID'') at the size of the COA-
eligible order (including Display Quantity and Reserve Quantity) if the 
COA-eligible order is a Complex Reserve Order).\17\ At the conclusion 
of the COA, the System executes the COA-eligible order against contra 
side interest in price priority.\18\ At the same price, the COA-
eligible order will execute first against orders and quotes in the 
Simple Book (both displayed and non-displayed orders) for the 
individual leg components of the complex order, and then against COA 
Responses and unrelated orders posted to the COB.\19\ A do-not-COA 
order \20\ or an order resting on the COB that is eligible for 
execution will execute against contra side interest at the same price 
by trading with orders and quotes in the Simple Book (both displayed 
and non-displayed orders) for the individual leg components of the 
complex order before executing against complex orders resting on the 
COB at that price.\21\
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    \15\ See proposed C2 Rule 6.13(d)(1). C2 Rule 6.13(b)(2) states 
that buy (sell) complex orders with User instructions to (or which 
default to) initiate a COA that are priced 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 to not) initiate a COA, that are marked Post Only, 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.''
    \16\ See proposed C2 Rule 6.13(d)(4)(B).
    \17\ See id.
    \18\ See proposed C2 Rule 6.13(d)(5).
    \19\ See proposed C2 Rule 6.13(d)(5)(A). The Simple Book is the 
electronic book of simple orders and quotes maintained by the 
System. See C2 Rule 100.
    \20\ See note 15, supra.
    \21\ See proposed C2 Rule 6.13(e)(1). The entire quantity of a 
Complex Reserve Order (both the Display Quantity and Reserve 
Quantity) Legs into the Simple Book at the same time, and any 
quantity that does not execute pursuant to C2 Rule 6.13(d) or (e) 
after Legging will rest in the COB in accordance with the Complex 
Reserve Order instruction. See proposed C2 Rule 6.13(g)(5).

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[[Page 7160]]

III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act,\22\ and the 
rules and regulations thereunder applicable to a national securities 
exchange.\23\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act,\24\ which 
requires, among other things, that the rules of a national securities 
exchange be designed 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, and that the 
rules are not designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
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    \22\ 15 U.S.C. 78f.
    \23\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \24\ 15 U.S.C. 78f(b)(5).
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    The Commission believes that Complex Reserve Orders could provide 
market participants with greater flexibility and control over the 
trading of their complex orders and could allow them to provide 
additional liquidity to the market. The Commission notes that C2 
currently offers Reserve Order functionality for simple orders.\25\ 
Under the proposal, displayed complex orders resting on the COB will 
have priority over the non-displayed portions of Complex Reserve Orders 
resting on the COB.\26\ As described above, the proposal further 
provides that complex orders will execute against displayed and non-
displayed leg market interest before executing against complex order 
interest at the same price.\27\ The Commission notes that complex 
orders on C2 currently execute against leg market interest (displayed 
first and then non-displayed) before executing against complex order 
interest.\28\ While displayed interest ordinarily executes before non-
displayed interest at the same price to encourage market participants 
to submit displayed interest, the Commission believes that executing 
non-displayed leg market interest before complex interest at the same 
price should facilitate interaction between the single leg and complex 
markets and provide all single leg interest at a given price, displayed 
and non-displayed, with an opportunity to participate in executions 
with complex orders.
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    \25\ See note 6, supra.
    \26\ See proposed C2 Rule 6.13(h)(4).
    \27\ See proposed C2 Rules 6.13(d)(5)(A)(i) and (e)(1) and notes 
19-21, supra, and accompanying text.
    \28\ See C2 Rules 6.13(d)(5)(A) and (e).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\29\ that the proposed rule change (SR-C2-2018-022) is approved.
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    \29\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\30\
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    \30\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-03632 Filed 2-28-19; 8:45 am]
 BILLING CODE 8011-01-P


