[Federal Register Volume 86, Number 77 (Friday, April 23, 2021)]
[Notices]
[Pages 21773-21775]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-08420]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-91609; File No. SR-CBOE-2021-024]


Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
the Automated Price Improvement Auction Rule Relating to Stop Price

April 19, 2021.
    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 13, 2021, 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, II, 
and III 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 Exchange, Inc. (the ``Exchange'' or ``Cboe Options'') proposes 
to amend its automated price improvement auction rule. 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 Rule 5.37 (Automated Price 
Improvement Mechanism (``AIM'' or ``AIM Auction'')) to change the 
requirements for providing price improvement for Agency Orders of less 
than 50 standard option contracts (or 500 mini-option contracts).
    By way of background, the AIM auction is an electronic auction 
intended to provide an Agency Order with the opportunity to receive 
price improvement (over the National Best Bid or Offer (``NBBO''). More 
specifically, AIM includes functionality in which a Trading Permit 
Holder (``TPH'') (an ``Initiating TPH'') may electronically submit for 
execution an order it represents as agent on behalf of

[[Page 21774]]

a customer,\5\ broker dealer, or any other person or entity (``Agency 
Order'') against any other order it represents as agent, as well as 
against principal interest (except for an order for the account of any 
Market-Maker with an appointment in the applicable class on the 
Exchange in all classes except SPX) in AIM (an ``Initiating Order''), 
provided it submits the Agency Order for electronic execution into an 
AIM Auction.\6\ AIM Auctions take into account AIM Responses to the 
applicable Auction as well as contra interest resting on the Cboe 
Options Book at the conclusion of the Auction (``unrelated orders''), 
regardless of whether such unrelated orders were already present on the 
Book when the Agency Order was received by the Exchange or were 
received after the Exchange commenced the applicable Auction. If 
contracts remain from one or more unrelated orders at the time the 
Auction ends, they are considered for participation in the AIM order 
allocation process.
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    \5\ The term ``customer'' means a Public Customer or a broker-
dealer. The term ``Public Customer'' means a person that is not a 
broker-dealer. See Rule 1.1.
    \6\ See Rule 5.37.
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    Additionally, Rule 5.37(b) provides that the Initiating Order must 
stop the entire Agency Order at a price that satisfies certain 
conditions. More specifically, Rule 5.37(b)(1)(A) provides that if a 
buy (sell) Agency Order is for less than 50 standard option contracts 
(or 500 mini-option contracts), the stop price must be at least one 
minimum increment better than the then-current NBO (NBB) or the Agency 
Order's limit price (if the order is a limit order), whichever is 
better. Rule 5.37(b)(1)(B) provides that if a buy (sell) Agency Order 
is 50 standard option contracts (or 500 mini-option contracts) or more, 
the stop price must be at or better than the then-current NBO (NBB) or 
the Agency Order's limit price (if the order is a limit order), 
whichever is better.
    In order to allow TPHs to offer greater price improvement 
opportunities for Agency Orders under 50 standard options contracts (or 
500 mini-option contracts), the Exchange now proposes to amend Rule 
5.37(b)(1)(A) to require that, if the Agency Order is for less than 50 
standard option contracts (or 500 mini-option contracts), and if the 
difference between the NBBO is $0.01 (i.e., NBBO width is $0.01),\7\ 
the stop price must be at least one minimum price improvement increment 
better than the NBBO on the opposite side of the market from the Agency 
Order (or the Agency Order's limit price (if the order is a limit 
order), whichever is better). Thus, the Exchange would require that the 
Agency Order receive at least $0.01 price improvement if that Agency 
Order is for less than 50 contracts and if the difference between the 
NBBO is $0.01. For all other orders, regardless of size, the stop price 
must be at or better than the then current NBO (NBB). In light of the 
proposed change, the Exchange proposes to make a corresponding 
amendment to Rule 5.37(b)(1)(B) to provide that the stop price must be 
the better of the Agency Order's limit price (if the order is a limit 
order) or at or better than the then current NBBO if the Agency Order 
is for more than 50 standard options contracts (or 500 mini-option 
contracts) or if the NBBO width is greater than $0.01. The Exchange 
notes the proposed rule change aligns the Exchange's AIM functionality 
with the functionality of AIM on its affiliate exchange, Cboe EDGX 
Exchange, Inc (``Cboe EDGX'') and is consistent with other exchanges' 
rules with similar price improvement mechanisms.\8\
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    \7\ The ``NBBO width'' means the difference between the National 
Best Bid and National Best Offer.
    \8\ See Cboe EDGX Rule 21.19(b)(1). See also, e.g., Nasdaq PHLX 
LLC Options 3, Section 13(a) and Nasdaq ISE LLC Options 3, Section 
13(b).
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Implementation Date
    The Exchange proposes to announce the implementation date of the 
proposed rule change in an Exchange Notice, to be published no later 
than thirty (30) days following the operative date. The implementation 
date will be no later than sixty (60) days following the operative 
date.
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 its proposal will continue to 
promote opportunities for price improvement for Agency Orders for less 
than 50 standard options contracts (or 500 mini-option contracts) when 
the NBBO is $0.01 wide, while also continuing to provide opportunities 
for price improvement when spreads are wider than $0.01, regardless of 
order size, which helps to perfect the mechanism of a free and open 
market and, in general, helps to protect investors and the public 
interest. The Exchange believes that the changes to AIM requiring price 
improvement of at least one minimum price improvement increment over 
the NBBO for Agency Orders of less than 50 standard options contracts 
(or 500 mini-option contracts) where the difference in the NBBO is 
$0.01 will ensure that these particular small orders receive at least 
minimal price improvement. Additionally, the Exchange believes the 
proposal will result in more orders of less than 50 standard contracts 
(or 500 mini-option contracts) where the NBBO width is greater than 
$0.01 being executed in AIM, thus providing an increased probability of 
price improvement for small orders. By removing the requirement that 
the stop price must be at least one minimum increment better than the 
then NBBO for all orders of less than 50 standard option contracts (or 
500 mini-options contracts) regardless of what the NBBO width is, as 
proposed, market participants would be incentivized to introduce more 
orders to AIM for the opportunity to receive price improvement, thereby 
providing an increased probability of price improvement. The Exchange 
also notes the AIM Auction is now open to all Users, which also 
promotes and fosters competition, and may provide for additional 
liquidity in these auctions, which could lead to additional price 
improvement. The Exchange also notes that the AIM auction generally 
delivers a meaningful opportunity for price improvement to orders, 
including orders for fewer than 50 standard options contracts (or 500 
mini-option contracts), when the spread in the option is $0.02 or 
more.\12\ Conversely, there is generally

[[Page 21775]]

not significant price improvement when the NBBO has a bid/ask 
differential of $0.01. Accordingly, the Exchange believes the proposed 
rule change to continue to require price improvement of at least one 
minimum price increment over the NBBO for Agency orders for less than 
50 standard options contracts (or 500 mini-option contracts) when the 
difference in NBBO is $0.01 will help ensure that these small orders 
receive at least minimal price improvement, while also providing 
further price improvement opportunities in smaller-sized orders that 
have a NBBO spread wider than $0.01, which ultimately benefits 
investors and retail customers in particular.
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    \12\ See, e.g., Securities Exchange Release No. 79835 (January 
18, 2017) 82 FR 8445 (January 25, 2017) (SR-Phlx-2016-119).
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    Lastly, the Exchange notes the proposed rule change is generally 
intended to align system functionality currently offered by the 
Exchange with Cboe EDGX functionality in order to provide a consistent 
technology offering across the Exchange's affiliated exchanges. A 
consistent technology offering, in turn, will simplify the technology 
implementation, changes, and maintenance by TPHs that are also 
participants on Cboe EDGX. The Exchange believes this consistency will 
promote a fair and orderly national options market system.

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 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 it will apply uniformly to TPHs. 
Additionally, the Exchange notes that participation in the AIM process 
is completely voluntary. The Exchange believes all market participants 
may benefit from any additional liquidity and price improvement in the 
AIM Auctions that may result from the proposed rule change.
    The Exchange does not believe 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, as the proposed 
rule change relates to an Exchange-specific auction mechanism. The 
Exchange also notes that other options exchanges maintain similar 
requirements for their respective price improvement auctions.\13\
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    \13\ See Cboe EDGX Rule 21.19(b)(1). See also, e.g., Nasdaq PHLX 
LLC Options 3, Section 13(a) and Nasdaq ISE LLC Options 3, Section 
13(b).
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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:
    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 \14\ and 
Rule 19b-4(f)(6) \15\ 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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    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 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-CBOE-2021-024 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-2021-024. 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-2021-024, and should be submitted 
on or before May 14, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-08420 Filed 4-22-21; 8:45 am]
BILLING CODE 8011-01-P


