[Federal Register Volume 84, Number 92 (Monday, May 13, 2019)]
[Notices]
[Pages 20920-20933]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-09729]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-85797; File No. SR-CboeEDGX-2019-027]


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

May 7, 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 26, 2019, Cboe EDGX Exchange, Inc. (the ``Exchange'' or 
``EDGX'') 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 EDGX Exchange, Inc. (the ``Exchange'' or EDGX Options'') 
proposes to amend the Exchange's opening process, add a global trading 
hours session (``Global Trading Hours'' or ``GTH'') for options on the 
Mini-SPX Index (``XSP options'') and make corresponding changes, modify 
trading hours for certain equity and index options, update its Rules 
regarding order cancellation, clarify the manner in which the Exchange 
announces determinations it makes under the Rules, 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/edgx/), 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'') and Cboe C2 Exchange, Inc. (``C2''), acquired 
the Exchange, 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, 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, C2, and BZX 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 includes options on 
individual stocks, exchange-traded funds (``Fund Shares'' \5\), 
exchange-traded notes

[[Page 20921]]

(``Index-Linked Securities'' \6\), and other securities) may occur from 
9:30 a.m. to 4:00 p.m.\7\, except for options on Fund Shares, Index-
Linked Securities, and broad-based indexes, which will close at 4:15 
p.m.\8\ As proposed, these hours are referred to as ``Regular Trading 
Hours.'' \9\ Regular Trading Hours are consistent with the regular 
trading hours of the 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.\10\ 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.\11\
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    \5\ See Rule 19.3(i).
    \6\ See Rule 19.3(l).
    \7\ All times are Eastern time unless otherwise noted.
    \8\ See current Rule 21.2(a). The proposed rule change moves the 
rule provision in current Rule 21.2(b) into proposed Rule 
21.2(b)(1), so that all rule provisions regarding Regular Trading 
Hours of equity options are included in the same place.
    \9\ See also proposed Rule 16.1, 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 21.2); and Cboe Options Rule 1.1 
(definition of Regular Trading Hours). The proposed rule change 
makes nonsubstantive changes to Rule 16.1 to alphabetize the 
definitions in that rule, delete the paragraph heading ``(a)'' since 
that is the only paragraph in the rule and delete subparagraph 
numbering, and add headings for each defined term.
    \10\ See Cboe Options Rule 6.1.
    \11\ 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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    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 XSP, which may be exclusively listed \12\ 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 XSP 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 XSP options from 8:30 a.m. to 9:15 a.m. Monday through 
Friday (``Global Trading Hours'' or ``GTH'').
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    \12\ 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 21.2(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.\13\ 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 Options Members 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 XSP options and in 
conjunction with part of regular European trading hours. The proposed 
rule change also adds to Rule 16.1 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 
21.2. Unless otherwise specified in the Rules or the context indicates 
otherwise, all Rules apply in the same manner during each trading 
session.\14\ As discussed below, the Exchange may not permit certain 
order types to be applied to orders during Global Trading Hours that it 
does permit during Regular Trading Hours.
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    \13\ See also proposed Rule 16.1, 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).
    \14\ This includes business conduct rules in Chapter XVIII and 
rules related to doing business with the public in Chapter XXVI. 
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 21.2(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 Chapter 
XXIX.\15\ If the Exchange so designates a class, then transactions in 
options in that class may be made on the Exchange during Global Trading 
Hours.\16\ As indicated above, the Exchange has approved XSP 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 Rule 19.6.\17\ 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 21.7 (as proposed to be 
amended, as discussed below), which sets forth procedures for the 
opening of trading).\18\
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    \15\ 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 16.1, proposed definitions of ``All 
Sessions classes'' and ``RTH classes.''
    \16\ 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).
    \17\ See also Cboe Options Rule 6.1A(c).
    \18\ 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).\19\ A business day

[[Page 20922]]

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.\20\
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    \19\ The proposed rule change makes corresponding changes to the 
definitions of market open and market close in Rule 16.1 to provide 
that each term specifies the start or end, respectively, of a 
trading session.
    \20\ 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.\21\ All Options Members may 
participate in Global Trading Hours. Options Members 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, Options Members may use the same ports and connections to the 
Exchange for all trading sessions.\22\ The Book used during Regular 
Trading Hours will be the same Book used during Global Trading 
Hours.\23\
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    \21\ This is different than the trading sessions on Cboe 
Options, which uses different servers and hardware for each trading 
session.
    \22\ Only Options Members 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).
    \23\ See proposed Rule 16.1, which amends the definition of EDGX 
Options 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 21.20(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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    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).\24\ 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.\25\
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    \24\ See proposed Rule 21.1(d)(13).
    \25\ See proposed Rule 21.1(d)(14). The RTH Only and All 
Sessions order instructions will also be available for complex 
orders. See proposed Rule 21.20(b)(7) and (8).
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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 16.3(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. 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 21.8(d) allows the Exchange to apply 
priority overlays to the pro-rata allocation method on a class-by-class 
basis; and Rule 21.20(b) allows the Exchange to determine when complex 
order types are available.\26\ Proposed rule 21.1(a) and (d) allow the 
Exchange to make certain order types and Times-in-Force, respectively, 
not available for all Exchange systems or classes (and unless stated in 
the Rules or the context indicates otherwise, as proposed).\27\ This 
proposed rule change will provide the Exchange with appropriate 
flexibility to address different trading characteristics, market 
models, and investor base of each class. 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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    \26\ Therefore, the priority overlays 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 these rules 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 21.20 sets forth the order types the Exchange may make 
available for complex orders.
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    The proposed rule change amends Rules 22.2 and 22.3 to provide that 
a Designated Primary Market Maker's and Market Maker's, respectively, 
selected class appointment applies to classes during all trading 
sessions. In order words, if a Market Maker selects an appointment in 
XSP options, that appointment would apply during both GTH and RTH (and 
thus, the Market-Maker would have an appointment to make markets in XSP 
during both GTH and RTH). As a result, a Market-Maker continuous 
quoting obligations set forth in Rule 22.6(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 22.6(d), a

[[Page 20923]]

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 XSP options \30\ will be included in the 
denominator of this calculation. The Exchange expects to list 4,302 
series of XSP options, 312 of which with expirations of greater than 
270 days and 660 with quarterly expirations. Therefore, 3,330 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 22.6(d). 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 XSP 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 (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 
XSP options on the Exchange for both GTH and RTH, the Market-Maker 
selects an XSP appointment, and the Exchange lists 3,330 series of XSP 
options that do not have quarterly expirations or expirations of 
greater than 270 days. Assume all series in XSP 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 8,891,100 seconds during GTH and 
80,819,100 seconds during RTH, for a total of 89,710,200 seconds, for 
XSP during the trading day). If XSP were only listed during RTH, the 
total eligible quoting time would be 548,219,100 seconds across the 
eleven classes, and a Market Maker would be required to quote 
328,931,460 seconds in series across those classes. If XSP were listed 
in both RTH and GTH, the total eligible quoting time would be 
557,110,200 seconds during a trading day across all eleven classes, and 
the Market Maker would be required to quote 334,266,120 seconds across 
series in the eleven classes. Therefore, extending the XSP continuous 
quoting obligation for a Market Maker with appointments in a total of 
eleven classes, including XSP, would increase a Market Maker's required 
quoting time by 5,334,660 seconds, or 1.62%. 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 an XSP 
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 
23,330 series across its 11 appointed classes, the Market Maker could 
quote an additional 485 seconds (just over 8 minutes) in each of 11,000 
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 XSP 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 an XSP 
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 XSP 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 creating additional connections to 
the Exchange or undertaking separate membership requirements (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 XSP options during Global Trading Hours 
given the significance of the S&P 500 Index 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 all-or-none 
orders, market orders, stop orders, and stop-limit orders to state that 
those order types may not be applied to orders designated as All 
Sessions order (i.e., all-or-none, market, 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 types 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 21.1(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 Options Members that trade 
during Global Trading Hours. However, the Exchange does not believe it 
would be useful or efficient to disseminate to Options Members the same 
value repeatedly at frequent intervals, as it does during Regular 
Trading Hours

[[Page 20924]]

(when that index value is being updated).\33\
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    \33\ Rules 29.3(b)(11), 29.6(b)(10), and 29.6(d)(8) provide that 
underlying index values will be disseminated at least once every 15 
seconds. Proposed Rule 21.2(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 17.5 requires Options Members 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 17.5 provides that no Options Member 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 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 Options Members to 
disclose these risks to non-TPH customers will facilitate informed 
participation in Global Trading Hours.
    The Exchange also intends to distribute to Options Members 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 
Options Members 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 Options Members 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 Options Members that want to trading 
during GTH to have minimal preparation. The Exchange will use the same 
connection lines, message formats, and feeds during RTH and GTH.\34\ 
Options Members may use the same ports and EFIDs for each trading 
session.\35\
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    \34\ The same telecommunications lines used by Options Members 
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\ An Options Member 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 Options Members 
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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

     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 Options Members 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 
Options Member will not be required to take any additional action to 
comply with this requirement, regardless of whether the Options Member 
chooses to trade during Global Trading Hours.
---------------------------------------------------------------------------

    \38\ Currently, Options Members 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 
EDGX Options Regulatory Circular 18-011 (July 3, 2018); and Rule 
2.4.
---------------------------------------------------------------------------

     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

[[Page 20925]]

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 29.10 (as proposed to be 
amended, as described below). The proposed rule change amends current 
Rule 29.10(e) (proposed Rule 29.10(d)) to provide that during Global 
Trading Hours, Rule 29.10(a)(1) through (3), (b), and (c) (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 underlying 
stock or options (there may be some overlap with trading of certain 
underlying stocks, as mentioned above \39\). Thus, the factors 
described in proposed Rule 29.10(a) 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.\40\
---------------------------------------------------------------------------

    \39\ See supra note 11.
    \40\ The proposed rule change adds reasons to proposed Rule 
29.10(e) (current paragraph (f)) why pricing will be determined by 
OCC. Currently, settlement values are determined by OCC when pricing 
is not available in these circumstances. The proposed rule change 
makes corresponding changes to the headings for Rule 29.10(d) and 
(e).
---------------------------------------------------------------------------

    Pursuant to Rule 20.5(c), the Exchange will halt trading in all 
options when a market-wide trading halt known as a circuit breaker is 
initiated on the New York Stock Exchange in response to extraordinary 
market conditions. Pursuant to the proposed rule change, Rule 20.5(c) 
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.\41\
---------------------------------------------------------------------------

    \41\ 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 21.1(f)(3) (definition of ``Day''), 21.6(b),\42\ 21.9, 
and 21.20(c)(2)(A) to incorporate the terminology included in this 
proposed rule change to specify the appropriate trading session(s) 
being referenced in those rules.
---------------------------------------------------------------------------

    \42\ The proposed rule change modifies the name of Rule 21.6 to 
account for the fact that it applies to the cancellation, as well as 
the entry, of orders.
---------------------------------------------------------------------------

    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.\43\ 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 Options Members that trade 
during Global Trading Hours will have access to quote and last sale 
information during that trading session.
---------------------------------------------------------------------------

    \43\ 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.\44\ The Exchange is also committed 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

[[Page 20926]]

monitor trading of XSP options during Global Trading Hours.
---------------------------------------------------------------------------

    \44\ The Exchange notes that, to conduct trading during Global 
Trading Hours, persons that are not Options Members, such as 
employees of affiliates of Options Members located outside of the 
United States, may be transmitting orders and quotes during Global 
Trading Hours (such non-Options Members would not have direct access 
to the Exchange, and thus those orders and quotes would be submitted 
to the Exchange through Options Members' systems subject to 
applicable laws, rules, and regulations). Options Members may 
authorize (in a form and manner determined by the Exchange) 
individuals at these non-Options Member entities to contact the 
Exchange during Global Trading Hours to address any issues.
---------------------------------------------------------------------------

Opening Process
    Rule 21.7 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 \45\ 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.\46\ 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, subject to certain price 
protections; and will open series for trading.\47\
---------------------------------------------------------------------------

    \45\ 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 21.7(b).
    \46\ See Cboe Options Rule 6.2.
    \47\ 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 21.7(a) sets forth the definitions of the following 
terms for purposes of the opening auction process in proposed Rule 
21.7: \48\
---------------------------------------------------------------------------

    \48\ A term defined elsewhere in the Rules has the same meaning 
with respect to Rule 21.7, unless otherwise defined in Rule 21.7.
---------------------------------------------------------------------------

     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.\49\
---------------------------------------------------------------------------

    \49\ 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. The Exchange has a Step-Up 
Mechanism (``SUM'') that corresponds to HAL, but does not have it 
activated at the open as Cboe Options does. However, 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).\50\
---------------------------------------------------------------------------

    \50\ 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,\51\ 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).
---------------------------------------------------------------------------

    \51\ 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.\52\
---------------------------------------------------------------------------

    \52\ 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.\53\
---------------------------------------------------------------------------

    \53\ See current Rule 21.7(c).
---------------------------------------------------------------------------

     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.\54\ 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.''
---------------------------------------------------------------------------

    \54\ 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.\55\
---------------------------------------------------------------------------

    \55\ See current Rule 21.7(a)(1) (the current rule does not use 
the term ``Queuing Period''; however, it does provide for an order 
entry period prior to the opening of a series during which the 
System accepts orders and quotes). The proposed rule change moves 
the rule provisions regarding the opening process following a halt 
to proposed paragraph (g), with no substantive changes.
---------------------------------------------------------------------------

    Proposed paragraph (b) describes the Queuing Period. The Queuing 
Period begins at 7:30 a.m. for all class.\56\ 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.

[[Page 20927]]

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.\57\
---------------------------------------------------------------------------

    \56\ See proposed Rule 21.7(b)(1).
    \57\ 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. 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 paragraph (d). The System 
accepts all orders and quotes that are available for a class and 
trading session pursuant to Rule 21.1 during the Queuing Period, which 
are eligible for execution during the opening rotation, except as 
follows:
     the System rejects IOC and FOK orders during the Queuing 
Period; \58\
---------------------------------------------------------------------------

    \58\ See current paragraph (a) 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 Queuing Period, but does not enforce them during the opening 
rotation; \59\
---------------------------------------------------------------------------

    \59\ See proposed subparagraph (a)(2)(B). This is consistent 
with current functionality, and the detail is being added to the 
Rules. See also C2 Rule 6.11(a)(1). 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 all-or-none, 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 21.1(d)(11) and (12), 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. Current Rule 21.7(a) 
provides that all-or-none orders do not participate in the opening 
process.
    \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 paragraph (a) 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 21.7 and instead may participate in the COB Opening 
Process pursuant to Rule 21.20(c)(2)(A).\63\
---------------------------------------------------------------------------

    \63\ See Rule 21.20(c)(2)(A) 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 paragraph (b), the 
System will automatically open a related equity option series after the 
first transaction on the primary listing market after 9:30 a.m. in the 
securities underlying the options as reported on the first print 
disseminated pursuant to an effective national market system plan (with 
respect to equity options). Pursuant to current paragraph (c), the 
System automatically opens a related index option series after an away 
options exchange(s) disseminates a quote in an index option series 
(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\ Pursuant to current paragraphs (b) and (c), the opening is 
currently triggered upon the occurrence of similar events. While not 
specified in the current Rules, pursuant to current functionality, 
the System waits for a certain time period following the occurrence 
of such an event to open a series. See also C2 Rule 6.11(a)(1).
    \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

[[Page 20928]]

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 U.S. Options Binary 
Order Entry Specifications, at 28 (definition of Capacity), 
available at http://cdn.cboe.com/resources/membership/US_Options_BOE_Specification.pdf.
---------------------------------------------------------------------------

     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 
(f) (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). Pursuant to the proposed rule change, the Exchange will 
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 (which, while not specified 
in the current Rules, the Exchange does today).
---------------------------------------------------------------------------

    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 21.7(e).
---------------------------------------------------------------------------

    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

[[Page 20929]]

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 21.8), unless the 
Exchange determines to apply a different allocation algorithm from Rule 
21.8 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 21.7(d) (which states the System matches 
(in accordance with Rule 21.8) orders and quotes in the System 
priced 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 EDGX Options Book in time sequence (subject to a User's 
instructions--for example, a User may cancel an order), where they may 
be processed in accordance with Rule 21.8.\76\ 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.
---------------------------------------------------------------------------

    \76\ The proposed rule change corrects an error in the current 
Rule, which references Rule 21.9 rather than Rule 21.8.
---------------------------------------------------------------------------

    The proposed rule change adds paragraph (i), which provides if the 
underlying security for a class is in a limit up-limit down state when 
the opening rotation begins for that class, then the System cancels or 
rejects all market orders. In addition, if the opening rotation has 
already begun for a class when a limit up-limit down state initiates 
for the underlying security of that class, market and limit orders will 
continue through the end of the opening rotation.\77\
---------------------------------------------------------------------------

    \77\ This is consistent with the definition of market orders in 
Rule 21.1(d). See also C2 Rule 6.11(d); and Cboe Options Rule 6.2, 
Interpretation and Policy .07.
---------------------------------------------------------------------------

    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 21.17(d), 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 21.17(d)(1) provides 
that if an order that enters the EDGX Options 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.\78\ 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.
---------------------------------------------------------------------------

    \78\ The proposed rule change makes corresponding changes to 
proposed Rule 21.17(d)(2).
---------------------------------------------------------------------------

Other Changes
    Proposed Rule 16.3 states the Exchange announces to Trading Permit 
Holders all determinations it makes pursuant to the Rules via (a) 
specifications, Notices, or Regulatory Circulars with appropriate 
advanced notice, which will be posted on the Exchange's website, or as 
otherwise provided in the Rules, (b) electronic message, or (c) other 
communication method as provided in the Rules. Current Rules state the 
Exchange will generally announce determinations by Regulatory Circular, 
and the proposed rule expands the different type of documents that may 
be used to announce determinations, consistent with EDGX. Proposed Rule 
16.3 makes clear this information will be available on the Exchange's 
website in an easily accessible manner, regardless of the manner in 
which the Exchange announces it. Additionally, certain determinations 
are made more real-time pursuant to electronic message received by 
Options Members. This single rule simplifies the Rules by eliminating 
the need to repeatedly state in the rules how the Exchange will 
announce determinations.\79\
---------------------------------------------------------------------------

    \79\ Proposed Rule 16.3 is the same as C2 Rule 1.2.
---------------------------------------------------------------------------

    The proposed rule change adds Rule 21.2(a), which states the System 
accepts orders and quotes at the times set forth in Rule 21.6. This is 
consistent with the provisions in current Rule 21.6, and will help 
consolidate all rules regarding hours into a single rule.
    Current Rule 21.2(c) states the Exchange will not be open for 
business on any holiday observed by the Exchange. Proposed Rule 21.2(d) 
lists all of the holidays on which the Exchange will not be open for 
business, and describes on which day the Exchange will not be open if a 
holiday observed falls on a Saturday or Sunday.\80\
---------------------------------------------------------------------------

    \80\ Proposed Rule 21.2(c) is the same as C2 Rule 6.1(c).
---------------------------------------------------------------------------

    The proposed rule change permits the Exchange to designate certain 
index options to end trading at 4:00 p.m.\81\ The Exchange believes 
this flexibility is appropriate, for example, if it were to list for 
trading an index option for which it expected investors to use the 
prices of underlying stocks rather than corresponding index futures to 
price the index options, and those stocks end trading at 4:00 p.m. The 
proposed rule change moves rule provisions from current Rules 29.10(a) 
\82\ and 29.11(j)(4) regarding index option trading hours into proposed 
Rule 21.2(b)(2) so that all rule provisions regarding trading hours are 
included in the same rule.\83\
---------------------------------------------------------------------------

    \81\ See proposed Rule 21.2(b)(2).
    \82\ The proposed rule change modifies the name of Rule 29.10, 
as it only applies to trading halts as proposed.
    \83\ The proposed rule change makes corresponding changes to 
paragraph lettering in Rule 29.10.
---------------------------------------------------------------------------

    The Exchange also proposes to clarify that only options on Fund 
Shares and Index-Linked Securities designated by the Exchange would 
remain open beyond 4:00 p.m. but no later than 4:15 p.m.\84\ Because 
Fund Shares and Index-Linked Securities are often based on the same 
indexes on which the Exchange lists options, and the rules permit index

[[Page 20930]]

options to trade until 4:00 p.m. or 4:15 p.m., the Exchange believes it 
is appropriate to have similar flexibility with respect to the Regular 
Trading Hours of options on Fund Shares and Index-Linked Securities. 
Other options exchanges have similar flexibility regarding trading 
hours.\85\
---------------------------------------------------------------------------

    \84\ See proposed Rule 21.2(b)(1).
    \85\ See, e.g., C2 Rule 6.1(a).
---------------------------------------------------------------------------

    Proposed Rule 21.6(f) states after the RTH market close, Users may 
cancel orders with Time-in-Force of GTC or GTC that remain on the Book 
until 4:45 p.m. This proposed change provides Users with additional 
flexibility to manage their orders that remain in the Book following 
the market close. Cancelling a GTC or GTD order at 4:30 p.m. has the 
same effect as cancelling that order at 7:30 a.m. the following day--
ultimately, it accommodates the User's goal of cancelling an order 
prior to it potentially executing during the Opening Auction Process 
the following morning.
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.\86\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \87\ requirements that the rules of an exchange be 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, to foster cooperation 
and coordination with persons engaged in regulating, clearing, 
settling, processing information with respect to, and facilitating 
transactions in securities, to remove impediments to and perfect the 
mechanism of a free and open market and a national market system, and, 
in general, to protect investors and the public interest. Additionally, 
the Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \88\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
---------------------------------------------------------------------------

    \86\ 15 U.S.C. 78f(b).
    \87\ 15 U.S.C. 78f(b)(5).
    \88\ 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 Options Members, 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

[[Page 20931]]

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 XSP 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 Options Members 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. Options Members 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 XSP 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 XSP 
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 creating additional connections to the Exchange or 
undertaking separate membership requirements (as is required on Cboe 
Options). The Exchange believes Market Makers will have an incentive to 
quote in XSP options during Global Trading Hours given the significance 
of the S&P 500 Index 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.\89\
---------------------------------------------------------------------------

    \89\ 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 XSP 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 XSP options outside of Regular Trading Hours, trading of XSP 
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.\90\ 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.
---------------------------------------------------------------------------

    \90\ 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.\91\
---------------------------------------------------------------------------

    \91\ 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 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 messages, 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

[[Page 20932]]

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 quotes at the opening of Cboe Options.\92\
---------------------------------------------------------------------------

    \92\ 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.\93\ As described above and below, the differences between 
proposed Rule 21.7 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.
---------------------------------------------------------------------------

    \93\ See Cboe Options Rule 6.2.
---------------------------------------------------------------------------

    The proposed rule change to provide the Exchange with flexibility 
regarding trading hours for index options, options on Fund Shares, and 
options on Index-Linked Securities 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. 
This flexibility will permit the Exchange to modify trading hours to 
ensure that options are trading when instruments that investors use to 
price such options are also trading.
    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 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 
Options Members 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 Options Members. 
While the proposed rule change increases the total time during which a 
Market Maker with XSP 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 XSP 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 creating additional connections to the Exchange or 
undertaking separate membership requirements (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

[[Page 20933]]

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.\94\
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    \94\ See Cboe Options Rule 6.2.
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    The proposed rule change to provide the Exchange with flexibility 
regarding trading hours for certain products will not impose any burden 
on competition not necessary or appropriate under the Act, as another 
options exchange has the same flexibility.\95\
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    \95\ See C2 Rule 6.1.
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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 \96\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\97\
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    \96\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \97\ 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.
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings 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-CboeEDGX-2019-027 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-CboeEDGX-2019-027. 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-CboeEDGX-2019-027 and should be 
submitted on or before June 3, 2019.
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    \98\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\98\
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-09729 Filed 5-10-19; 8:45 am]
 BILLING CODE 8011-01-P


