[Federal Register Volume 88, Number 112 (Monday, June 12, 2023)]
[Notices]
[Pages 38115-38117]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-12415]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-97654; File No. SR-CBOE-2023-029]


Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
Automated Price Improvement Auction Rules

June 6, 2023.
    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 May 25, 2023, 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 its automated price improvement auction rules. 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 5.37 (Automated Price 
Improvement Mechanism (``AIM'' or ``AIM Auction'')) and Rule 5.38 
(Complex Automated Improvement Mechanism (``C-AIM'' or ``C-AIM 
Auction'')) to modify the stop price requirements for auto-match orders 
submitted to AIM and C-AIM, respectively.
    By way of background, Rules 5.37 and 5.38 contain the requirements 
applicable to the execution of orders using AIM and C-AIM, 
respectively. The AIM and C-AIM auctions are electronic auctions 
intended to provide an Agency Order with the opportunity to receive 
price improvement (over the National Best Bid or Offer (``NBBO'') in 
AIM, or the synthetic best bid or offer (``SBBO'') on the Exchange in 
C-AIM. Upon submitting an Agency Order into an AIM or C-AIM auction, 
the initiating Trading Permit Holder (``Initiating TPH'') must also 
submit a contra-side second order (``Initiating Order'') for the same 
size as the Agency Order. The Initiating Order guarantees that the 
Agency Order will receive an execution at no worse than the auction 
price (i.e., acts as a stop). During an AIM or C-AIM Auction, market 
participants submit responses to trade against the Agency Order. At the 
end of an auction, depending on the contra-side interest available, the 
contra order may be allocated a certain percentage of the Agency 
Order.\5\
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    \5\ See generally Rules 5.37(e) and 5.38(e).
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    An Initiating TPH may initiate an AIM or C-AIM auction provided 
that the Agency Order is in a class and of sufficient size as 
determined by the Exchange. Further, there are requirements regarding 
the price at which the Initiating Order must stop the entire Agency 
Order, set forth in Rule 5.37(b) for AIM Auctions and Rule 5.38(b) for 
C-AIM Auctions. Requirements for the stop price depend on the order 
submitted, but in general, the stop price must be either better than 
the then-current NBBO (SBBO) or, in some cases, at or better than the 
NBBO (SBBO).\6\
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    \6\ See generally Rules 5.37(b) and 5.38(b).
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    Further, under Rules 5.37(b)(5) and 5.38(b)(4), an Initiating TPH, 
in entering the contra-side order, must either (1) specify a single 
price at which it seeks to execute the Agency Order against the 
Initiating Order, or (2) specify an initial

[[Page 38116]]

stop price and instruction to automatically match the price and size of 
all AIM or C-AIM responses and other contra-side trading interest 
(``auto-match'') at each price up to a designated limit price, or at 
all prices, better than the price at which the balance of the Agency 
Order can be fully executed (the ``final auction price''). Currently, 
the System will reject or cancel both an Agency Order and Initiating 
Order submitted to an AIM or C-AIM Auction that does meet the 
eligibility requirements set forth in Rules 5.37(a) and 5.38(a), and 
the stop price requirements set forth in Rules 5.37(b) and 5.38(b).
    The Exchange now proposes to amend Rule 5.37(b)(5) to state that, 
notwithstanding Rule 5.37(b)(1) through (4), if the initial stop price 
is worse than the then-current NBO (NBB) and auto-match was selected, 
the System changes the initial stop price for the Agency Order to be 
the then-current NBO (NBB) (or one minimum increment better than the 
then-current NBO (NBB) if the Agency Order is subject to the 
requirements set forth in Rules 5.34(b)(1)(A), (b)(2), or (b)(3). 
Similarly, the Exchange proposes to amend Rule 5.38(b)(4) to state 
that, notwithstanding Rule 5.37(b)(1) through (3), if the initial stop 
price is worse than the then-current SBO (SBB) and auto-match was 
selected, the System changes the initial stop price for the Agency 
Order to be the then-current SBO (SBB) (or one minimum increment better 
than the then-current SBO (SBB) if the Agency Order is subject to the 
requirements set forth in Rules 5.34(b)(1)(A), (b)(2), or (b)(3)(A). 
Under the proposed changes, the starting price (i.e., stop price) of 
the auction would match the NBBO (for AIM Auctions) or SBBO (for C-AIM 
Auctions) at the time of auction commencement. The proposed changes 
would apply to all AIM and C-AIM users that select auto-match.
    This change is designed to address situations where the NBBO or 
SBBO changes within the time that the User sends the order to the 
Exchange and the Exchange receives it, which may cause AIM and C-AIM 
orders to be cancelled. For example, assume a TPH submits to AIM 
Auction an Agency Order to buy and an Initiating Order with a starting 
price of 1.25 and an auto-match limit of 1.10, and the then-current 
NBBO is 1.00-1.25. While in transit, the NBBO changes to 0.90-1.10. 
Under the current rules, the orders would be rejected, as the starting 
price (initial stop price) of 1.25 is now outside the current NBBO 
(even though the firm has designated an auto-match limit of 1.10, which 
is equal to the NBBO at the time the Exchange receives the order). 
Under the proposed rule, the orders would be accepted, and the auction 
starting price will be 1.10 (due to the NBBO change), and the auction 
would proceed pursuant to the remainder of the Rule.
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.\7\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
section 6(b)(5) \8\ 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) \9\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
    \9\ Id.
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    The Exchange believes the proposed rule change will promote just 
and equitable principles of trade and protect investors. In particular, 
the Exchange believes that its proposal to allow an order with an 
initial stop price inferior to the then-current NBBO or SBBO to be 
submitted to AIM or C-AIM Auction if auto-match is selected will 
provide Agency Orders with additional opportunities for price 
improvement and execution. Specifically, the changes are designed to 
stop orders from being rejected from AIM and C-AIM Auctions in 
situations where an order may have an initial stop price that is 
inferior to the then-current NBBO or SBBO, despite the fact that the 
Initiating TPH has, through its auto-match selection, demonstrated a 
willingness to execute against the Agency Order at a price that matches 
or improves upon the then-current NBBO or SBBO, as applicable. The 
Exchange believes the changes are consistent with the intended result 
of the stop price requirement, as the Initiating TPH is effectively 
guaranteeing that the Agency Order will receive an execution at no 
worse than the auction price, which is at or better than the NBBO at 
the time the auction begins, via the auto-match mechanism.\10\ As such, 
the Exchange believes the changes will preserve the quality of the 
auctions, while providing increased execution and price improvement 
opportunities for Agency Orders, which helps to perfect the mechanism 
of a free and open market and, in general, helps to protect investors 
and the public interest.\11\
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    \10\ Note, the proposed rule change continues to provide price 
improvement assurances for those for buy (sell) Agency Orders 
submitted for AIM Auction processing with less than 50 standard 
option contracts (or 500 mini-option contracts or 5,000 micro-option 
contracts) and NBBO width of $0.01, pursuant to Rule 5.37(b)(1)(A), 
which remains unchanged.
    \11\ See supra note 10.
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    The Exchange notes that the AIM and C-AIM Auctions generally 
deliver meaningful opportunities for price improvement to orders and 
provide an efficient manner of access to liquidity for customers. The 
Exchange believes that the proposed changes to these auctions will 
permit more Agency Orders to receive such meaningful opportunities, as 
intended, and ensure they are not inadvertently penalized by being 
rejected rather than auctioned if markets move during the order 
submission process, which ultimately benefits investors.

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 the proposed rule change will impose any burden on intramarket 
competition because it will apply uniformly to all Agency Orders 
submitted into AIM and C-AIM Auctions and to all TPHs. Additionally, 
the Exchange notes that participation in the AIM and C-AIM auctions is 
completely voluntary. The Exchange believes all market participants may 
benefit from any additional liquidity, execution opportunities, and 
price improvement in the AIM and C-AIM Auctions that may result from 
the proposed rule change.
    The Exchange does not believe 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 the proposed 
rule change relates to price requirements for an Exchange-specific 
auction mechanism and will continue to require auctions to start at

[[Page 38117]]

prices at or better than the NBBO at the start of the auction.\12\
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    \12\ See supra note 10.
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    Finally, the Exchange notes that it operates in a highly 
competitive market, and members have numerous alternative venues they 
may participate on and direct their order flow, including other options 
exchanges that have implemented similar electronic price improvement 
mechanisms with auto-match pricing. Participants can readily choose to 
send their orders to other exchanges if they deem those other venues to 
be more 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: (i) 
significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to section 19(b)(3)(A)(iii) of the Act \13\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\14\
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    \13\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \14\ 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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    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 shall institute proceedings to 
determine whether the proposed rule should be approved or disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-CBOE-2023-029 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-2023-029. 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 office 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-CBOE-2023-029 and should be submitted on 
or before July 3, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-12415 Filed 6-9-23; 8:45 am]
BILLING CODE 8011-01-P


