[Federal Register Volume 86, Number 180 (Tuesday, September 21, 2021)]
[Notices]
[Pages 52521-52523]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-20327]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-92988; File No. SR-CBOE-2021-053]


Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
Rule 5.5(c) and Rule 5.6(d) in Connection With Time-In-Force 
Instructions Available for Bulk Messages for the Account of a Market 
Maker

September 15, 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 September 9, 2021, Cboe Exchange, Inc. (the ``Exchange'' or 
``Cboe Options'') 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 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 the 
Substance of the Proposed Rule Change

    Cboe Exchange, Inc. (the ``Exchange'' or ``Cboe Options'') proposes 
to amend Rule 5.5(c) and Rule 5.6(d) in connection with Time-in-Force 
instructions available for bulk messages. 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 5.5(c) and Rule 5.6(d) to allow 
Users to instruct bulk messages with a Time-in-Force of Immediate-or-
Cancel (``IOC''). Currently, Users may not designate bulk messages as 
IOC, which, pursuant to Rule 5.6(d), instructs a limit order to execute 
in whole or in part as soon as the System receives it. The System 
cancels and does not post to the Book an IOC order (or unexecuted 
portion) not executed immediately on the Exchange or another options 
exchange. A bulk message is 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. More, specifically, bulk 
message functionality is available to Market-Makers and permits them to 
update their electronic quotes in block quantities across series in a 
class. Rule 5.5(c)(3)(A)(i) currently provides that a bulk message 
submitted through a dedicated logical port (i.e., a ``bulk port'') has 
a Time-in-Force of Day. Pursuant to Rule 5.6(d), the term ``Day'' 
means, for an order so designated, an order or quote that, if not 
executed, expires at the RTH market close. All bulk messages have a 
Time in Force of Day, as set forth in Rule 5.5(c). The Exchange notes 
that, pursuant to Rule 5.6(a), a Time-in-Force applied to a bulk 
message applies to each bid and offer within that bulk message.
    The Exchange proposes to allow Market-Makers to designate bulk 
messages as IOC by amending the following: Rule 5.3(c)(3)(A)(i) to 
provide that a bulk message submitted through a bulk port has a Time-
in-Force of Day or IOC; the definition of IOC in Rule 5.6(d) to provide 
that Users may designate bulk messages as IOC; and the definition of 
``Day'' in Rule 5.6(d) to remove the language that all bulk messages 
have a Time-in-Force of Day, as set forth in Rule 5.5(c), and instead 
provide that Users may designate bulk messages as Day.
    A Market-Maker's primary purpose is to provide liquidity to the 
market, which it may do in various ways, including resting quotes on 
the Book as well as submitting quotes to trade against other resting 
interest on the Book. In addition to providing liquidity via continuous 
quotes in a Market-Maker's appointed classes,\5\ as part of its quoting 
obligations, a Market-Maker is also required to maintain active markets 
in its appointed classes, update quotations in response to changed 
market conditions in its appointed classes and compete with other 
Market-Makers in its appointed classes.\6\ As part of a Market-Maker's 
efforts to satisfy these obligations, a Market-Maker may update quotes 
with the specific purpose of removing interest resting in the Book. 
This may provide additional execution opportunities for customers, 
thereby encouraging an increase in overall participation in an 
appointed class.
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    \5\ See Rule 5.51(a)(1).
    \6\ See Rule 5.51(a)(3)-(5).
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    Currently, if a Market-Maker wishes to execute against interest in 
the Book, a Market-Maker will enter a Book Only bulk message or modify 
an existing bulk message to attempt to execute against such interest, 
followed immediately by a bulk message to cancel the preceding bulk 
message (or unexecuted portion) so that no portion of that bulk message 
will remain displayed on the Book. Essentially, in order to execute 
against interest on the Book, Market-Makers may currently send a 
sequence of bulk messages that mimic the result of an IOC instruction--
ultimately the bulk message is cancelled and does not post to the Book 
if it is not executed immediately against resting interest. Sending a 
bulk message to cancel immediately following the submission of a bulk 
message or a bulk message modification to execute against resting 
interest creates an extra step for Market-Makers (compared to Trading 
Permit Holders (``TPHs'') that may use IOC orders to accomplish this) 
using bulk message functionality and requires the System to process 
additional messages. As such, the proposed rule change to permit 
Market-Makers to designate their bulk messages as IOC would allow them 
to attempt more effectively and efficiently to execute against interest 
in the Book and would reduce message traffic by eliminating the need 
for Market-Makers to send multiple messages to attempt this. The 
Exchange notes that Market-Makers may already use bulk messages to 
remove liquidity from the Book (if they so elect) using the ``Book 
Only'' instruction and, as described above, Market-Makers may already 
use bulk messages to remove liquidity without letting nonexecuted size 
rest on the Book. The proposed rule

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change merely streamlines the manner in which Market-Makers may already 
utilize bulk messages to execute against interest on the Book without 
sending an unexecuted bulk message (or unexecuted portion) to the Book 
thereafter. Also, Market-Makers may already designate their quotes 
submitted in an order as IOC.\7\
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    \7\ A ``quote'' or ``quotation'' is a firm bid or offer a 
Market-Maker may submit electronically in an order or bulk message. 
See Rule 1.1. The Exchange also notes that, while Market-Makers may 
currently instruct their orders, including quotes submitted as 
orders, as IOC, the Exchange understands that Market-Makers 
predominantly conduct their trading activity through and design 
their business models around the use [sic] bulk messages.
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    The Exchange notes that bulk message functionality is designed to 
facilitate Market-Makers quoting on the Exchange in connection with 
their responsibility as liquidity providers. For example, the current 
requirement that bulk messages have a Time-in-Force of Day is 
consistent with general practice of Market-Makers to enter new quotes 
at the beginning of each trading day, as well as a Market-Maker's 
obligation to update its quotes in response to changed market 
conditions in its appointed classes. The provision that allows Market-
Makers to designate their bulk messages as Post Only or Book Only is 
intended to provide Market-Makers with flexibility to use these 
instructions to permit them to execute against resting interest upon 
entry or add liquidity to the Book in connection with their various 
obligations in a manner they deem appropriate.\8\ The Exchange believes 
that the proposed rule change likewise permits Market-Makers to use an 
instruction with respect to their bulk messages as an additional tool 
to provide liquidity to the market and meet their various obligations 
(such as maintaining active markets in an appointed class, updating 
quotations in response to changed market conditions in an appointed 
class and competing with other Market-Makers in an appointed class) in 
a manner they deem appropriate, which may include removing interest in 
the Book to subsequently post updated quotes at potentially tighter 
spreads and to provide additional execution opportunities at 
potentially improved prices. The Exchange also believes that the 
proposed rule change enhances a current means by which Market-Makers 
use bulk messages to facilitate the provision of liquidity on the 
Exchange. That is, Market-Makers using bulk messages with an IOC 
instruction, as proposed, may more efficiently execute against resting 
interest, thereby increasing execution opportunities for orders resting 
on the Book. An increase in transactions on the Exchange may facilitate 
tighter spreads and price discovery, and, as a result, encourage 
increased participation and additional order flow from other market 
participants. The Exchange notes that the submission of bulk messages 
to the Exchange is voluntary and that Market-Makers may continue to 
elect to use bulk messages designated as Day in the same manner as they 
do today, including sending a bulk message immediately followed by a 
cancel to attempt to execute against resting interest.
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    \8\ See Securities Exchange Release Nos. 86374 (July 15, 2019), 
84 FR 34963 (July 19, 2019) (SR-CBOE-2019-033); and 88816 (May 6, 
2020), 85 FR 28131 (May 12, 2020) (SR-CBOE-2020-041). The Exchange 
notes that SR-CBOE-2019-033 implemented bulk message functionality 
to replace the Exchange's prior block quoting functionality, which 
likewise allowed a Market-Maker to submit a single message 
containing bids and offers in multiple series; however, the Exchange 
Rules did not prohibit an IOC designation for quotes submitted in 
block quantities.
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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 
allowing Market-Makers to designate their bulk messages as IOC will 
remove impediments to and perfect the mechanism of a free and open 
market and national market system and benefit investors by permitting 
Market-Makers to more effectively and efficiently execute bulk messages 
against specific interest on the Book without posting an unexecuted 
bulk message (or unexecuted portion) to the Book thereafter. As 
described above, Market-Makers already submit bulk messages in a manner 
that mimics an IOC instruction; the proposed rule change merely 
streamlines this process for Market-Markets by allowing them to use a 
Time-in-Force instruction currently available for their orders (which 
may also contain a Market-Maker's quotes) on the Exchange today. In 
addition to this, Market-Makers may already include Book Only 
instructions that permit their bulk messages to remove liquidity from 
the Book. The proposed rule change is designed to benefit market 
participants by increasing efficiency and reducing additional message 
traffic by eliminating the need for Market-Makers to send an additional 
bulk message to cancel along with their bulk messages in instances in 
which they wish to execute against interest that appears on the Book. 
The proposed rule change allows Market-Makers to elect to use their 
bulk messages as additional tools to meet their various obligations in 
a manner they deem appropriate, consistent with the purpose of bulk 
message functionality to facilitate Market-Makers' provision of 
liquidity, which may include removing interest in the Book to 
subsequently post updated quotes at potentially tighter spreads and to 
provide additional execution opportunities at potentially improved 
prices. Also, the use of IOC bulk messages for Market-Makers may 
ultimately facilitate the provision of additional liquidity on the by 
increasing execution opportunities on the Exchange, as an increase in 
transactions on the Exchange may facilitate tighter spreads and price 
discovery, thereby encouraging increased participation and additional 
order flow from other market participants, to the benefit of all 
investors. Market-Makers may continue to elect to use bulk messages 
designated as Day in the same manner as they do today, including 
sending a bulk message immediately followed by a cancel to attempt to 
execute against resting interest.
    Additionally, the Exchange does not believe that the proposed rule 
change would permit unfair discrimination as bulk message functionality 
is principally designed to facilitate the provision of liquidity by 
Market-Makers to the Exchange and help Market-Makers' satisfy their 
obligations. The Exchange believes that Market-Makers play a unique and 
critical role in the

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options market by providing liquid and active markets and are subject 
to various quoting obligations (which other market participants are 
not), including an obligation to maintain active markets, to update 
quotations in response to changed market conditions and to compete with 
other Market-Makers in its appointed classes. Bulk message 
functionality, including an IOC bulk message, provides Market-Makers 
with a means to help them satisfy these obligations. As noted above, 
Market-Makers are already able to use Book Only bulk messages to 
execute against resting liquidity in multiple series across a class and 
to cancel quotes in multiple series across a class. The proposed rule 
change simply allows Market-Makers to utilize their bulk messages in 
the same manner, just with a single message.

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 the IOC instruction 
for bulk messages will be available for all Market-Makers that choose 
to submit bulk messages. Use of the IOC instruction for bulk messages 
is voluntary, and Market-Makers may choose to continue to only apply 
the Day Time-in-Force to bulk messages and continue to attempt to 
execute bulk messages against resting interest using multiple messages 
as they do today. The proposed rule change permits Market-Makers to use 
a Time-in-Force that is already available to all TPHs, including 
Market-Makers, to apply to their orders. While only Market-Makers may 
submit IOC bulk messages (as only Market-Makers may currently submit 
any bulk messages), the Exchange believes this is appropriate given the 
various obligations Market-Makers must satisfy under the Rules and the 
unique and critical role Market-Makers play in the options market by 
providing liquid and active markets. The Exchange believes providing 
Market-Makers with flexibility to use the IOC instruction with respect 
to bulk messages will provide Market-Makers with an enhanced tool to 
provide liquidity to the market and satisfy their obligations in a 
manner they deem appropriate, as they are similarly able to do today by 
electing the Book Only and Post Only instructions for their bulk 
messages.
    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 as it relates to 
quoting functionality available to Market-Makers on the Exchange. The 
Exchange notes that market participants on other exchanges are welcome 
to become Market-Makers on the Exchange if they determine that this 
proposed rule change has made participation as a Market-Maker on the 
Exchange more attractive or favorable.

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 \12\ and 
Rule 19b-4(f)(6) \13\ 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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    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 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-2021-053 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-2021-053. 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 such 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-2021-053, and should be submitted 
on or before October 12, 2021.
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    \14\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-20327 Filed 9-20-21; 8:45 am]
BILLING CODE 8011-01-P


