Document ID: SEC-2023-1065-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Cboe Exchange, Inc.
Posted Date: 2023-09-27T04:00Z

[Federal Register Volume 88, Number 186 (Wednesday, September 27, 2023)]
[Notices]
[Pages 66526-66533]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-20961]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-98474; File No. SR-CBOE-2023-048]

Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
Rules 5.87 and 8.21

September 21, 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 September 14, 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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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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 Rules 5.87 and 8.21. 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

[[Page 66527]]

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 is proposing to amend certain open outcry trading 
procedures, set forth in the Exchange Rulebook.
    Rule 8.21 (Multiple Representation Prohibited) generally prohibits 
multiple representation in open outcry trading crowds by a Trading 
Permit Holder (``TPH'') for any account in which a TPH has an interest 
or on behalf of a customer. The rule provides in relevant part that, 
except in accordance with procedures established by the Exchange or 
with the Exchange's permission in individual cases, no individual 
Market-Maker shall enter or be present in a trading crowd while a Floor 
Broker present in the trading crowd is holding an order on behalf of 
the Market-Maker's individual account or an order initiated by the 
Market-Maker for an account in which the Market-Maker has an 
interest.\3\ Further, the rule provides that no TPH, for any account in 
which the TPH has an interest or on behalf of a customer, shall 
maintain with more than one broker orders for the purchase or sale of 
the same option contract or other security, or the same combination of 
option contracts or other securities, with the knowledge that such 
orders are for the account of the same principal.\4\
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    \3\ See Rule 8.21(b).
    \4\ See Rule 8.21(a).
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    Interpretations and Policies .01 and .02 to Rule 8.21 set forth 
exception procedures that would permit multiple representation for 
individual Market-Makers in certain circumstances, with Interpretation 
.01 including exception procedures related to an individual Market-
Maker placing orders with a Floor Broker and Interpretation .02 
including exception procedures related to the simultaneous 
representation of Market-Maker joint accounts.
    Specifically, Interpretation and Policy .02 to Rule 8.21 sets out 
various procedures that, if followed, would permit the simultaneous 
presence in a trading crowd of participants in and orders for the same 
Market-Maker joint account. These procedures are intended to ensure 
that Market-Makers who choose to employ a joint account for their 
Exchange trading are not disadvantaged in participating in trades 
versus those Market-Makers that choose to employ individual 
accounts.\5\ These exception procedures apply only to individual 
Market-Makers. Currently, the Exchange has interpreted the term 
``individual Market-Maker'' to mean a person who is registered with the 
Exchange as an individual TPH and holds a Market-Maker Floor Permit, 
which entitles the holder to act as a Market-Maker on the floor of the 
Exchange.\6\ The current exception procedures and requirements are as 
follows:
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    \5\ See Securities Exchange Act Release No. 34-61715 (May 16, 
2010), 75 FR 13626 (March 22, 2010) (SR-CBOE-2010-028).
    \6\ See Cboe Regulatory Circular 23-006, dated July 21, 2023.

     Joint accounts may be simultaneously represented in a 
trading crowd by participants trading in-person for the joint 
account. (See Rule 8.21.02(a).)
     Joint account participants who are not trading in-
person in a trading crowd may enter orders for the joint account 
with Floor Brokers even if other participants are trading the same 
joint account in-person. (See Rule 8.21.02(b).)
     When series are simultaneously opened during rotation, 
joint account participants trading the joint account in-person may 
enter orders for the joint account with Floor Brokers in series 
where they are unable to trade the joint account in-person. (See 
Rule 8.21.02(c).)
     There is no restriction on the number of joint account 
participants that may participate on behalf of the joint account on 
the same trade. (See Rule 8.21.02(d).)
     When joint account participants are trading in-person 
in a trading crowd for their individual account or as a Floor 
Broker, another participant of the joint account may trade for the 
joint account in-person or enter orders for the joint account with 
Floor Brokers. (See Rule 8.21.02(e).)
     Except as otherwise permitted under this Rule 8.21, 
TPHs are prohibited from entering orders for their individual or 
joint accounts while they are trading in-person in a trading crowd 
even if the orders are for an account they are not then actively 
trading. (See Rule 8.21.02(f).)
     TPHs must ensure that they do not trade in-person or by 
orders such that (1) a trade occurs between a joint account 
participant's individual market-maker account and the joint account 
of which he or she is a participant, or (2) a trade occurs in which 
the buyer and seller are representing the same joint account and are 
on opposite sides of a transaction. It is the responsibility of a 
joint account participant to ascertain whether joint account orders 
have been entered in a crowd prior to trading the joint account in-
person. (See Rule 8.21.02(g).)
     Joint account participants may not act as a Floor 
Broker for the joint account of which they are a participant. (See 
Rule 8.21.02(h).)
     TPHs may alternate trading in-person for their 
individual account and their joint account while in a trading crowd. 
(See Rule 8.21.02(i) \7\.)
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    \7\ Current Rule 8.21.02(j) erroneously refers to Rule 6.1(d); 
as part of the proposed rule change, the Exchange proposes to update 
the rule to refer to Rule 6.1(e).
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     When completing a trade ticket for Market-Maker joint 
account transactions, it must contain such information as may be 
required by the Exchange under Rule 6.1(e).

    All procedures and requirements contained in Interpretation and 
Policy .02 must be satisfied, and each individual Market-Maker must 
also separately satisfy the procedures and requirements of 
Interpretation and Policy .01. These joint account requirements also 
remain subject to other applicable open outcry trading procedures, such 
as open outcry priority and facilitation/solicitation requirements, 
including Rule 5.86 (Facilitated and Solicited Transactions) and Rule 
5.87 (Crossing Orders), as applicable.
    Since the enactment of these rules, changes have occurred in the 
trading environment. First, the Exchange migrated from a floor-based 
market, where individuals traded in-person as a Floor Broker or a 
Market-Maker, to a hybrid environment, whereby individuals can trade 
in-person on the floor, or remotely. Further, the capacity in which 
individual Market-Makers trade has shifted. Historically, Trading 
Permits were most commonly held by individuals. While current Exchange 
rules still allow for an individual to be an individual Trading Permit 
Holder, it has become far more common for a Trading Permit Holder 
organization to become a Trading Permit Holder, purchase Trading 
Permits, and, under Rule 3.9(b), designate individual nominees to 
represent the organization with respect to each Floor Broker Trading 
Permit or Market-Maker Floor Trading Permit or, under Rule 3.9(a), 
designate at least one individual as the Responsible Person for that 
TPH organization, with respect to the TPH organization's electronic 
Trading Permit(s). Thus, it is common practice that a TPH organization 
has, at any given time, designated numerous individuals to be nominees 
and perform trading functions on behalf of the TPH organization, either 
on the floor or electronically, with respect to any Trading Permit 
which the organization holds. As a result, instead of participating in 
joint accounts, Market-Makers often trade for the accounts of those TPH 
organizations.
    Under the current exception procedures in Interpretation and Policy

[[Page 66528]]

.02, because an individual Market-Maker only contemplates an individual 
with a Market-Maker Floor Permit, an individual Market-Maker trading 
in-person on the trading floor may participate on the same trade as a 
Floor Broker who holds a solicited order from the same TPH organization 
only if initiated by someone who also meets the definition of an 
individual Market-Maker (i.e., an individual with a Market-Maker Floor 
Permit). As noted above, Market-Makers are currently nominees of TPH 
organizations as opposed to individual TPHs and trade for the accounts 
of their TPH organizations as opposed to joint accounts. Therefore, few 
Market-Makers may take advantage of the current exception procedures 
intended to not disadvantage Market-Makers from participating in trades 
versus those Market-Makers that choose to employ individual accounts, 
because many individuals trading off the floor (who may solicited) 
likely no longer have floor permits. Currently, there are no exceptions 
to the multiple representation prohibition for TPH organizations' 
associated persons who are not registered as individual Market-Makers 
(and thus do not have a Market-Maker Floor Trading Permit) and place 
solicited orders on behalf of their associated TPH organizations with 
Floor Brokers. Therefore, an individual Market-Maker trading in-person 
on the trading floor currently may not participate on the same trade as 
a Floor Broker who holds a solicited order initiated by an associated 
person of the same TPH organization (that is not also an individual 
Market-Maker) as the individual Market-Maker.
    The Exchange now proposes changes to Rules 8.21 and 5.87.
    First, the Exchange proposes to amend Rule 8.21(b) to the 
definition of ``individual Market-Maker'' and update this definition in 
the Rules. The Exchange proposes to add a parenthetical to the rule to 
define explicitly an individual Market-Maker as an individual nominee 
\8\ of a TPH organization or an individual Trading Permit Holder, 
either of which holds a Market-Maker Floor Trading Permit.\9\ This 
change merely updates this definition to reflect current rule 
terminology and industry changes, pursuant to which most (if not all) 
individual Market-Makers are part of larger TPH organizations.
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    \8\ The term ``nominee'' means an individual who is authorized 
by a TPH organization, in accordance with Rule 3.9, to represent 
such TPH organization in all matters relating to the Exchange with 
respect to a Floor Broker or Market-Maker Floor Trading Permit. See 
Rule 1.1 (definition of ``nominee''). Pursuant to Rule 3.9, each TPH 
organization must designate an individual nominee to represent the 
organization with respect to each Market-Maker Floor Trading Permit 
in all matters relating to the Exchange.
    \9\ The Exchange currently maintains five types of Trading 
Permits: a Market-Maker Electronic Access Permit, an Electronic 
Access Permit, a Clearing TPH Permit, a Market-Maker Floor Trading 
Permit and a Floor Broker Trading Permit.
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    Similarly, the Exchange proposes to amend Rule 8.21, Interpretation 
and Policy .02 to clarify the applicability of the exception 
procedures. As noted above, Rule 8.21.02 provides exception procedures 
related to the simultaneous representation of Market-Maker joint 
accounts. The Exchange proposes to delete reference to ``participants'' 
from the introduction in Interpretation .02, as well as Interpretation 
.02(a), (b), (c), and (d), and proposes to instead refer to an 
``individual Market-Maker.'' Likewise, the Exchange proposes to delete 
references to ``joint account participants'' from Interpretation 
.02(b), (e), and (h), and proposes to instead refer to an ``individual 
Market-Maker.'' Finally, the Exchange proposes to delete ``Trading 
Permit Holders'' from Interpretation Rule .02(i) and (f) and replace 
with ``Individual Market-Makers.'' \10\ The Exchange notes that the 
application of the rule is not changing per these proposed 
replacements, but rather the Exchange seeks to simplify the multiple 
representation rule using clearer and more unified terminology. These 
terminology changes are consistent with who may participate in joint 
accounts (and thus who may take advantage of the exception procedures 
in this rule).
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    \10\ There are no changes to Rule 8.21(g) as part of the 
proposed rule change, as the provision, and responsibilities 
described therein, continue to apply to Trading Permit Holders.
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    The Exchange also proposes to add a new Interpretation .03 to Rule 
8.21 to provide an additional exception to the prohibition on multiple 
representation to incorporate the market changes described above to, 
similar to the exception in Interpretation and Policy .02, ensure that 
Market-Makers on the floor who choose to be part of a larger TPH 
organization and trade for the account of that TPH organization 
(similar to the concept of trading for a joint account) are not 
disadvantaged in participating in trades versus those Market-Makers 
that choose to employ individual accounts. Under the current exception, 
as noted above, while a Floor Broker may represent an order initiated 
by a nominee of a TPH organization who is not an individual Market-
Maker (and thus has a Trading Permit other than a Market-Maker Floor 
Permit), the in-crowd Market-Makers from the same TPH organization are 
unable to participate on the trade.\11\ The Exchange proposes to add 
Interpretation .03 to provide that, subject to the requirements of Rule 
5.87(f), as applicable, an individual Market-Maker trading in-person in 
a trading crowd and not through orders placed with a Floor Broker may 
participate on the same trade as a Floor Broker who holds a solicited 
order on behalf of the same TPH Organization, provided the individual 
Market-Maker did not initiate the solicited order. As individual 
Market-Makers are generally part of larger TPH organizations and trade 
for the accounts of those organizations, which have multiple 
individuals functioning as Market-Makers on the trading floor (i.e., 
with Market-Maker Floor Permits) or through electronic trading from off 
the trading floor (i.e., with Electronic Access Permits), the Exchange 
believes this proposed exception is appropriate to reflect current 
organizational structures within the industry. This proposed exception 
aligns in purpose with the current exception in Interpretation and 
Policy .02 and will further ensure that Market-Makers trading on the 
Exchange's floor are not prevented from participating in trades that 
include solicited interest merely because the solicited party happens 
to be trading for the same account (TPH organization account instead of 
joint account).
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    \11\ As noted above, the current exception procedures would 
permit in-crowd Market-Makers to participate on a trade only if the 
Floor Broker was representing an order initiated by another 
individual Market-Maker from the same TPH organization.
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    The proposed Rule 8.21.03 also provides that the last sentence of 
Interpretation .02(g) to this Rule 8.21, which states that it is the 
responsibility of a joint account participant to ascertain whether 
joint account orders have been entered in a crowd prior to trading the 
joint account in-person, does not apply to this new Interpretation 
.03.\12\ Under the proposed changes, as further detailed below, there 
would be no obligation on behalf of the individual Market-Maker to 
ascertain whether someone from his or her firm initiated the solicited 
order or had knowledge of the solicited order, prior to trading in-
person in a trading crowd.\13\
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    \12\ For the avoidance of doubt, all other procedures and 
requirements contained in Interpretation and Policy .02, including 
all provisions in Interpretation .02(g) except the last sentence, 
must be satisfied and each individual Market-Maker must also 
separately satisfy the procedures and requirements of Interpretation 
and Policy .01.
    \13\ If a TPH organization were to enter an order with a Floor 
Broker, in addition to the solicited order, then the TPH 
organization (not the Floor Broker) would be in violation of the 
multiple representation rule.

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[[Page 66529]]

    The Exchange proposes to amend Rule 5.87(f), which contains 
procedures and requirements related to open outcry crossing entitlement 
for solicitations and facilitations.\14\ Under current rules, in the 
event a Floor Broker represents an order that is of the eligible order 
size or greater (``original order'') and is also holding a facilitation 
order or a solicited order, the Floor Broker may proceed under the 
provisions of Rule 5.87(f) to obtain a crossing participation 
entitlement.\15\ The crossing participation entitlement permits the 
Floor Broker to transact either 20% or 40% (currently 40% for all 
classes), of the remainder of the original order against the 
facilitation or solicited order. Further, if an On-Floor DPM or On-
Floor LMM is granted participation rights under Rule 5.85, Rule 
5.87(f)(5) provides that the On-Floor DPM or On-Floor LMM participation 
entitlement is applied if the trade occurs at the On-Floor DPM's/LMM's 
principal bid or offer, provided that the On-Floor DPM/LMM 
participation entitlement will be limited to a percentage of contracts 
that, when combined with the percentage the originating firm crossed, 
may not exceed 40% of the original order size. After the applicable 
public customer orders and participation entitlements have been 
satisfied, Rule 5.87(f)(6) provides that the remaining balance of the 
order will be allocated among the In-Crowd Market Participants 
(``ICMPs'') \16\ who established the market.\17\ Rule 5.87(f)(6)(B) 
further provides that priority to trade the remaining portion of the 
order shall be afforded to bids (offers) made by ICMPs in the sequence 
in which they are made. If bids (offers) were made at the same time, or 
in the event that the sequence cannot be reasonably determined, 
priority shall be apportioned equally among the ICMPs who established 
the market.
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    \14\ As part of this proposed rule change, the Exchange proposes 
to make a non-substantive change to correct the cross-reference in 
Rule 5.87(f)(4), to refer to paragraph (f) of the Rule rather than 
paragraph (d).
    \15\ Pursuant to Rule 5.87(f)(2), the Floor Broker crossing 
entitlement takes effect after all public customer orders that were 
on the limit order book and then represented in the trading crowd at 
the time the market was established have been satisfied.
    \16\ See Rule 1.1 for definition of In-Crowd Market Participant.
    \17\ Rule 5.87(f)(6) currently provides in relevant part that 
the ``the ICMPs who established the market will have priority over 
all other orders that were not represented in the trading crowd at 
the time the market was established (but not over Priority Customer 
orders on the Book) and will maintain priority over such orders 
except for orders that improve upon the market.''
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    In light of the proposed changes to Rule 8.21, the Exchange 
proposes to update Rule 5.87(f) to modify the priority of members in 
the trading crowd after the crossing participation entitlement and 
other applicable participation entitlements have been satisfied. 
Specifically, the Exchange proposes to update Rule 5.87(f)(6) \18\ to 
state that priority to trade the remaining portion of the order shall 
be apportioned equally among ICMPs who established the market, as is 
the case currently if bid (offers) were made at the same time, or in 
the event that the sequence cannot be reasonably determined. As under 
the current rule, in the event an ICMP declines to accept any portion 
of the available contracts, any remaining contracts shall be 
apportioned equally among the other ICMPs who established the market 
until all contracts have been apportioned. The Exchange also proposes 
to amend Rule 5.87(f)(7). Current Rule 5.87(f)(7) states nothing in 
that paragraph is intended to prohibit a Floor Broker, an On-Floor DPM, 
or an On-Floor LMM from trading more than his or her percentage 
entitlement if the other ICMPs do not choose to trade the remaining 
portion of the order. The Exchange proposes to add that it is also not 
intended to prohibit these parties from trading more than his or her 
percentage entitlement if such trades are permissible under the 
proposed Interpretation .03 of Rule 8.21. This is consistent with the 
proposed rule change above, which would make it possible for the TPH 
organization of which the applicable party is a part to, as a whole, 
trade more than 40% participation entitlement).
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    \18\ The proposed rule change deletes Rule 5.87(f)(6)(A) and 
(B), as they are no longer applicable, and moves language from 
current 5.87(f)(6)(C) to be included in 5.87(f)(6).
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    Finally, the Exchange proposes to amend Interpretation .06 to Rule 
5.87, which currently provides that Rule 5.87(f) supersedes the 
priority provision of Rule 5.86(d) in those situations where the Floor 
Broker representing an eligible order determines to take advantage of 
the crossing provisions of paragraph (f) of this Rule. The Exchange 
proposes adding language regarding an order being represented by the 
Floor Broker using the crossing provision, to clarify that paragraph 
(f) of Rule 5.87 provides the solicited person or order being 
represented by the Floor Broker using the crossing provision with 
priority over all other parties (other than certain Public Customer 
orders) for either 20% or 40% of the contracts remaining in the order, 
as determined by the Exchange, after those certain Public Customer 
orders have been satisfied. This is merely a clarifying change and has 
no impact on what orders may be eligible for the entitlement pursuant 
to Rule 5.87(f).
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.\19\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \20\ 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) \21\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \19\ 15 U.S.C. 78f(b).
    \20\ 15 U.S.C. 78f(b)(5).
    \21\ Id.
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    In particular, the Exchange believes the proposed rule change to 
add an exception to the multiple representation prohibition will 
promote just and equitable principles of trade, remove impediments to 
and perfect the mechanism of a free and open market and a national 
market system, and, in general, protect investors. The purpose of this 
proposed change, similar to the purpose of the current exception to the 
multiple representation prohibition in Rule 8.21, Interpretation and 
Policy .02, is to ensure that an individual Market-Maker trading in-
person on behalf of the TPH organization is not disadvantaged in 
participating in a solicited trade solely because the trade was 
initiated off the floor by an individual trading for the same account. 
This proposed exception expands the current exception to permit Market-
Makers to participate in trades if they are for TPH organization 
accounts (as is current common practice) instead of joint accounts and 
if the solicited party is from his or her same TPH organization, 
regardless of the type of trading permit the solicited party is using 
(as opposed to the current exception that permits this only if the

[[Page 66530]]

solicited party has a Market-Maker Floor Trading Permit, which is 
uncommon in current practice).
    Specifically, under the current rules, an individual Market-Maker 
trading in-person on the trading floor may participate on the same 
trade as a Floor Broker who holds a solicited order from the same TPH 
organization, but only if initiated by another individual Market-Maker. 
However, currently, there are no exceptions to the multiple 
representation prohibition for TPH organizations' associated persons 
who are not registered as individual Market-Makers (and thus do not 
have a Market-Maker Floor Trading Permit) and place solicited orders 
for joint accounts with Floor Brokers. Therefore, an individual Market-
Maker trading in-person on the trading floor currently may not 
participate on the same trade as a Floor Broker who holds a solicited 
order initiated by an associated person of the same TPH organization as 
the individual Market-Maker.
    As discussed above, since the enactment of these rules, changes 
have occurred in the trading environment. As a result of those changes, 
it is common practice that a TPH organization has, at any given time, 
designated numerous individuals to perform trading functions on behalf 
of the TPH organization, either on the floor or electronically, with 
respect to any Trading Permit which the organization holds. As a 
result, instead of participating in joint accounts, Market-Makers trade 
for the accounts of those TPH organizations.
    The proposed rule changes incorporate these advancements in the 
modern trading environment into the current exceptions to Rule 8.21 by 
expanding on the current exception procedures in current Interpretation 
and Policy .02 to permit an individual Market-Maker trading in-person 
may participate on a solicited trade that is initiated by an individual 
from the same TPH organization, regardless of whether the individual 
initiating the solicited trade is an individual Market-Maker. The 
proposed exception essentially permits Market-Makers trading in person 
on the floor on behalf of a TPH organization (as opposed to for a joint 
account) to participate on a trade if solicited interest was initiated 
by another Market-Maker from that TPH organization (for the same 
account). Like the current exception in Interpretation and Policy .02, 
the purpose of this exception is to ensure that Market-Makers on the 
floor who choose to be part of a larger TPH organization and trade for 
an account of that TPH organization (similar to the concept of a joint 
account) are not disadvantaged in participating in trades versus those 
Market-Makers that choose to employ individual accounts. It is common 
practice for off-floor liquidity providers, including Market-Makers 
with Electronic Access Permits, to be solicited to provide liquidity to 
trade against customer orders that are ultimately crossed on the 
Exchange's trading floor. Therefore, given the changes to the market as 
described above, the Exchange believes the proposed rule change further 
removes impediments to and perfects the mechanism of a free and open 
market and a national market system, as the proposed changes ensure 
that an individual Market-Maker that trading in-person that chooses to 
be part of a larger TPH organization and trade for an account of that 
TPH organization (similar to the concept of a joint account) is not 
disadvantaged in participating in a solicited trade versus a Market-
Maker that chooses to employ an individual account.
    The Exchange further believes the proposed rule change will not 
permit unfair discrimination between customers, issuers, brokers, or 
dealers, because it will eliminate a disparity that exists under 
current Rules. As noted above, because it is common for Market-Makers 
to trade on behalf of TPH organizations as opposed to trade as 
individual TPHs, and thus trade for TPH organization accounts as 
opposed to for joint accounts, there are few Market-Makers on the 
trading floor that can take advantage of the current exception to the 
multiple representation prohibition in current Rule 8.21, 
Interpretation and Policy .02. The Exchange believes this may 
disadvantage Market-Makers from participating in trades versus those 
that choose to employ individual accounts, because Market-Makers 
trading on behalf of TPH organizations (as most do) are not permitted 
to take advantage of the current exception if the solicited interested 
was initiated off the floor by an individual who does not hold a 
Market-Maker Floor Trading Permit, but rather another eligible trading 
permit offered by the Exchange (for example, acting as a Market-Maker 
with an Electronic Access Permit), thus removing a potential disparity 
that exists under current Rules. Therefore, these Market-Makers are 
losing trading opportunities because of the type of permit held by the 
solicited party.
    Additionally, the Exchange believes the proposed rule change is 
consistent with the requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers, as the Exchange believes the proposed rule change 
may reduce any inadvertent unfair discrimination to which current 
individual Market-Makers are subject. As discussed above, the Exchange 
believes many individual Market-Makers on the trading floor that trade 
for the account of the TPH organizations on behalf of which they trade 
may be at a disadvantage compared to individual Market-Makers that 
trade for an individual account. This is due to the fact that currently 
Market-Makers act as nominees of TPH organizations, trading for the 
accounts of those TPH organizations, and trade upstairs with EAPs 
rather than Market-Maker Floor Permits, as opposed to being and 
individual TPH as was the case historically. Under the proposed rule 
change, a Market-Maker acting as nominee of a TPH organization would 
have the opportunity to participate in trades for which members of 
their TPH organizations provide solicited liquidity, regardless of the 
type of trading permit those members have. Currently, individual 
Market-Makers have this opportunity only if that other member of the 
same TPH organization happens to have a Market-Maker Floor Trading 
Permit. As proposed, no ICMP would be prohibited from participating on 
a trade solely because he or she is from the same TPH organization as 
the individual that initiated the solicited order. The Exchange 
believes that the changes will create an opportunity for increased 
participation on such open outcry trades, which could potentially lead 
to increased execution opportunities. The Exchange believes that this 
in turn may lead to greater competition and price improvement for 
orders, thus creating a more robust open outcry market, which may 
ultimately benefit investors who choose to send orders to the Exchange.
    Further, the Exchange believes the proposed rule changes promote 
just and equitable principles of trade, as the amended rule preserves 
the intended prohibitions around multiple representation,\22\ while 
ensuring that Market-Makers who are employed by TPH organizations 
represented by multiple individuals (as is generally the case in 
today's trading environment) trading on and off the floor under a 
variety of eligible trading permits are not unfairly disadvantaged from 
participating in trades. As noted above, there is a current exception 
to the multiple representation prohibition that permits a Market-Maker 
on the trading floor to participate on a trade for which

[[Page 66531]]

another Market-Maker with a Market-Maker Floor Trading Permit from the 
same TPH organization was solicited. The proposed exception essentially 
just expands this exception to permit Market-Makers on the trading 
floor to participate in trades for which any other individual trading 
on behalf of the same TPH organization provided liquidity in the form 
of a solicited order, regardless of the type of permit such individual 
holds. Like the current exceptions, the proposed Rule 8.21, 
Interpretation .03 requires an individual Market-Maker participating on 
a trade for which the solicited order was initiated by another 
individual from the same TPH organization to be trading in-person in a 
trading crowd and not through orders placed with a Floor Broker. 
Additionally, the proposed exception would not apply if the individual 
Market-Maker trading in-person initiated the solicited order. Finally, 
all requirements set forth in Rule 8.21 and its Interpretations and 
Policies, with the exception of the last sentence of Interpretation 
.02(g) (as discussed below), continue to apply with respect to multiple 
representation prohibitions and solicited orders. Thus, the proposed 
changes continue to preserve the intent of the multiple representation 
rule to ensure that a Market-Maker present in the trading crowd is not 
disproportionately represented, and just expands exceptions under the 
current rule to permit Market-Makers on the trading floor to 
participate in trades for which any other individual trading on behalf 
of the same TPH organization provided liquidity in the form of a 
solicited order, regardless of the type of permit such individual 
holds.
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    \22\ Rule 8.21 is designed to ensure that a Market-Maker present 
in the trading crowd is not disproportionately represented.
---------------------------------------------------------------------------

    Similarly, the Exchange believes the proposed changes to exclude 
the last sentence of Rule 8.21.02(g) from the proposed exception and to 
Rule 5.87(f) to revise the priority afforded to in-crowd participants 
with respect to facilitated and solicited orders in open outcry 
trading, after the crossing participation entitlement and other 
applicable participation entitlements have been satisfied, are 
consistent with the Act and promote just and equitable principles of 
trade. In today's hybrid trading environment, it may be difficult and 
unduly onerous for individuals on the trading floor to ascertain (at 
all or in a timely manner) which TPH organization has been solicited on 
an initiating trade, and thus, difficult, under current rules, to 
determine which ICMP(s) would have priority. Further, the Exchange 
believes the current rules may discourage a TPH organization from 
submitting solicited orders to trade against customer orders in open 
outcry, as the TPH that submitted a solicited order may ultimately end 
up trading against a lesser portion of the initiating order if there 
are a small number of ICMPs who want to trade against the order, as 
such ICMPs would have priority over any ICMP from the same TPH 
organization that submitted the solicited order. This may reduce 
execution opportunities or competition for customer orders. Under the 
proposed changes, priority to trade the remaining portion of the 
solicited order shall be apportioned equally among ICMPs who 
established the market; this would include ICMPs from all TPH 
organizations, including the one on behalf of which the solicited order 
was submitted. The Exchange notes that the proposed changes align with 
current floor behavior, since, as stated above, in today's trading 
environment it is difficult to reasonably determine which ICMP(s) have 
priority. The Exchange further notes that priority is not always time 
determinative (e.g., pro rata),\23\ and believes the proposed rules 
will streamline the open outcry execution process for crossing 
transactions, while continuing to provide such solicited orders with 
meaningful execution and price improvement opportunities.
---------------------------------------------------------------------------

    \23\ See, e.g., Rule 5.32(a)(1)(B).
---------------------------------------------------------------------------

    Further, under the proposed rules, an individual Market-Maker would 
not be required to ascertain whether the solicited order was initiated 
on behalf of the same TPH organization, nor would the TPH organization 
firm be required to inform their Market-Makers trading in person if a 
solicited order had been initiated. The Exchange believes the proposed 
changes will reduce unnecessary complexity and confusion in its open 
outcry procedures, and simplify handling of solicited orders on the 
Exchange's trading floor, to the benefit and protection of investors.
    Finally, the Exchange believes the proposed changes to clarify 
certain Rules will remove impediments to and perfect the mechanism of a 
free and open market and a national market system, and, in general, 
will protect investors and the public interest. Specifically, by 
amending Rule 8.21(b) and Interpretation and Policies .02 to clarify 
the definition of ``individual Market-Maker'' and the applicability of 
the current exception procedures, the proposed rule change may mitigate 
any potential confusion for TPHs. Further, the Exchange believes the 
proposed change to Interpretation .06 to Rule 5.87 to add language to 
clarify that paragraph (f) of Rule 5.87 provides the solicited person 
or order being represented by the Floor Broker using the crossing 
provision with priority over all other parties (other than certain 
Public Customer orders) for either 20% or 40% of the contracts 
remaining in the order, as determined by the Exchange, after those 
certain Public Customer orders have been satisfied may mitigate any 
potential confusion as a result of the proposed rule changes, which 
protects investors and perfects the mechanism of a free and open 
market. Such changes are not unfairly discriminatory as they are not 
instituting a new policy, but rather providing clarification as to a 
current rule, which provides for participation entitlement consistent 
with other exchanges.\24\
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    \24\ See, e.g., NYSE American Rule 934.1NY (Facilitation Cross 
Transactions).
---------------------------------------------------------------------------

    Additionally, the Exchange believes the proposed change to Rule 
5.87(f) to state that nothing in the rule paragraph is intended to 
prohibit an Floor Broker, an On-Floor DPM, or an On-Floor LMM from 
trading more than his or her percentage entitlement if such trades are 
permissible under proposed Interpretation .03 of Rule 8.21 (as under 
proposed rule a TPH organization as a whole may trade more than 40% 
participation entitlement) provides further transparency into the 
potential allocations as related to solicited orders, which protects 
investors and perfects the mechanism of a free and open market by 
eliminating any potential confusion as a result of the proposed rule 
changes.
    The Exchange also believes the proposed changes to clarify certain 
Rules is consistent with Section 6(b)(1) of the Act,\25\ which provides 
that the Exchange be organized and have the capacity to be able to 
carry out the purposes of the Act and to enforce compliance by the 
Exchange's Trading Permit Holders and persons associated with its 
Trading Permit Holders with the Act, the rules and regulations 
thereunder, and the rules of the Exchange. As noted above, the Exchange 
believes the proposed changes to Rule 8.21(b) and Interpretation and 
Policies .02 to clarify the definition of ``individual Market-Maker'' 
and the applicability of the current exception procedures, as well as 
the proposed change to Interpretation .06 to Rule 5.87, may mitigate 
any potential confusion for TPHs and thus facilitate compliance with 
Exchange rules. Similarly, the proposed change to Rule 5.87(f) provides 
further transparency into the potential allocations as related to 
solicited orders. The Exchange believes these changes and transparency

[[Page 66532]]

will protect investors and assist TPHs in complying with Exchange 
rules, as they provide more clarity and reduce complexity within the 
rules.
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    \25\ 15 U.S.C. 78f(b)(1).
---------------------------------------------------------------------------

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 that 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 TPH organizations. The proposed exception to the 
multiple representation prohibition is similar to exceptions currently 
in place today. The Exchange believes the proposed rule change will put 
all individual Market-Makers on equal footing with respect to the 
ability to participate on crossing transactions. As discussed, above, 
the Exchange believes the proposed exception removes a potential 
disparity under current Rules that may disadvantage an individual 
Market-Maker trading in-person from participating in trades solely 
because the trade was initiated off the floor by an individual from his 
or her same TPH organization who holds a permit other than a Market-
Maker Floor Trading Permit. Further, the proposed changes to the 
priority afforded to ICMPs with respect to facilitated and solicited 
orders in open outcry trading, after the crossing participation 
entitlement and other applicable participation entitlements have been 
satisfied, will apply equally to all ICMPs.
    The Exchange does not believe that the proposed change will impose 
an unnecessary or inappropriate burden on intermarket competition 
because it only applies to the execution of orders on the Exchange's 
trading floor. As discussed above, the proposed rule change is intended 
to modernize and streamline the Exchange's open outcry procedures 
regarding crossing transactions, which changes the Exchange believes 
may lead to greater competition and price improvement for orders, thus 
creating a more robust open outcry market.
    Finally, the proposed clarifying changes are not intended to have 
any impact on competition, but rather add transparency to the Rules and 
eliminate potential confusion of investors.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange neither solicited nor received comments on the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not: (i) 
significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \26\ and Rule 19b-
4(f)(6) thereunder.\27\
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    \26\ 15 U.S.C. 78s(b)(3)(A).
    \27\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change, along 
with a brief description and text of the proposed rule change, at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) \28\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, Rule 19b-4(f)(6)(iii) \29\ permits the Commission to 
designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay so that the Exchange 
may implement the proposed change as soon as possible. The Exchange 
states that waiver of the operative delay will protect investors by 
ensuring that an individual Market-Maker trading in-person is not 
disadvantaged in participating in a solicited trade solely because the 
trade was initiated off the floor by an individual from his or her same 
TPH organization who does not hold a Market-Maker Floor Trading Permit, 
thus removing a potential disparity that exists under current Rules. 
With respect to the proposed changes to exclude the last sentence of 
Rule 8.21.02(g) from the proposed exception and to revise the priority 
described in Rule 5.87(f), the Exchange states that waiver of the 
operative delay will promptly reduce unnecessary complexity and 
confusion regarding open outcry procedures, and simplify handling of 
solicited orders on the trading floor. Additionally, the Exchange 
states that, with respect to proposed changes to clarify definitions 
and the applicability of current exception procedures, waiver of the 
operative delay will allow the Exchange to provide further transparency 
as soon as possible. The Commission believes that waiver of the 30-day 
operative delay is consistent with the protection of investors and the 
public interest because the proposed rule change does not raise any new 
or novel issues. Accordingly, the Commission hereby waives the 30-day 
operative delay and designates the proposed rule change as operative 
upon filing.\30\
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    \28\ 17 CFR 240.19b-4(f)(6).
    \29\ 17 CFR 240.19b-4(f)(6)(iii).
    \30\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
---------------------------------------------------------------------------

    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule change should be approved or 
disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-CBOE-2023-048 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-2023-048. 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

[[Page 66533]]

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-2023-048 and should be submitted on or before October 18, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\31\
---------------------------------------------------------------------------

    \31\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-20961 Filed 9-26-23; 8:45 am]
BILLING CODE 8011-01-P