[Federal Register Volume 85, Number 92 (Tuesday, May 12, 2020)]
[Notices]
[Pages 28131-28133]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-10054]



[[Page 28131]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88816; File No. SR-CBOE-2020-041]


Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change Relating 
To Amend Its Definition of Bulk Messages in Rule 1.1 and Amend Rule 
5.5(c)(3)

May 6, 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 April 24, 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 definition of bulk messages in Rule 1.1 and amend Rule 
5.5(c)(3). 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 rules in connection with bulk 
message functionality to offer this functionality exclusively to 
Market-Makers on the Exchange. Currently, Cboe Options Market-Makers 
generally submit their quotes electronically using bulk messages. A 
bulk message is a single electronic message a User may submit to the 
Exchange in which the User may enter, modify, or cancel up to an 
Exchange-specified number of bids and offers. Bulk message 
functionality was adopted by the Exchange in connection with a recent 
technology migration and made available to all Users in place of the 
Exchange's prior quoting functionality, which was available only to 
Market-Makers and permitted them to update their electronic quotes in 
block quantities.\3\ Currently, the definition of a bulk message in 
Rule 1.1 provides that a User may submit a bulk message through a bulk 
port, which is a dedicated logical port. Current Rule 5.5(c)(3) 
provides that a bulk message submitted through a logical port is 
subject to the following: (1) It has a Time-in-Force of Day; (2) a 
Market-Maker with an appointment in a class may designate a bulk 
message for that class as Post Only or Book Only, and other Users must 
designate a bulk message for that class as Post Only; and (3) a User 
may establish a default MTP Modifier of MCN, MCO, or MCB, and a default 
value of Attributable or Non-Attributable, for a bulk port, each of 
which applies to all bulk messages submitted to the Exchange through 
that bulk port. Additionally, Users may submit single orders through a 
bulk port in the same manner as Users may submit orders to the Exchange 
through any other type of port, including designated with any order 
instruction and any time-in-force,\4\ and as auction responses (using 
auction response messages). The primary purpose of bulk ports and bulk 
messages is to encourage liquidity provision, particularly by Market-
Makers, on the Exchange.\5\
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    \3\ See Securities Exchange Release No. 86374 (July 15, 2019) 84 
FR 34963 (July 19, 2019) (SR-CBOE-2019-033).
    \4\ A Market-Maker with an appointment in a class may designate 
an order for that class submitted through a bulk port only as Post 
Only or Book Only, and other Users must designate an order for that 
class submitted through a bulk port as Post Only. See Rule 
5.5(c)(3)(B).
    \5\ See supra note 3.
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    The Exchange proposes to amend the definition of bulk messages in 
Rule 1.1 so that Market-Makers may exclusively submit bulk messages 
(the same quotation functionality that was prior offered exclusively to 
Market-Makers up until October 2019 \6\) and proposes to update Rule 
5.5(c)(3) regarding bulk ports accordingly. Specifically, the proposed 
rule change amends the definition of bulk messages to provide that the 
term ``bulk message'' means a single electronic message a User submits 
with an M Capacity (i.e., for the account of a Market-Maker) to the 
Exchange in which the User may enter, modify, or cancel up to an 
Exchange-specified number of bids and offers. In this way, the bulk 
messages submitted through bulk ports would be attributed only to 
Market-Maker quotes. In line with the proposed amendment to the User 
Capacity permitted to submit bulk messages, the proposed rule change 
also updates Rule 5.5(c)(3)(A)(ii) to provide that, while a Market-
Maker with an appointment in a class may designate a bulk message for 
that class as a Post Only or Book Only, a non-appointed Market-Maker, 
as opposed to any other User, must designate a bulk message for that 
class as Post Only. This is currently the case for Market-Makers 
submitting bulk messages in non-appointed classes and the proposed rule 
change merely reflects the specific type of other User (i.e., Market-
Makers not appointed in a class) that will be able to submit bulk 
messages. The Exchange also notes that the proposed rule change updates 
the term User to Market-Maker in Rule 5.5(c)(3)(A)(iii) to reflect the 
proposed amendment to the User Capacity permitted to submit bulk 
messages and provide uniformity for the terms used throughout Rule 
5.5(c)(3)(A).
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    \6\ See id.
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    The Exchange notes that the vast majority of bulk messages 
submitted through bulk ports are for the account of a Market-Maker. 
Indeed, over the second half of March 2020 the Exchange observed that 
no non-Market-Makers submitted bulk messages through bulk ports. 
Because so few non-Market-Maker Users opt to use this functionality, 
the Exchange believes that the current demand does not warrant the 
Exchange resources necessary for ongoing System support for non-Market-
Maker bulk messaging. The Exchange notes that the use of bulk messages 
is voluntary and non-Market-Maker Users will continue to be able to 
submit their single orders and auction responses through bulk ports and 
other logical ports in the same manner as they currently do.

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    The Exchange notes that limiting the offering of quoting 
functionality to Market-Makers is not new or unique as other options 
exchanges currently offer quoting functionality only to their market 
makers.\7\ Indeed, bulk message functionality (including submission 
through bulk ports) is geared toward encouraging Market-Maker quoting 
on the Exchange. For example, the requirement that bulk messages have a 
time-in-force of Day is intended to be consistent with a Market-Maker's 
obligation to update its quotes in response to changed market 
conditions in its appointed classes, and the provision that allows 
Market-Makers to designate their bulk messages as Post Only or Book 
Only (as opposed to the limitation to Post Only for other Users' bulk 
messages) is intended to provide Market-Makers with flexibility to use 
these instructions with respect to their bulk messages as additional 
tools to meet their quoting obligations in a manner they deem 
appropriate.\8\ Additionally, as noted above, the Exchange offered 
quote message functionality (which was substantially similar to current 
bulk message functionality) only to Market-Makers until October 7, 
2019.
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    \7\ See Nasdaq Phlx Options 1, Section 7(a)(B), which provides 
for its ``Specialized Quote Feed'', a quoting interface offered 
specifically to market makers on Phlx; and see generally MIAX 
Options Rule 517, which provide for the different types of quotes 
and quoting mechanisms offered specifically to market makers on MIAX 
Options.
    \8\ See supra note 3.
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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.\9\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \10\ 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) \11\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
    \11\ Id.
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    In particular, the Exchange believes that the proposed rule change 
will remove impediments to and perfect the mechanism of a free and open 
market and national market system and benefit investors, because it 
will delete from the Rules a functionality that is currently unused and 
as a result, the Exchange will no longer offer, thereby promoting 
transparency in its Rules. The Exchange notes that other options 
exchanges currently offer their quoting functionality and/or interfaces 
exclusively to market makers on their exchanges.\12\ Additionally, as 
noted above, the Exchange only offered quote message functionality 
(which corresponds to bulk message functionality) until approximately 
six months ago. Moreover, the Exchange does not believe that the 
proposed rule change raises any new or novel issues for Users and will 
not affect the protection of investors and the public interest because 
this functionality is not currently used by non-Market-Makers. In 
addition to this, the Exchange notes that the submission of bulk 
messages to the Exchange is voluntary, and, as stated, non-Market-
Makers will continue to be able to submit single order and auction 
responses through bulk ports and other logical ports to connect to the 
Exchange and enter orders, receive date, and access information. Also, 
the Exchange believes that the low non-Market-Maker usage rate of bulk 
message functionality does not warrant the continued resources 
necessary for System support of bulk messaging for non-Market-Maker 
Users. As a result, the Exchange believes the proposed rule change will 
also remove impediments to and perfect the mechanism of a free and open 
market and national market system by allowing the Exchange to 
reallocate System capacity and resources to other System functionality, 
which benefits all market participants.
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    \12\ See supra note 7.
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    Additionally, the Exchange does not believe that the proposed rule 
change would permit unfair discrimination as, according to March 2020 
data, non-Market-Makers are not submitting bulk messages to the 
Exchange, and, as stated above, bulk message functionality is 
principally designed to assist Market-Makers in providing liquidity to 
the Exchange. The options market is driven by Market-Maker quotes, and 
thus Market-Maker quotes are critical to provide liquidity to the 
market and contribute to price discovery for investors. Additionally, 
Market-Makers are subject to continuous quoting obligations (which 
other Users are not), and bulk message functionality provides Market-
Makers with a means to help them satisfy these obligations. Indeed, 
when bulk messages were adopted, the Exchange expected Market-Makers 
regularly to use bulk messages to input and update prices on multiple 
series of options at the same time, and noted that the functionality 
was intended primarily for the use of Market-Makers.\13\
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    \13\ See 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 Exchange does not 
believe that the proposed rule change will change will impose any 
burden on intramarket competition that is not necessary or appropriate 
in furtherance of the purposes of the Act because bulk messages 
functionality will be available for all Exchange Market-Makers in the 
same manner as it is today. Non-Market-Makers will continue to be able 
to submit their single orders and auction responses through bulk ports, 
as well as all orders and other data through logical ports, in the same 
manner as they currently do. As noted above, this is consistent with 
the primary purpose of bulk messages, which is to encourage Market-
Maker quoting and liquidity on the Exchange. The Exchange further notes 
that if any non-Market-Makers wish to submit liquidity to the Exchange 
using bulk messages they are free to register as an Exchange Market-
Maker and choose the appointed classes in which they wish to quote. 
Non-Market-Makers currently do not use bulk message functionality, so 
the proposed rule change is not expected to have any impact on their 
business need.
    The Exchange does not believe that the proposed rule change will 
impose any burden on intermarket competition that is not necessary or 
appropriate in furtherance of the purposes of the Act because other 
options exchanges currently limit their quoting functionality and/or 
interface to market makers on their exchanges.\14\ As noted above, the 
Exchange similarly limited quoting functionality (which corresponds to 
bulk message

[[Page 28133]]

functionality) to Market-Makers until approximately six months ago.
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    \14\ See supra note 7.
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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 \15\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\16\
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    \15\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \16\ 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 \17\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \18\ 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 it disseminated advance notice of the 
proposed change to market participants on March 27, 2020 and plans to 
announce a specific implementation date in the near future. In 
addition, the Exchange states that the proposal is consistent with 
quoting functionality on other options exchanges which currently offer 
such functionality only to their market makers. 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.\19\
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    \17\ 17 CFR 240.19b-4(f)(6).
    \18\ 17 CFR 240.19b-4(f)(6)(iii).
    \19\ 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-2020-041 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-2020-041. 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-2020-041 and should be submitted on 
or before June 2, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-10054 Filed 5-11-20; 8:45 am]
BILLING CODE 8011-01-P


