[Federal Register Volume 86, Number 196 (Thursday, October 14, 2021)]
[Notices]
[Pages 57234-57237]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-22274]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-93269; File No. SR-C2-2021-014]


Self-Regulatory Organizations; Cboe C2 Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
Rule 5.5(c) and Rule 5.6 in Connection With Time-In-Force Instructions 
Available for Bulk Messages and To Make a Clarifying Change

October 7, 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 24, 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, 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 C2 Exchange, Inc. (the ``Exchange'' or ``C2'') proposes to 
amend Rule 5.5(c) and Rule 5.6 in connection with Time-in-Force 
instructions available for bulk messages and to make a clarifying 
change. 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 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 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,

[[Page 57235]]

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 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\ The Exchange notes that a Market-Maker may submit their 
quotes electronically in an order or bulk message. 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 
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. 85038 (February 1, 
2019), 84 FR 2598 (February 7, 2019) (SR-C2-2018-025); and 88814 
(May 5, 2020), 85 FR 27779 (May 11, 2020) (SR-C2-2020-005). The 
Exchange notes that SR-C2-2018-025 implemented bulk message 
functionality to be consistent with the bulk message functionality, 
also adopted at that time, by its affiliated options exchange, Cboe 
Exchange, Inc. (``Cboe Options''). The Exchange notes that Cboe 
Option's bulk message functionality replaced its prior block quoting 
functionality, which likewise allowed a Market Maker to submit a 
single message containing bids and offers in multiple series; 
however, Cboe Options Rules did not prohibit an IOC designation for 
quotes submitted in block quantities.
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    The proposed rule change also updates Rule 5.6(a), which currently 
provides that, unless otherwise specified in the Rules or the context 
indicates otherwise, the Exchange determines which of the following 
order types, Order Instructions, and Times-in-Force are available on a 
class, system, or trading session basis. The Exchange notes that, 
currently, an Order Instruction or Time-in-Force applied to a bulk 
message applies to each bid and offer within that bulk message. The 
proposed rule change updates Rules 5.6(a) to make this explicit. The 
proposed rule change does not alter any current functionality, but 
instead adds clarity to the Rule by more accurately reflecting the 
current application of such designations to bulk messages.
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

[[Page 57236]]

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-Makers 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 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.
    Additionally, the Exchange believes that the proposed rule change 
regarding the manner in which an Order Instruction and Time-in-Force 
instruction is applied to bulk messages removes impediments to and 
perfects the mechanism of a free and open market and national market 
system by amending Rule 5.6(a) to reflect current functionality. The 
proposed rule change is merely a clarification in the Rule intended to 
more accurately reflect how bulk message functionality currently works, 
thereby increasing transparency in the Rule and ultimately benefitting 
investors. The proposed clarification does not alter any current 
functionality and is simply intended to provide clarity to the Rule.

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 in connection with IOC bulk 
messages 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 in 
connection with IOC bulk messages 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.
    The proposed rule change in connection with the application of

[[Page 57237]]

Order Instructions and Times-in-Force instructions to bulk messages is 
not competitive in nature but is merely a clarification in the Rule, 
consistent with existing bulk message functionality and intended to 
provide clarity to the Rule by more accurately reflecting the current 
bulk message functionality. All Order Instructions and Times-in-Force 
instructions will continue to apply to bulk messages in the same manner 
as they do today.

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 [email protected]. Please include 
File Number SR-C2-2021-014 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-C2-2021-014. 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-C2-2021-014, and should be submitted on 
or before November 4, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-22274 Filed 10-13-21; 8:45 am]
BILLING CODE 8011-01-P


