[Federal Register Volume 86, Number 111 (Friday, June 11, 2021)]
[Notices]
[Pages 31361-31363]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-12243]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-92116; File No. SR-CBOE-2021-036]


Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
Its Rules in Connection With the Number of Legs of a Complex Order That 
May Be Entered on a Single Order Ticket at the Time of Systemization

June 7, 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 May 25, 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 and 
II 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 Exchange, Inc. (the ``Exchange'' or ``Cboe Options'') proposes 
to amend its Rules in connection with the number of legs of a complex 
order that may be entered on a single order ticket at the time of 
systemization. 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 the 
number of legs of a complex order that may be entered on a single order 
ticket at the time of systemization.
    Specifically, Rule 5.7(f) currently provides that each order, 
cancellation of, or change to an order transmitted to the Exchange must 
be ``systematized'' in a format approved by the Exchange, either before 
it is sent to the Exchange or upon receipt on the Exchange's trading 
floor. An order is systematized if (1) the order is sent electronically 
to the Exchange or (2) the order that is sent to the Exchange 
nonelectronically (e.g., telephone orders) is input electronically into 
the Exchange's systems contemporaneously upon receipt on the Exchange, 
and prior to representation of the order. Any proprietary system 
approved by the Exchange on the Exchange's trading floor that receives 
orders is considered an Exchange system for purposes of this Rule.\5\ 
Regarding the systemization of complex orders, Rule 5.7(f)(4) 
particularly provides that complex orders of 12 legs or less (one leg 
of which may be for an underlying security or security future, as 
applicable) must be entered on a single order ticket at time of 
systemization. If permitted by the Exchange (which the Exchange will 
announce by Regulatory Circular), complex orders of more than 12 legs 
(one leg of which may be for an underlying security or security future, 
as applicable) may be split across multiple order tickets, if the 
Trading Permit Holder representing the complex order uses the fewest 
order tickets necessary to systematize the order and identifies for the 
Exchange the order tickets that are part of the same complex order (in 
a form and manner prescribed by the Exchange).
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    \5\ See Rule 5.7.03.
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    The Exchange notes that it adopted the 12 leg maximum per order 
ticket in 2015 as a result of Exchange system limitations.\6\ At that 
time, the Exchange could only support the processing of up to 12 legs 
on a single order ticket for representation and execution in open 
outcry as a complex order.\7\ Based on customer feedback, the Exchange 
understands that there are order entry and execution systems used by 
Trading Permit Holders (``TPHs'') that are able to support at least 16 
legs. If a TPH with a system that can support 16 legs on a single order 
ticket receives a complex order for more than 12 legs to route to an 
Exchange system for execution on the Exchange's trading floor, it must 
break up the order to comply with Rule 5.7(f)(4). As such, the Exchange 
proposes to amend Rule 5.7(f)(4) to increase the 12 leg maximum per 
single order ticket to a maximum of 16 legs per single order ticket at 
time of systemization. Pursuant to proposed Rule 5.7(f)(4), complex 
orders of 16 legs or less (one leg of which may be for an underlying 
security or security future, as applicable) must be entered on a single 
order ticket at time of systemization and orders of more than 16 legs 
may be split across multiple order tickets.\8\ The TPH representing the 
complex order must continue to use the fewest order tickets necessary 
to systematize the order and to identify for the Exchange the order 
tickets that are part of the same complex order. In addition, the 
proposed rule change also

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updates paragraph (3) under the definition of SPX Combo Order \9\ in 
Rule 5.6(c), which currently reflects the same 12 leg maximum per 
single order ticket at time of systemization, to provide that an SPX 
Combo Order for 16 legs or fewer must be entered on a single order 
ticket at time of systemization and that an SPX Combo Order for more 
than 16 legs may be represented or executed as a single SPX Combo Order 
in accordance with Rule 5.85(e) if it is split across multiple order 
tickets and the Trading Permit Holder representing the SPX Combo Order 
uses the fewest order tickets necessary to systematize the order and 
identifies for the Exchange the order tickets that are part of the same 
SPX Combo Order.
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    \6\ See Securities Exchange Act Release No. 74169 (January 29, 
2015), 80 FR 6145 (February 4, 2015) (SR-CBOE-2015-011), which 
implemented the 12 leg per order requirement in current Rule 
5.7(f)(4); see also Securities Exchange Act Release No. 75026 (May 
21, 2015), 80 FR 30514 (May 28, 2015) (SR-CBOE-2015-048).
    \7\ Exchange systems have, since 2015, been enhanced and are 
able to support a greater number of legs per order ticket.
    \8\ As similarly noted in the 2015 filing that implemented the 
12 leg per order requirement currently reflected in Rule 5.7(f)(4), 
TPHs will not be required to make changes to their own or third-
party vendor's order entry and execution systems. However, to the 
extent a TPH wants to represent and execute a complex order 
(including SPX Combo Orders) in open outcry, the order must be 
entered on a single order ticket and cannot exceed 16 legs or, if 
for more than 16 legs, entered on fewest order tickets necessary 
(linked in a form and manner prescribed by the Exchange). For 
example, if a TPH's order entry and execution system currently only 
supports the open outcry processing of a complex order with up to 12 
legs, the system would not need to be enhanced if the TPH does not 
intend to represent and execute complex orders with more than 12 
legs. If the TPH intends to represent and execute complex orders 
with more than 12 legs (i.e., complex orders with 13 to 16 legs), 
then the TPH may need to enhance its existing system or utilize a 
third-party vendor's order entry and execution system that supports 
the open outcry processing of such orders on a single order ticket. 
See also SR-CBOE-2015-011, supra note 6. The Exchange additionally 
notes that it plans to implement the proposed change approximately 
60 days after disseminating notice of the proposed change to its 
TPHs. The Exchange believes that this will provide TPHs that intend 
to represent and execute complex orders with more than 12 legs with 
ample time to enhance, if necessary, their existing systems or 
utilize a third-party vendor's order entry and execution system that 
supports the open outcry processing of such orders on a single order 
ticket.
    \9\ An ``SPX Combo Order'' is an order to purchase or sell one 
or more SPX option series and the offsetting number of SPX 
combinations defined by the delta. See Rule 5.6(c).
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    Due to Exchange system limitations that may prevent a complex order 
with more than a certain number of legs from being entered on a single 
order ticket for representation and execution in open outcry, the 
single order ticket leg limitations in place are intended to provide 
consistency in processing and in order to continue to enhance the 
Exchange's audit trail by reducing the number of tickets required for 
larger complex orders. Notwithstanding the necessity of order ticket 
leg maximums given Exchange system limitations, the Exchange notes that 
splitting an order across multiple order tickets takes additional time, 
can leave room for error, and requires additional TPH administrative 
resources as a TPH must identify for the Exchange the order tickets 
that are part of the same complex order (in a form and manner 
prescribed by the Exchange). The proposed rule change is designed to 
reduce the number of complex orders that TPHs need to break up into 
multiple order tickets. As a result, the proposed rule change 
ultimately allows TPHs to more effectively and efficiently systematize 
complex orders for execution in open outcry.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Securities Exchange Act of 1934 (``Act'') and the rules and 
regulations thereunder applicable to the Exchange and, in particular, 
the requirements of Section 6(b) of the Act.\10\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \11\ 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)\12\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(5).
    \12\ Id.
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    In particular, the Exchange believes the proposed rule change will 
allow TPHs to submit order tickets for their open outcry complex orders 
(including SPX Combo Orders) in a manner that is more compatible with 
the processing capacity that their order entry systems are able to 
support today,\13\ thus reducing the number of complex orders that need 
to be broken up into multiple order tickets. By allowing TPHs to more 
effectively and efficiently systematize complex orders with a large 
amount of legs for execution in open outcry within the processing 
capacity limits of the order entry systems they use, the Exchange 
believes the proposed rule change removes impediments to and perfects 
the mechanism of a free and open market and national market system. The 
Exchange notes that the proposed rule change does not impact the 
current manner in which TPHs may represent a complex order in open 
outcry, nor does it impact the permissible number of legs or 
permissible ratios of complex orders. The proposed rule change merely 
increases the leg limit per single order ticket, which may increase 
trading efficiencies for TPHs by allowing TPHs to reduce the number of 
order tickets submitted for their larger complex orders,\14\ while 
continuing to provide consistency in processing and further enhancing 
the Exchange's audit trail (as fewer orders will require multiple 
tickets). This, in turn, serves to protect investors by promoting 
transparency, assisting in surveillance, and providing the Exchange the 
ability to better enforce compliance by its TPHs with the Act and the 
Exchange Rules.
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    \13\ See also supra note 7.
    \14\ See also supra note 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 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 a maximum number of legs 
per single order ticket will continue apply equally to all market 
participants that systematize complex orders (including SPX Combo 
Orders) for execution in open outcry. 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 rule change is not competitive 
in nature nor does it relate to trading on the Exchange. Rather, it 
relates solely to the manner in which market participants systematize 
complex orders for trading on the Exchange's trading floor.

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) of the Act \15\ and Rule 19b-
4(f)(6) thereunder.\16\
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    \15\ 15 U.S.C. 78s(b)(3)(A).
    \16\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization 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 date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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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

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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-CBOE-2021-036 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-2021-036. 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-CBOE-2021-036, and should be 
submitted on or before July 2, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-12243 Filed 6-10-21; 8:45 am]
BILLING CODE 8011-01-P


