Federal Register / Vol. 86, No. 32 / Friday, February 19, 2021 / Notices 10381 

18Rule 700(b)(3), Commission Rules of Practice, 

17 CFR 201.700(b)(3). 

19See id. 

20Section 19(b)(2) of the Act, as amended by the 

Securities Act Amendments of 1975, Public Law 

94–29 (June 4, 1975), grants the Commission 

flexibility to determine what type of proceeding— 

either oral or notice and opportunity for written 

comments—is appropriate for consideration of a 

particular proposal by a self-regulatory 

organization. See Securities Act Amendments of 

1975, Senate Comm. on Banking, Housing & Urban 

Affairs, S. Rep. No. 75, 94th Cong., 1st Sess. 30 

(1975). 

21 17 CFR 200.30–3(a)(57). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 89058 

(June 12, 2020), 85 FR 36918. Comments received 

on the proposed rule change are available on the 

Commission’s website at: https://www.sec.gov/ 

comments/sr-cboe-2020-051/srcboe2020051.htm. 

4 In Amendment No. 1, the Exchange: (1) 

Amended its proposal to modify the proposed 

maximum size requirement for AIM and C–AIM 

agency orders in SPX to ten contracts rather than 

a size determined by the Exchange of up to 100 

contracts, specify that this size requirement would 

apply to all agency orders in SPX, and make related 

conforming changes to its proposed rule text; and 

(2) provided additional data, justification, and 

support for its modified proposal. The full text of 

Amendment No. 1 is available on the Commission’s 

Continued 

consistent with the protection of 

investors and the public interest, and 

the other requirements of Section 6(b)(5) 

of the Act. 

Under the Commission’s Rules of 

Practice, the ‘‘burden to demonstrate 

that a proposed rule change is 

consistent with the Exchange Act and 

the rules and regulations issued 

thereunder . . . is on the self-regulatory 

organization [‘SRO’] that proposed the 

rule change.’’ 18 The description of a 

proposed rule change, its purpose and 

operation, its effect, and a legal analysis 

of its consistency with applicable 

requirements must all be sufficiently 

detailed and specific to support an 

affirmative Commission finding, and 

any failure of an SRO to provide this 

information may result in the 

Commission not having a sufficient 

basis to make an affirmative finding that 

a proposed rule change is consistent 

with the Exchange Act and the 

applicable rules and regulations.19

For these reasons, the Commission 

believes it is appropriate to institute 

proceedings pursuant to Section 

19(b)(2)(B) of the Act to determine 

whether the proposal should be 

approved or disapproved. 

IV. Procedure: Request for Written 

Comments 

The Commission requests that 

interested persons provide written 

submissions of their views, data, and 

arguments with respect to the issues 

identified above, as well as any other 

concerns they may have with the 

proposal. In particular, the Commission 

invites the written views of interested 

persons concerning whether the 

proposal is consistent with Section 

6(b)(5) or any other provision of the Act, 

or the rules and regulations thereunder. 

Although there do not appear to be any 

issues relevant to approval or 

disapproval that would be facilitated by 

an oral presentation of views, data, and 

arguments, the Commission will 

consider, pursuant to Rule 19b–4, any 

request for an opportunity to make an 

oral presentation.20

Interested persons are invited to 

submit written data, views, and 

arguments regarding whether the 

proposal should be approved or 

disapproved by March 12, 2021. Any 

person who wishes to file a rebuttal to 

any other person’s submission must file 

that rebuttal by March 26, 2021. The 

Commission asks that commenters 

address the sufficiency of the 

Exchange’s statements in support of the 

proposal, in addition to any other 

comments they may wish to submit 

about the proposed rule change. 

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 rule-comments@

sec.gov. Please include File Number SR– 

NYSE–2020–90 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–NYSE–2020–90. 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–NYSE–2020–90 and should 

be submitted by March 12, 2021. 

Rebuttal comments should be submitted 

by March 26, 2021. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.21

Jill M. Peterson, 

Assistant Secretary. 

[FR Doc. 2021–03337 Filed 2–18–21; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–91119; File No. SR–CBOE– 

2020–051] 

Self-Regulatory Organizations; Cboe 

Exchange, Inc.; Notice of Filing of 

Amendment No. 2 and Order Granting 

Accelerated Approval of a Proposed 

Rule Change, as Modified by 

Amendment Nos. 1 and 2, To Amend 

the Automated Price Improvement 

Auction Rules in Connection With 

Agency Order Size Requirements 

February 12, 2021. 

I. Introduction 

On June 11, 2020, Cboe Exchange, Inc. 

(‘‘Exchange’’ or ‘‘Cboe’’) filed with the 

Securities and Exchange Commission 

(‘‘Commission’’), pursuant to Section 

19(b)(1) of the Securities Exchange Act 

of 1934 (‘‘Act’’) 1 and Rule 19b–4 

thereunder,2 a proposed rule change 

permitting the Exchange to impose a 

maximum size requirement for an 

agency order submitted into the 

Automated Price Improvement 

Mechanism (‘‘AIM’’) and the Complex 

Automated Price Improvement 

Mechanism (‘‘C–AIM’’) in S&P 500®

Index Options (‘‘SPX’’). The proposed 

rule change was published for comment 

in the Federal Register on June 18, 

2020.3 On July 23, 2020, the Exchange 

submitted Amendment No. 1 to the 

proposed rule change, which replaced 

and superseded the proposed rule 

change in its entirety.4 On July 27, 2020, 


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website at: https://www.sec.gov/comments/sr-cboe2020-051/srcboe2020051-7470738-221292.pdf. 

5 15 U.S.C. 78s(b)(2). 

6See Securities Exchange Act Release No. 89399, 

85 FR 46202 (July 31, 2020). The Commission 

designated September 16, 2020 as the date by which 

the Commission shall approve or disapprove, or 

institute proceedings to determine whether to 

disapprove, the proposed rule change. 

7 15 U.S.C. 78s(b)(2)(B). 

8See Securities Exchange Act Release No. 89636, 

85 FR 53029 (August 27, 2020). 

9 15 U.S.C. 78s(b)(2). 

10See Securities Exchange Act Release No. 90594, 

85 FR 80853 (December 14, 2020). The Commission 

designated February 13, 2021 as the date by which 

the Commission shall approve or disapprove the 

proposed rule change, as modified by Amendment 

No. 1. 

11 In Amendment No. 2, the Exchange amended 

the proposal to specify that it may determine, per 

trading session, to establish the proposed maximum 

size of ten contracts for AIM and C–AIM agency 

orders in SPX. The full text of Amendment No. 2 

is available on the Commission’s website at: https:// 

www.sec.gov/comments/sr-cboe-2020-051/ 

srcboe2020051-8135058-226517.pdf. 

12See Rules 5.38 (AIM) and 5.38 (C–AIM). 

13See Rules 5.37(e) and 5.38(e). 

14The term ‘‘trading session’’ means the hours 

during which the Exchange is open for trading for 

Regular Trading Hours (‘‘RTH’’) or Global Trading 

Hours (‘‘GTH’’) (each of which may referred to as 

a trading session), each as set forth in Rule 5.1. See 

Rule 1.1. 

15Pursuant to Rule 1.5, the Exchange may, to the 

extent the Rules allow the Exchange to make a 

determination, including on a class-by-class basis, 

make a determination for GTH that differs from the 

determination it makes for RTH. In Amendment No. 

2, Cboe indicated it would exercise its authority 

and establish a maximum size of ten SPX contracts 

for AIM during RTH but would continue to impose 

no maximum size during GTH, as it does today and 

as it did prior to the March floor closure, due to 

differences in the nature of the markets. 

16See Amendment No. 2, supra note 11, at 6. The 

Exchange states that this distinction is due to the 

different trading characteristics between RTH and 

GTH, such as lower trading levels, reduced 

liquidity, fewer participants, higher volatility, and 

changing prices. See id. at 3. The Exchange further 

states that it has historically activated AIM and C– 

AIM in SPX during GTH (without any maximum 

size requirement for agency orders), but has not 

historically activated AIM and C–AIM in SPX 

during RTH. See id. at 4. 

17See id. at 6. 

18See Amendment No. 1, supra note 4, at 4. 

19See id. at 5. 

20See id. at 5. 

21See id. at 6. 

22See id. at 6–7 (providing more detailed data 

showing the number of SPX agency orders and 

contracts for various order sizes in AIM and C–AIM 

observed by the Exchange during April 2020 and 

May 2020 while the trading floor was inoperable 

and AIM and C–AIM were activated for SPX, as 

compared to the number of simple and complex 

customer orders and contracts executed on the 

reopened trading floor from June 15, 2020 to July 

16, 2020). 

23See id. 

pursuant to Section 19(b)(2) of the Act,5

the Commission designated a longer 

period within which to approve the 

proposed rule change, disapprove the 

proposed rule change, or institute 

proceedings to determine whether to 

disapprove the proposed rule change.6

On August 21, 2020, the Commission 

published notice of Amendment No. 1 

and instituted proceedings under 

Section 19(b)(2)(B) of the Act 7 to 

determine whether to approve or 

disapprove the proposed rule change, as 

modified by Amendment No. 1.8 On 

December 8, 2020, pursuant to Section 

19(b)(2) of the Act,9 the Commission 

designated a longer period within which 

to approve or disapprove the proposed 

rule change, as modified by Amendment 

No. 1.10 On December 11, 2020, the 

Exchange submitted Amendment No. 2 

to the proposed rule change.11 This 

order approves the proposed rule 

change, as modified by Amendment 

Nos. 1 and 2, on an accelerated basis. 

II. Description of the Proposal, as 

Modified by Amendment Nos. 1 and 2 

The AIM and C–AIM are electronic 

auctions intended to provide an agency 

order with the opportunity to receive 

price improvement (over the National 

Best Bid or Offer in AIM, or the 

synthetic best bid or offer on the 

Exchange in C–AIM).12 Upon 

submitting an agency order into one of 

these auctions, the initiating Trading 

Permit Holder (‘‘TPH’’) must also 

submit a contra-side second order (the 

‘‘initiating order’’) for the same size as 

the agency order. The initiating order 

guarantees that the agency order will 

receive an execution. Upon 

commencement of an auction, market 

participants submit responses to trade 

against the agency order. At the 

conclusion of the auction, depending on 

the contra-side interest available, the 

initiating order may be allocated a 

certain percentage of the agency order.13

Rules 5.37(a)(3) and 5.38(a)(3), which 

govern the size requirements for AIM 

and C–AIM agency and initiating orders, 

provide that there is no minimum size 

for orders submitted into AIM and C– 

AIM auctions, respectively, and that the 

initiating order must be for the same 

size as the agency order. The Exchange 

proposes to amend Rule 5.37(a)(3) to 

provide that the Exchange may 

determine, per trading session,14 that 

the maximum size for all agency orders 

in SPX is ten contracts, and to amend 

Rule 5.38(a)(3) to provide that the 

Exchange may determine, per trading 

session, that the maximum size for the 

smallest leg of all complex agency 

orders in SPX is ten contracts.15 The 

Exchange states that it will announce 

any determination it makes in 

connection with the application of the 

maximum size requirement of ten 

contracts for agency orders in SPX to a 

trading session via Exchange notice 

pursuant to Rule 1.5.16 The Exchange 

further states that it initially intends to 

establish the maximum size requirement 

of ten contracts for agency orders in SPX 

during RTH and not impose any 

maximum size requirement for agency 

orders in SPX during GTH.17 The 

Exchange states that the proposed 

maximum size requirement for agency 

orders in SPX would apply to all agency 

orders in the entire SPX class (including 

SPX Weeklys).18

According to the Exchange, SPX 

options have a different and more 

complicated market model than other 

options classes, involve taking on 

greater risk than in other options 

classes, have a significantly higher 

notional value than options in other 

classes (e.g., they are ten times the 

notional size of SPY options), trade in 

much larger size than other options 

classes, have a larger percentage of 

volume executed in open outcry than 

options in other classes, and effect 

increasingly more complex strategies 

than executed in other options classes 

(e.g., SPX combo orders are more 

frequently submitted).19 Accordingly, 

given the nature of SPX options the 

Exchange retail customer participation 

in SPX is concentrated in simpler 

strategies and smaller-sized orders.20

The Exchange further states that 

smaller-sized orders in SPX are not 

commonly executed on the floor and, 

without an opportunity to execute in 

AIM and C–AIM, are primarily 

submitted to the book and trade at the 

market, whereas, with AIM and C–AIM, 

smaller-sized orders may receive price 

improvement.21 The Exchange provides 

data demonstrating that, when AIM and 

C–AIM were activated for SPX, there 

was a greater number of SPX orders (and 

resulting number of contracts) 

containing quantities of one to ten 

contracts submitted through the 

electronic auctions than any other order 

size category.22 After its trading floor 

reopened in June 2020 and AIM and C– 

AIM were again deactivated for SPX, the 

Exchange observed a decreased volume 

of customer orders in SPX for one to ten 

contracts submitted to the trading floor 

(approximately a 99% decrease in 

number of simple orders, total number 

of simple order contracts, and number 

of complex orders, and approximately a 

91% decrease in total number of 

complex order contracts) from the 

volume that had previously been 

submitted to the electronic auctions.23

In further support of its proposal, the 

Exchange measured price improvement 

statistics for a sample of SPX orders 

submitted into simple AIM auctions 

during a one-week period of trading in 


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24See id. at 8. The Exchange states that, although 

it did not observe as significant an increase in price 

improvement for complex orders from one to ten 

contracts in the sample it collected of SPX orders 

submitted to C–AIM, it did generally observe 

greater price improvement for smaller-sized 

complex orders as compared to larger-sized 

complex orders. See id. 25See id. at 11. 26 In approving this proposed rule change, the 

Commission has considered the proposed rule’s 

impact on efficiency, competition, and capital 

formation. See 15 U.S.C. 78c(f). Please see the 

discussion at infra notes 49–66 and accompanying 

text. 

27 15 U.S.C. 78f(b)(5). 

28 15 U.S.C. 78f(b)(8). 

29See supra note 23 and accompanying text. 

30See supra note 24 and accompanying text. 

31See Amendment No. 1, supra note 4, at 7, 9 

n.10. 

32See letters to Vanessa Countryman, Secretary, 

Commission, dated July 9, 2020 from Ellen Greene, 

Managing Director, Equities & Options Market 

Structure, The Securities Industry and Financial 

Markets Association, at 2 (‘‘SIFMA Letter’’); John S. 

Markle, Interim General Counsel, TD Ameritrade, 

Inc., at 1 (‘‘TD Ameritrade Letter’’). The SIFMA 

Letter and TD Ameritrade Letter commented on 

Cboe’s original proposal, which would have given 

Cboe the ability to determine a maximum size of 

up to 100 contracts, prior to Amendment No. 1, 

which proposed a set maximum size of ten 

contracts. 

33See TD Ameritrade Letter, supra note 32, at 1. 

34See letters to Vanessa Countryman, Secretary, 

Commission, from Richard J. McDonald, 

Susquehanna International Group, LLP, dated July 

8, 2020, at 3–4 (‘‘SIG Letter’’); Stephen John Berger, 

Managing Director and Global Head of Government 

& Regulatory Policy, Citadel Securities, dated July 

9, 2020, at 1 (‘‘Citadel Letter I’’); and Stephen John 

Berger, Managing Director and Global Head of 

Government & Regulatory Policy, Citadel Securities, 

dated August 12, 2020, at 1 (‘‘Citadel Letter II’’). 

35See letter to Vanessa Countryman, Secretary, 

Commission, from Rebecca Tenuta, Counsel, Cboe 

Global Markets, dated July 31, 2020, at 2–3 (‘‘Cboe 

Response Letter’’). 

36See id. at 2–3. 

37See id. at 3. 

38See SIG Letter, supra note 34, at 3; Citadel 

Letter I, supra note 34, at 1. See also letter to 

Vanessa Countryman, Secretary, Commission, from 

Michael Golding, Head of Trading, Optiver US LLC, 

and Rutger Brinkhuis, Head of Trading, AMS 

Derivatives B.V., dated July 8, 2020, at 2 (‘‘Optiver 

Letter’’). 

39See SIG Letter, supra note 34, at 3; Optiver 

Letter, supra note 38, at 2. SIG argued that Cboe’s 

assertion that the trading floor may be better for 

larger-sized orders could not be proven because 

there has been no side-by-side comparison with 

AIM and C–AIM, adding that if larger-sized orders 

Continued 

April 2020. Specifically, the Exchange 

observed that orders for one to ten 

contracts received an average price 

improvement of approximately $0.34 

over their limit prices, whereas orders 

for 11 to 50 contracts received an 

average price improvement of 

approximately $0.22, orders for 51 to 

250 contracts received an average price 

improvement of $0.08, and orders for 

251 to 500 contracts received an average 

price improvement of approximately 

$0.15.24

Finally, the Exchange states that, 

pursuant to Rules 5.37.02 and 5.38.02, 

it is deemed conduct inconsistent with 

just and equitable principles of trade 

and a violation of Rule 8.1 to engage in 

a pattern of conduct where the initiating 

member breaks up an agency order into 

separate orders for the purpose of 

gaining a higher allocation percentage 

than the initiating TPH would have 

otherwise received in accordance with 

the allocation procedures contained in 

the AIM and C–AIM rules, respectively. 

In connection with the proposed 

maximum quantity requirements, the 

Exchange also proposes to amend Rules 

5.37.02 and 5.38.02 to make it clear that 

initiating TPHs also may not break up 

an agency order into separate orders for 

the purpose of circumventing the 

maximum quantity requirement 

pursuant to Rules 5.37(a)(3) and 

5.38(a)(3), as applicable. The Exchange 

represents that its surveillance program 

will monitor for such violations in the 

same manner in which it currently 

monitors for allocation-related break-up 

violations.25

III. Discussion and Commission 

Findings 

The Commission finds that the 

proposed rule change, as modified by 

Amendment Nos. 1 and 2, is consistent 

with the requirements of the Act and the 

rules and regulations thereunder 

applicable to a national securities 

exchange.26 In particular, the 

Commission finds that the proposed 

rule change, as modified by Amendment 

Nos. 1 and 2, is consistent with Section 

6(b)(5) of the Act,27 which requires, 

among other things, that the rules of a 

national securities exchange be 

designed to prevent fraudulent and 

manipulative acts and practices, to 

promote just and equitable principles of 

trade, 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. The 

Commission also finds that the 

proposed rule change, as modified by 

Amendment Nos. 1 and 2, is consistent 

with Section 6(b)(8) of the Act,28 which 

requires that the rules of a national 

securities exchange do not impose any 

burden on competition not necessary or 

appropriate in furtherance of the 

purposes of the Act. 

As described above, to support its 

proposal, Cboe provided the 

Commission with data demonstrating 

that, during the time period when AIM 

and C–AIM were temporarily activated 

for SPX, a greater number of SPX orders 

containing quantities of one to ten 

contracts were executed through the 

electronic auctions than were executed 

on the trading floor when the auctions 

were again deactivated for SPX.29 The 

Exchange also provided data 

demonstrating that SPX orders 

containing quantities of one to ten 

contracts received higher levels of price 

improvement than other order size 

categories submitted to the electronic 

auctions.30 Based on these observations, 

the Exchange believes AIM and C–AIM 

would provide opportunities for 

smaller-sized orders that are not being 

traded on the floor to be crossed in the 

electronic auction mechanisms and, 

specifically, that orders with sizes up to 

ten contracts generally represent the 

most volume and receive the most 

beneficial price improvement when 

AIM and C–AIM are activated for SPX.31

Two commenters supported the 

imposition of a maximum size 

limitation on SPX agency orders in AIM 

and C–AIM auctions, agreeing with 

Cboe’s assertions that it would 

incentivize increased retail customer 

participation in SPX auctions and 

provide increased execution and price 

improvement opportunities for retail 

customers in SPX.32 One of these 

commenters stated its clients recognized 

significant price improvement 

opportunities in AIM auctions of SPX 

orders from 1–100 contracts, but saw 

mixed results on orders greater than 100 

contracts.33 In contrast, two commenters 

questioned whether a maximum size 

limitation on orders in SPX entered in 

AIM and C–AIM auctions is necessary.34

In its response to these comments, Cboe 

stated that the proposed maximum size 

for SPX orders in AIM and C–AIM is 

necessary to provide limited electronic 

auction functionality that customers 

found beneficial during the period when 

open outcry trading on the floor was 

closed and AIM and C–AIM auctions for 

orders in SPX were available.35 Cboe 

stated that if market participants could 

submit SPX orders of all sizes into 

electronic crossing auctions, it could 

have a significant negative impact on 

the quality of the SPX market, which 

could reduce overall liquidity in the 

SPX market and harm all SPX 

investors.36 Cboe further stated that it 

sought a balance between preserving 

open outcry liquidity while offering 

limited electronic auction functionality 

that some customers found beneficial.37

These commenters also suggested that 

Cboe’s data analysis may be insufficient 

to support Cboe’s proposal to impose a 

maximum size on agency orders in 

SPX.38 Commenters stated that the data 

does not measure a time period during 

which both electronic auctions and 

floor-based liquidity are available,39 and 


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are better suited for the trading floor, such orders 

would naturally gravitate towards the floor and 

obviate the need for any size limitations in the 

electronic mechanisms. See SIG Letter, supra note 

34, at 3. Optiver questioned the validity of the data 

given the extreme volatility observed during the 

time period of the data. See Optiver Letter, supra 

note 38, at 2. 

40See SIG Letter, supra note 34, at 3 & n.9; 

Citadel Letter I, supra note 34, at 1. As noted above, 

however, a separate commenter suggested price 

improvement opportunities were mixed for SPX 

orders greater than 100 contracts. See TD 

Ameritrade Letter, supra note 32, at 1. 

41See Cboe Response Letter, supra note 35, at 6. 

42See id. 

43See id. 

44See id. 

45See id. See also TD Ameritrade Letter, supra 

note 32, at 1; SIFMA Letter, supra note 32, at 2. 

46Cboe’s data covered the period from June 15, 

2020 through July 16, 2020. See Amendment No. 1, 

supra note 4, at 7. 

47See Cboe Response Letter, supra note 35, at 6. 

See also Amendment No. 1, supra note 4, at 7–8. 

48See Amendment No. 1, supra note 4, at 8. See 

also CBOE Response Letter, supra note 35, at 5. 

49See Amendment No. 1, supra note 4, at 8. See 

also CBOE Response Letter, supra note 35, at 5. 

50 In Amendment No. 1, the Exchange stated that 

it observed a decreased volume of customer orders 

in SPX for one to ten contracts submitted to the 

trading floor compared to the volume that had 

previously been submitted to the electronic 

auctions while the trading floor was closed. See 

Amendment No. 1, supra note 4, at 7–8. 

51See Rule 5.37(b). 

52For example, on January 28, 2021, an SPX 

options expiring on January 29, 2021 was valued at 

$31.00. Thus, purchasing 10 SPX options contracts 

would require a $31,000 investment ($31.00 per 

option contract × 100 × 10 contracts = $31,000). In 

comparison, a similar SPY option would require a 

$3,120 investment ($3.12 per option contract × 100 

× 10 contracts = $3,120). 

53See Amendment No. 1, supra note 4, at 6. 

54See id. at 8. 

55See id. 

56See TD Ameritrade Letter, supra note 32, at 2; 

Citadel Letter I, supra note 34, at 2; Optiver Letter, 

supra note 38, at 2. The TD Ameritrade Letter and 

Citadel Letter I, commenting on Cboe’s initial 

proposal, both suggested that Cboe commit to 

allowing orders of up to 100 contracts to participate 

in the electronic auctions. See TD Ameritrade 

Letter, supra note 32, at 2; Citadel Letter I, supra 

note 34, at 2. 

57See Cboe Response Letter, supra note 35, at 2. 

58See Citadel Letter I, supra note 34, at 2; Citadel 

Letter II, supra note 34, at 1. 

pointed out that Cboe’s own data 

demonstrated that orders of all sizes in 

the electronic auction mechanisms 

received price improvement during the 

trading floor closure.40 In response, 

Cboe stated that it provided sufficient 

additional data in the amended proposal 

to justify the proposed maximum size of 

ten contracts.41 Cboe stated that the 

sample data was from a randomly 

selected time period when SPX AIM 

and C–AIM were activated 42 and further 

argued that all order sizes submitted 

into AIM and C–AIM during that time 

period would have been similarly 

impacted by any then-existing volatility, 

making the data sample an accurate 

comparison of price improvement 

opportunities for orders of all sizes 

executed in those auctions during that 

time.43 While acknowledging that it 

could not provide an ‘‘apples-to-apples’’ 

comparison of price improvement for 

SPX orders executed on the trading floor 

versus orders executed in the AIM 

auction,44 Cboe argued that smaller 

orders in general received more 

improvement when AIM and C–AIM 

were activated than when they are not 

activated.45 Cboe also argued that its 

data 46 showed that once the trading 

floor became operable on June 15, 2020, 

and the Exchange disabled AIM and C– 

AIM for SPX, the volume of customer 

orders in SPX for ten or fewer contracts 

submitted into crossing auctions (on the 

trading floor) decreased significantly 

compared to the volume previously 

submitted into the electronic auctions, 

while larger order sizes experienced a 

notable increase in crossed volume 

compared to volume submitted into 

electronic auctions.47 Cboe stated that 

when the electronic auctions are not 

available, brokers do not cross smallersized orders on the trading floor, but 

instead submit these orders for 

electronic execution in the book.48

The Commission believes that the 

data provided by the Exchange, 

including the data provided in 

Amendment No. 1, support the 

Exchange’s conclusion that the proposal 

could provide additional execution and 

price improvement opportunities for 

smaller-sized customer orders in SPX 

options submitted through the 

Exchange’s AIM or C–AIM auctions. 

With respect to commenters that favored 

allowing all SPX orders into AIM and 

C–AIM auctions, the Commission 

believes it is reasonable for the 

Exchange to set a maximum size for SPX 

orders in AIM and C–AIM auctions. 

Specifically, smaller-sized orders, as 

demonstrated in Cboe’s data, are not 

regularly crossed on the trading floor 

and are sent to the electronic order 

book.49 Thus, these smaller-sized orders 

may experience the most benefit from 

participation in the AIM and C–AIM 

auction mechanisms.50 In addition, an 

agency order for less than 50 contracts 

is guaranteed price improvement in the 

AIM auction of at least one minimum 

increment better than the then-current 

National Best Bid or National Best 

Offer.51 The Commission believes this 

requirement is based on an underlying 

assumption that price improvement 

auctions for multi-list options of fewer 

than 50 contracts are more likely to be 

retail customer orders. Although, as 

discussed below, the Exchange is 

proposing to adopt a maximum size for 

SPX AIM and C–AIM auctions of ten 

contracts rather than 50, the average 

notional size of SPX options is much 

greater than that of the average multi-list 

options contract, which thereby implies 

that a retail customer order in SPX is 

more likely to be fewer than 50 

contracts.52

Because SPX has not traded 

concurrently on the trading floor and in 

the AIM and C–AIM electronic auctions 

during RTH, the data provided by the 

Exchange does not provide a 

comparison of price improvement 

between the electronic auctions and the 

trading floor in simultaneous operation. 

Nevertheless, the data does indicate that 

price improvement opportunities were 

available to orders in SPX submitted to 

the electronic auctions. The data 

provided by the Exchange shows that 

price improvement opportunities were 

observed for orders of all sizes in the 

electronic auction mechanisms during 

the trading floor closure. However, 

according to data provided by Cboe, 

significantly more orders for 1–10 

contracts were entered into the AIM and 

C–AIM than larger-sized orders,53 and 

orders for 1–10 contracts received 

greater average price improvement than 

larger-sized orders.54 For example, Cboe 

stated that the average price 

improvement of approximately $0.34 for 

orders for 1–10 contracts submitted 

through AIM was approximately a 55% 

larger average price improvement than 

orders for 11–50 contracts, a 325% 

larger average price improvement than 

orders for 51–250 contracts and 

approximately 127% larger average 

price improvement than orders for 251– 

500 contracts.55 The Commission 

believes that it is reasonable for Cboe to 

conclude from its data that a maximum 

size of ten contracts is appropriate. 

Three commenters recommended 

that, to the extent any maximum size is 

established for SPX orders in AIM and 

C–AIM auctions, the level of the 

maximum size should be clearly stated 

in the proposed rule, with any future 

modifications subject to a separate 

proposed rule change.56 In response to 

these comments, and as described 

above, Cboe amended its proposal to 

establish a set maximum size of ten 

contracts for AIM and C–AIM agency 

orders in SPX and provided additional 

data and analysis to support this 

proposed threshold.57

One commenter argued that the 

proposed ten contract maximum size is 

without a rational basis and will result 

in unfair discrimination that would 

deny significant price improvement to 

investors.58 This commenter provided 


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Federal Register / Vol. 86, No. 32 / Friday, February 19, 2021 / Notices 10385 

59See Citadel Letter II, supra note 34, at 1–2. 

60See id. at 2. 

61See supra notes 49–55 and accompanying text. 

62See supra note 24 and accompanying text. 

63See Citadel Letter II, supra note 34, at 1–2. 

64See supra note 47. 

65See supra note 20. 

66The Commission expects Cboe to monitor 

trading in SPX and after gaining experience, 

including a review of relevant data, to consider 

whether any adjustments such as increasing the 

maximum order size may be necessary to maximize 

the benefit to investors that trade SPX options. 

During discussions with Cboe staff, Cboe staff 

communicated its intention to review and evaluate, 

in the ordinary course, the trading of SPX options 

in AIM and C–AIM, and to consider proposing any 

changes as may be appropriate in the future. 

67See Optiver Letter, supra note 38, at 1. 

68See Rules 5.37(b)(5) (AIM) and 5.38(b)(4) (C– 

AIM). An initiating TPH that utilizes auto-match 

will automatically match the price and size of all 

AIM or C–AIM responses and other contra-side 

trading interest at each price up to a designated 

limit price (or match all prices). 

69See Optiver Letter, supra note 38, at 2. 

70See Rule 5.85(a). 71See Optiver Letter, supra note 38, at 2. 

data showing that more than fifty 

percent of the AIM-eligible retail simple 

marketable SPX orders that it routed to 

Cboe from mid-March 2020 to mid-May 

2020 were larger than ten contracts.59

This commenter also argued that its data 

demonstrates that retail orders of more 

than ten contracts and up to 100 

contracts received price improvement in 

the AIM auction and requested that 

Cboe either eliminate the proposed 

maximum size threshold or increase the 

threshold from ten to 100 contracts.60

Based on the Exchange’s data, as 

specifically discussed above, the 

Commission believes that Cboe has 

reasonably set a maximum size for SPX 

orders in AIM or C–AIM auctions and 

that ten contracts is a reasonable 

maximum, as an initial step to benefit 

investors, because this level is 

commensurate with the greatest amount 

of volume representative of retail 

investors and corresponding price 

improvement.61 The Commission also 

believes that the proposal is not unfairly 

discriminatory, because market 

participants may execute agency orders 

in SPX of greater than ten contracts on 

the trading floor and the electronic 

order book, as they do today. 

The Commission acknowledges a 

commenter that supports allowing SPX 

options in AIM auctions has provided 

data indicating that there also was price 

improvement for SPX orders of more 

than ten contracts and up to 100 

contracts in the AIM auction during the 

period of Cboe’s floor closure. As 

described above, however, Cboe’s data 

compiled during a week of trading in 

April 2020 showed that SPX orders 

containing quantities of one to ten 

contracts represented more executed 

volume and received higher levels of 

price improvement than other order size 

categories submitted to the electronic 

auctions.62 This is consistent with the 

data provided by the commenter, which 

finds greater executed volume and price 

improvement for SPX orders containing 

quantities of one to ten contracts than 

for other order size categories.63 In 

addition, as stated above, a retail 

customer order in SPX is more likely to 

be a smaller-sized order because the 

notional size of an SPX options contract 

is much greater than that of other 

contracts, including the average multilist options contract. Furthermore, 

smaller-sized SPX orders, as 

demonstrated in Cboe’s data, are not 

regularly crossed on the trading floor 

and may therefore experience the most 

benefit from participation in the 

electronic auction mechanisms.64 The 

Commission believes if Cboe were to 

activate these auctions for SPX orders of 

one to ten contracts following approval 

of this proposal, it would provide a 

substantial benefit to the smaller-sized 

orders, which are more likely to be retail 

orders.65 The Commission therefore 

believes Cboe’s proposed maximum size 

of ten contracts is consistent with the 

requirements of the Act. While Cboe 

could have proposed a different 

maximum size limit, Cboe’s decision 

not to propose a different or higher 

maximum size limit does not render the 

proposed rule change unfairly 

discriminatory or without a rational 

basis.66

Another commenter opposed 

activating AIM and C–AIM auctions for 

orders in SPX, regardless of size, 

arguing that price discovery is best 

served when orders are exposed to all 

market participants simultaneously, 

such that no one participant has a 

distinct advantage over another.67 The 

commenter argued that firms initiating 

an AIM auction have a competitive 

advantage. First, the initiator is able to 

gain insight into the order prior to the 

auction and then determine its 

participation level based on 

characteristics that are not known to the 

rest of the market. The commenter also 

argued that only an initiator can use 

AIM’s auto-match functionality 68 to 

match a competitor’s best price.69

Although the initiator’s use of automatch may result in a responder sharing 

a percentage of the execution with the 

initiator, the Commission believes that 

this allocation process is very similar to 

the pro rata allocation for orders on the 

Cboe floor,70 except that in the AIM and 

C–AIM, the customer may receive price 

improvement relative to the displayed 

market. Finally, the commenter is 

concerned that after the proposed rule 

change is implemented, too much order 

flow will be controlled by too few 

market participants, to the detriment of 

market makers who do not have client 

order flow.71 Based on its knowledge of 

the relevant market, the Commission 

believes that these initiators already 

control this order flow. Under the 

proposed rule change, these initiators 

will now have a new venue to execute 

orders with a maximum size of ten 

contracts, where other market 

participants can compete to try to 

provide price improvement. 

Accordingly, the Commission finds 

that the proposed rule change, as 

modified by Amendment Nos. 1 and 2, 

is consistent with the requirements of 

the Act. 

IV. Solicitation of Comments on 

Amendment No. 2 to the Proposed Rule 

Change 

Interested persons are invited to 

submit written data, views, and 

arguments concerning whether 

Amendment No. 2 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 rule-comments@

sec.gov. Please include File Number SR– 

CBOE–2020–051 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–2020–051. 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 


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10386 Federal Register / Vol. 86, No. 32 / Friday, February 19, 2021 / Notices 

72 15 U.S.C. 78s(b)(2). 

73 Id. 

74 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 90387 

(Nov. 10, 2020), 85 FR 73322 (Nov. 17, 2020) 

(‘‘Notice’’). 

4See Securities Exchange Act Release No. 90723 

(Dec. 18, 2020), 85 FR 84446 (Dec. 28, 2020). 

5See Notice, supra note 3, at 73323. 

Commentaries .01 and .02 to Rule 7.35, currently 

in effect on a temporary basis through April 30, 

2021, provide for the dissemination of Auction 

Imbalance Information if a security is an IPO or 

Direct Listing and has not had its IPO Auction or 

Direct Listing Auction. See Securities Exchange Act 

Release No. 90795 (Dec. 23, 2020), 85 FR 86608 

(Dec. 30, 2020). 

6See id. 

7See id. 

8See id. 

9See id. 

10See Notice, supra note 3, 85 FR at 73324. 

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–2020–051, and 

should be submitted on or before March 

12, 2021. 

V. Accelerated Approval of Proposed 

Rule Change, as Modified by 

Amendment Nos. 1 and 2 

The Commission finds good cause to 

approve the proposed rule change, as 

modified by Amendment Nos. 1 and 2, 

prior to the thirtieth day after the date 

of publication of notice of the filing of 

Amendment No. 2 in the Federal 

Register. As discussed above, in 

Amendment No. 2, the Exchange 

amended the proposal to specify that it 

may determine, per trading session, to 

establish the proposed maximum size of 

ten contracts for AIM and C–AIM 

agency orders in SPX. The Commission 

believes that Amendment No. 2 

provides additional specificity to the 

proposal that would allow the Exchange 

to make a determination, pursuant to 

Rule 1.5, to establish the proposed 

maximum size requirement of ten 

contracts for agency orders in SPX 

during RTH, while not imposing any 

maximum size requirement for agency 

orders in SPX during GTH, as it does 

today. Consequently, the Commission 

believes Amendment No. 2 does not 

raise any novel regulatory issues. 

Accordingly, the Commission finds 

good cause, pursuant to Section 19(b)(2) 

of the Act,72 to approve the proposed 

rule change, as modified by Amendment 

Nos. 1 and 2, on an accelerated basis. 

VI. Conclusion 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act,73 that the 

proposed rule change, as modified by 

Amendment Nos. 1 and 2 (SR–CBOE– 

2020–051), be, and hereby is, approved 

on an accelerated basis. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.74

Jill M. Peterson, 

Assistant Secretary. 

[FR Doc. 2021–03336 Filed 2–18–21; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–91121; File No. SR–NYSE– 

2020–93] 

Self-Regulatory Organizations; New 

York Stock Exchange LLC; Order 

Instituting Proceedings To Determine 

Whether To Approve or Disapprove a 

Proposed Rule Change To Amend 

Rules 7.35 and 7.35A 

February 12, 2021. 

I. Introduction 

On November 3, 2020, New York 

Stock Exchange LLC (‘‘Exchange’’ or 

‘‘NYSE’’) filed with the Securities and 

Exchange Commission (‘‘Commission’’) 

pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 

(‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a 

proposed rule change to amend Rule 

7.35 regarding dissemination of Auction 

Imbalance Information if a security is an 

IPO or Direct Listing and has not had its 

IPO Auction or Direct Listing Auction, 

and Rule 7.35A regarding DMM 

consultations in connection with an IPO 

or Direct Listing. The proposed rule 

change was published for comment in 

the Federal Register on November 17, 

2020.3

On December 18, 2020, the 

Commission extended to February 15, 

2020, the time period in which to 

approve the proposal, disapprove the 

proposal, or institute proceedings to 

determine whether to approve or 

disapprove the proposal.4 The 

Commission has received no comments 

on the proposal. This order institutes 

proceedings under Section 19(b)(2)(B) of 

the Act to determine whether to approve 

or disapprove the proposal. 

II. Description of the Proposal 

Rule 7.35—Auction Imbalance 

Information 

The Exchange proposes to amend 

Rule 7.35 to eliminate, on a permanent 

basis, the restriction on the Exchange 

disseminating Auction Imbalance 

Information if a security is an IPO or 

Direct Listing and has not had its IPO 

Auction or Direct Listing Auction.5 The 

Exchange asserts that disseminating 

Auction Imbalance Information in 

advance of an IPO Auction or Direct 

Listing Auction would promote 

transparency in advance of these 

Auctions, which would benefit 

investors and other market 

participants.6

As part of the proposed change, the 

Exchange proposes that the Imbalance 

Reference Price for determining the 

Auction Imbalance Information for 

either an IPO Auction or a Direct Listing 

Auction would be determined in the 

same manner as currently provided for 

under the temporary Commentaries .01 

and .02 to Rule 7.35, respectively.7

Specifically, the Imbalance Reference 

Price for determining the Auction 

Imbalance Information for a Core Open 

Auction under Rule 7.35A(e)(3) is the 

Consolidated Last Sale Price, bound by 

the bid and offer of any published preopening indication.8 Because this 

definition of Imbalance Reference Price 

does not currently specify what the 

Consolidated Last Sale Price would be 

for an IPO Auction or Direct Listing 

Auction (which does not exist because 

the security has not been previously 

listed on an exchange), the Exchange 

proposes to amend the definition of 

Consolidated Last Sale Price in Rule 

7.35(a)(11)(A) to provide that: (i) For an 

IPO that has not had its IPO Auction, 

the Consolidated Last Sale Price would 

mean the security’s offering price; and 

(ii) for a Direct Listing that has not had 

its Direct Listing Auction, the 

Consolidated Last Sale Price would 

mean the Indication Reference Price for 

such security.9

Rule 7.35A—DMM Consultations 

The Exchange proposes to amend 

Rule 7.35A(g)(1) to provide for DMM 

consultations with an underwriter or 

financial advisor for initial listings and 

follow-on offerings.10 The Exchange 

represents that the proposed rule text 

reflects long-standing practice relating 

to the type of consultations that a DMM 


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