Document ID: SEC-2020-1334-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Cboe Exchange, Inc.
Posted Date: 2020-08-20T04:00Z

[Federal Register Volume 85, Number 162 (Thursday, August 20, 2020)]
[Notices]
[Pages 51531-51535]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-18200]

[[Page 51531]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-89564; File No. SR-CBOE-2020-075]

Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of 
Filing of a Proposed Rule Change To Make Qualified Contingent Cross 
Orders Available for FLEX Trading

August 14, 2020.
    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 August 3, 2020, 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 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Cboe Exchange, Inc. (the ``Exchange'' or ``Cboe Options'') proposes 
to amend Rule 5.70 and Rule 5.72, as well as Rule 5.33, to make 
Qualified Contingent Cross (``QCC'') Orders available for FLEX trading. 
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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend Rule 5.70 and Rule 5.72, as well as 
Rule 5.33, to make QCC Orders, which includes Complex QCC Orders and 
QCC with Stock Orders, available for electronic FLEX trading. 
Currently, QCC Orders are available only for electronic non-FLEX 
trading.
    QCC Orders facilitate the execution of option orders that are part 
of Qualified Contingent Trades (``QCTs''),\3\ by permitting Trading 
Permit Holders (``TPHs'') to cross options orders without exposure 
while effecting the trade in the equities leg in another market at a 
price necessary to achieve the net price. Currently, TPHs may choose to 
submit the options component of a QCT as a FLEX Option, yet, are 
currently unable to execute a FLEX Options component of a QCT on the 
Exchange in the same efficient, unexposed manner as they may execute a 
non-FLEX Option component of a QCT on the Exchange. The Exchange now 
seeks to provide TPHs and their customers with the same QCC trading 
capabilities for FLEX trading that are currently available for non-FLEX 
trading, thus providing TPHs with the same capability to execute the 
options parts of QCTs that are comprised of FLEX Options.
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    \3\ See Rule 5.6(c), definition of ``Qualified Contingent Cross 
or QCC'', paragraph (1), which defines a ``qualified contingent 
trade'' as a transaction consisting of two or more component orders, 
executed as agent or principal, where: (A) At least one component is 
an NMS stock, as defined in Rule 600 of Regulation NMS under the 
Exchange Act; (B) all components are effected with a product or 
price contingency that either has been agreed to by all the 
respective counterparties or arranged for by a broker-dealer as 
principal or agent; (C) the execution of one component is contingent 
upon the execution of all other components at or near the same time; 
(D) the specific relationship between the component orders (e.g., 
the spread between the prices of the component orders) is determined 
by the time the contingent order is placed; (E) the component orders 
bear a derivative relationship to one another, represent different 
classes of shares of the same issuer, or involve the securities of 
participants in mergers or with intentions to merge that have been 
announced or cancelled; and (F) the transaction is fully hedged 
(without regard to any prior existing position) as a result of other 
components of the contingent trade.
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    Rule 5.6(c) currently provides for the non-FLEX definition of a QCC 
Order. Specifically, a QCC order is comprised of an originating order 
to buy or sell at least 1,000 contracts (or 10,000 mini-option 
contracts) that is identified as being part of a QCT coupled with a 
contra-side order or orders totaling an equal number of contracts. If a 
QCC Order has more than one option leg (a ``Complex QCC Order''), each 
option leg must have at least 1,000 standard option contracts (or 
10,000 mini-option contracts). A QCC order represents one component of 
a QCT, which must be paired with a stock order. When a User enters a 
QCC Order, the User is responsible for executing the associated stock 
component of the QCT at or near the same time of the QCC order 
execution, just as a User is ultimately responsible for complying with 
execution requirements for any order a User submits. Indeed, the 
Exchange requires TPHs to properly mark all QCC Orders as such, and has 
a surveillance program in place which assesses TPH compliance with the 
requirements applicable to QCC Orders, including the requirement that 
the stock leg of the transaction be executed at or near the same time 
as the options leg.\4\ To execute the associated stock, a User may 
choose to either (1) separately submit an option order to the Exchange 
and the stock order to a stock execution venue in time to be executed 
at or near the same time of each other, or (2) submit a QCC with Stock 
Order. A QCC with Stock Order is a type of QCC Order (including a 
Complex QCC Order) entered with a stock component to be electronically 
communicated by the Exchange to a designated broker-dealer for 
execution on behalf of the submitting User and, as indicated, are 
available to Users on a voluntary basis.\5\
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    \4\ See Securities Exchange Act Release No. 15058 (June 17, 
2011), 76 FR 35491 (Order Granting Approval of Proposed Rule Change 
Establishing Qualified Contingent Cross Orders) (``QCC Approval 
Order'').
    \5\ See Rule 5.33(a), definition of ``QCC with Stock Order''.
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    The Exchange proposes to adopt Rule 5.72(e) \6\ to govern FLEX QCC 
Orders. The proposed rule is simply making QCC Order available for 
FLEX, and as such, the definition of FLEX QCC Orders is substantively 
identical as non-FLEX QCC Orders in Rule 5.6(c) and FLEX QCC Orders 
will execute in substantially the same manner with few differences 
unique to trading in FLEX Trading. Proposed Rule 5.72(e) provides that 
a ``FLEX QCC'' order is comprised of an originating order to buy or 
sell at least 1,000 standard FLEX Option contracts (or 10,000 mini FLEX 
option contracts) that is identified as being part of a QCT (as defined 
in Rule 5.6(c)) coupled with a contra-side order or orders totaling an 
equal number of contracts. If a FLEX QCC order has more than one option 
leg (a ``Complex FLEX QCC'' order), each option leg must have

[[Page 51532]]

at least 1,000 standard FLEX option contracts (or 10,000 mini FLEX 
option contracts). This is substantively identical to the non-FLEX QCC 
definition in Rule 5.6(c). The Exchange notes that Users will enter 
into the System all FLEX QCC Orders as they would any other FLEX Order 
pursuant to 5.72(b) (governing the order entry of FLEX Orders) and the 
applicable FLEX auction rules. As such, the Exchange points out that 
FLEX QCC Orders may only be submitted for series consistent with the 
FLEX rules.\7\ Like QCC Orders submitted for non-FLEX trading,\8\ FLEX 
QCC Orders will execute automatically upon entry without exposure 
pursuant to proposed Rule 5.72(e)(1). The Exchange notes, as there is 
no FLEX Order Book, the corresponding provisions in Rule 5.6(c) \9\ and 
5.33(f)(2) regarding QCC Order execution requirements in connection 
with yielding to prices at which Priority Customer Orders may be 
resting in the Simple Book \10\ and Complex Order Book (``COB''),\11\ 
and in Rule 5.6(c) \12\ in connection with pricing QCC Orders at or 
between the NBBO \13\ would not be applicable to QCC Orders submitted 
to FLEX.\14\ Proposed Rule 5.72(e)(1) also provides that a FLEX QCC 
Order is cancelled if it cannot execute, and that Rule 5.9 (related to 
exposure of orders on the Exchange) does not apply to FLEX QCC orders, 
both of which are consistent with the current non-FLEX QCC Rules.\15\ 
Like QCC Orders submitted in non-FLEX classes,\16\ QCC orders submitted 
in FLEX classes must be entered in the standard increment for the 
class.\17\ Therefore, the proposed rule change adds in proposed Rule 
5.72(e)(2) that FLEX QCC may only be entered in the increments 
applicable to FLEX Orders under Rule 5.4(c)(4).
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    \6\ The Exchange also moves current paragraph (e) to paragraph 
(f).
    \7\ See Rules 5.72(b), (c), and (d).
    \8\ See Rule 5.6(c), definition of ``Qualified Contingent Cross 
or QCC'', paragraph (2).
    \9\ See id.
    \10\ See Rule 5.6(c), definition of ``Qualified Contingent Cross 
or QCC'', subparagraph (2)(A)(i).
    \11\ See Rule 5.6(c), definition of ``Qualified Contingent Cross 
or QCC'', subparagraph (2)(B)(i) and (iii).
    \12\ See Rule 5.6(c), definition of ``Qualified Contingent Cross 
or QCC'', subparagraph (2).
    \13\ See Rule 5.6(c), definition of ``Qualified Contingent Cross 
or QCC'', subparagraph (2)(A)(ii) and (B)(ii).
    \14\ This is true for any FLEX Order.
    \15\ See Rule 5.6(c), definition of ``Qualified Contingent Cross 
or QCC'', subparagraph (2)(C) and (2)(C), respectively.
    \16\ See 5.6(c), definition of ``Qualified Contingent Cross or 
QCC'', paragraph (3).
    \17\ See Rule 5.4(c)(4) (which sets forth minimum increments for 
FLEX options).
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    Proposed Rule 5.72(e)(1) also provides that a FLEX QCC with Stock 
order executes pursuant to Rule 5.33(l). The proposed rule change 
amends Rule 5.33(1) to specify that the provisions governing QCC with 
Stock include FLEX QCC with Stock. As such, pursuant to Rule 5.33(l), 
for a FLEX QCC with Stock Order, a User must include the same requisite 
information as they must include when submitting such orders for non-
FLEX trading pursuant to Rule 5.33(l)(3)(A),\18\ and the System will 
process the option and stock components of such orders in the same 
manner as it does for non-FLEX QCC orders pursuant to Rule 
5.33(l)(3)(B) and (C).\19\
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    \18\ Rule 5.33(l)(3)(A) requires a User to include a net price 
for the stock and option components in accordance with the minimum 
increments for stock-option orders and (ii) identify the designated 
broker-dealer as set forth in Rule 5.33 (l)(2).
    \19\ Rule 5.33(l)(3)(B) provides that the System executes the 
option component in accordance with Rule 5.6(c), but does not 
immediately send the User a trade execution report, and 
automatically communicates the stock component to the designated 
broker-dealer for execution at a stock trading venue. If the option 
component(s) of a QCC with Stock Order cannot execute, the System 
cancels the QCC with Stock Order, including both the stock and 
option components. Rule 5.33(l)(3)(C) provides that, if the System 
receives an execution report for the stock component of a QCC with 
Stock Order from the designated broker-dealer, the Exchange sends 
the User the trade execution report for the QCC with Stock order, 
including execution information for both the stock and option 
components. If the System receives a report from the designated 
broker-dealer that the stock component of a QCC with Stock Order 
cannot execute, the Exchange nullifies the option component trade 
and notifies the User of the reason for the nullification.
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    The Exchange seeks to make QCC Orders available for FLEX trading 
due to the growing customer demand it has received for QCC 
functionality for FLEX trading. The Exchange notes that a number of 
TPHs have expressed to the Exchange that use of QCC for FLEX options 
would increase the efficiency of their executions of the options 
component of a QCT if the options component consists of a FLEX Option. 
An investor may seek to use a FLEX Option as an appropriate hedge for a 
stock order but is currently unable to execute a FLEX Option that is 
part of a QCT on the Exchange in the same unexposed manner as it may 
execute a non-FLEX Option on the Exchange. Currently, if a TPH wants to 
execute a FLEX Option that is intended to be part of a QCT, it would 
have to enter the FLEX Option as a FLEX Order separate from the stock 
portion or as a stock-option order, which must be exposed for at least 
three seconds prior to execution.\20\ As noted above, to qualify as a 
QCT, the execution of one component is contingent upon the execution of 
all other components at or near the same time. The Exchange conducts 
surveillance of TPHs to ensure that TPHs execute the options component 
of a QCT at or near the same time as the stock component, in accordance 
with the QCT exemption.\21\ Therefore, there is compliance risk for 
TPHs if they do not execute the options component at or near the same 
time of execution of the stock component. Providing TPHs with QCC Order 
functionality for FLEX Options will reduce the compliance burden on 
TPHs by providing a more efficient means of executing the options 
component of a QCT if the options component consists of a FLEX Option, 
as QCC Orders did for non-FLEX options.
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    \20\ See Rule 5.72(c)(1)(F); Rule 5.73(c)(3); and Rule 
5.74(c)(3).
    \21\ See supra note 3; see also infra note 29.
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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.\22\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \23\ 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) \24\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \22\ 15 U.S.C. 78f(b).
    \23\ 15 U.S.C. 78f(b)(5).
    \24\ Id.
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    In particular, the proposal to make the QCC Order type available 
for electronic FLEX trading will facilitate TPHs' execution of the 
options component of QCTs that are comprised of FLEX Options in the 
same manner that TPHs may currently execute the options component of 
QCTs that are comprised of non-FLEX Options, thereby removing 
impediments to and perfecting the mechanism of a free and open market 
and national market system and, in general, protecting investors. QCC 
Orders for FLEX Options will execute in the same manner as QCC Orders 
for

[[Page 51533]]

non-FLEX Options; the proposed rule change merely expands the classes 
in which the Exchange may make QCC Orders available and provides a 
specific definition of FLEX QCC Orders for clarity. Moreover, the 
Exchange notes that stock-option orders (which, by definition, must 
also be a QCT) \25\ are already permitted under the Rules for FLEX 
Options, and thus, the FLEX Options components of QCTs submitted as 
stock-option orders may currently execute at any price in FLEX (i.e., 
are not subject to an NBBO or yielding to Customer orders). The 
proposed rule change merely provides an alternative, more efficient 
manner of execution for the option component of larger-sized QCTs.
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    \25\ See Interpretation and Policy .03 to Rule 5.33.
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    The Exchange believes the availability of QCC Orders for FLEX 
Options will allow for a more efficient execution of the options 
component of a QCT on the Exchange. As noted above, to qualify as a 
QCT, the execution of one component is contingent upon the execution of 
all other components at or near the same time. The Exchange conducts 
surveillance to ensure a TPH executes the stock and option components 
of a QCT at or near the same time.\26\ As a result, if the option 
component does not execute when initially submitted to the Exchange, a 
TPH may be subject to compliance risk if it does not execute the option 
component at or near the same time of the execution of the stock 
component. Indeed, the Exchange notes that the compliance risk of not 
being able to execute a FLEX Options portion of a QCT at or near the 
same time of the execution of the stock component is greater in a FLEX 
auction, where it must be exposed for at least three seconds prior to 
execution, than for non-FLEX option orders that must be exposed for at 
least one second \27\ unless submitted into an auction with a shorter 
exposure period. The Exchange believes the proposed rule change will 
reduce this compliance risk for TPHs executing FLEX Options that are 
components of QCTs, which will protect investors and the public 
interest. Since the purpose of a QCT order is for all components to 
trade at or near the same time, the Exchange believes it is appropriate 
to provide TPHs with a mechanism to facilitate immediate execution of 
FLEX Options that comprise the options component of a QCT to reduce the 
compliance burden on TPHs when effecting QCTs with a FLEX Option 
component.
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    \26\ See supra QCC Approval Order.
    \27\ See Rule 5.9.
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    The Exchange believes that proposed Rule 5.72(e), while 
substantially the same in almost all aspects to Rule 5.6(c) governing 
non-FLEX QCC, will provide clarity to TPHs regarding the submission of 
their QCC FLEX Options. The only difference between the FLEX and non-
FLEX QCC orders is that FLEX QCC orders are not subject to the NBBO or 
prices of customers in the book. The Exchange notes this difference 
exists for any order type in non-FLEX trading versus FLEX trading.\28\ 
The Exchange notes that the proposed rule changes do not alter any of 
the current increments applicable to FLEX Options but merely provide 
additional detail within the specific provision covering QCC Orders 
regarding the standard increments already permissible for FLEX Options 
that will also apply to QCC FLEX Orders.
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    \28\ The Exchange also notes that the requirement that a QCC 
order execute at a price at or better than the NBBO is not a unique 
execution requirement--every option order type approved by the 
Commission must execute at a price at or better than the NBBO in 
accordance with the linkage plan. See Rule 5.66.
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    As the Commission has previously found,\29\ the execution of QCTs 
is beneficial to the market as a whole as it contributes to the 
efficient functioning of the securities markets and the price discovery 
process. Pursuant to the QCT Release, the options portion of a QCT may 
consist of non-FLEX or FLEX Options [sic]. However, as noted above, 
without the availability of QCC Orders for FLEX Options, TPHs are 
subject to higher compliance risk with respect to QCTs with a FLEX 
Option component than TPHs who execute QCTs with a non-FLEX Option 
component. The Exchange submits this proposed rule change in response 
to demand from TPHs and their customers to be able to execute the 
options components of QCTs comprised of a FLEX Option in the same 
manner that they are currently able to execute the options components 
of QCTs comprised of non-FLEX options. Therefore, the proposed rule 
change will provide TPHs whose hedging strategies involve FLEX Options 
with the same functionality currently available to TPHs whose hedging 
strategies involve non-FLEX Options. The Exchange believes this will 
provide investors with additional flexibility regarding execution of 
their hedging strategies related to stock positions, which flexibility 
ultimately benefits investors.
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    \29\ See Securities Exchange Act Release No. 57620 (April 4, 
2008), 73 FR 19271 (April 9, 2008) (``QCT Release''); and see QCC 
Approval Order.
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    Moreover, the Commission has stated that, while it believes that 
order exposure is generally beneficial to options markets, it 
recognizes that contingent trades can be useful trading tools for 
investors and other market participants, particularly those who trade 
the securities of issuers involved in mergers, different classes of 
shares of the same issuers, convertible securities, and equity 
derivatives such as options and that those who engage in contingent 
trades can benefit the market as a whole by studying the relationships 
between prices of such securities and executing contingent trades when 
they believe such relationships are out of line with what they believe 
to be fair value.\30\
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    \30\ See QCC Approval Order.
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    The requirement that a non-FLEX QCC must execute at a price at or 
between the NBBO merely incorporates an execution requirement 
applicable to all option order types, as all options must execute at 
price at or better than the NBBO in accordance with linkage rules.\31\ 
Therefore, this execution requirement is not a heightened execution 
requirement for an unexposed option order. The additional requirement 
that a QCC order not execute at the same price as a Priority Customer 
incorporates the general principle of customer protection in the 
options markets.\32\ If the market model for a class does not include 
customer priority, this is a heightened execution requirement for 
execution of an unexposed order.\33\ Even without this additional 
protection, the Exchange believes the proposed FLEX QCC order will 
protection investors, as it will provide users of FLEX options with the 
same functionality as user of non-FLEX options. Additionally, primarily 
broker-dealers and institutional investors engage in FLEX trading. 
Therefore, there are minimal retail customer orders

[[Page 51534]]

submitted into the FLEX market that would require additional 
protection. As discussed above, the Exchange believes the benefits of 
exposure on an order on the Exchange are outweighed by the benefits 
offered by immediate execution of these contingent order types. The 
Exchange does not believe market participants that engage in hedging 
strategies involving FLEX Options should not have access to the same 
functionality as market participants with hedging strategies involving 
non-FLEX options.
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    \31\ See Rule 5.66. In other words, if the definition of a QCC 
order did not include the provision that it must execute at a price 
at or better than the NBBO, QCC orders would still be required to 
execute at a price at or better than the NBBO. The Exchange believes 
inclusion of this explicit requirement for QCC orders was intended 
to highlight the difference between execution of the options 
component and the stock component, which may execute at any price, 
but was not a unique price requirement necessary for execution of an 
unexposed order. Every order type on the Exchange approved for non-
FLEX trading and FLEX trading has this same distinction.
    \32\ If there was not a customer order resting at the top of the 
book, then the second pricing requirement for QCC orders is simply 
ignored. As there is no book in the FLEX market, the proposed FLEX 
QCC order is equivalent to a non-FLEX QCC order submitted when there 
is no customer order resting at the top of the book.
    \33\ The Exchange has enabled customer priority for all equity 
option classes that trade on the Exchange (and thus for all classes 
in which TPHs may submit QCC orders). Therefore, all QCC orders 
submitted on the Exchange are subject to the same execution pricing 
requirements as non-QCC orders.
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    The Exchange does not believe the propose rule change raises price 
protection concerns that market participants may submit FLEX QCC orders 
for a FLEX series with slightly different terms than a non-FLEX series 
in order to get better pricing. Such risk, if any, exists today with 
respect to all FLEX trading. The Exchange again points out that the 
linkage rules and customer priority are currently not applicable to any 
orders submitted to FLEX, wherein there is no order book. The Exchange 
has observed no trends of TPHs submitting FLEX orders in order to avoid 
trading in the non-FLEX market. The Exchange believes the risk (if any) 
of a market participant trading a FLEX Option rather than a non-FLEX 
Option with slightly different terms to use the FLEX market as a 
substitute for the non-FLEX market and achieve such a result is 
minimal. This possibility exists today with respect to all options the 
Exchange lists for FLEX and non-FLEX trading. The Exchange has not 
observed market participants attempting to trade in the FLEX market 
rather than the non-FLEX market for this purpose in classes in which 
this is possible today.
    The Exchange believes attempting to execute an order in the FLEX 
market as a substitute for the non-FLEX market would minimize execution 
opportunities for that order. Such trading would be inefficient for 
market participants and could introduce price and execution risk to 
market participants' trading strategies given the reduced liquidity, 
participation, and price discovery in the FLEX market compared to the 
non-FLEX market.\34\ Additionally, series with different terms have 
different prices and serve different investment purposes, so trading a 
``similar'' FLEX series may not achieve the same investment objective 
as the non-FLEX series a TPH initially sought to trade. The Exchange 
notes if a FLEX QCC orders execute at a price through the book of the 
``similar'' non-FLEX series, while that would be a better price for one 
transaction participant, it would be a worse price for the participant 
on the opposite side, and thus it may be more difficult for the TPH to 
find sufficient contra party interest. For example, suppose the market 
for Aug ABC 800 call with a multiplier of 100 is 10.20--11.00. If a 
market participant sought interest from counterparties to execute a 
FLEX QCC Order to buy an Aug ABC 795 call with at 10.00, it is unlikely 
another market participant would sell at that price if they were 
looking to sell the Aug ABC 800 call, given that participant could sell 
the ``similar'' non-FLEX Option series at 10.20, which would be a 
better price for that seller. Given the likely difficulties (such as 
reduced liquidity and potentially longer timeframe to receive 
execution) of trading in the FLEX market as a substitute for trading an 
economically equivalent option in the non-FLEX market (such as to 
obtain a better execution price), the Exchange believes the risk of 
this occurring is de minimis. The Exchange believes that any such risk 
is even lower for FLEX QCC orders given the additional requirements 
that apply to FLEX QCC orders, even without the heightened execution 
price requirement that a QCC order cannot execute at the same price as 
a Priority Customer. The benefits of QCC orders apply to FLEX options 
in the same manner as they do for non-FLEX options, which benefits the 
Exchange believes significantly outweigh any price protection risk that 
may exist in the FLEX market.
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    \34\ See Sections VII and X of the ODD regarding risks 
associated with FLEX Options.
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    Ultimately, as noted above, QCC Orders in FLEX Options will execute 
in a substantially similar manner as QCC Orders in non-FLEX Options. In 
addition to this, the Exchange notes that QCC functionality is a widely 
adopted industry order type wherein multiple other options exchanges 
currently have QCC functionality in place.\35\
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    \35\ See e.g. Nasdaq Phlx Rules Options 3, Section 12 
(electronic QCC orders), and Options 8, Section 32(e) (open outcry 
QCC orders); Nasdaq ISE Options 3, Section 12; BOX Options Rule 
7110(c)(6); MIAX Options Rule 516(j); and NYSE Arca Options Rule 
6.90-O.
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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 that the proposed rule change will impose any burden on 
intramarket competition that is not necessary or appropriate in 
furtherance of the purposes of the Act because QCC functionality is 
already available for non-FLEX Options. The Exchange is simply 
proposing to make QCC Orders available for additional classes (FLEX 
Option classes). The Exchange notes that the proposed order type will 
be available to all Users on a voluntary basis, and Users are not 
required to use QCC Orders when executing QCTs. Users may continue to 
execute the options component of QCTs that are comprised of FLEX 
Options in the same manner as they do today. The proposed rule change 
will provide FLEX Traders with the same functionality that is currently 
available to non-FLEX Traders with respect to execution of option 
components of QCTs. The Exchange believes all TPHs should have access 
to this functionality so they can all execute option components of QCTs 
in the same manner, regardless of whether they choose to hedge the 
stock portions of QCTs with FLEX or non-FLEX options.
    The Exchange does not believe the proposed rule change will impose 
any burden on intermarket competition that is not necessary or 
appropriate in furtherance of the purposes of the Act because the 
proposed rule change is merely making functionality currently available 
on the Exchange to additional option classes. As noted above, QCC Order 
functionality is currently available at other options exchanges, which 
may determine make QCC functionality available to additional option 
classes as well, including flexible options. To the extent the proposed 
rule change makes the Exchange a more attractive trading venue for 
market participants on other exchanges, those market participants may 
elect to become Exchange market participants.
    Overall, the Exchange believes the proposed rule change is 
appropriate for the protection of investors and the maintenance of fair 
and orderly markets to assure, among other things, the economically 
efficient execution of securities transactions.

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

[[Page 51535]]

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-2020-075 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-2020-075. 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-2020-075 and should be submitted on 
or before September 10, 2020.
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    \36\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\36\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-18200 Filed 8-19-20; 8:45 am]
BILLING CODE 8011-01-P