[Federal Register Volume 85, Number 226 (Monday, November 23, 2020)]
[Notices]
[Pages 74775-74777]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-25730]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90439; File No. SR-C2-2020-017]


Self-Regulatory Organizations; Cboe C2 Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
Its Interpretations and Policies to Rule 6.13 in Connection With 
Market-Makers' Complex Orders, Quoting Obligations and Volume

November 17, 2020.
    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 November 3, 2020, 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, II, 
and III below, which Items have been prepared by the Exchange. The 
Exchange filed the proposal 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 its Interpretations and Policies to Rule 6.13 in connection with 
Market-Makers' complex orders, quoting obligations and volume. 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 Exchange proposes to adopt new Interpretation and Policy .02 to 
Rule 6.13 which provides that complex strategies are included when 
determining whether a Market Maker exceeds the 25% volume threshold in 
its non-appointed classes pursuant to Rule 8.6(f).\5\ The Exchange also 
proposes to make clarifying, nonsubstantive updates to Interpretation 
and Policy .01 to Rule 6.13.
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    \5\ As a result of the proposed Interpretation and Policy, the 
proposed rule change accordingly updates the subsequent 
Interpretation and Policy numbering.
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    Rule 6.13 governs trading of complex orders on the Exchange and, 
currently, Interpretation and Policy .01 to Rule 6.13 specifically 
provides that Market-Makers are not required to quote on the COB. 
Complex strategies are not subject to any quoting requirements that 
apply to Market-Makers in the simple market. Interpretation and Policy 
[sic] to Rule 6.13 also states that the Exchange does not take into 
account Market-Makers' volume executed in complex strategies when 
determining whether Market-Makers meet their quoting obligations in the 
simple market. The proposed rule change updates Interpretation and 
Policy .01 to Rule 6.13 in order to provide additional clarity and 
consistency with the rules that provide for a Market-Maker's quoting 
requirements and obligations. Specifically, pursuant to Rule 8.6, a 
Market-Maker must satisfy quoting obligations in each of its appointed 
classes. As such, the proposed updates to Interpretation and Policy .01 
to Rule 6.13 to [sic] make it clear that a Market-Maker's orders in 
complex strategies are not subject to a Market-Maker's quoting 
requirements in its appointed classes nor are considered in determining 
whether a Market-Maker has satisfied its quoting obligations in its 
appointed classes. Also, the proposed rule change also updates 
Interpretation and Policy .01 to Rule 6.13 as it inadvertently refers 
to volume executed rather than orders, as ``quoting'' obligations 
relate to the submission of quotes and orders rather than executed 
volume. More specifically, pursuant to Rule 8.6, a Market-Maker's bids 
and offers entered in the simple market are considered in determining 
whether a Market-Maker satisfies its quoting obligations, therefore, 
the proposed rule change amends Interpretation and Policy .01 to Rule 
6.13 to more appropriately reflect this. The proposed change also 
updates the language in Interpretation and Policy .01 to Rule 6.13 to 
read in plain English.
    Current Rule 8.6(f) provides that a Market-Maker is considered an 
order entry firm (``OEF'') \6\ under the Rules in all classes in which 
the Market-Maker has no appointment, and limits the total number of 
contracts a Market-Maker may execute in classes in which it has no 
appointment to 25% of the total number of all contracts the Market-
Marker executes on the Exchange in any calendar quarter. The Exchange 
does not currently include executed complex order volume when 
determining whether a Market-Maker has exceeded this threshold. The 
Exchange's affiliated options exchange, Cboe Exchange, Inc. (``Cboe 
Options'') has a rule in place that is substantially the same as C2 
Rule 8.6(f); however, Cboe Options currently considers a Market Maker's 
executed complex order volume as well as a Market Maker's executed 
simple order volume in determining whether a Market-Maker has exceeded 
the 25%

[[Page 74776]]

volume threshold in its non-appointed classes.\7\ In order to harmonize 
this practice across the affiliated options exchanges,\8\ the Exchange 
now proposes to change its current interpretation and adopt proposed 
Interpretation and Policy .02 to Rule 6.13 to provide that a Market-
Maker's orders for complex strategies executed in classes in which it 
has no appointment are included in the total number of all contracts 
the Market-Maker executes on the Exchange in any calendar quarter in 
determining whether the Market-Maker exceeds the 25% threshold pursuant 
to Rule 8.6(f). The Exchange notes that Rule 8.6(f) is designed to 
prevent a Market-Maker from executing volume in non-appointed option 
classes in an amount disproportionate to volume executed in its 
appointed option classes, potentially in derogation of the performance 
of its obligations and provision of liquidity in its appointed option 
classes. As such, the proposed rule change is consistent with and 
supports the purposed [sic] of Rule 8.6(f) by including complex orders 
in this calculation. Therefore, the proposed rule change considers a 
Market-Maker's orders executed in complex strategies representative of 
a Market-Maker's total volume on the Exchange.
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    \6\ See Rule 1.1., which defines an ``Order Entry Firm'' or 
``OEF'' as a Trading Permit Holder that represents as agent customer 
orders on the Exchange or that is a non-Market-Maker conducting 
proprietary trading.
    \7\ The Exchange notes too that Cboe Options intends to 
simultaneously submit a rule filing to codify its current practice 
in calculating its Market-Makers' simple and complex volume in non-
appointed classes in its corresponding Interpretations and Policies 
to Rule 6.13.
    \8\ The Exchange's affiliated options exchange, Cboe EDGX 
Exchange, Inc. (``EDGX Options'') intends to simultaneously submit a 
substantively identical rule filing to clarify that it will 
calculate its Market Makers' simple and complex volume in non-
appointed classes pursuant to Cboe Options' current practice.
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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 the proposed rule change will 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system by providing that the Exchange 
considers a Market-Maker's complex order volume when calculating the 
25% threshold of volume in non-appointed classes pursuant to Rule 
8.6(f) and thereby harmonizing the Exchange's rules with that of the 
corresponding rules of its affiliated options exchanges.\12\ 
Specifically, Rule 8.6(f) is designed to prevent a Market-Maker from 
executing volume in non-appointed option classes in an amount 
disproportionate to volume executed in its appointed option classes, 
potentially in derogation of the performance of its obligations and 
provision of liquidity in its appointed option classes. As stated 
above, the Exchange believes that a Market-Maker's orders executed in 
complex strategies are representative of a Market-Maker's total volume 
on the Exchange. Thus, including such in its calculation of volume in 
non-appointed classes will help to ensure that Market-Makers perform 
their obligations and provide liquidity in appointed classes in an 
appropriate manner as compared to non-appointed classes, and is thereby 
consistent with and supports the purpose of Rule 8.6(f). The Exchange 
also believes that codifying that a Market-Maker's complex order volume 
counts towards its Market-Maker's total volume on the Exchange may 
mitigate any potential confusion regarding this calculation so that 
Market-Makers have more clarity regarding their obligations in 
appointed classes in an appropriate manner as compared to non-appointed 
classes. As such, the Exchange believes the proposed rule change will 
contribute to the protection of investors and the public interest by 
adding transparency and clarity to the Exchange's Rules by codifying 
its affiliated options exchange's current interpretation of how to a 
Market-Maker's executed volume on the Exchange is calculated. In 
addition, the Exchange believes the proposed changes to Interpretation 
and Policy .01 of Exchange Rule 6.13 will add clarity by revising the 
Rule to provide that orders entered in appointed classes, rather than 
volume executed, is considered in connection with determining whether a 
Market-Maker meets it quoting obligations pursuant to Rule 8.6 in its 
appointed classes as well as updating the language to read in plain 
English.
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    \12\ See supra notes 7 and 8.
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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 reiterates that 
the proposed rule change is intended to codify in new Interpretation 
and Policy .02 to Rule 6.13 that the Exchange will consider a Market-
Maker's complex strategy execution volume in calculating its volume per 
quarter pursuant to Rule 8.6(f) and harmonize this calculation with the 
manner in which the exchange's affiliated options exchange, Cboe 
Options, currently calculates Market-Maker executed volume in non-
appointed classes. The proposed rule change also corrects an 
inadvertent error in Interpretation and Policy .01 to 6.13 indicating 
that executed volume rather than entered orders are considered when 
determining compliance with a Market-Maker's quoting obligations. Thus, 
the Exchange believes this proposed rule change will benefit Exchange 
participants by providing specific guidance and additional clarity 
within the Exchange Rules, as well as between the rules of the 
affiliated options exchanges.
    Additionally, the Exchange believes that the proposed rule change 
regarding the applicability of Rule 8.6(f) to a Market-Maker's 
executions in the COB does not impose any burden on intramarket 
competition because it applies to all Market-Makers in the same manner. 
The proposed rule change codifies its affiliated options exchange's 
existing interpretation of such calculation in its corresponding rules. 
It does not modify any existing Market-Maker obligations. The Exchange 
believes that the proposed rule change does not impose any burden on 
intermarket competition because it relates to an obligation regarding 
Market-Maker executed volume only on the Exchange.
    The Exchange believes that the proposed rule change will relieve 
any burden on market participants because it serves to provide Market-
Makers with rules that ensure that Market-Makers are performing their 
obligations in appointed options classes in an appropriate manner as 
compared to

[[Page 74777]]

non-appointed classes. Ensuring that Market-Makers execute a certain 
amount of their volume in appointed classes will contribute to 
sufficient liquidity in those classes, which benefits the market and 
investors as a whole.
    Additionally, the proposed nonsubstantive updates to Interpretation 
and Policy .01 to Rule 6.13 are not competitive in nature and, instead, 
are intended to correct an inadvertently used term and provide clarity 
and consistency within 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 proposed rule change does not:
    A. Significantly affect the protection of investors or the public 
interest;
    B. impose any significant burden on competition; and
    C. 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) of the Act \13\ and 
Rule 19b-4(f)(6) \14\ thereunder. 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.
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    \13\ 15 U.S.C. 78s(b)(3)(A).
    \14\ 17 CFR 240.19b-4(f)(6).
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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-C2-2020-017 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-C2-2020-017. 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-C2-2020-017, and should be submitted on 
or before December 14, 2020.
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    \15\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-25730 Filed 11-20-20; 8:45 am]
BILLING CODE 8011-01-P


