83 FR 47384 - Self-Regulatory Organizations; Cboe C2 Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating To Expand the Types of Messages That Users May Submit Into Bulk Order Ports

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 83, Issue 182 (September 19, 2018)

[Federal Register Volume 83, Number 182 (Wednesday, September 19, 2018)]
[Notices]
[Pages 47384-47386]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2018-20307]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84117; File No. SR-C2-2018-019]


Self-Regulatory Organizations; Cboe C2 Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change Relating 
To Expand the Types of Messages That Users May Submit Into Bulk Order 
Ports

September 13, 2018
    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 September 5, 2018, Cboe C2 Exchange, Inc. (``Exchange'' or ``C2'') 
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 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 C2 Exchange, Inc. (the ``Exchange'' or ``C2'') proposes to 
expand the types of messages that Users may submit into bulk order 
ports. The text of the proposed rule change is provided below.

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

Cboe C2 Exchange, Inc.

Rules

* * * * *

Rule 1.1. Definitions

* * * * *

Port

    The term ``port'' includes the following types of ports:
    (a)-(b) No change.
    (c) A ``bulk order port'' is a dedicated logical port that provides 
Users with the ability to submit single and bulk order messages to 
enter, modify, or cancel auction responses or orders designated as Post 
Only Orders with a Time-in-Force of Day or GTD with an expiration time 
on that trading day.
* * * * *
    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 proposed rule change expands the types of messages that Users 
may submit into bulk order ports. A bulk order port is a dedicated 
logical port that provides Users with the ability to submit single and 
bulk order messages to enter, modify, or cancel orders designated as 
Post Only Orders \5\ with a Time-in-Force of DAY \6\ or GTD \7\ with an 
expiration time on that trading day. Post Only Orders with a Time-in-
Force of Day or GTD are orders that will be posted to and displayed by 
the Exchange, rather than removing liquidity or routing to another 
options exchange. The Exchange currently limits the use of bulk order 
ports to

[[Page 47385]]

these orders to limit the use of these ports to liquidity provision. 
The primary purpose of bulk order ports is to encourage Users, and 
Market-Makers in particular, to quote on the Exchange. As a general 
matter, however, the overall purpose of bulk order ports is to allow 
Users to bundle multiple instructions in a single message and provide 
all Users (not just Market-Makers) with an efficient way to provide 
liquidity on the Exchange.
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    \5\ A ``Post Only'' order is an order the System ranks and 
executes pursuant to Rule 6.12, subjects to the Price Adjust process 
pursuant to Rule 6.12, or cancels or rejects (including if it is not 
subject to the Price Adjust process and locks or cross a Protected 
Quotation of another exchange), as applicable (in accordance with 
User instructions), except the order may not remove liquidity from 
the Book or route away to another exchange. See Rule 1.1 (paragraph 
(h) of definition of Order Instruction).
    \6\ An order designated as ``Day'' means an order that, if not 
executed, expires at market close. See Rule 1.1 (definition of Time-
in-Force).
    \7\ An order designated as ``GTD'' means an order that, if after 
entry into the System, is not fully executed, remains available for 
potential display or execution until a date and time specified by 
the entering User unless cancelled by the entering User. See Rule 
1.1 (definition of Time-in-Force).
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    The proposed rule change permits Users to submit auction responses 
into bulk order ports, in addition to Post Only Orders with a Time-in-
Force of Day or GTD with an expiration time on that trading day. The 
Exchange currently offers one auction mechanism, the Complex Order 
Auction (``COA''), which provides Users with additional execution 
opportunities and potential price improvement for their complex 
orders.\8\ When the Exchange initiates a COA, it disseminates a message 
that contains the relevant information about the auction order.\9\ The 
purpose of this message is to encourage Users to provide liquidity 
against which the auctioned order may trade. Users submit this 
liquidity in the form of auction responses. Like Post Only Orders with 
a Time-in-Force of Day or GTD with an expiration time on the applicable 
trading day, auction responses will not remove liquidity from the 
Exchange order book or route to another options exchange. Auction 
responses are similarly available for execution for a limited time 
period. Unexecuted auction responses are cancelled at the end of the 
auction, and thus do not last beyond the auction to which they were 
submitted.\10\ Because the purpose of auction responses is to provide 
liquidity, which is the purpose of bulk order ports, the Exchange 
believes it is appropriate to permit Users to submit auction responses 
into bulk order ports.
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    \8\ See Rule 6.13(d). COA auctions eligible complex orders for 
execution and potential price improvement.
    \9\ See Rule 6.13(d)(1) (the Exchange initiates the COA process 
by sending a COA auction message).
    \10\ See Rule 6.13(d)(2)(C) and (4)(D).
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    Orders submitted to the Exchange through all ports are subject to 
various parameters, such as price reasonability checks and volume 
restrictions.\11\ These parameters may be configured either by the 
Exchange or the Member. Orders are also subject to other validation 
checks and processes before execution, entry into the book, or 
cancellation. Examples of such validation checks include validating an 
order's Capacity, Time-in-Force, Order Instructions, and routing 
options. While orders submitted through bulk order ports pass through 
these same validation checks and processes, they are not subject to 
parameters such as routing options and are restricted to one order 
instruction and two Time-in-Force options. As a result, the System can 
perform these validation checks with respect to orders submitted 
through bulk order ports in a more efficient manner.
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    \11\ See, e.g., Rule 6.14 and technical specifications available 
at http://markets.cboe.com/us/options/support/technical/.
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    Pursuant to Exchange technical specifications \12\ and Fees 
Schedule,\13\ the order messages per second that a User may submit 
through a non-bulk order port is smaller than the order messages per 
second that a User may submit through a bulk order port. The Exchange 
understands from certain Trading Permit Holders that they may restrict 
the number of auction response messages they submit to avoid having to 
obtain additional ports. The Exchange believes permitting Users to 
submit auction responses through bulk order ports will encourage Users 
to provide increased liquidity to auction mechanisms in a more cost-
efficient manner. While bulk order ports have a higher monthly cost, 
the higher order message/second rate may ultimately be more cost-
efficient than a User having to obtain multiple additional non-bulk 
ports to accommodate the submission of auction responses. Additionally, 
Users that have both bulk and non-bulk order ports would be able to 
increase their submission of auction responses without additional 
monthly fees.\14\
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    \12\ These technical specifications are available at http://markets.cboe.com/us/options/support/technical/.
    \13\ See C2 Fees Schedule, Logical Connectivity Fees, available 
at http://markets.cboe.com/us/options/membership/fee_schedule/ctwo/.
    \14\ The Exchange notes certain Market-Makers currently only 
have bulk order ports, and thus are unable to provide liquidity to 
auction mechanisms without obtaining additional non-bulk order 
ports.
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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.\15\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \16\ 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) \17\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \15\ 15 U.S.C. 78f(b).
    \16\ 15 U.S.C. 78f(b)(5).
    \17\ Id.
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    In particular, the Exchange believes the proposed rule change 
protects investors and the public interest because it provides all 
Users with an efficient process to enter and update auction responses. 
Like quoting, auction responses are a critical form of liquidity on the 
Exchange. Auction mechanisms and the execution and price improvement 
opportunities they provide are dependent on auction responses submitted 
during the auctions. Permitting Users to submit auction responses into 
bulk order ports is consistent with the purpose of these ports and have 
a similar purpose as the orders that Users are currently permitted to 
enter into bulk order ports. The Exchange believes the proposed rule 
change may encourage the provision of additional liquidity in auctions, 
which will provide additional execution and price improvement 
opportunities to auctioned orders, which ultimately benefit 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, as the use of bulk order ports and the proposed 
functionality is voluntary and available to all Users of the Exchange. 
Bulk order entry functionality is available to all Users of the 
Exchange, as is the proposed functionality to submit auction responses 
into bulk order ports. Users may already submit auction responses to 
the Exchange using other types of ports--the proposed rule change 
merely provides Users of the Exchange with an additional method to 
submit auction responses to the Exchange. The Exchange does not believe 
the proposed rule change will have any direct impact on intermarket 
competition, as the proposed rule change relates solely to the manner 
in

[[Page 47386]]

which Users may submit auction responses into auctions occurring on 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: (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 \18\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\19\
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    \18\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \19\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change, along 
with a brief description and text of 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-C2-2018-019 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-C2-2018-019. 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-C2-2018-019 and should be submitted on 
or before October 10, 2018.

    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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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-20307 Filed 9-18-18; 8:45 am]
 BILLING CODE 8011-01-P