[Federal Register Volume 88, Number 92 (Friday, May 12, 2023)]
[Notices]
[Pages 30810-30812]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-10123]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-97456; File No. SR-C2-2023-011]


Self-Regulatory Organizations; Cboe C2 Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
Rule 5.32 Regarding Certain Cancel-Replace Messages

May 8, 2023.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on April 25, 2023, Cboe C2 Exchange, Inc. (the ``Exchange'' or ``C2'') 
filed with the Securities and Exchange Commission (``SEC'' or 
``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the Exchange. 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.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Cboe C2 Exchange, Inc. (the ``Exchange'' or ``C2 Options'') 
proposes to amend Rule 5.32. 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 5.32(e) to describe the impact 
on priority of a ``no-change'' order \3\ (i.e., an order submitted to 
cancel or replace a resting order that does not change any terms of an 
order) and of a cancel/replace message that does not change the price 
or size of a resting order but changes another term of an order. 
Current Rule 5.32(e) describes whether a resting order's priority 
position may change if it is modified with a cancel/replace message. 
Specifically, current Rule 5.32(e) states if the price of an order is 
changed, the order loses position and is placed in a priority position 
as if the System received the order at the time the order was changed. 
If the quantity of an order is decreased, it retains its priority 
position. If the quantity of an order is increased, it loses its 
priority position and is placed in a priority position as if the System 
received the order at the time the quantity of the order is increased.
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    \3\ In this context, the term ``order'' includes bids and offers 
submitted in bulk messages. A bulk message means a bid or offer 
included in a single electronic message a user submits with an M 
(Market-Maker) capacity to the Exchange in which the User may enter, 
modify, or cancel up to an Exchange-specified number of bids and 
offers. See Rule 1.1 (definition of bulk message, which provides 
that the System handles a bulk message bid or offer in the same 
manner as it handles an order or quote, unless the Rules specify 
otherwise).
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    Rule 5.32(e), however, is currently silent regarding how the System 
handles a cancel-replace message comprised of a no-change order or an 
order that changes terms other than price and size. The Exchange 
recently determined that if the System receives a no-change order, the 
resting order would lose its priority position; however, if the System 
receives a ``no-change'' bid or offer in a bulk message, the resting 
bid or offer would not lose its priority position. The Exchange 
proposes to harmonize the handling of all no-change orders and quotes 
so that any ``no-change'' order or bulk message bid or offer will lose 
priority, as well as add to the Rules how the System handles no-change 
orders. Additionally, the Exchange proposes to codify current System 
functionality that causes a resting order to lose its priority position 
if any cancel/replace message is submitted if any term other than the 
Max Floor (if a Reserve Order) \4\ or the stop price (if a Stop or 
Stop-Limit order \5\) is modified. Therefore, the proposed rule change 
amends Rule 5.32(e) to state if a User submits a cancel/replace message 
for a resting order, regardless of whether the cancel/replace message 
modifies any terms of the resting order, the order loses its priority 
position and is placed in a priority position based on the time the 
System receives the cancel/replace message, unless the User only (1) 
decreases the quantity of an order (as is currently set forth in the 
Rules), (2) modifies the Max Floor (if a Reserve Order), or (3) 
modifies the stop price (if a Stop or Stop-Limit order), in which case 
the order retains its priority position.
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    \4\ A ``Reserve Order'' is a limit order with both a portion of 
the quantity displayed (``Display Quantity'') and a reserve portion 
of the quantity (``Reserve Quantity'') not displayed. Both the 
Display Quantity and Reserve Quantity of the Reserve Order are 
available for potential execution against incoming orders. When 
entering a Reserve Order, a User must instruct the Exchange as to 
the quantity of the order to be initially displayed by the System 
(``Max Floor''). If the Display Quantity of a Reserve Order is fully 
executed, the System will, in accordance with the User's 
instruction, replenish the Display Quantity from the Reserve 
Quantity using one of the below replenishment instructions. If the 
remainder of an order is less than the replenishment amount, the 
System will display the entire remainder of the order. The System 
creates a new timestamp for both the Display Quantity and Reserve 
Quantity of the order each time it is replenished from reserve. A 
User may attach an instruction for random replenishment (where the 
System randomly replenishes the Display Quantity for the order with 
a number of contracts not outside a replenishment range, which 
equals the Max Floor plus and minus a replenishment value 
established by the User when entering a Reserve Order with a Random 
Replenishment instruction) or fixed replenishment (the System will 
replenish the Display Quantity of an order with the number of 
contracts equal to the Max Floor). See Rule 5.6(c).
    \5\ A ``Stop (Stop-Loss)'' order is an order to buy (sell) that 
becomes a market order when the consolidated last sale price 
(excluding prices from complex order trades if outside of the NBBO) 
or NBB (NBO) for a particular option contract is equal to or above 
(below) the stop price specified by the User. A ``Stop-Limit'' order 
is an order to buy (sell) that becomes a limit order when the 
consolidated last sale price (excluding prices from complex order 
trades if outside the NBBO) or NBB (NBO) for a particular option 
contract is equal to or above (below) the stop price specified by 
the User. See Rule 5.6(c).
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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.\6\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
section 6(b)(5) \7\ requirements that the rules of an exchange be 
designed to prevent fraudulent and manipulative acts and

[[Page 30811]]

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) \8\ requirement that the rules of 
an exchange not be designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
    \8\ Id.
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    In particular, the Exchange believes the proposed rule change will 
remove impediments to and perfect the mechanism of a free and open 
market as well as protect investors by adding transparency to the Rules 
regarding how the System handles cancel/replace messages that change no 
order terms or change order terms other than price and size. The 
Exchange believes consistency in handling of all no-change orders and 
quotes will simplify order handling and thus further benefit investors. 
The Exchange believes it is reasonable for a user's resting order to 
lose priority if that user submits a cancel/replace order, including a 
no-change order, to replace that resting order (other than the three 
exceptions). Ultimately, the purpose of a cancel and replace message is 
to replace a resting order with a new order; therefore, it is 
appropriate for the System to treat that replacement order as a new 
order for purposes of priority. Despite the fact that a cancel/replace 
message does not modify the price or size of a resting order (and thus 
has no investment purpose), a user elected to send that new order to 
the Exchange despite having an identical order resting on the 
Exchange's book and use System capacity to do so. Therefore, the 
Exchange believes it promotes just and equitable principles of trade to 
treat that replacement order as a new order for priority purposes. The 
Exchange believes the proposed rule change encourages users to submit 
to the Exchange only bona fide cancel/replace orders that have 
legitimate investment purposes and discourages use of System capacity 
to send unnecessary message traffic.
    As set forth in the current Rule 5.32(e), a cancel/replace order 
that decreases the size of a resting order would continue to not result 
in a loss of priority position is an order. The Exchange believes it is 
appropriate to continue to not have this type of cancel/replace order 
cause a loss of priority because it is consistent with a partial 
execution of that order, which would similarly not cause a loss of 
priority.\9\ Unlike a no-change order, an order to reduce the size of a 
resting order may have a legitimate investment purpose, such as to 
reduce execution risk. Additionally, the Exchange believes it will 
remove impediments to and perfect the mechanism of a free and open 
market as well as protect investors by adding transparency to codify 
that a change to the Max Floor (if a Reserve Order) or the stop price 
(if a Stop or Stop-Limit order) will not cause a resting order to lose 
priority because it is unnecessary given the handling of those orders 
and the fact that at that time there is no priority to lose. Such 
handling is consistent with the definitions and handling of both of 
those order types. Specifically, as set forth in the definition of a 
Reserve Order, the Max Floor amount is relevant for replenishment of 
the Display Quantity of the order after execution, and once 
replenished, the System creates a new timestamp for both the Display 
Quantity and Reserve Quantity of the order each time it is replenished 
from reserve (i.e., prioritizes it in the book at the time of 
replenishment). Therefore, there is no need for a loss in priority due 
to a change in the Max Floor amount because that order will have its 
priority reset once it is replenished with that new amount. Similarly, 
as set forth in the definitions of Stop and Stop-Limit orders, those 
orders become market or limit orders, respectively, once triggered and 
thus placed on the book as market or limit orders and prioritized based 
on that time. The stop price is the piece of information that 
determines when these orders will be triggered. As a result, there is 
no need for an order to lose priority due to a change in the stop price 
given that those orders have not yet been prioritized on the Book and 
will be prioritized once triggered and entered into the Book for 
potential execution.
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    \9\ See Rule 5.32(d).
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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 the System will handle 
all cancel/replace orders from all users in the same manner. All 
cancel/replace orders, except for the three exceptions, will cause the 
resting order to lose priority. The three types of cancel/replace 
orders that will not cause a resting order to lose priority and are 
consistent with current order handling rules. 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 
only impacts priority of orders resting on the Exchange's book and thus 
will have no impact on terms of an order that are disseminated to 
market participants or on trading outside of the Exchange.

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 \10\ and 
Rule 19b-4(f)(6) \11\ 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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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 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.

[[Page 30812]]

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-C2-2023-011 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-C2-2023-011. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549 on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal offices of the Exchange. Do not include 
personal identifiable information in submissions; you should submit 
only information that you wish to make available publicly. We may 
redact in part or withhold entirely from publication submitted material 
that is obscene or subject to copyright protection. All submissions 
should refer to File Number SR-C2-2023-011, and should be submitted on 
or before June 2, 2023.
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    \12\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-10123 Filed 5-11-23; 8:45 am]
BILLING CODE 8011-01-P


