[Federal Register Volume 84, Number 104 (Thursday, May 30, 2019)]
[Notices]
[Pages 25086-25089]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-11238]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-85931; File No. SR-C2-2019-011]


Self-Regulatory Organizations; Cboe C2 Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change Relating 
To Amend Rule 6.11

May 23, 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 May 16, 2019, Cboe C2 Exchange, Inc. (the ``Exchange'' or 
``C2'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I and II 
below, which Items have been prepared by the Exchange. The Exchange 
filed the proposal as a ``non-controversial'' proposed rule change 
pursuant to Section 19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-
4(f)(6) thereunder.\4\ The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Cboe C2 Exchange, Inc. (the ``Exchange'' or ``C2'') proposes to 
amend Rule 6.11. The text of the proposed rule change is provided in 
Exhibit 5.
    The text of the proposed rule change is also available on the 
Exchange's website (http://markets.cboe.com/us/options/regulation/rule_filings/ctwo/), at the Exchange's Office of the Secretary, and at 
the Commission's Public Reference Room.

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

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

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

1. Purpose
    The proposed rule change makes enhancements to the Exchange's 
opening auction process. The Exchange recently adopted an opening 
auction process, which the Exchange intends to implement on June 17, 
2019.\5\ The Exchange intends to implement the

[[Page 25087]]

enhancements proposed in this rule filing at that time.
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    \5\ See Securities Exchange Act Release No. 85788 (May 6, 2019), 
84 FR 20673 (May 10, 2019), SR-C2-2019-009. The changes in SR-C2-
2019-009 are currently effective but not yet operative; however, the 
proposed rule text in this rule filing assume operativeness of those 
effective changes.
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    First, the proposed rule change amends the definition of Composite 
Market in Rule 6.11(a). 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).\6\ 
The Queuing Book means the book into which Users may submit orders and 
quotes (and onto which good-til-cancelled and good-til-day 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 applicable opening rotation. The Queuing 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. Therefore, in an All 
Sessions Class (i.e., a class that trades during both the Global 
Trading Hours (``GTH'') and Regular Trading Hours (``RTH'') trading 
sessions), the Composite Market will be based on the appointed Market-
Maker bulk message bids and offers in the RTH Queuing Book (available 
from 7:30 a.m. through the opening of trading). It currently will not 
consider any appointed Market-Maker bulk message bids and offers in 
that class in the GTH book (on which trading will be occurring in that 
class from 8:30 a.m. through 9:15 a.m.).
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    \6\ The term ``Composite Bid (Offer)'' means the bid (offer) 
used to determine the Composite Market.
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    Market-Makers are generally responsible for pricing the markets in 
their appointed classes, which is why the Exchange considers Market-
Makers' bulk message bids and offers when determining the Composite 
Market in connection with the opening auction process. For that reason, 
the price protection measures applied during the opening auction 
process (the Maximum Composite Width check and the Opening Collar) are 
based on the Composite Market. The Exchange believes it would be 
beneficial, and may lead to more accurate pricing during the opening 
auction process, for the Composite Market to be used for the RTH 
opening auction process to incorporate all available bulk message bids 
and offers from appointed Market-Makers, including any in the GTH book. 
Therefore, the proposed rule change amends the definition of Composite 
Market to provide that it will be comprised of the higher (lower) of 
the then-current best appointed Market-Maker bulk message bid (offer) 
on the Exchange (which includes both the RTH Queuing Book and the GTH 
book), rather than just the Queuing Book.
    Second, the proposed rule change amends Rule 6.11(e)(1) to provide 
that a series is not eligible to open if the Composite Market is 
crossed (i.e., the Composite Bid is higher than the Composite Offer). A 
series will be eligible to open if the Composite Width is less than or 
equal to the Maximum Composite Width, or is greater than the Maximum 
Composite Width but there are no non-M Capacity market orders or buy 
(sell) limit orders with prices higher (lower) than the Composite Bid 
(Offer) and no orders or quotes marketable against each other (i.e., 
locked or crossed).\7\ The Maximum Composite Width Check is a price 
protection measure intended to prevent orders from executing at extreme 
prices at the open. A crossed market is generally unreliable, and 
opening with a crossed Composite Market may create price risk for any 
executions that may occur during the opening rotation (pursuant to 
subparagraph (e)(3)). Therefore, the proposed rule change enhances the 
Maximum Composite Width check price protection to provide that the 
Composite Market may not be crossed for a series to be eligible to 
open.
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    \7\ The proposed rule change makes a nonsubstantive change to 
this language in Rule 6.11(e)(1)(B). Once a series satisfies the 
conditions in the Maximum Composite Width Check, the System will 
determine an Opening Trading Price pursuant to Rule 6.11(e)(2), and 
then open the series pursuant to Rule 6.11(e)(3).
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    Third, the proposed rule change harmonizes how the opening auction 
process will be used following all trading halts. Current Rule 6.11(g) 
provides that if there is a Regulatory Halt,\8\ the Queuing Period 
begins immediately when the Exchange halts trading in the class. If the 
Exchange declares any other type of halt in a class (i.e., a non-
Regulatory Halt), there will be no Queuing Period. Additionally, if 
there is a Regulatory Halt, the System queues a User's open orders or 
quotes, unless the User entered instructions to cancel its open resting 
orders and quotes, but if there is a non-Regulatory Halt, the System 
cancels a User's open orders and quotes. The Exchange has determined to 
eliminate the distinction between how the opening auction process 
applies following a Regulatory Halt and a non-Regulatory Halt. The 
proposed rule change provides that the opening auction process 
following any trading halt will apply in the manner it currently 
applies following a Regulatory Halt. In other words, following a non-
Regulatory Halt, there will be a Queuing Period during the trading 
halt. Additionally, in the event of a non-Regulatory Halt, the System 
will queue a User's orders and quotes resting on the book at the time 
of the trading halt for participation in the opening rotation following 
the trading halt, unless the User entered instructions to cancels its 
resting orders and quotes. This will provide Users with the ability to 
decide how its resting orders and quotes should be handled in the event 
of a non-Regulatory Halt, as they are currently able to do in the event 
of a Regulatory Halt. The Exchange also believes elimination of this 
distinction will eliminate potential investor confusion regarding how 
the System will handle orders and quotes in the event of a trading 
halt.\9\
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    \8\ If the primary market for the applicable underlying security 
declares a regulatory trading halt, suspension, or pause with 
respect to such security, it is referred to as a ``Regulatory 
Halt.''
    \9\ The proposed rule change also makes nonsubstantive changes 
to paragraph (g).
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    Finally, the proposed rule change makes several nonsubstantive 
changes in Rule 6.11:
     The proposed rule change makes a grammatical change in 
subparagraph (b)(2).
     The proposed rule change adds the word ``process'' in 
subparagraph (b)(2)(E) after the term ``opening auction,'' as it was 
inadvertently omitted (throughout Rule 6.11, the entire opening is 
referred to as the ``opening auction process'').
    The proposed rule change updates subparagraph (e)(2) to clarify 
when the System will and will not be able to determine an Opening Trade 
Price. The System determines an Opening Trade Price if there are orders 
and quotes marketable against each other at a price not outside the 
Opening Collar (this is consistent with the current rule, which states 
there is no Opening Trade Price if there are no locked or crossed 
orders or quotes (i.e., marketable orders and quotes) at a price not 
outside the Opening Collar). The proposed rule change merely modifies 
the language, which the Exchange believes is clearer, and makes 
corresponding changes to the paragraph numbering and lettering. 
Additionally, the proposed rule change adds the defined term ``VMIM 
price'', which is the price determined by the process described in 
current subparagraphs (e)(2)(A)(i) through (iii) (proposed 
subparagraphs (e)(2)(A) through (3)). The proposed rule change

[[Page 25088]]

does not modify the process used to determine that price.
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.\10\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \11\ 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) \12\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(5).
    \12\ Id.
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    In particular, the proposed revision to the definition of Composite 
Market will remove impediments to and perfect the mechanism of a free 
and open market and a national market system and protect investors, 
because it will ensure the price protection measures used during the 
opening auction process, which are based on the Composite Market, for 
the RTH opening in an All Sessions Class will incorporate all available 
pricing information on the Exchange from appointed Market-Makers in 
that class. The Exchange believes this may lead to a more accurate 
Opening Trade Price. The proposed rule change to not open a series if 
the Composite Market is crossed will promote just and equitable 
principles of trade and protect investors, because crossed markets are 
generally unreliable. The Exchange believes not opening a series if the 
Composite Market is crossed may reduce the risk of erroneously priced 
executions during the opening rotation. The proposed rule change to 
harmonize the opening auction process following all types of trading 
halts will protect investors by eliminating potential confusion 
regarding how the Exchange will open series following trading halts, 
and by providing Users with flexibility regarding how the System will 
handle their orders and quotes following a non-Regulatory Halt (as they 
currently have following a Regulatory Halt). The proposed 
nonsubstantive changes will benefit investors by providing additional 
clarity to the Rules.

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 proposed rule change 
will not impose any burden on intramarket competition that is not 
necessary or appropriate in furtherance of the purposes of the Act. The 
proposed changes to the price protection measures used during the 
opening auction process will apply in the same manner to all orders and 
quotes of all Users. All Users will have the same flexibility regarding 
how the System will handle their orders and quotes following non-
Regulatory Halts, which is the same flexibility currently available to 
Users following Regulatory Halts. If a User wants its orders and quotes 
to be handled following a non-Regulatory Halt in the manner they are 
today, that User can instruct the Exchange to do so. The proposed rule 
change will not impose any burden on intermarket competition that is 
not necessary or appropriate in furtherance of the purposes of the Act. 
The proposed changes to the price protections used during the opening 
auction process only impact how series will open on the Exchange prior 
to the opening of trading. The proposed changes are intended to enhance 
the price protections used during the opening process and are not 
intended as competitive changes, and to provide Users with flexibility 
with respect to the handling of their orders and quotes following a 
non-Regulatory Halt. The proposed nonsubstantive changes do not impact 
trading, and thus have no competitive impact; they merely provide 
additional clarity to the Rules.

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 rule 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 if consistent with the protection of investors 
and the public interest, provided that the self-regulatory organization 
has given the Commission written notice of its intent to file 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,\13\ the proposed rule change has become effective 
pursuant to Section 19(b)(3)(A) of the Act \14\ and Rule 19b-4(f)(6) 
thereunder.\15\
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    \13\ The Exchange has satisfied this requirement.
    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 17 CFR 240.19b-4(f)(6).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission will institute proceedings to 
determine whether the proposed rule change should be approved or 
disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-C2-2019-011 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-C2-2019-011. 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

[[Page 25089]]

submission, all subsequent amendments, all written statements with 
respect to the proposed rule change that are filed with the Commission, 
and all written communications relating to the proposed rule change 
between the Commission and any person, other than those that may be 
withheld from the public in accordance with the provisions of 5 U.S.C. 
552, will be available for website viewing and printing in the 
Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549 on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-C2-2019-011 and should be submitted on 
or before June 20, 2019.
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    \16\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-11238 Filed 5-29-19; 8:45 am]
 BILLING CODE 8011-01-P


