[Federal Register Volume 87, Number 15 (Monday, January 24, 2022)]
[Notices]
[Pages 3592-3597]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-01222]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-93990; SR-CBOE-2022-003]


Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
Rule 6.5 To Improve the Operation of the Rule

January 18, 2022.
    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, 2022, 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 
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 Exchange, Inc. (the ``Exchange'' or ``Cboe Options'') proposes 
to amend Rule 6.5 to improve the operation of the Rule. The text of the 
proposed rule change is provided below.

(additions are italicized; deletions are [bracketed])
* * * * *

Rules of Cboe Exchange, Inc.

* * * * *

Rule 6.5. Nullification and Adjustment of Option Transactions Including 
Obvious Errors

* * * * *
    (b) Theoretical Price. Upon receipt of a request for review and 
prior to any review of a transaction execution price, the 
``Theoretical Price'' for the option must be determined. For 
purposes of this Rule, if the applicable option series is traded on 
at least one other options exchange, then the Theoretical Price of 
an option series is the last NBB just prior to the trade in question 
with respect to an erroneous sell transaction or the last NBO just 
prior to the trade in question with respect to an erroneous buy 
transaction unless one of the exceptions in sub-paragraphs (b)(1) 
through (3) below exists. For purposes of this provision, when

[[Page 3593]]

a single order received by the Exchange is executed at multiple 
price levels, the last NBB and last NBO just prior to the trade in 
question would be the last NBB and last NBO just prior to the 
Exchange's receipt of the order. The Exchange will rely on this 
paragraph (b) and Interpretation and Policy .08 of this Rule when 
determining Theoretical Price.
    (1)-(2) No change.
    (3) Wide Quotes.
    (A) The Exchange will determine the Theoretical Price if the 
bid/ask differential of the NBB and NBO for the affected series just 
prior to the erroneous transaction was equal to or greater than the 
Minimum Amount set forth below and there was a bid/ask differential 
less than the Minimum Amount during the 10 seconds prior to the 
transaction. If there was no bid/ask differential less than the 
Minimum Amount during the 10 seconds prior to the transaction then 
the Theoretical Price of an option series is the last NBB or NBO 
just prior to the transaction in question, as set forth in paragraph 
(b) above.

------------------------------------------------------------------------
                                                                Minimum
                  Bid price at time of trade                     amount
------------------------------------------------------------------------
Below $2.00..................................................      $0.75
$2.00 to $5.00...............................................       1.25
Above $5.00 to $10.00........................................       1.50
Above $10.00 to $20.00.......................................       2.50
Above $20.00 to $50.00.......................................       3.00
Above $50.00 to $100.00......................................       4.50
Above $100.00................................................       6.00
------------------------------------------------------------------------

(B) Customer Transactions Occurring Within 10 Seconds or Less After 
an Opening or Reopening

    (i) The Exchange will determine the Theoretical Price if the 
bid/ask differential of the NBB and NBO for the affected series just 
prior to the Customer's erroneous transaction was equal to or 
greater than the Minimum Amount set forth in subparagraph (A) above 
and there was a bid/ask differential less than the Minimum Amount 
during the 10 seconds prior to the transaction.
    (ii) If there was no bid/ask differential less than the Minimum 
Amount during the 10 seconds prior to the transaction, then the 
Exchange will determine the Theoretical Price if the bid/ask 
differential of the NBB and NBO for the affected series just prior 
to the Customer's erroneous transaction was equal to or greater than 
the Minimum Amount set forth in subparagraph (A) above and there was 
a bid/ask differential less than the Minimum Amount anytime during 
the 10 seconds after an opening or re-opening.
    (iii) If there was no bid/ask differential less than the Minimum 
Amount during the 10 seconds following an opening or reopening, then 
the Theoretical Price of an option series is the last NBB or NBO 
just prior to the Customer transaction in question, as set forth in 
paragraph (b) above.
    (iv) Customer transactions occurring more than 10 seconds after 
an opening or re-opening are subject to subparagraph (A) above.
    (c) Obvious Errors
    (1)-(3) No change.
    (4) Adjust or Bust. If it is determined that an Obvious Error 
has occurred, the Exchange shall take one of the actions listed 
below. Upon taking final action, the Exchange shall promptly notify 
both parties to the trade electronically or via telephone.
    (A) No change.
    (B) Customer Transactions. Where at least one party to the 
Obvious Error is a Customer, the execution price of the transaction 
will be adjusted by the Official pursuant to the table immediately 
above. Any Customer Obvious Error exceeding 50 contracts will be 
subject to the Size Adjustment Modifier defined in subparagraph 
(a)(4) above. However, if such adjustment(s) would result in an 
execution price higher (for buy transactions) or lower (for sell 
transactions) than the Customer's limit price, the trade will be 
nullified, subject to subparagraph (4)(C) below.
* * * * *
    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 purpose of this rule change is to amend Rule 6.5, 
``Nullification and Adjustment of Options Transactions including 
Obvious Errors,'' to improve the operation of the Rule. Following 
discussions with other exchanges and a cross-section of industry 
participants and in coordination with the Listed Options Market 
Structure Working Group (``LOMSWG'') (collectively, the ``Industry 
Working Group''), the Exchange proposes: (1) To amend subsection (b)(3) 
of Rule 6.5 to permit the Exchange to determine the Theoretical Price 
of a Customer option transaction in a wide market so long as a narrow 
market exists at any point during the 10-second period after an opening 
or re-opening; and (2) to amend subsection (c)(4)(B) of Rule 6.5 to 
adjust, rather than nullify, Customer transactions in Obvious Error 
situations, provided the adjustment does not violate the limit price. 
The Commission recently approved an identical proposed rule change of 
NYSE Arca, LLC (``NYSE Arca'').\5\ The Exchange understands that other 
options exchanges will also submit substantively identical proposals to 
the Commission.
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    \5\ See Securities Exchange Act Release No. 93818 (December 17, 
2021), 86 FR 73009 (December 23, 2021) (SR-NYSEArca-2021-91).
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Proposed Change to Subsection (b)(3)
    Rule 6.5 has been part of various harmonization efforts by the 
Industry Working Group.\6\ These efforts have often centered around the 
Theoretical Price for which an options transaction should be compared 
to determine whether an Obvious Error has occurred. For instance, all 
options exchanges have adopted language comparable to Rule 6.5, 
Interpretation and Policy .08,\7\ which explains how an exchange is to 
determine Theoretical Price at the open, when there are no valid 
quotes, and when there is a wide quote. This includes at times the use 
of a singular third-party vendor, known as a TP Provider (currently 
CBOE Livevol, LLC).
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    \6\ See Securities Exchange Act Release Nos. 74898 (May 7, 
2015), 80 FR 27354 (May 13, 2015) (SR-CBOE-2015-039); and 80040 
(February 14, 2017), 82 FR 11248 (February 21, 2017) (SR-CBOE-2016-
088).
    \7\ See Securities Exchange Act Release No. 81516 (August 31, 
2017), 82 FR 42375 (September 7, 2017) (SR-CBOE-2017-058).
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    Similarly, subsection (b)(3) of Rule 6.5 was previously harmonized 
across all options exchanges to handle situations where executions 
occur in markets that are wide (as set forth in the Rule).\8\ Under 
that subsection, the Exchange determines the Theoretical Price if the 
NBBO for the subject series is wide immediately before execution and a 
narrow market (as set forth in the Rule) existed ``during the 10 
seconds prior to the transaction.'' The Rule goes on to clarify that, 
should there be no narrow quotes ``during the 10 seconds prior to the 
transaction,'' the Theoretical Price for the affected series is the 
NBBO that existed at the time of execution (regardless of its width).
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    \8\ See Securities Exchange Act Release No. 74898 (May 7, 2015), 
80 FR 27354 (May 13, 2015) (SR-CBOE-2015-039).
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    In recent discussions, the Industry Working Group has identified 
proposed changes to subsection (b)(3) of Rule 6.5 that the Industry 
Working Group believes would improve the Rule's functioning. Currently, 
subsection (b)(3) does not permit the Exchange to determine the 
Theoretical Price unless there is a narrow quote 10 seconds prior

[[Page 3594]]

to the transaction. However, in the first seconds of trading, there is 
no 10-second period ``prior to the transaction.'' Further, the Industry 
Working Group has observed that prices in certain series can be 
disjointed at the start of trading. Accordingly, the Exchange proposes 
to provide additional protections to trading in certain circumstances 
immediately after the opening before liquidity has had a chance to 
enter the market. The Exchange proposes to amend subsection (b)(3) to 
allow the Exchange to determine the Theoretical Price in a wide market 
so long as a narrow market exists at any point during the 10-second 
period after an opening or re-opening.
    Specifically, the Exchange proposes that the existing text of 
subsection (b)(3) would become subparagraph ``(A).'' The Exchange 
proposes to add the following heading and text as subparagraph ``(B)'':

(B) Customer Transactions Occurring Within 10 Seconds or Less After 
an Opening or Reopening

    (i) The Exchange will determine the Theoretical Price if the 
bid/ask differential of the NBB and NBO for the affected series just 
prior to the Customer's erroneous transaction was equal to or 
greater than the Minimum Amount set forth in subparagraph (A) above 
and there was a bid/ask differential less than the Minimum Amount 
during the 10 seconds prior to the transaction.
    (ii) If there was no bid/ask differential less than the Minimum 
Amount during the 10 seconds prior to the transaction, then the 
Exchange will determine the Theoretical Price if the bid/ask 
differential of the NBB and NBO for the affected series just prior 
to the Customer's erroneous transaction was equal to or greater than 
the Minimum Amount set forth in subparagraph (A) above and there was 
a bid/ask differential less than the Minimum Amount anytime during 
the 10 seconds after an opening or re-opening.
    (iii) If there was no bid/ask differential less than the Minimum 
Amount during the 10 seconds following an opening or reopening, then 
the Theoretical Price of an option series is the last NBB or NBO 
just prior to the Customer transaction in question, as set forth in 
paragraph (b) above.
    (iv) Customer transactions occurring more than 10 seconds after 
an opening or re-opening are subject to subparagraph (A) above.

    The following examples illustrate the functioning of the proposed 
rule change. Consider that the NBBO of a series opens as $0.01 at 
$4.00. A marketable limit order to buy one contract arrives one second 
later and is executed at $4.00. In the third second of trading, the 
NBBO narrows from $0.01 at $4.00 to $2.00 at $2.10. While the execution 
occurred in a market with wide widths, there was no tight market within 
the 10 seconds prior to execution. Accordingly, under the current rule, 
the trade would not qualify for obvious error review, in part due to 
the fact that there was only a single second of trading before the 
execution. Under the proposal, since a tight market existed at some 
point in the first 10 seconds of trading (i.e., in the third second), 
the Exchange would be able to determine the Theoretical Price as 
provided in Interpretation and Policy .08.
    As another example, the NBBO for a series opens as $0.01 at $4.00. 
In the seventh second of trading, a marketable limit order is received 
to buy one contract and is executed at $4.00. Five seconds later (i.e., 
in the twelfth second of trading), the NBBO narrows from $0.01 at $4.00 
to $2.00 at $2.10. While the execution occurred in a market with wide 
widths, there was no tight market within 10 seconds prior to execution. 
Accordingly, under the current Rule, the trade would not qualify for 
obvious error review. Under the proposal, since no tight market existed 
at any point during the first 10 seconds of trading (i.e., the narrow 
market occurred in the twelfth second), the trade would not qualify for 
obvious error review.
    The proposed rule change would also better harmonize subsection 
(b)(3) with subsection (b)(1) of Rule 6.5. Under subsection (b)(1), the 
Exchange is permitted to determine the Theoretical Price for 
transactions occurring as part of the Opening Process (as defined in 
Rule 5.31) if there is no NBB or NBO for the affected series just prior 
to the erroneous transaction. However, under the current version of 
subsection (b)(3), a core trading transaction could occur in the same 
wide market but the Exchange would not be permitted to determine the 
Theoretical Price. Consider an example where, one second after the 
Exchange opens a selected series, the NBBO is $1.00 at $5.00. At 
9:30:03, a customer submits a marketable buy order to the Exchange and 
pays $5.00. At 9:30:03, a different exchange runs an opening auction 
that results in a customer paying $5.00 for the same selected series. 
At 9:30:06, the NBBO changes from $1.00 at $5.00 to $1.35 at $1.45. 
Under the current version of subsection (b)(3), the Exchange would not 
be able to determine the Theoretical Price for the trade occurring 
during core trading. However, the trade on the other exchange could be 
submitted for review under subsection (b)(1) and that exchange would be 
able to determine the Theoretical Price. If the proposed change to 
subsection (b)(3) were approved, both of the trades occurring at 
9:30:03 (on the Exchange during core trading and on another exchange 
via auction) would also be entitled to the same review regarding the 
same Theoretical Price based upon the same time.
    The proposal would not change any obvious error review beyond the 
first 10 seconds of an opening or re-opening.
Proposed Change to Subsection (c)(4)(B)
    The Exchange proposes to amend subsection (c)(4)(B) of Rule 6.5--
the ``Adjust or Bust'' rule for Customer transactions in Obvious Error 
situations--to adjust rather than nullify such orders, provided the 
adjustment does not violate the Customer's limit price. Currently, the 
Rule provides that in Obvious Error situations, transactions involving 
non-Customers should be adjusted, while transactions involving 
Customers are nullified, unless a certain condition applies.\9\ The 
Industry Working Group has concluded that the treatment of these 
transactions should be harmonized under the Rule, such that 
transactions involving Customers may benefit from adjustment, just as 
non-Customer transactions currently do, except where such adjustment 
would violate the Customer's limit price; in that instance, the trade 
would be nullified.
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    \9\ Specifically, the current Rule provides at subsection 
(c)(4)(C) that if a TPH has 200 or more Customer transactions under 
review concurrently and the orders resulting in such transactions 
were submitted during the course of two minutes or less, where at 
least one party to the Obvious Error is a non-Customer, then the 
Exchange will apply the non-Customer adjustment criteria found in 
subsection (c)(4)(A).
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    Specifically, the Exchange proposes to amend the text of subsection 
(c)(4)(B) to add that where at least one party to the Obvious Error is 
a Customer, ``the execution price of the transaction will be adjusted 
by the Official pursuant to the table immediately above. Any Customer 
Obvious Error exceeding 50 contracts will be subject to the Size 
Adjustment Modifier defined in subparagraph (a)(4) of the Rule. 
However, if such adjustment(s) would result in an execution price 
higher (for buy transactions) or lower (for sell transactions) than the 
Customer's limit price,'' the trade will be nullified. The ``table 
immediately above'' referenced in the proposed text refers to the table 
at current subsection (c)(4)(A), which provides for the adjustment of 
prices a specified amount away from the Theoretical Price, rather than 
adjusting the Theoretical Price.
    The Exchange proposes no other changes at this time.
Implementation Date
    The Exchange will announce the operative date of the proposed 
changes

[[Page 3595]]

in accordance with Rule 1.5.\10\ The proposed changes will become 
operative no sooner than six months from the date the Commission 
approved the identical NYSE Arca filing \11\ in order for the 
Exchange's implementation of the proposed rule changes to coincide with 
the implementation of the same changes on all other options exchanges.
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    \10\ Pursuant to Rule 1.5, the Exchange announces to TPHs all 
determinations it makes pursuant to the Rules via: (1) 
Specifications, notices, or regulatory circulars with appropriate 
advanced notice, which are posted on the Exchange's website, or as 
otherwise provided in the Rules; (2) electronic message; or (3) 
other communication method as provided in the Rules.
    \11\ See Securities Exchange Act Release No. 93818 (December 17, 
2021), 86 FR 73009 (December 23, 2021) (SR-NYSEArca-2021-91).
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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.\12\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \13\ 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) \14\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(5).
    \14\ Id.
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    In particular, the Exchange believes that the proposed change to 
subsection (b)(3) of Rule 6.5 would remove impediments to and perfect 
the mechanism of a free and open market and a national market system, 
and, in general, protect investors and the public interest because it 
provides a method for addressing Obvious Error Customer transactions 
that occur in a wide market at the opening of trading. Generally, a 
wide market is an indication of a lack of liquidity in the market such 
that the market is unreliable. Current subsection (b)(3) recognizes 
that a persistently wide quote (i.e., more than 10 seconds) should be 
considered the reliable market regardless of its width but does not 
address transactions that occur in a wide market in the first seconds 
of trading, where there is no preceding 10-second period to reference. 
Accordingly, in the first 10 seconds of trading, there is no 
opportunity for a wide quote to have persisted for a sufficiently 
lengthy period such that the market should consider it a reliable 
market for the purposes of determining an Obvious Error transaction.
    The proposed change would rectify this disparity and permit the 
Exchange to consider whether a narrow quote is present at any time 
during the 10-second period after an opening or re-opening. The 
presence of such a narrow quote would indicate that the market has 
gained sufficient liquidity and that the previous wide market was 
unreliable, such that it would be appropriate for the Exchange to 
determine the Theoretical Price of an Obvious Error transaction. In 
this way, the proposed rule harmonizes the treatment of Customer 
transactions that execute in an unreliable market at any point of the 
trading day, by making them uniformly subject to Exchange determination 
of the Theoretical Price.
    The Exchange believes that the proposed change to subsection 
(c)(4)(B) of the Rule would remove impediments to and perfect the 
mechanism of a free and open market and a national market system and 
enhance the protection of investors by harmonizing the treatment of 
non-Customer transactions and Customer transactions under the Rule. 
Under the current Rule, Obvious Error situations involving non-Customer 
transactions are adjusted, while those involving Customer transactions 
are generally nullified, unless they meet the additional requirements 
of subsection (c)(4)(C) (i.e., where a TPH has 200 or more Customer 
transactions under review concurrently and the orders resulting in such 
transactions were submitted during the course of two minutes or less). 
The proposal would harmonize the treatment of non-Customer and Customer 
transactions by providing for the adjustment of all such transactions, 
except where such adjustment would violate the Customer's limit price.
    When it proposed the current rule in 2015, the Exchange believed 
there were sound reasons for treating non-Customer transactions and 
Customer transactions differently. At the time, the Exchange stated its 
belief that ``Customers are not necessarily immersed in the day-to-day 
trading of the markets, are less likely to be watching trading activity 
in a particular option throughout the day, and may have limited funds 
in their trading accounts,'' and that nullifying Obvious Error 
transactions involving Customers would give Customers ``greater 
protections'' than adjusting such transactions by eliminating the 
possibility that a Customer's order will be adjusted to a significantly 
different price. The Exchange also noted its belief that ``Customers 
are . . . less likely to have engaged in significant hedging or other 
trading activity based on earlier transactions, and thus, are less in 
need of maintaining a position at an adjusted price than non-
Customers.'' \15\
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    \15\ See Securities Exchange Act Release No. 74898 (May 7, 
2015), 80 FR 27354 (May 13, 2015) (SR-CBOE-2015-039).
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    Those assumptions about Customer trading and hedging activity no 
longer hold. The Exchange and the Industry Working Group believe that 
over the course of the last five years, Customers that use options have 
become more sophisticated, as retail broker-dealers have enhanced the 
trading tools available. Pursuant to OCC data, volumes clearing in the 
Customer range have expanded from 12,022,163 ADV in 2015 to 35,081,130 
ADV in 2021. This increase in trading activity underscores the greater 
understanding of options by Customers as a trading tool and its use in 
the markets. Customers who trade options today largely are more 
educated, have better trading tools, and have better access to 
financial news than any time prior.\16\ The proposed rule would extend 
the hedging protections currently enjoyed by non-Customers to 
Customers, by allowing them to maintain an option position at an 
adjusted price, which would in turn prevent a cascading effect by 
maintaining the hedge relationship between the option transaction and 
any other transactions in a related security.
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    \16\ See ``Retail Traders Adopt Options En Masse'' by Dan Raju, 
available at https://www.nasdaq.com/articles/retail-traders-adopt-options-en-masse-2020-12-08.
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    The Exchange believes that extending such hedging protections to 
Customer transactions would remove impediments to and perfect the 
mechanism of a free and open market and a national market system and 
enhance the protection of investors by providing greater certainty of 
execution for all participants to options transactions. Under the 
current Rule, a Customer that believes its transaction was executed 
pursuant to an Obvious Error may be disincentivized from submitting the 
transaction for review, since during the review process, the Customer 
would be uncertain whether the trade would be nullified, and if so, 
whether market conditions would still

[[Page 3596]]

permit the opportunity to execute a related order at a better price 
after the nullification ruling is finalized. In contrast, under the 
proposed rule, the Customer would know that the only likely outcomes of 
submitting a trade to Obvious Error review would be that the trade 
would stand or be re-executed at a better price; the trade would only 
be nullified if the adjustment would violate the order's limit. 
Similarly, under the current Rule, during the review period, a market 
maker who traded contra to the Customer would be uncertain if it should 
retain any position executed to hedge the original trade, or attempt to 
unwind it, possibly at a significant loss. Under the proposed rule 
change, this uncertainty is largely eliminated, and the question would 
be whether the already executed and hedged trade would be adjusted to a 
better price for the Customer, or if it would stand as originally 
executed. In this way, the proposed rule enhances the protection of 
investors and removes impediments to and perfects the mechanism of a 
free and open market and a national market system.
    The proposed rule also addresses the concern the Exchange cited in 
its 2015 filing that adjusting, rather than nullifying, Customer 
transactions could lead to a Customer's order being adjusted to a 
significantly different price. To address that concern, the proposed 
rule would prevent Customer transactions from being adjusted to a price 
that violates the order's limit; if the adjustment would violate a 
Customer's limit, the trade would instead be nullified. The Exchange 
believes it is in the best interest of investors to expand the 
availability of adjustments to Customer transactions in all Obvious 
Error situations except where the adjustment would violate the 
Customer's limit price.
    Further, the Exchange believes that, with respect to such proposed 
adjustments to Customer transactions, it is appropriate to use the same 
form of adjustment as is currently in place with respect to non-
Customer transactions as laid out in the table in subsection (c)(4)(A). 
That is, the Exchange believes that it is appropriate to adjust to 
prices a specified amount away from the Theoretical Price rather than 
to adjust the Theoretical Price, even though the Exchange has 
determined a given trade to be erroneous in nature, because the parties 
in question should have had some expectation of execution at the price 
or prices submitted. Also, it is common that by the time it is 
determined that an Obvious Error has occurred, additional hedging and 
trading activity has already occurred based on the executions that 
previously happened. The Exchange believes that providing an adjustment 
to the Theoretical Price in all cases would not appropriately 
incentivize market participants to maintain appropriate controls to 
avoid potential errors, while adjusting to prices a specified amount 
away from the Theoretical Price would incentivize such behavior.
    The Exchange believes that the proposal is not designed to permit 
unfair discrimination between customers, issuers, brokers, or dealers. 
The proposed change to subsection (b)(3) would apply to all instances 
of a wide market occurring within the first 10 seconds of trading 
followed by a narrow market at any point in the subsequent 10-second 
period, regardless of the types of market participants involved in such 
transactions. The proposed change to subsection (c)(4)(B) would 
harmonize the treatment of Obvious Error transactions involving 
Customers and non-Customers, no matter what type of market participants 
those parties may be.
    For these reasons, the Exchange believes that the proposal is 
consistent with the Act.

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 proposed rule change is 
identical to a NYSE Arca proposed rule change recently approved by the 
Commission.\17\ The Exchange anticipates that the other options 
exchanges will adopt substantively similar proposals, such that there 
would be no burden on intermarket competition from the Exchange's 
proposal. Accordingly, the proposed change is not meant to affect 
competition among the options exchanges. For these reasons, the 
Exchange believes that the proposed rule change reflects this 
competitive environment and does not impose any undue burden on 
intermarket competition.
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    \17\ See Securities Exchange Act Release No. 93818 (December 17, 
2021), 86 FR 73009 (December 23, 2021) (SR-NYSEArca-2021-91).
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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 \18\ and 
Rule 19b-4(f)(6) \19\ 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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    \18\ 15 U.S.C. 78s(b)(3)(A).
    \19\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file 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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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-CBOE-2022-003 on the subject line.

Paper Comments

     Send paper comments in triplicate to Vanessa Countryman, 
Secretary, Securities and Exchange Commission, 100 F Street NE, 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-CBOE-2022-003. 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

[[Page 3597]]

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-2022-003 and should be submitted on or before February 14, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-01222 Filed 1-21-22; 8:45 am]
BILLING CODE 8011-01-P


