Document ID: SEC-2021-1146-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Cboe Exchange, Inc.
Posted Date: 2021-08-25T04:00Z

[Federal Register Volume 86, Number 162 (Wednesday, August 25, 2021)]
[Notices]
[Pages 47529-47533]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-18236]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-92709; File No. SR-CBOE-2021-046]

Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of 
Filing of a Proposed Rule Change To Amend Rule 5.4 and Make 
Corresponding Changes to Other Rules

August 19, 2021.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act''),\2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that on August 6, 2021, Cboe Exchange, Inc. (the ``Exchange'' or 
``Cboe Options'') filed with the Securities and Exchange Commission 
(the ``Commission'') the proposed rule change as described in Items I, 
II, and III below, which Items have been prepared by the self-
regulatory organization. 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\ 15 U.S.C. 78a.
    \3\ 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 Rule 5.4 and make corresponding changes to other Rules. The 
text of the proposed rule change is provided below.

(additions are italicized; deletions are [bracketed])

* * * * *

Rules of Cboe Exchange, Inc.

* * * * *

Rule 5.4. Minimum Increments for Bids and Offers

    (a) No change.
    (b) Except as provided in Rule 5.33, the minimum increment for 
bids and offers on complex orders [with any ratio equal to or 
greater than one-to-three (.333) and less than or equal to three-to-
one (3.00) for equity and index options, and for Index Combo 
orders,] is $0.01 or greater, which may be determined by the 
Exchange on a class-by-class basis, and the legs may be executed in 
$0.01 increments. [The minimum increment for bids and offers on 
complex orders with any ratio less than one-to-three (.333) or 
greater than three-to-one (3.00) for equity and index options 
(except for Index Combo orders) is the standard increment for the 
class pursuant to paragraph (a), and the legs may be executed in the 
minimum increment applicable to the class pursuant to paragraph 
(a).] Notwithstanding the foregoing, the minimum increment for bids 
and offers on complex orders in options on the S&P 500 Index (SPX) 
or on the S&P 100 Index (OEX and XEO), except for box/roll spreads, 
is $0.05 or greater, or in any increment, which may be determined by 
the Exchange on a class-by-class basis.
* * * * *

Rule 5.33. Complex Orders

    Trading of complex orders (as defined in Rule 1.1) is subject to 
all other Rules applicable to the trading of orders, unless 
otherwise provided in this Rule 5.33.
    (a)-(e) No change.
    (f) Minimum Increments, Execution Prices, and Priority.
    (1) Minimum Increments. No change.
    (2) Execution Prices and Complex Order Priority.
    (A) Complex Orders. The System does not execute a complex order 
pursuant to this Rule 5.33 at a net price:
    (i)-(iv) No change.
    (v) that would cause any component of the complex strategy to be 
executed at a price ahead of a Priority Customer Order on the Simple 
Book without improving the BBO of (a) at least one component of the 
complex strategy, if the complex order has a ratio equal to or 
greater than one-to-three (.333) and less than or equal to three-to-
one (3.00), or is an Index Combo order, or (b) each component of the 
complex strategy with a Priority Customer Order at the BBO, if the 
complex order has a ratio less than one-to-three (.333) or greater 
than three-to-one (3.00).
* * * * *

    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 self-regulatory organization 
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 those 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 parts of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The proposed rule change amends the minimum increment for complex 
orders with ratios of greater than three-to-one or less than one-to-
three. Currently, Rule 5.4(b) provides that the minimum increment for 
bids and offers on complex orders with any ratio greater than or equal 
to one-to-three (.333) and less than or equal to three-to-one (3.00) 
for equity and index options, and for Index Combo \4\ orders, is $0.01 
or greater, which may be determined by the Exchange on a class-by-class 
basis, and the legs may be executed in $0.01 increments. However, the 
minimum increment for bids and offers on complex orders with any ratio 
less than one-to-three (.333) or greater than three-to-one (3.00) for 
equity and index options (except for Index Combo orders) is the 
standard increment for the class pursuant to Rule 5.4(a), and the legs 
may be executed in the minimum increment applicable to the class 
pursuant to paragraph 5.4(a).\5\ The Exchange currently only permits 
complex orders with ratios greater than three-to-one or less than one-
to-three for execution on the Exchange's trading floor.\6\ The proposed 
rule change provides that the minimum increment for bids and offers on 
complex orders with any ratio may be in $0.01 or greater, as determined 
by the Exchange on a class-by-class basis. This will provide TPHs with 
the same pricing flexibility with respect to all complex orders they 
submit to the Exchange, regardless of their ratios.
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    \4\ An ``Index Combo'' order is an order to purchase or sell one 
or more index option series and the offsetting number of Index 
Combinations (with an ``Index Combination'' defined as a purchase 
(sale) of an index option call and sale (purchase) of an index 
option put with the same underlying index, expiration date, and 
strike price) defined by the delta (defined as the positive 
(negative) number of Index Combinations that must be sold 
(purchased) to establish a market neutral hedge with one or more 
series of the same index option. See Rule 5.33(b)(5).
    \5\ The minimum increment for bids and offers on complex orders 
in options on the S&P 500 Index (SPX) or on the S&P 100 Index (OEX 
and XEO), except for box/roll spreads, is $0.05 or greater, or in 
any increment, which may be determined by the Exchange on a class-
by-class basis. Rule 5.4(c) sets forth the minimum increment 
applicable to other types of options.
    \6\ If the Securities and Exchange Commission (the 
``Commission'') approves the proposed rule change, the Exchange 
intends to begin accepting complex orders with ratios greater than 
three-to-one or less than one-to-three for electronic execution, in 
addition to open outcry.
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    Complex orders involve special pricing and handling. Bids and 
offers for

[[Page 47530]]

complex orders are typically represented on the basis of a total debit 
or credit for the order. After a complex order executes at the total 
debit or credit, the parties to the trade record the contract 
quantities and prices for each component option of the order. For 
complex orders executed electronically, the Exchange's system performs 
this calculation (within the pricing and priority parameters set forth 
in Rule 5.33(f)). For complex orders executed in open outcry, this task 
is straightforward and uncomplicated when the total debit or credit for 
a complex strategy expressed in the minimum increment under Rule 
5.4(b).\7\ However, if a complex order is unable to be expressed in 
increments smaller than the increment for the class (such as $0.05), it 
may be difficult for brokers to obtain the desired prices for their 
customers' orders, because the transaction parties must perform 
complicated and time-consuming mathematical calculations to break down 
a complex order into the required contract quantities and prices to fit 
within the constraint of executing complex orders at a minimum 
increment other than $0.01.\8\ This difficulty is exacerbated when the 
quantity of such an order is an odd lot quantity (such as 106 
contracts). The result is that on active trading days, brokers 
executing these types of orders cannot be as efficient in representing 
other customer orders that they are holding. This difficulty exists for 
complex orders with any ratio and with legs in any combination.
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    \7\ For example, assume the market for the December SPX 4350 
calls is 18 bid, 19 asked, and the market for the December SPX 4375 
calls is 6.50 bid and 7.50 asked. The fair value of a call comprised 
of one leg to buy and one leg to sell the same number of contracts 
of this series is 11.50 (the difference between the prices quoted 
for each option). If an order to buy 100 of the 4350 calls and to 
sell 100 of the 4375 calls is quoted and executed at a net debit of 
11.50 (expressed in a multiple of the minimum increment), the 
parties to the trade can easily determine and record a price for 
each component option that comprises the complex order. Any 
combination of purchase and sale prices within the quoted ranges for 
the component options that yield a net debit or credit of 11.50 
could be used (e.g., 18.50 for the 4350 calls, and 7 for the 4375 
calls).
    \8\ Using the example in the previous footnote, if instead a 
customer wants to pay 11.48 rather than 11.50 for a complex order, 
in order to determine prices for the component options that are 
expressed in a multiple of $0.05 the trader must perform a series of 
calculations. In this case, the trader might determine that the 
trade must be split up into a 40-contract spread that traded at a 
net debit of 11.45 and a 60-contract spread that traded at a net 
debit of 11.50, which together yield a net debit of 11.48 for the 
entire amount. This is ultimately a better net price for the 
customer.
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    The proposed rule change will enable Trading Permit Holders 
(``TPHs'') to execute complex orders more efficiently, including on 
behalf of customers that wish to execute highly complicated complex 
orders, by permitting the parties to execute the trades more 
expeditiously on the trading floor. As noted above, the Exchange also 
intends to accept complex orders with ratios larger than three-to-one 
or smaller than one-to-three for electronic execution, which would 
further improve efficiency of execution of electronic orders, as the 
System would perform this calculation. The Exchange believes this 
increased efficiency would increase execution opportunities for complex 
orders with investment strategies that do not fit within the three-to-
one ratio requirement. Additionally, the proposed rule change may 
enable TPHs to execute customers' complex orders with these larger 
ratios at better prices, rather than executing at prices that fit 
within the confines of a larger increment.
    While the proposed rule change amends the minimum increment at 
which all complex orders and their legs may execute, the Exchange does 
not propose to extend the complex order priority afforded to complex 
orders with ratios equal to or greater than one-to-three and less than 
or equal to three-to-one to these larger-ratio complex orders. 
Electronic execution of complex orders with any ratio will continue to 
be required at net prices: (i) That would cause any component of the 
complex strategy to be executed at a price of zero; (ii) worse than the 
Synthetic Best Bid or Offer (``SBBO'') \9\ or equal to the SBBO when 
there is a priority customer order at the SBBO (except all-or-none 
(``AON''); (iii) that would cause any component of the complex strategy 
to be executed at a price worse than the individual component prices on 
the Simple Book; or (iv) worse than the price that would be available 
if the complex order legged into the Simple Book. The proposed rule 
change amends Rule 5.33(f)(2)(A)(v) to provide that a complex order may 
not execute at a net price that would cause any component of the 
complex strategy to be executed at a price ahead of a Priority Customer 
Order on the Simple Book without improving the BBO of (a) at least one 
component of the complex strategy, if the complex order has a ratio 
equal to or greater than one-to-three (.333) and less than or equal to 
three-to-one (3.00), or is an Index Combo order (which is consistent 
with current functionality and thus for all complex orders that may be 
executed electronically), or (b) each component the complex strategy 
with a Priority Customer Order at the BBO, if the complex order has a 
ratio less than one-to-three (.333) or greater than three-to-one (3.00) 
(which is consistent with current open outcry rules, where complex 
orders with any such ratio may currently be executed).\10\ As a result, 
to the extent a complex order with a ratio of four-to-one (for example) 
is submitted for electronic execution, the complex order may be 
executed at a net debit or credit price only if each leg of the order 
betters the corresponding bid (offer) of a priority customer order(s) 
in the Simple Book. Therefore, the complex order priority rules will 
continue to protect Priority Customer interest on the Simple Book.
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    \9\ The ``SBBO'' means the best bid and offer on the Exchange 
for a complex strategy calculated using (1) for complex orders, the 
BBO for each component (or the NBBO for a component if the BBO for 
that component is not available) of a complex strategy from the 
Simple Book; and (2) for stock-option orders, the BBO for each 
option component (or the NBBO for a component if the BBO for that 
component is not available) and the NBBO of the stock component of a 
complex strategy.
    \10\ See Rule 5.85(b).
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    When the Exchange first proposed to restrict penny pricing for 
complex orders to those with ratios no greater than three-to-one, 
investors had only begun to use multi-leg strategies. At the time, the 
Commission held that ``ratio orders within certain permissible ratios 
may provide market participants with greater flexibility and precision 
in effectuating trading and hedging strategies.'' \11\ In the nearly 20 
years since, market participants have expanded the use and complexity 
of multi-leg trading strategies, which represent a critical portion of 
their overall investment strategies, while the rules regarding the 
increments of larger-ratio orders have remained unchanged and no longer 
reflect the current marketplace. Market participants regularly submit 
legitimate multi-leg trading and hedging strategies with ratios greater 
than three-to-one (or less than one-to-three). From January 3

[[Page 47531]]

through June 17, 2021, nearly 31% of complex orders executed on the 
Exchange's trading floor had a ratio greater than three-to-one. For 
example, a complex order consisting of one leg to buy 30 VIX calls and 
another leg to sell 30 VIX puts--both in the same series--combined with 
a third leg to purchase 100 VIX calls in a separate series that have a 
delta of ``30'' (30% or .30) creates a delta neutral position, and 
there is no reason such a transaction should not receive the complex 
order benefits. However, market participants who submit such orders are 
disadvantaged compared to strategies with smaller ratios due to the 
restrictiveness of the current pricing increment. The Exchange sees no 
reason to restrict complex orders with a ratio of four-to-one, for 
example, in a class with a minimum increment of $0.05 from being 
expressed in, or having their legs execute in, $0.01 increments while 
legs of complex orders with a ratio of three-to-one in the same class 
may be expressed in, and have their legs execute in, $0.01 
increments.\12\ The Exchange believes it is appropriate to expand the 
availability of the smaller pricing increment to complex orders with 
larger ratios so that all market participants may have the same 
flexibility with respect to the pricing of their multi-legged 
investment strategies, regardless of ratio. In the same way the 
Commission held that ``the procedures governing the execution of 
complex orders, such as . . . orders [with ratios no greater than 
three-to-one or less than one-to-three], serve to reduce the risk of 
incomplete or inadequate executions while increasing efficiency and 
competitive pricing by requiring price improvement before the order can 
receive priority over other orders[,]'' \13\ the Exchange believes 
expanding penny pricing to all complex orders regardless of ratios will 
serve to reduce the risk of incomplete or inadequate executions for 
larger-ratio complex orders while increasing efficiency and competitive 
pricing by requiring price improvement before the order can receive 
priority over other orders.
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    \11\ See Securities Exchange Act Release 48858 (December 1, 
2003), 68 FR 68128 (December 5, 2003) (SR-CBOE-2003-007) (``Approval 
Order''). In approving ratio orders (which had ratios no less than 
one-to-three and no greater than three-to-one), the Commission 
stated that ``[t]he Commission believes that ratio orders within 
certain permissible ratios may provide market participants with 
greater flexibility and precision in effectuating trading and 
hedging strategies. In addition, the Commission believes that 
including such ratio orders in the exception to the priority rules 
provided in CBOE Rule 6.45(e) will facilitate the execution of ratio 
orders. In this regard, the Commission believes that the procedures 
governing the execution of complex orders, such as ratio orders, 
serve to reduce the risk of incomplete or inadequate executions 
while increasing efficiency and competitive pricing by requiring 
price improvement before the order can receive priority over other 
orders.'' Id. Pursuant to SR-CBOE-2019-060, Rule 6.45 was replaced 
with Rule 5.33.
    \12\ Currently, simple orders in classes with minimum increments 
of $0.05 or $0.10 may trade in penny increments in certain 
circumstances. See, e.g., Rule 5.37(a)(4) (pursuant to which the 
minimum price improvement increment for the Automated Improvement 
Mechanism (``AIM'') must be at least $0.01, which is the current 
minimum increment as determined by the Exchange for all classes 
eligible for AIM except for S&P 500 Index (``SPX'') options); and 
Rule 5.33(f)(1)(B) (pursuant to which the option leg(s) of a stock-
option order may be $0.01 or greater, which the Exchange determines 
on a class-by-class basis, regardless of the minimum increments 
otherwise applicable to the option leg(s)); see also Rule 
5.39(a)(4).
    \13\ See Approval Order at 68128.
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    The Exchange understands that the Commission is concerned that the 
simple order market may be somehow disadvantaged by allowing larger-
ratio multi-legged orders to receive the complex order benefit. The 
chief concern appears to be that if the ratios are too greatly 
expanded, market participants will, for example, enter multi-legged 
strategies designed primarily to trade orders in a class in pennies 
that cannot otherwise execute as simple orders in that class in pennies 
rather than to effectuate a bona fide trading or hedging strategy. 
Additionally, the Commission believes there is a risk that market 
participants may possibly enter such strategies to trade ahead of 
orders on the book by a smaller amount.\14\ The Exchange first notes a 
significant amount of volume executed on the Exchange is already done 
in penny increments. From January 3 through June 17, 2021, over half 
the volume executed on the Exchange as part of a complex order, the 
majority of which (all electronic complex orders and all open outcry 
complex orders with ratios no greater than three-to-one (which 
represents nearly 70% of open outcry complex orders)) are able to trade 
in pennies (both the package price and leg prices, except for SPX, for 
which the package price must be in nickels, but the legs may trade in 
pennies) under current rules. Additionally, during that same time 
period, approximately 43% of simple volume on the Exchange executed in 
AIM Auctions, which permit executions in pennies (for all classes 
except SPX). Therefore, the majority of contracts that execute on the 
Exchange already execute in pennies (even though penny increments are 
available for fewer than 400 classes),\15\ and the Exchange does not 
believe permitting all complex orders to trade in pennies will 
significantly increase the volume that may already execute in pennies 
on the Exchange.
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    \14\ Although the marketplace may in fact be better served by a 
structure that does not require multi-legged orders to, among other 
things, yield priority to a simple order (which cannot on its own 
satisfy the terms of a multi-leg order), this proposal does not 
require the Commission to pass judgment on that issue.
    \15\ See Rule 5.4(d) (which provides that the penny program 
applies to 363 of the over 2000 classes that currently trade on the 
Exchange).
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    The Exchange believes it is highly unlikely that market 
participants will submit non-bona-fide trading strategies with larger 
ratios just to trade in pennies. First, with respect to a non-bona-fide 
trading strategy, it is unlikely other market participants would rest 
an order for such a strategy on the complex order book or be willing to 
execute against such an order given that it is a non-bona-fide 
strategy, thus reducing the likelihood a market participant would be 
able to execute such strategy. Additionally, adding a single leg to a 
larger order just to obtain penny pricing may further reduce execution 
opportunities for that order, because it may be less likely that 
sufficient contracts in the appropriate ratio would be available. The 
Exchange also believes it is unlikely market participants will attempt 
to submit large-ratio complex orders solely to use penny pricing to 
trade ahead of customers on the simple book. From January 2 to June 17, 
2021, there was only a customer order on the top of the book across all 
series listed on the Exchange for 0.328% of that time. Therefore, there 
would be minimal amounts of time when a market participant would even 
have the need to attempt to do this. Additionally, as proposed, unlike 
complex orders with ratios between one-to-three and three-to-one, 
complex orders with ratios less than one-to-three or greater than 
three-to-one will have to improve all legs with customers on the book, 
rather than just improve one leg like complex orders with smaller 
ratios, and such orders would also have to honor away markets. 
Therefore, if a market participant were to attempt to submit a complex 
order with a large ratio \16\ primarily to trade in pennies or ahead of 
customers, it may need to improve more legs than a smaller ratio order, 
and would have to honor all away markets, potentially reducing any 
potential savings the market participant was attempting to achieve. 
Note also that rather than adding an extra leg to a large order simply 
to be able to improve the book by $0.01 is unnecessary because such 
order could already be executed in an AIM Auction in $0.01 increments. 
Additionally, these orders would be subject to review by the Exchange's 
regulatory division, which may determine submission of such orders to 
be in violation of the Exchange's Rules, including Rule 8.1, which 
prohibits TPHs from engaging in acts or practices inconsistent with 
just and equitable principles of trade. For these reasons, the Exchange 
believes there is a de minimis chance that market participants would 
submit non-bona-fide trading strategies to trade the legs in pennies or

[[Page 47532]]

trade ahead of customers on the book and that the benefits of 
permitting all complex orders to trade in pennies significantly 
outweigh this risk.
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    \16\ A market participant could already attempt to do this today 
by submitting a smaller-ratio complex order by adding an 
inexpensive, out-of-the-money leg to an order. However, the Exchange 
has not observed this behavior.
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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.\17\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \18\ 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) \19\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \17\ 15 U.S.C. 78f(b).
    \18\ 15 U.S.C. 78f(b)(5).
    \19\ Id.
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    In particular, the Exchange believes the proposed rule change will 
remove impediments to and perfect the mechanism of a free and open 
market and benefit investors, because it will provide market 
participants with the same pricing flexibility with respect to all 
their complex trading and hedging strategies. Market participants may 
determine that investment and hedging strategies with ratios greater 
than three-to-one or less than one-to-three are appropriate for their 
investment purposes, and the Exchange believes it will benefit market 
participants if they have additional flexibility to price their 
investment and hedging strategies to achieve their desired investment 
results. The Exchange believes the proposed rule change will help 
protect investors by allowing market participants to receive the 
benefit of complex order pricing when executing bona-fide multi-legged 
trading or hedging strategies. The Exchange sees no reason to restrict 
complex orders with a ratio of greater three-to-one (or less than one-
to three) in a class with a minimum increment of $0.05 from being 
expressed in, or having their legs execute in, $0.01 increments while 
legs of complex orders with a ratio equal to or less than or equal to 
three-to-one (or greater than or equal to one-to-three) in the same 
class may be expressed in, and have their legs execute in, $0.01 
increments. The proposed rule change will further remove impediments to 
and perfect the mechanism of a free and open market and a national 
market system, as another options exchange permits complex orders with 
any ratio and their legs to trade in pennies.\20\
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    \20\ See BOX Options LLC (``BOX'') Rule 7600(c) (which rule is 
silent on the minimum increment for orders submitted for execution 
on BOX's trading floor, but the Exchange has been informed by 
multiple TPHs that are also members of BOX that they may execute 
multi-legged orders (with ratios greater than three-to-one or less 
than one-to-three) on BOX's trading floor in penny increments).
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    These changes will also enable traders on the Exchange's trading 
floor to more efficiently execute all complex orders, including on 
behalf of customers that wish to execute highly complicated complex 
orders, by permitting the parties to execute the trades more 
expeditiously.\21\ Additionally, as discussed above, this may enable 
TPHs to execute customers' complex orders at better prices, rather than 
executing at prices that fit within the confines of a larger increment, 
which ultimately benefits investors.
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    \21\ As noted above, there are instances in which simple orders 
with minimum increments of $0.05 or $0.10 may trade in penny 
increments. See supra note 8.
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    The proposed rule change will continue to protect priority customer 
order interest on the Simple Book in the same manner it does today, as 
all complex orders with a ratio greater than three-to-one or less than 
one-to-three (except Index Combo orders) will continue to be executed 
only if each leg of the order improves the price of a priority customer 
order on the Simple Book on each leg by at least the applicable minimum 
trading increment.\22\ The proposed rule change has no impact on the 
priority of complex orders, as complex orders with ratios less than 
.333 or greater than 3.00 will continue to be required to improve the 
price of leg of the complex order for which a Priority Customer Order 
is resting at the BBO in the Simple Book, and thus will continue to 
protect Priority Customer Orders in the Simple Book.
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    \22\ See proposed Rule 5.34(f)(A)(v) and current Rule 5.85(b). 
As noted above, currently, complex orders with ratios greater than 
three-to-one or less than one-to-three may only be submitted for 
open outcry trading. If the Commission approves the proposed rule 
change, the Exchange will permit such orders to be submitted for 
electronic execution in addition to open outcry execution.
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    Furthermore, the Exchange believes this proposal is consistent with 
the Act and SR-CBOE-2003-007 because in the same way that the 
Commission held that ``ratio orders within certain permissible ratios 
may provide market participants with greater flexibility and precision 
in effectuating trading and hedging strategies[,]'' \23\ complex orders 
that are fully hedged may provide market participants with greater 
flexibility and precision in effectuating trading and hedging 
strategies. The Exchange also believe this proposal is consistent with 
the Act and SR-CBOE-2003-007 because in the same way that the 
Commission held that ``including such ratio orders in the exception to 
the priority rules provided in CBOE Rule 6.45(e) will facilitate the 
execution of ratio orders[,]'' \24\ including fully hedged complex 
orders in the exception to the priority rules provided in CBOE Rule 
6.45(b)(ii) will facilitate the execution of fully hedged complex 
orders. Finally, in the same way that the Commission held that ``the 
procedures governing the execution of complex orders, such as ratio 
orders, serve to reduce the risk of incomplete or inadequate executions 
while increasing efficiency and competitive pricing by requiring price 
improvement before the order can receive priority over other 
orders[,]'' \25\ the Exchange believes the procedures governing the 
execution of fully hedged complex orders serve to reduce the risk of 
incomplete or inadequate executions while increasing efficiency and 
competitive pricing by requiring price improvement before the order can 
receive priority over other orders. The Exchange believes the proposed 
changes will increase opportunities for execution of complex orders and 
lead to tighter spreads on CBOE, which will benefit investors. The 
Exchange also believes that the proposed rule change is designed to not 
permit unfair discrimination among market participants, as all market 
participants may trade complex orders, and the priority eligibility 
requirements apply to complex orders of all market participants.
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    \23\ See Approval Order at 68128.
    \24\ See Id.
    \25\ See Id.
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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, as the proposed rule change will apply in the

[[Page 47533]]

same manner to all TPHs. TPHs will have the discretion to submit 
complex orders with any ratio in the increments permitted by the 
proposed rule change. The proposed rule change will eliminate a current 
pricing disparity that exists between complex orders within the same 
class and thus provide the same pricing flexibility to all complex 
orders, regardless of their ratios. The Exchange does not believe the 
proposed rule change will impose any burden on intermarket competition, 
as it relates to the representation and execution of orders on the 
Exchange and will continue to protect Priority Customer Orders on the 
Simple Book. The Exchange believes the proposed rule change may promote 
competition, as market participants will have additional flexibility to 
execute their trading and hedging strategies in a more efficient manner 
and will permit all complex orders in the same class to trade in the 
same increments. Additionally, the Exchange understands from TPHs that 
another options market currently permits complex orders with ratios 
greater than three-to-one or less than one-to-three and their legs to 
execute in penny increments on its trading floor.\26\
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    \26\ See supra note 16.
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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 up to 90 days (i) as the 
Commission may designate 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 will:
    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:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-CBOE-2021-046 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-2021-046. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-CBOE-2021-046, and should be submitted 
on or before September 15, 2021.
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    \27\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\27\
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2021-18236 Filed 8-24-21; 8:45 am]
BILLING CODE 8011-01-P