for a covered account to its ``house'' Floor Broker on the trading
floor for execution and rely on this exemption. If a FLEX Trader cannot
satisfy the ``Effect vs. Execute'' exemption (for example, because the
FLEX Trader submits a proprietary order from on the Exchange's trading
floor), it may submit a FLEX Order into the proposed electronic FLEX
Auction only if it satisfies another exemption from Section 11(a)(1) of
the Exchange Act. Alternatively, a FLEX Trader may execute a FLEX Order
in open outcry on the Exchange's trading floor (subject to satisfaction
of an exemption--for example, a FLEX Trader may yield priority as
necessary to satisfy the ``G'' exemption, as it may do today). Because

there will not be an electronic FLEX Book (as discussed below),\99\
there will be no resting Priority Customer orders resting that would
receive priority at the conclusion of the Auction (or any resting
orders to trade against the auctioned FLEX Order). And because there
will be no FLEX Appointed Market-Makers, there will be no participation
entitlement at the conclusion of the Auction. Therefore, there will
only be responses available at the conclusion of the Auction to execute
against the auctioned FLEX Order. The Exchange has determined to apply
pro-rata allocation to those responses, rather than time priority (as
it does today), because that is the allocation the Exchange applies to
the majority of classes on the Exchange, and therefore this will
provide additional consistency for market participants. Additionally,
the Exchange believes application of pro-rata may encourage FLEX
Traders to submit larger-sized responses, because if the responses are
at the marketable prices, those responses will receive execution based
on size rather than time (as is the case today).
---------------------------------------------------------------------------

    \97\ See id.
    \98\ Orders for covered accounts that rely on the ``Effect vs.
Execute'' exemption in this scenario must be transmitted from a
remote location directly to the Floor Broker on the trading floor by
electronic means.
    \99\ As discussed above, while one customer has recently begin
to submit interest to the FLEX Book, that interest is generally
executed within a few seconds (after the required exposure period)
and, thus, there are generally no orders resting on the FLEX Book
available for allocation following an open outcry RFQ.
---------------------------------------------------------------------------

    Current Rule 24A.5(b) states the Exchange may make an electronic
book available into which FLEX Orders may be entered or remaining
balances of FLEX Orders submitted into an RFQ may rest. Currently,
while the Exchange makes an electronic book available for FLEX Orders,
prior to April 2019, no FLEX Traders were submitting FLEX Orders into
the Book in any class. Beginning in April 2019, one FLEX Trader began
submitting FLEX orders for a customer into the FLEX Book, and then
after the required exposure period passed, that FLEX Trader would
submit an order on the opposite side to trade with that resting
customer order (in other words, to execute a cross with that resting
order). The Exchange understands from this FLEX Trader that it does not
submit these orders into an electronic RFQ, because it is difficult for
that FLEX Trader to code to that process, given how different it is
from other electronic auctions.\100\ For the five-month period from
April through August 2019, this activity represented approximately 1.2%
of total FLEX volume during that time. As noted above, only one FLEX
Trader was using the FLEX Book, and only for a limited purpose. While
all FLEX Traders have access to the current FLEX Book, they are
choosing not to use it. There are no FLEX Traders submitting FLEX
Orders into the FLEX Book to rest and wait for another FLEX Trader to
submit interest to trade against that resting order, which is the
general purpose of an electronic book. Therefore, the Exchange does not
intend to make one available following migration, consistent with its
current authority under current Rule 24A.5(b). Therefore, the Exchange
proposes to delete current Rule 24A.5(b) and all other provisions in
its Rules regarding an electronic FLEX Book. As a result, all FLEX
executions currently occur following an electronic RFQ or FLEX
Automated Improvement Mechanism \101\ for electronic execution, and
deletion of the Rules regarding an electronic FLEX Book will have no
significant impact on FLEX trading given the current limited use of a
FLEX Book by one FLEX Trader. The Exchange also notes the Rules
currently provide that there is no electronic book for complex FLEX
Orders, and therefore the proposed rule change will have no impact on
the trading of complex FLEX Orders.\102\
---------------------------------------------------------------------------

    \100\ Additionally, this FLEX Trader is unable to cross these
orders through a FLEX AIM or SAM, because the solicited contra-side
order is for the account of a Market-Maker, which is not permissible
in those auctions. See current Rules 24A.5A, Interpretation and
Policy .04 and 24A.5B, Interpretation and Policy .04.
    \101\ See Rule 24A.5A in the current Rulebook, which the
Exchange intends to move to the shell Rulebook in a separate rule
filing. The Exchange notes current Rule 24A.5B provides for a FLEX
Solicitation Auction Mechanism, which the Exchange has not currently
made available in any FLEX Option classes, but does intend to make
available following migration.
    \102\ See Rule 24A.5, Interpretation and Policy .01 in the
current Rulebook.
---------------------------------------------------------------------------

    Because the proposed auction will result in automatic execution
following the exposure interval, there is no period equivalent to the
RFQ reaction period in the proposed auction process. The Exchange
believes automatic execution will provide FLEX Traders with more
certainty regarding executions of their FLEX Orders and responses, as
well as more timely executions. The Exchange notes the current maximum
time for the Submitting TPH to decide whether to trade against the RFQ
Market is five minutes, which is the proposed maximum time for the
exposure interval. Additionally, as noted above, in January through
August of 2019, the average length of the entire electronic RFQ process
(as designated by the Submitting TPH) is just over three minutes
(combining the RFQ Response and Reaction periods), during which time
FLEX Traders may submit responses, and less than 1% of electronic RFQs
lasted more than five minutes. Therefore, pursuant to the proposed
electronic FLEX Auction process, the Submitting FLEX Trader may
designate an exposure interval duration during which FLEX Traders may
submit responses consistent with the average duration, and over 99%, of
current electronic RFQs.
    The Exchange believes the proposed electronic FLEX Auction
simplifies the process pursuant to which FLEX Traders may execute FLEX
Orders on the Exchange, as it is similar to other electronic auctions
(as noted above) and eliminates the multiple periods in which FLEX
Traders may submit responses. Pursuant to the proposed Auction process,
an electronic FLEX Auction in which an order is entered and exposed to
FLEX Traders, and then automatically executes against best-priced bids
and offers at the conclusion of the auction. As discussed above, the
proposed range for the auction exposure interval is consistent with the
average length of the entire electronic RFQ process. Additionally,
while the proposed range of the exposure interval is shorter than the
current range designated by the Exchange, the proposed range is
consistent with the Exchange's authority under the current Rules, as
the Rules only require that the length of the RFQ Response Period be at
least three seconds. Because the auction message will identify the side
of the auctioned order, and thus responses will only be on the opposite
side of that order, the Exchange believes a shorter maximum time is
appropriate, as FLEX Traders will not need to determine responses on
the side of the market on which there is no potential execution.
Therefore, the Exchange believes the proposed rule change will continue
to provide FLEX Traders with sufficient time to price FLEX Option
series that are auctioned and submit bids or offers at which they would
be willing to effect transactions in the series subject to the auction.
    As is the case today, market participants will not know the price
at which the Submitting TPH is seeking to trade an order (which the
Submitting TPH must include a price on the FLEX Order submitted to the
auction, it will not be included in the notification message). The
Exchange believes not notifying FLEX Traders of the auction price, as
well as not permitting FLEX Traders to see prices of other responses,
will encourage FLEX Traders to submit responses at the best prices at
which they would be willing to trade, as noted above.
    The proposed electronic FLEX Auction is similar to other electronic
auctions offered by the Exchange, such

as the Automated Improvement Mechanism (``AIM'') in Rule 6.74A in the
current Rulebook (Rule 5.37 in the shell Rulebook) and the Complex
Order Auction (``COA'') in Rule 6.53C in the current Rulebook (which
the Exchange intends to move to Rule 5.33 in the shell Rulebook). These
electronic auctions do not provide for a request for market, which
concept does not currently exist in electronic trading. The Exchange
believes implementing a simpler electronic FLEX Auction that is similar
to other electronic auctions may encourage TPHs to submit FLEX Orders
for electronic execution. Market participants are more familiar with
this type of functionality and have their systems coded to conform to
these types of auctions. The Exchange has received feedback from market
participants indicating the difficulty and additional resources
necessary to code to the nonstandard FLEX RFQ process given the
multiple intervals. Additionally, the Exchange believes elimination of
a reaction period at the conclusion of an electronic FLEX Auction will
permit executions of FLEX Orders to be completed in a more timely
fashion. As a result, the Exchange believes the proposed auction will
permit FLEX Traders to continue to compete vigorously and potentially
provide price improvement for FLEX Orders in a competitive auction
process, as they do for non-FLEX Orders, and thus will fit more
seamlessly into the Exchange's market.\103\
---------------------------------------------------------------------------

    \103\ The Exchange notes it intends to continue to offer a FLEX
AIM process to provide FLEX Orders with price improvement and
electronic crossing opportunities, and will move that from Rule
6.74A in the current Rulebook to Rule 5.73 in the shell Rulebook in
a different rule filing.
---------------------------------------------------------------------------

    Current Rule 24A.5(a)(2) describes the current open outcry RFQ
process for FLEX Orders. Currently, a Submitting TPH may submit to a
FLEX Official an RFQ, and then announce the terms of the RFQ to the
trading crowd.\104\ At that point, FLEX Traders in the trading crowd
may respond to the RFQ with bids and offers during an RFQ Response
Period, during which time those responses (referred to in the current
Rule as FLEX Quotes) may be modified or withdrawn.\105\ At the
conclusion of the RFQ Response Period, the Submitting TPH announces the
best market to the trading crowd.\106\ It may then promptly accept or
reject the best priced bids and offers, or announce an intention to
cross the FLEX order (in which it may receive an entitlement pursuant
to Rule 24A.5(b)(3) and (d)(2)).\107\ If the Submitting TPH determines
to execute the FLEX Order against the responses from the trading crowd
(and not cross), the bids and offers are allocated as described
below.\108\ If the Submitting TPH rejects the BBO or accepts it for
less than the entire size requested, all FLEX Traders (other than the
Submitting TPH) may match or improve the BBO during the BBO Improvement
Interval,\109\ after which the Submitting TPH must promptly accept or
reject the BBO.\110\ If the Submitting TPH indicates an intention to
cross, then the Submitting TPH must announce the price to the crowd and
permit the rest of the crowd to attempt to improve or match the BBO
during the BBO Improvement Interval. At the expiration of the BBO
Improvement Interval, the Submitting TPH must promptly accept or reject
the BBO, and may execute the order against responses as described
below.\111\ The Submitting TPH has no obligation to accept any FLEX bid
or offer.\112\
---------------------------------------------------------------------------

    \104\ See current Rule 24A.5(a)(2)(i).
    \105\ See current Rule 24A.5(a)(2)(ii). The proposed rule change
deletes from that provision the reference to obligations of FLEX
Appointed Market-Makers. As noted above, the Exchange currently has
none and does not intend to have them following migration, so the
Exchange is deleting all references to FLEX Appointed Market-Makers
in the rules. As is the case for electronic RFQs, the open outcry
RFQ Response Period may not be less than three seconds.
    \106\ See current Rule 24A.5(a)(2)(ii)(B). The proposed rule
change deletes the reference that the BBO will consider orders in
the electronic book, as there will be no book following migration,
as noted above.
    \107\ See current Rule 24A.5(a)(2)(iii)(A).
    \108\ See id.
    \109\ The ``BBO Improvement Interval'' is the period of time in
respect of the open outcry RFQ process during which FLEX Traders in
the trading crowd may submit responses (referred to in the current
rules as FLEX Quotes) to meet or improve the BBO established during
the RFQ Response Period. See current Rule 24A.1(b). The rules do not
specify a duration of the BBO Improvement Interval, so the Exchange
permits responses to be made in a reasonably prompt manner
(consistent with a similar provision that applies to current open
outcry trading if there are remaining contracts, see current Rule
6.45(b)(i)(B)(5)).
    \110\ See current Rule 24A.5(a)(2)(iii)(A).
    \111\ See current Rule 24A.5(a)(2)(iii)(B).
    \112\ See current Rule 24A.5(a)(2)(iii)(C). Rejection of the BBO
or failure to promptly accept the BBO results in expiration of the
BBO and the RFQ. See current Rule 24A.5(a)(2)(iv). If the Submitting
TPH rejects the BBO or the BBO size exceeds the FLEX transaction
size in the RFQ, FLEX Traders in the crowd may accept the unfilled
balance by public outcry promptly following the rejection of the BBO
(or expiration of the BBO Improvement Interval). See current Rule
24A.5(a)(2)(iii)(D).
---------------------------------------------------------------------------

    Current Rule 24A.5(d)(2)(i) provides that the Exchange may
establish a crossing participation entitlement, subject to certain
conditions. The Exchange proposes to delete that provision, as the
Exchange does not intend to establish any priority overlays, including
a crossing participation entitlement, to the proposed FLEX
Auctions.\113\ The Exchange does not currently establish a crossing
participation entitlement for electronic FLEX trading, so this will
have no impact on electronic trading. The Exchange has currently
established a crossing participation entitlement for open outcry FLEX
trading. However, as further discussed below, the Exchange proposes to
permit FLEX Trades to be crossed in accordance with general crossing
rules for open outcry trading, which provide for a similar crossing
procedure and participation entitlement as the current FLEX crossing
procedure and entitlement.
---------------------------------------------------------------------------

    \113\ This is consistent with the Exchange's authority under
current Rule 24A.5(d)(2) to not establish any priority overlays.
---------------------------------------------------------------------------

    Current Rule 24A.5(d)(2)(ii) provides that the Exchange may
establish a participation entitlement for a FLEX Appointed Market-
Maker. The Exchange currently does not have any FLEX Appointed Market-
Makers, and thus does not have a participation entitlement established,
and deletes that provision from the Rules.\114\
---------------------------------------------------------------------------

    \114\ The Exchange intends to delete all provisions regarding
FLEX Appointed Market-Makers from the Rules in a separate rule
filing. To the extent the Exchange determines in the future to
appoint FLEX Appointed Market-Makers (or similar market participant)
or apply a participation entitlement to FLEX Auctions (electronic or
open outcry), the Exchange will submit a separate rule filing.
Because there will no longer be any priority overlays, the proposed
rule change deletes current Rule 24A.5(d)(2)(iii) regarding
announcements of participation entitlements.
---------------------------------------------------------------------------

    The highest bid (lowest offer) will have priority at the conclusion
of a FLEX open outcry RFQ. If there are multiple bids or offers at the
same price, any crossing participation entitlements have second
priority, any FLEX Appointed Market-Maker participation entitlements
have third priority, all other response have fourth priority (in time
sequence), and finally orders resting in the book have last
priority.\115\
---------------------------------------------------------------------------

    \115\ See current Rule 24A.5(a)(2)(v)(A); see also current Rule
24A.5(d) (which describes current crossing participation
entitlements). As is the case in all open outcry trading, any FLEX
Traders relying on the ``G'' exemption must yield priority to any
bid (offer) at the same price. See current Rule 24A.5(a)(2)(v)(B)
(Rule 5.85(a)(2)(E) in the shell Rulebook).
---------------------------------------------------------------------------

    Proposed Rule 5.72(d) provides that a Submitting FLEX Trader may
represent and execute a FLEX Order that complies with paragraph (b)
above on the Exchange's trading floor in the same manner as a TPH may
represent and execute an order for a non-FLEX Option (which includes
systemization of the FLEX Order pursuant to Rule 5.7(f) and routing the
FLEX Order to PAR pursuant to Rule 5.82 of the shell Rulebook) on the
Exchange's trading floor pursuant to Chapter 5, Section G

of the shell Rulebook,\116\ except (1) In-Crowd Market Participants
(``ICMPs'') will have a reasonable amount of time (which amount of time
must be between three seconds (the current minimum for an RFQ Response
Period) and five minutes) from the time a FLEX Trader requests a quote
in a FLEX Option Series or represents a FLEX Order (including
announcing a crossing transaction pursuant to Rule 5.87 in the shell
Rulebook) to respond with bids and offers; and (2) FLEX Orders are
allocated only to responses from the trading crowd pursuant to Rule
5.85(a)(2)(C) of the shell Rulebook.\117\ The proposed time period is
consistent with the proposed time period for electronic FLEX Auctions
described above, as well as current Rules (which require at last three
seconds to pass),\118\ and the Exchange believes this will ensure there
is sufficient time for the crowd to price a FLEX Option series given
its unique terms as well as ensure executions of FLEX Orders take place
in a timely manner. Whether a reasonable amount of time has passed
before a Submitting TPH determines to represent an order after a
request for quotes, or to execute an order after it was represented
will be based on facts and circumstances, and will be determined by the
Submitting FLEX Trader. This is consistent with general open outcry
trading, in which the representing Floor Broker (which will be the
Submitting FLEX Trader) determines at what time a market is established
and which ICMPs responded at that time and in what order.\119\ As set
forth in Rule 5.85(a)(2), orders represented in open outcry may also be
allocated to Priority Customers resting in the book (which will not
apply to FLEX Options since there will be no book), or to certain
market-makers if there is a participation entitlement (which there will
not be for FLEX Options), or to other orders resting in the book
(which, again, will not apply to FLEX Options since there will be no
book). Therefore, the only interest against which a FLEX Order may
execute in open outcry are bids and offers from the trading crowd.
---------------------------------------------------------------------------

    \116\ Therefore, a FLEX Order may be represented and executed,
in addition to Rule 5.85 as described above, pursuant to Rule 5.86
in the shell Rulebook regarding facilitated and solicited
transactions and Rule 5.87 in the shell Rulebook regarding crossing
orders.
    \117\ The proposed rule change notes that Rule 5.85(b) through
(e) (complex order priority (this relates to the prices at which
complex orders may trade depending on resting simple orders, which
will not apply given there will be no book for FLEX Options), split-
price priority, multi-class spread orders, and SPX Combo Orders)
does not apply to FLEX Options, which is consistent with FLEX
trading today. See current Rules 24.19 (which sets forth specific
trading rules for multi-class spreads, which are not consistent with
FLEX trading), 24.20 (which sets forth specific trading rules for
SPX Combo Orders, which are not consistent with FLEX trading), and
24A.15 (which provides that split-price priority does not apply to
FLEX trading, and the Exchange moves the provision that states the
inapplicability of split-price priority to the portion of the Rule
regarding open outcry trading, so that all provisions regarding open
outcry priority are included in the same place). To the extent the
Exchange intends to make any of these provisions applicable to FLEX
Options in the future, it will submit a rule filing. As discussed
above, there will be no electronic FLEX Book (and thus no Priority
Customer orders resting that would otherwise have priority).
Additionally, as discussed below, there will be no participation
entitlements. The Exchange notes FLEX Orders may be crossed on the
Exchange trading floor in the same manner as non-FLEX Orders
pursuant to Rule 5.87 in the shell Rulebook, rather than pursuant to
separate crossing rules as is the case today.
    \118\ See current Rule 24A.4(a)(3)(iii).
    \119\ If another FLEX Trader does not believe there was a
reasonable amount of time to respond permitted, that FLEX Trader may
request a review from a FLEX Official for compliance with the
applicable rules (see proposed Rule 5.75).
---------------------------------------------------------------------------

    The Exchange believes the current open outcry RFQ process for FLEX
Orders is substantially similar to the current open outcry process for
non-FLEX Orders, and therefore believes completely aligning the two
processes is appropriate. Currently, in open outcry trading, a Floor
Broker can request a market from the crowd.\120\ ICMPs may then respond
with their markets. There is no formal time frame in which ICMPs may
respond with a market, but ICMPs generally respond promptly with their
market. This is substantially similar to the current RFQ process
described above, in which a FLEX Trader requests a market and provides
FLEX Traders in the crowd with at least three seconds to respond with a
market. The Exchange believes it is appropriate to ensure there is at
least a minimum amount of time FLEX Traders to respond give the unique
terms of FLEX Options. The proposed timeframe in which ICMPs that are
FLEX Traders must respond is consistent with the current Rule, which as
noted above, requires the RFQ Response Period to be at least three
seconds long. The proposed rule change also permits a FLEX Trader to
initially represent a FLEX Order to the trading crowd, and then receive
bids or offers (as appropriate) and trade.\121\ Therefore, other than
eliminating the formal name of the RFQ Response Period which is not
contemplated in non-FLEX Option open outcry trading, the Exchange
believes the proposed rule change will have minimal (if any) impact on
how a FLEX Trader may request a market on the Exchange's trading floor.
---------------------------------------------------------------------------

    \120\ A Floor Broker may also initially represent an order to
the trading crowd, and then receives bids or offers, as appropriate,
and trade. However, this is an uncommon scenario but permissible
under the Rules.
    \121\ The Exchange notes this is an uncommon scenario in open
outcry trading, but is permissible under the Rules.
---------------------------------------------------------------------------

    Unlike the current process, which requires a FLEX Trader to submit
an RFQ to a FLEX Official, the proposed rule change will require a FLEX
Trader to systematize a FLEX Order in the same manner as Floor Brokers
systematize non-FLEX Orders, which is to systematize them pursuant to
current Rule 6.24 (Rule 5.7(f) in the shell Rulebook). TPHs have
familiarity with the systemization process, and the Exchange believes
the proposed rule change will result in a more efficient open outcry
trading process for FLEX Options, as a FLEX Trader can request a market
as soon as it gets that request from a customer rather than first go to
a FLEX Official.\122\ This may ultimately result in a more timely
execution for customers.
---------------------------------------------------------------------------

    \122\ Because the proposed rule change will require FLEX Orders
to be systematized in the same manner as all other orders, the
proposed rule change deletes Rule 5.7, Interpretation and Policy
.04, which exempts FLEX Options from systematization requirements.
The Exchange notes systemization will capture FLEX Options in the
Exchange's audit trail, and thus the Exchange will no longer need to
maintain separate records similar to COATS data. The current rule
requires the Exchange to make the data it retained with respect to
FLEX Options available to the SEC upon request. While the proposed
ruled does not explicitly state this (the Rules generally impose
obligations on TPHs rather than the Exchange), the Exchange is
required to maintain these records and provide them to the
Commission upon request pursuant to its SRO obligations. See 17 CFR
240.17a-1 (which requires an exchange to keep and preserve at least
one copy of all documents made or received in the course of its
business and in the conduct of its self-regulatory activity, to
retain such documents for at least five years (in an easily
accessible place for the first two years) subject to destruction and
disposition provisions of Rule 17a-6 under the Act, and to promptly
furnish copies of these documents to the Commission upon request).
---------------------------------------------------------------------------

    Once a Floor Broker has received a market from the crowd, the Floor
Broker may then represent its order on the floor (after systematizing
it and routing it to PAR, which it must do prior to representing an
order on the trading floor) and elect to trade against the best prices
or not, or announce an intention to cross at a specific price.\123\ As
discussed above, this is substantially similar to the current RFQ
process, in which a FLEX Trader can elect to trade or not trade with
the best prices from the crowd, or announce an intention to cross.
Currently, the Exchange has set a crossing entitlement for
facilitations and solicitations of FLEX Orders in all

classes to be 40%.\124\ As set forth in current Rule 6.74(d) (Rule
5.87(f) of the shell Rulebook), the Exchange may similarly set a
crossing entitlement on a class-by-class basis up to 40%. The Exchange
intends to set this entitlement for FLEX Orders at 40% in all classes,
as it does today.\125\ Rule 5.87(f) of the shell Rulebook requires a
Floor Broker representing an eligible-sized order to request bids and
offers for a series. Once the trading crowd has provided a quote, once
a reasonable amount of time has passed, there is a significant change
in the price of the underlying, or the price of the responses has been
improved, the Floor Broker may cross the applicable percentage of the
order, after all Public Customer orders in the book or crowd have been
satisfied. This is similar to how a FLEX Trader may cross a FLEX Order
in open outcry, as noted above. Specifically, a FLEX Trader would
request a market, and after a reasonable amount of time has passed,
announce an intention to cross, and receive a crossing entitlement
after Public Customer interest has been satisfied. Therefore, the
Exchange believes the proposed rule change will have a minimal (if any)
impact on the crossing of FLEX Orders in open outcry.
---------------------------------------------------------------------------

    \123\ See current Rule 6.74 (Rule 5.87(f) in the shell
Rulebook), which describes procedures for crossing orders on the
Exchange's trading floor.
    \124\ Current Rule 24A.5(d)(2)(i) permits the Exchange to
establish a crossing participation entitlement on a class-by-class
basis up to 40%.
    \125\ The Exchange would announce any changes to this percentage
pursuant to Rule 1.5 in the shell Rulebook.
---------------------------------------------------------------------------

    The proposed rule change eliminates the formal BBO Improvement
Interval. However, pursuant to general open outcry rules regarding
crossing, as noted in the previous paragraph, if a FLEX Trader
announces an intention to cross a FLEX Order, the FLEX Trader must
provide time for the trading crowd to submit bids and offers (which is
equivalent to what occurs during the BBO Improvement Interval).
Similarly, if there is no intention to cross, but the FLEX Trader
elects to not trade or there is insufficient size, the crowd may make
subsequent bids and offers in a reasonably prompt manner.\126\
---------------------------------------------------------------------------

    \126\ See Rule 5.85(a)(2)(C)(v) in the shell Rulebook.
---------------------------------------------------------------------------

    The proposed allocation is substantially similar to the allocation
for non-FLEX trading in open outcry, excluding the provisions that are
inapplicable to FLEX trading, and to the current allocation for FLEX
trading in open outcry (if there were no FLEX Appointed Market-Makers,
and if the Exchange determined to not offer an electronic book for FLEX
Options pursuant to its authority under the current Rules). With
respect to allocation, best-priced responses will continue to have
first priority.\127\ With respect to responses at the same price,
because there will be no electronic Book for FLEX Options, there can be
no Priority Customer FLEX Orders resting in the book that would receive
first priority at the same price.\128\ Additionally, there will be no
FLEX Appointed Market-Makers, so there will be no participation
entitlement applicable to FLEX trading.\129\ The crossing participation
will continue to next priority.\130\ All other interest in the crowd
will continue to then have priority in the sequence in which they were
made; to the extent multiple bids or offers were submitted at the same
time, or if the Submitting FLEX Trader cannot reasonable determine the
sequence in which they were made, priority will be apportioned equally
among those bids and offers.\131\ As there will be no electronic book
of orders for FLEX Options, there will be no non-customer orders in the
book that would be eligible for execution after all other interest
trades.\132\ Therefore, the proposed rule change will have minimal (if
any) impact on the allocation of responses in open outcry trades of
FLEX Orders.\133\
---------------------------------------------------------------------------

    \127\ See current Rule 24A.5(a)(2)(v)(A) and Rule 5.85(a)(1) in
the shell Rulebook.
    \128\ Therefore, Rule 5.85(a)(2)(A) in the shell Rulebook will
be inapplicable to FLEX trading.
    \129\ Therefore, Rule 5.85(a)(2)(B) in the shell Rulebook will
be inapplicable to FLEX trading.
    \130\ See current Rule 24A.5(a)(2)(v)(A)(I) and Rule 5.87(a) and
(f) in the shell Rulebook.
    \131\ See current Rule 24A.5(a)(2)(v)(A)(III) and Rule
5.85(a)(2)(C) in the shell Rulebook.
    \132\ As discussed above, while one customer has recently begin
to submit interest to the FLEX Book, that interest is generally
executed within a few seconds (after the required exposure period)
and, thus, there are generally no orders resting on the FLEX Book
available for allocation following an open outcry RFQ. Therefore,
Rule 5.85(a)(2)(D) in the shell Rulebook will be inapplicable to
FLEX Trading.
    \133\ As is the case today, and with open outcry non-FLEX
trading, a TPH relying on the exemption in Section 11(a)(1)(G) of
the Exchange Act and Rule 11a-1(T) thereunder may submit a
proprietary order to the Exchange for execution in open outcry if it
yields priority to any bid (offer) at the same price that is
represented by all other bids (offers) that have priority over the
TPH's order. See proposed Rule 5.72(e)(1); see also Rule
5.85(a)(2)(E) in the shell Rulebook and current Rule
24A.5(a)(5)(v)(B).
---------------------------------------------------------------------------

    As is the case regarding the proposed electronic FLEX Auction
described above, the proposed rule change simplifies the process
pursuant to which FLEX Traders may execute FLEX Orders on the Exchange
in open outcry. As demonstrated above, the general open outcry trading
rules are substantially similar to the current open outcry RFQ
procedure for FLEX Options. However, the proposed rule change
eliminates the terminology that applies only to FLEX trading. FLEX
Traders are more familiar with the general open outcry trading
procedures, and therefore, by aligning the open outcry trading process
for FLEX Options with that of non-FLEX Options, and permitting FLEX
trading in the same manner as non-FLEX trading on the Exchange's
trading floor, the Exchange believes the proposed rule change may
encourage TPHs to submit FLEX Orders for execution. The Exchange
believes the proposed rule change may reduce confusion regarding how
FLEX Orders may trade in open outcry, given that any minor differences
between the two processes that exist today are being eliminated.
However, as noted above, one difference that will remain is the minimum
amount of time that the trading crowd will have to respond to a request
for a market or to a represented FLEX Order, which will ensure the
crowd has sufficient time to price the unique terms of FLEX Options.
The proposed range of a reasonable time that must be three seconds (but
no more than five minutes), is consistent with the current Rule, which
requires the response period to be at least three seconds. The Exchange
believes the maximum time accommodate this pricing while permitting
executions of FLEX Orders to be completed in a more timely fashion. As
a result, the Exchange believes the proposed auction will fit more
seamlessly into the Exchange's market. The Exchange also believes this
will encourage FLEX Traders to compete vigorously and potentially
provide price improvement for FLEX Orders in a competitive auction
process, as they do for non-FLEX Orders.
    The proposed rule change deletes current Rule 24A.5(c), which
states that acceptance of any bid or offer creates a binding contract
under Rule 6.48 in the current Rulebook (which the Exchange intends to
move to Rule 5.11 in the shell Rulebook). Current Rule 6.48 applies to
all acceptances of bids and offers on the Exchange, including FLEX bids
and offers, and thus the Exchange does not believe it is necessary to
include a separate provision in the FLEX Rules. This has no impact on
the binding nature of the acceptance of bids and offers on FLEX Options
pursuant to proposed Rule 5.72.
    The proposed rule change moves the provision that states all
transactions must be in compliance with Section 11(a)(1) of the
Exchange Act and the rules promulgated thereunder, including the
description of the activity prohibited by Section 11(a)(1), from
current Rule 24A.5(d)(4) (as well as current Rules 24A.5(a)(2)(v)(B)
and (b)(2)(ii), which are cross-referenced in

Rule 24A.5(d)(4)) to proposed Rule 5.72(e). The proposed rule change
amends this provision to state that it applies to all executions of
FLEX Orders, as this provision is only applicable to FLEX trading. The
proposed rule change deletes current Rule 24A.5(d)(4)(i) and (iii)
regarding the market-maker exemption and the effect versus execute
exemption, respectively. Those exemptions will continue to be available
to FLEX Traders with respect to FLEX trading. However, there is nothing
unique about the applicability of those exemptions to FLEX trading, as
they are available to all market participants with respect to all
trading in the same manner. Additionally, the proposed rule change
deletes current Rule 24A.5(d)(4)(iv), which states that a TPH may rely
on any other exception to comply with the requirements of Section
11(a)(1) and the rules promulgated thereunder. That will continue to be
true, and is captured by the introductory language in proposed Rule
5.72(e), which references that an exception to Section 11(a)(1) may
apply. Because, FLEX traders may currently rely on the ``G'' exemption
for electronic FLEX trading given the current priority structure but
will no longer be able to rely on that exemption with respect to
electronic FLEX trading given the proposed priority changes (see
discussion above regarding this change),\134\ the proposed rule change
makes clear that the ``G'' exemption will only be available for FLEX
Orders represented in open outcry, as long as the TPH relying on that
exemption yields priority to any bid (offer) at the same price that is
represented by all other bids (offers) that have priority over the
TPH's order pursuant to proposed Rule 5.72. The proposed rule change
also states that a TPH may not submit an electronic FLEX Order pursuant
to proposed Rule 5.72(b), Rule 5.73, or Rule 5.74 to effect any
proprietary order transactions by relying on the ``G'' exemption. As
discussed below, the Exchange believes the proposed rule change is
consistent with Section 11(a) of the Exchange Act.
---------------------------------------------------------------------------

    \134\ As discussed below, electronic FLEX trading, like all
other electronic trading on the Exchange, will not allow FLEX
Traders to take advantage of the ``G'' exemption.
---------------------------------------------------------------------------

    The proposed rule change deletes current Rule 24A.5, Interpretation
and Policy .03 regarding post-trade verification procedures for
electronic RFQs for complex orders. Due to the System updates in
connection with the System migration, parties to FLEX transactions will
no longer need to take additional steps with respect to executions of
complex orders following an electronic FLEX Auction.\135\ These
procedures require FLEX Traders to input the leg price, exercise price,
and/or premium information into the System following execution of a
complex FLEX Order. As discussed above, FLEX Traders must submit all of
this information upon entry of a FLEX Order.\136\ Therefore, pursuant
to the proposed rule change, a FLEX Trader will be required to input
the same information for each leg of a complex FLEX Order prior to
submission rather than following execution. A FLEX Trader may request
nullification of a FLEX Option transaction if it did not conform to the
terms in proposed Rule 4.21, or update any inaccurate information in a
complex FLEX Order in the same manner as any TPH may update any
inaccurate information in any order pursuant to current Rule 6.67.\137\
Because all FLEX Orders will now be systematized, as discussed above,
there is no longer a need for separate procedures regarding the
correction of inaccurate information entered for FLEX transactions.
---------------------------------------------------------------------------

    \135\ Note current Rule 24A.5, Interpretation and Policy .03
also applies to electronic transactions in FLEX Options with
exercise prices and premiums based on a methodology for fixing that
number or based on a percentage. As noted above, the Exchange will
no longer offer exercise prices and premiums based on such a
methodology.
    \136\ See proposed Rule 5.72(b)(2).
    \137\ Rule 6.67 in the current Rulebook describes the Exchange's
Cboe Trade Match System, which permits TPHs to correct bona fide
errors, subject to certain restrictions. The Exchange intends to
move Rule 6.67 from the current Rulebook to Rule 6.6 in the shell
Rulebook in a separate rule filing.
---------------------------------------------------------------------------

    The proposed rule change moves the provisions in Rules 24A.1(i) and
24A.14 in the current Rulebook regarding FLEX Officials to Rule 5.75 in
the shell Rulebook. The proposed rule change makes only nonsubstantive
changes to this Rule, including to make the Rule plain English, delete
redundant language (such as saying any TPH approved to act as a Market-
Maker, as pursuant to Rule 8.1 in the current Rulebook, a Market-Maker
must be a TPH), incorporate defined terms (including the term ``ICMP,''
which is an in-crowd Market-Maker, on-floor designated primary market-
maker or lead market-maker with an allocation in a class, or a floor
broker or PAR official representing an order in the trading crowd on a
trading floor \138\), and update cross-references and paragraph
lettering and numbering. FLEX Officials will have the same
responsibilities as they do today.
---------------------------------------------------------------------------

    \138\ See Rule 1.1 in the shell Rulebook.
---------------------------------------------------------------------------

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.\139\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5)\140\ 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)\141\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
---------------------------------------------------------------------------

    \139\ 15 U.S.C. 78f(b).
    \140\ 15 U.S.C. 78f(b)(5).
    \141\ Id.
---------------------------------------------------------------------------

    In particular, the Exchange believes the proposed rule change will
remove impediments to and perfect the mechanism of a free and open
market, and protect investors and the public interest. As described
above, the proposed electronic FLEX Auction is closely aligned to the
Exchange's other electronic auctions for non-FLEX Options, and the
proposed open outcry FLEX Auction is closely aligned with the current
open outcry trading process for non-FLEX Options, but are still similar
to the FLEX trading processes in place today. The proposed rule change
merely eliminates many of the differences between FLEX and non-FLEX
trading to eliminate potential confusion for market participants given
the current differences, while implementing trading processes with
which market participants are more familiar. As a result, the Exchange
believes the proposed rule change will have minimal impact on the
trading of FLEX Auctions, and possibly increase participation in FLEX
Auctions, which could add liquidity to the Exchange's FLEX Market,
which ultimately benefits investors. Additionally, with respect to
electronic trading, market participants are more familiar with this
type of functionality and have their systems coded to conform to these
types of

auctions. The Exchange has received feedback from market participants
indicating the difficulty and additional resources necessary to code to
the nonstandard FLEX RFQ process given the multiple intervals.
    Additionally, the Exchange believes the proposed rule change will
permit executions of FLEX Orders to be completed in a more timely
fashion, while providing the crowd with sufficient time to price the
unique terms of FLEX Options (as the proposed ranges for the duration
of the electronic and open outcry FLEX Auctions are consistent with
current Rules).\142\ The Exchange believes the proposed auction
processes will ultimately benefit investors, as they will provide TPHs
with greater harmonization of auction mechanisms on the Exchange. The
Exchange believes the proposed auctions will provide mechanisms for
more efficient and timely executions of FLEX Options, given
participants' familiarity with the trading processes and reasonable
durations of the auctions. Additionally, by providing for automatic
executions following electronic auctions of FLEX Orders, the Exchange
believes there will be more certainty of execution at the end of an
auction, unlike today, when a FLEX Trader may reject the market after a
period of potentially minutes. The Exchange believes the proposed
auctions will encourage FLEX Traders to continue to compete vigorously
and potentially provide price improvement for FLEX Orders in a
competitive auction process, as they do for non-FLEX Orders, as they
will be encouraged to submit their best-priced bids and offers during
the auctions to have the opportunity to execute against the FLEX Order.
---------------------------------------------------------------------------

    \142\ See current Rule 24A.4(a)(3)(iii) and proposed Rule
5.72(c)(1)(E) and (d)(1) (which all provide for a minimum of three
seconds of response time).
---------------------------------------------------------------------------

    By permitting FLEX Options to trade in a manner similar to non-FLEX
Options, the Exchange believes this further improves a comparable
alternative to the over-the-counter (``OTC'') market in customized
options. By enhancing our FLEX trading platform and making it similar
to trading procedures in non-FLEX options, with which market
participants are generally more familiar, the Exchange believes it may
be a more attractive alternative to the OTC market. The Exchange
believes market participants benefit from being able to trade
customized options in an exchange environment in several ways,
including but not limited to the following: (1) Enhanced efficiency in
initiating and closing out position; (2) increased market transparency;
and (3) heightened contra-party creditworthiness due to the role of OCC
as issuer and guarantor of FLEX Options.
    The Exchange believes the proposed rule change to eliminate the
ability for FLEX Traders to specify exercise prices for FLEX Index
Options as a method for fixing an index value or dollar amount at the
time of a FLEX RFQ or a FLEX Order is traded, or as a percentage of the
index value calculated at the time of the trade, and for FLEX Equity
Options, as a method for fixing a dollar amount at the time of a FLEX
RFQ or a FLEX Order is traded, or as a percentage of the price of the
underlying security at the time of the trade will have no impact on
FLEX Trading.\143\ As noted above, FLEX Traders only designate an
exercise price for a FLEX series as a fixed amount or a percentage of
the closing value of the underlying security or index, as applicable,
on the trade date. Similarly, the Exchange believes the proposed rule
change to eliminate the ability for FLEX traders to apply the hedge
trade condition to orders will have no impact on FLEX Trading.\144\ As
noted above, FLEX Traders do not apply this trade condition to FLEX
Orders. Because FLEX Traders do not use this functionality, the
Exchange believes it will benefit investors if the Exchange does not
expend resources to rebuild on a new System functionality that is not
in demand, and to not include references to unused functionality in the
Exchange's rules. In addition, the current Rules permit the Exchange to
make a FLEX Book available on a class-by-class basis.\145\ The Exchange
currently makes a FLEX Book available; however, FLEX Traders were not
submitting orders into that Book until recently (April 2019).
Additionally, at that time (and since that time), only one FLEX Trader
has been submitting FLEX Orders into the FLEX Book, and only for a
limited purpose, as discussed above. The activity in the FLEX Book
represented only approximately 1.2% of all FLEX trading from the period
of April to August 2019. As a result, the proposed elimination of the
Exchange's ability to make a FLEX Book available is consistent with the
Exchange's current authority to not make a FLEX Book available, and
will also have no significant impact on FLEX trading, given that the
vast majority of FLEX trading occurs outside of the book, and given
that only one customer has recently been using the book for a limited
purpose.
---------------------------------------------------------------------------

    \143\ See current Rule 24A.4(b)(2) and (c)(2).
    \144\ See current Rule 24A.1(y). As discussed above, elimination
of the IOC trade condition will have no impact, as it is no longer
necessary given that all FLEX Orders submitted for electronic
execution may only execute following an auction or be cancelled.
    \145\ See current Rule 24A.5(b).
---------------------------------------------------------------------------

    The Exchange believes the proposed rule change to allow multiple
electronic FLEX auctions to overlap will benefit investors, as it may
lead to an increase in Exchange volume and permit the Exchange to
further compete with the OTC market, while providing for additional
opportunities for price discovery and execution. Although electronic
FLEX Auctions will be allowed to overlap, the Exchange does not believe
that this raises any issues that are not addressed through the proposal
as described above. For example, although overlapping, each Auction
will be started in a sequence and with a time that will determine its
processing. Thus, even if there are two Auctions that commence and
conclude, at nearly the same time, each Auction will have a distinct
conclusion at which time the Auction will be allocated. Additionally,
FLEX Orders submitted into an electronic FLEX Auction will be able to
execute only against FLEX responses submitted to that Auction. If
market participants desire to have interest execute against both FLEX
Orders subject to concurring FLEX Auctions, market participants may
submit responses to both Auctions.
    Additionally, the proposed rule change to permit concurrent
auctions is not novel, and is consistent with functionality already in
place on other exchanges with respect to other types of auctions.\146\
The Exchange does not believe the unique terms of FLEX Options create
any additional issues not previously considered by the Commission with
respect to concurrent auctions. As described above, the Exchange
believes concurrent auctions may increase execution opportunities, and
permit more timely executions, of FLEX Orders in a more timely fashion,
which would ultimately benefit investors. Additionally, the Rules do
not currently prevent a COA of a complex order from occurring at the
same time as an AIM in one of the components of a complex order subject
to a COA. Therefore, the Exchange believes it is similarly reasonable
to permit multiple

FLEX Auctions in the same series to occur at the same time.
---------------------------------------------------------------------------

    \146\ See, e.g., EDGX Rules 21.19(c)(1) and 21.22(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. Other Exchange rules to take
effect following the migration also permit concurrent auctions. See,
e.g., Rules 5.33, 5.37, and 5.38 in the shell Rulebook.
---------------------------------------------------------------------------

    The proposed rule change to permit all FLEX Traders to respond to
electronic FLEX Auctions will benefit investors. Permitting all FLEX
traders to submit responses, as opposed to not permitting options
market-makers at away exchanges to respond, may result in more FLEX
Traders having the opportunity to participate in executions at the
conclusion of electronic FLEX Auctions. Additionally, it may increase
liquidity in these auctions, which may lead to more opportunities to
price improvement and ultimately benefit investors.
    The Exchange believes the proposed rule change regarding the time
at which trading in FLEX Options will be available will benefit
investors. Because market participants incorporate transaction prices
of underlying securities or the values of underlying indexes when
pricing options (including FLEX Options), the Exchange believes it will
benefit investors for FLEX Options trading to not be available until
that information has begun to be disseminated in the market. Because
the Exchange will have no electronic book of resting orders for FLEX
Options, and no opening rotation, at the time at which FLEX Trading
opens, there are (and will be) no automatic executions. Therefore,
being ``open'' for FLEX trading merely means that FLEX Traders may
submit FLEX Orders into one of the various FLEX Auctions, at the
conclusion of which executions in FLEX Auctions may occur (which are
all discussed below). Additionally, the proposed trigger events occur
for many underlying securities or indexes within one second of 9:30
a.m. Eastern Time (which is consistent with the current time at which
the Exchange has determined to open FLEX Option classes), and the
majority occur within ten seconds. Therefore, pursuant to the proposed
rule change, the opening of FLEX Options for trading may occur over a
longer timeframe, which would further reduce any potential market
impact of the change to the opening time for FLEX Options. While the
Exchange believes it is important to open series for trading as soon as
possible, the Exchange also believes the proposed rule change will
permit it to manage the number of FLEX Option series that may begin to
trade during a short time period to ensure a fair and orderly opening
in all options listed on the Exchange. The Exchange further believes
aligning the trigger events for the opening of FLEX and non-FLEX
Options may eliminate any confusion among market participants regarding
when options with the same underlying are open for trading. The
Exchange also notes that FLEX Options trading volume currently
represents approximately 1.5% of total trading volume on the Exchange,
and therefore the Exchange believes any potential market impact of this
change would be de minimis.
    The Exchange believes the proposed order types and instructions
that will be available for FLEX Orders will promote just and equitable
principles of trade, and benefit investors, because they will provide
FLEX Traders with control over the executions of their FLEX Orders
while being consistent with the proposed FLEX trading processes.
Instructions that are available for non-FLEX Orders but will not be
available for FLEX Orders are consistent with the fact that FLEX Orders
will only be eligible to trade following an electronic or open outcry
FLEX Auction and not rest in an electronic book or route away, and
because there is no market for FLEX Options (for which most Order
Instructions and Times-in-Force set forth in Rule 5.6 in the shell
Rulebook are relevant). The Exchange believes making these order types,
instructions, and times-in-force available for FLEX Orders is
consistent with the Exchange's authority to designate availability of
orders types on a class-by-class basis.\147\ The Exchange believes the
proposed rule change will benefit investors by specifying the order
types that are available for FLEX trading, as it provides investors
with additional transparency.
---------------------------------------------------------------------------

    \147\ See Rule 6.53 in the current Rulebook and Rule 5.6 in the
shell Rulebook.
---------------------------------------------------------------------------

    Similarly, the proposed rule change regarding FLEX Order
requirements will benefit investors, because it provides investors with
additional transparency regarding complex order entry requirements for
FLEX Options. As noted above, certain of the proposed requirements are
consistent with current rules, while the restrictions on permissible
combinations of exercise styles and settlement types on the leg
components will have no impact on trading, as FLEX Traders do not
currently trade complex orders with legs in the combinations that the
proposed rule change proposes to restrict. Additionally, as noted
above, the proposed rule change to require FLEX Traders to input the
leg prices of complex FLEX Orders upon entry merely moves this
requirement to the time of order submission rather than post-trade (as
is required today). Additionally, much of the proposed rule change is
merely relocating rules from the current Rulebook to the shell
Rulebook, including flexible terms (such as settlement type, exercise
price, exercise style, and expiration date) and fungibility provisions,
and making only nonsubstantive changes, which will therefore have no
impact on FLEX trading. The Exchange believes providing a reorganized,
holistic rulebook upon migration will also benefit investors.
    The proposed rule change to adopt electronic and open outcry FLEX
Auctions is also consistent with Section 11(a)(1) of the Act \148\ and
the rules promulgated thereunder. Generally, Section 11(a)(1) of the
Act restricts any member of a national securities exchange from
effecting any transaction on such exchange for (i) the member's own
account, (ii) the account of a person associated with the member, or
(iii) an account with respect to which the member or a person
associated with the member exercises investment discretion, unless a
specific exemption is available. Examples of common exemptions include
the exemption for transactions by broker dealers acting in the capacity
of a market maker under Section 11(a)(1)(A),\149\ the ``G'' exemption
for yielding priority to non-members under Section 11(a)(1)(G) of the
Act and Rule 11a1-1(T) thereunder,\150\ and ``Effect vs. Execute''
exemption under Rule 11a2-2(T) under the Act.\151\
---------------------------------------------------------------------------

    \148\ 15 U.S.C. 78k(a). Section 11(a)(1) prohibits a member of a
national securities exchange from effecting transactions on that
exchange for its own account, the account of an associated person,
or an account over which it or its associated person exercises
discretion unless an exception applies.
    \149\ 15 U.S.C. 78k(a)(1)(A).
    \150\ 15 U.S.C. 78k(a)(1)(G) and 17 CFR 240.11a1-1(T).
    \151\ 17 CFR 240.11a2-2(T).
---------------------------------------------------------------------------

    As noted above, FLEX Traders that effect FLEX transactions in open
outcry may qualify for the ``G'' exemption by yielding priority to any
bid (offer) at the same price of any other bid (offer) that has
priority over those broker-dealer orders under this Rule. However, FLEX
Traders may not rely on the ``G'' exemption to execute proprietary
orders in the electronic FLEX Auctions as set forth in proposed Rule
5.72(e). Therefore, a FLEX Trader must ensure it complies with another
exemption, such as the ``Effect vs. Execute'' exemption, when
submitting proprietary FLEX Orders for electronic execution.
    The ``Effect vs. Execute'' exemption permits an exchange member,
subject to certain conditions, to effect transactions for covered
accounts by arranging for an unaffiliated member to execute
transactions on the exchange. To

comply with Rule 11a2-2(T)'s conditions, a member: (a) Must transmit
the order from off the exchange floor; (b) may not participate in the
execution of the transaction once it has been transmitted to the member
performing the execution; \152\ (c) may not be affiliated with the
executing member; and (d) with respect to an account over which the
member has investment discretion, neither the member nor its associated
person may retain any compensation in connection with effecting the
transaction except as provided in the Rule. For the reasons set forth
below, the Exchange believes that TPHs entering orders into an
electronic FLEX Auction would satisfy the requirements of Rule 11a2-
2(T).
---------------------------------------------------------------------------

    \152\ The member may, however, participate in clearing and
settling the transaction.
---------------------------------------------------------------------------

    The Exchange believes the electronic platform component of the
electronic FLEX Auction will place all users--both TPHs and non-TPHs on
the ``same footing'' as intended by Rule11a2-2(T). Given the automated
matching and execution at the conclusion of an electronic FLEX Auction,
no TPH would enjoy any special control over the time of execution or
special order handling advances for orders executed electronically
following an electronic FLEX Auction, because such orders would be
centrally processed for execution by computer, as compared to being
handled by a member through bids and offers on the trading floor.
Because the electronic trading platform components are designed to
prevent any TPHs from gaining any time and place advantages, the
Exchange believes the proposed electronic FLEX Auction satisfies the
four components of the ``Effect vs. Execute'' rule as well as the
general policy objectives of Section 11(a) of the Act.
    In the context of automated trading systems, the Commission has
found that the off-floor transmission requirement is met if a covered
account order is transmitted from off the floor directly to the
Exchange by electronic means.\153\ Because the Exchange's electronic
FLEX Auction receives, and will continue to receive, orders from FLEX
Traders electronically through remote terminals or computer-to-computer
interfaces, the Exchange believes that orders submitted to an
electronic FLEX Auction from off the Exchange's trading floor will
satisfy the off-floor transmission requirement.
---------------------------------------------------------------------------

    \153\ See, e.g., Securities Exchange Act Release Nos. 61419
(January 26, 2010), 75 FR 5157 (February 1, 2010) (SR-BATS-2009-031)
(approving BATS options trading); 59154 (December 23, 2008), 73 FR
80468 (December 31, 2008) (SR-BSE-2008-48) (approving equity
securities listing and trading on BSE); 57478 (March 12, 2008), 73
FR 14521 (March 18, 2008) (SR-NASDAQ-2007-004 and SR-NASDAQ-2007-
080) (approving NOM options trading); 53128 (January 13, 2006), 71
FR 3550 (January 23, 2006) (File No. 10-131) (approving The Nasdaq
Stock Market LLC); 44983 (October 25, 2001), 66 FR 55225 (November
1, 2001) (SR-PCX-00-25) (approving Archipelago Exchange); 29237 (May
24, 1991), 56 FR 24853 (May 31, 1991) (SR-NYSE-90-52 and SR-NYSE-90-
53) (approving NYSE's Off-Hours Trading Facility); and 15533
(January 29, 1979), 44 FR 6084 (January 31, 1979) (``1979
Release'').
---------------------------------------------------------------------------

    The second condition of Rule 11a2-2(T) requires that neither a
member nor an associated person of such member participate in the
execution of its order. The Exchange represents that, upon submission
to an electronic FLEX Auction, an order or FLEX response will be
executed automatically pursuant to the Rules set forth for electronic
FLEX Auctions. In particular, execution of a FLEX Order or FLEX
response sent to the electronic FLEX Auction depends not on the FLEX
Trader entering the FLEX Order or FLEX response, but rather on what
other orders and responses are present and the priority of those orders
and responses. Thus, at no time following the submission of a FLEX
Order or FLEX response is a FLEX Trader or associated person of such
FLEX Trader able to acquire control or influence over the result or
timing of order or response execution.\154\ Once the FLEX Order or FLEX
response, as applicable, has been transmitted, the FLEX Trader that
submitted the order or response, respectively, will not participate in
its execution. No FLEX Trader, including the Submitting FLEX Trader,
will see a FLEX response submitted into an electronic FLEX Auction, and
therefore and will not be able to influence or guide the execution of
their FLEX Orders or FLEX responses, as applicable.
---------------------------------------------------------------------------

    \154\ Submitting FLEX Traders may modify or cancel their FLEX
Orders, and all FLEX Traders may modify or cancel their responses,
after being submitted to an electronic FLEX Auction. The Exchange
notes that the Commission has stated that the non-participation
requirement does not preclude members from cancelling or modifying
orders, or from modifying instructions for executing orders, after
they have been transmitted so long as such modifications or
cancellations are also transmitted from off the floor. See
Securities Exchange Act Release No. 14563 (March 14, 1978), 43 FR
11542, 11547 (the ``1978 Release'').
---------------------------------------------------------------------------

    Rule 11a2-2(T)'s third condition requires that the order be
executed by an exchange member who is unaffiliated with the member
initiating the order. The Commission has stated that the requirement is
satisfied when automated exchange facilities, such as the electronic
FLEX Auction, are used, as long as the design of these systems ensures
that members do not possess any special or unique trading advantages in
handling their orders after transmitting them to the exchange.\155\ The
Exchange represents that the electronic FLEX Auction is designed so
that no FLEX Trader has any special or unique trading advantage in the
handling of its orders after transmitting its orders to the mechanism.
---------------------------------------------------------------------------

    \155\ In considering the operation of automated execution
systems operated by an exchange, the Commission noted that, while
there is not an independent executing exchange member, the execution
of an order is automatic once it has been transmitted into the
system. Because the design of these systems ensures that members do
not possess any special or unique trading advantages in handling
their orders after transmitting them to the exchange, the Commission
has stated that executions obtained through these systems satisfy
the independent execution requirement of Rule 11a2-2(T). See 1979
Release.
---------------------------------------------------------------------------

    A TPH (not acting in a market-maker capacity) could submit an order
for a covered account from off of the Exchange's trading floor to an
unaffiliated Floor Broker for submission for execution in the FLEX
Auction from the trading floor and satisfy the ``Effect vs. Execute''
exemption (assuming the other conditions are satisfied).\156\ However,
a TPH could not submit an order for a covered account to its ``house''
Floor Broker on the trading floor for execution and rely on this
exemption. Because a TPH may not rely on the ``G'' exemption when
submitting a FLEX Order to an electronic FLEX Auction,\157\ it would
need to ensure another exception applies in this situation.
---------------------------------------------------------------------------

    \156\ Orders for covered accounts that rely on the ``Effect vs.
Execute'' exemption in this scenario must be transmitted from a
remote location directly to the Floor Broker on the trading floor by
electronic means.
    \157\ See proposed Rule 5.72(e).
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    Rule 11a2-2(T)'s fourth condition requires that, in the case of a
transaction effected for an account with respect to which the
initiating member or an associated person thereof exercises investment
discretion, neither the initiating member nor any associated person
thereof may retain any compensation in connection with effecting the
transaction, unless the person authorized to transact business for the
account has expressly provided otherwise by written contract referring
to Section 11(a) of the Act and Rule 11a2-2(T) thereunder.\158\ The
Exchange

recognizes that FLEX Traders relying on Rule 11a2-2(T) for transactions
effected through the electronic FLEX Auction must comply with this
condition of the Rule, and the Exchange will enforce this requirement
pursuant to its obligations under Section 6(b)(1) of the Act to enforce
compliance with federal securities laws.
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    \158\ See 17 CFR 240.11a2-2(T)(a)(2)(iv). In addition, Rule
11a2-2(T)(d) requires a member or associated person authorized by
written contract to retain compensation, in connection with
effecting transactions for covered accounts over which such member
or associated persons thereof exercises investment discretion, to
furnish at least annually to the person authorized to transact
business for the account a statement setting forth the total amount
of compensation retained by the member in connection with effecting
transactions for the account during the period covered by the
statement which amount must be exclusive of all amounts paid to
others during that period for services rendered to effect such
transactions. See also 1978 Release (stating ``[t]he contractual and
disclosure requirements are designed to assure that accounts
electing to permit transaction-related compensation do so only after
deciding that such arrangements are suitable to their interests'').
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    Therefore, Exchange believes that the instant proposal is
consistent with Rule 11a2-2(T), and that therefore the exception should
apply in this case. Therefore, the Exchange believes the proposed rule
change is consistent with Section 11(a) of the Act and the rules
thereunder.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The Exchange does not
believe the proposed rule change will impose any burden on intramarket
competition, as the proposed rule change will apply in the same manner
to all FLEX Orders submitted for electronic or open outcry execution.
The trading of FLEX Auctions, and the use of either of the proposed
FLEX Auctions, are voluntary for TPHs to use and will be available to
all TPHs that register with the Exchange as FLEX Traders. As discussed
above, the Exchange believes the proposed rule change should encourage
FLEX Traders to compete amongst each other by responding with their
best price and size for a particular auction. Because bids and offers
in response to an Auction (whether electronic or open outcry) will have
the same opportunity to execute against the FLEX Order (which is
allocated in a pro-rata manner against bids and offers at the same
price), a FLEX Trader will be encouraged to respond to FLEX Auctions
with bids and offers at the best and most aggressive prices. The
Exchange believes the proposed rule change will encourage FLEX Traders
to compete vigorously to provide the opportunity for price improvement
for FLEX Orders in a competitive auction process.
    The Exchange does not believe the proposed rule change will impose
any burden on intermarket competition. The proposed rule change
simplifies the FLEX trading principles, and harmonizes the FLEX auction
trading procedures with the non-FLEX trading. The Exchange believes
aligning FLEX trading processes with non-FLEX trading processes with
which FLEX Traders are familiar may further encourage FLEX trading on
the Exchange. The Exchange believes this is a further improved and
comparable alternative to the OTC market in customized options. By
enhancing our FLEX trading platform and making it similar to trading
procedures in non-FLEX options, with which market participants are
generally more familiar, the Exchange believes it may be a more
attractive alternative to the OTC market. The Exchange believes market
participants benefit from being able to trade customized options in an
exchange environment in several ways, including but not limited to the
following: (1) Enhanced efficiency in initiating and closing out
position; (2) increased market transparency; and (3) heightened contra-
party creditworthiness due to the role of OCC as issuer and guarantor
of FLEX Options.

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 \159\ and Rule
19b-4(f)(6) thereunder.\160\
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    \159\ 15 U.S.C. 78s(b)(3)(A).
    \160\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires a self-regulatory organization to give the Commission
written notice of its 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.
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    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the
Act \161\ normally does not become operative for 30 days after the date
of its filing. However, Rule 19b-4(f)(6)(iii) \162\ permits the
Commission to designate a shorter time if such action is consistent
with the protection of investors and the public interest. The Exchange
has requested that the Commission 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 FLEX trading functionality to market
participants on an uninterrupted basis. In support of its waiver
request, the Exchange cites to similarities between its proposed rule
and the rules for non-FLEX transactions pursuant to the Exchange's
standard auction process.\163\ In addition, the Exchange notes
similarities to certain functionalities already in place on other
exchanges.\164\ Additionally, the Exchange states that the proposal
relocates certain rules from the current Rulebook to the shell
Rulebook, including flexible terms and fungibility provisions, and
makes only non-substantive changes to such provisions, which the
Exchange believes will have no impact on FLEX trading. The Exchange
further notes that it has provided market participants with notice of
this change in advance of the system migration.\165\ For these reasons,
the Commission believes that waiving 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 upon filing.\166\
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    \161\ 17 CFR 240.19b-4(f)(6).
    \162\ 17 CFR 240.19b-4(f)(6)(iii).
    \163\ See, e.g., Rule 5.33(d) and Rule 5.85(a) of the shell
Rulebook.
    \164\ See supra note 146.
    \165\ See supra note 6.
    \166\ For purposes only of waiving the 30-day operative delay,
the Commission also has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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    At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission 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<EMAIL_ADDRESS>Please include
File Number SR-CBOE-2019-084 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-2019-084. 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-2019-084 and should be submitted on
or before October 31, 2019.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\167\
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    \167\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-22144 Filed 10-9-19; 8:45 am]
 BILLING CODE 8011-01-P


[Federal Register: November 18, 2010 (Volume 75, Number 222)]
[Notices]
[Page 70740]
[DOCID:fr18no10-83]

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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

[Docket No. ER11-2037-000]

Elk City II Wind, LLC; Supplemental Notice That Initial Market-
Based Rate Filing Includes Request for Blanket Section 204
Authorization

November 8, 2010.
    This is a supplemental notice in the above-referenced proceeding of
Elk City II Wind, LLC's application for market-based rate authority,
with an accompanying rate tariff, noting that such application includes
a request for blanket authorization, under 18 CFR Part 34, of future
issuances of securities and assumptions of liability.
    Any person desiring to intervene or to protest should file with the
Federal Energy Regulatory Commission, 888 First Street, NE.,
Washington, DC 20426, in accordance with Rules 211 and 214 of the
Commission's Rules of Practice and Procedure (18 CFR 385.211 and
385.214). Anyone filing a motion to intervene or protest must serve a
copy of that document on the Applicant.
    Notice is hereby given that the deadline for filing protests with
regard to the applicant's request for blanket authorization, under 18
CFR Part 34, of future issuances of securities and assumptions of
liability, is November 29, 2010.
    The Commission encourages electronic submission of protests and
interventions in lieu of paper, using the FERC Online links at http://
www.ferc.gov. To facilitate electronic service, persons with Internet
access who will eFile a document and/or be listed as a contact for an
intervenor must create and validate an eRegistration account using the
eRegistration link. Select the eFiling link to log on and submit the
intervention or protests.
    Persons unable to file electronically should submit an original and
14 copies of the intervention or protest to the Federal Energy
Regulatory Commission, 888 First Street, NE., Washington, DC 20426.
    The filings in the above-referenced proceeding are accessible in
the Commission's eLibrary system by clicking on the appropriate link in
the above list. They are also available for review in the Commission's
Public Reference Room in Washington, DC. There is an eSubscription link
on the Web site that enables subscribers to receive e-mail notification
when a document is added to a subscribed docket(s). For assistance with
any FERC Online service, please e-mail<EMAIL_ADDRESS>or
call<PHONE_NUMBER> (toll free). For TTY, call<PHONE_NUMBER>.

Nathaniel J. Davis, Sr.,
Deputy Secretary.
[FR Doc. 2010-29038 Filed 11-17-10; 8:45 am]
BILLING CODE 6717-01-P