
[Federal Register Volume 88, Number 167 (Wednesday, August 30, 2023)]
[Notices]
[Pages 60005-60007]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-18675]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-98216; File No. SR-CBOE-2023-041]


Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
Its Rules in Connection With the Number of Legs of a Complex Order That 
May Be Entered on a Single Order Ticket at the Time of Systemization

August 24, 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 August 17, 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 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 Rules in connection with the number of legs of a complex 
order that may be entered on a single order ticket at the time of 
systemization. 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 its Rules in connection with the 
number of legs of a complex order that may be entered on a single order 
ticket at the time of systemization, for certain complex order types.
    Specifically, Rule 5.7(f) currently provides that each order, 
cancellation of, or change to an order transmitted to the Exchange must 
be ``systematized'' in a format approved by the Exchange, either before 
it is sent to the Exchange or upon receipt on the Exchange's trading 
floor. An order is systematized if (1) the order is sent electronically 
to the Exchange or (2) the order that is sent to the Exchange non-
electronically (e.g., telephone orders) is input electronically into 
the Exchange's systems contemporaneously upon receipt on the Exchange, 
and prior to representation of the order. Any proprietary system 
approved by the Exchange on the Exchange's trading floor that receives 
orders is considered an Exchange system for purposes of this Rule.\5\ 
Regarding the systemization of complex orders, Rule 5.7(f)(4) 
particularly provides that complex orders of 16 legs or less (one leg 
of which may be for an underlying security or security future, as 
applicable) must be entered on a single order ticket at time of 
systemization. If permitted by the Exchange, complex orders of more 
than 16 legs (one leg of which may be for an underlying security or 
security future, as applicable) may be split across multiple order 
tickets, if the Trading Permit Holder representing the complex order 
uses the fewest order tickets necessary to systematize the order and 
identifies for the Exchange the order tickets that are part of the same 
complex order (in a form and manner prescribed by the Exchange).
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    \5\ See Rule 5.7.03.
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    The Exchange notes that it adopted the 16-leg maximum per order 
ticket in 2021 as a result of Exchange system limitations.\6\ At that 
time, the Exchange could only support the processing of up to 16 legs 
on a single order ticket for representation and execution in open 
outcry as a complex order. Prior to that, in 2015, the Exchange had 
adopted a 12-leg maximum per order ticket.\7\ The Exchange understands 
from Trading Permit Holders (``TPHs'') that some orders they receive do 
have more than 16 legs, and many order entry and execution systems 
Floor Broker TPHs use on the trading floor, including Silexx,\8\ can 
support up to 100 legs. If a Floor Broker TPH receives a complex order 
for more than 16 legs for execution on the trading floor, it currently 
must break up the order into multiple tickets in accordance with Rule 
5.7(f)(4). The Exchange has enhanced its System to be able to support a 
greater number of legs per order ticket on the trading floor. As such, 
the Exchange proposes to amend Rule 5.7(f)(4) to increase the 16 leg 
maximum per single order ticket to a maximum of 100 legs per single 
order ticket at time of systemization, except for those complex orders 
designated as Electronic Only, which will continue to be subject to the 
current 16 leg limitation.\9\
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    \6\ See Securities Exchange Act Release No. 34-92116 (June 7, 
2021), 86 FR 31361 (June 11, 2021) (SR-CBOE-2021-036), which 
implemented the 16 leg per order requirement in current Rule 
5.7(f)(4).
    \7\ See Securities Exchange Act Release No. 74169 (January 29, 
2015), 80 FR 6145 (February 4, 2015) (SR-CBOE-2015-011), which 
implemented the previous 12 leg per order requirement.
    \8\ Each Floor Broker TPH has a Silexx workstation, which can be 
used to systematize orders. Therefore, each Floor Broker TPH will be 
able to immediately comply with the proposed rule change. The Silexx 
platform consists of a ``front-end'' order entry and management 
trading platform (also referred to as the ``Silexx terminal'') for 
listed stocks and options that supports both simple and complex 
orders, and a ``back-end'' platform which provides a connection to 
the infrastructure network. From the Silexx platform (i.e., the 
collective front-end and back-end platform), a Silexx user has the 
capability to, among other things, send option orders to U.S. 
options exchanges and send stock orders to U.S. stock exchanges (and 
other trading centers). The Silexx platform is designed so that a 
user may enter orders into the platform to send to an executing 
broker (including TPHs) of its choice with connectivity to the 
platform, which broker will then send the orders to Cboe Options (if 
the broker is a TPH) or other U.S. exchanges (and trading centers) 
in accordance with the user's instructions.
    \9\ See proposed Rule 5.7(f)(4).
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    Pursuant to proposed Rule 5.7(f)(4), complex orders of 100 legs or 
less (one

[[Page 60006]]

leg of which may be for an underlying security or security future, as 
applicable), except for those complex orders designated as Electronic 
Only, must be entered on a single order ticket at time of systemization 
and orders of more than 100 legs may be split across multiple order 
tickets.\10\ The TPH representing the complex order must continue to 
use the fewest order tickets necessary to systematize the order and to 
identify for the Exchange the order tickets that are part of the same 
complex order.\11\
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    \10\ To the extent a TPH wants to represent and execute a 
complex order (including SPX Combo Orders) in open outcry, the order 
must be entered (i.e. systematized) on a single order ticket and 
cannot, as proposed, exceed 100 legs or, if for more than 100 legs, 
entered on fewest order tickets necessary (linked in a form and 
manner prescribed by the Exchange). As similarly noted in the 2021 
filing that implemented the 16 leg per order requirement currently 
reflected in Rule 5.7(f)(4), TPHs will not be required to make 
changes to their own or third-party vendor's order entry and 
execution systems. The Exchange is aware that each Floor Broker TPH 
currently has a Silexx terminal, which supports up to 100 legs on a 
single order ticket for purposes of systemization. The Exchange 
notes that Floor Broker TPHs may voluntarily choose to use other 
order entry and execution systems for systematization, some of which 
the Exchange understands already support systemization of up to 100 
legs on a single order ticket. If the TPH intends to represent and 
execute complex orders with more than 16 legs (i.e., complex orders 
with 17 to 100 legs) on another order entry and execution system 
that cannot presently support up to 100 legs, then the TPH will need 
to enhance its existing system or utilize another order entry and 
execution system that supports the open outcry processing of such 
orders on a single order ticket. See also supra note 6. However, 
because all Floor Broker TPHs currently have Silexx terminals (in 
addition to potentially third-party terminals) on which they can 
systematize orders they receive via phone, IM or a system that 
supports fewer legs, all Floor Broker TPHs have immediate access to 
an order entry and execution system on the trading floor to 
systematize up to 100 legs on a single ticket for representation on 
the trading floor in compliance with the proposed rule change, 
making significant advanced notice of the proposed rule change 
unnecessary.
    \11\ The Exchange proposes to make a corresponding change to 
paragraph (3) under the definition of SPX Combo Order in Rule 
5.6(c), which currently reflects the same 16 leg maximum per single 
order ticket at time of systemization, to increase the permissible 
number of legs on the same order ticket to 100. An ``SPX Combo 
Order'' is an order to purchase or sell one or more SPX option 
series and the offsetting number of SPX combinations defined by the 
delta. See Rule 5.6(c).
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    Due to Exchange system limitations that may prevent a complex order 
with more than a certain number of legs from being entered on a single 
order ticket for representation and execution in open outcry, 
inefficiencies exist in the processing and tracking of such orders, as 
they currently must be entered on multiple tickets. The single order 
ticket leg increase to 100 legs for floor orders is intended to provide 
consistency in processing and enhance the Exchange's audit trail by 
reducing the number of tickets required for larger complex orders. 
Notwithstanding the necessity of order ticket leg maximums given 
Exchange system limitations, the Exchange notes that splitting an order 
across multiple order tickets takes additional time, can leave room for 
error, and requires additional TPH and Exchange regulatory surveillance 
administrative resources, as a TPH must identify for the Exchange the 
order tickets that are part of the same complex order (in a form and 
manner prescribed by the Exchange). The Exchange notes that complex 
orders with more than 16 legs may be sent to Floor Brokers on the 
Exchange's trading floor non-electronically (e.g., via telephone or 
instant message) or electronically through order entry and routing 
systems that may support fewer than 16 legs (some as few as 4 legs) on 
a single order ticket. As the proposed rule change only applies to the 
systemization of orders prior to representation of the order on the 
trading floor, the Floor Broker (which is a TPH) will be required to 
enter these multi-legged orders on a single order ticket. As noted 
above, each Floor Broker TPH has a Silexx workstation, which already 
supports up to 100 legs on a single ticket, thus permitting each Floor 
Broker TPH to immediately comply with the proposed rule change.\12\ 
Therefore, only alternative systems Floor Brokers may use on the 
Exchange's trading floor for systemization would need to be updated to 
allow for the input of orders with up to 100 legs on a single order 
ticket (if they are not already capable of allowing up to 100 legs on a 
single order ticket). The proposed rule change is designed to reduce 
the number of complex orders that TPHs need to break up into multiple 
order tickets, and ultimately allows TPHs to more effectively and 
efficiently systematize complex orders for execution in open outcry, 
and improves regulatory surveillance and tracking of such orders. 
Complex orders that are submitted for electronic processing will 
continue to be subject to the current 16 legs requirement.
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    \12\ See supra note 8.
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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.\13\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \14\ 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) \15\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(5).
    \15\ Id.
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    In particular, the Exchange believes the proposed rule change will 
allow TPHs to submit order tickets for their open outcry complex orders 
(including SPX Combo Orders) in a manner that is more compatible with 
the processing capacity that the Exchange and available order entry 
systems are able to support, thus reducing the number of complex orders 
that need to be broken up into multiple order tickets. By allowing TPHs 
to more effectively and efficiently systematize complex orders with a 
large amount of legs for execution in open outcry within the processing 
capacity limits of the order entry systems they use, the Exchange 
believes the proposed rule change removes impediments to and perfects 
the mechanism of a free and open market and national market system. The 
Exchange notes that the proposed rule change does not impact the 
current manner in which TPHs may represent a complex order in open 
outcry, nor does it impact the permissible ratios of complex orders. 
Further, those complex orders designated as Electronic Only will 
continue to be subject to the current 16 legs requirement.\16\ The 
proposed rule change merely increases the leg limit per single order 
ticket for non-Electronic Only complex orders, which may increase 
trading efficiencies for TPHs by allowing TPHs to reduce the number of 
order tickets submitted for their larger complex orders,\17\ while 
continuing to provide consistency in processing and further enhancing 
the Exchange's audit trail (as fewer orders will require multiple 
tickets). This, in turn, serves to

[[Page 60007]]

protect investors by promoting transparency, assisting in surveillance, 
and providing the Exchange the ability to better enforce compliance by 
its TPHs with the Act and the Exchange Rules.
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    \16\ As set forth in Rule 5.33(g), the Exchange's System may 
only electronically execute complex orders with up to 16 legs, and 
firms interested in electronic processing of their orders are not 
impacted by this change.
    \17\ See also supra note 9. [sic]
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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 a maximum 
number of legs per single order ticket will continue to apply equally 
to all market participants that systematize complex orders (including 
SPX Combo Orders) for execution in open outcry. 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 
is not competitive in nature nor does it relate to trading on the 
Exchange. Rather, it relates solely to the manner in which market 
participants systematize complex orders for trading on the Exchange's 
trading floor.

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) of the Act \18\ and Rule 19b-
4(f)(6) thereunder.\19\ 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-2023-041 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-2023-041. 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 a.m. and 3 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-2023-041 and should be submitted on or 
before September 20, 2023.

    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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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-18675 Filed 8-29-23; 8:45 am]
BILLING CODE 8011-01-P


