Document ID: SEC-2019-1389-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Cboe Exchange, Inc.
Posted Date: 2019-09-30T04:00Z

[Federal Register Volume 84, Number 189 (Monday, September 30, 2019)]
[Notices]
[Pages 51673-51681]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-21098]

[[Page 51673]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87072; File No. SR-CBOE-2019-045]

Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
the AIM Automated Improvement Mechanism Upon the Migration of the 
Exchange's Trading Platform to the Same System Used by the Cboe 
Affiliated Exchanges

September 24, 2019.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on September 11, 2019, 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 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 Exchange, Inc. (the ``Exchange'' or ``Cboe Options'') proposes 
to amend the Automated Improvement Mechanism (``AIM'') and move it from 
the currently effective Rulebook (``current Rulebook'') to the shell 
structure for the Exchange's Rulebook that will become effective upon 
the migration of the Exchange's trading platform to the same system 
used by the Cboe Affiliated Exchanges (as defined below) (``shell 
Rulebook''). The text of the proposed rule change is provided in 
Exhibit 5.
    The text of the proposed rule change is also available on the 
Exchange's website (http://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx), at the Exchange's Office of the 
Secretary, and at the Commission's Public Reference Room.

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

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

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

1. Purpose
    In 2016, the Exchange's parent company, Cboe Global Markets, Inc. 
(formerly named CBOE Holdings, Inc.) (``Cboe Global''), which is also 
the parent company of Cboe C2 Exchange, Inc. (``C2''), acquired Cboe 
EDGA Exchange, Inc. (``EDGA''), Cboe EDGX Exchange, Inc. (``EDGX'' or 
``EDGX Options''), Cboe BZX Exchange, Inc. (``BZX'' or ``BZX 
Options''), and Cboe BYX Exchange, Inc. (``BYX'' and, together with 
Cboe Options, C2, EDGX, EDGA, and BZX, the ``Cboe Affiliated 
Exchanges''). The Cboe Affiliated Exchanges are working to align 
certain system functionality, retaining only intended differences 
between the Cboe Affiliated Exchanges, in the context of a technology 
migration. Cboe Options intends to migrate its trading platform to the 
same system used by the Cboe Affiliated Exchanges, which the Exchange 
expects to complete on October 7, 2019. Cboe Options believes offering 
similar functionality to the extent practicable will reduce potential 
confusion for market participants.
    In connection with this technology migration, the Exchange has a 
shell Rulebook that resides alongside its current Rulebook, which shell 
Rulebook will contain the Rules that will be in place upon completion 
of the Cboe Options technology migration. The Exchange proposes to 
delete Rule 6.74A in the current Rulebook and add the provisions 
regarding AIM Auctions for simple orders, as proposed to be modified in 
this rule filing, to Rule 5.37 in the shell Rulebook.\5\
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    \5\ Proposed Rule 5.37 is substantially the same as EDGX Options 
Rule 21.19, except as otherwise described below.
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    The proposed rule change clarifies in the proposed introductory 
paragraph \6\ that the Initiating Order may consist of one or more 
solicited orders. This accommodates multiple contra-parties and 
increases the opportunities for customer orders to be submitted into an 
AIM Auction with the potential for price improvement, since the 
Initiating Order must stop the full size of the Agency Order. This has 
no impact on the execution of the Agency Order, which may already trade 
against multiple contra-parties depending on the final auction price, 
as set forth in proposed paragraph (e). This proposed change is 
consistent with the Exchange's current interpretation of current Rule 
6.74A, and the proposed rule change clarifies this in the Rule.\7\ The 
proposed rule change moves the restriction that a solicited order 
cannot be for the account of any Market-Maker appointed in the class 
from current Interpretation and Policy .04 to the proposed introductory 
paragraph.
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    \6\ The proposed rule change also adds to the proposed 
introductory paragraph that for purposes of proposed Rule 5.37, the 
term ``NBBO'' means the national best bid or offer at the particular 
point in time applicable to the reference, and the term ``Initial 
NBBO'' means the national best bid or national best offer at the 
time an AIM Auction is initiated. This is merely an addition of 
terminology used throughout the Rule, but has no impact on 
functionality.
    \7\ See Cboe Options Regulatory Circular RG17-074 (May 19, 
2017); see also EDGX Rule 21.19; and NASDAQ ISE, LLC (``ISE'') Rule 
723(b).
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    Proposed Rule 5.37(a)(5) states the Trading Permit Holder that 
electronically submits an order into an AIM Auction (the ``Initiating 
TPH'') may not designate an Agency Order or Initiating Order as Post 
Only. A Post Only order is an order the System ranks and executes 
pursuant to proposed Rule 5.32, subjects to the Price Adjust process 
pursuant to Rule 5.32, or cancels or rejects (including if it is not 
subject to the Price Adjust process and locks or crosses a Protected 
Quotation of another exchange), as applicable (in accordance with User 
instructions), except the order or quote may not remove liquidity from 
the Book or route away to another Exchange. The Exchange does not 
currently offer Post Only order functionality, but will as of the 
technology migration.\8\ The Exchange believes it is appropriate to not 
permit the Agency or Initiating Order to be designated as Post Only, as 
the purpose of a Post Only order is to not execute upon entry and 
instead rest

[[Page 51674]]

in the Book, while the purpose of an AIM Auction is to receive an 
execution following the Auction but prior to entering the Book.
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    \8\ See Cboe Options Rule 5.6(c) in the shell Rulebook; see also 
Securities Exchange Act Release No. 86173 (June 20, 2019), 84 FR 
30267 (June 26, 2019) (SR-CBOE-2019-027) (which filing added the 
Post Only order instruction to the shell Rulebook).
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    Proposed Rule 5.37(a)(6) states the Initiating TPH may only submit 
an Agency Order to an AIM Auction after the market open. This is 
consistent with current functionality, as executions cannot occur prior 
to the opening of trading. The proposed rule change clarifies this in 
the Rule.
    Proposed Rule 5.37(a)(7) states the Initiating TPH may not submit 
an Agency Order if the NBBO is crossed (unless the Agency Order is an 
AIM Intermarket Sweep Order (``AIM ISO'') or Sweep and AIM order (see 
discussion below). This is consistent with current functionality, and 
the proposed rule change clarifies this in the Rule. The Exchange 
believes it is appropriate to not permit an AIM Auction to be initiated 
if the NBBO is crossed, as a crossed NBBO may indicate price 
uncertainty within the market. The Exchange believes this may prevent 
executions at potentially erroneous prices.
    The proposed rule change moves the various other AIM Auction 
eligibility requirements to proposed paragraph (a) and makes 
nonsubstantive changes:
     The requirement that an Agency Order be in a class of 
options the Exchange designates as eligible for AIM Auctions remains in 
subparagraph (a)(1).\9\
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    \9\ The proposed rule change deletes the provision that the 
Agency Order be within the designated Auction order eligibility size 
parameters determined by the Exchange, as the current and proposed 
rule explicitly state any applicable size parameters, as discussed 
below. Additionally, the Exchange will announce all determinations 
it may make with respect to an AIM Auction pursuant to Rule 1.2 in 
the current Rulebook (Rule 1.5 in the shell Rulebook), and therefore 
deletes current Interpretation and Policy .05 (and other provisions 
regarding how the Exchange will announce these determinations).
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     The requirement that the Initiating TPH mark an Agency 
Order for AIM processing moves from current subparagraph (b)(1)(A) to 
proposed subparagraph (a)(2).
     The provision that there is no minimum size for Agency 
Orders moves from current Interpretation and Policy .03 to proposed 
subparagraph (a)(3). Additionally, the requirement that the Initiating 
Order be for the same size as the Agency Order moves from current 
subparagraphs (a)(2) and (a)(3) to proposed subparagraph (a)(3).
     The provision regarding the minimum increment for the 
Agency Order and Initiating Order price moves from current subparagraph 
(a)(3) to proposed subparagraph (a)(4). As further discussed below, the 
proposed rule change deletes he requirement that during Regular Trading 
Hours, at least three Market-Makers with an appointment in the class 
are quoting in the relevant series to initiate an AIM Auction moves 
from current subparagraph (a)(4). The proposed rule change also 
explicitly states that all of the eligibility requirements in proposed 
paragraph (a) must be met for an AIM Auction to be initiated, and that 
the System rejects or cancels both an Agency Order and Initiating Order 
submitted to an AIM Auction that do not meet the conditions in proposed 
paragraph (a).
    Proposed subparagraph (b)(2) states if the Agency Order is to buy 
(sell), the stop price must be at least one minimum increment better 
than the Exchange best bid (offer), unless the Agency Order is a 
Priority Customer order and the resting order is not a Priority 
Customer, in which case the stop price must be at or better than the 
Exchange best bid (offer). Current Rule 6.74A(b)(3)(I) states if the 
final auction price locks a Priority Customer order in the Book on the 
same side of the market as the Agency Order, then, unless there is 
sufficient size in the Auction responses to execute both the Agency 
Order and the booked Priority Customer order (in which case they will 
both execute at the final auction price), the Agency Order will execute 
against the auction responses at one minimum increment worse than the 
final auction price against the auction participants that submitted the 
final auction price and any balance will trade against the priority 
customer order in the book at the order's limit price. The proposed 
rule change protects Priority Customers on the same side of the Book as 
the current rule does, except it does so by applying a check at the 
initiation of an AIM Auction rather than at the conclusion of an AIM 
Auction. By permitting a Priority Customer Agency Order to trade at the 
same price as a resting non-Priority Customer order, the proposed rule 
change also protects Priority Customer orders submitted into an AIM 
Auction. Additionally, application of this check at the initiation of 
an AIM Auction may result in the Agency Order executing at a better 
price, since the stop price must improve any same-side orders (with the 
exception of a Priority Customer Agency Order and a resting non-
Priority Customer order described above), as under the current Rule, 
the Agency Order may execute at one minimum increment worse. The 
proposed rule change is consistent with general customer priority 
principles.
    The proposed rule change adds subparagraph (b)(3), which states if 
there is a buy (sell) all-or-none (``AON'') order (either Priority 
Customer or non-Priority Customer) resting on the Book at a price at or 
better than the Exchange best bid (offer), the stop price must be at 
least one minimum increment higher (lower) than the price of the buy 
(sell) AON order. The following examples demonstrate this proposed 
functionality:
Example #1
    Suppose the BBO for a series is 1.00 to 1.05, and an AON order to 
sell is resting on the Book at an offer price of 1.04. An Initiating 
TPH submits an Agency Order to buy paired with an Initiating Order at a 
stop price of 1.04. The System will reject the Agency Order and 
Initiating Order, because the stop price equals the offer price of a 
resting sell AON Order on the Book (which offer price is lower than the 
Exchange best offer).
Example #2
    Suppose the BBO for a series is 1.00 to 1.05, and an AON order to 
sell is resting on the Book at an offer price of 1.01. An Initiating 
TPH submits an Agency Order to buy paired with an Initiating Order at a 
stop price of 1.02. The System will reject the Agency Order and 
Initiating Order, because the stop price is higher than the offer price 
of a resting sell AON Order on the Book (which offer price is better 
than the Exchange best offer).
Example #3
    Suppose the BBO for a series is 1.00 to 1.05, and an AON order to 
sell is resting on the Book at an offer price of 1.01. An Initiating 
TPH submits an Agency Order to sell paired with an Initiating Order at 
a stop price of 1.02. The System will reject the Agency Order and 
Initiating Order, because the stop price is higher than the offer price 
of a resting sell AON Order on the Book (which offer price is better 
than the Exchange best offer).
    As discussed below, due to technical complexities, AON orders 
resting on the Book at the conclusion of an AIM Auction will not be 
eligible for execution against the Agency Order. If the Exchange were 
to initiate an AIM Auction for a buy Agency Order at a stop price equal 
to or through the price of a resting AON order on the opposite side of 
the Book, and that AON order were not eligible for execution against 
the Agency Order (if the stop price was the final auction price), that 
marketable

[[Page 51675]]

AON order would miss a potential execution opportunity that it could 
have had if an auction had not occurred (assuming its size contingency 
could be met after execution of all other interest).\10\ Therefore, the 
Exchange believes the proposed rule change will protect AON orders 
resting on the Book at the time an AIM Auction begins.
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    \10\ See Rule 6.45(a)(v) in the current Rulebook (Rule 
5.32(a)(3)(C) in the shell Rulebook) (which provides that an AON 
order is always last in priority).
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    The proposed rule change moves and makes nonsubstantive changes to 
the other provisions regarding the requirements for the price at which 
the Initiating Order must stop the entire Agency Order in proposed 
paragraph (b):
     The requirement that the stop price must be (1) at least 
one minimum increment better than the then-current NBBO or the Agency 
Order's limit price (if the order is a limit order), whichever is 
better, if the Agency Order is for less than 50 standard option 
contracts (or 500 mini-option contracts); or (2) at or better than the 
then-current NBBO) or the Agency Order's limit price, whichever is 
better, if the Agency Order is for 50 standard option contracts (or 500 
mini-option contracts) or more, moves from current subparagraphs (a)(2) 
and (3) to proposed subparagraph (b)(1).
     The provisions that require the Initiating TPH to specify 
(1) a single price at which it seeks to execute the Agency Order 
against the Initiating Order (a ``single-price submission''), including 
whether it elects to have last priority in allocation; or (2) an 
initial stop price and instruction to automatically match the price and 
size of all AIM responses and other contra-side trading interest 
(``auto-match'') at each price up to a designated limit price, or at 
all prices, better than the price at which the balance of the Agency 
Order can be fully executed (the ``final auction price'') move from 
current subparagraph (b)(1)(A) to proposed subparagraph (b)(5).
     The descriptions of AIM Sweep orders and Sweep and AIM 
orders move from current Rule 6.53 to proposed Rule 5.37(b)(4). The 
proposed rule change explicitly states that AIM responses, the stop 
price, and executions are permitted at a price inferior to the Initial 
NBBO if the Initiating TPH submits an AIM Sweep or Sweep and AIM Order 
to an AIM Auction, but the stop price is still subject to the price 
improvement requirement described above if the Agency Order is for less 
than 50 standard option contracts (or 500 mini-option contracts).\11\ 
The proposed rule change adds that the two orders submitted as a Sweep 
and AIM order may not both be for the accounts of Priority Customers. 
Unlike an AIM ISO (for which the Initiating TPH sends an ISO),\12\ the 
Exchange sends the ISO for a Sweep and AIM order and then receives the 
fill report for the ISO during the AIM Auction period, so it knows by 
the end of the AIM Auction how much of the Agency Order is left for 
execution against contra-interest on the Exchange. If both orders were 
for Priority Customers, they would immediately cross pursuant to 
paragraph (f) (as described below), prior to the Exchange receiving 
information regarding the size of any executions on away exchanges (and 
thus prior to knowing the NBBO that price of the immediate cross should 
have traded through). Not permitting pairs of Priority Customer orders 
to be submitted as Sweep and AIM orders ensures that the Agency Order 
is not oversubscribed, which can be prevented if there is an AIM 
Auction period, and that the immediate cross occurs at a price at or 
better than the NBBO. TPHs can submit these pairs of orders through the 
AIM Auction process. The Exchange believes there is minimal demand to 
submit pairs of Priority Customer orders as Sweep and AIM orders.
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    \11\ Rule filing SR-CBOE-2019-027 deleted the definitions of AIM 
Sweep and Sweep and AIM orders from the current Rulebook, which 
deletion will not take effect until the completion of the technology 
migration, at which time the proposed rule change will take effect.
    \12\ TPHs are responsible for sending the ISO order for an AIM 
ISO, and thus the Exchange does not need to wait for a fill report 
for the ISO. Because it is a TPH's responsibility to send the ISO, 
and thus account for any executions resulting from that ISO at away 
exchanges (and the resulting NBBO), the proposed rule change does 
not prohibit pairs of Priority Customer orders to be submitted as an 
AIM ISO. However, the Exchange believes there is minimal demand for 
use of this order type for pairs of Priority Customer orders.
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    The proposed rule change also explicitly states that all of the 
conditions in proposed paragraph (b) must be met for an AIM Auction to 
be initiated, and that the System rejects or cancels both an Agency 
Order and Initiating Order submitted to an AIM Auction that do not meet 
the conditions in proposed paragraph (b).
    Proposed paragraph (c) describes the AIM Auction process. 
Currently, only one AIM auction may be ongoing at any given time in a 
series, and AIM Auctions in the same series may not queue or overlap in 
any manner. Proposed subparagraph (c)(1) states with respect to Agency 
Orders for less than 50 standard option contracts (or 500 mini-option 
contracts), only one AIM Auction may be ongoing at any given time in a 
series, and AIM Auctions in the same series may not queue or overlap in 
any manner. Therefore, the proposed rule change has no impact on these 
smaller Agency Orders. However, for Agency Orders of 50 standard option 
contracts (or 500 mini-option contracts) or more, the proposed rule 
change states one or more AIM Auctions in the same series may occur at 
the same time. To the extent there is more than one AIM Auction in a 
series underway at a time, the AIM Auctions conclude sequentially based 
on the exact time each AIM Auction commenced, unless terminated early 
pursuant to paragraph (d). At the time each AIM Auction concludes, the 
System allocates the Agency Order pursuant to paragraph (e) and takes 
into account all AIM Auction responses and unrelated orders and quotes 
in place at the exact time of conclusion. In the event there are 
multiple AIM Auctions underway that are each terminated early pursuant 
to paragraph (d), the System processes the AIM Auctions sequentially 
based on the exact time each AIM Auction commenced. The Exchange 
believes the proposed new functionality may lead to an increase in AIM 
Auctions, which may provide additional opportunities for price 
improvement for Agency Orders.
    The proposed rule change moves and makes nonsubstantive changes to 
other provisions regarding the AIM Auction process to proposed 
paragraph (c):
     The proposed rule change moves the provision regarding the 
AIM Auction notification message (currently called a request for 
responses (``RFR'')) from current subparagraph (b)(1)(B) to proposed 
subparagraph (c)(2). The proposed provision specifies that the message 
will detail the side, size, Auction ID, and options series of the 
Agency Order to all Users that elect to receive AIM Auction 
notification messages. This is consistent with the current RFR that is 
disseminated; the proposed rule change adds these details to the rule. 
The proposed rule change also adds that AIM Auction notification 
messages are not included in the disseminated BBO or OPRA, which is 
also consistent with current functionality.
     The proposed rule change moves the provision regarding the 
length of the AIM Auction period from current subparagraph (b)(1)(C) to 
proposed subparagraph (c)(3). The proposed rule change makes no changes 
to the current range of permitted lengths of AIM Auction periods.
     The proposed rule change moves the provision that 
prohibits an Initiating TPH from modifying or cancelling an

[[Page 51676]]

Agency Order or Initiating Order after submission to an AIM Auction 
from current subparagraph (b)(1)(A) to proposed subparagraph (c)(4).
    The proposed rule change also moves all provisions regarding AIM 
Auction responses into proposed subparagraph (c)(5), as well as makes 
certain changes described below, as well as nonsubstantive changes:
     The proposed rule change moves the provision regarding 
which market participants may respond to AIM Auctions, as well as what 
must be specified in the responses (including price, size, side, and 
Auction ID) from current subparagraphs (b)(1)(D) and (E) to proposed 
subparagraph (c)(5). The current rule specifies that responses must 
specify prices and sizes; the proposed rule change adds responses must 
also specify side and an Auction ID. The proposed rule change adds that 
an AIM response may only participate in the AIM Auction with the 
Auction ID specified in the response. This is consistent with current 
functionality.\13\ The Exchange proposes to include this language given 
the above proposal that permits concurrent AIM Auctions in the same 
series for larger Agency Orders.
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    \13\ Current subparagraph (b)(3)(K) permits an unexecuted 
balance of an AIM Auction response after the Agency Order has been 
executed and the balance to trade against any unrelated order(s) 
that cause the AIM Auction to conclude. The proposed rule change 
deletes that provision given the proposed rule change to permit 
concurrent auctions, as described above, and thus the requirement 
that responses may only trade with an Agency Order in the AIM 
Auction into which the AIM response was submitted. If a responder 
wishes to execute interest against any orders that caused an AIM 
Auction to conclude and that are resting in the Book, that responder 
may separately submit an order to the Exchange.
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    Currently, only Market-Makers with an appointment in the applicable 
class and TPHs representing orders as agent at the top of the Book may 
respond to AIM Auctions.\14\ The Exchange proposes to permit all Users 
to respond to AIM Auctions. By permitting additional participants to 
submit responses to AIM Auctions, the Exchange believes this may 
provide the opportunity for additional liquidity in these auctions, 
which could lead to additional price improvement opportunities. EDGX 
Options similarly permits all Users to respond to AIM Auctions.\15\ In 
connection with this change, the proposed rule change deletes the 
requirement in current Rule 6.74A(a)(4) that during Regular Trading 
Hours, at least three Market-Makers with an appointment in the class be 
quoting in the relevant series to initiate a simple AIM Auction. The 
purpose of this requirement was to ensure there were a minimum number 
of Market-Makers active in a series and thus available to potentially 
submit responses to an AIM Auction and provide liquidity to simple AIM 
Auctions, given the restriction on market participants that may respond 
to those Auctions. Given the proposed rule change to open AIM Auctions 
up to all Users, the Exchange believes the three-quoter requirement is 
no longer necessary.
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    \14\ See current Rule 6.74A(b)(1)(D) and (E).
    \15\ See EDGX Options Rule 21.19(c)(5).
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     The proposed rule change moves the provision regarding the 
permissible minimum increment for AIM responses from current 
subparagraph (b)(1)(G) to proposed subparagraph (c)(5)(A).
     Proposed subparagraph (c)(5)(B) states AIM buy (sell) 
responses are capped at the Exchange best offer (bid), or one minimum 
increment better than the Exchange best offer (bid) if it is 
represented by a Priority Customer on the Book (unless the Agency Order 
is an AIM ISO or Sweep and AIM) that exists at the conclusion of the 
AIM Auction. The System will execute AIM responses, if possible, at the 
most aggressive permissible price not outside the BBO at the conclusion 
of the AIM Auction or the Initial NBBO. This is consistent with current 
subparagraph (b)(1)(E). The proposed rule change ensures the execution 
price of a response will not cross the Initial NBBO in accordance with 
linkage rules.\16\ Additionally, proposed subparagraph (e) requires the 
execution price to be at or between the BBO at the conclusion of the 
AIM Auction. Therefore, as proposed, the price at which any response 
may execute will ultimately not be through the Initial NBBO or the BBO 
at the conclusion of the AIM Auction.
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    \16\ See current Rule 6.81(b)(8) (proposed Rule 5.66(b)(8)) 
(requires an order to be stopped at a price no worse than the price 
at the time of receipt of the order).
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     Proposed subparagraph (c)(5)(C) states a User may submit 
multiple AIM responses at the same or multiple prices to an AIM 
Auction. This is consistent with current functionality. Current Rule 
6.74A contains no restriction on how many responses a User may submit; 
the proposed rule change merely makes this explicit in the Rules. The 
proposed rule change also states for purposes of an AIM Auction, the 
System aggregates all of a User's orders and quotes on the Book and AIM 
responses for the same EFID at the same price. This (combined with the 
proposed size cap) will prevent a User from submitting multiple orders, 
quotes, or responses at the same price to obtain a larger pro-rata 
share of the Agency Order.
     Proposed subparagraph (c)(5)(D) states the System caps the 
size of an AIM response, or the aggregate size of a User's orders and 
quotes on the Book and AIM responses for the same EFID at the same 
price, at the size of the Agency Order (i.e., the System ignores size 
in excess of the size of the Agency Order when processing the AIM 
Auction). This is consistent with current subparagraph (b)(1)(H), 
except the proposed rule change caps the aggregate size of a User's 
interest at the same price, rather than the size of an individual 
response. The Exchange believes this is reasonable to prevent a User 
from submitting an order, quote, or response with an extremely large 
size in order to obtain a larger pro-rata share of the Agency Order.
     Proposed subparagraph (c)(5)(E) states AIM responses must 
be on the opposite side of the market as the Agency Order, and the 
System rejects an AIM response on the same side of the market as the 
Agency Order. This is consistent with current functionality, and the 
proposed rule change merely adds this detail to the rules. 
Additionally, the Exchange believes this is reasonable given that the 
purpose of an AIM response is to trade against the Agency Order in the 
AIM Auction into which the AIM response was submitted.
     Proposed subparagraph (c)(5)(F) states AIM responses may 
be designated with the match trade prevention (``MTP'') modifier of MTP 
Cancel Newest, but no other MTP modifiers, and the System rejects an 
AIM response with any other MTP modifier.\17\ An incoming order marked 
with MTP Cancel Newest will not execute against opposite side interest 
marked with any MTP modifier originating from the same Unique 
Identifier, and the incoming order (the AIM response in this case) will 
be cancelled back to the originating User. If an Agency Order and 
response have the same Unique Identifier and an MTP modifier, the 
System will cancel the response and permit the Agency Order to execute 
against other interest. This is consistent with the prohibition on the 
Agency Order being cancelled after it is submitted.
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    \17\ See Rule 5.6(c) in the shell Rulebook for definitions of 
the various types of MTP Modifiers that will be available on the 
Exchange as of the System migration. The Exchange does not currently 
have any equivalent to an MTP modifier that may be applied to orders 
or auction responses.
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     Proposed subparagraph (c)(5)(G) states AIM responses may 
not be designated as immediate-or-cancel (``IOC'') or fill-or-kill 
(``FOK'') and the System rejects an AIM response

[[Page 51677]]

designated as IOC or FOK.\18\ This is consistent with the purpose of an 
AIM response, which is to potentially execute against an Agency Order 
at the conclusion of an AIM Auction (and thus not immediately upon 
entry, as required by the times-in-force of IOC and FOK).\19\
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    \18\ See Rule 5.6(d) in the shell Rulebook. Current AIM response 
functionality does not permit a User to apply these order 
instructions to AIM responses.
    \19\ If a user designates an AIM response as Post Only, the 
System accepts the response but disregards the Post Only 
instruction, as the response (like all AIM responses) will execute 
against the Agency Order or cancel at the conclusion of the AIM 
Auction. In an AIM Auction, the Agency Order is treated as a taker 
of liquidity, while a response is treated like a maker of liquidity, 
and therefore responses are consistent with the purpose of a Post 
Only order instructions (which is to not remove liquidity from the 
Book upon entry).
---------------------------------------------------------------------------

     The provision that states AIM responses are not visible to 
AIM Auction participants or disseminated to OPRA moves from current 
subparagraph (b)(1)(F) to proposed subparagraph (c)(5)(H).
     The provision that states AIM responses may be cancelled 
moves from current subparagraph (b)(1)(I) to proposed subparagraph 
(c)(5)(I). The proposed rule change also clarifies that AIM responses 
may be modified (which is consistent with current functionality and 
merely clarified in the rules).\20\
---------------------------------------------------------------------------

    \20\ Proposed subparagraph (e)(6) states the System will cancel 
or reject any unexecuted AIM responses (or unexecuted portions) at 
the conclusion of the AIM Auction.
---------------------------------------------------------------------------

    Proposed paragraph (d) states that an AIM Auction concludes at the 
earliest to occur of the following times:
     The end of the AIM Auction period (consistent with current 
subparagraph (b)(2)(A);
     upon receipt by the System of a Priority Customer order on 
the same side of the market with a price the same as or better than the 
stop price that would post to the Book;
     upon receipt by the System of an unrelated order or quote, 
including a Post Only order or quote, that is not a Priority Customer 
order on the same side of the market as the Agency Order that would 
cause the stop price to be outside of the BBO;
     the market close (consistent with current functionality 
and merely added to the rules); and
     any time the Exchange halts trading in the affected 
series, provided, however, that in such instance the AIM Auction 
concludes without execution (consistent with current subparagraph 
(b)(2)(F), and the proposed rule change adds detail that an AIM Auction 
in such a case will conclude without execution, which is consistent 
with current functionality, as no executions may occur while a series 
is halted for trading).
    The proposed rule change deletes the following events that 
currently cause an AIM Auction to conclude early:
     Upon receipt by the System of an unrelated order (in the 
same series as the Agency Order) that is marketable against either the 
BBO (when such quote is the NBBO) or the RFR responses;
     upon receipt by the System of an unrelated limit order (in 
the same series as the Agency Order and on the opposite side of the 
market as the Agency Order) that improves any RFR responses; and
     any time there is a quote lock on the Exchange pursuant to 
current Rule 6.45(c).
    As discussed below, unrelated orders on the opposite side of the 
Agency Order received during the AIM Auction may execute against 
interest outside of the AIM Auction, and therefore, the Exchange will 
no longer terminate an AIM Auction due to the receipt of an order on 
the opposite side of the Agency Order.\21\ The proposed rule change to 
conclude an AIM Auction early upon receipt of certain orders on the 
same side as the Agency Order ensure that the execution price does not 
occur at the same price as a Priority Customer order on the Book or at 
a price worse on than a non-Priority Customer order on the Book. This 
is consistent with the requirements for the stop price described above. 
Additionally, the Exchange will not have quote lock functionality 
following the technology migration, and therefore proposes to delete 
that as an event that may cause an AIM Auction to terminate early.\22\
---------------------------------------------------------------------------

    \21\ The proposed rule change also deletes current subparagraphs 
(b)(3)(D) and (E), as they relate to the handling of orders that 
currently terminate an AIM Auction but will no longer terminate an 
AIM Auction as proposed.
    \22\ See SR-CBOE-2019-033 (proposed rule change in which the 
Exchange deletes quote lock functionality).
---------------------------------------------------------------------------

    An unrelated market or marketable limit order (against the BBO), 
including a Post Only Order, on the opposite side of the Agency Order 
received during the AIM Auction does not cause the AIM Auction to end 
early and executes against interest outside of the AIM Auction. If 
contracts remain from such unrelated order at the time the AIM Auction 
ends, they may be allocated for execution against the Agency Order 
pursuant to proposed paragraph (e). Because these orders may have the 
opportunity to trade against the Agency Order following the conclusion 
of the AIM Auction, which execution must still be at or better than the 
Initial NBBO and BBO at the conclusion of the AIM Auction, the Exchange 
does not believe it is necessary to cause an AIM Auction to conclude 
early in the event the Exchange receives such orders. This will provide 
more time for potential price improvement, and the unrelated order will 
have the opportunity to trade against the Agency Order in the same 
manner as all other contra-side interest.
    Proposed paragraph (e) describes how the System will allocate 
contra-side interest against the Agency Order at the best price(s), 
which provisions are in current subparagraph (b)(3) and moved to 
proposed paragraph (e).\23\ Proposed paragraph (e) also clarifies that 
any execution price(s) must be at or better than both sides of the BBO 
existing at the conclusion of the AIM Auction (consistent with current 
Rules that require executions to occur at or better than the best 
prices available on the Exchange's Book) and at or better than both 
sides of the Initial NBBO (consistent with linkage rules). The proposed 
allocations following each potential outcome of an AIM Auction are 
substantially the same as the current allocations.\24\ Priority 
Customer orders in the Book will continue to have first priority at 
each price level. With respect to the entitlement for the Initiating 
Order, the applicable percentage will be based on the number of other 
Users at the same price rather than the number of appointed Market-
Makers and Trading Permit Holders acting as agent for an order resting 
at the top of the Book opposite the Agency order. The proposed rule 
change also codifies that the allocation percentages are based on the 
number of contracts remaining after execution against Priority Customer 
orders, which is consistent with current functionality but not 
currently specified in Rule 6.74A.\25\ This proposed change will 
provide additional opportunities for other Users to have their interest 
execute against the Agency Order.\26\
---------------------------------------------------------------------------

    \23\ The proposed rule change adds to the provision regarding 
last priority (which the proposed rule change moves from current 
subparagraph (b)(3)(J) to proposed subparagraph (e)(5)) that last 
priority information is not available to other market participants 
and may not be modified after it is submitted.
    \24\ See current subparagraph (b)(3).
    \25\ This proposed change will ensure the size used to determine 
the allocation percentage for the Initiating Order will be based on 
the same number of contracts that would otherwise be available to 
other contra-side interest. It is also the same as other options 
exchanges. See, e.g., ISE Rule 723(d)(2); and MIAX Rule 515A, 
Interpretation and Policy .11.
    \26\ The proposed rule change also adds that under no 
circumstances does the Initiating TPH receive an allocation 
percentage, at the price at which the balance of the Agency Order 
can be fully executed (the ``final auction price''), of more than 
50% of the initial Agency Order in the event there is interest from 
one other User or 40% of the initial Agency Order in the event there 
is interest from two or more other Users. This is consistent with 
current functionality, and merely clarified in the Rules. 
Additionally, this is consistent with current subparagraph (b)(3)(C) 
which states no participation entitlement applies to orders executed 
in an AIM Auction.

---------------------------------------------------------------------------

[[Page 51678]]

    Current subparagraph (b)(3)(H) provides that if the AIM Auction 
does not result in price improvement over the Exchange's disseminated 
price at the time the AIM Auction began, resting unchanged quotes or 
orders that were disseminated at the best price before the AIM Auction 
began will have priority after any Priority Customer orders and the 
Initiating TPH's priority have been satisfied. The proposed rule change 
defines these resting displayed quotes and orders as Priority Orders, 
and provides that these orders will have priority at each price level, 
not just the Initial NBBO.\27\ The Exchange believes giving these 
orders and quotes priority encourages market participants to display 
their best bids and offers.
---------------------------------------------------------------------------

    \27\ Priority Orders at the same price will be allocated 
pursuant to Rule 5.32(a) (the base allocation algorithm applicable 
to the class).
---------------------------------------------------------------------------

    The proposed rule change clarifies that AON orders will have last 
priority at price levels better than the stop price following the 
conclusion of an AIM Auction if there is sufficient size to satisfy the 
size of the AON order (with Priority Customer AON order trading ahead 
of non-Priority Customer AON orders). AON orders (both Priority 
Customer and non-Priority Customer) resting at the final auction price 
(which may be the stop price if there is no price improvement) at the 
conclusion of the AIM Auction do not trade against the Agency Order, 
even if the Initiating Member of an AIM auction selects last 
priority.\28\ The Exchange notes there would be significant technical 
complexities associated with reprogramming priority within the System 
to provide AON orders with second to last priority in a specific (and 
likely uncommon situation), as would be required to permit AON orders 
to execute at the final auction price (which may be the stop price), 
even if the Initiating TPH selects last priority. As noted above, the 
Exchange will not initiate an AIM Auction at a stop price equal to or 
more aggressive than the price of an AON order resting on either side 
of the Book at or between the BBO at the time an Agency Order and 
Initiating Order is submitted to the Exchange. Thus, the only AON 
orders that could be resting on the Book at the final auction price 
(and thus excluded from potential execution against the Agency Order) 
are those that were submitted during the AIM Auction and do not execute 
upon entry.\29\ The Exchange believes the possibility of this occurring 
is very small, and therefore it would be rare for there to be a resting 
AON order at the stop price or final auction price of an AIM Auction 
that could be satisfied by the remaining contracts of an Agency Order 
at that price. Therefore, the Exchange believes the proposed rule 
change will have a de minimis impact, if any, on the execution 
opportunities for AON orders on the Book.
---------------------------------------------------------------------------

    \28\ This is consistent with current functionality, as well as 
current allocation and priority principles, pursuant to which 
executions following an AIM Auction with respect to contra-side 
interest other than Priority Customer orders and the Initiating 
Order entitlement. See current Rule 6.45(a)(v) (which provides that 
AON orders (including Priority Customer AON orders) always have last 
priority).
    \29\ As noted above, AON orders resting in the Book at the 
conclusion of an AIM Auction at prices better than the final auction 
price may execute against the Agency Order if their size 
contingencies can be met. See proposed Rule 5.37(e)(2) (pursuant to 
which AON orders may execute at those prices after all other 
interest has traded).
---------------------------------------------------------------------------

    The proposed rule change also provides that the System will exclude 
the size of any AON orders when determining the number of contracts the 
Initiating Order will execute against at each price level better than 
the stop price when the Initiating Member selects auto-match.\30\ Due 
to the size contingency of an AON order, the System cannot determine 
whether there will be sufficient contracts remaining in the Agency 
Order to execute against any AON order at a price level until after 
execution of the applicable number of contracts against the Initiating 
Order and other contra-side interest. However, after those auto-match 
executions at that price level, the System will execute the Agency 
Order against any AON orders at that price level for which the size can 
be satisfied by the remaining contracts in the Agency Order.\31\
---------------------------------------------------------------------------

    \30\ This is consistent with current functionality.
    \31\ After executions at price levels better than the final 
auction price, including against AON orders for which the size can 
be satisfied at those price levels, if there are remaining contracts 
from the Agency Order at the final auction price, those contracts 
will execute against contra-side interest as set forth in 
subparagraph (e)(1). This is consistent with current functionality.
---------------------------------------------------------------------------

    The proposed rule change moves the provision regarding customer-to-
customer immediate crosses from current Interpretation and Policy .08 
to proposed paragraph (f). Proposed paragraph (f) does not specify that 
the execution price must be in the applicable standard increment, as 
the minimum increment applicable to these crosses is covered by the 
provisions described above.\32\ The proposed rule change also deletes 
the provision that states customer-to-customer immediate crosses are 
available in classes the Exchange designates as eligible for these 
crosses, as they are and will be available classes in which the 
Exchange has designated as eligible for AIM Auctions.
---------------------------------------------------------------------------

    \32\ Users may not submit customer orders for immediate 
execution as Post Only, as that instruction is inconsistent with 
functionality to provide for immediate execution. As discussed 
above, the purpose of the Post Only order instruction is to prevent 
an order from executing upon entry. The purpose of a customer-to-
customer immediate cross, as described above, is to execute 
immediately upon entry and not rest in the Book.
---------------------------------------------------------------------------

    The proposed rule change deletes current Interpretation and Policy 
.09 regarding AIM retained order functionality. TPHs currently do not 
use this functionality, so the Exchange has determined to no longer 
offer it.
    The proposed rule change moves from current Rule 6.74A, 
Interpretation and Policy .08 to proposed Rule 5.37, Interpretation and 
Policy .03 that states a TPH may not execute agency orders to increase 
its economic gain from trading against the order without first giving 
other trading interests on the Exchange an opportunity to either trade 
with the agency order or to trade at the execution price when the TPH 
was already bidding or offering on the book. The proposed rule change 
also moves current Rule 6.74A, Interpretations and Policies .01 and .02 
to proposed Rule 5.37, Interpretations and Policies .01 and .02, 
respectively, with no substantive changes.
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.\33\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \34\ 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

[[Page 51679]]

the Section 6(b)(5) \35\ requirement that the rules of an exchange not 
be designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
---------------------------------------------------------------------------

    \33\ 15 U.S.C. 78f(b).
    \34\ 15 U.S.C. 78f(b)(5).
    \35\ Id.
---------------------------------------------------------------------------

    The proposed rule change is generally intended to align certain 
system functionality currently offered by Cboe Options to the 
Exchange's System in order to provide a consistent technology offering 
for the Cboe Affiliated Exchanges. A consistent technology offering, in 
turn, will simplify the technology implementation, changes and 
maintenance by Users of the Exchange that are also participants on Cboe 
Affiliated Exchanges. This will provide Users with greater 
harmonization of price improvement auction mechanisms available among 
the Cboe Affiliated Exchanges.
    The Exchange's AIM Auction as proposed will function in a 
substantially similar manner following the technology migration as it 
does today. The proposed rule change clarifies in the Rules that the 
Initiating Order may be comprised of multiple contra-party orders will 
benefit investors. As noted above, this is consistent with current 
functionality, and the proposed rule change merely adds this detail to 
the rule, which additional transparency will benefit investors. 
Permitting the Initiating Order to be comprised of multiple contra-
party orders may increase the opportunity for customers to have orders 
participate in an AIM auction. As a result, this may increase 
opportunities for price improvement, because this will increase the 
liquidity available for the Initiating Order, which is consistent with 
the purpose of AIM Auctions. The Exchange believes that this is 
beneficial to participants because allowing multiple contra-parties 
should foster competition for filling the Initiating Order and thereby 
result in potentially better prices, as opposed to only allowing one 
contra-party and, thereby requiring that contra-party to do a larger 
size order which could result in a worse price for the trade.
    The proposed rule change to prohibit Initiating TPHs from 
designating an Agency Order or Initiating Order as Post Only is 
appropriate, as the purpose of a Post Only order is to not execute upon 
entry and instead rest in the Book, while the purpose of an AIM Auction 
is to receive an execution following the Auction but prior to entering 
the Book.
    The proposed rule change to require the stop price to be at least 
one minimum increment better than the BBO, unless the Agency Order is a 
Priority Customer order and the resting order is not a Priority 
Customer, in which case the stop price must be at or better than the 
BBO, will protect investors. It will protect Priority Customer orders 
on the same side of the Book, as the current rule does, except it does 
so by applying a check at the initiation of an AIM rather than at the 
conclusion of an AIM. By permitting a Priority Customer Agency Order to 
trade at the same price as a resting non-Priority Customer order, the 
proposed rule change also protects Priority Customer orders submitted 
into an AIM Auction. Additionally, application of this check at the 
initiation of an AIM Auction may result in the Agency Order executing 
at a better price, since the stop price must improve any same-side 
orders (with the exception of a Priority Customer Agency Order and a 
resting non-priority customer order described above), as under the 
current Rule, the Agency Order may execute at one minimum increment 
worse. The proposed rule change is consistent with general customer 
priority principles.
    The Exchange believes the proposed rule change will protect 
investors by rejecting Sweep and AIM orders with pairs of orders for 
customer accounts, as this will ensure customers will receive better 
prices at least as good as the Initial NBBO and not oversubscribe the 
Agency Order. The Exchange believes there is minimal demand for use of 
Sweep and AIM orders for pairs of Priority Customer orders.
    As noted above, the proposed rule change will allow AIM Auctions 
for 50 standard option contracts (or 500 mini-option contracts) or more 
to occur concurrently with other AIM Auctions. Although AIM Auctions 
for larger Agency Orders will be allowed to overlap, the Exchange does 
not believe that this raises any issues that are not addressed by the 
proposed rule change. For example, although overlapping, each AIM 
Auction will be started in a sequence and with a time that will 
determine its processing. Thus, even if there are two AIM Auctions that 
commence and conclude, at nearly the same time, each AIM Auction will 
have a distinct conclusion at which time the Auction will be allocated. 
In turn, when the first AIM Auction concludes, unrelated orders that 
then exist will be considered for participation in the Auction. If 
unrelated orders are fully executed in such AIM Auction, then there 
will be no unrelated orders for consideration when the subsequent 
Auction is processed (unless new unrelated order interest has arrived). 
If instead there is remaining unrelated order interest after the first 
AIM Auction has been allocated, then such unrelated order interest will 
be considered for allocation when the subsequent Auction is processed. 
As another example, each AIM response is required to specifically 
identify the Auction for which it is targeted and if not fully executed 
will be cancelled back at the conclusion of the Auction. Thus, AIM 
responses will be specifically considered only in the specified 
Auction.
    The proposed rule change to allow multiple auctions to overlap for 
Agency Orders of 50 standard option contracts (or 500 mini-option 
contracts) or more is consistent with functionality already in place on 
other exchanges.\36\ Different series are essentially different 
products--orders in different series cannot interact, just as orders in 
different classes cannot interact. Therefore, the Exchange believes 
concurrent AIM Auctions in different series is appropriate. As 
proposed, AIM Auctions will ensure that Agency Orders execute at prices 
that protect Priority Customer orders in the Book and that are not 
inferior to the BBO, even when there are concurrent AIM Auctions 
occurring. The proposed rule change sets forth how any Auctions in 
overlapping series will conclude if terminated due to the same event. 
The Rules do not currently prevent a COA in a complex strategy from 
occurring at the same time as an AIM in one of the components of the 
complex strategy. Therefore, the Exchange believes it is similarly 
reasonable to permit multiple AIM Auctions in the same series. The 
Exchange believes this new functionality may lead to an increase in 
Exchange volume and should allow the Exchange to better compete against 
other markets that permit overlapping price improvement auctions, while 
providing an opportunity for price improvement for Agency Orders and 
assuring that Priority Customers on the Book are protected.
---------------------------------------------------------------------------

    \36\ See, e.g., EDGX Rule 21.19(c)(1); see also, e.g., Nasdaq 
ISE LLC (``ISE'') Rules 716(d) and 723, Interpretation and Policy 
.04; and Boston Options Exchange LLC (``BOX'') Rule 7270 and BOX IM-
7150-3.
---------------------------------------------------------------------------

    The proposed rule changes regarding permissible designations on 
responses are reasonable and promote a fair and orderly market, because 
they are consistent with the general auction functionality. The 
proposed rule change that prohibits Users from designating an AIM 
Auction response with an MTP Modifier other than MTP Cancel Newest is 
consistent with the prohibition on the Agency Order being cancelled 
after it is submitted. Additionally, the proposed rule change that 
prohibits Users from designating a response as IOC or FOK, because it 
consistent with the purpose

[[Page 51680]]

of an AIM response, which is to potentially execute against an Agency 
Order at the conclusion of an AIM Auction (and thus not immediately 
upon entry, as required by the times-in-force of IOC and FOK).
    The proposed rule change to permit all Users to respond to AIM 
Auctions will benefit investors. Permitting all Users to submit 
responses to AIM Auctions, rather than only appointed Market-Makers and 
TPHs representing orders as agent at the top of the Book, may result in 
more Users having the opportunity to participate in executions at the 
conclusion of AIM Auctions. Additionally, it may increase liquidity in 
AIM Auctions, which may lead to more opportunities to price 
improvement. The Exchange believes the proposed rule change will remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system, because other exchanges permit all market 
participants other than appointed market-makers to respond to similar 
price improvement auctions.\37\
---------------------------------------------------------------------------

    \37\ See, e.g., EDGX Options Rule 21.19.
---------------------------------------------------------------------------

    The proposed events that will conclude an AIM Auction are 
reasonable and promote a fair and orderly market and national market 
system, because they will ensure that executions at the conclusion of 
an Auction occur at permissible prices (such as not outside the BBO and 
not at the same price as a Priority Customer order). The proposed rule 
change will also benefit investors by providing clarity regarding what 
will cause an AIM Auction to conclude. These events would create 
circumstances under which an AIM Auction would not have been permitted 
to start, or that would cause the auction price no longer be consistent 
with the permissible prices at which executions at the conclusion of an 
AIM Auction may occur. Thus the Exchange believes it is appropriate to 
conclude an AIM Auction if those circumstances occur. The Exchange will 
no longer conclude an AIM Auction early due to the receipt of an 
opposite side order. The Exchange believes this promotes just and 
equitable principles of trade, because these orders may have the 
opportunity to trade against the Agency Order following the conclusion 
of the Auction, which execution must still be at or better than the 
BBO. The Exchange believes this will protect investors, because it will 
provide more time for price improvement, and the unrelated order will 
have the opportunity to trade against the Agency Order in the same 
manner as all other contra-side interest.
    The proposed rule change to provide Priority Orders with priority 
(after Priority Customers and any entitlement for the Initiating Order) 
at every price level will remove impediments to and perfect the 
mechanism of a free and open market and a national market system and 
will protect investors, because it encourages market participants to 
display their best bids and offers. Displayed interest may lead to 
enhanced liquidity and tighter markets, which benefits all investors.
    The allocation of AON orders following an AIM auction will protect 
investors, because it is consistent with current functionality and adds 
transparency to the Rules. This allocation provides Priority Customers 
and other displayed interest with priority over non-displayed orders 
and is consistent with the proposed general priority of AON orders in 
the Exchange's Rules.\38\ As noted above, the Exchange believes this 
encourages market participants to display their best bids and offers, 
which may lead to enhanced liquidity and tighter markets. While AON 
orders will not be eligible for execution at the final auction price 
(which may be the stop price), the Exchange believes it would be rare 
for there to be a resting AON order at the that price at the conclusion 
of an AIM Auction that could be satisfied by the remaining contracts of 
an Agency Order at that price. This is because the Exchange will not 
initiate an AIM Auction at a stop price that is at or through the price 
of an AON order resting on the Book at or between the BBO. Thus, the 
only potential AON orders resting on the Book at the final auction 
price at the conclusion of the AIM Auction are those that submitted 
during the AIM Auction. Given this likely uncommon situation, and 
because the proposed rule change will protect AON orders resting on the 
Book at the time the Exchange initiates an AIM Auction, the Exchange 
believes the proposed rule change will have a de minimis impact, if 
any, on the execution opportunities for AON orders. The Exchange notes 
there would be significant technical complexities associated with 
reprogramming priority within the System to provide AON orders with 
second to last priority in a specific (and likely uncommon situation), 
as would be required to permit AON orders to execute at the stop price, 
even if the Initiating TPH selects last priority. Similarly, due to the 
size contingency of an AON order, the System cannot determine whether 
there will be sufficient contracts remaining in the Agency Order to 
execute against any AON order at a price level until after execution of 
the applicable number of contracts against the Initiating Order and 
other contra-side interest. However, AON orders at each price level 
better than the final auction price for which the size can be satisfied 
by the remaining contracts in the Agency Order will execute.
---------------------------------------------------------------------------

    \38\ See current Rule 6.45(a)(v) (Rule 5.32 in the shell 
Rulebook).
---------------------------------------------------------------------------

    The Exchange believes the proposed rule changes that add detail to 
the Rules, which are consistent with current functionality, will remove 
impediments to and perfect the mechanism of a free and open market and 
protect investors, as these changes provide transparency in the Rules 
regarding AIM Auctions. Additionally, the proposed rule change aligns 
rule language with corresponding provisions in the EDGX Options rule.

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 changes to the Exchange's AIM Auction will 
apply to all orders submitted to an Auction in the same manner. AIM 
Auctions will continue to be voluntary for TPHs to use, and are 
available to all TPHs. Additionally, the ability to respond to AIM 
Auctions will now be available to all Users. The Exchange does not 
believe the proposed rule change will impose any burden on intermarket 
competition, because the proposed changes are substantially the same as 
another options exchange's rules.\39\ The general framework and primary 
features of the Exchange's current AIM Auctions are not changing, and 
will continue to protect orders, including Priority Customer orders, 
resting in the Book.
---------------------------------------------------------------------------

    \39\ See EDGX Options Rule 21.19.
---------------------------------------------------------------------------

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 filed the proposed rule change pursuant to Section

[[Page 51681]]

19(b)(3)(A) of the Act \40\ and Rule 19b-4(f)(6) \41\ thereunder. 
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 \42\ and Rule 19b-4(f)(6) \43\ 
thereunder.
---------------------------------------------------------------------------

    \40\ 15 U.S.C. 78(b)(3)(A).
    \41\ 17 CFR 240.19b-4(f)(6).
    \42\ 15 U.S.C. 78s(b)(3)(A).
    \43\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires the Exchange to give the Commission written notice of the 
Exchange's 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.
---------------------------------------------------------------------------

    A proposed rule change filed under Rule 19b-4(f)(6) \44\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\45\ the Commission 
may designate a shorter time if such action is consistent with 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay so that the proposed 
rule change may become operative prior to the proposed Exchange's 
system migration on October 7, 2019, in order to permit the Exchange to 
provide the AIM functionality to market participants on an 
uninterrupted basis. In support of its waiver request, the Exchange 
cites to similarities between its proposed rule and EDGX Options Rule 
21.19. The Exchange further notes that the general framework of the 
Exchange's AIM Auction is not changing. The Commission believes that, 
as described above, the Exchange's proposal does not raise any new or 
novel issues. Therefore, the Commission believes that waving the 30-day 
operative delay is consistent with the protection of investors and the 
public interest. Accordingly, the Commission designates the proposed 
rule change to be operative on upon filing.\46\
---------------------------------------------------------------------------

    \44\ 17 CFR 240.19b-4(f)(6).
    \45\ 17 CFR 240.19b-4(f)(6).
    \46\ 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).
---------------------------------------------------------------------------

    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 will 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-CBOE-2019-045 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-2019-045. 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-2019-045 and should be submitted on 
or before October 21, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\47\
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    \47\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-21098 Filed 9-27-19; 8:45 am]
BILLING CODE 8011-01-P