10364 Federal Register / Vol. 86, No. 32 / Friday, February 19, 2021 / Notices 

20Proposed BX Options 3, Section 

7(d)(1)(A)(1)(e). 

21Proposed BX Options 3, Section 

7(d)(1)(A)(1)(f). 

22 Id. 

23Proposed BX Options 3, Section 

7(d)(1)(A)(1)(g). 

24See Notice, supra note 5, at 73097. 

25 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). 

26 15 U.S.C. 78f(b)(5). 

27 15 U.S.C. 78f(b)(8). 

28See Notice, supra note 5, at 73095–96 

(describing the current methods Participants use to 

find a paired order). 

29Proposed BX Options 3, Section 

7(d)(1)(A)(1)(c). 

30Notice, supra note 5, at 73097. 

31Proposed BX Options 3, Section 

7(d)(1)(A)(1)(f). 

32Notice, supra note 5, at 73097. 

33Notice, supra note 5, at 73098. 

34Proposed BX Options 3, Section 

7(d)(1)(A)(1)(f). 

35Notice, supra note 5, at 73098. 

36See id. 

37 17 CFR 200.30–3(a)(12). 

been sent.20 The identity of the sender 

and recipients will not be known to any 

party,21 and the Exchange will not 

disclose a list of BX Participants that 

have opted-in to receive Requests for 

PRISM.22

It would be deemed conduct 

inconsistent with just and equitable 

principles of trade and a violation of 

Options 9, Section 1, and other 

Exchange Rules, to utilize non-public 

information in connection with a 

Request for PRISM to a BX Participant’s 

economic advantage.23 The Exchange 

intends to begin implementation of the 

proposed rule change by June 30, 2021. 

The Exchange will issue an Options 

Trader Alert to BX Participants with the 

date of implementation.24

III. Discussion and Commission 

Findings 

The Commission finds that the 

proposed rule change is consistent with 

the requirements of the Act and the 

rules and regulations thereunder 

applicable to a national securities 

exchange.25 In particular, the 

Commission finds that the proposed 

rule change is consistent with Section 

6(b)(5) of the Act,26 which requires that 

the rules of an exchange be designed, 

among other things, 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 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, and not be designed to 

permit unfair discrimination between 

customers, issuers, brokers or dealers. 

The Commission also finds that the 

proposed rule change is consistent with 

Section 6(b)(8) of the Act,27 which 

requires that the rules of a national 

securities exchange not impose any 

burden on competition that is not 

necessary or appropriate in furtherance 

of the purposes of the Act. 

The proposed rule change appears 

reasonably designed to offer Participants 

an efficient process to solicit an 

Initiating Order among other BX 

Participants for entry into the PRISM 

auction.28 The Commission believes 

that by permitting BX Participants to 

use FIX to send a Request for PRISM 

(with a PRISM Order) simultaneously to 

all BX Participants that have opted-in, 

the proposed Request for PRISM process 

would provide BX Participants with 

another means of soliciting interest for 

a PRISM auction from a potentially 

broader group of market participants, 

potentially providing price 

improvement to the PRISM Order. The 

Commission further notes that the 

proposal would not amend the manner 

in which PRISM auction operates. Any 

paired order entered into PRISM must 

comply with the eligibility requirements 

of BX Options 3, Section 13(i) to 

commence the auction and the auction 

process will operate as it does today. 

The Commission also believes that the 

proposal appears to be designed to 

provide an objective process for the 

selection of the contra-side to the 

PRISM Order. Any BX Participant may 

choose to opt-in, and those who opt-in 

would receive any Request for PRISM 

sent from BX Participants.29 Further, 

any BX Participant that chooses to optin may subsequently opt-out.30 In 

addition, the Exchange has proposed 

that the identity of the sender and 

recipients would not be known to any 

party and that it would not disclose a 

list of the BX Participants that opted-in 

to receive a Request for PRISM.31 Thus, 

the decision of which Participant is 

chosen to provide the Initiating Order 

will be based solely on which recipient 

responded first to the Request for 

PRISM. 

The Commission also believes that the 

proposed rule change appears designed 

to prevent the misuse of information 

related to the proposed Request for 

PRISM and create an audit trail for 

surveilling Requests for PRISM. The 

Exchange represents that it will employ 

surveillances to prevent misuse of nonpublic information related to a Request 

for PRISM similar to how it employs 

surveillances today to ensure that 

information available in auctions is not 

misused.32 The Exchange also 

represents that the communications that 

would occur, through FIX, would be 

available to and maintained by the 

Exchange, and that it would be able to 

monitor entries into both the order book 

and the PRISM auction.33 Further, the 

Exchange proposes in Options 3, 

Section 13 that it would be deemed 

conduct inconsistent with just and 

equitable principles of trade and a 

violation of Options 9, Section 1, and 

other Exchange Rules for BX 

Participants receiving Requests for 

PRISM to utilize the information to a BX 

Participant’s economic advantage.34 In 

addition, a Request for PRISM would be 

subject to the restrictions set forth in BX 

Options 3, Section 22 (Limitations on 

Order Entry), and any paired order 

resulting from a Request for PRISM 

would be subject to the PRISM auction 

requirements in BX Options 3, Section 

13.35

For the reasons set forth above, the 

Commission believes that the proposed 

rule changes are consistent with the 

requirements of the Act. 

V. Conclusion 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act,36 that the 

proposed rule change (SR–BX–2020– 

033) hereby is approved. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.37

Jill M. Peterson, 

Assistant Secretary. 

[FR Doc. 2021–03341 Filed 2–18–21; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–91122; File No. SR–CBOE– 

2020–052] 

Self-Regulatory Organizations; Cboe 

Exchange, Inc.; Order Approving a 

Proposed Rule Change, as Modified by 

Amendment No. 1, To Amend Rules 

5.37, 5.38, and 5.73 Related to Auction 

Notification Messages and Index 

Combo Orders in SPX in the 

Automated Improvement Mechanism, 

Complex Automated Improvement 

Mechanism, and FLEX Automated 

Improvement Mechanism 

February 12, 2021. 

I. Introduction 

On June 3, 2020, Cboe Exchange, Inc. 

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

Securities and Exchange Commission 


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Federal Register / Vol. 86, No. 32 / Friday, February 19, 2021 / Notices 10365 

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

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 89063 

(June 12, 2020), 85 FR 36923 (‘‘Notice’’). Comments 

received on the proposed rule change are available 

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

www.sec.gov/comments/sr-cboe-2020-052/ 

srcboe2020052.htm. 

4 In Amendment No. 1, the Exchange amended 

the proposal to: (1) To add that, when the proposed 

stop price dissemination in auction notification 

messages is enabled for AIM, C–AIM, or FLEX AIM 

auctions in SPX, it would apply to all such AIM, 

C–AIM, or FLEX AIM auctions; (2) specify that the 

proposed minimum increment modification would 

apply to Index Combo Orders in SPX, and to correct 

an internal cross-reference in the proposed rules; (3) 

provide additional detail to the description and 

examples of the proposed modification to the 

minimum increment for Index Combo Orders in 

SPX; and (4) provide additional justification and 

support for the proposed rule change. The full text 

of Amendment No. 1 is available on the 

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

comments/sr-cboe-2020-052/srcboe2020052- 

7464403-221166.pdf. 

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

6See Securities Exchange Act Release No. 89400, 

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. 89638, 

85 FR 53045 (August 27, 2020). 

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

10See Securities Exchange Act Release No. 90592, 

85 FR 80863 (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. 

11See Rules 5.38 (AIM), 5.38 (C–AIM), and 5.73 

(FLEX AIM). 

12See Rules 5.37(e), 5.38(e), and 5.73(e). 

13The Exchange had activated C–AIM and AIM 

in SPX for the first time as a result of the March 

16, 2020 trading floor suspension to help prevent 

the spread of COVID–19. According to the 

Exchange, FLEX AIM in SPX had been activated 

prior to March 16, 2020. 

14An Index Combo Order is an order to purchase 

or sell one or more index option series and the 

offsetting number of Index Combinations defined by 

the delta. For purposes of an Index Combo order, 

the following terms have the following meanings: 

(1) An ‘‘Index Combination’’ is a purchase (sale) of 

an index option call and sale (purchase) of an index 

option put with the same underlying index, 

expiration date, and strike price; (2) A ‘‘delta’’ is the 

positive (negative) number of Index Combinations 

that must be sold (purchased) to establish a market 

neutral hedge with one or more series of the same 

index option; and (3) An Index Combo order may 

not have a ratio greater than eight options to one 

Index Combination (8.00), and will be subject to all 

provisions applicable to complex orders (excluding 

the one-to-three/three-to-one ratio) in the Rules. See 

Rule 5.33(b). 

15See Rule 5.38. 

16See generally Rule 5.38(e). The same process 

applies to the FLEX AIM auction pursuant to the 

FLEX Rules. See generally Rule 5.73(e). 

17The System rejects a C–AIM response or agency 

or initiating order that is not in the applicable 

minimum increment. 

18Although members of the trading crowd on the 

trading floor are permitted to improve the net 

package price (based on then-current leg markets) 

by the minimum increment of $0.05, the Exchange 

states that this is not the common practice. See 

Amendment No. 1, supra note 4, at 9. 

19An Index Combo Order in SPX is a complex 

order that includes one or more SPX legs, hedged 

by an SPX combo, or synthetic future, defined by 

the delta. The Exchange states that Index Combo 

Orders in SPX comprise a significant portion of 

crosses in SPX and that a significant amount of SPX 

volume was executed through C–AIM when the 

Continued 

(‘‘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 Rules 5.37, 5.38, and 5.73 to (1) 

allow the Exchange to determine to 

disseminate the stop price in auction 

notification messages for Automated 

Improvement Mechanism (‘‘AIM’’), 

Complex Automated Improvement 

Mechanism (‘‘C–AIM’’), and FLEX AIM 

auctions in S&P 500® Index options 

(‘‘SPX’’); and (2) modify the minimum 

increment for C–AIM and FLEX AIM 

auction responses for Index Combo 

Orders in SPX. The proposed rule 

change was published for comment in 

the Federal Register on June 18, 2020.3

On July 22, 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, 

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 This order approves the 

proposed rule change, as modified by 

Amendment No. 1. 

II. Description of the Proposal, as 

Modified by Amendment No. 1 

A. Background 

The AIM, C–AIM, and FLEX 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).11 Upon 

submitting an agency order into one of 

these auctions, the initiating Trading 

Permit Holder must also submit a 

contra-side second order for the same 

size as the agency order. The contra-side 

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 

contra-side order may be allocated a 

certain percentage of the agency order.12

On March 16, Cboe activated the AIM 

and C–AIM in SPX options, so that 

trading in SPX could continue while the 

trading floor was closed.13 Once the 

trading floor re-opened on June 15, 

2020, the Exchange disengaged AIM and 

C–AIM for SPX. Prior to the trading 

floor closure, the Exchange had not 

activated C–AIM (or AIM) in SPX and 

thus all non-FLEX crossing transactions 

in SPX were previously only able to 

occur on the trading floor. 

B. Minimum Increment for Index Combo 

Orders in SPX 

The Exchange proposes to amend 

Rules 5.38 and 5.73 to modify the 

minimum increment for C–AIM and 

FLEX AIM auction responses, 

respectively, in which the agency order 

complex strategy is comprised of an 

Index Combo Order (as defined in Rule 

5.33(b)) in SPX.14 When submitting an 

agency order into a C–AIM auction, the 

initiating member must also submit 

principal or solicited contra-side 

complex order(s) for the same size as the 

agency order, which guarantees that the 

agency order will receive an 

execution.15 Upon commencement of a 

C–AIM auction, market participants 

submit responses to trade against the 

agency order and at the conclusion of an 

auction, depending on the contra-side 

interest available, the contra order may 

be allocated a certain percentage of the 

agency order.16

Rules 5.38(c)(5)(A) and 5.38(a)(4) 

currently provide that the minimum 

price increment for C–AIM responses 

and agency and initiating orders, 

respectively, must be in an increment 

the Exchange determines on a class 

basis, which is $0.05 in SPX options.17

The corresponding FLEX AIM Rules 

5.73(c)(5)(A) and 5.73(a)(4) provide the 

same treatment for FLEX AIM auctions. 

Thus, under current rules market 

participant responses in the C–AIM and 

FLEX AIM auctions must improve the 

net package price (i.e., each strategy 

unit) based on then-current leg markets 

by at least the minimum increment of 

$0.05.18 Because of the differences 

between the quoting practices on floor 

and the quoting practices in the C–AIM 

and FLEX AIM auctions with respect to 

Index Combo Orders in SPX,19 however, 


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Exchange activated C–AIM for SPX options. See id. 

at 7 and n.10 (stating that in April 2020, Index 

Combo Orders in SPX comprised 60.5% of crossed 

volume executed in SPX via AIM while the trading 

floor was inoperable). 

20See id. at 9–11, for examples of these pricing 

distinctions in practice. 

21See id. at 7. 

22See id. 

23The price of the combo and the rest of the order 

are ultimately packaged and appear as a net package 

price for the entire order on the customer fill report. 

See id. at 8. 

24See id. 

25See id. at 13. 

26For example, if a market participant buys 800 

November 3650 SPX Calls tied to 100 September 

3210 Combos, using a delta of 12.5, the System 

would calculate the minimum increment by 

multiplying the ratio of the non-combo leg of the 

order (800) to the number of combos (100) by the 

minimum increment of $0.05. Therefore, (800/100) 

× 0.05 = $0.40 as the starting point for price 

improvement during the C–AIM or FLEX C–AIM 

auction. See id. 

27See id. at 12–13. 

28See id. at 11. 

29The Exchange represents that it will notify its 

trading permit holders of a determination to include 

the stop price in auction notification messages, 

pursuant to Rule 1.5, via a specification, notice, or 

regulatory circular with appropriate advanced 

notice, which will be posted on the Exchange’s 

website, electronic message, or other 

communication method as provided in the Rules. 

See id. at 12 n.18. 

30See proposed Rules 5.37(c)(2) and 5.38(c)(2). 

31See Amendment No. 1, supra note 4, at 12–13. 

32 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). 

33 15 U.S.C. 78f(b)(5). 

34 15 U.S.C. 78f(b)(8). 

35See Amendment No. 1, supra note 4, at 16. 

36See id. 

37See id. at 6. 

applying the $0.05 minimum increment 

to auction responses in both floor 

trading and the electronic C–AIM and 

FLEX AIM auctions could result in a 

significant difference in the price 

improvement that an order receives 

depending on whether the Index Combo 

Order in SPX is traded in the electronic 

auctions or on the trading floor.20 A 

floor broker seeking to cross SPX 

complex orders on the trading floor 

generally identifies the legs of the 

complex order and their relative sizes to 

each other with a net package price.21

The trading crowd then generally 

provides a market based on the 

strategy’s theoretical value, rather than 

on the value of the net package (which 

equals the strategy times the ratio), 

particularly when the complex order 

represented is a delta neutral order that 

includes a combo.22 In open outcry 

trading, the trading crowd generally 

prices the combo hedge portion 

separately from the non-combo portion 

of the order.23 If the crowd improves the 

price of the non-combo leg of the order 

by a minimum increment, or greater, 

that price is given on each contract.24

The proposed changes are intended to 

provide for substantially the same price 

improvement opportunities at 

meaningful increments for Index Combo 

Orders in SPX, whether they are 

submitted to the C–AIM or FLEX AIM 

electronic auctions or executed on the 

trading floor.25

Accordingly, to better align the C– 

AIM and FLEX AIM electronic auction 

crossing processes and the open outcry 

crossing process for Index Combo 

Orders in SPX, the Exchange proposes 

to amend Rule 5.38(c)(5)(A) to provide 

that the minimum price increment for a 

C–AIM response in which the agency 

order complex strategy is comprised of 

an Index Combo Order in SPX will be 

the ratio of the non-combo portion of 

the strategy to the number of combos, 

multiplied by the minimum price 

increment the Exchange determines for 

options on SPX agency orders pursuant 

to Rule 5.38(a)(4).26 The Exchange also 

proposes to amend Rule 5.73(c)(5)(A) to 

revise the FLEX AIM process for Index 

Combo Orders in SPX in the same 

manner.27

C. Auction Stop Price Dissemination in 

SPX 

Current Rules 5.37(c)(2), 5.38(c)(2), 

and 5.73(c)(2) provide that the system 

initiates the AIM, C–AIM, and FLEX 

AIM auction processes, respectively, by 

sending an auction notification message 

detailing the side, size, auction ID, and 

options series (and, for C–AIM auctions, 

complex strategy, or, for FLEX AIM 

auctions, length of the auction period 

and options series or complex strategy, 

as applicable) of the agency order to all 

users that elect to receive AIM, C–AIM, 

or FLEX AIM auction notification 

messages. Because AIM, C–AIM, and 

FLEX AIM auction notification 

messages are not included in the 

disseminated BBO (in connection with 

AIM auctions) or OPRA, the Exchange 

does not currently include the stop 

price of an agency order in auction 

notification messages.28 To better align 

the AIM and C–AIM pricing process in 

SPX with the open outcry process, the 

Exchange proposes to amend Rules 

5.37(c)(2) and 5.38(c)(2) to provide that 

the Exchange may also determine to 

include the stop price in SPX AIM and 

C–AIM auction notification messages.29

As with all other information 

disseminated in an AIM and C–AIM 

auction notification message, the 

disseminated stop price for SPX 

auctions will be available to all users 

that elect to receive auction notification 

messages.30 Because the FLEX AIM 

rules are similar to the AIM and C–AIM 

rules, the Exchange also proposes to 

maintain this consistency by amending 

Rule 5.73(c)(2) to similarly provide that 

the Exchange may determine to include 

the stop price in FLEX AIM auction 

notification messages for all FLEX AIM 

auctions in SPX.31

III. Discussion and Commission 

Findings 

The Commission finds that the 

proposed rule change, as modified by 

Amendment No. 1, is consistent with 

the requirements of the Act and the 

rules and regulations thereunder 

applicable to a national securities 

exchange.32 In particular, the 

Commission finds that the proposed 

rule change, as modified by Amendment 

No. 1, is consistent with Section 6(b)(5) 

of the Act,33 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 No. 1, is 

consistent with Section 6(b)(8) of the 

Act,34 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 discussed above, the Exchange 

proposes to publish the stop price of 

SPX AIM auctions. As previously noted, 

according to the Exchange, orders in 

SPX generally take on greater risk, have 

a higher notional value, trade in much 

larger size, and effect increasingly more 

complex strategies than options in other 

classes.35 Therefore, the Exchange 

believes that this proposed change may 

address any uncertainties market 

participants may have when pricing 

SPX responses.36 The Exchange further 

states that, for SPX orders crossed on 

the trading floor in open outcry, market 

makers generally have more confidence 

in the pricing of their responses as the 

crosses start with a request for market 

and the trading crowd then provides a 

‘‘ballpark’’ of the prices at which they 

are willing to trade, which the market 

maker may then use to more confidently 

price its responses.37 The Exchange 

believes that its proposal, therefore, has 

been designed to incentivize continued, 

competitive responses to SPX electronic 

auctions in substantially the same 

manner in which responses may be 


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38See id. at 16. The Exchange also states that its 

affiliated options exchange, Cboe EDGX Exchange, 

Inc. (‘‘EDGX Options’’) currently includes the price, 

along with the other fields the Exchange currently 

disseminates, in the auction notification messages 

disseminated at the initiation of its AIM and C–AIM 

auctions. See EDGX Options Rules 21.19(c)(2) and 

21.22(c)(2). 

39See Amendment No. 1, supra note 4, at 15. 

40See id. at 13–14 (providing an additional 

example to illustrate the Exchange’s arguments). 

41See id. The Exchange states that the proposal 

will not alter the manner in which the system caps 

responses pursuant to Rule 5.38(c)(5)(B). Under 

Rule 5.38(c)(5)(B), C–AIM buy (sell) responses are 

capped at the following prices that exist at the 

conclusion of the C–AIM Auction: (i) The better of 

the synthetic best offer (‘‘SBO’’) (synthetic best bid 

(‘‘SBB’’)) or the offer (bid) of a resting complex 

order at the top of the complex order book (‘‘COB’’); 

or (ii) one minimum increment lower (higher) than 

the better of the SBO (SBB) or the offer (bid) of a 

resting complex order at the top of the COB if the 

BBO of any component of the complex strategy or 

the resting complex order, respectively, is a Priority 

Customer order. See id. at 14–15. 42See letter to Vanessa Countryman, Secretary, 

Commission, from Ellen Greene, Managing Director, 

Equities & Options Market Structure, The Securities 

Industry and Financial Markets Association, dated 

July 9, 2020. 43See Notice, supra note 3, at 36923. 

44One commenter supported the proposal, 

highlighting specifically the stop price 

dissemination aspect of the proposal and stating 

that it would better align the AIM and C–AIM 

pricing processes for responses with the open 

outcry process. See letter to Vanessa Countryman, 

Secretary, Commission, from Ellen Greene, 

Managing Director, Equities & Options Market 

Structure, The Securities Industry and Financial 

Markets Association, dated July 9, 2020, at 3. 

45See, e.g., BOX Exchange LLC Rule 7150(f); 

EDGX Options Rules 21.19(c)(2) and 21.22(c)(2); 

MIAX International Securities Exchange, LLC Rule 

515A(a)(2)(i)(B); and Nasdaq ISE, LLC Options 3, 

Section 13(c). 

46 15 U.S.C. 78s(b)(2). 

47 17 CFR 200.30–3(a)(12). 

priced on the trading floor, thereby 

providing for potentially improved 

liquidity and price improvement 

opportunities for orders being executed 

through those auctions, as the 

dissemination of the stop price may 

facilitate market participants’ 

confidence in pricing meaningful, 

competitive responses during electronic 

auctions in SPX in a manner 

substantially similar to that which 

occurs on the trading floor.38

The Exchange also proposes to revise 

the minimum increment for auction 

responses for Index Combo Orders in 

SPX that trade in electronic auctions. 

For these orders, the Exchange proposes 

to base the minimum auction response 

increment on the ratio of the non-combo 

portion of the strategy to the number of 

combos, multiplied by the minimum 

price increment the Exchange 

determines for options on SPX agency 

orders pursuant to Rule 5.38(a)(4). The 

Exchange believes that without the 

proposed change, responders to C–AIM 

and FLEX AIM auctions of Index Combo 

Orders in SPX could ‘‘step ahead’’ of 

market participants who are willing to 

trade with customer orders at the 

auction price by providing only a trivial 

amount of price improvement.39 The 

Exchange believes that this could 

discourage market participants from 

providing contra-side interest at the best 

prices and liquidity providers from 

joining or improving at meaningful 

increments, resulting in fewer price 

improvement opportunities for 

customers.40 By tying the minimum 

auction response increment to the legs 

of the order, as opposed to the package 

price inclusive of the combos, the 

Exchange believes the proposed rule 

will require market participants to 

respond to the C–AIM or FLEX AIM 

auctions for Index Combo Orders in SPX 

at prices more aligned with the prices at 

which responses for these orders 

generally occur in open outcry.41 One 

commenter agreed with Cboe stating 

that the proposed rule change should 

provide investors in SPX with enhanced 

execution and price improvement 

opportunities for agency orders 

submitted into the AIM auctions.42

According to the Exchange, orders in 

SPX generally take on greater risk than 

in other option classes, as SPX options 

tend to have a higher notional value 

than options in other classes, trade 

much larger size than in other options 

classes, and effect increasingly more 

complex strategies than executed in 

other classes.43 The proposed change to 

the minimum auction response 

increment for Index Combo Orders in 

SPX could help to ensure that market 

participants seeking to trade with an 

agency order at a price better than the 

auction price will be required to provide 

meaningful price improvement. Because 

liquidity providers responding to a C– 

AIM or FLEX AIM auction for an Index 

Combo Order in SPX will not be able to 

gain allocation priority over solicited 

contra side interest by providing only 

minimal price improvement over the 

auction price, the proposal could help 

to ensure that market participants 

solicited to participate as the contra side 

to an Index Combo Order in SPX will 

continue to provide liquidity for these 

orders. The proposed auction response 

increment also could help to ensure that 

an Index Combo Order in SPX that is 

executed in a C–AIM or FLEX AIM 

auction receives an amount of price 

improvement comparable to the amount 

of price improvement that the order 

might receive if it traded in open outcry. 

The proposed change to the minimum 

auction response increment for Index 

Combo Orders in SPX is also consistent 

with Section 6(b)(8) of the Act because 

it may promote competition on the 

Exchange by more closely aligning the 

electronic crossing process with the 

open outcry crossing process, and thus 

provide similar execution and price 

improvement opportunities to 

customers whether their orders are 

submitted for electronic or open outcry 

execution. 

The Commission further believes that 

the Exchange’s proposal to allow for the 

dissemination of the stop price in 

auction notification messages for AIM, 

C–AIM, and FLEX AIM auctions in SPX 

is consistent with the Act.44 As 

described above, providing potential 

auction responders with more 

information about an upcoming SPX 

AIM auction may encourage market 

participants to submit more competitive 

responses, particularly given the large 

and complex nature of orders in SPX. 

Accordingly, the Commission believes 

the Exchange’s proposal may result in 

increased liquidity in AIM auctions and 

therefore increased price improvement 

opportunities for SPX agency orders in 

the AIM auctions. 

The Commission is also aware that 

other options exchanges currently 

disseminate the stop price of an agency 

order in similar auction mechanisms 

and does not believe this aspect of the 

proposed rule change raises any novel 

regulatory issues.45 The Commission 

believes that providing similar 

additional information in its electronic 

price improvement auction notification 

messages should make the Cboe 

electronic price improvement auctions 

competitive with other options 

exchanges and encourage the 

submission of more responses to these 

auctions. For this reason, the 

Commission believes that the proposed 

rule change is also consistent with 

Section 6(b)(8) of the Act. 

Accordingly, the Commission finds 

that the proposed rule change, as 

modified by Amendment No. 1, is 

consistent with the requirements of the 

Act. 

IV. Conclusion 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act,46 that the 

proposed rule change, as modified by 

Amendment No. 1 (SR–CBOE–2020– 

052), be, and hereby is, approved. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.47

Jill M. Peterson, 

Assistant Secretary. 

[FR Doc. 2021–03339 Filed 2–18–21; 8:45 am] 

BILLING CODE 8011–01–P 


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