[Federal Register Volume 86, Number 17 (Thursday, January 28, 2021)]
[Notices]
[Pages 7426-7429]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-01830]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90966; File No. SR-C2-2021-001]


Self-Regulatory Organizations; Cboe C2 Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change Relating 
To Amend Its Opening Process for Simple Orders

January 22, 2021.
    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 January 11, 2021, 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 its opening process for simple orders. 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 amend Rule 6.11 regarding its opening 
process for simple orders. Currently, following the occurrence of an 
opening rotation trigger pursuant to Rule 6.11(d), the System conducts 
an opening rotation for an option series. Following the opening 
rotation trigger, the System conducts the Maximum Composite Width Check 
pursuant to Rule 6.11(e)(1) to determine if a series is eligible to 
open. If the Composite Market \5\ of a series is not crossed, and the 
Composite Width \6\ of the series is less than or equal to the Maximum 
Composite Width (as defined in Rule 6.11(a)), the series is eligible to 
open. Additionally, if the Composite Market of a series is not crossed, 
and the Composite Width of the series is greater than the Maximum 
Composite Width, but there are (i) no non-M Capacity (a) market orders 
or (b) buy (sell) limit orders with prices higher (lower) than the 
Composite Market midpoint and (ii) no orders or quotes marketable 
against each other, the series is eligible to open. Once a series 
become eligible to open, the System conducts the opening auction for 
the series (i.e., determines the opening trade price pursuant to Rule 
6.11(e)(2) and opens the series pursuant to Rule 6.11(e)(3)). The 
Exchange may also determine to compel a series to open in the interest 
of fair and orderly markets, including if the opening width is wider 
than the Maximum Composite Width, pursuant to Rule 6.11(h).
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    \5\ 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 Exchange 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 Exchange and 
the away best offer (``ABO'') (if there is an ABO). The term 
``Composite Bid (Offer)'' means the bid (offer) used to determine 
the Composite Market. See Rule 6.11(a).
    \6\ The term ``Composite Width'' means the width of the 
Composite Market (i.e., the width between the Composite Bid and the 
Composite Offer) of a series. See Rule 6.11(a).
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    Currently, if a series cannot satisfy these conditions described 
above (and thus is not eligible to open), the series is ineligible to 
open.\7\ When that occurs,

[[Page 7427]]

the Queuing Period \8\ for the series continues (including the 
dissemination of opening auction updates) until the Maximum Composite 
Width Check is satisfied or the Exchange determines to open the series 
pursuant to Rule 6.11(h). The proposed rule change adds that such a 
series may open pursuant to a forced opening as set forth in proposed 
Rule 6.11(f).\9\ Specifically, as proposed, if a series in an equity or 
exchange-traded product (``ETP'') option class \10\ is unable to open 
because it does not satisfy the Maximum Composite Width Check described 
above within a time period (which the Exchange determines for all 
equity and ETP option classes) \11\ after the occurrence of the opening 
rotation trigger for the class pursuant to Rule 6.11(d), and the 
Composite Market is not crossed, the System forces the series to open 
after that time period upon the System's observation of an away best 
bid and offer (``ABBO'') (with a non-zero offer) \12\ for the 
series.\13\ For a series subject to a forced opening, the opening trade 
price determination and series open set forth in Rule 6.11(e)(2) and 
(3) (i.e., the opening auction) do not occur; instead, the System opens 
the series without a trade. This will permit a series to open for 
trading on the Exchange if the series is open for trading on at least 
one other options exchange, even though the market for the series on 
the Exchange may be wide.
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    \7\ See Rule 6.11(e)(1)(C). The proposed rule change codifies in 
this provision that a series is not eligible to open if there is no 
Composite Market or if the Composite Market is crossed. This is true 
today and implied by the current rule text. Rule 6.11(e)(1)(A) and 
(B) both state that the Maximum Composite Width Check is only 
satisfied if the Composite Market of a series is not crossed, and 
the proposed rule change merely adds the same language to 
subparagraph (C) (i.e., if the Composite Market of a series is 
crossed, then neither of the conditions in subparagraph (A) or (B) 
could be satisfied, and the series would be ineligible to open). 
Additionally, if there were no Composite Market or if it were 
crossed, the System would be unable to perform the Maximum Composite 
Width Check, thus meaning the series could not satisfy that check 
and thus would not be eligible to open. This proposed change merely 
adds detail to the Rules for additional transparency.
    \8\ The term ``Queuing Period'' means the time period prior to 
the initiation of an opening rotation during which the System 
accepts orders and quotes in the Queuing Book (the book into which 
Users may submit orders for participation in the opening rotation) 
for participation in the opening rotation for the applicable trading 
session. See Rule 6.11(a).
    \9\ The proposed forced opening process has no impact on the 
modified opening auction process set forth in Rule 6.11(j).
    \10\ The proposed rule change is limited to series in equity and 
ETP option classes because these classes are eligible for listing on 
all U.S. options exchanges.
    \11\ See Rule 1.2 (which permits the Exchange to announce 
determinations by, among other things, notice, regulatory circular, 
and specification).
    \12\ Such an ABBO would indicate that an away exchange is open, 
as it would have disseminated an opening quote.
    \13\ The Exchange currently has a similar forced opening after a 
specified amount of time for complex order strategies. See Rule 
6.13(c)(2)(C).
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    The proposed change to Rule 6.11(f) provides that in the event of a 
forced opening of a series pursuant to proposed Rule 6.11(e)(4) or a 
compelled opening of a series pursuant to paragraph (h), the System 
enters all of a User's orders in that series in the Queuing Book into 
the Book in the manner set forth in current Rule 6.11(f), unless a User 
instructs the System to cancel its market orders or all of its orders, 
in which case the System enters only the non-cancelled orders into the 
Book in this manner. Specifically, they will be processed in accordance 
with Rule 6.12 (as unexecuted orders and quotes are handled following 
the conclusion of the opening rotation), which describes how the System 
processes, handles, and executes orders. If any order or quote in the 
Queuing Book is marketable upon the forced opening (and the User does 
not instruct the System to cancel it as proposed), the System would 
execute marketable orders subject to the priority rules set forth in 
Rule 6.12. If an order is marketable against away interest and is 
eligible for routing, the System may route the order for execution to 
an away exchange. Any non-marketable order would enter the Book or 
cancel, subject to the User instructions. This proposed change provides 
Users with flexibility for automated handling of their orders in the 
event a series opens with a wide market or is otherwise manually opened 
when the opening conditions may not otherwise be standard.
    If a series satisfies the Maximum Composite Width Check prior to 
the System's observation of an ABBO for the series, the series opens 
pursuant to Rule 6.11(d)(2) and (3) (i.e., the standard opening auction 
process occurs for the series). For example, suppose the Exchange 
determined the ``forced opening'' timer to be three minutes. If the 
opening trigger for a series occurs at 9:30:05 Eastern time but the 
series does not satisfy the Maximum Composite Width Check after the 
trigger, the System will force the series open after 9:33:05 Eastern 
time if it has received an ABBO by that time. However, if the series 
satisfies the Maximum Composite Width Check at 9:32:30, the series will 
open in accordance with the normal opening auction process.
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.\14\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \15\ 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) \16\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \14\ 15 U.S.C. 78f(b).
    \15\ 15 U.S.C. 78f(b)(5).
    \16\ Id.
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    In particular, the Exchange believes the proposed forced opening 
process for simple orders will remove impediments to and perfect the 
mechanism of a free and open market and a national market system and 
protect investors. The proposed rule change will provide for series to 
open for trading on the Exchange sooner than they may open currently, 
as long as they are open for trading on other options exchanges. The 
Exchange believes the proposed rule change will benefit investors, 
because it may permit these options to open sooner and increase the 
times during which investors may conduct trading in these options. 
Additionally, this may increase liquidity in the market for a series 
that is otherwise open on another options exchange. While the market on 
the Exchange for a series may be wider than the Maximum Composite 
Width,\17\ the Exchange believes it is reasonable to open the series if 
it opened for trading on another options exchange pursuant to that 
exchange's Commission-approved rules. Options exchanges have varying 
opening processes and have made separate determinations on what 
constitutes separate, reasonable opening market widths. The Exchange 
believes if other options exchanges opened a series with a market 
width, it is reasonable to open the series for trading on the Exchange 
as well (as orders submitted to other exchanges may be trading at those 
widths). Since orders may not trade outside of the disseminated NBBO 
(which defines the then-current market for the series), any orders 
resting in the Queuing Book that may execute following the forced 
opening will receive protection against executions at potentially 
erroneous prices. Additionally, the proposed ability of

[[Page 7428]]

Users to cancel orders in the event of a forced opening will provide 
Users with additional protection. Additionally, the Exchange believes 
opening series for trading on the Exchange that are open for trading on 
other options exchanges will put Exchange Users on equal footing with 
other market participants, as it will provide Users' orders that are 
otherwise resting in the Queuing Book and awaiting execution with the 
ability to get into the market for potential execution.
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    \17\ The Exchange notes pursuant to Rule 6.11(e)(1)(B), there 
are currently instances in which the Exchange will open for trading 
despite the Composite Market Width being larger than the Maximum 
Composite Width.
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    The Exchange currently has the authority to deviate from the 
standard opening process, including to temporarily increase the Maximum 
Composite Width amounts (i.e., widen the permissible opening market) 
and to compel a series open, even if the Maximum Composite Width check 
is not satisfied, but that may only happen manually if the Exchange 
determines it is necessary in the interests of a fair and orderly 
market.\18\ Currently, if a series is open on another exchange but not 
on the Exchange, the Exchange generally manually increases the Maximum 
Composite Width for the series until the series opens. Manually 
increasing the Maximum Composite Width for a series until the series 
open is a different manual process than compelling the series to open, 
but ultimately achieves the same result of causing a series that does 
not satisfy the Maximum Composite Width check to otherwise open. The 
Exchange believes it is in the interests of a fair and orderly market 
to deviate from the opening process to systematically force a series to 
open, despite a wide Exchange market, if the series is open for trading 
on another exchange to provide investors with orders in that series 
resting on the Exchange's Queuing Book to have the same execution 
opportunities as other investors who submitted orders to other options 
exchanges with different opening conditions. The proposed rule change 
is consistent with this authority and creates an automated compelled 
opening in certain circumstances to replace the manual process 
currently used. This will benefit investors by providing additional 
transparency to the Rules regarding when a series may open despite not 
satisfying the Maximum Composite Width check as well as remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system by automating an otherwise manual process.
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    \18\ See Rule 6.11(h); see also definition of Maximum Composite 
Width and Opening Collar in Rule 6.11(a).
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    The Exchange believes the proposed rule change to permit Users to 
give the System a standing instruction regarding how to handle their 
orders when a forced or manually compelled (for simple orders) opening 
of series occurs will benefit investors, as it will give them an 
additional tool to manage their orders in connection with the opening 
of series. Users may currently cancel any of their orders resting in 
the Queuing Book prior to the opening of a series, and they may cancel 
any orders that do not execute at the open once those orders are in the 
Book or COB, as applicable. Because the Exchange market may be wider in 
these situations, the Exchange believes it is appropriate to provide 
Users with the ability to cancel market orders so they don't execute at 
the wider market prices once in the Book or cancel all of their orders 
if they prefer.

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 impose any burden on 
intramarket competition that is not necessary or appropriate in 
furtherance of the purposes of the Act because all Users may trade in 
any series that opens subject to the proposed forced opening process. 
The Exchange believes it is appropriate to limit the forced opening to 
equity and ETP options, as those may be multiply listed on exchanges. 
Additionally, all Users will have the opportunity to instruct the 
System to cancel its market orders or all open orders in the event of a 
forced or otherwise manual opening. Cancellation of some or all of a 
User's orders in the event of such an opening would be voluntary and 
completely within the User's discretion.
    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 the 
proposed forced opening process will permit series to open on the 
Exchange that are otherwise open for trading on other options Exchange, 
which may increase liquidity and competition in those series sooner. 
Additionally, the Exchange believes opening series for trading on the 
Exchange that are open for trading on other options exchanges will put 
Exchange Users on equal footing with other market participants, as it 
will provide Users' orders that are otherwise resting in the Queuing 
Book and awaiting execution with the ability to get into the market for 
potential execution. The proposed flexibility for Users to instruct the 
System how to handle their orders in the event of a forced or manual 
opening applies only to how a Users' orders on the Exchange will be 
handled in such a circumstance.

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

    The Exchange has designated this rule filing as non-controversial 
under Section 19(b)(3)(A) \19\ of the Act and Rule 19b-4(f)(6) \20\ 
thereunder. Because the 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) of the Act and Rule 19b-
4(f)(6) thereunder.\21\
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    \19\ 15 U.S.C. 78s(b)(3)(A).
    \20\ 17 CFR 240.19b-4(f)(6).
    \21\ In addition, Rule 19b-4(f)(6)(iii) requires the Exchange to 
give the Commission written notice of its intent to file the 
proposed rule change, along with a brief description and text of the 
proposed rule change, at least five business days prior to the 
filing of the proposed rule change, or such shorter time as 
designated by the Commission. The Exhange has satisfied this 
requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) \22\ normally 
does not become operative for 30 days after the date of filing. 
However, pursuant to Rule 19b-4(f)(6)(iii),\23\ the Commission may 
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 upon filing. Waiver of the operative delay will 
immediately permit series to open for trading on the Exchange when 
those series are already open for trading on other options exchanges 
pursuant their respective rules, and provide Users' orders that are 
otherwise resting in the Queuing Book and awaiting execution with the 
ability to get into the market for potential execution, thereby putting 
such Users on equal footing

[[Page 7429]]

with other market participants as soon as possible. In addition, the 
proposal automates an aspect of the opening process that the Exchange 
currently has the authority to perform manually. Therefore, the 
Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest. 
The Commission hereby designates the proposed rule change to be 
operative upon filing.\24\
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    \22\ Id.
    \23\ 17 CFR 240.19b-4(f)(6)(iii).
    \24\ 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 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 shall 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-C2-2021-001 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-C2-2021-001. 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 
20549-1090 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-C2-2021-001 and should be 
submitted on or before February 18, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\25\
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    \25\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-01830 Filed 1-27-21; 8:45 am]
BILLING CODE 8011-01-P


