Document ID: SEC-2018-1341-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Cboe Exchange, Inc.
Posted Date: 2018-08-24T04:00Z

[Federal Register Volume 83, Number 165 (Friday, August 24, 2018)]
[Notices]
[Pages 42949-42954]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-18295]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83891; File No. SR-CBOE-2018-058]

Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
Rule 6.53, Certain Types of Orders Defined and Rule 6.53C, Complex 
Orders on the Hybrid System

August 20, 2018.
    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 10, 2018, Cboe Exchange, Inc. (the ``Exchange'') filed 
with the Securities and Exchange Commission (the ``Commission'') the 
proposed rule change as described in Items I and II below, which Items 
have been prepared by the Exchange. The Exchange filed the proposal 
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

    The Exchange proposes to amend Rule 6.53 (Certain Types of Orders 
Defined) and Rule 6.53C (Complex Orders on the Hybrid System) to add 
Qualified Contingent Cross (``QCC'') with Stock Order functionality.

(additions are italicized; deletions are [bracketed])
* * * * *

Cboe Exchange, Inc. Rules

* * * * *

Rule 6.53. Certain Types of Orders Defined

    One or more of the following order types may be made available on a 
class-by-class basis. Certain order types may not be made available for 
all Exchange systems. The classes and/or systems for which the order 
types shall be available will be as provided in the Rules, as the 
context may indicate, or as otherwise specified via Regulatory 
Circular.
    (a)-(t) No Change.
    (u) Qualified Contingent Cross Order: A qualified contingent cross 
(``QCC'') order is an initiating order to buy (sell) at least 1,000 
standard option contracts or 10,000 mini-option contracts that is 
identified as being part of a qualified contingent trade coupled with a 
contra-side order or orders totaling an equal number of contracts. 
[Qualified contingent cross]QCC orders with one option leg may only be 
entered in the standard increments applicable to simple orders in the 
options class under Rule 6.42. [Qualified contingent cross]QCC orders 
with more than one option leg may be entered in the increments 
specified for complex orders under Rule 6.42. For purposes of this 
order type:
    (i)-(ii) No Change.
    (iii) QCC with Stock Orders. A ``QCC with Stock Order'' is a 
qualified contingent cross order, as defined above, entered with a 
stock component to be electronically communicated by the Exchange to a 
designated broker-dealer for execution on behalf of the submitting 
Trading Permit Holder pursuant to Rule 6.53C, Interpretation and Policy 
.06(g).
* * * * *

Rule 6.53C. Complex Orders on the Hybrid System

* * * * *
    . . . Interpretations and Policies:
    .01-.05 No Change.
    .06 Special Provisions Applicable to Stock-Option Orders: Stock-
option orders may be executed against other automated stock-option 
orders. Stock-option orders will not be legged against the individual 
component legs, except as provided in paragraph (d) below, and leg 
orders will not be generated pursuant to paragraph (c)(iv) of this Rule 
for stock-option orders.
    (a)-(f) No Change.
    (g) QCC with Stock Orders. The System processes QCC with Stock 
Orders as follows:
    (1) Entry of QCC with Stock Order. When a Trading Permit Holder 
enters a QCC with Stock Order on the Exchange, it enters a QCC order 
pursuant to Rule 6.53(u) with a stock component (pursuant to Rule 
6.53(u)(iii)). When entering a QCC with Stock Order, the Trading Permit 
Holder must:
    (A) include a net price for the stock and option components;
    (B) give up a Clearing Trading Permit Holder in accordance with 
Rule 6.21; and
    (C) designate a specific broker-dealer to which the stock 
components will be

[[Page 42950]]

communicated, which broker-dealer the Exchange must have identified as 
having connectivity to electronically communicate the stock components 
of QCC with Stock Orders to stock trading venues and with which the TPH 
must have entered into a brokerage agreement (the ``designated broker-
dealer''). The Exchange will have no financial arrangements with the 
broker-dealers it has identified with respect to communicating stock 
orders to them.
    (2) Option Component.
    (A) If the option component (i.e., the QCC order) of a QCC with 
Stock Order can execute, the System executes it in accordance with Rule 
6.45(a) or 6.53C(c), as applicable, but does not immediately send the 
Trading Permit Holder a trade execution report. The System then 
automatically communicates the stock component to the designated 
broker-dealer for execution.
    (B) If the option component of a QCC with Stock Order cannot 
execute, the System cancels the QCC with Stock Order, including both 
the stock and option components.
    (3) Stock Component.
    (A) 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 Trading Permit Holder the trade execution report 
for the QCC with Stock Order, including execution information for both 
the stock and option components.
    (B) 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 Trading Permit Holder of the reason for the nullification.
    QCC with Stock Orders are available to Trading Permit Holders on a 
voluntary basis.
* * * * *
    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
    The purpose of the proposed rule change is to offer QCC with Stock 
Order functionality to Trading Permit Holders (``TPHs''). QCC with 
Stock Order functionality facilitates the execution of the stock 
component of qualified contingent trades (``QCTs''). Specifically, a 
QCC with Stock Order is a QCC order entered with a stock component to 
be communicated to a designated broker-dealer for execution. QCC with 
Stock Orders will assist TPHs in maintaining compliance with rules 
regarding the execution of the stock components of QCTs, and help 
maintain an audit trail for surveillance of TPHs for compliance with 
such rules. Currently, although the Exchange offers QCC order 
functionality, it does not facilitate electronic communication of the 
stock component of QCC orders for execution. The proposed rule change 
provides TPHs with the option to electronically submit the stock 
component of QCC orders to the Exchange, and describes how the Exchange 
will electronically communicate the stock component to a designated 
broker-dealer for execution on behalf of TPHs.
    A QCC order is comprised of an originating order to buy or sell at 
least 1000 contracts that is identified as being part of a QCT,\5\ 
coupled with a contra-side order or orders totaling an equal number of 
contracts. QCC orders may execute without exposure provided the 
execution (1) is not at the same price as a public customer order 
resting in the electronic book and (2) is at or between the NBBO.\6\ 
QCC orders will be cancelled if they cannot be executed.\7\
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    \5\ See Rule 6.53(u)(i). The proposed rule change also modifies 
Rule 6.53(u) to define Qualified Contingent Cross orders as ``QCC 
orders''. A ``qualified contingent trade'' is a transaction 
consisting of two or more component orders, executed as agent or 
principal, where: (1) At least one component is an NMS stock, as 
defined in Rule 600 of Regulation NMS under the Exchange Act; (2) 
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; (3) the 
execution of one component is contingent upon the execution of all 
other components at or near the same time; (4) 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; (5) 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 (6) the transaction is fully hedged 
(without regard to any prior existing position) as a result of other 
components of the contingent trade.
    \6\ See Rule 6.53(u)(ii).
    \7\ Id.
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    Since QCC orders represent one component of a QCT, each QCC order 
must be paired with a stock order. When a TPH enters a QCC order, the 
TPH is responsible for executing the associated stock component of the 
QCT within a reasonable period of time after the QCC order is executed. 
The Exchange conducts surveillance of TPHs to ensure that TPHs execute 
the stock component of a QCT at or near the same time as the options 
component. While the Exchange does not specify how the TPH should go 
about executing the stock component of the trade, this process is often 
manual and is therefore a compliance risk for TPHs if they do not 
execute the stock component within a reasonable time period of 
execution of the options component. Thus, the Exchange is proposing to 
offer QCC with Stock Order functionality, pursuant to which the 
Exchange will automatically communicate the stock component of a QCT to 
a designated broker-dealer for execution in connection with the 
execution of a QCC order on the Exchange. This functionality will 
reduce the compliance burden on TPHs by providing an automated means of 
executing the stock component of a QCT, and also will provide benefits 
for the Exchange's surveillance by providing an audit trail for the 
execution of the stock component. QCC with Stock Orders can be entered 
by TPHs through a front-end order and execution management system or 
through a TPH's own electronic connection to the Exchange.
    QCC with Stock Orders will be available to all TPHs on a voluntary 
basis.\8\ Under the proposed rule, when a TPH enters a QCC with Stock 
Order on the Exchange, it enters a QCC order pursuant to current Rule 
6.53(u) with a stock component (pursuant to proposed Rule 
6.53(u)(iii)). When entering a QCC with Stock Order, the TPH must:
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    \8\ See proposed Rule 6.53C, Interpretation and Policy .06(g).
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     Enter a net price for the stock and option components. 
Net-priced QCC with Stock Orders reduce the chance that TPHs will miss 
the market since the Exchange will calculate a price for the stock and 
options components that honors the net price of the package and

[[Page 42951]]

current market prices, if possible. It is also consistent with the use 
of QCTs.\9\ The Exchange will not allow QCC with Stock Orders with a 
specified price for the stock component or the option component;
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    \9\ See Securities Exchange Act Release No. 54389 (August 31, 
2006), 71 FR 52829, 52831 (September 7, 2006) (Order Granting an 
Exemption for Qualified Contingent Trades from Rule 611(a) of 
Regulation NMS Under the Securities Exchange Act of 1934) (``QCT 
Exemption Order''). In its exemption request, the Securities 
Industry Association (``SIA'') indicated parties to a contingent 
transaction are focused on the spread or ratio between the 
transaction prices for each of the component instruments, rather 
than on the absolute price of any single component instrument. The 
SIA also noted the economics of a contingent trade are based on the 
relationship between the prices of the security and related 
derivative or security. See Letter to Nancy M. Morris, Secretary, 
Commission, from Andrew Madoff, SIA Trading Committee, SIA, dated 
June 21, 2006 (``SIA Exemption Request''), at 2.
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     give up a Clearing TPH in accordance with Rule 6.21. 
Pursuant to Rule 6.21, a TPH must give up a Clearing TPH it previously 
identified to the Exchange as Designated Give Up for that TPH for all 
orders it submits to the Exchange. This is currently required for all 
stock-option orders pursuant to Rule 6.53C, Interpretation and Policy 
.06(a); and
     designate a specific broker-dealer to which the stock 
components will be communicated, which broker-dealer the Exchange must 
have identified as having connectivity to electronically communicate 
the stock components of QCC with Stock Orders to stock trading venues 
and with which the TPH must have entered into a brokerage agreement 
(the ``designated broker-dealer''). The Exchange will have no financial 
arrangements with any broker-dealer it has identified with respect to 
communicating stock orders to them.\10\ This is currently required for 
the submission of all stock-option orders pursuant to Rule 6.53C, 
Interpretation and Policy .06(a). The Exchange currently has one 
broker-dealer that has established connectivity for executing the stock 
component of QCC with Stock Orders. If the Exchange adds more in the 
future, and the TPH enters into brokerage agreements with multiple of 
the broker-dealers designated by the Exchange, the TPH must specify to 
which broker-dealer the Exchange should communicate the stock 
components of its QCC with Stock Orders when entering QCC with Stock 
Orders.
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    \10\ The Exchange also represents that broker dealers it 
identifies as having connectivity to electronically communicate the 
stock components of QCC with Stock Orders to stock trading venues do 
not receive other special benefits related to trading on the 
exchange.
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    Current Exchange fees applicable to stock-option orders will apply 
to the stock component of QCC with Stock Orders.\11\ Further, current 
Exchange fees applicable to QCC orders will apply to the options 
component of QCC with Stock Orders.\12\
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    \11\ See Cboe Exchange, Inc. Fees Schedule.
    \12\ Id.
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    If the option component of a QCC with Stock Order satisfies the 
conditions of Rule 6.53(u) upon entry, the System executes the order in 
accordance with Rule 6.45(a) (which describes how simple option orders 
execute) or 6.53C(c) (which describes how complex orders execute). 
However, the Exchange does not immediately send the TPH a trade 
execution report for this option execution.\13\ Because the TPH 
submitted a QCC with Stock Order to execute as a package, the Exchange 
waits to send a trade execution report to the TPH until after it has 
determined whether all components of the QCC with Stock Order have 
executed, as described below. After the QCC order is executed, the 
Exchange will then automatically communicate the stock component to the 
designated broker-dealer for execution.
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    \13\ Even though the Exchange does not send the Trading Permit 
Holder an execution report immediately following execution of the 
option component, the Exchange disseminates the trade at that time 
pursuant to the OPRA Plan and creates a record to be sent to the 
Clearing Corporation.
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    Although the option component (which is a QCC order) of a QCC with 
Stock Order is eligible for automatic execution, it is possible that 
the option component order may not be executable based on market prices 
at the time the order is entered (e.g. the order would execute at the 
same price as a customer). If the QCC order cannot execute after one 
attempt, the System cancels the QCC with Stock Order, including both 
the stock and options components. This prevents execution of the stock 
component of a QCT where the options component has not been 
successfully executed, consistent with the purpose of contingent trades 
and the QCT exemption.
    As noted above, if the option component executes, the System then 
automatically communicates the stock component to the designated 
broker-dealer for execution. 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 TPH the trade execution report 
for the QCC with Stock Order, including execution information for both 
the stock and option components. However, if the System receives a 
report from the designated broker-dealer that the stock component of 
the QCC with Stock Order cannot execute,\14\ the Exchange nullifies the 
option component trade and notifies the TPH of the reason for the 
nullification.\15\ This proposed rule change prevents execution of the 
option component of a QCT where the stock component has not been 
successfully executed, just as the proposed rule change prevents 
execution of the stock component of a QCT where the option component 
has not been successfully executed by cancelling the stock component if 
the option component cannot execute.
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    \14\ For example, if the stock execution venue to which the 
designated broker-dealer routed the stock component is experiencing 
system issues, the stock component may not be able to execute. 
Additionally, the Exchange understands certain stock execution 
venues apply risk controls to the stock components of QCTs, which 
may prevent execution of the stock components at certain prices.
    \15\ The Exchange will nullify the option component trade in the 
same manner as it currently nullifies any other trades (when 
nullification is permitted under the Rules).
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    Currently, whenever a stock trading venue nullifies the stock leg 
of a stock-option order or whenever the stock leg cannot execute, the 
Exchange will nullify the option leg upon request of one of the parties 
to the transaction or on an Exchange Official's own motion in 
accordance with the Rules.\16\ 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.\17\ Given this requirement, 
if the stock component does not execute at or near the same time as the 
option component, it is reasonable to expect a TPH that submitted a QCC 
with Stock Order to request such nullification.\18\ If

[[Page 42952]]

the stock component does not execute, rather than require the TPH that 
submitted the QCC with Stock Order to contact the Exchange to request 
the nullification of the option component execution pursuant to Rule 
6.25 if the stock component cannot execute, the proposed rule change 
simply eliminates this requirement for the submitting TPH to make such 
a request. Instead, the proposed rule states the Exchange will 
automatically nullify the option transaction if the stock component 
does not execute. The Exchange believes such nullification without a 
request from the TPH is consistent with the definitions of QCC and QCT 
orders. The proposed rule change merely automates a process that TPHs 
can manually do today.
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    \16\ See Rule 6.25, Interpretation and Policy .07(c). Pursuant 
to Rule 6.25, other nullifications may generally occur only if both 
parties agree.
    \17\ See QCT Exemption Order, which requires the execution of 
one component of the QCT to be contingent upon the execution of all 
other components at or near the same time to qualify for the 
exemption. In the SIA Exemption Request, the SIA stated that for 
contingent trades, the execution of one order is contingent upon the 
execution of the other order. SIA further stated that, by breaking 
up one or more components of a contingent trade and requiring that 
such components be separately executed, one or more parties may 
trade ``out of hedge.'' See SIA Exemption Request at 3. In other 
words, it takes two (executions) to make a thing (a QCT) go right.
    \18\ As set forth in Rule 6.53(u), when submitting a QCC order, 
a Trading Permit Holder submits an order as well as a contra-side 
order or orders totaling an equal number of contracts, which execute 
against each other if they satisfy the conditions set forth in that 
Rule. As a result, if that Trading Permit Holder requests 
nullification of the QCC order execution (or as proposed, if the 
Exchange automatically nullifies the QCC order execution) if the 
stock component cannot execute, no other party is impacted by the 
nullification.
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    Additionally, the Exchange believes this automatic nullification 
will reduce any compliance risk for the TPH associated with execution 
of a QCC order and lack of execution of a stock order at or near the 
same time.\19\ The Exchange conducts surveillance to ensure a TPH 
executes the stock component of a QCT, which will also apply to QCC 
with Stock Orders, if the option component executed. As a result, if 
the stock component does not execute when initially submitted to a 
stock trading venue by the designated broker-dealer, a TPH may be 
subject to compliance risk if it does not execute the stock component 
within a reasonable time period of the execution of the option 
component. The proposed rule change reduces this compliance risk for 
TPHs.
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    \19\ In the SIA Exemption Request, the SIA stated that parties 
to a contingent trade will not execute one side of the trade without 
the other component or components being executed in full (or in 
ratio) and at the specified spread or ratio. See SIA Exemption 
Request at 2. While a broker-dealer could re-submit the stock 
component to a stock trading venue or execution after it initially 
fails to execute, there is a compliance risk that the time at which 
the stock component executes is not close enough to the time at 
which the option component executed.
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    Example 1:

Stock NBBO: $100 x $101
Option NBBO: $1 x $2

    A TPH submits a QCC with Stock Order buying 1,000 puts and 100,000 
shares of stock with a net price of $101.50. A QCC order is entered on 
the Exchange and executed at a price of $1.50. The Exchange reports 
this trade to OPRA. The Exchange routes the stock component to an 
Exchange-designed broker-dealer at a price of $100. The Exchange 
receives a trade execution report from the designated broker-dealer 
that the stock component executed at $100, and sends a trade execution 
report for both components of the QCC with Stock Order to the TPH.
    Example 2:

Stock NBBO: $100 x $101
Option NBBO: $1 x $2

    A TPH submits a QCC with Stock Order buying 1,000 puts and 100,000 
shares of stock with a net price of $101.50. A QCC order is entered on 
the Exchange and executed at a price of $1.50. The Exchange reports 
this trade to OPRA. The Exchange routes the stock component to an 
Exchange-designed broker-dealer at a price of $100. The Exchange 
receives a report from the designated broker-dealer that the stock 
component did not execute. The Exchange nullifies the option component 
trade, and sends a report to the TPH of the reason for the 
nullification.
    Example 3:

Stock NBBO: $100 x $101
ABBO: $1.00 x $1.05
Exchange BBO: $1.00 (Priority Customer) x 1.01 (Priority Customer)

    A TPH submits a QCC with Stock Order buying 1,000 puts and 100,000 
shares of stock with a net price of 101.01. A QCC order is entered on 
the Exchange at a price of $1.01. Because the QCC order is at the same 
price as a priority customer order resting on the Exchange, the 
Exchange cancels the QCC with Stock Order.
    At a time following the effective and operative date of this rule 
change, the Exchange will announce the availability of QCC with Stock 
Orders via Exchange Notice.
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.\20\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \21\ 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 facilitation 
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) \22\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \20\ 15 U.S.C. 78f(b).
    \21\ 15 U.S.C. 78f(b)(5).
    \22\ Id.
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    The Exchange believes the proposed rule change is designed to 
promote just and equitable principles of trade because it will provide 
TPHs with optional functionality to facilitate the stock component of a 
QCT. The QCC with Stock Order is an optional piece of functionality 
offered to TPHs to communicate the stock component of a QCT to a 
designated broker-dealer for execution. A TPH that does not wish to use 
QCC with Stock Order functionality can continue to execute a QCT by 
entering a QCC order on the Exchange and separately executing the stock 
component of the QCT [sic] another venue, as it may do today. A TPH can 
also build its own technology to electronically communicate the stock 
component of any QCT to a broker-dealer for execution.
    QCC with Stock Orders reduce TPHs' compliance burden because it 
allows for the automatic submission of the stock component of a QCT in 
connection with the execution of the options component(s) as a QCC 
order on the Exchange. QCC with Stock Order functionality also provides 
benefits to the Exchange by establishing an audit trail for the 
execution of the stock component of a QCT within a reasonable period of 
time after the execution of the QCC order. The proposed rule change 
further reduces TPHs' compliance risk by providing that the Exchange 
will, in addition to cancelling the stock component if the option 
component cannot execute, nullify any option component execution when 
the stock component does not execute without a request from the TPH. 
Nullification of the option trade is consistent with the requirement 
that a TPH must execute the stock component of a QCT within a 
reasonable period of time after executing the option component on the 
Exchange as a QCC order. The proposed rule change simply eliminates the 
requirement that one party to the transaction request nullification of 
the option component trade before the Exchange nullifies the option 
trade, because such nullification is consistent with the definitions of 
QCC orders and QCT. The proposed rule change merely automates a process 
that TPHs can manually do today. As noted above, to qualify as a QCT, 
the execution of one component is contingent upon the execution of all

[[Page 42953]]

other components at or near the same time.\23\ Since the purpose of a 
QCC with Stock Order is for all components to trade at or near the same 
time, if the stock component does not execute at or near the same time 
as the option component, it is reasonable to expect a TPH that 
submitted a QCC with Stock Order to request such nullification to avoid 
any compliance risk associated with execution of a QCC order and lack 
of execution of a stock order at or near the same time.\24\
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    \23\ See supra note 13.
    \24\ See supra note 14.
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    The Exchange conducts surveillance to ensure a TPH executes the 
stock component of a QCT, which will also apply to QCC with Stock 
Orders, if the option component executed. As a result, if the stock 
component does not execute when initially submitted to a stock trading 
venue by the designated broker-dealer, a TPH may be subject to 
compliance risk if it does not execute the stock component within a 
reasonable time period of the execution of the option component. The 
proposed rule change reduces this compliance risk for TPHs. The 
Exchange therefore believes the proposed rule change removes 
impediments to and perfects the mechanisms of a free and open market 
and a national market system, and in general, protects investors and 
the public interest.
    The Exchange believes the proposed rule change to require a TPH to 
submit a QCC with Stock Order with a net price will also perfect the 
mechanism of a free and open market and a national market system and 
protect investors, because a net price will reduce the chance that TPHs 
will miss the market since the Exchange will calculate a price for the 
stock and options components that honors the net price of the package 
and current market prices, if possible. As noted above, a TPH that 
wants to enter a net price for the stock and option components can 
execute a QCT by entering a QCC order on the Exchange and separately 
executing the stock component of the QCT another venue, as it may do 
today. As noted above, submission of a QCC with Stock Order is 
consistent with the use of QCTs.\25\
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    \25\ See supra note 8.
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    Additionally, the proposed functionality is similar to 
functionality offered by another options exchange \26\ and consistent 
with the QCT exemption previously approved by the Commission.\27\
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    \26\ See Nasdaq ISE, LLC (``ISE'') Rules 715(t) and 721(c) and 
Supplementary Material.
    \27\ See QCT Exemption Order.
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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. QCC with Stock Orders 
facilitate TPHs' compliance with the requirements associated with 
executing QCC orders on the Exchange, and are not designed to impose 
any unnecessary burden on competition. QCC with Stock Order 
functionality is available to TPHs on a voluntary basis, and TPHs are 
not required to use QCC with Stock Orders when executing QCTs. The 
proposed rule change has no impact on TPHs that elect to execute QCTs 
without using QCC with Stock Order functionality. Those TPHs may 
continue to execute QCTS in the same manner as they do today by 
entering a QCC order on the Exchange and separately executing the stock 
component of the QCT another venue. A TPH can also build its own 
technology to electronically communicate the stock component of any QCT 
to a broker-dealer for execution. For TPHs that elect to use QCC with 
Stock Order functionality to execute QCTs, the proposed rule change 
reduces those TPHs' compliance burdens to satisfy their obligation to 
execute the related stock component of the QCT within a reasonable 
period of time after the QCC order is executed on the Exchange, as this 
functionality provides an automated means for satisfying this 
obligation.
    QCC with Stock Orders are available to all TPHs either through a 
front-end order and execution management system or through a TPH's own 
electronic connection to the Exchange. Additionally, the proposed 
functionality is similar to functionality offered by another options 
exchange \28\ and consistent with the QCT exemption previously approved 
by the Commission.\29\
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    \28\ See ISE Rules 715(t) and 721(c) and Supplementary Material.
    \29\ See QCT Exemption Order.
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C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

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

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

    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 \30\ and Rule 19b-
4(f)(6) thereunder.\31\
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    \30\ 15 U.S.C. 78s(b)(3)(A).
    \31\ 17 CFR 240.19b-4(f)(6). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written 
notice of its intent to file the proposed rule change, along with a 
brief description and the 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.
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    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative for 30 days after the date of filing. However, 
Rule 19b-4(f)(6)(iii) \32\ permits the Commission to designate a 
shorter time if such action is consistent with the protection of 
investors and the public interest. In its filing with the Commission, 
the Exchange requests that the Commission waive the 30-day operative 
delay. The Exchange states that its proposal is consistent with QCT 
rules and is designed to (1) help reduce a TPH's compliance burdens by 
providing an automated means to facilitate compliance with the 
obligations applicable to QCC with stock orders and (2) assist the 
Exchange with maintaining an audit trail and conducting surveillance of 
TPHs for compliance with the rules governing these types of trades. In 
addition, the Exchange noted that this functionality is optional, and 
TPHs can continue to execute QCTs manually or though alternative means 
as they do today. According to the Exchange, waiving the operative 
delay will allow the Exchange to update its rules immediately to 
reflect this functionality, to the benefit of members and other market 
participants. The Commission believes that waiving the 30-day operative 
delay is consistent with the protection of investors and the public 
interest because the QCC with Stock Order functionality is designed to 
help Exchange members that choose to use the functionality comply with 
their qualified contingent trade obligations in connection with a QCC 
Order,\33\ as well as help the Exchange surveil its members for 
compliance with the Exchange's rules for QCC Orders. Therefore, the 
Commission designates the proposed rule change operative upon 
filing.\34\
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    \32\ 17 CFR 240.19b-4(f)(6)(iii).
    \33\ See supra note 5 and accompanying text.
    \34\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).

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[[Page 42954]]

    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: (i) 
Necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) otherwise in furtherance of the 
purposes of the Act. If the Commission takes such action, the 
Commission shall institute proceedings to determine whether the 
proposed rule change should be approved or disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-CBOE-2018-058 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-2018-058. 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-2018-058 and should be submitted on 
or before September 14, 2018.
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    \35\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\35\
Eduardo A. Aleman
Assistant Secretary.
[FR Doc. 2018-18295 Filed 8-23-18; 8:45 am]
 BILLING CODE 8011-01-P