Document ID: SEC-2019-0842-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Cboe C2 Exchange, Inc.
Posted Date: 2019-06-13T04:00Z

[Federal Register Volume 84, Number 114 (Thursday, June 13, 2019)]
[Notices]
[Pages 27675-27678]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-12451]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-86066; File No. SR-C2-2019-015]

Self-Regulatory Organizations; Cboe C2 Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change Relating 
To Amend the Fat Finger Check for Simple Orders in Rule 6.14

June 7, 2019.
    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 June 6, 2019, Cboe C2 Exchange, Inc. (the ``Exchange'' or ``C2'') 
filed with the Securities and Exchange Commission (the ``Commission'') 
the proposed rule change as described in Items I, and II below, which 
Items have been prepared by the Exchange. The Exchange filed the 
proposal as a ``non-controversial'' proposed rule change pursuant to 
Section 19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-4(f)(6) 
thereunder.\4\ 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.
    \3\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Cboe C2 Exchange, Inc. (the ``Exchange'' or ``C2'') proposes to 
amend the fat finger check for with respect to simple orders in Rule 
6.14. The text of the proposed rule change is provided below.

(additions are italicized; deletions are [bracketed])

* * * * *

Rules of Cboe C2 Exchange, Inc.

* * * * *

Rule 6.14. Order and Quote Price Protection Mechanisms and Risk 
Controls

    (a)-(b) No change.
    (c) All Orders.
    (1) Limit Order Fat Finger Check. If a User submits a buy (sell) 
limit order to the System with a price that is more than a buffer

[[Page 27676]]

amount above (below) the NBO (NBB) for simple orders or the SNBO 
(SNBB) for complex orders, the System cancels or rejects the order. 
The Exchange determines a default buffer amount; however, a User may 
establish a higher or lower amount than the Exchange default.
    (A) For simple buy (sell) orders, the Exchange may determine to 
apply this check on a class-by-class basis and not apply it to limit 
orders entered prior to the conclusion of the RTH [O]opening auction 
[P]process. If the check applies prior to the conclusion of the RTH 
[O]opening auction [P]process, it uses [the midpoint of the prior 
trading day's closing NBBO (prior to 9:30 a.m.) or](i) the last 
disseminated NBBO on that trading day, or (ii) the midpoint of the 
prior trading day's closing NBBO, if no NBBO has been disseminated 
on that trading day[(if there is one, after 9:30 a.m.)]. The 
Exchange or User, as applicable, may establish a different default 
amount prior to the conclusion of the RTH [O]opening auction 
[P]process than it does after trading is open. If the check applies 
prior to the conclusion of the O]RTH opening auction [P]process, it 
does not apply (i) if there is a corporate action impacting the 
corporate stock price, (ii) if there is no NBBO from the prior 
trading day, (iii) to orders with origin code M or N, or (iv) to GTC 
and GTD orders that reenter the Book from the prior trading session 
[day].
* * * * *

    The text of the proposed rule change is also available on the 
Exchange's website (http://markets.cboe.com/us/options/regulation/rule_filings/ctwo/), at the Exchange's Office of the Secretary, and at 
the Commission's Public Reference Room.

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

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

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

1. Purpose
    The proposed rule change amends the fat finger check with respect 
to simple orders in Rule 6.14. Current Rule 6.14(c)(1) states if a User 
submits a buy (sell) limit order to the System with a price that is 
more than a buffer amount above (below) the national best offer 
(``NBO'') (national best bid (``NBB'')) for simple orders, the System 
cancels or rejects the order.\5\ Under current Rule 6.14(c)(1)(A) for 
simple orders, the Exchange may determine to apply this check on a 
class-by-class basis and not apply it to limit orders entered prior to 
the conclusion of the opening auction process. If the check applies 
prior to the conclusion of the opening auction process, it uses the 
midpoint of the prior trading day's closing NBBO (prior to 9:30 a.m.) 
or the last disseminated NBBO (if there is one, after 9:30 a.m.).\6\
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    \5\ The Exchange determines a default buffer amount; however, a 
User may establish a higher or lower amount than the Exchange 
default.
    \6\ Current Rule 6.14(c)(1)(A) also states that the Exchange or 
User, as applicable, may establish a different default amount prior 
to the conclusion of the opening auction process than it does after 
trading is open. If the check applies prior to the conclusion of the 
Opening Process, it does not apply (i) if there is a corporate 
action impacting the corporate stock price, (ii) if there is no NBBO 
from the prior trading day, (iii) to orders with origin code M 
(Market-Maker) or N (away market-maker), or (iv) to good-til-
cancelled (``GTC'') or good-til-day (``GTD'') orders that reenter 
the Book from the prior trading day.
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    The Exchange recently adopted a global trading hours (``GTH'') 
trading session, which will occur from 8:30 to 9:15 a.m. Eastern Time, 
which the Exchange intends to implement on June 17, 2019.\7\ For 
classes that trade during the GTH trading session, there may be an NBBO 
disseminated prior to 9:30 a.m., as well as a GTH opening auction 
process. Therefore, the Exchange proposes to update the fat finger 
check for simple orders to reflect a GTH trading session. Because the 
GTH and regular trading hours (``RTH'') trading sessions will each have 
an opening auction process,\8\ the Exchange now proposes to amend Rule 
6.14(c)(1)(A) to specify that if the check applies prior to the 
conclusion of the RTH opening auction process (therefore, from the 
beginning of the GTH opening process \9\ through the RTH opening 
process), it uses the last disseminated NBBO during that trading day 
(which accounts for NBBOs disseminated during GTH),\10\ or the midpoint 
of the prior trading day's closing NBBO, if no NBBO has been 
disseminated during that trading day. The Exchange notes that it is 
deleting the language that refers to using the prior trading day's 
closing NBBO if the check applies prior to 9:30 a.m., as well as 
language that refers to an NBBO after 9:30 a.m., to accommodate the new 
GTH session. For example, if it is 9:25 a.m. the check would use the 
last disseminated NBBO from the GTH session (i.e., on that trading 
day), and, if no NBBO has been disseminated on that trading day then 
the System would pull the midpoint of the prior trading day's closing 
NBBO, as it currently does today. It also proposes to amend Rule 
6.14(c)(1)(A) to state that if the check applies prior to the 
conclusion of the RTH opening auction process, it does not apply to 
good-til-cancelled (``GTC'') and good-til-date (``GTD'') orders that 
reenter the Book from the prior trading session. This proposed change 
accounts for a prior trading session instead of the trading day because 
the Exchange will use the same Book for all trading sessions, and thus 
any GTC or GTD orders that do not trade during GTH may become eligible 
for trading during RTH.
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    \7\ See Securities Exchange Act Release No. 85788 (May 6, 2019), 
84 FR 20673 (May 10, 2019) (Notice of Filing and Immediate 
Effectiveness of a Proposed Rule Change To Amend the Exchange's 
Opening Process and Add a Global Trading Hours Session for DJX 
Options) (SR-C2-2019-009).
    \8\ See Rule 6.11 which provides for the opening auction 
processes for GTH and RTH.
    \9\ The Exchange notes this includes the queuing period as 
defined under Rule 6.11 which provides for the opening auction 
process.
    \10\ See Rule 1.1 which states that a trading day includes both 
trading sessions on that day. The Exchange also notes that it is 
amending the term ``orders'' to state ``buy (sell) orders'' in Rule 
6.14(c)(1)(A) to mirror the same language used in Rule 6.14(c)(1), 
as well as the term ``Opening Process'' to ``opening auction 
process'' which is consistent with the verbiage used throughout Rule 
6.11 (Opening Auction Process).
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    The Exchange notes that the proposed change is substantially 
similar to the current rule, and merely proposes to update language in 
connection with the implementation of the GTH trading session, 
specifying to which opening auction process the check under Rule 
6.14(c)(1)(A) will apply, and accounting for the fact that there may be 
an NBBO disseminated prior to 9:30 a.m. for classes that will trade 
during the GTH trading session.
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.\11\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \12\ 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

[[Page 27677]]

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) \13\ 
requirement that the rules of an exchange not be designed to permit 
unfair discrimination between customers, issuers, brokers, or dealers.
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    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(5).
    \13\ Id.
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    In particular, the Exchange believes that by updating the fat 
finger check for simple orders to account for the recently adopted GTH 
trading session, the proposed rule change serves to remove impediments 
to and perfect the mechanism of a free and open market and a national 
market system. As described above, the proposed change is substantially 
similar to the way in which the current fat finger check for simple 
orders functions, and merely accounts for the fact that there will be 
two trading sessions on the Exchange, each with an opening auction 
process and one of which will occur, and may disseminate an NBBO, 
before 9:30 a.m. Therefore, the Exchange believes that by amending rule 
language to specify that the fat finger check under Rule 6.14(c)(1)(A) 
will apply prior to the conclusion of the RTH opening auction process 
and by updating language to reflect the earlier GTH session time and 
potential NBBO dissemination during that session in connection with the 
fat finger check, it will remove impediments to and perfect the 
mechanism of a free and open market, thereby protecting investors, by 
increasing transparency of the Exchange's fat finger price protection 
mechanism as it relates to the earlier GTH trading session.

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 proposed rule change is 
not intended to address competitive issues, but rather to update a 
current price protection mechanism in connection with the addition of a 
GTH trading session. The Exchange does not believe that the proposed 
rule change to update the fat finger check as it relates to the GTH 
trading session 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 Users' limit orders 
prior to the conclusion of the RTH opening auction process. The 
Exchange notes that a User may choose to establish a different default 
amount prior to the conclusion of the RTH opening auction process. 
Furthermore, the Exchange does not believe that the proposed change 
will impose any burden on intermarket competition that that is not 
necessary or appropriate in furtherance of the purposes of the Act 
because the proposed change merely updates a price protection mechanism 
already in place on the Exchange and applicable only to trading on the 
Exchange.

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

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

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

    The Exchange has designated this rule filing as non-controversial 
under Section 19(b)(3)(A) \14\ of the Act and Rule 19b-4(f)(6) \15\ 
thereunder. Because the 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 and Rule 19b-
4(f)(6) thereunder.
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    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act \16\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \17\ 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. The 
Exchange believes that waiver of the operative delay is consistent with 
the protection of investors and the public interest because it is 
substantially similar to the way in which the current fat finger check 
for simple orders functions, and merely accounts for the fact that 
there will be two trading sessions on the Exchange (each with an 
opening auction process and one of which will occur, and may 
disseminate an NBBO, before 9:30 a.m.), and does not raise any new or 
novel issues. For this reason, the Commission believes that waiver of 
the 30-day operative delay is consistent with the protection of 
investors and the public interest. Therefore, the Commission hereby 
waives the operative delay and designates the proposal as operative 
upon filing.\18\
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    \16\ 17 CFR 240.19b-4(f)(6).
    \17\ 17 CFR 240.19b-4(f)(6)(iii).
    \18\ For purposes only of waiving the 30-day operative delay, 
the Commission also has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    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 (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-C2-2019-015 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-C2-2019-015. 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

[[Page 27678]]

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-C2-2019-015 
and should be submitted on or before July 5, 2019.
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    \19\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-12451 Filed 6-12-19; 8:45 am]
 BILLING CODE 8011-01-P