433 West Van Buren Street › Suite 700S › Chicago, IL 60607 › cboe.com

May 4, 2023

Christopher J. Kirkpatrick

Secretary

Commodity Futures Trading Commission 

Three Lafayette Centre

1155 21st Street, N.W.

Washington, D.C. 20581

 

Re: Cboe Futures Exchange, LLC Rule Certification

Submission Number CFE-2023-007

Dear Mr. Kirkpatrick: 

Pursuant to Section 5c(c)(1) of the Commodity Exchange Act, as amended (“Act”), and 

Regulation 40.6(a) promulgated by the Commodity Futures Trading Commission (“CFTC” or 

“Commission”) under the Act, Cboe Futures Exchange, LLC (“CFE” or “Exchange”) hereby submits 

a CFE rule amendment (“Amendment”) to revise the descriptions of two risk control functions for 

options on futures and to further clarify how cancel replace/modify orders function when the original 

order has been partially executed. Exhibit 1 to this submission sets forth the rule changes included in 

the Amendment. The Amendment will become effective on or after May 18, 2023, on an 

implementation date to be announced by the Exchange through the issuance of an Exchange notice. 

Risk Control Updates

CFE plans to offer options on futures for trading on CFE. CFE previously submitted to the 

Commission CFE Rule Certification Submission Number CFE-2023-002 (“CFE-2023-002”) to 

update CFE’s rules to address the changes to CFE’s current trading system and the new trading 

system functionality that CFE is implementing in order to accommodate the trading of options on 

futures on CFE. Among other things, CFE-2023-002 included updates to CFE Rule 513A (Risk 

Controls). CFE is now further revising Rule 513A in connection with the planned launch of trading 

in options on futures on CFE (which are referred to as Options in CFE rules) to update and include 

additional description regarding the risk control features for Options. CFE is also taking this 

opportunity to further clarify in CFE Rule 406 (Execution of Orders by CFE System) how cancel

replace/modify orders function when the original order has been partially executed. 

Price Reasonability Check Risk Control

First, CFE is modifying Rule 513A(d) (Futures and Options Limit Order Price Reasonability 

Checks) as amended by CFE-2023-002 to update the manner in which CFE’s limit order price 

reasonability check functions for Options. 

As amended by CFE-2023-002, Rule 513A(d) provides that the Exchange shall designate 

limit order price reasonability percentage parameters by product for futures (referred to as Futures in 

CFE rules) and Options and that those percentages will be set forth in the rules governing the 
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applicable product. Additionally, Rule 513A(d) provides that CFE Clearing Members and Trading 

Privilege Holders (“TPHs”) shall have the ability to designate limit order price reasonability 

percentage parameters by Executing Firm ID (“EFID”) and product and that the most restrictive 

applicable limit order price reasonability percentage that is designated shall apply.

The limit order price reasonability check risk control functions in the following manner in 

relation to Options under Rule 513A(d) as amended by CFE-2023-002. The risk control rejects or 

cancels back to the sender any single leg Options buy order with a limit price that is equal to or more 

than the applicable designated percentage above the prevailing best offer and any single leg Options 

sell order with a limit price that is equal to or more than the applicable designated percentage below 

the prevailing best bid. The risk control also rejects or cancels back to the sender any buy order for 

an Options spread with a limit price that is equal to or more than the applicable designated percentage 

above the prevailing best offer in the applicable spread as reflected by any pending opposite side 

spread orders and the Implied Spread Offer for that spread and any sell order for an Options spread 

with a limit price that is equal to or more than the applicable designated percentage below the 

prevailing best bid in the applicable spread as reflected by any pending opposite side spread orders 

and the Implied Spread Bid for that spread. An Implied Spread Offer and an Implied Spread Bid are 

implied values for a spread based upon prices of the individual legs of the spread. 

CFE currently designates a single limit order price reasonability percentage under Rule 

513A(d) for each CFE Futures product. CFE had initially planned to take this same approach for 

each Options product. CFE now plans to designate a scale of different limit order price reasonability 

percentages for each Options product. Under this approach for Options, CFE plans to specify a 

number of price ranges for the limit price of a limit order and to apply a different price reasonability 

percentage for each price range. CFE is taking this approach for Options given the potential wide 

variation in prices across different Options series in the same Options product, including across

Options series with the same expiration date because of their different exercise prices. For example, 

Options prices can be very low if an Option has an exercise price that is far out-of-the money close to 

its expiration and can be much higher when an Option has an exercise price that is deep in-the-money

close to its expiration. This is in contrast to Futures which do not have different exercise prices and

are priced in relation to the anticipated future value of the underlying of the Future. In light of the 

nature of Options pricing, the optimal price reasonability percentage for Options can vary across 

different price ranges and it may be optimal to have higher price reasonability percentages at lower

option price levels and to have lower price reasonability percentages at higher option price levels.

Because the Exchange will have additional flexibility to set more granular price reasonability 

percentages by price range for an Options product and given the additional complexity involved in 

having Clearing Firms and TPHs also set different price ranges and/or different price reasonability 

percentages for each price range for an Options product, the Amendment revises Rule 513A(d) as 

amended by CFE-2023-002 to remove reference to Clearing Firms and TPHs having the ability to 

designate limit order price reasonability percentage parameters by EFID and Options product. 

Instead, only the Exchange will set limit order price reasonability percentage parameters for each 

Options product. Clearing Firms and TPHs will continue to have the ability to designate limit order 

price reasonability percentage parameters by EFID and Futures product. 

Execution Percentage of Contracts Outstanding Risk Control

Second, CFE is modifying the description of the risk control under Rule 513A(j) (Options 

Risk Monitor Mechanism) as amended by CFE-2022-002 that is based upon the number of Options 

contracts executed as a percentage of the number of Options contracts outstanding. The updates to 

Rule 513A(j) further describe how this risk control functions.
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As amended by CFE-2023-002, Rule 513A(j) provides that TPHs shall have the ability to 

designate parameters by EFID and Options product for, among other things, the number of contracts 

executed as a percentage of number of contracts outstanding within an Exchange-designated time 

period or during a trading day, as applicable. Rule 513A(j) provides that the CFE’s trading system 

(“CFE System”) determines this percentage by calculating the percentage of outstanding contracts 

that executed on each side of the market during the time period or trading day, as applicable, and then 

summing the series percentages on each side of the market. 

The Amendment updates the description of this risk control to indicate that the calculation of 

the percentage of outstanding contracts executed on each side of the market is performed with respect 

to each order on that side of the market that is executed during the applicable time frame. Those 

individual order execution percentages are then added together to determine the total execution 

percentage during the applicable time frame. Additionally, the Amendment updates the description of 

this risk control to indicate that the percentage of execution of an order at any given time is measured 

in relation to the size of the order most recently designated by the TPH that submitted the order in an 

initial order or quote submission, a cancel replace/modify order or a replacement quote (regardless of 

any changes to the size of the order due to partial executions of the order). 

Cancel Replace/Modify Orders 

In connection with considering how to further describe the risk control relating to the 

execution percentage of contracts outstanding for Options, CFE had occasion to review the 

description in subparagraph (ii) of Rule 406(d) (Cancel Replace/Modify Orders and Quotes) 

regarding how a cancel replace/modify order functions when the original order has been partially 

executed. Based on that review, CFE is taking this opportunity to update Rule 406(d)(ii) to further 

clarify how cancel replace/modify orders for both Options and Futures function when the original 

order has been partially executed. 

In particular, CFE is further clarifying the description in Rule 406(d)(ii) by revising it to 

provide that if a cancel replace/modify order is submitted to cancel and replace an existing order that 

has been partially executed, the CFE System decreases the current size of that order by the difference 

between the previously designated order size and the replacement order size designated by the cancel 

replace/modify order. CFE is also revising the description to further clarify that, for this purpose, the 

previously designated order size refers to the order size designated by the original order submission if 

the order size has not been previously modified by a cancel replace/modify order and refers to the 

most recently designated replacement order size if the order size has been previously modified by a 

cancel replace/modify order. Finally, the revised language of Rule 406(d)(ii) makes clear that if the 

decreased size of the existing order would be zero or less than zero, the existing order is canceled by 

the CFE System and the replacement order is rejected or canceled back to the sender by the CFE 

System. 

The manner in which a cancel replace/modify order functions under Rule 406(d)(ii) when the 

original order has been partially executed does not impact the size of an order that is used in 

determining the percentage of execution of an order for purposes of the risk control relating to the 

execution percentage of contracts outstanding for Options. In particular, if a cancel replace/modify 

order is submitted to cancel and replace an existing order that has been partially executed (and as a 

result the CFE System decreases the current size of that order by the difference between the 

previously designated order size and the replacement order size in accordance with Rule 406(d)(ii)), 

the percentage of subsequent execution for the modified order is measured in relation to the 
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replacement order size designated by the cancel replace/modify order for purposes of that risk control

and not in relation to the decreased order size to pursuant to Rule 406(d)(ii). 

Statutory Basis

CFE believes that the Amendment is consistent with the Designated Contract Market 

(“DCM”) Core Principles under Section 5 of the Act. In particular, CFE believes that the 

Amendment is consistent with: (i) DCM Core Principle 4 (Prevention of Market Disruption) in that 

taking an approach which allows for the Exchange to designate a different price reasonability 

percentage by price range for each Option product and making available to TPHs a risk control based 

upon the number of Options contracts executed as a percentage of the number of Options contracts 

outstanding reduces the potential risk of price distortions and market disruptions in Options offered 

for trading on CFE; (ii) DCM Core Principle 7 (Availability of General Information) because the 

Amendment specifies how CFE’s limit order price reasonability check risk control functions in 

relation to Options, further describes the manner of operation of CFE’s risk control for TPHs that is 

based upon the number of Options contracts executed as a percentage of the number of Options 

contracts outstanding, and further clarifies how cancel replace/modify orders for Options and Futures 

function when the original order has been partially executed; and (iii) DCM Core Principle 11 

(Financial Integrity of Transactions) because CFE’s limit order price reasonability check risk control 

contributes to the management by Clearing Members of their financial risk in relation to the Options 

trading activity of the TPHs for which they act as a Clearing Member. 

CFE believes that the impact of the Amendment will be beneficial to the public and market 

participants. CFE is not aware of any substantive opposing views to the Amendment. CFE hereby 

certifies that the Amendment complies with the Act and the regulations thereunder. CFE further 

certifies that CFE has posted a notice of pending certification with the Commission and a copy of this 

submission on CFE’s website (http://www.cboe.com/us/futures/regulation/rule_filings/cfe/) 

concurrent with the filing of this submission with the Commission.

Contact Information

Questions regarding this submission may be directed to Arthur Reinstein at (312) 786-7570 

and Shane Wilkerson at (484) 798-9350. Please reference our submission number CFE-2023-007 in 

any related correspondence.

Cboe Futures Exchange, LLC

/s/ Laura Fuson

By: Laura Fuson

Managing Director
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EXHIBIT 1 

The Amendment is to CFE’s rules as amended by CFE Rule Certification Submission 

Number CFE-2023-002. The Amendment, marked to show additions in underlined text and deletions 

in stricken text, consists of the following:

Cboe Futures Exchange, LLC Rules

* * * * *

406. Execution of Orders by CFE System

 (a) - (c) No changes.

(d) Cancel Replace/Modify Orders and Quotes. 

(i) No changes.

(ii) If the expected size of an existing Order designated within a Cancel 

Replace/Modify Order is submitted to cancel and replace an that existing Order does 

not match the actual size of the existing Order that has been partially executed, the 

CFE System decreases the current size of the replacement that Order by the 

difference between the designated expected size of the existing Order and the actual 

size of the existing Order the previously designated Order size and the replacement 

Order size designated by the Cancel Replace/Modify Order. For this purpose, the 

previously designated Order size refers to the Order size designated by the original 

Order submission if the Order size has not been previously modified by a Cancel 

Replace/Modify Order and refers to the most recently designated replacement Order 

size if the Order size has been previously modified by a Cancel Replace/Modify 

Order. If the decreased size of the replacement existing Order would be zero or less 

than zero, the existing Order is canceled by the CFE System and the replacement 

Order is rejected or canceled back to the sender by the CFE System. 

(iii) No changes. 

 (e) - (h) No changes. 

* * * * *

513A. Risk Controls

 (a) - (c) No changes.

(d) Futures and Options Limit Order Price Reasonability Checks. 

(i) The Exchange shall designate Limit Order price reasonability 

percentage parameters by product for Futures and Options products, and those 

percentages shall be set forth in the rules governing the applicable product. Clearing 

Members and Trading Privilege Holders shall have the ability to designate Limit 

Order price reasonability percentage parameters by EFID and product for Futures 

products. The most restrictive applicable Limit Order price reasonability percentage 
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that is designated shall apply.

(ii) The Limit Order price reasonability checks under this Rule 513A(d) 

apply to simple Orders in Futures and Options products, other than to simple buy 

Orders when there is no prevailing offer and to simple sell Orders when there is no 

prevailing bid. For simple Orders in Futures and Options products, the CFE System 

shall reject or cancel back to the sender:

(A) any buy Order with a limit price if the limit price upon 

receipt of the Order by the CFE System is equal to or more than the 

applicable designated percentage above the prevailing best offer in the 

applicable Contract; and

(B) any sell Order with a limit price if the limit price upon 

receipt of the Order by the CFE System is equal to or more than the 

applicable designated percentage below the prevailing best bid in the 

applicable Contract.

(iii) The Limit Order price reasonability checks under this Rule 513A(d) 

apply to Spread Orders in Options products and do not apply to Spread Orders in 

Futures products. For Spread Orders in Options products, the CFE System shall 

reject or cancel back to the sender:

(A) any buy Order with a limit price if the limit price upon 

receipt of the Order by the CFE System is equal to or more than the 

applicable designated percentage above the prevailing best offer in the 

applicable spread as reflected by any pending opposite side Spread Orders 

and the Implied Spread Offer for that spread; and

(B) any sell Order with a limit price if the limit price upon 

receipt of the Order by the CFE System is equal to or more than the 

applicable designated percentage below the prevailing best bid in the 

applicable spread as reflected by any pending opposite side Spread Orders

and the Implied Spread Bid for that spread.

(iv) The Limit Order price reasonability checks under this Rule 513A(d):

(A) apply during Trading Hours;

(B) do not apply prior to the opening or restart of trading in a 

Contract or during the opening or re-opening process for a Contract pursuant 

to Rule 405A;

(C) apply to a Stop Limit Order when it is triggered (i.e., when 

the relevant Contract trades at the specified trigger price as described in Rule 

404(a)(iv)) and not when a Stop Limit Order is received by the CFE System;

(D) do not apply to Trade at Settlement Orders; and

(E) do not apply to Block Trades and Exchange of Contract for 

Related Position transactions.
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 (e) - (i) No changes.

(j) Options Risk Monitor Mechanism. 

(i) Trading Privilege Holders shall have the ability to designate the 

following Options risk monitor mechanism parameters by EFID and Options product:

(A) number of contracts executed (“volume”);

(B) notional value of executions (“notional”), which the CFE 

System calculates for purposes of the Options risk monitor mechanism by 

multiplying the number of contracts executed by the Options Premium to 

determine the notional value of each Options execution; 

(C) number of executions (“count”); and

(D) number of contracts executed as a percentage of number of 

contracts outstanding within an Exchange-designated time period or during a 

trading day, as applicable (“percentage”), which the CFE System determines 

for purposes of the Options risk monitor mechanism by calculating the 

percentage of outstanding contracts of each Order that executed on each side 

of the market during the time period or trading day, as applicable, and then 

summing the series percentages on each side of the market. The percentage 

of execution of an Order at any given time is measured in relation to the size 

of the Order most recently designated by the Trading Privilege Holder that 

submitted the Order in an initial Order or Quote submission, a Cancel 

Replace/Modify Order or a replacement Quote (regardless of any changes to 

the size of the Order due to partial executions of the Order). 

(ii) Trading Privilege Holders may establish Options risk monitor 

mechanism parameters over a time period established by the Trading Privilege 

Holder(ii) (“interval limit”) and on an absolute basis for a trading day (“absolute 

limit”).

(iii) Clearing Members shall have the ability to designate absolute 

notional limits by EFID and Options product. In the case of absolute notional limits 

by EFID and Options product, the most restrictive applicable limit that is designated 

by a Clearing Member and Trading Privilege Holder shall apply.

(iv) When the CFE System determines that a volume, notional, count, or 

percentage limit designated by a Trading Privilege Holder or a Clearing Member has 

been reached within an interval or absolute limit for an EFID and Options product,

the CFE System will trigger the Options risk monitor mechanism which cancels all 

Orders residing in the CFE System for the applicable EFID and Options product and 

rejects or cancels back to the sender any new Orders for the applicable EFID and 

Options product until the counting program resets.

(v) If an Options risk monitor mechanism limit is reached during the 

opening or re-opening process for a Contract pursuant to Rule 405A, the Options risk 

monitor mechanism will not be triggered until the opening or re-opening process for 

that Contract is completed.
8

(vi) The CFE System will execute any marketable Orders that are 

executable against a Trading Privilege Holder’s Order received prior to the time that 

the Options risk monitor mechanism limit is triggered up to the size of the Trading 

Privilege Holder’s Order, even if those executions result in executions in excess of 

the applicable Options risk monitor mechanism parameters. 

(vii) The CFE System will not accept new Orders from a Trading 

Privilege Holder after a volume, notional, count, or percentage limit designated by a 

Trading Privilege Holder has been reached within an interval or absolute limit for an 

EFID and Options product. This block on the acceptance of new Orders shall remain 

in place until the earlier of the end of the Business Day on which the block is 

activated or when the Trading Privilege Holder submits an electronic instruction to 

the CFE System to reset the count for the applicable limit in a form and manner 

prescribed by the Exchange.

(viii) The CFE System will not accept new Orders from a Trading 

Privilege Holder after an absolute notional count limit designated by a Clearing 

Member has been reached for an EFID and Options product. This block on the 

acceptance of new Orders shall remain in place until the earlier of the end of the 

Business Day on which the block is activated or until the Trade Desk resets the count 

for the applicable limit after receiving a request from the Clearing Member to do so.

(ix) The Exchange may limit the number of Options risk monitor 

mechanism resets submitted to the CFE System by a Trading Privilege Holder or 

Clearing Member over a designated period of time. The Exchange shall disseminate 

to Trading Privilege Holders and Clearing Members in a form and manner 

determined by the Exchange any limitation on the submission of Options risk 

monitor mechanism resets.

(x) The CFE System will reset the counting period for an absolute limit

designated by a Trading Privilege Holder or Clearing Member when the Trading

Privilege Holder or Clearing Member that set the absolute limit refreshes its 

threshold for the absolute limit.

(xi) The CFE System will reset the counting program and commence a 

new interval time period when:

(A) a previous interval time period has expired and a transaction 

occurs in any series of the applicable Options product; or

(B) a Trading Privilege Holder refreshes its risk limit threshold 

for an interval limit prior to the expiration of the interval time period.

(xii) The CFE System counts individual trades executed as part of a 

Spread Order when determining whether a volume, notional, or count limit has been 

reached. The CFE System counts the percentage executed of a Spread Order when 

determining whether the percentage limit has been reached.

(k) - (o) No changes.

* * * * *