[Federal Register Volume 85, Number 92 (Tuesday, May 12, 2020)]
[Notices]
[Pages 28131-28133]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-10054]
[[Page 28131]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-88816; File No. SR-CBOE-2020-041]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change Relating
To Amend Its Definition of Bulk Messages in Rule 1.1 and Amend Rule
5.5(c)(3)
May 6, 2020.
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 24, 2020, Cboe Exchange, Inc. (the ``Exchange'' or ``Cboe
Options'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I and
II 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 Exchange, Inc. (the ``Exchange'' or ``Cboe Options'') proposes
to amend its definition of bulk messages in Rule 1.1 and amend Rule
5.5(c)(3). 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 bulk
message functionality to offer this functionality exclusively to
Market-Makers on the Exchange. Currently, Cboe Options Market-Makers
generally submit their quotes electronically using bulk messages. A
bulk message is a single electronic message a User may submit to the
Exchange in which the User may enter, modify, or cancel up to an
Exchange-specified number of bids and offers. Bulk message
functionality was adopted by the Exchange in connection with a recent
technology migration and made available to all Users in place of the
Exchange's prior quoting functionality, which was available only to
Market-Makers and permitted them to update their electronic quotes in
block quantities.\3\ Currently, the definition of a bulk message in
Rule 1.1 provides that a User may submit a bulk message through a bulk
port, which is a dedicated logical port. Current Rule 5.5(c)(3)
provides that a bulk message submitted through a logical port is
subject to the following: (1) It has a Time-in-Force of Day; (2) a
Market-Maker with an appointment in a class may designate a bulk
message for that class as Post Only or Book Only, and other Users must
designate a bulk message for that class as Post Only; and (3) a User
may establish a default MTP Modifier of MCN, MCO, or MCB, and a default
value of Attributable or Non-Attributable, for a bulk port, each of
which applies to all bulk messages submitted to the Exchange through
that bulk port. Additionally, Users may submit single orders through a
bulk port in the same manner as Users may submit orders to the Exchange
through any other type of port, including designated with any order
instruction and any time-in-force,\4\ and as auction responses (using
auction response messages). The primary purpose of bulk ports and bulk
messages is to encourage liquidity provision, particularly by Market-
Makers, on the Exchange.\5\
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\3\ See Securities Exchange Release No. 86374 (July 15, 2019) 84
FR 34963 (July 19, 2019) (SR-CBOE-2019-033).
\4\ A Market-Maker with an appointment in a class may designate
an order for that class submitted through a bulk port only as Post
Only or Book Only, and other Users must designate an order for that
class submitted through a bulk port as Post Only. See Rule
5.5(c)(3)(B).
\5\ See supra note 3.
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The Exchange proposes to amend the definition of bulk messages in
Rule 1.1 so that Market-Makers may exclusively submit bulk messages
(the same quotation functionality that was prior offered exclusively to
Market-Makers up until October 2019 \6\) and proposes to update Rule
5.5(c)(3) regarding bulk ports accordingly. Specifically, the proposed
rule change amends the definition of bulk messages to provide that the
term ``bulk message'' means a single electronic message a User submits
with an M Capacity (i.e., for the account of a Market-Maker) to the
Exchange in which the User may enter, modify, or cancel up to an
Exchange-specified number of bids and offers. In this way, the bulk
messages submitted through bulk ports would be attributed only to
Market-Maker quotes. In line with the proposed amendment to the User
Capacity permitted to submit bulk messages, the proposed rule change
also updates Rule 5.5(c)(3)(A)(ii) to provide that, while a Market-
Maker with an appointment in a class may designate a bulk message for
that class as a Post Only or Book Only, a non-appointed Market-Maker,
as opposed to any other User, must designate a bulk message for that
class as Post Only. This is currently the case for Market-Makers
submitting bulk messages in non-appointed classes and the proposed rule
change merely reflects the specific type of other User (i.e., Market-
Makers not appointed in a class) that will be able to submit bulk
messages. The Exchange also notes that the proposed rule change updates
the term User to Market-Maker in Rule 5.5(c)(3)(A)(iii) to reflect the
proposed amendment to the User Capacity permitted to submit bulk
messages and provide uniformity for the terms used throughout Rule
5.5(c)(3)(A).
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\6\ See id.
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The Exchange notes that the vast majority of bulk messages
submitted through bulk ports are for the account of a Market-Maker.
Indeed, over the second half of March 2020 the Exchange observed that
no non-Market-Makers submitted bulk messages through bulk ports.
Because so few non-Market-Maker Users opt to use this functionality,
the Exchange believes that the current demand does not warrant the
Exchange resources necessary for ongoing System support for non-Market-
Maker bulk messaging. The Exchange notes that the use of bulk messages
is voluntary and non-Market-Maker Users will continue to be able to
submit their single orders and auction responses through bulk ports and
other logical ports in the same manner as they currently do.
[[Page 28132]]
The Exchange notes that limiting the offering of quoting
functionality to Market-Makers is not new or unique as other options
exchanges currently offer quoting functionality only to their market
makers.\7\ Indeed, bulk message functionality (including submission
through bulk ports) is geared toward encouraging Market-Maker quoting
on the Exchange. For example, the requirement that bulk messages have a
time-in-force of Day is intended to be consistent with a Market-Maker's
obligation to update its quotes in response to changed market
conditions in its appointed classes, and the provision that allows
Market-Makers to designate their bulk messages as Post Only or Book
Only (as opposed to the limitation to Post Only for other Users' bulk
messages) is intended to provide Market-Makers with flexibility to use
these instructions with respect to their bulk messages as additional
tools to meet their quoting obligations in a manner they deem
appropriate.\8\ Additionally, as noted above, the Exchange offered
quote message functionality (which was substantially similar to current
bulk message functionality) only to Market-Makers until October 7,
2019.
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\7\ See Nasdaq Phlx Options 1, Section 7(a)(B), which provides
for its ``Specialized Quote Feed'', a quoting interface offered
specifically to market makers on Phlx; and see generally MIAX
Options Rule 517, which provide for the different types of quotes
and quoting mechanisms offered specifically to market makers on MIAX
Options.
\8\ See supra note 3.
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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.\9\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \10\ requirements that the rules of an exchange be
designed to prevent fraudulent and manipulative acts and practices, to
promote just and equitable principles of trade, to foster cooperation
and coordination with persons engaged in regulating, clearing,
settling, processing information with respect to, and facilitating
transactions in securities, to remove impediments to and perfect the
mechanism of a free and open market and a national market system, and,
in general, to protect investors and the public interest. Additionally,
the Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \11\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
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\9\ 15 U.S.C. 78f(b).
\10\ 15 U.S.C. 78f(b)(5).
\11\ Id.
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In particular, the Exchange believes that the proposed rule change
will remove impediments to and perfect the mechanism of a free and open
market and national market system and benefit investors, because it
will delete from the Rules a functionality that is currently unused and
as a result, the Exchange will no longer offer, thereby promoting
transparency in its Rules. The Exchange notes that other options
exchanges currently offer their quoting functionality and/or interfaces
exclusively to market makers on their exchanges.\12\ Additionally, as
noted above, the Exchange only offered quote message functionality
(which corresponds to bulk message functionality) until approximately
six months ago. Moreover, the Exchange does not believe that the
proposed rule change raises any new or novel issues for Users and will
not affect the protection of investors and the public interest because
this functionality is not currently used by non-Market-Makers. In
addition to this, the Exchange notes that the submission of bulk
messages to the Exchange is voluntary, and, as stated, non-Market-
Makers will continue to be able to submit single order and auction
responses through bulk ports and other logical ports to connect to the
Exchange and enter orders, receive date, and access information. Also,
the Exchange believes that the low non-Market-Maker usage rate of bulk
message functionality does not warrant the continued resources
necessary for System support of bulk messaging for non-Market-Maker
Users. As a result, the Exchange believes the proposed rule change will
also remove impediments to and perfect the mechanism of a free and open
market and national market system by allowing the Exchange to
reallocate System capacity and resources to other System functionality,
which benefits all market participants.
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\12\ See supra note 7.
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Additionally, the Exchange does not believe that the proposed rule
change would permit unfair discrimination as, according to March 2020
data, non-Market-Makers are not submitting bulk messages to the
Exchange, and, as stated above, bulk message functionality is
principally designed to assist Market-Makers in providing liquidity to
the Exchange. The options market is driven by Market-Maker quotes, and
thus Market-Maker quotes are critical to provide liquidity to the
market and contribute to price discovery for investors. Additionally,
Market-Makers are subject to continuous quoting obligations (which
other Users are not), and bulk message functionality provides Market-
Makers with a means to help them satisfy these obligations. Indeed,
when bulk messages were adopted, the Exchange expected Market-Makers
regularly to use bulk messages to input and update prices on multiple
series of options at the same time, and noted that the functionality
was intended primarily for the use of Market-Makers.\13\
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\13\ See id.
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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 change will impose any
burden on intramarket competition that is not necessary or appropriate
in furtherance of the purposes of the Act because bulk messages
functionality will be available for all Exchange Market-Makers in the
same manner as it is today. Non-Market-Makers will continue to be able
to submit their single orders and auction responses through bulk ports,
as well as all orders and other data through logical ports, in the same
manner as they currently do. As noted above, this is consistent with
the primary purpose of bulk messages, which is to encourage Market-
Maker quoting and liquidity on the Exchange. The Exchange further notes
that if any non-Market-Makers wish to submit liquidity to the Exchange
using bulk messages they are free to register as an Exchange Market-
Maker and choose the appointed classes in which they wish to quote.
Non-Market-Makers currently do not use bulk message functionality, so
the proposed rule change is not expected to have any impact on their
business need.
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 other
options exchanges currently limit their quoting functionality and/or
interface to market makers on their exchanges.\14\ As noted above, the
Exchange similarly limited quoting functionality (which corresponds to
bulk message
[[Page 28133]]
functionality) to Market-Makers until approximately six months ago.
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\14\ See supra note 7.
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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: (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 \15\ and
subparagraph (f)(6) of Rule 19b-4 thereunder.\16\
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\15\ 15 U.S.C. 78s(b)(3)(A)(iii).
\16\ 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 Commission has waived the five-day prefiling requirement in this
case.
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A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the
Act \17\ normally does not become operative for 30 days after the date
of its filing. However, Rule 19b-4(f)(6)(iii) \18\ permits the
Commission to designate a shorter time if such action is consistent
with the protection of investors and the public interest. The Exchange
has asked the Commission to waive the 30-day operative delay so that
the proposal may become operative immediately upon filing. The
Commission believes that waiving the 30-day operative delay is
consistent with the protection of investors and the public interest.
The Exchange represents that it disseminated advance notice of the
proposed change to market participants on March 27, 2020 and plans to
announce a specific implementation date in the near future. In
addition, the Exchange states that the proposal is consistent with
quoting functionality on other options exchanges which currently offer
such functionality only to their market makers. The Commission notes
that the proposed rule change does not present any unique or novel
regulatory issues. Accordingly, the Commission hereby waives the
operative delay and designates the proposal operative upon filing.\19\
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\17\ 17 CFR 240.19b-4(f)(6).
\18\ 17 CFR 240.19b-4(f)(6)(iii).
\19\ For purposes only of waiving the 30-day operative delay,
the Commission has also considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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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: (i)
Necessary or appropriate in the public interest; (ii) for the
protection of investors; or (iii) 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-2020-041 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-2020-041. 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 10:00 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-2020-041 and should be submitted on
or before June 2, 2020.
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. 2020-10054 Filed 5-11-20; 8:45 am]
BILLING CODE 8011-01-P