62612 Federal Register / Vol. 88, No. 175 / Tuesday, September 12, 2023 / Notices 

9 17 CFR 200.30–3(a)(85). 

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

2 17 CFR 240.19b–4. 3See Rule 5.51. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.9

Sherry R. Haywood, 

Assistant Secretary. 

[FR Doc. 2023–19592 Filed 9–11–23; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–98304; File No. SR–CBOE– 

2023–044] 

Self-Regulatory Organizations; Cboe 

Exchange, Inc.; Notice of Filing of a 

Proposed Rule Change To Adopt a 

Quote Protection Timer 

September 6, 2023. 

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

Securities Exchange Act of 1934 

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

notice is hereby given that on August 

30, 2023, Cboe Exchange, Inc. 

(‘‘Exchange’’) filed with the Securities 

and Exchange Commission 

(‘‘Commission’’) the proposed rule 

change as described in Items I and II 

below, which Items have been prepared 

by the Exchange. The Commission is 

publishing this notice to solicit 

comments on the proposed rule change 

from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

Cboe Exchange, Inc. (the ‘‘Exchange’’ 

or ‘‘Cboe Options’’) proposes to amend 

Rule 5.32. The text of the proposed rule 

change is provided in Exhibit 5. 

The text of the proposed rule change 

is also available on the Exchange’s 

website (http://www.cboe.com/ 

AboutCBOE/ 

CBOELegalRegulatoryHome.aspx), at 

the Exchange’s Office of the Secretary, 

and at the Commission’s Public 

Reference Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

Exchange included statements 

concerning the purpose of and basis for 

the proposed rule change and discussed 

any comments it received on the 

proposed rule change. The text of these 

statements may be examined at the 

places specified in Item IV below. The 

Exchange has prepared summaries, set 

forth in sections A, B, and C below, of 

the most significant aspects of such 

statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

The Exchange proposes to amend 

Rule 5.32 to adopt a passive quote 

protection mechanism. 

The options market is driven by 

Market-Maker quotes, and thus MarketMaker quotes are critical to provide 

liquidity to the market and contribute to 

price discovery for investors. If MarketMakers do not have sufficient time to 

refresh their resting quotes (the primary 

source of liquidity for customers in the 

market) in response to market updates 

before executing against incoming 

interest that has incorporated those 

market updates, this increased risk of 

execution at stale prices may cause 

Market-Makers to widen their quotes to 

the detriment of investors or otherwise 

withhold liquidity. This reduced 

liquidity may reduce execution 

opportunities or cause executions to 

occur at worse prices for customers. 

Further, Market-Makers must comply 

with various obligations, including to 

provide continuous electronic quotes 

and to update quotes in response to 

market conditions.3 It takes time for 

Market-Makers to update quotes in 

series in their appointed classes, which 

may not take effect until after faster 

market participants have updated 

orders. The Exchange believes it is 

appropriate to provide Market-Maker 

quotes with a reasonable amount of 

protection to allow them to execute at 

prices reflective of market updates given 

not only the Exchange-imposed 

requirements to provide and updates 

such quotes but also the resources 

Market-Makers expend to comply with 

those requirements. 

Market-Maker quotes are based 

generally on pricing models that rely on 

various factors, including the price of 

the underlying security and that 

security’s volatility. As these variables 

change, a Market-Maker’s pricing model 

automatically will enter updates to a 

number of its bids and offers. 

Additionally, a Market-Maker’s system 

may also automatically enter orders in 

response to changes in those variables 

as part of their market-making activity, 

such as hedging. As a result, there can 

be a multitude of instances in which the 

bids and offers of multiple MarketMakers attempting to update their 

quotes and submit orders in response to 

market changes inadvertently interact 

with each other, which can lead to 

significant risk and exposure. This may 

occur, for example, when one MarketMaker’s price update system is faster 

than systems used by other MarketMakers. In this respect, a MarketMaker’s system that updates options 

prices microseconds, or even 

nanoseconds, faster than another 

Market-Maker’s system may lock or 

cross its bids (offers) against the other 

Market-Maker’s offers (bids) every time 

its bid (offer) adjusts to the offer (bid) of 

the second Market-Maker even if the 

second Market-Maker’s system was also 

in the process of updating that offer 

(bid). 

For example, suppose three MarketMakers for class XYZ have the following 

displayed markets: 

Market-Maker A: (10) 10.00–10.20 (10) 

Market-Maker B: (5) 10.05–10.20 (5) 

Market-Maker C: (5) 9.95–10.15 (5) 

Each of the Market-Maker’s systems 

identify an increase in the price of stock 

XYZ, which causes those systems to 

send updated quotes. However, MarketMaker A, as a result of its own 

technological investment, has the fastest 

system, which received the updated 

price of stock XYZ three microseconds 

before the systems of the other two 

Market-Makers, and thus sent its 

updated quotes to the Exchange three 

microseconds before the systems of the 

other two Market-Makers. Market-Maker 

a sent a revised two-sided market of (10) 

10.20–10.40 (10) based on the updated 

price of XYZ. Because the quotes for 

Market-Maker A’s updated market 

reached the Exchange before the 

updated markets of Market-Makers B 

and C, Market-Maker A’s bid will 

execute against Market-Maker C’s offer 

of 10.15 and Market-Maker B’s offer of 

10.20, which offers were based on a 

lower stock price. Market-Maker B’s and 

C’s updated markets of (5) 10.25–10.40 

(5) and (5) 10.15–10.35 (5) reached the 

Exchange after this execution, despite 

those Market-Makers no longer being 

interested in selling at the price of 10.15 

or 10.20. Market-Maker A likely 

submitted its updated market to display 

liquidity available for customer prices at 

an updated price, rather than remove 

liquidity from other liquidity providers 

at outdated prices. This could happen 

contemporaneously in a large number of 

series within the class, such that instead 

of locking one quote, Market-Maker A 

may lock 20 of Market-Maker B’s and 

Market-Maker C’s quotes. This may 

expose each Market-Maker to significant 

risk due to these unintended executions 

and prevent orders intended to provide 

liquidity in the Book from doing so. 


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4A ‘‘Cancel Back’’ order is an order (including a 

bulk message) designated to not be subject to the 

price adjust process pursuant to Rule 5.32 (as 

described below) that the System cancels or rejects 

if displaying the order on the Book would create a 

locked or crossed market or if the order cannot 

otherwise be executed or displayed in the Book at 

its limit price. See Rule 5.6(c) (definition of ‘‘Cancel 

Back’’). 

5A ‘‘Book Only’’ order is an order the System 

ranks and executes pursuant to Rule 5.32, subjects 

to the price adjust process pursuant to Rule 5.32, 

or cancels, as applicable (in accordance with User 

instructions), without routing away to another 

exchange. See Rule 5.6(c) (definition of ‘‘Book 

Only’’). 

6Rule 5.32(b) describes additional price adjust 

scenarios, but these scenarios are not relevant to the 

proposed rule change. 

7This includes Immediate-or-Cancel (‘‘IOC’’) 

orders and Intermarket Sweep Orders (‘‘ISOs’’). See 

Rule 5.6(c). Contingent orders (i.e., stop, stop-limit, 

market-on-close, and limit-on-close) are excluded 

from the QPT (except for market-on-close and limiton-close orders submitted to the Exchange within 

the specified amount of time set by the Exchange 

pursuant to Rule 5.6(d), as they would just be 

market or limit orders at that point), as by definition 

these orders are not executable upon entry (they 

Continued 

The Exchange understands MarketMakers primarily use bulk message 

quotes to input and update quote prices 

for purposes of providing liquidity, as 

bulk messages allow Market-Makers to 

update efficiently quotes in multiple 

series using a single message. To protect 

these quotes—Market-Makers’ primary 

liquidity source—from inadvertent 

executions as well as executions at stale 

prices due to technological disparities 

between Market-Maker systems, the 

Exchange adopted the functionality in 

current Rules 5.6(c)(3) and 5.32(c)(6), 

which prevents executions of incoming 

Market-Maker interest against resting 

Market-Maker interest. The purpose of 

this functionality is to provide resting 

Market-Maker quotes with time to 

update before execution so that 

executions occur at prices based on 

then-current market, which the 

Exchange believes encourages MarketMakers to provide competitive markets 

on the Exchange. Specifically, Rule 

5.32(c)(6) provides that the System 

cancels or rejects a Cancel Back 4 Book 

Only 5 bulk message bid (offer) or order 

bid (offer) (or unexecuted portion) 

submitted by a Market-Maker with an 

appointment in the class through a bulk 

port if it would execute against or lock 

a resting offer (bid) with a Capacity of 

M. In other words, a Cancel Back Book 

Only Market-Maker quote or order 

submitted through a bulk port will be 

rejected if it would execute against 

resting Market-Maker interest. 

Additionally, pursuant to Rule 5.32(b), 

the System adjusts the price of a Price 

Adjust (i.e., an order designated Price 

Adjust or not designated as Cancel 

Back) Book Only bulk message quote 

submitted through a bulk port if, at the 

time of entry, would lock or cross a 

resting order or quote with Capacity M.6

In other words, a Price Adjust Book 

Only Market-Maker quote or order 

submitted through a bulk port will rest 

on the Book at one increment away from 

a resting order or quote with Capacity 

M. This functionality is designed to 

protect resting Market-Maker quotes 

from executions at potentially stale 

prices due to technology disparities (1) 

rather than the intention of MarketMaker quote and order updates to trade 

against resting Market-Maker quotes 

(and thus eliminate displayed liquidity) 

and (2) against incoming Market-Maker 

orders (that may be submitted for the 

purpose of providing liquidity or to 

trade for other Market-Maker purposes, 

such as hedging) with prices that have 

incorporated market updates. 

The protection in Rule 5.32(c)(6) 

specifically prevents incoming 

appointed Market-Maker interest (which 

may be Book Only and thus otherwise 

eligible for execution against resting 

interest on the Book) from executing 

against resting Market-Maker interest. 

To further protect liquidity of MarketMakers in appointed classes (which 

liquidity is subject to quoting 

obligations, as noted above), Rule 

5.6(c)(3) provides that bulk messages 

used by Market-Makers in nonappointed classes may be Post Only 

only, which would prevent executions 

of these incoming quotes against resting 

interest (including resting appointed 

Market-Maker interest) in those classes. 

This current functionality also 

recognizes that resting Market-Maker 

interest needs protection from orders (in 

addition to quotes) of all users, 

including non-Market-Makers, as orders 

submitted through bulk ports by Users 

other than appointed Market-Makers 

may also only be Post Only, which again 

would prevent executions of these 

incoming orders against resting interest 

(including resting appointed MarketMaker interest). Given the primary 

purpose of bulk ports is to allow 

Market-Makers and other users to 

provide liquidity to the Book, the 

Exchange adopted functionality to 

prevent executions of interest submitted 

through bulk ports against resting 

Market-Maker interest due to 

technological disparities (as 

demonstrated in the example above to 

protect the primary liquidity source to 

the Exchange. 

While this current functionality 

protects resting Market-Maker interest 

from execution at stale prices against 

incoming Market-Maker and nonMarket-Maker interest submitted 

through bulk ports, resting MarketMaker interest remains unprotected 

from Market-Maker orders that may be 

submitted through non-bulk ports. As 

noted above, Market-Makers may submit 

orders for other market-making 

purposes, such as hedging, which orders 

can be generated from the same systems 

generating bulk message quotes. As a 

result, resting Market-Maker interest 

remains subject to risk of execution at 

stale prices against incoming MarketMaker non-bulk port orders due to 

technological disparities. Given the 

critical role Market-Makers play in the 

options market, the Exchange believes it 

is imperative to have the ability to 

protect Market-Makers’ resting quotes 

from execution at stale prices against 

incoming Market-Maker interest 

resulting from technological disparities 

between Market-Makers. The Exchange 

believes it should be able to extend this 

protection to incoming interest from 

Market-Makers, regardless of the type of 

port through which it was submitted, as 

it can expose Market-Makers to the same 

level of risk. Ultimately, this exposure 

may negatively impact liquidity to the 

detriment of the entire market. Unlike 

quotes and orders submitted through 

bulk ports, the primary purpose of 

which is generally to rest on the Book 

and provide liquidity, it is likely the 

intention of orders submitted through 

non-bulk ports to execute against the 

resting interest (including Market-Maker 

quotes). As a result, the Exchange 

believes it is important to balance the 

need to protect resting Market-Maker 

quotes from executions at stale prices 

with the need to provide opportunities 

for this incoming interest to execute 

against those quotes. 

The proposed rule change proposes to 

adopt a quote protection timer (‘‘QPT’’) 

to provide the Exchange with the ability 

to provide Market-Maker quotes with 

this additional protection. The purpose 

of QPT is to provide Market-Makers 

with opportunities to update the prices 

of their resting quotes prior to execution 

against aggressing non-bulk port 

incoming Market-Maker interest while 

still providing that incoming interest 

with the opportunity to execute against 

resting liquidity. Specifically, the 

Exchange proposes to adopt Rule 

5.32(h), which provides the Exchange 

with the ability to determine on a class 

basis to activate a QPT. In a class in 

which the Exchange has activated the 

QPT, if an incoming order (including an 

incoming complex order legging into the 

Book pursuant to Rule 5.33(g), but 

excluding paired orders, orders (or 

unexecuted portions) that routed to 

another exchange(s), and orders routed 

from PAR) enters the Book 7 in that class 


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become executable once the applicable contingency 

is satisfied), so it is unnecessary to prevent from 

immediate execution against resting Market-Maker 

quotes. The Exchange believes the proposed 

exclusions are appropriate, as they would by 

definition provide resting quotes with time to 

update before potential execution. For example, 

paired orders would go through an auction (such as 

pursuant to Rule 5.37 or 5.38 (the automated 

improvement mechanism for simple and complex 

orders)), during which Market-Maker quotes could 

update before they would potentially execute 

against those orders after the auction. Similarly, if 

an order routes away to another exchange because 

that exchange has better prices available than those 

on the Exchange, by the time any portion of that 

order comes back to the Exchange for execution 

against the Book, any resting Market-Maker quotes 

could have been updated before executing against 

that returned order. Likewise, if an order routes 

from PAR for electronic execution, it would have 

first been handled by a person on the trading floor 

after entry and before execution against interest in 

the Book, giving quotes sufficient time for update 

before potential execution against that order. 

8The Exchange believes this exclusion is 

appropriate, as there would be no price at which 

an incoming bid could adjust to and rest during the 

quote protection period if the resting offer is equal 

to the minimum increment for the class. For 

example, if the minimum increment for a class is 

$0.05, and the market is $0–$0.05 on the Exchange, 

if an incoming order is priced at $0.05, as further 

described below, during the quote protection 

period, the price of the order is adjusted to one 

increment below the offer to prevent a locked 

market. However, that would make the adjusted 

price of the incoming order $0, which is not a 

permissible price for an order. 

9See proposed Rule 5.32(h)(1). 

10The Exchange believes it is appropriate to 

permit TPHs to opt out of QPT for their non-ISO 

IOC orders (and just have them execute against any 

resting interest with a Capacity other than M, 

cancelling any remainder) because it is consistent 

with the IOC instruction, pursuant to which a user 

desires execution in whole or in part as soon as the 

System receives it. See Rule 5.6(d) (definition of 

IOC time-in-force instruction). 

11The Exchange determines the length of the 

timer in microseconds on a class basis, which may 

not exceed five milliseconds. The Exchange 

believes this flexibility is reasonable so it can apply 

a timer length that appropriately reflects market 

structure differences among classes, as discussed 

above regarding why it is appropriate to provide the 

Exchange with flexibility to determine whether to 

apply QPT on a class basis. The Exchange has this 

same flexibility for other Exchange functionality, 

such as auction timers. See, e.g., Rule 5.37(c)(3) 

(providing the Exchange with flexibility to 

determine the length of an AIM auction period on 

a class basis). 

12The Exchange understands complex orders 

may similarly cause executions against protected 

quotes due to technical disparities in the same 

manner as simple orders. 

13The Exchange believes this is appropriate, as 

the resting quotes in each leg of the complex order 

that are intended to be protected by this proposed 

functionality will be subject to the full length of the 

quote protection period before the legs of the 

complex order in this scenario can execute against 

them. 

14See, e.g., Rule 5.37(a)(1) (permitting the 

Exchange to determine in which classes orders may 

be submitted into an automated improvement 

mechanism (‘‘AIM’’) auction for potential price 

improvement). 

15The Exchange notes current functionality also 

prevents execution of orders with Capacities other 

than M against resting Market-Maker quotes. See 

Rule 5.5(c)(3) (requiring users other than appointed 

Market-Makers to submit orders through bulk ports 

as Post Only, which cannot execute upon entry 

against resting interest). If the Securities and 

Exchange Commission (‘‘Commission’’) approves 

the proposed rule change, the Exchange may 

determine to submit a separate rule filing to 

propose to extend QPT to other Capacities. 

16This is similar to the Exchange’s Price Adjust 

functionality (see Rule 5.32(b)), which prevents the 

Exchange from disseminating a locked or crossed 

market. 

with Capacity M that a User submitted 

through a non-bulk port (the ‘‘initial 

aggressor order’’) and that is marketable 

against a resting bulk message quote 

(except for a quote offer a price equal to 

the minimum increment for the class) 8

with Capacity M (the ‘‘initial protected 

quote’’) at the time the initial aggressor 

order enters the Book, the initial 

aggressor order executes against any 

resting orders and quotes with a 

Capacity other than M at the same price 

as the initial protected quote.9 After 

that, as set forth in proposed Rule 

5.32(h)(2), except for a non-ISO IOC 

order for which the Trading Permit 

Holder (‘‘TPH’’) opts out of QPT (in 

which case the System cancels any 

portion of the order not executed 

pursuant to proposed subparagraph 

(1)),10 the System initiates the QPT,11

the start time of which is the time when 

the initial aggressor order enters (or a 

complex order 12 Legs into) the Book 

(the ‘‘quote protection period’’), 

provided if there is an ongoing QPT in 

every leg of a complex order that Legs 

into the Book, the length of the QPT for 

the complex order equals the longest 

remaining time of the leg QPTs.13

The Exchange believes it is reasonable 

to permit the Exchange to determine 

whether to activate QPT on a class basis 

to address market structure differences 

that apply to different classes. This is 

consistent with other Exchange 

functionality, such as auctions, which 

the Exchange may activate on a class 

basis.14 For example, in classes in 

which there is high retail customer 

order volume, the Exchange believes 

Market-Makers may be willing to accept 

additional execution risk for the 

additional opportunities to execute 

against a significant number of customer 

orders, which may ultimately offset any 

stale-priced executions against fasteracting professional customers. To the 

contrary, in low volume classes or 

classes comprised mostly of 

professional investor volume, the 

execution risk is greater as there are 

fewer potential executions against 

customers to offset the risk. 

Additionally, in classes with smaller 

minimum increments, the execution 

risk is higher because Market-Maker 

quote updates may be more granular 

and thus more frequent. Therefore, in a 

non-penny class, a ‘‘stale’’ execution 

price may be wider than it might be in 

a penny class and thus still within a 

Market-Maker’s pricing parameters and 

risk profile. The Exchange notes it does 

not believe this class flexibility is 

necessary for its current protection 

functionality (which applies to all 

classes), as the Exchange understands 

Market-Makers primarily use bulk port 

functionality to provide liquidity and 

satisfy their quoting obligations. As 

there are Market-Makers appointed to 

all classes trading on the Exchange, the 

Exchange believes it is appropriate to 

prevent this interest (orders and bulk 

messages) submitted through bulk ports 

in all classes from executing against 

resting Market-Maker interest, as much 

of the incoming interest was likely 

submitted to rest on the Book (and 

satisfy quoting obligations to provide 

liquidity to the market) rather than 

execute upon entry. 

The Exchange also believes limiting 

the proposed rule change to orders of 

Market-Makers (Capacity M) is 

appropriate because it is consistent with 

current and prior functionality, which 

protected resting Market-Maker interest 

from incoming Market-Maker interest.15

As noted above, Market-Maker systems 

may automatically generate order and 

quote updates in response to market 

changes. The Exchange believes resting 

Market-Maker interest should be 

protected from stale execution against 

all incoming Market-Maker interest 

generated by those same systems, 

regardless of the type of port through 

which the interest is submitted. 

Pursuant to proposed Rule 5.32(h)(3), 

during the quote protection period, 

neither the initial aggressor order (or 

unexecuted portion) nor any other 

incoming marketable orders with 

Capacity M received during the quote 

protection period (together with the 

initial aggressor order, the ‘‘aggressor 

orders’’) may execute against the 

protected quote or any other contra-side 

bulk message quotes with Capacity M 

that enter the Book (together with the 

initial protected quote, the ‘‘protected 

quotes’’), and the System ranks (in time 

priority) and displays the aggressor 

orders at one minimum price variation 

below (above) the price of the displayed 

protected offer (bid).16 In other words, 

during the quote protection period, no 

aggressor orders may execute against 

protected quotes resting in the Book. 

Therefore, all aggressor orders in a 

series that are entered during an 

ongoing quote protection period are 

similarly prevented from executing 

against any protected quote (whether 


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17See Rule 5.33(a). 

18 If the market closes or the Exchange halts 

trading in the affected series prior to the conclusion 

of the quote protection period, the QPT concludes 

without execution. 

19 It is possible some liquidity providers, 

including Market-Makers, are submitting orders 

through non-bulk ports for the provision of 

liquidity, but the Exchange believes this represents 

a small portion of non-bulk port order flow. 

20See Rule 5.34(c)(4), pursuant to which a user’s 

(including a Market-Maker’s) interest may be 

cancelled after that user’s risk limits have been 

exceeded. As a result, quotes in a bulk message will 

complete executions before determination of 

whether a user’s risk limits have been exceeded. 

This makes execution risk of bulk message greater 

than an order, which only has a bid or offer for one 

series. 

21 15 U.S.C. 78f(b). 

22 15 U.S.C. 78f(b)(5). 

23 Id. 

the initial protected quote or any 

protected quote in that series that is 

entered during the quote protection 

period and rests on the Book). 

Additionally, by having incoming 

aggressor orders ‘‘join’’ the initial 

aggressor order and incoming protected 

quotes ‘‘join’’ the initial protected 

quotes, a series with protected quotes 

will be subject to a full quote protection 

period for the protected quotes in that 

series. 

The TPH that submitted any aggressor 

order during the quote protection 

period, or the Market-Maker that 

submitted any protected quote during 

the quote protection period, may update 

the price of its order or quote, as 

applicable; however, those orders and 

quotes remain firm at their displayed 

prices in accordance with Rule 5.59 

until updated. Therefore, aggressor 

orders and protected quotes may 

continue to execute at their resting 

prices (which is an adjusted price with 

respect to aggressor orders, as described 

above) against incoming interest. This 

provides other interest that enters the 

Book during the quote protection period 

with potential execution opportunities. 

Specifically: 

• an incoming order with a Capacity 

other than M (‘‘non-aggressor order’’) 

executes against resting contra-side 

interest at its displayed price in 

accordance with the allocation 

algorithm applicable to the class; 

• an incoming aggressor order 

executes against resting non-protected 

quote contra-side interest at its adjusted 

price in accordance with the allocation 

algorithm applicable to the class; and 

• an incoming contra-side order or 

quote executes against resting aggressor 

and non-aggressor orders at their 

displayed prices in accordance with the 

allocation algorithm applicable to the 

class. 

If (a) for simple orders, there are no 

more protected quotes at the initial 

prices of any price-adjusted aggressor 

orders, the System unadjusts the prices 

of the aggressor buy (sell) orders to one 

minimum price variation below (above) 

the next lowest (highest) priced 

protected quote (to their limit prices); or 

(b) for complex orders, the SBO (SBB) 

increases (decreases), the System 

unadjusts the prices of the aggressor buy 

(sell) complex orders to one minimum 

variation below (above) the then-current 

SBO (SBB) (to their limit prices). 

Proposed Rule 5.32(h)(4) provides at 

the conclusion of the quote protection 

period, the System unadjusts the prices 

of the aggressor orders (or unexecuted 

portions) to their initial prices, which 

then execute (in time priority) against 

any remaining marketable contra-side 

interest, including the protected quotes, 

in accordance with the allocation 

algorithm applicable to the class; 17 and 

any unexecuted portions of aggressor 

orders rest on the Book and unexecuted 

portions of protected quotes remain on 

the Book.18

The Exchange believes the proposed 

rule change to delay execution of resting 

Market-Maker quotes against incoming 

aggressor Market-Maker interest is 

appropriate, rather than prevention of 

execution (as occurs in current 

functionality described above), because 

as noted above, unlike interest 

submitted through bulk ports (the 

primary purpose of which is to provide 

liquidity on the Book), the primary 

purpose of orders submitted through 

non-bulk ports is to execute against 

interest resting on the Book.19

Therefore, the Exchange believes it is 

important to provide this incoming 

interest with execution opportunities, 

after a slight delay, to provide MarketMakers with opportunities to effect their 

quote updates. Additionally, execution 

of bulk messages (which may only be 

submitted through bulk ports) exposes 

Market-Makers to increased risk 

compared to order execution. For 

example, the System will not determine 

whether a Market-Maker’s risk monitor 

mechanism 20 thresholds have been 

exceeded until all quotes within a bulk 

message have been processed, unlike 

orders, which may result in execution in 

only one series before the System 

determines whether those thresholds 

have been exceeded. The Exchange 

believes the proposed rule change will 

close a gap that currently exposes 

Market-Maker liquidity resting on the 

Book to executions at potentially stale 

prices due to technology disparities 

against the orders submitted by MarketMakers through non-bulk ports. The 

quote protection timer will provide a 

balance between protecting resting 

Market-Maker quotes in order to 

maintain liquidity and providing 

incoming Market-Maker interest with 

execution opportunities. 

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.21 Specifically, 

the Exchange believes the proposed rule 

change is consistent with the Section 

6(b)(5) 22 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) 23 requirement that 

the rules of an exchange not be designed 

to permit unfair discrimination between 

customers, issuers, brokers, or dealers. 

In particular, the Exchange believes 

the proposed rule change will promote 

just and equitable principles of trade, 

remove impediments to and perfect the 

mechanism of a national market system, 

and protect investors. The proposed rule 

change is intended to prevent incoming 

Market-Maker orders submitted through 

non-bulk ports from immediately 

executing against resting Market-Maker 

interest at potentially stale prices due to 

technological disparities between 

Market-Makers. The Exchange believes 

the proposed functionality will reduce 

execution of resting Market-Maker 

interest at prices that do not reflect the 

then-current market, which executions 

may impede certain liquidity providers’ 

ability to competitively price their bids 

and offers. Specifically, this increased 

risk of execution at stale prices may 

cause Market-Makers to widen their 

quotes or otherwise withhold liquidity 

to the detriment of investors. The 

Exchange expects the proposed rule 

change to increase liquidity and 

enhance competition in the market, 

because Market-Makers may be able to 

quote more aggressively with less 

concern about exposure to execution 

risk due to technological disparities in 

their quoting systems compared to other 


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62616 Federal Register / Vol. 88, No. 175 / Tuesday, September 12, 2023 / Notices 

24See Rule 5.51. 

25See id. 

26See, e.g., Rule 5.37(a)(1) (permitting the 

Exchange to determine in which classes orders may 

be submitted into an AIM auction for potential 

price improvement) and (c)(3) (permitting the 

Exchange to determine the length of the AIM 

auction period on a class basis). 

27The Exchange notes current functionality also 

prevents execution of orders with Capacities other 

than M against resting Market-Maker quotes. See 

Rule 5.5(c)(3) (requiring users other than appointed 

Market-Makers to submit orders through bulk ports 

as Post Only, which cannot execute upon entry 

against resting interest). If the Securities and 

Exchange Commission (‘‘Commission’’) approves 

the proposed rule change, the Exchange may 

determine to submit a separate rule filing to 

propose to extend QPT to other Capacities. 

market participants’ order entry 

systems. As a result, the Exchange 

believes this protection for resting 

Market-Maker interest, and resulting 

increased liquidity and competition, 

would ultimately remove impediments 

to the market and benefit all investors. 

Given the critical role Market-Makers 

play in the options market, the 

Exchange believes it is imperative to 

have the ability to protect MarketMakers’ resting quotes from execution at 

stale prices against incoming MarketMaker interest due to technological 

disparities between Market-Makers. The 

Exchange believes it should be able to 

extend this protection to incoming 

Market-Maker interest from non-bulk 

ports, as technological disparities 

between Market-Makers can expose 

Market-Makers to the same level of risk 

regardless of which type of port MarketMakers submit interest. Ultimately, this 

exposure to risk from may negatively 

impact liquidity to the detriment of the 

entire market. Unlike quotes and orders 

submitted through bulk ports, the 

primary purpose of which is generally 

to rest on the Book and provide 

liquidity, it is likely the intention of 

orders submitted through non-bulk 

ports to execute against the resting 

interest (including Market-Maker 

quotes). As a result, the Exchange 

believes it is important to balance the 

need to protect resting Market-Maker 

quotes from executions at stale prices 

with the need to provide opportunities 

for this incoming interest to execute 

against those quotes. The Exchange 

believes the proposed rule change to 

slightly delay execution of certain 

aggressing interest provides an equitable 

balance between the need to protect 

resting Market-Maker interest and 

provide incoming interest with 

execution opportunities. 

The Exchange believes the proposed 

rule change is not designed to permit 

unfair discrimination by providing the 

Exchange with the ability to provide 

Market-Maker quotes with additional 

protection. The options market is driven 

by Market-Maker quotes, and thus 

Market-Maker quotes are critical to 

provide liquidity to the market and 

contribute to price discovery for 

investors. If Market-Makers do not have 

sufficient time to refresh their resting 

quotes (the primary source of liquidity 

for customers in the market) in response 

to market updates before executing 

against incoming interest that has 

incorporated those market updates, this 

increased risk of execution at stale 

prices may cause Market-Makers to 

widen their quotes to the detriment of 

investors or otherwise withhold 

liquidity. This reduced liquidity may 

reduce execution opportunities or cause 

executions to occur at worse prices for 

customers. Further, Market-Makers must 

comply with various obligations, 

including to provide continuous 

electronic quotes and to update quotes 

in response to market conditions.24 It 

takes time for Market-Makers to update 

quotes in series in their appointed 

classes, which may not take effect until 

after faster market participants have 

updated orders. The Exchange believes 

it is appropriate to provide MarketMaker quotes with a reasonable amount 

of protection (as the proposed rule 

change would provide) to allow them to 

execute at prices reflective of market 

updates given the Market-Makers’ need 

to comply with these obligations and 

the resources they expend to comply 

with these obligations.25 As described 

above, the protected quotes and 

aggressor orders will remain firm during 

the quote protection period, and 

executions will continue during that 

period. 

Further, the Exchange believes the 

proposed rule change to provide the 

Exchange with flexibility to determine 

whether to enable QPT on a class basis, 

and in such classes to provide the 

Exchange with flexibility to determine 

the length of the quote protection 

period, is not designed to permit unfair 

discrimination. The Exchange believes 

this flexibility is appropriate to address 

market structure differences, including 

differences among market participants 

and activity levels, within different 

classes, which flexibility the Exchange 

has with respect to other functionality, 

such as auctions.26 For example, in 

classes in which there is high retail 

customer order volume, the Exchange 

believes Market-Makers may be willing 

to accept additional execution risk for 

the additional opportunities to execute 

against a significant number of customer 

orders, which may ultimately offset any 

stale-priced executions against fasteracting professional customers. To the 

contrary, in low volume classes or 

classes comprised mostly of 

professional investor volume, the 

execution risk is greater as there are 

fewer potential executions against 

customers to offset the risk. 

Additionally, in classes with smaller 

minimum increments, the execution 

risk is higher because Market-Maker 

quote updates may be more granular 

and thus more frequent. Therefore, in a 

non-penny class, a ‘‘stale’’ execution 

price may be wider than it might be in 

a penny class. The Exchange notes it 

does not believe this class flexibility is 

necessary for its current protection 

functionality (which applies to all 

classes), as the Exchange understands 

Market-Makers primarily use bulk port 

functionality to provide liquidity and 

satisfy their quoting obligations. As 

there are Market-Makers appointed to 

all classes trading on the Exchange, the 

Exchange believes it is appropriate to 

prevent this interest (orders and bulk 

messages) submitted through bulk ports 

in all classes from executing against 

resting Market-Maker interest, as much 

of the incoming interest was likely 

submitted to rest on the Book (and 

satisfy quoting obligations to provide 

liquidity to the market) rather than 

execute upon entry. 

The Exchange also believes limiting 

the proposed rule change to orders of 

Market-Makers (Capacity M) is 

appropriate because it is consistent with 

current and prior functionality, which 

protected resting Market-Maker interest 

from incoming Market-Maker interest.27

As noted above, Market-Maker systems 

may automatically generate order and 

quote updates in response to market 

changes. The Exchange believes resting 

Market-Maker interest should be 

protected from stale execution against 

all incoming Market-Maker interest 

generated by those same systems, 

regardless of the type of port through 

which the interest is submitted. 

Therefore, the Exchange believes the 

proposed rule change to close this 

current gap exposing resting MarketMaker interest to execution risk against 

incoming Market-Maker interest 

submitted through non-bulk ports due 

to technological disparities will remove 

impediments to and perfect the 

mechanism of a free and open market 

and a national market system, and 

protect investors and the public interest. 

The Exchange notes the underlying 

purpose of this proposed rule change, 

which is to provide resting MarketMaker quotes with time to update in 

response to market condition changes, is 

the same as the primary purpose of 

functionality and previously available 


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Federal Register / Vol. 88, No. 175 / Tuesday, September 12, 2023 / Notices 62617 

28See Rules 5.5(c)(3) and 5.32(c)(6); see also 

Securities Exchange Act Release Nos. 86374 (July 

15, 2019), 84 FR 34963 (July 19, 2019) (SR–CBOE– 

2019–033) (adoption of current Rules 5.5(c)(3) and 

5.32(c)(6)); and 51822 (June 10, 2005), 70 FR 35321 

(June 17, 2005) (SR–CBOE–2004–87) (adoption of 

former Cboe Rule 6.45(c)). 29 It is possible some liquidity providers, 

including Market-Makers, are submitting orders 

through non-bulk ports for the provision of 

liquidity, but the Exchange believes this represents 

a small portion of non-bulk port order flow. 30See Rule 5.34(c)(4), pursuant to which a user’s 

(including a Market-Maker’s) interest may be 

cancelled after that user’s risk limits have been 

exceeded. As a result, quotes in a bulk message will 

complete executions before determination of 

whether a user’s risk limits have been exceeded. 

This makes execution risk of bulk message greater 

than an order, which only has a bid or offer for one 

series. 

31See Rule 5.66. 

32See Rule 5.32(g). 

33See Rule 5.32(c)(6). 34See Rule 5.66. 

on the Exchange.28 The Exchange 

believes the proposed rule change to 

delay execution of resting Market-Maker 

quotes against incoming aggressor 

interest is appropriate, rather than 

prevention of execution (as occurs in 

current functionality described above), 

because as noted above, unlike interest 

submitted through bulk ports (the 

primary purpose of which is to provide 

liquidity on the Book), the primary 

purpose of orders submitted through 

non-bulk ports is to execute against 

interest resting on the Book.29

Therefore, the Exchange believes it is 

important to provide this incoming 

interest with execution opportunities, 

after a slight delay, to provide MarketMakers with opportunities to effect their 

quote updates. Additionally, execution 

of bulk messages (which may only be 

submitted through bulk ports) exposes 

Market-Makers to increased risk 

compared to order execution. For 

example, the System will not determine 

whether a Market-Maker’s risk monitor 

mechanism 30 thresholds have been 

exceeded until all quotes within a bulk 

message have been processed, unlike 

orders, which may result in execution in 

only one series before the System 

determines whether those thresholds 

have been exceeded. The Exchange 

believes the proposed rule change will 

close a gap that currently exposes 

Market-Maker liquidity resting on the 

Book to executions at potentially stale 

prices due to technology disparities 

against Market-Maker orders submitted 

through non-bulk ports. The quote 

protection timer will provide a balance 

between protecting resting MarketMaker quotes in order to maintain 

liquidity and providing incoming 

interest with execution opportunities. 

The proposed temporary adjustment 

of aggressor order prices will further 

perfect the mechanism of a free and 

open market and national market 

system, as it will prevent the display of 

a locked or crossed market consistent 

with the Linkage Plan.31 This proposed 

handling of these orders is also 

consistent with the Exchange’s current 

Price Adjust functionality.32

As noted above, the options market is 

driven by Market-Maker quotes, and 

thus Market-Maker quotes are critical to 

provide liquidity to the market and 

contribute to price discovery for 

investors. The proposed functionality is 

designed to permit the Exchange to 

provide Market-Makers with further 

protection against executions at 

potentially stale prices due to 

technology disparities while still 

providing incoming Market-Maker 

orders submitted through non-bulk 

ports with execution opportunities. The 

Exchange believes the proposed 

enhanced functionality will permit 

liquidity providers to more efficiently 

enter and update bids and offers. This 

may cause Market-Makers to quote 

tighter and deeper markets, which will 

increase liquidity and enhance 

competition to the ultimate benefit of all 

market participants. 

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 that is not 

necessary or appropriate in furtherance 

of the purposes of the Act, because it 

will apply in the same manner to all 

incoming Market-Maker orders in nonbulk ports. The primary purpose of the 

proposed rule change is to permit the 

Exchange to provide additional 

protection to resting Market-Maker 

quotes from executions against 

incoming Market-Maker interest at 

potentially stale prices before they have 

the opportunity to update in response to 

market condition changes. The 

Exchange believes it is reasonable to 

provide additional protection to MarketMakers given their unique and critical 

role in the options market and the 

various obligations that Market-Makers 

must satisfy, as discussed above. 

Additionally, as noted above, the 

proposed functionality supplements 

similar functionality currently available 

on the Exchange, which similarly 

protects resting Market-Maker interest 

against executions at potentially stale 

prices.33 The Exchange does not believe 

the proposed flexibility to apply QPT on 

a class basis, or determine the length of 

the timer on a class basis, will impose 

any burden on intramarket competition 

that is not necessary or appropriate in 

furtherance of the purposes of the Act, 

as such flexibility is reasonable to 

address market structure differences 

among classes, as discussed above. 

The Exchange does not believe the 

proposed rule change will impose any 

burden on intermarket competition that 

is not necessary or appropriate in 

furtherance of the purposes of the Act, 

because it applies solely to the timing of 

executions against resting Market-Maker 

quotes on the Exchange. As noted 

above, the proposed rule change is 

consistent with the Linkage Plan.34

Additionally, the Exchange believes 

the proposed rule change will relieve 

any burden on, or otherwise promote, 

competition. As discussed above, the 

Exchange believe the proposed rule 

change may encourage the provision of 

more aggressive liquidity, which may 

result in more trading opportunities and 

tighter spreads, which contributes to 

price discovery. This may improve 

overall market quality and enhance 

competition 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 

Within 45 days of the date of 

publication of this notice in the Federal 

Register or within such longer period (i) 

as the Commission may designate up to 

90 days of such date if it finds such 

longer period to be appropriate and 

publishes its reasons for so finding or 

(ii) as to which the Exchange consents, 

the Commission shall: (a) by order 

approve or disapprove such proposed 

rule change, or (b) institute proceedings 

to determine whether the proposed rule 

change should be 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: 


lotter on DSK11XQN23PROD with NOTICES1
62618 Federal Register / Vol. 88, No. 175 / Tuesday, September 12, 2023 / Notices 

35 17 CFR 200.30–3(a)(12). 

Electronic Comments 

• Use the Commission’s internet 

comment form (https://www.sec.gov/ 

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include file number SR– 

CBOE–2023–044 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street NE, 

Washington, DC 20549–1090. 

All submissions should refer to file 

number SR–CBOE–2023–044. 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 (https://www.sec.gov/ 

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for website viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE, 

Washington, DC 20549 on official 

business days between the hours of 10 

a.m. and 3 p.m. Copies of the filing also 

will be available for inspection and 

copying at the principal office of the 

Exchange. Do not include personal 

identifiable information in submissions; 

you should submit only information 

that you wish to make available 

publicly. We may redact in part or 

withhold entirely from publication 

submitted material that is obscene or 

subject to copyright protection. All 

submissions should refer to file number 

SR–CBOE–2023–044 and should be 

submitted on or before October 3, 2023. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.35

Sherry R. Haywood, 

Assistant Secretary. 

[FR Doc. 2023–19593 Filed 9–11–23; 8:45 am] 

BILLING CODE 8011–01–P 

SMALL BUSINESS ADMINISTRATION 

[Disaster Declaration #18114 and #18115; 

OREGON Disaster Number OR–00138] 

Presidential Declaration of a Major 

Disaster for Public Assistance Only for 

the Burns Paiute Tribe 

AGENCY: U.S. Small Business 

Administration. 

ACTION: Notice. 

SUMMARY: This is a Notice of the 

Presidential declaration of a major 

disaster for Public Assistance Only for 

the Burns Paiute Tribe (FEMA–4733– 

DR), dated 08/28/2023. 

Incident: Severe Storm, Flooding, 

Landslides, and Mudslides. 

Incident Period: 06/11/2023 through 

06/12/2023. 

DATES: Issued on 08/28/2023. 

Physical Loan Application Deadline 

Date: 10/27/2023. 

Economic Injury (EIDL) Loan 

Application Deadline Date: 05/28/2024. 

ADDRESSES: Submit completed loan 

applications to: U.S. Small Business 

Administration, Processing and 

Disbursement Center, 14925 Kingsport 

Road, Fort Worth, TX 76155. 

FOR FURTHER INFORMATION CONTACT: A. 

Escobar, Office of Disaster Recovery & 

Resilience, U.S. Small Business 

Administration, 409 3rd Street SW, 

Suite 6050, Washington, DC 20416, 

(202) 205–6734. 

SUPPLEMENTARY INFORMATION: Notice is 

hereby given that as a result of the 

President’s major disaster declaration on 

08/28/2023, Private Non-Profit 

organizations that provide essential 

services of a governmental nature may 

file disaster loan applications at the 

address listed above or other locally 

announced locations. 

The following areas have been 

determined to be adversely affected by 

the disaster: 

Primary Area: Burns Paiute Tribe. 

The Interest Rates are: 

Percent 

For Physical Damage: 

Non-Profit Organizations with 

Credit Available Elsewhere 2.375 

Non-Profit Organizations without Credit Available Elsewhere ................................... 2.375 

For Economic Injury: 

Non-Profit Organizations without Credit Available Elsewhere ................................... 2.375 

The number assigned to this disaster 

for physical damage is 18114 B and for 

economic injury is 18115 0. 

(Catalog of Federal Domestic Assistance 

Number 59008) 

Francisco Sa ́nchez, Jr., 

Associate Administrator, Office of Disaster 

Recovery & Resilience. 

[FR Doc. 2023–19561 Filed 9–11–23; 8:45 am] 

BILLING CODE 8026–09–P 

SMALL BUSINESS ADMINISTRATION 

[Disaster Declaration #18061 and #18062; 

HAWAII Disaster Number HI–00073] 

Presidential Declaration of a Major 

Disaster for the State of Hawaii 

AGENCY: U.S. Small Business 

Administration. 

ACTION: Amendment 1. 

SUMMARY: This is an amendment to the 

Presidential declaration of a major 

disaster for the State of Hawaii (FEMA– 

4724–DR), dated 08/10/2023. 

Incident: Wildfires. 

Incident Period: 08/08/2023 and 

continuing. 

DATES: Issued on 08/31/2023. 

Physical Loan Application Deadline 

Date: 10/10/2023. 

Economic Injury (EIDL) Loan 

Application Deadline Date: 05/10/2024. 

ADDRESSES: Submit completed loan 

applications to: U.S. Small Business 

Administration, Processing and 

Disbursement Center, 14925 Kingsport 

Road, Fort Worth, TX 76155. 

FOR FURTHER INFORMATION CONTACT: A. 

Escobar, Office of Disaster Recovery & 

Resilience, U.S. Small Business 

Administration, 409 3rd Street SW, 

Suite 6050, Washington, DC 20416, 

(202) 205–6734. 

SUPPLEMENTARY INFORMATION: Notice is 

hereby given that the President’s major 

disaster declaration for the state of 

Hawaii, dated 08/10/2023, is hereby 

amended to include the following areas 

as adversely affected by the disaster: 

Contiguous Counties (Economic Injury 

Loans Only): 

Hawaii: Hawaii, Honolulu, Kauai. 

All other information in the original 

declaration remains unchanged. 

(Catalog of Federal Domestic Assistance 

Number 59008) 

Francisco Sa ́nchez, Jr., 

Associate Administrator, Office of Disaster 

Recovery & Resilience. 

[FR Doc. 2023–19560 Filed 9–11–23; 8:45 am] 

BILLING CODE 8026–09–P 


lotter on DSK11XQN23PROD with NOTICES1