[Federal Register Volume 85, Number 53 (Wednesday, March 18, 2020)]
[Notices]
[Pages 15523-15525]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-05558]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88372; File No. SR-CBOE-2020-017]


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

March 12, 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 10, 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 Automated Improvement Mechanism and 
Complex Automated Improvement Mechanism. 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

[[Page 15524]]

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 rules related to the Automated 
Improvement Mechanism (``AIM'') and Complex Automated Improvement 
Mechanism (``C-AIM'') to (1) allow auction periods to be set on a 
class-by-class basis and (2) increase the maximum allowable duration of 
the respective auction periods.
    By way of background, Rule 5.37 contains the requirements 
applicable to the execution of orders using AIM and Rule 5.38 contains 
the requirements applicable to the execution of complex orders using C-
AIM. AIM and C-AIM allow the Exchange's Trading Permit Holders 
(``TPHs'') to electronically cross orders on the Exchange's System. 
Specifically, AIM and C-AIM allow TPHs to designate certain orders for 
price improvement and submit such orders into AIM and C-AIM with a 
matching facilitated or solicited contra order. Once the order is 
properly submitted, the Exchange commences an auction by sending a 
message to all TPHs who have elected to receive AIM and C-AIM auction 
notification messages. Pursuant to current Rules 5.37(c)(3) and 
5.38(c)(3), orders entered into AIM and C-AIM, respectively, are 
exposed for a period of time (the ``AIM Auction Period'' and ``C-AIM'' 
Auction Period'', respectively) that may be determined by the Exchange 
and which may be no less than 100 milliseconds and no more than one 
second.
    The Exchange first proposes to provide in Rules 5.37(c)(3) and 
5.38(c)(3) that the Exchange may determine the duration of the AIM and 
C-AIM Auction Periods on a ``class-by-class basis'' to provide the 
Exchange additional flexibility. The Exchange notes that trading 
characteristics, market models, and investor base may differ between 
options classes and that such differences may necessitate different 
auction periods be set for certain classes. The Exchange believes the 
proposed rule change ensures the Exchange to can appropriately address 
these differences. Moreover, the Exchange notes that the Exchange is 
able to set the duration of an auction period on a class-by-class basis 
for another auction mechanism under its rules (i.e., the Complex Order 
Auction (``COA'').\3\
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    \3\ See Rule 5.33(d)(3).
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    The Exchange next proposes to amend the maximum allowable duration 
of the AIM and C-AIM Auction Periods. As indicated above, the AIM and 
C-AIM Auction Periods may not be less than 100 milliseconds or more 
than one second. 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 AIM or C-AIM 
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 notes its timer is currently set at the minimum 
100 milliseconds. However, the Exchange also notes that there may be 
instances which require a longer auction period. For example, during 
times of extreme market volatility, TPHs may require additional time to 
submit their responses and/or such market volatility may result in a 
significant increase in message traffic, which could potentially result 
in a delay of processing of AIM and C-AIM auction responses. In such 
instances, the Exchange believes an auction period of the current 
maximum of 1 second may be inadequate. As such, to ensure participants 
can respond to, and the system can process, AIM and C-AIM auction 
responses in a sufficient amount of time, the Exchange proposes to 
increase the maximum AIM and C-AIM Auction Period duration from 1 
second to 3 seconds (i.e., 3000 milliseconds). The Exchange notes the 
proposed maximum is the same as the maximum allowed for the auction 
period for COA.\4\
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    \4\ 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.\5\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \6\ 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) \7\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \5\ 15 U.S.C. 78f(b).
    \6\ 15 U.S.C. 78f(b)(5).
    \7\ Id.
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    The proposed rule change to allow the Exchange to set the AIM and 
C-AIM Auction Period on a class-by-class basis provides the Exchange 
the flexibility to set the duration of the auction periods to address 
the specific characteristics of a class and its market, thereby 
protecting investors by removing impediments to and perfecting the 
mechanisms of a free and open market and a national market system. 
Additionally, the Exchange notes that it has flexibility to set times 
on a class-by-class basis under its rules for another auction 
mechanism, COA.\8\
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    \8\ See Rule 5.33(d)(3).
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    The Exchange believes the proposal to increase the maximum AIM and 
C-AIM Auction Period from 1 second 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 AIM or C-AIM auction to 
submit auction responses and have such responses processed by the 
Exchange in a timely manner, which could encourage competition among 
participants, thereby enhancing the potential for price improvement for 
orders in AIM and C-AIM to the benefit of investors and public 
interest. The Exchange believes the proposed rule change is not 
unfairly discriminatory because it establishes a maximum auction period 
applicable to all Exchange participants participating in AIM or C-AIM. 
The Exchange also notes the proposed maximum timer is the same as the 
timer allowed by the Exchange for another auction mechanism, COA.\9\
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    \9\ Id.
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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

[[Page 15525]]

proposed rule changes are not intended as a competitive filing. Rather, 
the proposed rule change to allow the auction periods to be set on a 
class-by-class basis is designed to provide the Exchange flexibility so 
that it may address specific needs and characteristics of each class 
with respect to the AIM and C-AIM Auction Periods. The proposed change 
to increase the maximum AIM and C-AIM Auction Periods 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 
AIM or C-AIM. The proposed rule change merely increases the auction 
period maximum (which matches a maximum already allowed for COA) to 
provide the Exchange further flexibility to ensure Trading Permit 
Holders have sufficient time to submit, and the Exchange has sufficient 
time to process, AIM and C-AIM responses. The proposed rule change also 
offers the same auction 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 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 \10\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\11\
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    \10\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \11\ 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 \12\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \13\ 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.\14\
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    \12\ 17 CFR 240.19b-4(f)(6).
    \13\ 17 CFR 240.19b-4(f)(6)(iii).
    \14\ 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-2020-017 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-2020-017. 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-2020-017 and should be submitted on 
or before April 8, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-05558 Filed 3-17-20; 8:45 am]
 BILLING CODE 8011-01-P


