[Federal Register Volume 85, Number 51 (Monday, March 16, 2020)]
[Notices]
[Pages 14984-14986]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-05234]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88348; File No. SR-CBOE-2020-016]


Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
Its Rules Related to the Complex Order Auction

March 10, 2020.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on March 6, 2020, Cboe Exchange, Inc. (the ``Exchange'' or ``Cboe 
Options'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Cboe Exchange, Inc. (the ``Exchange'' or ``Cboe Options'') proposes 
to amend its rules related to the Complex Order Auction. 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://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx), 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 Exchange proposes to amend its rule related to the Complex 
Order Auction (``COA'') to (1) to add rule text that was 
unintentionally omitted from the post-migration Rulebook and (2) 
increase the maximum Response Time Interval period.
    By way of background, On October 7, 2019, Cboe Options migrated its 
trading platform to the same system used by its affiliated exchanges 
\3\ (the ``migration''). In connection with this technology migration, 
Cboe Options updated and reorganized its entire Rulebook (the ``post-
migration Rulebook''), including rules related to COA,\4\ which became 
effective upon the technology migration. Current Subparagraph (3) of 
Rule 5.33(d) governs the Response Time Interval, which is the period of 
time during which Users may submit responses to a COA auction message 
(``COA Responses''). Rule 5.33(d)(3) currently provides that ``the 
Exchange determines the duration of the Response Time Interval, which 
may not exceed 500 milliseconds.'' The Exchange notes that the 
corresponding rule that was in place just prior to migration, Rule 
6.53C(d)(iii)(2), provided that the Exchange ``will determine the 
length of the Response Time Interval on a class-by-class basis; 
provided, however, that the duration shall not exceed three (3) 
seconds''.\5\
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    \3\ For purposes of this rule filing, the Exchange's affiliated 
exchanges are Cboe C2 Exchange, Inc. (``C2''), acquired Cboe EDGA 
Exchange, Inc. (``EDGA''), Cboe EDGX Exchange, Inc. (``EDGX'' or 
``EDGX Options''), Cboe BZX Exchange, Inc. (``BZX'' or ``BZX 
Options''), and Cboe BYX Exchange, Inc. (``BYX'' and, together with 
Cboe Options, C2, EDGX, EDGA, and BZX, the ``Cboe Affiliated 
Exchanges'').
    \4\ Current Rule 5.33(d) describes the COA process for COA-
eligible orders. Orders in all classes are eligible to participate 
in COA. Upon receipt of a COA-eligible order, the System initiates 
the COA process by sending a COA auction message to all subscribers 
to the Exchange's data feeds that deliver COA auction messages.
    \5\ See Securities Exchange Act Release No. 87015 (September 19, 
2019), 84 FR 50504 (September 25, 2019)(SR-CBOE-2019-060).

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[[Page 14985]]

    The Exchange first proposes to clarify and explicitly provide in 
current Rule 5.33(d)(3) that the Exchange determines the duration of 
the Response Time Interval on a ``class-by-class basis''. As indicated 
above, the proposed clarification is consistent with the Exchange's 
rule governing Response Time Intervals that was in place prior to the 
technology migration on October 7, 2019. When the Exchange proposed 
Rule 5.33(d) and incorporated it into the post-migration Rulebook, it 
inadvertently did not include the ``class-by-class basis'' language, 
which the Exchange now proposes to include.\6\ The Exchange believes it 
is appropriate to add clarity back in the rules to avoid potential 
confusion.
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    \6\ Id.
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    The Exchange next proposes to amend the maximum duration of the 
Response Time Interval. As indicated above, the Response Time Interval 
cannot currently exceed 500 milliseconds. Also as mentioned above, pre-
migration, the Exchange's rule provided for a maximum Response Time 
Interval of 3 seconds. The Exchange believes that it is in TPHs' best 
interest to minimize the response timer to a time frame that continues 
to allow adequate time for the TPHs to respond to a COA auction 
message, as both the order being exposed and the TPHs responding are 
subject to market risk during the response timer period. Indeed, the 
Exchange had reduced the maximum time period from 3 seconds to 500 
milliseconds as the Exchange's timer was (and currently still is) set 
at 100 milliseconds, and the Exchange therefore didn't believe it was 
necessary to maintain a maximum of 3 seconds.\7\ After further 
evaluation however, the Exchange believes it is appropriate to 
reinstate the 3 second maximum. For example, during times of extreme 
market volatility, there may be increased message traffic, which could 
potentially result in a delay of processing of COA responses. In such 
instances, the Exchange believes a response timer of 500 milliseconds 
may be inadequate. As such, to ensure participants can respond to, and 
the system can process, COA responses in a sufficient amount of time, 
the Exchange proposes to reinstate the maximum Response Time Interval 
period to 3 seconds (i.e., 3000 milliseconds).
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    \7\ Id.
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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.\8\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \9\ 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) \10\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
    \10\ Id.
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    The proposed rule change to add rule text that was inadvertently 
omitted from the post-migration Rulebook is designed to protect 
investors by ensuring that its rule relating to COA accurately 
references and reflects the current, post-migration Rules in place, 
thereby mitigating any potential investor confusion. The Exchange 
believes this change will have no impact on trading on the Exchange, as 
it is merely clarifying that the Exchange can determine the duration of 
a Response Time Interval on a class-by-class basis, notwithstanding its 
inadvertent omission to carry over such language in the relocated COA 
rules post-migration. Indeed, the proposed rule change provides clarity 
and transparency in the rules, which may alleviate potential confusion, 
thereby protecting investors by removing impediments to and perfecting 
the mechanisms of a free and open market and a national market system.
    The Exchange believes the proposal to reinstate the Response Time 
Interval maximum period to 3 seconds promotes just and equitable 
principles of trade and removes impediments to a free and open market 
because it allows the Exchange to provide increased time for Trading 
Permit Holders participating in a COA to submit COA responses and have 
such responses processed by the Exchange in a timely manner, and could 
encourage competition among participants, thereby enhancing the 
potential for price improvement for complex orders in the COA to the 
benefit of investors and public interest. The Exchange believes the 
proposed rule change is not unfairly discriminatory because it 
establishes a maximum Response Time Interval period applicable to all 
Exchange participants participating in a COA. The Exchange also notes 
the proposed maximum timer is the same as the timer previously allowed 
by the Exchange premigration, just six months ago.\11\
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    \11\ See Securities Exchange Act Release No. 87015 (September 
19, 2019), 84 FR 50504 (September 25, 2019)(SR-CBOE-2019-060).
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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 is 
not intended as a competitive filing. Rather, the proposed rule change 
to clarify that the Response Time Interval may be set on a class-by-
class basis is corrective in nature and merely updates a rule to add 
language it inadvertently omitted in connection with its migration-
related rulebook change. The proposed change to reinstate the pre-
migration maximum Response Time Interval period is also not designed to 
address any aspect of competition, but instead would continue to 
provide market participants with sufficient time to respond, compete, 
and provide price improvement for orders entered into COA. The proposed 
rule change merely reinstates the pre-migration maximum to provide the 
Exchange further flexibility to ensure Trading Permit Holders have 
sufficient time to submit, and the Exchange has sufficient time to 
process, COA responses. The proposed rule change also offers the same 
response timer period to all TPHs and would not impose a competitive 
burden on any particular participant.

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

[[Page 14986]]

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 \12\ and subparagraph (f)(6) of Rule 19b-4 thereunder.\13\
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    \12\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \13\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give 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. 
The Commission has waived the five-day prefiling requirement in this 
case.
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    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act \14\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \15\ permits the 
Commission to designate a shorter time if such action is consistent 
with the protection of investors and the public interest. The Exchange 
has asked the Commission to waive the 30-day operative delay so that 
the proposal may become operative immediately upon filing. The 
Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest. 
The Exchange represents that waiver of the operative delay would add 
rule text that was omitted from the post-migration Rulebook and 
reinstate a maximum Response Time Interval that was in place pre-
migration. The Exchange states that in times of extreme market 
volatility, there may be increased message traffic which could 
potentially result in a delay of processing of COA responses, and the 
proposed change would help ensure that participants can respond to (and 
the exchange's systems can process) COA responses in a sufficient 
amount of time. The Commission notes that the proposed rule change does 
not present any unique or novel regulatory issues. Accordingly, the 
Commission hereby waives the operative delay and designates the 
proposal operative upon filing.\16\
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    \14\ 17 CFR 240.19b-4(f)(6).
    \15\ 17 CFR 240.19b-4(f)(6)(iii).
    \16\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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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: (i) 
Necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) 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-CBOE-2020-016 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-CBOE-2020-016. 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-CBOE-2020-016 and should be submitted on 
or before April 6, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-05234 Filed 3-13-20; 8:45 am]
 BILLING CODE 8011-01-P


