[Federal Register Volume 84, Number 91 (Friday, May 10, 2019)]
[Notices]
[Pages 20673-20689]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-09634]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-85788; File No. SR-C2-2019-009]


Self-Regulatory Organizations; Cboe C2 Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
the Exchange's Opening Process and Add a Global Trading Hours Session 
for DJX Options

May 6, 2019.
    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 24, 2019, 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.
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    \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).
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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 the Exchange's opening process, add a global trading hours 
session (``Global Trading Hours'' or ``GTH'') for options on the Dow 
Jones Industrial Average (``DJX options'') and make corresponding 
changes, update its rule related to trading hours for index options 
that may be listed for trading on the Exchange, and make other 
conforming and nonsubstantive changes. The text of the proposed rule 
change is provided in Exhibit 5.
    The text of the proposed rule change is also available on the 
Exchange's website (http://markets.cboe.com/us/options/regulation/rule_filings/ctwo/), at the Exchange's Office of the Secretary, and at 
the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    In 2016, the Exchange's parent company, Cboe Global Markets, Inc. 
(``Cboe Global''), which is also the parent company of Cboe Exchange, 
Inc. (``Cboe Options''), acquired Cboe EDGX Exchange, Inc. (``EDGX''), 
Cboe EDGA Exchange, Inc. (``EDGA''), Cboe BZX Exchange, Inc. (``BZX or 
BZX Options''), and Cboe BYX Exchange, Inc. (``BYX'' and, together with 
C2, Cboe Options, EDGX, EDGA, and BZX, the ``Cboe Affiliated 
Exchanges''). The Cboe Affiliated Exchanges are working to align 
certain system functionality, retaining only intended differences 
between the Cboe Affiliated Exchanges, in the context of a technology 
migration. Cboe Options intends to migrate its technology to the same 
trading platform used by the Exchange, BZX Options, and EDGX Options in 
the fourth quarter of 2019. The proposal set forth below is intended to 
add certain functionality to the Exchange's System that is more similar 
to functionality offered by Cboe Options in order to ultimately provide 
a consistent technology offering for market participants who interact 
with the Cboe Affiliated Exchanges. Although the Exchange intentionally 
offers certain features that differ from those offered by its 
affiliates and will continue to do so, the Exchange believes that 
offering similar functionality to the extent practicable will reduce 
potential confusion for Users.
Global Trading Hours
    The proposed rule change adds a GTH trading session to the Rules. 
Currently, transactions in equity options (which the proposed rule 
change clarifies includes options on individual stocks, exchange-traded 
funds (``Units'' or ``ETFs''), exchange-traded notes (``Index-Linked 
Exchangeable Notes'' or ``ETNs''), and other securities) may occur from 
9:30 a.m. to 4:00 p.m.,\5\ except for options on ETFs, ETNs, Index 
Portfolio Shares, Index Portfolio Receipts, and Trust Issued Receipts 
the Exchange designates to remain open for trading beyond 4:00 p.m. but 
no later than 4:15 p.m.\6\ Transactions in index options may occur from 
9:30 a.m. to 4:15 p.m.\7\ As proposed, these hours are referred to as 
``Regular Trading Hours.'' \8\ Regular Trading Hours are consistent 
with the regular trading hours of most other U.S. options exchanges. 
Cboe Options has a global trading hours session during which trading in 
certain option classes, which trading session occurs from 3:00 a.m. to 
9:15 a.m.\9\ Additionally, many U.S. stock and futures exchanges, which 
allow for trading in some of their listed products for various periods 
of time outside of Regular Trading Hours.\10\
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    \5\ All times are Eastern time unless otherwise noted.
    \6\ See proposed Rule 6.1(b)(1). The proposed rule changes makes 
nonsubstantive changes to proposed Rule 6.1(b)(1), including adding 
defined terms and moving the provision from current paragraph (b) 
regarding the Exchange's ability to determine that options on 
individual stocks will trade during different hours under unusual 
conditions or as otherwise set forth in the Rules to proposed 
subparagraph (b)(1). The proposed rule change also adds an 
applicable heading to proposed paragraphs (a) and (d). Additional 
changes to Rule 6.1 are discussed below.
    \7\ See proposed Rule 6.1(b)(2).
    \8\ See also proposed Rule 1.1, definition of Regular Trading 
Hours or RTH (the trading session consisting of the regular hours 
during which transactions in options may be effected on the 
Exchange, as set forth in Rule 6.1); and Cboe Options Rule 1.1 
(definition of Regular Trading Hours).
    \9\ See Cboe Options Rule 6.1.
    \10\ See, e.g., BZX Rule 1.5(c), (r), (w), and (ee) (regular 
trading hours from 9:30 a.m. until 4:00 p.m. Eastern time, two early 
trading sessions (Early Trading Session and Pre-Opening Session) 
from 7:00 a.m. until 9:30 a.m. and an After Hours Trading Session 
from 4:00 p.m. to 8:00 p.m. Eastern time); NASDAQ Stock Market LLC 
Rule 4617 (regular trading hours from 9:30 a.m. until 4:00 p.m. 
Eastern time and extended trading hours from 4:00 a.m. until 9:30 
a.m. and 4:00 p.m. to 8:00 p.m. Eastern time); and New York Stock 
Exchange LLC Series 900 (providing for an off-hours trading facility 
to operate outside of the regular 9:30 a.m. to 4:00 p.m. Eastern 
time trading session); see also, e.g., Chicago Board of Trade 
Extended Trading Hours for Grain, Oilseeds and Ethanol--Frequently 
Asked Questions (indicating that certain agricultural commodity 
products are available for electronic trading 21 hours a day on the 
CME Globex trading platform); and Intercontinental Exchange, Inc. 
Regular Trading & Support Hours (indicating that many of its listed 
products are available for trading for periods of time outside of 
Regular Trading Hours, including overnight sessions).

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[[Page 20674]]

    As noted above, many U.S. stock exchanges allow for trading in 
stocks before and after the regular trading hours of 9:30 a.m. to 4:00 
p.m., including stocks that comprise the Dow Jones Industrial Average. 
It is common for investors to engage in hedging and other investment 
strategies that involve index options and some of the stocks that 
comprise the underlying index. Currently, this investment activity on 
the Exchange would be limited to Regular Trading Hours. Additionally, 
securities trading is a global industry, and investors located outside 
of the United States generally operate during hours outside of Regular 
Trading Hours. The Exchange believes there may be global demand from 
investors for options on DJX, which may be exclusively listed \11\ on 
Cboe Affiliated Exchanges and which the Exchange plans to list during 
the proposed Global Trading Hours (as defined below), as alternatives 
for hedging and other investment purposes. Given that DJX options are 
currently only eligible to trade during Regular Trading Hours, it is 
difficult for non-U.S. investors to obtain the benefits of trading in 
this option. It is also difficult for U.S. investors that trade in non-
U.S. markets to use these products as part of their global investment 
strategies. To meet this demand, and to keep pace with the continuing 
internationalization of securities markets, the Exchange proposes to 
offer trading in DJX options from 8:30 a.m. to 9:15 a.m. Monday through 
Friday (``Global Trading Hours'' or ``GTH'').
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    \11\ An ``exclusively listed option'' is an option that trades 
exclusively on an exchange (or exchange group) because the exchange 
has an exclusive license to list and trade the option or has the 
proprietary rights in the interest underlying the option. An 
exclusively listed option is different than a ``singly listed 
option,'' which is an option that is not an ``exclusively listed 
option'' but that is listed by one exchange and not by any other 
national securities.
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    Proposed Rule 6.1(c) states except under unusual conditions as may 
be determined by the Exchange, Global Trading Hours are from 8:30 a.m. 
to 9:15 a.m. on Monday through Friday.\12\ While this trading session 
will be shorter than the global trading hours session on Cboe Options 
and various stock exchanges, the Exchange believes this proposed 
trading session will increase the time during which Trading Permit 
Holders may implement these investment strategies. This GTH trading 
session will allow market participants to engage in trading these 
options in conjunction with extended trading hours on U.S. stock 
exchanges for securities that comprise the index underlying DJX options 
and in conjunction with part of regular European trading hours. The 
proposed rule change also adds to Rule 1.1 a definition of trading 
session, which means the hours during which the Exchange is open for 
trading for Regular Trading Hours or Global Trading Hours (each of 
which may be referred to as a trading session), each as defined in 
proposed Rule 6.1. Unless otherwise specified in the Rules or the 
context indicates otherwise, all Rules apply in the same manner during 
each trading session.\13\ As discussed below, the Exchange may not 
permit certain order types or Order Instructions to be applied to 
orders during Global Trading Hours that it does permit during Regular 
Trading Hours.
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    \12\ See also proposed Rule 1.1, definition of Global Trading 
Hours or GTH (the trading session consisting of the hours outside of 
Regular Trading Hours during which transactions in options may be 
effected on the Exchange and are set forth in Rule 6.1); and Cboe 
Options Rule 1.1 (definition of Global Trading Hours).
    \13\ This includes business conduct rules in Chapter 4 and rules 
related to doing business with the public in Chapter 9. Additionally 
a broker-dealer's due diligence and best execution obligations apply 
during Global Trading Hours. See also Cboe Options Rule 6.1A(a).
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    Proposed Rule 6.1(c)(1) provides the Exchange with authority to 
designate as eligible for trading during Global Trading Hours any 
exclusively listed index option designated for trading under Cboe 
Options Rule 24.2.\14\ If the Exchange so designates a class, then 
transactions in options in that class may be made on the Exchange 
during Global Trading Hours.\15\ As indicated above, the Exchange has 
approved DJX options for trading on the Exchange during Global Trading 
Hours. The Exchange may list for trading during Global Trading Hours 
any series in eligible classes that it may list pursuant to Cboe 
Options Rule 24.9.\16\ Any series in eligible classes that are expected 
to be open for trading during Regular Trading Hours will be open for 
trading during Global Trading Hours on the same trading day (subject to 
Rule 6.11 (as proposed to be amended, as discussed below), which sets 
forth procedures for the opening of trading).\17\
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    \14\ Chapter 24 incorporates by reference Cboe Options Rule 24.2 
into the Exchange's rules. A class that the Exchange lists for 
trading during RTH only will be referred to as an ``RTH class,'' and 
a class the Exchange lists for trading during both GTH and RTH will 
be referred to as an ``All Sessions class.'' See Rule 1.1, proposed 
definitions of ``All Sessions classes'' and ``RTH classes.''
    \15\ The Exchange believes it is appropriate to retain 
flexibility to determine whether to operate during Global Trading 
Hours so that it can complete all system work on other preparations 
prior to implementing Global Trading Hours in a class, and so that 
the Exchange can evaluate trading activity during Global Trading 
Hours once implemented and determine whether to continue or modify 
the trading session (subject to applicable rule filings).
    \16\ Chapter 24 incorporates by reference Cboe Options Rule 24.9 
into the Exchange's rules. See also Cboe Options Rule 6.1A(c).
    \17\ See also Cboe Options Rule 6.1A(c).
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    The proposed rule change defines a ``business day'' or ``trading 
day'' as a day on which the Exchange is open for trading during Regular 
Trading Hours (this is consistent with the current concept of trading 
day used but not defined in the Rules).\18\ A business day or trading 
day will include both trading sessions on that day. In other words, if 
the Exchange is not open for Regular Trading Hours on a day (for 
example, because it is an Exchange holiday), then it will not be open 
for Global Trading Hours on that day. Cboe Options has the same 
definition of business day and trading day.\19\
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    \18\ The proposed rule change makes corresponding changes to the 
definitions of market open and market close in Rule 1.1 to provide 
that each term specifies the start or end, respectively, of a 
trading session.
    \19\ See Cboe Options Rule 1.1.
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    Global Trading Hours will be a separate trading session from 
Regular Trading Hours. However, GTH will use the same Exchange servers 
and hardware as those used during RTH.\20\ All Trading Permit Holders 
may participate in Global Trading Hours. Trading Permit Holders do not 
need to apply or take any additional steps to participate in Global 
Trading Hours. Additionally, because the Exchange will use the same 
servers and hardware during Global Trading Hours as it uses for Regular 
Trading Hours, Trading Permit Holders may use the same ports and 
connections to the Exchange for all trading sessions.\21\ The Book used 
during Regular Trading Hours will be the same Book used during Global 
Trading Hours.\22\
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    \20\ This is different than the trading sessions on Cboe 
Options, which uses different servers and hardware for each trading 
session.
    \21\ Only Trading Permit Holders will be able to access the 
System during any trading session. Cboe Options Trading Permit 
Holders must obtain a separate permit and use different connections 
to participate in global trading hours. See Cboe Options Rules 3.1 
and 6.1A(d).
    \22\ See proposed Rule 1.1, which amends the definition of Book 
to mean the electronic book of simple orders and quotes maintained 
by the System on which orders and quotes may execute during the 
applicable trading session. The Book during GTH may be referred to 
as the ``GTH Book,'' and the Book during RTH may be referred to as 
the ``RTH Book.'' The additional language regarding the execution of 
orders and quotes is intended to distinguish the Book from the 
Queuing Book, on which orders and quotes may not execute, as 
discussed below. With respect to complex orders, the same complex 
order book (``COB'') will be used for all trading sessions. See 
proposed Rule 6.13(a) (definition of COB). This is different than 
Cboe Options, which uses separate books for each trading session, 
which are not connected.

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[[Page 20675]]

    As further discussed below, the Exchange expects there to be 
reduced liquidity, higher volatility, and wider markets during Global 
Trading Hours, and investors may not want their orders or quotes to 
execute during Global Trading Hours given those trading conditions. To 
provide investors with flexibility to have their orders and quotes 
execute only during RTH, or both RTH and GTH, the proposed rule change 
adds an All Sessions order and an RTH Only order. An ``All Sessions'' 
order is an order a User designates as eligible to trade during both 
GTH and RTH. An unexecuted All Sessions order on the GTH Book at the 
end of a GTH trading session enters the RTH Queuing Book and becomes 
eligible for execution during the RTH opening rotation and trading 
session on the same trading day, subject to a User's instructions (for 
example, a User may cancel the order).\23\ An ``RTH Only'' order is an 
order a User designates as eligible to trade only during RTH or not 
designated as All Sessions. An unexecuted RTH Only order with a Time-
in-Force of GTC or GTD on the RTH Book at the end of an RTH trading 
session enters the RTH Queuing Book and becomes eligible for execution 
during the RTH opening rotation and trading session on the following 
trading day (but not during the GTH trading session on the following 
trading day), subject to a User's instructions.\24\
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    \23\ See Rule 6.10, proposed definition of All Sessions order.
    \24\ See Rule 6.10, proposed definition of RTH Only order. The 
RTH Only and All Sessions order instructions will also be available 
for complex orders. See proposed Rule 6.13(b).
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    Because trading sessions are completely separate on Cboe Options, 
there are not distinct order types corresponding to the proposed RTH 
Only and All Sessions order instructions. An order or quote submitted 
to GTH on Cboe Options may only execute during GTH, and an order or 
quote submitted to RTH on Cboe Options may only execute during RTH. The 
proposed RTH Only order is equivalent to any order submitted to RTH on 
Cboe Options. While the Exchange is not proposing an equivalent to an 
order submitted to GTH on Cboe Options, and instead is proposing an All 
Sessions order, Users may still submit an equivalent to a ``GTH only'' 
order by submitting an All Sessions order with a good-til-date Time-in-
Force, with a time to cancel before the RTH market open. Therefore, 
Users can submit orders to participate in either trading session, or 
both, and thus the proposed rule change provides Users with additional 
flexibility and control regarding in which trading sessions their 
orders and quotes may be eligible to trade.
    Generally, trading during the GTH trading session will occur in the 
same manner as it occurs during the RTH trading session. However, 
because the GTH market may have different characteristics than the RTH 
market (such as lower trading levels, reduced liquidity, and fewer 
participants), the Exchange may deem it appropriate to make different 
determinations for trading rules for each trading session. Proposed 
Rule 1.2(b) states to the extent the Rules allow the Exchange to make a 
determination, including on a class-by-class or series-by-series basis, 
the Exchange may make a determination for GTH that differs from the 
determination it makes for RTH.\25\ The Exchange maintains flexibility 
with respect to certain rules so that it may apply different settings 
and parameters to address the specific characteristics of that class 
and its market. For example, Rule 6.12(a)(2) allows the Exchange to 
determine electronic allocation algorithms on a class-by-class basis; 
\26\ and Rule 6.10(a) allows the Exchange to make certain order types, 
Order Instructions, and Times-in-Force not available for all Exchange 
systems or classes (and unless stated in the Rules or the context 
indicates otherwise, as proposed).\27\ Because trading characteristics 
during RTH may be different than those during GTH (such as lower 
trading levels, reduced liquidity, and fewer participants), the 
Exchange believes it is appropriate to extend this flexibility to each 
trading session. The Exchange represents that it will have appropriate 
personnel available during GTH to make any determinations that Rules 
provide the Exchange or Exchange personnel will make (such as trading 
halts, opening series, and obvious errors).
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    \25\ The proposed rule change modifies paragraph numbering and 
lettering in current Rule 1.2, and provides that Exchange 
determinations may be provided for in the Rules, in addition to 
specifications, Notices, and Regulatory Circulars.
    \26\ Therefore, the allocation algorithm that applies to a class 
during RTH may differ from the allocation algorithm that apply to 
that class during GTH.
    \27\ The proposed rule change amends Rule 6.10(a) to explicitly 
state that the Exchange may make these determinations on a trading 
session basis. The proposed rule change also clarifies in the Rules 
that Rule 6.13 sets forth the order types, Order Instructions, and 
Times-in-Force the Exchange may make available for complex orders.
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    The proposed rule change amends Rule 8.2(a) to provide that a 
Market-Maker's selected class appointment applies to classes during all 
trading sessions. In order words, if a Market-Maker selects an 
appointment in DJX options, that appointment would apply during both 
GTH and RTH (and thus, the Market-Maker would have an appointment to 
make markets in DJX during both GTH and RTH). As a result, a Market-
Maker continuous quoting obligations set forth in Rule 8.6(d) would 
apply to the class for an entire trading day (including both trading 
sessions), which is comprised of 7.5 hours.\28\ Pursuant to Rule 
8.6(d), a Market-Maker must enter continuous bids and offers in 60% of 
the cumulative number of seconds, or such higher percentage as the 
Exchange may announce in advance, for which that Market-Maker's 
appointed classes are open for trading, excluding any adjusted series, 
any intra-day add-on series on the day during which such series are 
added for trading, any Quarterly Option Series, and any series with an 
expiration of greater than 270 days. The Exchange calculates this 
requirement by taking the total number of seconds the Market-Maker 
disseminates quotes in each appointed class (excluding the series noted 
above), and dividing that time by the eligible total number of seconds 
each appointed class is open for trading that day.\29\ As proposed, the 
45 minutes that comprise Global Trading Hours during which the Exchange 
will list series of DJX options \30\ will be included in the 
denominator of this calculation. The Exchange expects to list 720 
series of DJX options, 300 of which with expirations of greater than 
270 days. Therefore, 420 series will be counted for purposes of 
determining a Market-Maker's continuous quoting obligation for the 
number of minutes the series are open during Global Trading Hours.
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    \28\ See proposed Rule 8.6(d). The appointment cost in Rule 8.3 
will apply to a class for all trading sessions. Therefore, to have 
an appointment during GTH, a Market-Maker will not have to select a 
separate appointment or obtain a new Trading Permit to be able to 
quote in a class during GTH. This is different from Cboe Options, 
which applies Market-Maker appointments separately to each trading 
session. See Cboe Options Rules 6.1A(e) and 8.7(d).
    \29\ The proposed rule change clarifies that the time the 
Exchange is open for trading on a trading day (including all trading 
sessions) will be considered when determining a Market-Maker's 
satisfaction of this obligation.
    \30\ This is the number of DJX series currently listed on Cboe 
Options.
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    For example, suppose a Market-Maker has appointments in ten 
classes. Assume there are 2,000 series

[[Page 20676]]

(excluding series with quarterly expirations and expirations of greater 
than 270 days) in each class, for a total of 20,000 series, and all 
series in each of those ten classes are open for trading from 9:30:30 
to 4:00:00. That would create an eligible total number of seconds for 
each series of 23,370 seconds (and thus, a total of 467,400,000 seconds 
for all appointed classes in the aggregate) each trading day. To 
satisfy its continuous quoting obligation, the Market-Maker would need 
to be quoting for 60% of that time in any combination of series across 
those classes (or a total of at least 280,440,000 seconds). Suppose 
when the Exchange begins listing DJX options on the Exchange for both 
GTH and RTH, the Market-Maker selects a DJX appointment, and the 
Exchange lists 420 series of DJX options that do not have quarterly 
expirations or expirations of greater than 270 days. Assume all series 
in DJX are open for trading from 8:30:30 to 9:15:00 and 9:30:30 to 
4:15:00. That would create an eligible total number of seconds of 
1,121,400 seconds during GTH and 10,193,400 seconds during RTH, for a 
total of 11,314,800 seconds, for DJX during the trading day). If DJX 
were only listed during RTH, the total eligible quoting time would be 
477,593,400 seconds across the eleven classes, and a Market-Maker would 
be required to quote 286,556,040 seconds in series across those 
classes. If DJX were listed in both RTH and GTH, the total eligible 
quoting time would be 478,714,000 seconds during a trading day across 
all eleven classes, and the Market-Maker would be required to quote 
287,228,880 seconds across series in the eleven classes. Therefore, 
extending the DJX continuous quoting obligation for a Market-Maker with 
appointments in a total of eleven classes, including DJX, would 
increase a Market-Maker's required quoting time by 672,840 seconds, or 
0.23%. The Market-Maker could determine to satisfy this increase during 
RTH or GTH in any of its appointed classes. For example, if a Market-
Maker selects a DJX appointment but does not want to participate during 
GTH, the Market-Maker could add this quoting time during RTH (e.g., 
given the total of 20,420 series across its 11 appointed classes, the 
Market-Maker could quote an additional 67.25 seconds (just over 1 
minute) in each of 10,000 of those series (fewer than half of its 
appointed series) on a trading day, it could satisfy its continuous 
quoting obligation without quoting in any DJX series during any portion 
of GTH.
    As the above example demonstrates, while the proposed rule change 
will increase the total time during which a Market-Maker with a DJX 
appointment must quote, this increase is de minimis given that a 
Market-Maker's compliance with its continuous quoting obligation is 
based on all classes in which it has an appointment in the aggregate. 
Selecting an appointment in DJX options will be optional and within the 
discretion of a Market-Maker. Additionally, the Exchange is providing 
Market-Makers with the opportunity to quote during GTH (and receive the 
benefits of acting as a Market-Maker with respect to transactions it 
effects during that time) without obtaining an additional Trading 
Permit or creating additional connections to the Exchange (as is 
required on Cboe Options). Given this ease of access to the GTH trading 
session, the Exchange believes Market-Makers may be encouraged to quote 
during that trading session. The Exchange believes Market-Makers will 
have an incentive to quote in DJX options during Global Trading Hours 
given the significance of the Dow Jones Industrial Average within the 
financial markets, the expected demand, and given that the stocks 
underlying the index are also trading during those hours (which may 
permit execution of certain hedging strategies). Extending a Market-
Maker's appointment to Global Trading Hours will enhance liquidity 
during that trading session, which benefits all investors during those 
hours. Therefore, the Exchange believes the proposed rule change 
provides customer trading interest with a net benefit, and continues to 
maintain a balance of Market-Maker benefits and obligations.
    The proposed rule change amends the definitions of market orders, 
stop (stop-loss) orders, and stop-limit orders to state that those 
order types and order instructions may not be applied to orders 
designated as All Sessions order (i.e., market orders, stop, and stop-
limit orders will not be eligible for trading during GTH).\31\ The 
Exchange expects reduced liquidity, higher volatility, and wider 
spreads during GTH. Therefore, the Exchange believes it is appropriate 
to not allow these orders to participate in GTH trading in order to 
protect customers should wide price fluctuations occur due to the 
potential illiquid and volatile nature of the market or other factors 
that could impact market activity.\32\
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    \31\ The proposed rule change also amends the introductory 
language to Rule 6.10(c) to provide that certain restrictions on the 
use of Order Instructions may be set forth in the Rules (such as the 
proposed restrictions on the use of market orders, stop orders, and 
stop-limit orders during GTH).
    \32\ Cboe Options Rule 6.1A(f) also prohibits these orders from 
participating in GTH trading. Cboe Options Rule 6.1A(f) also 
prohibits good-til-cancelled orders from participating during GTH. 
However, because the Exchange will use the same Book for all trading 
sessions, and thus any GTC orders that do not trade during GTH may 
become eligible for trading during RTH, the Exchange does not 
believe it is necessary to restrict use of this time-in-force.
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    Proposed Rule 6.1(c)(3) provides that no current index value 
underlying an index option trading during Global Trading Hours will be 
disseminated during or at the close of that trading session. The value 
of the underlying index will not be recalculated during or at the close 
of Global Trading Hours. The closing value of the index from the 
previous trading day will be available for Trading Permit Holders that 
trade during Global Trading Hours. However, the Exchange does not 
believe it would be useful or efficient to disseminate to Trading 
Permit Holders the same value repeatedly at frequent intervals, as it 
does during Regular Trading Hours (when that index value is being 
updated).\33\
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    \33\ Cboe Options Rules 24.2(b)(10), (d)(8), (e)(7), and (f)(11) 
(which are incorporated by reference into the Exchange's Rules 
pursuant to Chapter 24) provide that underlying index values will be 
disseminated at least once every 15 seconds. Proposed Rule 6.1(c)(3) 
supersedes those provisions with respect to Global Trading Hours. 
Cboe Options Rule 24.3 also states that dissemination of the current 
index value will occur after the close of Regular Trading Hours 
(and, thus, not after the close of Global Trading Hours, as no new 
index value will have been calculated during that trading session) 
and from time-to-time on days on which transactions are made on the 
Exchange.
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    Proposed Rule 3.19 requires Trading Permit Holders to make certain 
disclosures to customers regarding material trading risks that exist 
during Global Trading Hours. The Exchange expects overall lower levels 
of trading during Global Trading Hours compared to Regular Trading 
Hours. While trading processes during Global Trading Hours will be 
substantially similar to trading processes during Regular Trading Hours 
(as noted above), the Exchange believes it is important for investors, 
particularly public customers, to be aware of any differences and risks 
that may result from lower trading levels and thus requires these 
disclosures. Proposed Rule 3.19 provides that no Trading Permit Holder 
may accept an order from a customer for execution during Global Trading 
Hours without disclosing to that customer that trading during Global 
Trading Hours involves material trading risks, including the 
possibility of lower liquidity (including fewer Market-Makers quoting), 
higher volatility, changing prices, an exaggerated effect

[[Page 20677]]

from news announcements, wider spreads, the absence of an updated 
underlying index or portfolio value or intraday indicative value and 
lack of regular trading in the securities underlying the index or 
portfolio and any other relevant risk. The proposed rule provides an 
example of these disclosures. The Exchange believes that requirement 
Trading Permit Holders to disclose these risks to non-TPH customers 
will facilitate informed participation in Global Trading Hours.
    The Exchange also intends to distribute to Trading Permit Holders 
and make available on its website a Regulatory Circular regarding 
Global Trading Hours that discloses, among other things, that (1) the 
current underlying index value may not be updated during Global Trading 
Hours, (2) that lower liquidity during Global Trading Hours may impact 
pricing, (3) that higher volatility during Global Trading Hours may 
occur, (4) that wider spreads may occur during Global Trading Hours, 
(5) the circumstances that may trigger trading halts during Global 
Trading Hours, (6) required customer disclosures (as described above), 
and (7) suitability requirements. The Exchange believes that, with this 
disclosure, Global Trading Hours are appropriate and beneficial 
notwithstanding the absence of a disseminated updated index value 
during those hours.
    As set forth above, the differences in the Rules between the 
trading process during RTH and during GTH is that certain order types 
and instructions will not be available during GTH, no values for 
indexes underlying index options will be disseminated during GTH, and 
Trading Permit Holders that accept orders from customers during GTH 
will be required to make certain disclosures to those customers. As 
noted above, other rules will apply in the same manner, but the 
Exchange may make different determinations between RTH and GTH. The 
Exchange believes these differences are consistent with the differences 
between the characteristics of each trading session. The Exchange also 
notes the following:
     All Trading Permit Holders may, but will not be required 
to, participate during Global Trading Hours. As noted above, while a 
Market-Maker's appointment to an All Sessions class will apply to that 
class whether it quotes in series in that class or not during GTH, the 
Exchange believes any additional burden related to the application of a 
Market-Maker's quoting obligation to the additional 45 minutes will be 
de minimis. The Exchange believes even if a Market-Maker elects to not 
quote during GTH, its ability to satisfy its continuous quoting 
obligation will not be substantially obligated given the short length 
of GTH and the few series that will be listed for trading during GTH.
     The Exchange expects Trading Permit Holders that want 
trading during GTH to have minimal preparation. The Exchange will use 
the same connection lines, message formats, and feeds during RTH and 
GTH.\34\ Trading Permit Holders may use the same ports and EFIDs for 
each trading session.\35\
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    \34\ The same telecommunications lines used by Trading Permit 
Holders during Regular Trading Hours may be used during Global 
Trading Hours, and these lines will be connected to the same 
application serve at the Exchange during both trading sessions. This 
is different from Cboe Options, which connects its 
telecommunications lines to a separate application serve during each 
trading session.
    \35\ A Trading Permit Holder may elect to have separate ports or 
EFID for each trading session, but the Exchange will not require 
that. This is different from Cboe Options, which requires Trading 
Permit Holders to use separate log-ins and acronyms (the equivalent 
of ports and EFIDs) for each trading session.
---------------------------------------------------------------------------

     The same opening process (as amended below) will be used 
to open each trading session.
     Order processing will operate in the same manner during 
Global Trading Hours as it does during Regular Trading Hours. There 
will be no changes to the ranking, display, or allocation algorithms 
rules (as noted above, the Exchange will have authority to apply a 
different allocation algorithm to a class during Global Trading Hours 
than it applies to that class during Regular Trading Hours).
     There will be no changes to the processes for clearing, 
settlement, exercise, and expiration.\36\
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    \36\ The Exchange has held discussions with the Options Clearing 
Corporation, which is responsible for clearance and settlement of 
all listed options transactions and has informed the Exchange that 
it will be able to clear and settle all transactions that occur on 
the Exchange and handle exercises of options during Extended Trading 
Hours.
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     The Exchange will report the Exchange best bid and offer 
and executed trades to the Options Price Reporting Authority (``OPRA'') 
during Global Trading Hours in the same manner they are reported during 
Regular Trading Hours. Exchange proprietary data feeds will also be 
disseminated during Global Trading Hours using the same formats and 
delivery mechanisms with which the Exchange disseminates them during 
Regular Trading Hours. Use of these proprietary data wills during 
Global Trading Hours will be optional (as they are during Regular 
Trading Hours).\37\
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    \37\ Any fees related to receipt of the OPRA data feed during 
Global Trading Hours will be included on the OPRA fee schedule. Any 
fees related to receipt of the Exchange's proprietary data feeds 
during Global Trading Hours will be included on the Exchange's fee 
schedule (and will be included in a separate rule filing) or the 
Exchange's market data website, as applicable.
---------------------------------------------------------------------------

     The same Trading Permit Holders that are required to 
maintain connectivity to a backup trading facility during Regular 
Trading Hours will be required to do so during Global Trading 
Hours.\38\ Because the same connections and serves will be used for 
both trading sessions, a Trading Permit Holder will not be required to 
take any additional action to comply with this requirement, regardless 
of whether the Trading Permit Holder chooses to trade during Global 
Trading Hours.
---------------------------------------------------------------------------

    \38\ Currently, Trading Permit Holders with accounts for 5% or 
more of the executed volume, measured on a quarterly basis, the 
Exchange must connect to the Exchange's backup facilities and 
participate in testing. The same test will be used for all trading 
sessions. See C2 Options Regulatory Circular 18-011 (July 3, 2018); 
and Rule 6.34.
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     The Exchange will process all clearly erroneous trade 
breaks during Global Trading Hours in the same manner it does during 
Regular Trading Hours and will have Exchange officials available to do 
so (the same officials that do so during Regular Trading Hours).
     The Exchange will perform all necessary surveillance 
coverage during Global Trading Hours.
     The Exchange may halt trading during Global Trading Hours 
in the interests of a fair and orderly market in the same manner it may 
during Regular Trading Hours pursuant to Rule 6.32 (as proposed to be 
amended, as described below). The proposed rule change amends Rule 
6.32(a) to provide that when the hours of trading of the underlying 
primary securities market for an index option do not overlap or 
coincide with those of the Exchange, and during Global Trading Hours, 
Rule 6.32(a)(1) and (2) (as proposed) do not apply. As discussed above, 
Global Trading Hours will not coincide with the hours of trading of the 
underlying primary securities market. Generally, the Exchange considers 
halting trading only in response to unusual conditions or 
circumstances, as it wants to interrupt trading as infrequently as 
possible and only if necessary to maintain a fair and orderly market. 
During Regular Trading Hours, it would be unusual, for example, for 
stocks or options underlying an index to not be trading or the current 
calculation of the index to not be available. However, as discussed 
above, there will be no calculation of underlying indexes during Global 
Trading Hours, and Global Trading Hours do not coincide with the 
regular trading hours of the

[[Page 20678]]

underlying stock or options (there may be some overlap with trading of 
certain underlying stocks, as mentioned above \39\). Thus, the factors 
described in Rule 6.32(a) (as proposed to be amended) are not unusual 
for Global Trading Hours, and thus the Exchange does not believe it is 
necessary to consider these as reasons for halting trading during that 
trading session. Exclusion of Global Trading Hours from those 
provisions will allow trading during that trading session to occur 
despite the existence of those conditions (if the Exchange considered 
the existence of those conditions during Global Trading Hours, trading 
during Global Trading Hours could be halted every day). It is 
appropriate for the Exchange to consider any unusual conditions or 
circumstances detrimental to the maintenance of a fair and orderly 
market during Global Trading Hours, which may, for example, include 
whether the underlying primary securities market was halted at the 
close of the previous trading day (in which case the Exchange will 
evaluate whether the condition that led to the halt has been resolved 
or would not impact trading during Global Trading Hours) or significant 
events that occur during Global Trading Hours.
---------------------------------------------------------------------------

    \39\ See supra note 10.
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    Pursuant to Interpretation and Policy .01, the Exchange will halt 
trading in all options when a market-wide trading halt known as a 
circuit breaker is initiated in response to extraordinary market 
conditions. Pursuant to the proposed rule change, Interpretation and 
Policy .01 will not apply during Global Trading Hours. The Exchange 
believes that, even if stock trading was halted at the close of the 
previous trading day, the length of time between that time and the 
beginning of Global Trading Hours is significant (over 16 hours), and 
the condition that led to the halt is likely to have been resolved. The 
proposed rule change allows the Exchange to consider unusual conditions 
or circumstances when determining whether to halt trading during Global 
Trading Hours. To the extent a circuit breaker caused a stock market to 
be closed at the end of the prior trading day, the Exchange could 
consider, for example, whether it received notice from stock exchanges 
that trading was expected to resume (or not) the next trading day in 
determining whether to halt trading during Global Trading Hours. 
Because the stock markets would not begin trading until after Global 
Trading Hours opens, the Exchange believes it should be able to open 
Global Trading Hours rather than waiting to see whether stock markets 
open to allow investors to participate in Global Trading Hours if the 
Exchange believes such trading can occur in a fair and orderly manner 
based on then-existing circumstances, not circumstances that existed 
numerous hours earlier. Additionally, Cboe Options has the same rule 
provision.\40\
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    \40\ See Cboe Options Rule 24.7(d).
---------------------------------------------------------------------------

    Certain rules currently include general phrases related to a day or 
trading, such as market close. The proposed rule change makes technical 
changes to Rules 6.9(e),\41\ 6.10(d) (definition of ``Day''), and 
6.13(c) and (i) to incorporate the terminology included in this 
proposed rule change to specify the appropriate trading session(s) 
being referenced in those rules.
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    \41\ The proposed rule change makes an additional nonsubtantive 
change to Rule 6.9, as well as modifies the name of Rule 6.9 to 
account for the fact that Rule 6.9 applies to the cancellation, as 
well as the entry, of orders.
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    The Exchange will disseminate last sale and quotation information 
during Global Trading Hours through OPRA pursuant to the Plan for 
Reporting of Consolidated Options Last Sale Reports and Quotation 
Information (the ``OPRA Plan''), as it does during Regular Trading 
Hours.\42\ The Exchange will also disseminate an opening quote and 
trade price through OPRA for Global Trading Hours (as it does for 
Regular Trading Hours). Therefore, all Trading Permit Holders that 
trade during Global Trading Hours will have access to quote and last 
sale information during that trading session.
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    \42\ The OPRA Plan provides for the collection and dissemination 
of last sale and quotation information on options that are trading 
on the participant exchanges. The OPRA Plan is a national market 
system plan approved by the Commission pursuant to Section 11A of 
the Act and Rule 608 thereunder. See Securities Exchange Act Release 
No. 17638 (March 18, 1981). The full text of the OPRA Plan is 
available at http://www.opradata.com. All operating U.S. options 
exchanges participate in the OPRA Plan. The operator of OPRA 
informed the Exchange that it intends to add a modifier to the 
information disseminated during Global Trading Hours (as it does for 
Cboe Options).
---------------------------------------------------------------------------

    The Exchange understands that systems and other issues may arise 
and is committed to resolving those issues as quickly as possible, 
including during Global Trading Hours. Thus, the Exchange will have 
appropriate staff on-site and otherwise available as necessary during 
Global Trading Hours to handle any technical and support issues that 
may arise during those hours. Additionally, the Exchange will have 
personnel available to address any trading issues that may arise during 
Global Trading Hours.\43\ The Exchange is also committee to fulfilling 
its obligations as a self-regulatory organization at all times, 
including during Global Trading Hours, and will have appropriately 
trained, qualified regulatory staff in place during Global Trading 
Hours to the extent it deems necessary to satisfy those obligations. 
The Exchange's surveillance procedures will be revised as necessary to 
incorporate transactions that occur and orders and quotations that are 
submitted during Global Trading Hours. The Exchange believes its 
surveillance procedures are adequate to properly monitor trading of DJX 
options during Global Trading Hours.
---------------------------------------------------------------------------

    \43\ The Exchange notes that, to conduct trading during global 
Trading Hours, persons that are not Trading Permit Holders, such as 
employees of affiliates of Trading Permit Holders located outside of 
the United States, may be transmitting orders and quotes during 
Global Trading Hours (such non-Trading Permit Holders would not have 
direct access to the Exchange, and thus those orders and quotes 
would be submitted to the Exchange through Trading Permit Holders' 
systems subject to applicable laws, rule, and regulations). Trading 
Permit Holders may authorize (in a form and manner determined by the 
Exchange) individuals at these non-Trading Permit Holder entities to 
contact the Exchange during Global Trading Hours to address any 
issues.
---------------------------------------------------------------------------

Opening Process
    Rule 6.11 sets forth the opening process the Exchange uses to open 
series on the Exchange at the market open each trading day (and after 
trading halts). Pursuant to the current opening process, the System 
determines and opening price for a series based on the NBBO \44\ and 
crosses any interest on the book that is marketable at that price. The 
proposed rule change adopts an opening auction process, substantially 
similar to the Cboe Options opening auction process.\45\ The Exchange 
believes an opening auction process will enhance the openings of series 
on the Exchange by providing an opportunity for price discovery based 
on then-current market conditions. Pursuant to the proposed opening 
auction process, the Exchange will have a Queuing Period, during which 
the System will accept orders and quotes and disseminates expected 
opening information; will initiate an opening rotation upon the 
occurrence of certain triggers; will conduct an opening rotation during 
which the System matches and executes orders and quotes against each 
other in order to establish an opening Exchange best bid and offer and 
trade price, if any, for each series,

[[Page 20679]]

subject to certain price protections; and will open series for 
trading.\46\
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    \44\ The opening price (if not outside the NBBO and no more than 
a specified minimum amount away from the NBBO) is either the 
midpoint of the NBBO, the last disseminated transaction price after 
9:30 a.m., or the last transaction price from the previous trading 
day. See current Rule 6.11(a)(2) and (3).
    \45\ See Cboe Options Rule 6.2.
    \46\ The order of events that comprise this proposed opening 
auction process corresponds to the opening auction process on Cboe 
Options. See Cboe Options Rule 6.2.
---------------------------------------------------------------------------

    Proposed Rule 6.11(a) sets forth the definitions of the following 
terms for purposes of the opening auction process in proposed Rule 
6.11: \47\
---------------------------------------------------------------------------

    \47\ A term defined elsewhere in the Rules has the same meaning 
with respect to Rule 6.11, unless otherwise defined in Rule 6.11.
---------------------------------------------------------------------------

     Composite Market: The term ``Composite Market'' means the 
market for a series comprised of (1) the higher of the then-current 
best appointed Market-Maker bulk message bid on the Queuing Book and 
the away best bid (``ABB'') (if there is an ABB) and (2) the lower of 
the then-current best appointed Market-Maker bulk message offer on the 
Queuing Book and the away best offer (``ABO'') (if there is an ABO). 
The term ``Composite Bid (Offer)'' means the bid (offer) used to 
determine the Composite Market.\48\
---------------------------------------------------------------------------

    \48\ Cboe Options similarly considers the Exchange's best quote 
bid and best quote offer when determining whether the Exchange's 
market is too wide. On Cboe Options, the term ``quote'' corresponds 
to the term ``bulk message'' on the Exchange. Cboe Options also 
considers quotes from any away markets, if it has activated Hybrid 
Agency Liaison (``HAL'') at the open. While the Exchange does not 
have a step-up mechanism that corresponds to HAL, the Exchange 
believes considering any quotes from away markets in addition to 
quotes on its own market when determining whether to open a series 
will enhance the opening auction price by considering all available 
pricing information.
---------------------------------------------------------------------------

     Composite Width: The term ``Composite Width'' means the 
width of the Composite Market (i.e., the width between the Composite 
Bid and the Composite Offer) of a series.
     Maximum Composite Width: The term ``Maximum Composite 
Width'' means the amount that the Composite Width of a series may 
generally not be greater than for the series to open (subject to 
certain exceptions, as described below). The Exchange determines this 
amount on a class and Composite Bid basis, which amount the Exchange 
may modify during the opening auction process (which modifications the 
Exchange disseminates to all subscribers to the Exchange's data feeds 
that deliver opening auction updates).\49\
---------------------------------------------------------------------------

    \49\ The Maximum Composite Width corresponds to the opening 
exchange prescribed width range (``OEPW'') on Cboe Options. See Cboe 
Options Rule 6.2(d)(i)(A). The Exchange will determine the Maximum 
Composite Width in a slightly different manner than Cboe Options 
determines the OEPW; however, both are based on appointed Market-
Maker quotes and are intended to create a reasonable range to ensure 
the market does not open at extreme prices. Additionally, as 
proposed, the Maximum Composite Width will factor in away prices in 
addition to quotes on the Exchange (unlike Cboe Options which 
considers only quotes on the Exchange).
---------------------------------------------------------------------------

     Opening Auction Updates: The term ``opening auction 
updates'' means Exchange-disseminated messages that contain information 
regarding the expected opening of a series based on orders and quotes 
in the Queuing Book for the applicable trading session and, if 
applicable, the GTH Book,\50\ including the expected opening price, the 
then-current cumulative size on each side at or more aggressive than 
the expected opening price, and whether the series would open (and any 
reason why a series would not open).
---------------------------------------------------------------------------

    \50\ In other words, for the RTH opening auction in an All 
Sessions class, the expected opening information to be disseminated 
in opening auction updates prior to the conclusion of the GTH 
trading session will be based on orders and quotes in the RTH 
Queuing Book (i.e., RTH Only orders) and in the GTH Book (i.e., All 
Sessions orders).
---------------------------------------------------------------------------

     Opening Collar: The term ``Opening Collar'' means the 
price range that establishes limits at or inside of which the System 
determines the Opening Trade Price for a series. The Exchange 
determines the width of this price range on a class and Composite Bid 
basis, which range the Exchange may modify during the opening auction 
process (which modifications the Exchange disseminates to all 
subscribers to the Exchange's data feeds that deliver opening auction 
updates.\51\
---------------------------------------------------------------------------

    \51\ Cboe Options uses the OEPW as the range within which the 
opening price must be. See Cboe Options Rule 6.2(d)(i)(C). The 
Exchange will determine the Opening Collar in a slightly different 
manner than Cboe Options determines the OEPW; however, both are 
based on appointed Market-Maker quotes and are intended to create a 
reasonable range to ensure the market does not open at extreme 
prices. Additionally, as proposed, the Opening Collar will factor in 
away prices in addition to quotes on the Exchange (unlike Cboe 
Options which considers only quotes on the Exchange).
---------------------------------------------------------------------------

     Opening Trade Price: The term ``Opening Trade Price'' 
means the price at which the System executes opening trades in a series 
during the opening rotation.\52\
---------------------------------------------------------------------------

    \52\ See current Rule 6.11(a)(2).
---------------------------------------------------------------------------

     Queuing Book: The term ``Queuing Book'' means the book 
into which Users may submit orders and quotes (and onto which GTC and 
GTD orders remaining on the Book from the previous trading session or 
trading day, as applicable, are entered) during the Queuing Period for 
participation in the application opening rotation.\53\ Orders and 
quotes on the Queuing Book may not execute until the opening rotation. 
The Queuing Book for the GTH opening auction process may be referred to 
as the ``GTH Queuing Book,'' and the Queuing Book for the RTH opening 
auction process may be referred to as the ``RTH Queuing Book.''
---------------------------------------------------------------------------

    \53\ In other words, at 7:30 a.m., All Sessions orders will rest 
on the GTH Queuing Book and be eligible to participate in the GTH 
opening auction process, and RTH Only orders will rest on the RTH 
Queuing Book and be eligible to participate in the RTH opening 
auction process.
---------------------------------------------------------------------------

     Queuing Period: The term ``Queueing Period'' means the 
time period prior to the initiation of an opening rotation during which 
the System accepts orders and quotes for participation in the opening 
rotation for the applicable trading session.\54\
---------------------------------------------------------------------------

    \54\ See current Rule 6.11(a)(1) (the current rule does not use 
the term ``Queuing Period''; however, it does provide for a time 
prior to the opening of a series during which the System accepts 
orders and quotes).
---------------------------------------------------------------------------

    Proposed paragraph (b) describes the Queuing Period. The Queuing 
Period begins at 7:30 a.m. for all class.\55\ This is the same time at 
which the System begins accepting orders and quotes today. Therefore, 
Users will have the same amount of time to submit orders and quotes 
prior to the RTH opening. Additionally, Users will have one hour to 
submit orders and quotes in GTH classes prior to the GTH opening. The 
Exchange believes this is sufficient given that the Exchange will list 
fewer classes (one class, as proposed) during GTH.\56\
---------------------------------------------------------------------------

    \55\ See proposed Rule 6.11(b)(1).
    \56\ Pursuant to Cboe Options Rule 6.2(a), the pre-opening 
period (equivalent to the proposed Queuing Period) begins no earlier 
than 2:00 a.m. Central time for regular trading hours and no later 
than 4:00 p.m. on the previous day for global trading hours (as 
global trading hours on Cboe Options begins at 2:00 a.m. Central 
time). The Exchange does not propose to have flexibility as Cboe 
Options has, and believes the proposed time period for the Queuing 
Period is sufficient.
---------------------------------------------------------------------------

    Proposed subparagraph (b)(2) clarifies that orders and quotes on 
the Queuing Book are not eligible for execution until the opening 
rotation pursuant to proposed paragraph (e), as described below.\57\ 
This is consistent with current order entry period, pursuant to which 
orders and quotes entered for inclusion in the opening process do not 
execute until the opening trade pursuant to current subparagraph 
(a)(3). The System accepts all orders and quotes that are available for 
a class and trading session pursuant to Rule 6.10(a) during the Queuing 
Period, which are eligible for execution during the opening rotation, 
except as follows:
---------------------------------------------------------------------------

    \57\ The proposed rule change moves the provision that states 
that GTC and GTD orders remaining on the Book from the previous 
trading day may participate in the opening process from current 
paragraph (b) to the definition of Queuing Book in proposed 
paragraph (a).
---------------------------------------------------------------------------

     The System rejects IOC and FOK orders during the Queuing 
Period; \58\
---------------------------------------------------------------------------

    \58\ See current subparagraph (a)(1) and proposed subparagraph 
(a)(2)(A); see also Cboe Options Rule 6.2(a)(i).
---------------------------------------------------------------------------

     the System accepts orders and quotes with MTP Modifiers 
during the

[[Page 20680]]

Queuing Period, but does not enforce them during the opening rotation; 
\59\
---------------------------------------------------------------------------

    \59\ See current subparagraph (a)(1) and proposed subparagraph 
(a)(2)(B). Cboe Options has Market-Maker trade prevention orders, 
which it does not accept prior to the opening. See Cboe Options Rule 
6.2(a)(i).
---------------------------------------------------------------------------

     the System accepts stop and stop-limit orders \60\ during 
the Queuing Period, but they do not participate during the opening 
rotation. The System enters any of these orders it receives during the 
Queuing Period into the Book following completion of the opening 
rotation (in time priority); \61\
---------------------------------------------------------------------------

    \60\ Pursuant to Rule 6.10(b), stop and stop-limit orders are 
triggered based on the consolidated last sale price. Not 
participating in the opening process is consistent with this 
requirement, as the Exchange needs to be open (and thus have an 
opening trade occur) in order for there to be a consolidated last 
sale price that can trigger these orders.
    \61\ This is consistent with current functionality, and the 
proposed rule change is adding this detail to the Rules. See also 
Cboe Options Rule 6.2(c)(i)(B) (which states that order with a stop 
contingency do not participate in the opening rotation).
---------------------------------------------------------------------------

     the System converts all ISOs received prior to the 
completion of the opening rotation into non-ISOs; \62\ and
---------------------------------------------------------------------------

    \62\ See current subparagraph (a)(1) and proposed subparagraph 
(a)(2)(D); see also Cboe Options Rule 6.2(a)(i) (which does not 
permit ISOs to be entered during the Cboe Options pre-opening 
period).
---------------------------------------------------------------------------

     complex orders do not participate in the opening auction 
described in Rule 6.11 and instead may participate in the COB Opening 
Process pursuant to Rule 6.13(c).\63\
---------------------------------------------------------------------------

    \63\ See current subparagraph (a)(1) and proposed subparagraph 
(a)(2)(E); see also Cboe Options Rule 6.2(c)(i)(B).
---------------------------------------------------------------------------

    Proposed paragraph (c) describes the opening auction updates the 
Exchange will disseminate as part of the opening auction process. As 
noted above, opening auction updates contain information regarding the 
expected opening of a series. These messages provide market 
participants with information that may contribute to enhanced liquidity 
and price discovery during the opening auction process. Beginning at a 
time (determined by the Exchange) no earlier than one hour prior to the 
expected initiation of the opening rotation for a trading session and 
until the conclusion of the opening rotation for a series, the Exchange 
disseminates opening auction updates for the series.\64\ The Exchange 
disseminates opening auction updates at regular intervals of time (the 
length of which the Exchange determines for each trading session), or 
less frequently if there are no updates to the opening information 
since the previously disseminated update, to all subscribers to the 
Exchange's data feeds that deliver these messages until a series 
opens.\65\ If there have been no changes since the previous update, the 
Exchange does not believe it is necessary to disseminate duplicate 
updates to market participants at the next interval of time.
---------------------------------------------------------------------------

    \64\ The Exchange only begins disseminating updates for series 
with locked or crossed interest or if the series needs Market-Maker 
bulk messages. There can only be an expected opening price to 
disseminate if these conditions have been met, and thus no updates 
will be disseminated if these conditions do not exist. See also Cboe 
Options Rule 6.2(a)(ii) (which provides that Cboe Options may begin 
disseminated expected opening information (``EOIs'') messages (which 
correspond to opening auction updates)). Cboe Options currently 
begins disseminating EOIs at 7:30 a.m. or 8:00 a.m. Central time 
(depending on the class), which is consistent with the proposed rule 
change to begin dissemination of opening auction messages no earlier 
than one hour prior to the expected initiation of the opening 
rotation for a series. The Exchange believes market participants 
generally want to receive this information closer to the opening of 
trading.
    \65\ See also Cboe Options Rule 6.2(a)(ii) (Cboe Options will 
similarly disseminate EOIs at regular intervals or less frequently 
if there are no updates, and will not disseminate EOIs in certain 
circumstances, including if there is no locked or crossed interest 
(because there would be no expected opening price or size)).
---------------------------------------------------------------------------

    Proposed paragraph (d) describes the events that will trigger the 
opening rotation for a class. Pursuant to current subparagraph (a)(1), 
the System will open series in random order, staggered over regular 
intervals of time after a time period following the first transaction 
in the securities underlying the options on the primary market that is 
disseminated after 9:30 a.m. (with respect to equity options) or 
following 9:30 a.m. (with respect to index options). As proposed for 
Regular Trading Hours, after a time period (which the Exchange 
determines for all classes) following the System's observation after 
9:30 a.m. of the first disseminated (1) transaction price for the 
security underlying an equity option or (2) index value for the index 
underlying an index option, the System will initiate the opening 
rotation for the series in that class, and the Exchange disseminates 
message to market participants indicating the initiation of the opening 
rotation.\66\ For Global Trading Hours, the System will initiate the 
opening rotation at 8:30 a.m.\67\
---------------------------------------------------------------------------

    \66\ See current subparagraph (a)(1), pursuant to which the 
opening will be triggered upon the occurrence of similar events 
after a time period determined by the Exchange.
    \67\ See also Cboe Options Rule 6.2(b). Unlike Cboe Options, the 
opening rotation will be triggered in all equity classes by 
observation of the first transaction in the underlying security 
(rather than some classes being triggered by a timer), and the 
opening rotation will be triggered in all index classes by 
observation of the first index value (rather than some classes being 
triggered by a timer). The Exchange does not believe it needs this 
flexibility.
---------------------------------------------------------------------------

    Proposed paragraph (e) describes the opening rotation process, 
during which the System will determine whether the Composite Market for 
a series is not wider than a maximum width, will determine the opening 
price, and open series.\68\ The Maximum Composite Width Check and 
Opening Collar are intended to ensure that series open in a fair and 
orderly manner and at prices consistent with the current market 
conditions for the series and not at extreme prices, while taking into 
consideration prices disseminated from other options exchanges that may 
be better than the Exchange's at the open.
---------------------------------------------------------------------------

    \68\ See also Cboe Options Rule 6.2(d) (pursuant to which Cboe 
Options will generally not open a series if the width is wider than 
an acceptable price range or if the opening trade price is outside 
of an acceptable price range). The Exchange will similarly have a 
maximum quote width and acceptable opening price range, however, 
they may be calculated differently. Cboe Options has additional 
opening conditions that the Exchange does not propose to adopt.
---------------------------------------------------------------------------

    Proposed subparagraph (e)(1) describes the Maximum Composite Width 
Check.
     If the Composite Width of a series is less than or equal 
to the Maximum Composite Width, the series is eligible to open (and the 
System determines the Opening Price as described below).
     If the Composite Width of a series is greater than the 
Maximum Composite Width, but there are no non-M Capacity \69\ market 
orders or buy (sell) limit orders with prices higher (lower) than the 
Composite Bid (Offer) and there are no locked or crossed orders or 
quotes, the series is eligible to open (and the System determines the 
Opening Price as described below).
---------------------------------------------------------------------------

    \69\ Capacity M is used for orders for the account of a Market-
Maker (with an appointment in the class). See Rule 1.1 (definition 
of Capacity).
---------------------------------------------------------------------------

     If neither of the conditions above are satisfied for a 
series, the series is ineligible to open. The Queuing Period for the 
series continues (including the dissemination of opening auction 
updates) until one of the above conditions for the series is 
satisfied.\70\
---------------------------------------------------------------------------

    \70\ See Cboe Options Rule 6.2(c)(iii) (pursuant to which the 
opening rotation period on Cboe Options continues, including 
dissemination of EOIs, until the opening conditions are satisfied). 
The Exchange may also open a series pursuant to current paragraph 
(c) (proposed paragraph (h)), which permits the Exchange to deviate 
from the standard manner of the opening auction process, including 
adjusting the timing of the opening rotation in any class, modifying 
any time periods described in Rule 6.11, and delaying or compelling 
the opening of a series if the opening width is wider than Maximum 
Width, when it believes it is necessary in the interests of a fair 
and orderly market. The proposed rule change specifies additional 
ways in which the Exchange may deviate from the standard of opening 
(which it has the authority to do under the current rule). See also 
Cboe Options Rule 6.2(e) (pursuant to which Cboe Options may deviate 
from the standard manner of the opening auction process for the same 
reasons). The Exchange will continue to make and maintain records to 
document all determinations to deviate from the standard manner of 
the opening auction process, and periodically reviews these 
determinations for consistency with the interests of a fair and 
orderly market.

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

[[Page 20681]]

    The Exchange will use the Maximum Composite Width Check as a price 
protection measure to prevent orders from executing at extreme prices 
at the open. If the width of the Composite Market (which represents the 
best market, as it is comprised of the better of Market-Maker bulk 
messages on the Exchange or any away market quotes) is no greater than 
the Maximum Composite Width, the Exchange believes it is appropriate to 
open a series under these circumstances and provide marketable orders 
with an opportunity to execute at a reasonable opening price (as 
discussed below), because there is minimal risk of execution at an 
extreme price. However, if the Composite Width is greater than the 
Maximum Composite Width but there are no non-M Capacity orders \71\ 
that lock or cross the opposite-side widest point of the Composite 
Market (and thus not marketable at a price at which the Exchange would 
open, as described below), there is similarly no risk of an order 
executing at an extreme price on the open. Because the risk that the 
Maximum Composite Width Check is intended to address is not present in 
this situation, the Exchange believes it is appropriate to open a 
series in either of these conditions. However, if neither of these 
conditions is satisfied, the Exchange believes there may be risk that 
orders would execute at an extreme price if the series open, and 
therefore the Exchange will not open a series.
---------------------------------------------------------------------------

    \71\ Market-Maker bulk messages are considered when determining 
the Composite Market. The Exchange believes it is appropriate to 
consider Market-Maker bulk messages when determining an opening 
quote to ensure there will be liquidity in a series when it opens. 
Additionally, while it is possible for Market-Makers to submit M 
orders, the Exchange believes there is less risk of a Market-Maker 
inputting an order at an extreme price given that Market-Makers are 
generally responsible for pricing the market.
---------------------------------------------------------------------------

    Proposed subparagraph (e)(2) describes how the System determines 
the Opening Trade Price for a series after it satisfies the Maximum 
Composite Width Check described above.
     The Opening Trade Price is the price that is not outside 
the Opening Collar and:
    [cir] The price at which the largest number of contracts can 
execute (i.e., the volume-maximizing price);
    [cir] if there are multiple volume-maximizing prices, the price at 
which the fewest number of contracts remain unexecuted (i.e., the 
imbalance-minimizing price); or
    [cir] if there are multiple volume-maximizing, imbalance-minimizing 
prices, (1) the highest (lowest) price, if there is a buy (sell) 
imbalance, or (2) the price at or nearest to the midpoint of the 
Opening Collar, if there is no imbalance.
     There is no Opening Trade Price if there are no locked or 
crossed orders or quotes at a price not outside the Opening Collar.\72\
---------------------------------------------------------------------------

    \72\ See current Rule 6.11(a)(2)(A).
---------------------------------------------------------------------------

    The Exchange believes the proposed volume-maximizing, imbalance-
minimizing procedure is reasonable, as it will provide for the largest 
number of contracts in the Queuing Book that can execute, leaving as 
few as possible bids and offers in the Book that cannot execute.\73\ 
The Exchange will use the Opening Collar as a price protection measure 
to prevent orders from executing at extreme prices at the open. If the 
Opening Trade Price is not outside the Opening Collar (which will be 
based on the best then-current market), the Exchange believes it is 
appropriate to open a series at that price, because there is minimal 
risk of execution at an extreme price. However, if the Opening Trade 
Price would be outside of the Opening Collar, the Exchange believes 
there may be risk that orders would execute at an extreme price if the 
series open, and therefore the Exchange will not open a series.
---------------------------------------------------------------------------

    \73\ See also Cboe Options Rule 6.2(c)(i)(A) (pursuant to which 
Cboe Options will open at the market-clearing price, and if there 
are multiple prices at which the same number of contracts would 
clear, Cboe Options will use similar tie-breakers).
---------------------------------------------------------------------------

    The following examples show the application of the Maximum 
Composite Width Check:
Example #1
    Suppose the Maximum Composite Width for a class is 0.50, and the 
Composite Market is 1.00 x 2.00, comprised of an appointed Market-Maker 
bulk message bid of 2.00 and an appointed Market-Maker bulk message 
offer of 1.00. There is no other interest in the Queuing Book. The 
series is not eligible to open, because the width of the Composite 
Market is greater than the Maximum Composite Width but there are locked 
orders or quotes in the series. The Queuing Period for the series will 
continue until the series satisfies the Maximum Composite Width Check.
Example #2
    Suppose the Maximum Composite Width for a class is 0.50, and the 
Composite Market is 1.00 x 2.00, comprised of an appointed Market-Maker 
bulk message bid of 1.00 and an appointed Market-Maker bulk message 
offer of 2.00. There is no other interest in the Queuing Book. The 
series is eligible to open, because the width of the Composite Market 
is greater than the Maximum Composite Width and there are no locked 
orders or quotes in the series or non-M Capacity orders. The System 
will then determine the Opening Trade Price.
Example #3
    Suppose the Maximum Composite Width for a class is 0.50, and the 
Composite Market is 1.00 x 2.00, comprised of an appointed Market-Maker 
bulk message bid of 1.00 and an appointed Market-Maker bulk message 
offer of 2.00. There is a non-M Capacity limit order to buy for $1.99 
in Queuing Book. The series is not eligible to open, because the width 
of the Composite Market is greater than the Maximum Composite Width, 
and there is a non-M Capacity order at a price inside of the Composite 
Market. The Queuing Period for the series will continue until the 
series satisfies the Maximum Composite Width Check.
    Pursuant to proposed subparagraph (e)(3), if the System establishes 
an Opening Trade Price, the System will execute orders and quotes in 
the Queuing Book at the Opening Trade Price. The System will prioritize 
orders and quotes in the following order: Market orders, limit orders 
and quotes with prices better than the Opening Trade Price, and orders 
and quotes at the Opening Trade Price.\74\ The System allocates orders 
and quotes at the same price pursuant to the allocation algorithm that 
applies to a class intraday (in accordance with Rule 6.12), unless the 
Exchange determines to apply a different allocation algorithm from Rule 
6.12 to a class during the opening rotation.\75\ If there is no Opening 
Trade Price, the System opens a series without a trade.
---------------------------------------------------------------------------

    \74\ See current Rule 6.11(a)(3) (which states the System will 
prioritize orders and quotes that are price equal to or more 
aggressively than the Opening Price); see also Cboe Options Rule 
6.2(c)(i)(C). The Exchange believes it is appropriate to prioritize 
orders with the most aggressive prices, as it provides market 
participants with incentive to submit their best-priced orders.
    \75\ See Cboe Options Rule 6.2, Interpretation and Policy .04. 
While the allocation algorithm used during the opening rotation for 
a class will default to and generally be the same as the one used 
for that class intraday, the Exchange believes the flexibility is 
appropriate so that it can facilitate a robust opening with 
sufficient liquidity in all classes. Cboe Options may apply a 
different allocation algorithm for series that open at a minimum 
price increment due to a sell market order imbalance. The Exchange 
does not believe it needs this flexibility.
---------------------------------------------------------------------------

    Pursuant to proposed subparagraph (f), as is the case today, 
following the conclusion of the opening rotation, the System enters any 
unexecuted orders and quotes (or remaining portions) from the Queuing 
Book into the Book in time sequence (subject to a User's

[[Page 20682]]

instructions--for example, a User may cancel an order), where they may 
be processed in accordance with Rule 6.12. Consistent with the OPG 
contingency (and current functionality), the System cancels any 
unexecuted OPG orders (or remaining portions) following the conclusion 
of the opening rotation.
    The proposed rule change makes nonsubstantive changes to current 
paragraphs (b) and (d) (proposed paragraphs (g) and (i), respectively) 
to reflect the proposed defined terms and to make the provision more 
plain English.
    Currently, if an order enters the Book following the Opening 
Process (which would include any GTC or GTD orders that reenter the 
Book from the prior trading day) and becomes subject to the drill-
through protection pursuant to Rule 6.14(a)(4), the NBO (NBB) that 
existed at the time it enters (or reenters) the Book would be used when 
determining the drill-through price. Proposed Rule 6.14(a)(4)(A) 
provides that if an order that enters the Book following the Opening 
Auction Process and becomes subject to the drill-through protection, 
the bid (offer) limit of the Opening Collar plus (minus) the buffer 
amount will be the drill-through price.\76\ As discussed above, the 
Opening Collar is a price protection, and the Exchange would execute 
orders at the open at prices at or within the Opening Collar (as it 
would execute orders at or within the NBBO). Therefore, the Exchange 
believes the Opening Collar limit price points are reasonable to use 
when determining the drill-through price for orders that are unable to 
execute during the opening rotation.
---------------------------------------------------------------------------

    \76\ The proposed rule change makes corresponding changes to 
proposed Rule 6.14(a)(4)(B).
---------------------------------------------------------------------------

Trading Hours and Halts for Index Options
    Currently, the Exchange lists for trading options on the Russell 
2000 Index (``RUT options''), and as noted above, the Exchange intends 
to list DJX options in connection with the launch of the GTH trading 
session. Pursuant to current Rule 6.1(a), the Exchange has determined 
that Regular Trading Hours for these index options are (or will be, 
with respect to DJX options) from 9:30 a.m. to 4:15 p.m. Proposed Rule 
6.1(b)(2) provides that Regular Trading Hours for index options will be 
from 9:30 a.m. to 4:15 p.m., except for index options the Exchange 
designates to remain open for trading until 4:00 p.m. This is 
consistent with the current rule, pursuant to which trading for index 
options will end at 4:00 p.m. or 4:15 p.m. However, as proposed, 
Regular Trading Hours for an index option will default to a closing 
time of 9:30 a.m. to 4:15 p.m. (rather than until 4:00 p.m.), as the 
Exchange expects most index options to have a closing time of 4:15 
p.m., and the Exchange will have authority to determine to have trading 
for an index option stop at 4:00 p.m.
    Pursuant to Chapter 24, the Exchange may list for trading options 
on indexes that satisfy the criteria in Cboe Options Rule 24.2.\77\ 
However, pursuant to Chapter 24, Cboe Options Rule 24.6, which sets 
forth the trading days and hours for index options that may be listed 
pursuant to Cboe Options Rule 24.2, does not apply to the Exchange. 
Because the Exchange may determine to list other index options pursuant 
to Cboe Options Rule 24.2, the Exchange proposes to add the trading 
hours for all index options the Exchange may determine to list for 
trading on its Exchange in the future, even though it currently only 
lists one index option, and plans to list another index option in the 
near future, for trading during the hours set forth in current Rule 
6.1(a).\78\ The proposed trading hours for index options in proposed 
Rule 6.1(b)(2) correspond to the same trading hours for those index 
options in Cboe Options Rule 24.6.
---------------------------------------------------------------------------

    \77\ Pursuant to Chapter 24, the Exchange incorporates by 
reference Cboe Options Rule 24.2.
    \78\ The Exchange has no current plans to list additional index 
options for trading.
---------------------------------------------------------------------------

    Proposed Rule 6.1(b)(2)(A) states the last trading day for A.M.-
settled index options is the business day prior to the expiration date 
of the specific series. This will ensure trading in these options do 
not continue for an entire trading day after the settlement value has 
been determined. This is consistent with current trading hours for 
A.M.-settled index options on the Exchange (currently, the Exchange 
lists A.M.-settled options on the Russell 2000 Index (``RUT'') for 
trading and intends to list A.M.-settled DJX options for trading), and 
is consistent with the last trading day for expiring A.M.-settled index 
options on Cboe Options.\79\
---------------------------------------------------------------------------

    \79\ See Cboe Options Rule 24.9(a)(4).
---------------------------------------------------------------------------

    Proposed Rule 6.1(b)(2)(B) states on their last trading day, 
Regular Trading Hours for the following options are from 9:30 a.m. to 
4:00 p.m.:

 Cboe S&P 500 AM/PM Basis options
 Index Options with Nonstandard Expirations (i.e., Weeklys and 
EOMs) and Quarterly Expirations (i.e., QIXs)
 SPX options (p.m.-settled)
 XSP options (p.m.-settled)

    Generally, these options are priced in the market based on 
corresponding futures values. On the last day of trading, the closing 
prices of the component stocks (which are used to derive the exercise 
settlement value) are known at 4:00 p.m. (or soon after) when the 
equity markets close. Despite the fact that the exercise settlement 
value is fixed at or soon after 4:00 p.m., if the Exchange did not 
close trading in these expiring options on their last trading day, 
trading in these options would continue for an additional fifteen 
minutes until 4:15 p.m. and would not be priced on corresponding 
futures values, but rather the known cash value. At the same time, the 
prices of non-expiring series continue to move and be priced in 
response to changes in corresponding futures prices.
    Because of the potential pricing divergence that could occur 
between 4:00 and 4:15 p.m. on the final trading day of these expiring 
options (e.g., switch from pricing off of futures to cash), the 
Exchange believes that, in order to mitigate potential investor 
confusion, it is appropriate to cease trading in these expiring options 
at 4:00 p.m. on the last day of trading. The proposed change to the 
close of trading hours will apply to all outstanding expiring 
expirations for the above classes or series types listed on or before 
the effective date of this proposal.
    Additionally, these are the same Regular Trading Hours for these 
options on their last trading day on Cboe Options.\80\
---------------------------------------------------------------------------

    \80\ See Cboe Options Rules 24.6, Interpretations and Policies 
.01 (QIXs), .03 (Cboe S&P 500 AM/PM Basis options), and .04 (P.M.-
settled SPX and XSP options), and 24.9(e)(4) (Nonstandard 
Expirations).
---------------------------------------------------------------------------

    Proposed Rule 6.1(b)(2)(C) states on their last trading day, 
Regular Trading Hours for expiring FTSE Developed Europe Index options 
are from 9:30 a.m. to the closing time of the London Stock Exchange, 
which is usually 11:30 a.m. The Exchange is proposing that expiring 
FTSE Developed Europe Index options trade only during a portion of the 
day on their expiration date to align the trading hours of expiring 
FTSE Developed Europe Index options with expiring FTSE Developed Europe 
Index futures. FTSE Developed Europe Index futures trade on CME and 
stop trading at 10:30 a.m. (Chicago time) on the third Friday of the 
futures contract month.\81\ Additionally, these are the same Regular 
Trading Hours for these options on their last trading day on Cboe 
Options.\82\
---------------------------------------------------------------------------

    \81\ See CME Rule 39002.G, available at: http://www.cmegroup.com/rulebook/CME/IV/350/390.pdf.
    \82\ See Cboe Options Rule 24.6, Interpretation and Policy .05.
---------------------------------------------------------------------------

    Proposed Rule 6.1(b)(2)(D) provides that the last trading day for 
MSCI EAFE Index options and MSCI Emerging

[[Page 20683]]

Markets Index options will be the business day prior to the expiration 
date of the specific series. MSCI EAFE and MSCI Emerging Markets Index 
options are p.m.-settled, which means the exercise settlement value of 
an expiring option is derived from the closing prices of the underlying 
components on the series expiration date. Each of these indexes 
consists of components from over 20 countries. Because the components 
of each of these indexes encompass multiple markets around the world, 
the components are subject to varying trading hours. For the MSCI EAFE 
Index, the first components open trading at approximately 6:00 p.m. 
Eastern time on the prior trading day, and the last components end 
trading at approximately 12:30 a.m. Eastern time. Similarly, for the 
MSCI Emerging Markets Index, the first components open trading at 
approximately 7:00 p.m. Eastern time on the prior trading day, and the 
last components end trading at approximately 4:30 p.m. Eastern time.
    Because trading in various components would end prior to the 
beginning of MSCI EAFE and Emerging Market Index options Regular 
Trading Hours (i.e., 9:30 a.m. Eastern time),\83\ the closing prices of 
those components, which would be used to determine the exercise 
settlement value, would be determined prior to the time when the 
expiring options may begin trading on the expiration date. This 
increases the risk of providing liquidity in these products on that 
date. Generally, the prices of futures on these indexes can be a proxy 
for the current level of the applicable index when options on those 
indexes are trading on the Exchange while the index level is not being 
disseminated. However, that is not the case on options' expiration 
dates, as the prices that will be used to determine the exercise 
settlement value are fixed once trading in the components ends, and 
thus futures trading prices after trading in those components end have 
no bearing on the exercise settlement value. Therefore, the Exchange 
believes it is appropriate to stop trading in expiring MSCI EAFE and 
Emerging Markets Index options on the business day prior to the 
expiration date. As proposed, on their last day of trading (the trading 
day prior to the expiration date), MSCI EAFE and Emerging Markets Index 
options would trade from 9:30 a.m. through 4:15 p.m. Eastern time. The 
proposed trading hours for these index options on their last trading 
day is also the same as the trading hours for those index options on 
Cboe Options.\84\
---------------------------------------------------------------------------

    \83\ Trading in the other components ends at various times 
throughout the trading day.
    \84\ See Cboe Options Rule 24.6, Interpretation and Policy .05.
---------------------------------------------------------------------------

    Proposed Rule 6.1(b)(2)(E) states with respect to options on a 
foreign index that is comprised of component securities trading in a 
single country, the Exchange may determine to not open the options for 
trading when the component securities of the foreign index are not 
trading due to a holiday for the foreign exchange(s) on which the 
component securities trade. The Exchange announces the days on which 
options on a particular foreign index will be closed at least once a 
year in January. Current Rule 6.1(c) (proposed Rule 6.1(d)) identifies 
the days on which the Exchange is not open due to a holiday.\85\ 
Exchanges in foreign countries also have their own holiday 
schedules.\86\ If the Exchange determines to list for trading options 
that overlie various foreign indexes,\87\ the components of which trade 
on foreign exchanges, the Exchange proposes to specify in its Rules 
that the Exchange may determine to not open options on foreign indexes 
when the component securities of the foreign index are not open for 
trading due to a holiday on the foreign exchange; however, the Exchange 
proposes to limit the application of this proposal to options on 
foreign indexes that are comprised of component securities trading in a 
single country.\88\
---------------------------------------------------------------------------

    \85\ The Exchange is not open for business on New Year's Day, 
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial 
Day, Independence Day, Labor Day, Thanksgiving Day, or Christmas 
Day. When any holiday observed by the Exchange falls on a Saturday, 
the Exchange will not be open for business on the preceding Friday, 
and when any holiday observed by the Exchange falls on a Sunday, the 
Exchange will not be open for business on the following Monday, 
unless unusual business conditions exist at the time.
    \86\ See, e.g., Stock Exchange of Hong Kong Holiday Schedule, 
available at: https://www.hkex.com.hk/eng/market/sec_tradinfo/tradcal/nont10.htm and London Stock Exchange Holiday Schedule, 
available at: http://www.lseg.com/areas-expertise/our-markets/london-stock-exchange/equities-markets/trading-services/business-days.
    \87\ Pursuant to Cboe Options Rule 24.2, Interpretations .01 
through .03, the Exchange may list options on the following foreign 
indexes: MSCI EAFE Index, MSCI Emerging Markets Index, FTSE Emerging 
Index, FTSE Developed Europe Index, FTSE 100 Index, and FTSE China 
50 Index. As noted above, the Exchange does not currently list 
options on any of these indexes.
    \88\ When there are multiple exchanges in a single country 
trading the component securities of a foreign index, the holiday 
schedule for exchanges within that country are likely to be the same 
or similar.
---------------------------------------------------------------------------

    The Exchange may trade options on various foreign indexes after 
trading in all component securities has closed for the day and the 
index level is no longer widely disseminated at least once every 
fifteen seconds, provided that futures on the applicable indexes are 
trading and prices for those contracts may be used as a proxy for the 
current index value.\89\ For example, the component securities of the 
FTSE China 50 Index open with the start of trading on the Stock 
Exchange of Hong Kong (``SEHK'') at approximately 9:30 p.m. Eastern 
time (prior day) and close with the end of trading on the SEHK at 
approximately 4:00 a.m. Eastern time (next day). Thus, between 9:30 
a.m. and 4:15 p.m. Eastern time, the FTSE China 50 Index level is a 
static value that market participants can access via data vendors. 
However, if the Exchange has FTSE China 50 options listed, the Exchange 
would continue to trade options on the FTSE China 50 Index (``China 50 
options'') from 9:30 a.m. to 4:15 a.m. Eastern time because prices of 
the E-Mini FTSE China 50 Index futures trading at the CME may be used 
as a proxy for the current index value.\90\ When SEHK is closed because 
of a holiday, E-Mini FTSE China 50 Index futures remain open and may 
still be used as a proxy for the current index value. However, the 
Exchange may determine to keep China 50 Options (as well as other 
options on other foreign indexes) closed because of a holiday on SEHK 
(or the applicable foreign exchange on which the index constituents 
trade).
---------------------------------------------------------------------------

    \89\ See Rules 24.2.01(a)(8), 24.2.02(a)(8), and 24.2.03(a)(8).
    \90\ The trading hours for E-Mini FTSE China 50 Index Futures 
are from 6:00 p.m. to 5:00 p.m. Eastern time the following day, 
Sunday through Friday. See E-Mini FTSE China 50 Index Future 
Contract specifications located at: http://www.cmegroup.com/education/files/e-mini-ftse-china-50-index-futures.pdf. The Exchange 
believes E-Mini FTSE China 50 Index Futures are an appropriate proxy 
for China 50 options.
---------------------------------------------------------------------------

    For example, SEHK was closed February 5 through 7 of 2019 for the 
Lunar New York. Although E-Mini FTSE China 50 Index futures can be used 
as a proxy, the Exchange may have determined that options participants 
would be better served by keeping China 50 options closed because the 
holiday caused the underlying index value to be unavailable for an 
extended period of time.
    The Exchange has authority to determine trading hours for index 
options, and to change them if it determines there are unusual 
conditions.\91\ This proposed rule change simply seeks to add a rule 
provision to notify market participants that the Exchange may determine 
not to open options on foreign indexes because of a holiday on a 
foreign exchange. Furthermore, as proposed, the Exchange

[[Page 20684]]

will announce to market participants via Exchange Notice in January of 
every year (and more frequently if the Exchange determines that to be 
necessary) the particular days on which options on particular foreign 
indexes will not be open due to a holiday on a foreign exchange or 
exchanges.
---------------------------------------------------------------------------

    \91\ See current Rule 6.1(b) (proposed Rule 6.1(b)(2)).
---------------------------------------------------------------------------

    Although keeping options trading closed because of a foreign 
exchange's holidays will cause users of these particular options to not 
be able to trade when the U.S. market is otherwise open, the closures 
will only occur a few times a year. Furthermore, users will have 
sufficient notice of such closures via Exchange Notice that will be 
published every January. Finally, this proposal may potentially allow 
users to receive better executions because for certain holidays, such 
as during the Lunar New Year described above, the closing of the 
component securities may not allow Market-Makers to quote as tightly 
and aggressively as they would otherwise. In effect, limiting users' 
ability to trade particular index options to days on which there is not 
a holiday on a foreign exchange may better serve users because they 
will be trading on days in which Market-Makers may potentially provide 
tighter markets. Additionally, Cboe Options has the same rule.\92\
---------------------------------------------------------------------------

    \92\ See Cboe Options Rules 24.6, Interpretation and Policy .06.
---------------------------------------------------------------------------

    Pursuant to Chapter 24, Cboe Options Rule 24.7, which sets forth 
the trading days and hours for index options that may be listed 
pursuant to Cboe Options Rule 24.2, does not apply to the Exchange. 
Current Rule 6.32(a) states the Exchange may halt trading in any class 
in the interests of a fair and orderly market. It also lists factors, 
among others, the Exchange may consider when determining whether to 
halt trading in a class. Several factors would apply to any class 
(i.e., equity or index), such as:
     Occurrence of an act of God or other event outside the 
Exchange's control;
     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 trading 
applications, or the electrical power supply to the System itself or 
any related system; or
     other unusual conditions or circumstances are present.\93\
---------------------------------------------------------------------------

    \93\ See Rule 6.32(a)(3)-(5) and.

Current Rule 6.32(a)(1) and (2) (proposed Rule 6.32(a)(1)(A) and (B)) 
provides factors the Exchange may consider when determining whether to 
halt trading in an equity option class. However, there are specific 
factors the Exchange may consider when determining whether to halt 
trading in an index option class, and the proposed rule change adds 
those to proposed Rule 6.32(a)(2):
     The extent to which trading in the stocks or options 
underlying the index is not occurring;
     the current calculation of the index derived from the 
current market prices of the stock;
     the ``current index level'' (which is the implied forward 
level based on volatility index (security) futures prices) for a 
volatility is not available or the cash (spot) value for a volatility 
index is not available; \94\ or
---------------------------------------------------------------------------

    \94\ The Exchange does not currently list, and has no current 
plans to list, options on a volatility index.
---------------------------------------------------------------------------

     the activation of price limits on futures exchanges or the 
halt of trading in related futures.
    Rule 6.32 does not restrict the factors the Exchange may consider 
when determining whether to halt trading in a class; the factors listed 
in paragraph (a) (currently and as proposed) are examples of factors 
the Exchange may consider. Therefore, the Exchange already has 
authority to consider these factors when determining whether to halt 
trading in an index option class, as changes in these factors would 
likely be considered unusual circumstances and would likely be 
considered to determine whether these changes have an impact on a fair 
and orderly market for the index options. The proposed rule change 
provides transparency to investors regarding the factors the Exchange 
may consider when determining to halt trading in an index option class, 
as Rule 6.32 currently does for equity option classes. Additionally, 
these factors are listed as factors Cboe Options may consider when 
determining whether to halt trading in an index option class.\95\
---------------------------------------------------------------------------

    \95\ See Cboe Options Rule 24.7(a)(ii) and (iii), and 
Interpretations and Policies .01 and .03.
---------------------------------------------------------------------------

    Additionally, proposed Rule 6.32(e) states that when the primary 
market for a security underlying the current index value of an index 
option does not open for trading, halts trading prematurely, or 
otherwise experiences a disruption of normal trading on a given day, or 
if a particular security underlying the current index option does not 
open for trading, halts trading prematurely, or otherwise experiences a 
disruption of normal trading on a given day in its primary market, the 
price of that security is determined, for the purposes of calculating 
the current index value at expiration, in accordance with the Rules and 
By-Laws of The Options Clearing Corporation (``OCC''). Investors who 
trade index options against the underlying stocks as well as those who 
trade the index options against index futures generally rely upon the 
final settlement value of index options converging with the 
corresponding values of the underlying index or index future. Without 
this convergence, investors may face significant unexpected exposure to 
market risk. Many public customers and market-makers use index options 
to hedge ``cash'' positions they hold in the stocks which make up the 
index. The Exchange's Rules are currently silent regarding the 
calculation of the settlement value for an index option if the above 
circumstances exist. The Exchange believes the proposed rule change 
provides transparency with the respect to the process the Exchange will 
use in the event the above circumstances transpire and assures 
convergence at settlement between the value of index options and index 
futures and thus minimizes these risks. OCC's Rules and By-Laws provide 
OCC with broad discretionary authority to adjust settlement values for 
OCC-cleared index options and futures whenever, and in whatever manner, 
OCC deems appropriate to avoid a disconnect between the futures and 
options markets or among the futures markets.\96\ Cboe Options has the 
same provision in its rules.\97\
---------------------------------------------------------------------------

    \96\ See OCC By-Laws Articles XII, Section 5 and XVII, Section 
4; see also Securities Exchange Act Release No. 46561 (September 26, 
2002), 67 FR 61943 (October 2, 2002) (SR-OCC-2002-09).
    \97\ See Cboe Options Rule 24.7(e).
---------------------------------------------------------------------------

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.\98\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \99\ 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.

[[Page 20685]]

Additionally, the Exchange believes the proposed rule change is 
consistent with the Section 6(b)(5) \100\ requirement that the rules of 
an exchange not be designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
---------------------------------------------------------------------------

    \98\ 15 U.S.C. 78f(b).
    \99\ 15 U.S.C. 78f(b)(5).
    \100\ Id.
---------------------------------------------------------------------------

    In particular, the proposed rule change to adopt Global Trading 
Hours will remove impediments to and perfect the mechanism of a free 
and open market and a national market system. Global Trading Hours is a 
competitive initiative designed to improve the Exchange's marketplace 
for the benefit of investors. The proposed rule change provides a new 
investment opportunity within the options trading industry that is 
consistent with the continued globalization of the securities markets 
and closer aligns the Exchange's trading hours with extended trading 
hours of stock exchanges. The Exchange believes the proposed rule 
change will enhance competition by providing a service to investors 
that most other options exchanges currently are not providing. The 
Exchange believes the competition among exchanges ultimately benefits 
the entire marketplace. Given the robust competition among the options 
exchanges, innovative trading mechanisms are consistent with the above-
mentioned goals of the Exchange Act.
    The proposed rule change also provides a mechanism for the Exchange 
to more effectively compete with exchanges located outside of the 
United States. Global markets have become increasingly interdepending 
and linked, both psychologically and through improved communications 
technology. This has been accompanied by an increased desire among 
investors to have access to U.S.-listed exchange products outside of 
Regular Trading Hours, and the Exchange believes this desire extends to 
its exclusively listed products. The Exchange believes that the 
proposed rule change is reasonably designed to provide an appropriate 
mechanism for trading outside of Regular Trading Hours while providing 
for appropriate Exchange oversight pursuant to the Act, trade 
reporting, and surveillance.
    While only one other options exchange is currently open for trading 
outside of Regular Trading Hours, the Commission has authorized stock 
exchanges to be open for trading outside of these hours pursuant to the 
Act. Additionally, futures exchanges also operate outside of those 
hours. Thus, the proposed rule change to adopt Global Trading Hours is 
not novel or unique. The Exchange has currently authorized one class to 
list for trading during Global Trading Hours. As the proposed rule 
change is a new Exchange initiative, the Exchange believes it is 
reasonable to trade a limited number of classes upon implementation for 
which demand is believed to be the highest during Global Trading Hours.
    The vast majority of the Exchange's trading rules will apply during 
Global Trading Hours in the same manner as during Regular Trading 
Hours, which rules have all be previously filed with the Commission as 
being consistent with the goals of the Act. Rules that will apply 
equally during Global Trading Hours include rules that protect public 
customers, impose best execution requirements on Trading Permit 
Holders, and prohibit acts and practices that are inconsistent with 
just and equitable principles of trade as well as fraudulent and 
manipulative practices. The proposed rule change also provides 
opportunities for price improvement during Global Trading Hours and 
applies the same allocation and priority rules that are available to 
the Exchange during Regular Trading Hours. The Exchange believes, 
therefore, that the rules that will apply during Global Trading Hours 
will continue to promote just and equitable principles of trade and 
prevent fraudulent and manipulative acts.
    The proposed rule change clearly identifies the ways in which 
trading during Regular Trading Hours will different from trading during 
Global Trading Hours (such as identifying order types and instructions 
that will not be available during Global Trading Hours). This ensures 
that investors are aware of any differences among trading sessions. The 
Exchange believes the differences are consistent with the expected 
differences in liquidity, participation, and trading activity between 
Regular Trading Hours and Global Trading Hours. The flexibility 
provided to the Exchange to make determinations for each trading 
session will allow the Exchange to apply settings and parameters to 
address the different market conditions that may be present during each 
trading session. Additionally, to further protect investors from any 
additional risks related to trading during Global Trading Hours, the 
proposed rule change requires that disclosures be made to customers 
describing these potential risks. The proposed All Sessions order and 
RTH Only order will protect investors by permitting investors who do 
not wish to trade during Global Trading Hours from having orders or 
quotes execute during those orders. Consistent with the goal of 
investor protection, the Exchange will not allow market orders during 
Global Trading Hours due to the expected increased volatility and 
decreased liquidity during these hours.
    Additionally, the Exchange believes that the proposed rule change 
will foster cooperation and coordination with persons engaged in 
regulating, clearing, settling, processing information with respect to, 
and facilitating transactions in securities, as the Exchange will 
ensure that adequate staffing is available during Global Trading Hours 
to provide appropriate trading support during those hours, as well as 
Exchange officials to make any necessary determinations under the rules 
during Global Trading Hours (such as trading halts and trade 
nullification for obvious errors). The Exchange is also committed to 
fulfilling its obligations as a self-regulatory organization at all 
times, including during Global Trading Hours. The Exchange's 
surveillance procedures will also be revised to incorporate 
transactions that occur and orders and quotations that are submitted 
during Global Trading Hours. The Exchange believes its surveillance 
procedures are adequate to properly monitor trading in DJX options 
during Global Trading Hours. Clearing and settlement processes will be 
the same for Global Trading Hours as they are for Regular Trading Hours 
transactions.
    The proposed rule change further removes impediments to a free and 
open market and does not unfairly discriminate among market 
participants, as all Trading Permit Holders with access to the Exchange 
may trade during Global Trading Hours using the same connection lines, 
message formats data feeds, and EFIDs they use during Regular Trading 
Hours, minimizing any preparation efforts necessary to participate 
during Global Trading Hours. Trading Permit Holders will not be 
required to trade during Global Trading Hours.
    As demonstrated above, while the proposed rule change increases the 
total time during which a Market-Maker with a DJX appointment must 
quote, this increase is de minimis given that a Market-Maker's 
compliance with its continuous quoting obligation is based on all 
classes in which it has an appointment in the aggregate. Selecting an 
appointment in DJX options will be optional and within the discretion 
of a Market-Maker. Additionally, the Exchange is providing Market-
Makers with the opportunity to quote during GTH (and receive the 
benefits of acting as a Market-Maker with respect to transactions it 
effects during that time) without obtaining an additional Trading

[[Page 20686]]

Permit or creating additional connections to the Exchange (as is 
required on Cboe Options). The Exchange believes Market-Makers will 
have an incentive to quote in DJX options during Global Trading Hours 
given the significance of the Dow Jones Industrial Average within the 
financial markets, the expected demand, and given that the stocks 
underlying the index are also trading during those hours (which may 
permit execution of certain hedging strategies). Extending a Market-
Maker's appointment to Global Trading Hours will enhance liquidity 
during that trading session, which benefits all investors during those 
hours. The Exchange believes that the slight additional burden of 
extending the continuous quoting obligation to the GTH trading session 
in one class is outweighed by the Exchange's efforts to add liquidity 
in All Sessions classes, the minimal preparation a Market-Maker may 
require to participate in the GTH trading session, and the benefits to 
investors that may result from that liquidity. Therefore, the Exchange 
believes the proposed rule change provides customer trading interest 
with a net benefit, and continues to maintain a balance of Market-Maker 
benefits and obligations.
    The proposed rule change is also consistent with Section 11A of the 
Act and Regulation NMS thereunder, because it provides for the 
dissemination of transaction and quotation information during Global 
Trading Hours through OPRA, pursuant to the OPRA Plan, which Commission 
approved and indicated to be consistent with the Act. While Section 11A 
and Regulation NMS contemplate an integrated system for trading 
securities, they also envision competition between markets, and 
innovation that provides marketplace benefits to attract order flow to 
an exchange does not result in unfair competition if other markets are 
free to compete in the same manner.\101\
---------------------------------------------------------------------------

    \101\ See Exchange Act Release Nos. 73704 (November 28, 2014), 
79 FR 72044 (December 4, 2014) (SR-CBOE-2014-062) (approval of 
proposed rule change for Cboe Options to extend its trading hours 
outside of Regular Trading Hours); and 29237 (May 24, 1991), 46 FR 
24853 (May 31, 1991) (SR-NYSe-1990-052 and SR-NYSE-1990-053) 
(approval of proposed rule change for NYSE to extend its trading 
hours outside of Regular Trading Hours). The Exchange also notes 
that no other U.S. options exchange provides for trading DJX options 
outside of Regular Trading Hours, so there is currently no need for 
intermarket linkage during Global Trading Hours. If another Cboe 
Affiliated Exchange lists DJX options outside of Regular Trading 
Hours, trading of DJX options on the Exchange would comply with 
linkage rules.
---------------------------------------------------------------------------

    The proposed rule change will remove impediments to and perfect the 
mechanism of a free and open market and a national market system 
because, as noted above, another options exchange currently offers a 
Global Trading Hours session.\102\ While there are some differences 
among the proposed rule change and the Cboe Options Global Trading 
Hours session, such as the length of the session (Cboe Options GTH 
trading session begins at 3:00 a.m. and the proposed Exchange GTH 
trading session begins at 8:30 a.m.), the participation (while all TPHs 
on Cboe Options will have the opportunity to participate, as all TPHs 
on the Exchange will, Cboe Options requires TPHs to obtain a separate 
GTH trading permit, log-ins, and Market-Maker appointments to 
participate in GTH while the Exchange will not), the proposed Exchange 
GTH trading session is similar to the Cboe Options GTH trading session.
---------------------------------------------------------------------------

    \102\ See Cboe Options Rules 6.1 and 6.1A.
---------------------------------------------------------------------------

    The Exchange believes the proposed rule change to adopt an opening 
auction will protect investors, because it will enhance the openings of 
series on the Exchange by providing an opportunity for price discovery 
based on then-current market conditions. The proposed Queuing Period is 
substantively the same as the current Order Entry Period on the 
Exchange. The proposed detail regarding the Queuing Period provide 
additional transparency regarding the handling of orders and quotes 
submitted during that time, and will thus benefit investors. The 
proposed rule change, including orders that are not permitted during 
the Queuing Period or orders that are not eligible to trade during the 
opening rotation, is also similar to the pre-opening period on Cboe 
Options.\103\
---------------------------------------------------------------------------

    \103\ See Cboe Options Rule 6.2(a). Cboe Options provides a 
longer pre-opening period than the proposed rule change. However, 
the Exchange is not proposing to change the time at which it begins 
to accept orders and quotes, believes the time period is sufficient 
for market participants to submit orders and quotes to participate 
in the opening rotation.
---------------------------------------------------------------------------

    The proposed rule change will protect investors by ensuring they 
have access to information regarding the opening of a series, which 
will provide them with transparency that will permit them to 
participate in the opening auction process and contribute to, and 
benefit from, the price discovery the auction may provide. The proposed 
opening auction updates are not be designed to permit unfair 
discrimination between customers, issuers, brokers, or dealers, as all 
market participants may subscribe to the Exchange's data feeds that 
deliver these message, and thus all market participants may have access 
to this information.
    The proposed opening rotation triggers are substantially similar to 
the current events that will trigger series openings on the Exchange. 
The proposed trigger events will remove impediments to and perfect the 
mechanism of a free and open market and a national market system, as 
they ensure that during Regular Trading Hours, the underlying 
securities will have begun trading, or the underlying index values will 
have begun being disseminated, before the System opens a series for 
trading. As this information will not be available during Global 
Trading Hours, the Exchange believes it is appropriate to begin the 
opening rotation for Global Trading Hours at a specified time (as Cboe 
Options does).
    The proposed Maximum Composite Width Check and Opening Collar will 
protect investors by providing price protection measures to prevent 
orders from executing at extreme prices at the open. The Exchange 
believes it is appropriate to open a series under the proposed 
circumstances and provide marketable orders with an opportunity to 
execute at a reasonable opening price (as discussed below), because 
there is minimal risk of execution at an extreme price. These proposed 
price protections incorporate all available pricing information, 
including Market-Maker bulk messages (which are generally used to price 
markets for series) and any quotes disseminated from away markets, and 
thus may lead to a more accurate Opening Trade Price based on then-
current market conditions. As noted above, Cboe Options applies similar 
price protections during its opening rotation. Cboe Options similarly 
considers Market-Maker quotes (the equivalent of Market-Maker bulk 
message on the Exchange), and in certain classes, quotes of away 
exchanges, and whether there are crossing orders or quotes when 
determining whether the opening width and trade price are reasonable. 
The Exchange proposes to calculate the maximum width and opening price 
range in a different, but reasonable manner intended to ensure a fair 
and orderly opening.
    The proposed priority with respect to trades during the opening 
rotation are consistent with current priority principles that protect 
investors, which are to provide priority to more aggressively priced 
orders and quotes. Orders and quotes will be subject to the same 
allocation algorithms that the Exchange may apply during the trading 
day. The proposed priority and allocation of orders and quotes at the 
opening trade is substantially similar to the priority and allocation 
of orders and

[[Page 20687]]

quotes at the opening of Cboe Options.\104\
---------------------------------------------------------------------------

    \104\ See Cboe Options Rule 6.2(c)(i)(C) and Interpretation and 
Policy .04.
---------------------------------------------------------------------------

    The Exchange believes the proposed opening auction process is 
designed to ensure sufficient liquidity in a series when it opens and 
ensure series open at prices consistent with then-current market 
conditions, and thus will ensure a fair and orderly opening process. 
Additionally, as noted above, the proposed opening auction process is 
substantially similar to the opening auction process of Cboe 
Options.\105\ As described above and below, the differences between 
proposed Rule 6.11 and Cboe Options Rule 6.2 primarily relate to 
differences between the exchanges, including functionality Cboe Options 
offers that the Exchange does not and products Cboe Options lists for 
trading that the Exchange does not.
---------------------------------------------------------------------------

    \105\ See Cboe Options Rule 6.2.
---------------------------------------------------------------------------

    The proposed rule change to add trading hours for certain index 
options will protect investors by providing transparency to the Rules 
regarding the trading hours of these index options in the event the 
Exchange determines to list them for trading. As noted above, the 
Exchange has the authority to list these options pursuant to Chapter 
24, but currently does not and has no current plans to do so. 
Therefore, the proposed rule change has no impact on current trading of 
index options.
    The proposed rule change regarding the last trading day for A.M.-
settled index options will remove impediments to and perfect the 
mechanism of a free and open market and a national market system, 
because it clarifies current trading hours for these options and are 
the same trading hours for A.M.-settled index options on Cboe 
Options.\106\
---------------------------------------------------------------------------

    \106\ See Cboe Options Rule 24.9(a)(4).
---------------------------------------------------------------------------

    The proposed trading hours for Cboe S&P 500 AM/PM Basis options, 
index options with Nonstandard Expirations and Quarterly Expirations, 
SPX options that are p.m.-settled, and XSP options that are p.m.-
settled protects investors by preventing continue trading on a product 
after the exercise settlement value has been fixed, thus eliminating 
potential confusion. Additionally, these are the same trading hours for 
these series of options on Cboe Options.\107\
---------------------------------------------------------------------------

    \107\ See Cboe Options Rules 24.6, Interpretations and Policies 
.01 (QIXs), .03 (Cboe S&P 500 AM/PM Basis options), and .04 (P.M.-
settled SPX and XSP options), and 24.9(e)(4) (Nonstandard 
Expirations).
---------------------------------------------------------------------------

    The proposed rule change regarding the trading hours for FTSE 
Developed Europe Index Options on their last trading day will protect 
investors, because it will eliminate pricing risk for liquidity 
providers on the last day of trading of expiring options in these 
products. The proposed hours align the trading hours of expiring FTSE 
Developed Europe Index options with expiring FTSE Developed Europe 
Index futures. FTSE Developed Europe Index futures trade on CME and 
stop trading at 10:30 a.m. (Chicago time) on the third Friday of the 
futures contract month.\108\ Additionally, these are the same Regular 
Trading Hours for these options on their last trading day on Cboe 
Options.\109\
---------------------------------------------------------------------------

    \108\ See CME Rule 39002.G, available at: http://www.cmegroup.com/rulebook/CME/IV/350/390.pdf.
    \109\ See Cboe Options Rule 24.6, Interpretation and Policy .05.
---------------------------------------------------------------------------

    The proposed rule change regarding the last trading day for MSCI 
EAFE and Emerging Markets Index options will protect investors, because 
it will eliminate pricing risk for liquidity providers on the last 
trading day of expiring series in these products. The Exchange expects 
reduced liquidity on expiration dates of expiring EAFE and EM series 
due to the pricing risk associated with providing liquidity after the 
components whose closing prices will be used to determine the exercise 
settlement value of expiring options have stopped trading. Market-
Makers and other liquidity providers generally price EAFE and EM 
options using the disseminated index values and data from the markets 
on which the components trade. As noted above, when these markets are 
not trading during U.S. trading hours, these liquidity providers price 
the options using prices of futures trading on the MSCI EAFE and EM 
indexes. While those futures prices can serve as a proxy for the index 
value, they cannot serve as a proxy for the settlement value on the 
expiration date for the options. This is because the futures pricing is 
intended to represent the then-current index value, but does not 
incorporate the closing prices of the components that will be used to 
determine the settlement value. This creates risk for Market-Makers and 
other liquidity providers, as they have no data they can use to price 
the expiring options based on the ultimate settlement value. This may 
result in trades at prices inconsistent with the settlement value of 
those options. The proposed rule change removes impediments to and 
perfects the mechanism of a free and open market by eliminating this 
pricing risk for liquidity providers on the last trading day of 
expiring series in these products. The Exchange believes this may 
encourage additional liquidity providers to participate on the last 
trading of expiring series, which may provide more competitive pricing 
and additional trading opportunities for expiring series, and 
ultimately benefits investors. Additionally, this is the same last 
trading for expiring series in these products as Cboe Options.\110\
---------------------------------------------------------------------------

    \110\ See Cboe Options Rule 24.6, Interpretation and Policy .05.
---------------------------------------------------------------------------

    The proposed rule change regarding not opening options on foreign 
indexes for trading when component securities are not trading will 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system, and, in general, to protect 
investors and the public interest by (1) limiting users' ability to 
trade particular index options to days on which there is not a holiday 
on a foreign exchange because doing so allows users of these index 
options to trade on days in which Market-Makers may potentially provide 
tighter markets and (2) providing a mechanism for notifying market 
participants of the days on which options on a particular foreign index 
will not be open due to a holiday on the foreign exchange(s) on which 
the index constituents trade. Additionally, Cboe Options has the same 
provision in its Rules.\111\
---------------------------------------------------------------------------

    \111\ See Cboe Options Rule 24.6, Interpretation and Policy .06.
---------------------------------------------------------------------------

    The proposed rule change is generally intended to align system 
functionality currently offered by the Exchange with Cboe Options 
functionality 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 Exchange believes this consistency will 
promote a fair and orderly national options market system. When Cboe 
Options migrates to the same technology as that of the Exchange and 
other Cboe Affiliated Exchanges, Users of the Exchange and other Cboe 
Affiliated Exchanges will have access to similar functionality on all 
Cboe Affiliated Exchanges. 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.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The

[[Page 20688]]

Exchange does not believe that the proposed rule change to adopt Global 
Trading Hours will impose any burden on intramarket competition that is 
not necessary or appropriate in furtherance of the purposes of the Act, 
because all Trading Permit Holders will be able, but not be required, 
to participate during Global Trading Hours, and will be able to do so 
using the same connectivity as they use during Regular Trading Hours. 
Participation in GTH will be voluntary and within the discretion of 
TPHs. While the proposed rule change increases the total time during 
which a Market-Maker with a DJX appointment must quote, this increase 
is de minimis given that a Market-Maker's compliance with its 
continuous quoting obligation is based on all classes in which it has 
an appointment in the aggregate. Selecting an appointment in DJX 
options will be optional and within the discretion of a Market-Maker. 
Additionally, the Exchange is providing Market-Makers with the 
opportunity to quote during GTH (and receive the benefits of acting as 
a Market-Maker with respect to transactions it effects during that 
time) without obtaining an additional Trading Permit or creating 
additional connections to the Exchange (as is required on Cboe 
Options). Extending a Market-Maker's appointment to Global Trading 
Hours will enhance liquidity during that trading session, which 
benefits all investors during those hours. The Exchange believes that 
the slight additional burden of extending the continuous quoting 
obligation to the GTH trading session in one class is outweighed by the 
Exchange's efforts to add liquidity in All Sessions classes, the 
minimal preparation a Market-Maker may require to participate in the 
GTH trading session, and the benefits to investors that may result from 
that liquidity. Therefore, the Exchange believes the proposed rule 
change provides customer trading interest with a net benefit, and 
continues to maintain a balance of Market-Maker benefits and 
obligations.
    The Exchange does not believe that the proposed rule change to 
adopt Global Trading Hours will impose any burden on intermarket 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act, because the proposed rule change is competitive 
initiative that will benefit the marketplace and investors. The 
Exchange believes the proposed rule change will enhance competition by 
providing a service to investors that only one other options exchange 
current provides. Additionally, all options exchanges are free to 
compete in the same manner. The Exchange further believes that the same 
level of competition among options exchanges will continue during 
Regular Trading Hours. Because the Exchange proposes to make only 
exclusively listed products available for trading during Global Trading 
Hours, and because any All Sessions orders that do not trade during GTH 
will be eligible to trade during the RTH trading session in the same 
manner as all other orders during Regular Trading Hours, the proposed 
rule change will have no effect on the national best prices or trading 
during Regular Trading Hours. The Exchange also believes the proposed 
rule change could increase its competitive position outside of the 
United States by providing investors with an additional investment 
vehicle with respect to their global trading strategies during times 
that correspond with parts of regular trading hours outside of the 
United States.
    The Exchange does not believe that the proposed rule change to 
adopt an opening auction process will impose any burden on intramarket 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act, because it will apply to orders and quotes of all 
market participants in the same manner. The same order types that are 
not currently accepted prior to the opening, and that do not 
participate in the opening process, will similarly not be accepted 
during the Queuing Period or be eligible for trading during the opening 
rotation.
    The Exchange does not believe that the proposed rule change to 
adopt an opening auction process will impose any burden on intermarket 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act, because it is designed to open series on the 
Exchange in a fair and orderly manner. The Exchange believes an opening 
auction process will enhance the openings of series on the Exchange by 
providing an opportunity for price discovery based on then-current 
market conditions. The proposed auction process will provide an 
opportunity for price discovery when a series opens ensure there 
sufficient liquidity in a series when it opens, and ensure series open 
at prices consistent with then-current market conditions (at the 
Exchange and other exchanges) rather than extreme prices that could 
result in unfavorable executions to market participants. Additionally, 
as discussed above, the proposed opening auction process is 
substantially similar to the Cboe Options opening auction process.\112\
---------------------------------------------------------------------------

    \112\ See Cboe Options Rule 6.2.
---------------------------------------------------------------------------

    The Exchange believes the proposed rule change regarding trading 
hours for index options will not impose any burden on intramarket 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act, because those trading hours will apply to all 
market participants that elect to trade in those options. If the 
Exchange determines in the future to list these index options for 
trading, trading in these index options would be in the discretion of 
market participants. The Exchange believes the proposed rule change 
will not impose any burden on intermarket competition that is not 
necessary or appropriate in furtherance of the purposes of the Act, 
because the proposed trading hours for these index options are the same 
as those on another options exchange.\113\
---------------------------------------------------------------------------

    \113\ See Cboe Options Rules 24.6 and 24.9(e)(4).
---------------------------------------------------------------------------

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

    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)(iii) of the Act \114\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\115\
---------------------------------------------------------------------------

    \114\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \115\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change, along 
with a brief description and text of the proposed rule change, at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
---------------------------------------------------------------------------

    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 shall institute proceedings

[[Page 20689]]

to determine whether the proposed rule 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 rule-comments@sec.gov. Please include 
File Number SR-C2-2019-009 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-C2-2019-009. 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-C2-2019-009 and should be submitted on 
or before May 31, 2019.
---------------------------------------------------------------------------

    \116\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\116\
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-09634 Filed 5-9-19; 8:45 am]
 BILLING CODE 8011-01-P


