[Federal Register Volume 84, Number 215 (Wednesday, November 6, 2019)]
[Notices]
[Pages 59866-59878]
[FR Doc No: 2019-24185]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87435; File No. SR-CboeEDGX-2019-064]

Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice
of Filing of a Proposed Rule Change To Adopt Rule 21.23 (Complex
Solicitation Auction Mechanism)

October 31, 2019.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on October 23, 2019, Cboe EDGX Exchange, Inc. (the ``Exchange'' or
``EDGX'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of the
Substance of the Proposed Rule Change

    Cboe EDGX Exchange, Inc. (the ``Exchange'' or ``EDGX'') proposes to
adopt Rule 21.23. The text of the proposed rule change is provided in
Exhibit 5.
    The text of the proposed rule change is also available on the
Exchange's website (http://markets.cboe.com/us/options/regulation/rule_filings/edgx/), at the Exchange's Office of the Secretary, and at
the Commission's Public Reference Room.

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

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

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

1. Purpose
    The proposed rule change permits use of its Solicitation Auction
Mechanism (``SAM'') for complex orders. Specifically, the proposed rule
change adopts Rule 21.23, which describes how complex orders may be
submitted to and will be processed in a SAM Auction (``C-SAM'' or ``C-
SAM Auction''). Complex orders will be processed and executed in a C-
SAM Auction pursuant to proposed Rule 21.23 in a similar manner as
simple orders are processed and executed in a SAM Auction pursuant to
Rule 21.21.\3\ C-SAM will provide market participants with an
opportunity to receive price improvement for their larger-sized complex
orders. The proposed rule change is substantially the same as the
complex order solicitation price improvement mechanism of Cboe

Options, as well as other options exchanges.\4\
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    \3\ The Exchange notes the Securities and Exchange Commission
(the ``Commission'') recently approved Rule 21.21 regarding the
Exchange's SAM Auction, which the Exchange intends to make available
upon approval of this rule filing. See Securities Exchange Act
Release No. 87060 (September 23, 2019), 84 FR 51211 (September 27,
2019) (SR-CboeEDGX-2019-047).
    \4\ See Cboe Options Rule 5.40; see also, e.g., Nasdaq ISE, LLC
(``ISE'') Options 3, Section 11(e).
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    The Exchange believes the similarity of C-SAM to SAM, AIM, and C-
AIM and the mechanisms of other exchanges will allow the Exchange's
proposed price improvement functionality to fit seamlessly into the
options market and benefit market participants who are already familiar
with this similar functionality. The Exchange also believes this will
encourage Options Members to compete vigorously to provide the
opportunity for price improvement for complex orders in a competitive
auction process.
    An Options Member (the ``Initiating Member'') may electronically
submit for execution a complex order it represents as agent (``Agency
Order'') against a solicited complex order(s) (which cannot have a
Capacity of F for the same EFID as the Agency Order) \5\ (a ``Solicited
Order'') if it submits the Agency Order for electronic execution into a
C-SAM Auction pursuant to proposed Rule 21.23. The Agency Order and
Solicited Order cannot both be for the accounts of a customer. The
Exchange believes it is appropriate for such customer-to-customer
crosses to be submitted to a C-AIM Auction pursuant to Rule 21.22, as
that rule contains a provision for Customer-to-Customer Immediate AIM
Crosses for complex orders. For purposes of proposed Rule 21.23, the
term ``SBBO'' means the synthetic best bid or offer \6\ at the
particular point in time applicable to the reference.\7\
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    \5\ Because the Solicited Order cannot be facilitated by the
Initiating Member, the Exchange proposes to add these systematic
blocks, and will also conduct surveillance for compliance with the
rule that prevents the Solicited Order from being a facilitation.
Additionally, bulk messages (the equivalent of quoting
functionality) are not available for complex orders. See Rule
21.20(b).
    \6\ The SBBO is calculated using the best displayed price for
each component of a complex strategy from the Simple Book. See Rule
21.20(a)(11).
    \7\ See proposed introductory paragraph to Rule 21.23. This
proposed paragraph is the same as the corresponding paragraph for
simple SAM (introductory paragraph to Rule 21.21), except it refers
to SBBO rather than the national best bid or offer (``NBBO''). There
is no NBBO for complex orders, as complex orders may be executed
without consideration of any prices for the complex strategy that
might be available on other exchanges trading the same complex
strategy. See Rule 21.20(c)(2)(E). Additionally, executions of legs
of complex orders are exceptions to the prohibition of trade-
throughs. See Rule 27.2(b)(8).
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    Unlike simple SAM, there is no restriction on the solicited order
being for the account of any Options Market Maker registered in the
applicable series on the Exchange, as there are no Market Maker
appointments to complex strategies. With respect to the simple markets,
appointed Market Makers have a variety of obligations related to
providing liquidity and making competitive markets in their appointed
classes. Therefore, prohibiting Market-Makers from being solicited in a
simple SAM Auction may encourage those Market-Makers to provide
liquidity in that auction to provide liquidity through responses, as
well as quotes on the Book that may have the opportunity to execute
against the Agency Order. Because Market-Makers have no obligations to
provide liquidity to complex markets (and there is no quoting
functionality available in the complex order book (``COB'')), appointed
Market-Makers are on equal footing with all other market participants
with respect to C-SAM Auctions. Permitting Market-Makers to be
solicited provides all market participants with the opportunity to
provide liquidity to execute against Agency Orders in C-SAM Auctions in
the same manner (both through solicitation, responses, and interest
resting on the COB). Rule 21.22 similarly does not restrict appointed
Market-Makers from being solicited to participate on the contra-side of
C-AIM Auctions.\8\
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    \8\ Cboe Options Rule 5.40 similarly does not prohibit appointed
Market-Makers from being solicited. See also NYSE American, LLC
(``American'') Rule 971.2NY(a)(1) (which permits all users except
customers from being solicited as the contra-party).
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    The Exchange does not believe permitting an appointed Market-Maker
to be solicited for a C-SAM Auction provides the Market-Maker with any
advantages with respect to its potential quotes in the applicable
series in the Simple Book. Rule 18.4 prohibits any Options Member from
misusing material nonpublic information, and requires Options Members
to have policies and procedures designed to prevent the misuse of
material nonpublic information. When a market participant is solicited
to be the contra-side in a crossing auction, the knowledge of that
auction is not yet public. If an appointed Market-Maker was solicited
for a C-SAM Auction and modified its quotes in the Simple Book in the
applicable series in response to that auction, the Exchange may
determine that to be a violation of Rule 18.4. Such an action would
only impact C-SAM Auction execution prices if those quotes were at the
BBO in the applicable series. This is true for any Options Member
solicited for a C-SAM Auction that modified the prices of any orders it
has resting in the applicable legs in the Simple Book or in the
applicable complex strategy resting in the COB, as C-SAM permissible
execution prices are based on all interest resting in the Simple Book.
    As defined, the Solicited Order may be comprised of multiple
orders, in which case they must total the same size as the Agency
Order. This will accommodate multiple contra-parties and increase the
opportunities for customer orders to be submitted into a C-SAM Auction
with the potential for price improvement, since the Solicited Order
must stop the full size of the Agency Order. This will have no impact
on the execution of the Agency Order, which may trade against multiple
contra-parties depending on the final execution price(s), as set forth
in proposed paragraph (e). The Exchange notes that with regard to order
entry, the first order submitted into the system is marked as the
agency side and the second order is marked as the initiating/contra-
side. Additionally, the Solicited Order will always be entered as a
single order, even if that order consists of multiple contra-parties,
which are allocated their portion of the trade in a post-trade
allocation.\9\
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    \9\ See Rule 21.22, introductory paragraph; see also Cboe
Options Rule 5.40, introductory paragraph; and ISE Regulatory
Information Circular 2014-013 (which states that the contra-side
order submitted into a crossing mechanism (including the ISE
solicited order mechanism) may consist of one or more parties).
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    The Initiating Member may initiate a C-SAM Auction if all of the
following conditions are met:
     The Agency Order may be in any class of options traded on
the Exchange.\10\
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    \10\ See proposed Rule 21.23(a)(1). Cboe Options Rule 5.40(a)(1)
permits Cboe Options to make C-SAM available on a class-by-class
basis. The Exchange does not believe it currently needs this
flexibility.
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     The Initiating Member must mark an Agency Order for C-SAM
Auction processing.\11\
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    \11\ See proposed Rule 21.23(a)(2); see also Cboe Options Rule
5.40(a)(2).
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     The smallest leg of the Agency Order must be for at least
the minimum size designated by the Exchange (which may not be less than
500 standard option contracts or 5,000 mini-option contracts). The
Solicited Order must be for (or must total, if the Solicited Order is
comprised of multiple solicited orders) the same size as the Agency
Order. The System handles each of the Agency Order and the Solicited
Order as an all-or-none (``AON'') order.\12\
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    \12\ See proposed Rule 21.23(a)(3); see also Cboe Options Rule
5.40(a)(3). The Exchange notes Rule 21.21(a)(3) requires the
Initiating Member to designate the Agency Order and Solicited Order
as AON. However, C-SAM functionality will automatically handle any
orders submitted to the Exchange on a C-SAM message as AON, and thus
will not require the Initiating Member to include an instruction on
the orders for them to be handled as AON. The Exchange intends to
amend Rule 21.21 in a separate rule filing to conform to the
proposed provision.

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     The price of the Agency Order and Solicited Order must be
in an increment of $0.01.\13\
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    \13\ See proposed Rule 21.23(a)(4). Cboe Options Rule 5.40(a)(4)
permits Cboe Options to apply different minimum increments for C-SAM
on a class-by-class basis. The Exchange does not believe it
currently needs this flexibility.
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     The Initiating Member may not designate an Agency Order or
Solicited Order as Post Only.\14\
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    \14\ See proposed Rule 21.23(a)(5); see also Cboe Options Rule
5.40(a)(5).
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     The Initiating Member may only submit an Agency Order to a
C-SAM Auction after the complex order book (``COB'') opens.\15\
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    \15\ See proposed Rule 21.23(a)(6); see also Cboe Options Rule
5.40(a)(6).
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    The System rejects or cancels both an Agency Order and Solicited
Order submitted to a C-SAM Auction that do not meet these
conditions.\16\
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    \16\ See proposed Rule 21.23(a). Proposed paragraph (a) is the
same as the corresponding paragraph for simple SAM (see Rule
21.21(a)), except the proposed rule change does not provide that an
Initiating Member may not submit an Agency Order if the NBBO is
crossed (unless the Agency Order is a SAM ISO. As noted above, there
is no NBBO for complex orders, and the legs of complex orders are
not subject to the restriction on NBBO trade-throughs. Additionally,
the proposed rule change references the opening of the COB rather
than the market open, as the opening of the COB is when complex
orders may begin trading.
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    The proposed introductory paragraph for Rule 21.23 is the same as
the corresponding paragraph for C-AIM Auctions in Rule 21.22, which is
the Exchange's price improvement crossing auction for complex Agency
Orders of all sizes and substantially similar to the Exchange's C-SAM
Auctions, except C-AIM Auctions permit facilitations and customer-to-
customer immediate crosses, while C-SAM Auctions only permit
solicitations of larger-sized orders and do not permit customer-to-
customer immediate crosses, as set forth above.\17\
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    \17\ The proposed introductory paragraph is also substantially
the same as the introductory paragraph in Rule 21.21, which is the
rule describing the Exchange's simple SAM Auction.
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    The Solicited Order must stop the entire Agency Order at a price
that satisfies the following:
     If the Agency Order is to buy (sell) and (a) the
applicable side of the BBO on any component of the complex strategy
represents a Priority Customer order on the Simple Book, the stop price
must be at least $0.01 better than the SBB (SBO); or (b) the applicable
side of the BBO on each component of the complex strategy represents a
non-Priority Customer order or quote on the Simple Book, the stop price
must be at or better than the SBB (SBO). This ensures the execution
price of the Agency Order will improve the SBBO if there is a Priority
Customer order in any of the legs on the Simple Book. The proposed rule
change protects Priority Customers in any of the component legs of the
Agency Order in the Simple Book. By permitting a Priority Customer
Agency Order to trade at the SBBO if there is a resting non-Priority
Customer order in the Book, the proposed rule change also protects
Priority Customer orders submitted into a C-SAM Auction. The Exchange
believes the proposed rule change is consistent with general customer
priority principles.\18\
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    \18\ See also Rule 21.22(b)(1). General principles of customer
priority ensure the execution price of complex orders will not be
executed at prices inferior to the SBBO or at a price equal to the
SBBO when there is a Priority Customer at the BBO for any component.
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     If the Agency Order is to buy (sell) and a buy (sell)
complex order rests on the COB, the stop price must be at least $0.01
better than the bid (offer) of the resting complex order, unless the
Agency Order is a Priority Customer order and the resting order is not
a Priority Customer, in which case the stop price must be at or better
than the bid (offer) of the resting complex order. This ensures the
execution price of the Agency Order will improve the price of any
resting Priority Customer complex orders on the COB, and that the
execution price of a Priority Customer Agency Order will not be
inferior to the price of any resting non-Priority Customer complex
orders on the COB. The proposed rule change protects Priority Customers
on the same side of the COB as the current rule does. By permitting a
Priority Customer Agency Order to trade at the same price as a resting
non-Priority Customer order, the proposed rule change also protects
Priority Customer orders submitted into a C-SAM Auction. Application of
this check at the initiation of a C-SAM Auction may result in the
Agency Order executing at a better price, since the stop price must
improve any same-side complex orders (with the exception of a Priority
Customer Agency Order and a resting non-Priority Customer order
described above). The proposed rule change is consistent with general
customer priority principles.\19\
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    \19\ See also Rule 21.22(b)(2).
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     If the Agency Order is to buy (sell) and (a) the BBO of
any component of the complex strategy represents a Priority Customer
order on the Simple Book, the stop price must be at least $0.01 better
than the SBO (SBB), or (b) the BBO of each component of the complex
strategy represents a non-Priority Customer order on the Simple Book,
the stop price must be at or better than the SBO (SBB). This ensures
the execution price of the Agency Order will improve the price of any
Priority Customer orders resting in the Simple Book at the opposite
side of the SBBO, and not be through the opposite side of the SBBO.\20\
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    \20\ See also Rule 21.22(b)(3).
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     If the Agency Order is to buy (sell) and the best-priced
sell (buy) complex order on the COB represents (a) a Priority Customer
complex order, the stop price must be at least $0.01 better than the
SBO (SBB); or (b) a complex order that is not a Priority Customer, the
stop price must be at or better than the price of the resting complex
order. This ensures the execution price of the Agency Order will
improve the price of any Priority Customer complex orders resting in
the COB at the same price as the stop price, and not be through the
price of any other complex order resting in the COB.\21\
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    \21\ There is no corresponding provision in Rule 21.22(b),
because orders submitted into C-AIM auctions do not have AON
contingencies, and Agency Orders submitted into those auctions may
trade against both the contra-side order and other contra-side
interest.
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    These proposed price checks are consistent with the permissible
execution prices as set forth in proposed paragraph (e), as described
below. The System rejects or cancels both an Agency Order and Solicited
Order submitted to a C-SAM Auction that do not meet the conditions in
this paragraph (b).\22\
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    \22\ Proposed Rule 21.23(b) is virtually identical to Cboe
Options Rule 5.40(b), except the Cboe Options rule accounts for the
possibility that there may be a different minimum increment other
than $0.01.
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    Upon receipt of an Agency Order that meets the above conditions,
the C-SAM Auction process commences. One or more C-SAM Auctions in the
same complex strategy may occur at the same time. C-SAM Auctions in
different complex strategies may be ongoing at any given time, even if
the complex strategies have overlapping components. A C-SAM Auction may
be ongoing at the same time as a SAM Auction in any component of the
complex strategy.
    To the extent there is more than one C-SAM Auction in a complex
strategy underway at a time, the C-SAM Auctions conclude sequentially
based on the exact time each C-SAM Auction commenced, unless terminated
early pursuant to proposed paragraph (d). In the event there are
multiple C-SAM Auctions underway that are each terminated early
pursuant to proposed paragraph (d), the System processes the

C-SAM Auctions sequentially based on the exact time each C-SAM Auction
commenced. If the System receives a simple order that causes a SAM
Auction and C-SAM Auction (or multiple SAM and/or C-SAM Auctions) to
conclude pursuant to proposed paragraph (d) and Rule 21.21(d), the
System first processes SAM Auctions (in price-time priority) and then
processes C-SAM Auctions (in price-time priority). At the time each C-
SAM Auction concludes, the System allocates the Agency Order pursuant
to proposed paragraph (e) and takes into account all C-SAM Auction
responses and unrelated orders and quotes in place at the exact time of
conclusion.\23\
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    \23\ See proposed Rule 21.23(c)(1); see also Rule 21.22(c)(1)
and Cboe Options Rule 5.40(c)(1). Proposed paragraph (c)(1) is the
same as the corresponding paragraph for simple SAM (see Rule
21.21(c)(1)), except the proposed change adds how the System will
handle ongoing auctions that include an overlapping component
(whether that component is the subject of an ongoing simple SAM
Auction or part of a complex strategy for which a different C-SAM
Auction is ongoing).
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    The Exchange currently permits concurrent AIM Auctions in the same
series (for Agency Orders of 50 or more contracts), concurrent SAM
Auctions in the same series, and concurrent C-AIM Auctions in the same
complex strategy,\24\ and thus believes it is appropriate to similarly
permit concurrent C-SAM Auctions in the same complex strategy. The
Exchange believes it is appropriate to permit concurrent C-SAM Auctions
in the same complex strategy for the same reasons it permits concurrent
C-AIM Auctions for larger-sized orders, and for the same reasons it
permits concurrent simple AIM and SAM Auctions to occur. Different
complex strategies are essentially different products, as orders in
those strategies cannot interact, just as orders in different series or
classes cannot interact. Therefore, the Exchange believes concurrent C-
SAM Auctions in different complex strategies is appropriate given that
concurrent simple AIM Auctions in different series or different classes
may occur. Similarly, while it is possible for a complex order to leg
into the Simple Book, a complex order may only execute against simple
orders if there is interest in each component in the appropriate ratio
for the complex strategy. A simple order in one component of a complex
strategy cannot on its own interact with a complex order in that
complex strategy. Therefore, the Exchange believes it is appropriate to
permit concurrent SAM and C-SAM Auctions that share a component. As
proposed, C-SAM Auctions will ensure that Agency Orders execute at
prices that protect Priority Customer orders in the Simple Book and
that are not inferior to the SBBO at the conclusion of the C-SAM
Auction, even when there are concurrent simple and complex auctions
occurring. The proposed rule change sets forth how any auctions with
overlapping components will conclude if terminated due to the same
event.
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    \24\ See Rules 21.19(c)(1), 21.21(c)(1), and 21.22 (c)(1); see
also Cboe Options Rule 5.40(c)(1).
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    The Exchange notes it is currently possible for auctions in a
component leg and a complex strategy containing that component (such as
a simple AIM Auction in the component and a C-AIM in the complex
strategy that contains that component) to occur concurrently. While
these auctions may be occurring at the same time, they will be
processed in the order in which they are terminated (similar to how the
System will process auctions as proposed above). In other words,
suppose there is an AIM Auction in a series and a C-AIM in a complex
strategy for which one of the components is the same series both
occurring, which began and will terminate in that order, and each of
which last 100 milliseconds. While it is possible for both auctions to
terminate nearly simultaneously, the System will still process them in
the order in which they terminate. When the AIM Auction terminates, the
System will process it in accordance with Rule 21.19, and the auctioned
order may trade against any resting interest (in addition to the
contra-side order and responses submitted to that AIM Auction, which
may only trade against the order auctioned in that AIM pursuant to Rule
21.19). The System will then process the C-AIM Auction when it
terminates, and the auctioned order may trade against any resting
interest (in addition to the contra-side order and responses submitted
to that C-AIM Auction, which may only trade against the Agency Order
auctioned in that C-AIM), pursuant to Rule 21.22.
    The System initiates the C-SAM Auction process by sending a C-SAM
Auction notification message detailing the side, size, price, Capacity,
Auction ID, and complex strategy of the Agency Order to all Options
Members that elect to receive C-SAM Auction notification messages. C-
SAM Auction notification messages are not included in OPRA.\25\ A C-SAM
Auction will last for a period of time determined by the Exchange,
which may be no less than 100 milliseconds and no more than one
second.\26\ An Initiating Member may not modify or cancel an Agency
Order or Solicited Order after submission to a C-SAM Auction.\27\
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    \25\ See proposed Rule 21.23(c)(2); see also Rule 21.22(c)(2)
and Cboe Options Rule 5.40(c)(2). The proposed C-SAM Auction
notification message is the same as the corresponding message for
simple SAM (see Rule 21.21(c)(2)), except the proposed rule change
indicates the notification message for a C-SAM Auction will include
the complex strategy rather than the series.
    \26\ See proposed Rule 21.23(c)(3); see also Rule 21.22(c)(3)
and Cboe Options Rule 5.40(c)(3). The proposed C-SAM Auction period
is also the same as the auction period for simple SAM (see Rule
21.21(c)(3)). The Exchange will make announce the length of the C-
SAM Auction period to Options Members pursuant to Rule 16.3.
    \27\ See proposed Rule 21.23(c)(4); see also Rule 21.22(c)(4)
and Cboe Options Rule 5.40(c)(4). The proposed C-SAM Auction
notification message is the same as the corresponding provision for
simple SAM (see Rule 21.21(c)(4)), except it includes the complex
strategy rather than the series.
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    Any User other than the Initiating Member (the response cannot have
the same EFID as the Agency Order) \28\ may submit responses to a C-SAM
Auction that are properly marked specifying size, side of the market,
and the Auction ID for the C-SAM Auction to which the User is
submitting the response. A C-SAM Auction response may only participate
in the C-SAM Auction with the Auction ID specified in the response.\29\
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    \28\ Permitting the Initiating Member to respond to a C-SAM
Auction would be inconsistent with the purpose of the auction, which
is to cross solicited interest, rather than facilitated interest.
Similar to the restriction that the Solicited Order cannot be for
the Initiating Member, the Exchange proposes to add a systematic
block, but will conduct surveillance for compliance with the rule
that prevents the response from being for the Initiating Member (so
that a response cannot be used in place of a facilitation order).
    \29\ See proposed Rule 21.23(c)(5); see also Rule 21.22(c)(5)
and Cboe Options Rule 5.40(c)(5). The proposed provisions regarding
C-SAM responses are the same as the provisions regarding SAM
responses, except as set forth below. See Rule 21.21(c)(5).
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     The minimum price increment for C-SAM responses is $0.01.
The System rejects a C-SAM response that is not in a $0.01
increment.\30\
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    \30\ See proposed Rule 21.23(c)(5)(A); see also Rule
21.22(c)(5)(A). The proposed minimum increment for C-SAM responses
is the same as the minimum increment for SAM responses. See Rule
21.21(c)(5)(A). Cboe Options Rule 5.40(c)(5)(A) provides Cboe
Options with flexibility to apply a different minimum increment to
C-SAM responses. The Exchange does not currently believe it needs
this flexibility.
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     C-SAM responses are capped at the following prices that
exist at the conclusion of the C-SAM Auction: (i) The better of the SBO
(SBB) or the offer (bid) of a resting complex order at the top of the
COB; or (ii) $0.01 lower (higher) than the better of the SBO (SBB) or
the offer (bid) of a resting complex order at the top of the COB if the
BBO of any component of the complex strategy or the resting complex
order, respectively, is a Priority Customer order. The System executes
these C-SAM responses, if possible, at the most

aggressive permissible price not outside the SBBO at the conclusion of
the C-SAM Auction or price of the resting complex order. This will
ensure the execution price is at or better than the SBBO (or better
than the SBBO if any component is represented by a Priority Customer
order) or prices of resting complex orders (or better than the best-
priced resting complex order if represented by a Priority Customer
complex order) at the end of the C-SAM Auction as set forth in proposed
Rule 21.23(e). Therefore, as proposed, the price at which any response
may be entered (and thus be executed) will ultimately not be through
the SBBO or the best-priced resting orders on the COB at the conclusion
of the C-SAM Auction.\31\
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    \31\ See proposed Rule 21.23(c)(5)(B); see also Rule
21.22(c)(5)(B) and Cboe Options Rule 5.40(c)(5)(B). This proposed
provision is similar to the corresponding provision for SAM
responses, except it refers to the SBBO and prices of complex order
rather than the NBBO. See Rule 21.21 (c)(5)(B).
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     A User may submit multiple C-SAM responses at the same or
multiple prices to a C-SAM Auction. The System aggregates all of a
User's complex orders on the COB and C-SAM responses for the same EFID
at the same price.\32\ The Exchange believes this is appropriate since
all interest at a single price is considered for execution against the
Agency Order at that price, and can then together be subject to the
size cap, as discussed below. This (combined with the proposed size cap
described below) will prevent an Options Member from submitting
multiple orders or responses at the same price to obtain a larger pro-
rata share of the Agency Order.
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    \32\ See proposed Rule 21.23(c)(5)(C); see also Rule
21.22(c)(5)(C) and Cboe Options Rule 5.40(c)(5)(C). This is the same
as the corresponding provision for simple SAM, except it proposes to
aggregate responses with complex order interest rather than simple
order interest. See Rule 21.21(c)(5)(C).
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     The System caps the size of a C-SAM response, or the
aggregate size of a User's complex orders on the COB and C-SAM
responses for the same EFID at the same price, at the size of the
Agency Order (i.e., the System ignores size in excess of the size of
the Agency Order when processing the C-SAM Auction). The Exchange
believes this will prevent an Options Member from submitting an order
or response with an extremely large size in order to obtain a larger
pro-rata share of the Agency Order.\33\
---------------------------------------------------------------------------

    \33\ See proposed Rule 21.23(c)(5)(D); see also Rule
21.22(c)(5)(D) and Cboe Options Rule 5.40(c)(5)(D). This is the same
as the corresponding provision for simple SAM, except it proposes to
aggregate responses with complex order interest, and cap aggregate
complex size, rather than simple order interest. See Rule
21.21(c)(5)(D).
---------------------------------------------------------------------------

     C-SAM responses must be on the opposite side of the market
as the Agency Order. The System rejects a C-SAM response on the same
side of the market as the Agency Order.\34\
---------------------------------------------------------------------------

    \34\ See proposed Rule 21.23(c)(5)(E); see also Rule
21.22(c)(5)(E) and Cboe Options Rule 5.40(c)(5)(E). This is the same
as the corresponding provision for simple SAM. See Rule
21.21(c)(5)(E).
---------------------------------------------------------------------------

     C-SAM responses are not visible to C-SAM Auction
participants or disseminated to OPRA.\35\
---------------------------------------------------------------------------

    \35\ See proposed Rule 21.23(c)(5)(F); see also Rule
21.22(c)(5)(H) and Cboe Options Rule 5.40(c)(5)(F). This is the same
as the corresponding provision for simple SAM. See Rule
21.21(c)(5)(F).
---------------------------------------------------------------------------

     A User may modify or cancel its C-SAM responses during the
C-SAM Auction.\36\
---------------------------------------------------------------------------

    \36\ See proposed Rule 21.23(c)(5)(G); see also Rule
21.22(c)(5)(I) and Cboe Options Rule 5.40(c)(5)(G). This is the same
as the corresponding provision for simple SAM. See Rule
21.21(c)(5)(G).
---------------------------------------------------------------------------

    Pursuant to proposed Rule 21.23(d), a C-SAM Auction concludes at
the earliest to occur of the following times:
     The end of the C-SAM Auction period;
     upon receipt by the System of an unrelated non-Priority
Customer complex order on the same side as the Agency Order that would
post to the COB at a price better than the stop price;
     upon receipt by the System of an unrelated Priority
Customer complex order on the same side as the Agency Order that would
post to the COB at a price equal to or better than the stop price;
     upon receipt by the System of an unrelated non-Priority
Customer order or quote that would post to the Simple Book and cause
the SBBO on the same side as the Agency Order to be better than the
stop price;
     upon receipt by the System of a Priority Customer order in
any component of the complex strategy that would post to the Simple
Book and cause the SBBO on the same side as the Agency Order to be
equal to or better than the stop price;
     upon receipt by the System of a simple non-Priority
Customer order that would cause the SBBO on the opposite side of the
Agency Order to be better than the stop price, or a Priority Customer
order that would cause the SBBO on the opposite side of the Agency
Order to be equal to or better than the stop price;
     upon receipt by the System of an order that would cause
the SBBO to be a price not permissible under the Limit Up-Limit Down
Plan or Regulation SHO, provided, however, that in such instance, the
C-SAM Auction concludes without execution;
     the market close; and
     any time the Exchange halts trading in the complex
strategy or any component of the complex strategy, provided, however,
that in such instance, the C-SAM Auction concludes without
execution.\37\
---------------------------------------------------------------------------

    \37\ See proposed Rule 21.23(d). The proposed events that cause
a C-SAM Auction to conclude are the same as those that cause a C-AIM
Auction to conclude (see Rule 21.22(d)) and the same as those that
cause a C-SAM Auction to conclude on Cboe Options (see Cboe Options
Rule 5.40(d)). Additionally, they are similar to those that cause a
simple SAM Auction to conclude, except are based on the entry of
simple or complex orders that impact the SBBO or the best available
prices on the same side of the COB rather than the BBO. See Rule
21.21(d).
---------------------------------------------------------------------------

    The Exchange proposes to conclude the C-SAM Auction in response to
the incoming orders described above, as they would cause the SBBO or
the best-priced complex order on the same side of the market as the
Agency Order to be better priced than the stop price, or cause the stop
price to be the same price as the SBBO with a Priority Customer order
on the BBO for a component or a Priority Customer complex order on the
COB. Similarly, the incoming orders described above would cause the
opposite side SBBO to be at or better than the stop price. These events
would create circumstances under which a C-SAM Auction would not have
been initiated, and therefore, the Exchange believes it is appropriate
to conclude a C-SAM Auction when they exist.
    Additionally, the proposed rule change would conclude a C-SAM
Auction in response to an incoming order that would cause the SBBO to
be at a price not permissible under the Limit Up-Limit Down Plan or
Regulation SHO,\38\ and would conclude the C-SAM Auction without
execution. This will ensure that the stock leg of a stock-option order
submitted into a C-SAM Auction does not execute at a price not
permissible under that plan or regulation. This is consistent with
current C-SAM functionality to ensure that stock legs do not trade at
prices not permissible under the Limit Up-Limit Down Plan or Regulation
SHO, and the proposed rule change codifies this in the Rules.
---------------------------------------------------------------------------

    \38\ See Rule 21.20(f)(2)(B).
---------------------------------------------------------------------------

    If the System receives an unrelated market or marketable limit
complex order (against the SBBO or the best price of a complex order
resting in the COB), including a Post Only complex order, on the
opposite side of the market during a C-SAM Auction, the C-SAM Auction
does not end early, and the System executes the order against interest
outside the C-SAM Auction or posts the complex order to the COB. If
contracts remain from the unrelated complex order at the time the C-SAM
Auction ends, they may be allocated for execution against the Agency
Order

pursuant to proposed paragraph (e).\39\ Because these orders may have
the opportunity to trade against the Agency Order following the
conclusion of the C-SAM Auction, which execution must still be at or
better than the SBBO and the best-priced complex orders on the COB, the
Exchange does not believe it is necessary to cause a C-SAM Auction to
conclude early in the event the Exchange receives such orders. This
will provide more time for potential price improvement, and the
unrelated complex order will have the opportunity to trade against the
Agency Order in the same manner as all other contra-side interest.\40\
---------------------------------------------------------------------------

    \39\ See proposed Rule 21.23(d). Similarly, market or marketable
limit simple orders on the opposite side of the Agency Order will
not cause an AIM Auction, SAM Auction, or a C-AIM Auction to end.
See Rules 21.19(d); 21.21(d); and 21.22(d) (respectively); see also
Cboe Options Rule 5.40(d).
    \40\ This is the same as the corresponding provision for C-AIM
Auctions (see Rule 21.22(d)(2)), and similar to the corresponding
provision for simple SAM Auctions (see Rule 21.21(d)(2)).
---------------------------------------------------------------------------

    At the conclusion of the C-SAM Auction, the System executes the
Agency Order against the Solicited Order or contra-side complex
interest (which includes complex orders on the COB and C-SAM responses)
at the best price(s) as follows. Any execution price(s) must be at or
between the SBBO and the best prices of any complex orders resting on
the each side of the COB at the conclusion of the C-SAM Auction.\41\
The Agency Order will execute against the Solicited Order if there are
no Priority Customer complex orders resting on the COB on the opposite
side of the Agency Order at or better than the stop price and the
aggregate size of contra-side interest at an improved price(s) is
insufficient to satisfy the Agency Order.\42\ The System will execute
the Agency Order against contra-side interest (and will cancel the
Solicited Order) if (a) there is a Priority Customer complex order
resting on the COB on the opposite side of the Agency Order at or
better than the stop price and the aggregate size of that order and
other contra-side interest is sufficient to satisfy the Agency Order or
(b) the aggregate size of contra-side interest at an improve price(s)
is sufficient to satisfy the Agency Order.\43\
---------------------------------------------------------------------------

    \41\ Additionally, if there is a Priority Customer order
representing any leg of the SBBO in the Simple Book, the execution
price must be better than the SBBO, in accordance with complex order
priority. See Rule 21.20(f)(2) in the shell Rulebook. Additionally,
any execution price must be better than the price of any resting
Priority Order complex order on the COB. As further discussed below,
as proposed, an execution may only occur at such a price.
    \42\ See proposed Rule 21.23(e)(1); see also Cboe Options Rule
5.40(e)(1).
    \43\ See proposed Rule 21.23(e)(2); see also Cboe Options Rule
5.40(e)(2). The Agency Order will execute against contra-side
interest at each price level to the price at which the balance of
the Agency Order can be fully executed first against Priority
Customer complex orders on the COB (in time priority) and then
against remaining contra-side interest (including non-Priority
Customer orders in the COB and SAM responses) in a pro-rata manner.
---------------------------------------------------------------------------

    The System will cancel an Agency Order and Solicited Order with no
execution if:
     Execution of the Agency Order against the Solicited Order
would not be (1) at or between the SBBO at the conclusion of the SAM
Auction; (2) better than the SBBO if there is a Priority Customer order
in any leg component in the Simple Book; (3) at or better than the
best-priced complex resting on the COB; or (4) better than the best-
priced complex order resting on the COB if it is a Priority Customer
complex order;
     there is a Priority Customer complex order resting on the
COB on the opposite side of the Agency Order at or better than the stop
price, and the aggregate size of the Priority Customer complex order
and any other contra-side interest is insufficient to satisfy the
Agency Order; or
     there is a non-Priority Customer complex order resting on
the COB on the opposite side of the Agency Order at a price better than
the stop price, and the aggregate size of the resting complex order and
any other contra-side interest is insufficient to satisfy the Agency
Order.\44\
---------------------------------------------------------------------------

    \44\ See proposed Rule 21.23(e)(3); see also Cboe Options Rule
5.40(e)(3).
---------------------------------------------------------------------------

    Executions following a C-SAM Auction for a complex Agency Order are
subject to the complex order price restrictions and priority in Rule
21.20(f)(2).\45\ The System cancels or rejects any unexecuted C-SAM
responses (or unexecuted portions) at the conclusion of the C-SAM
Auction.\46\
---------------------------------------------------------------------------

    \45\ See proposed Rule 21.23(e)(4); see also Cboe Options Rule
5.40(e)(4).
    \46\ See proposed Rule 21.23(e)(5); see also Cboe Options Rule
5.40(e)(5).
---------------------------------------------------------------------------

    The Agency Order will only execute against the Solicited Order or
C-SAM responses and complex orders resting in the COB, and will not leg
into the Simple Book, at the conclusion of a C-SAM Auction. As
proposed, the execution prices for an Agency Order will always be
better than the SBBO existing at the conclusion of the C-SAM Auction if
it includes a Priority Customer order on any leg, as well as better
than the best-priced complex order resting on the COB if it is a
Priority Customer complex order, and thus is consistent with general
customer priority principles with respect to complex orders, pursuant
to which complex orders may only trade against complex interest at
prices that improve the BBO of any component that is represented by a
Priority Customer order.\47\
---------------------------------------------------------------------------

    \47\ See proposed Rule 21.23(e)(5).
---------------------------------------------------------------------------

    The Simple Book and the COB are separate, and orders on each do not
interact unless a complex order legs into the Simple Book. As a result,
the System is not able to calculate the aggregate size of complex
auction responses and complex orders on the COB and the size of simple
orders in the legs that comprise the complex strategy at each potential
execution price (as executions may occur at multiple prices) prior to
execution of an order following an auction for complex orders. If the
Exchange were to permit legging into the Simple Book following a C-SAM
Auction in accordance with its current complex order allocation in Rule
21.20, the System would first look to determine whether there are
Priority Customer orders resting in the Simple Book at the final
auction price(s) (and in the applicable ratio), and whether there was
sufficient interest at improved prices to satisfy the Agency Order. The
System would then look back at C-SAM responses and complex orders
resting in the COB to determine whether there is interest at that price
level that could execute against the Agency Order. Finally, the System
would then look back at the Simple Book to determine whether any non-
Priority Customer orders in the legs are able to trade against the
Agency Order. The System would need to do this at each price level, and
then determine whether there were any Priority Customer orders resting
on the Simple Book that are part of the SBBO or COB at the stop price,
and determine whether there was sufficient size at improved prices, or
sufficient size with any Priority Customer orders at the stop price, to
satisfy the Agency Order.
    The amount of aggregate interest available to execute against the
Agency Order is relevant in a C-SAM Auction with respect to the
allocation of contracts against the Agency Order and other interest
because of the all-or-none nature of the Agency Order. Because the
System will not be able to determine the aggregate size of contra-side
interest (including simple and complex) at improved prices, it would
not be able to determine whether the Agency Order would execute against
the Solicited Order or other contra-side interest.

    The Exchange notes there would be significant technical
complexities associated with reprogramming priority within the System
to permit Agency Orders to leg into the Simple Book following a C-SAM
Auction and allocate the Agency Order in a manner consistent with
standard priority principles and crossing auctions, while making the
most crossing functionality available to Options Members. The proposed
rule change will ensure the Agency Order executes in accordance with
the C-SAM allocation principles, which provide Priority Customers with
priority over the Solicited Order (and other contra-side interest) but
also provide for the Solicited Order to execute against the Agency
Order if there is no price improvement and no Priority Customer
interest present. The Exchange believes providing this functionality
will encourage Options Members to submit large complex orders into C-
SAM Auctions and provide customer orders with opportunities for price
improvement. It will also ensure orders (including Priority Customer
orders) on the Simple Book are protected in accordance with standard
complex order priority principles, as an Agency Order will only be
permitted to execute at prices that do not trade at the SBBO existing
at the conclusion of the C-SAM Auction if it includes a Priority
Customer order on any leg, and that do not trade through the SBBO
existing at the conclusion of the C-SAM Auction.
    As noted above, the stop price of the Agency Order must be better
than the same and opposite side of the SBBO if there is a Priority
Customer order at the BBO in any component of the complex strategy.
Additionally, the stop price must be better than the price of any
Priority Customer order resting at the top of the COB on either side of
the Agency Order. Further, a C-SAM Auction concludes upon receipt of an
unrelated Priority Customer order in any component of the complex
strategy that would post to the Simple Book and cause the SBBO on
either side of the Agency Order to be equal to or better than the stop
price, or upon the receipt of an unrelated Priority Customer complex
order on either side of the Agency Order that post to the COB with a
price equal to or better than the stop price. Additionally, any
execution prices at the conclusion of the C-SAM Auction are subject to
the standard complex order priority, which will ensure an Agency Order
must execute at a price that improves the SBBO if there is a Priority
Customer order at the BBO in any leg.\48\ Therefore, the proposed rule
change protects Priority Customer orders in the Simple Book even though
Agency Orders may not leg into the Simple Book.
---------------------------------------------------------------------------

    \48\ If there was a Priority Customer order resting at the BBO
in any leg of a complex strategy in the Simple Book, and a complex
order was submitted to the Exchange (outside of a C-SAM Auction)
with a price one minimum increment better than the SBBO, that
complex order would not be able to execute against interest in the
leg markets (including the Priority Customer order).
---------------------------------------------------------------------------

    Proposed Rule 21.23, Interpretations and Policies .01 and .02
state:
     Prior to entering Agency Orders into a C-SAM Auction on
behalf of customers, Initiating Members must deliver to the customer a
written notification informing the customer that his order may be
executed using the C-SAM Auction. The written notification must
disclose the terms and conditions contained in proposed Rule 21.23 and
be in a form approved by the Exchange.
    Under Rule 21.23, Initiating Members may enter contra-side orders
that are solicited. C-SAM provides a facility for Members that locate
liquidity for their customer orders. Members may not use the C-SAM
Auction to circumvent Rule 21.19 or 21.22 limiting principal
transactions. This may include, but is not limited to, Members entering
contra-side orders that are solicited from (a) affiliated broker-
dealers or (b) broker-dealers with which the Member has an arrangement
that allows the Members to realize similar economic benefits from the
solicited transaction as it would achieve by executing the customer
order in whole or in part as principal.\49\
---------------------------------------------------------------------------

    \49\ These provisions are virtually identical to the ones
applicable to simple SAM Auctions. See Rule 21.21, Interpretations
and Policies .01 and .02; see also Cboe Options Rule 5.40,
Interpretations and Policies .01 and .02.
---------------------------------------------------------------------------

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.\50\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \51\ 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) \52\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
---------------------------------------------------------------------------

    \50\ 15 U.S.C. 78f(b).
    \51\ 15 U.S.C. 78f(b)(5).
    \52\ Id.
---------------------------------------------------------------------------

    The proposed rule change will provide market participants with
access to an auction mechanism for execution of complex orders, which
will provide them with greater flexibility in pricing complex orders
and may provide more opportunities for price improvement. C-SAM as
proposed will function in a substantially similar manner as SAM for
simple orders, the Exchange's current solicitation price improvement
mechanism for larger orders--the proposed differences relate primarily
to basing the price and execution of the Agency Order on the SBBO and
the COB, rather than on the NBBO, and to ensure execution prices are
consistent with complex order priority principles. Additionally, C-SAM
as proposed will function in a substantially similar manner as C-AIM,
the Exchange's current price improvement mechanism for all-sized
complex orders. C-SAM provides equal access to the exposed Agency
Orders for all market participants, as all Options Members that
subscribe to the Exchange's data feeds will have the opportunity to
interact with orders submitted into C-SAM Auctions.\53\ C-SAM will
benefit investors, because it is designed to provide investors seeking
to execute larger-sized complex orders with opportunities to access
additional liquidity and receive price improvement. It will provide
Options Members with a facility in which to execute customers' complex
orders, potentially at improved prices. The proposed rule change may
result in increased liquidity available at improved prices for complex
orders, with competitive final pricing out of the Initiating Member's
control. The Exchange believes C-SAM will promote and foster
competition and provide more options contracts with the opportunity for
price improvement.
---------------------------------------------------------------------------

    \53\ Any Options Member can subscribe to the options data
disseminated through the Exchange's data feeds.
---------------------------------------------------------------------------

    The Exchange believes the proposed rule change will remove
impediments to and perfect the mechanism of a free and open market and
a national market system, because other options exchanges similarly
permit larger-sized

complex orders to be submitted into their solicitation mechanisms.\54\
The general framework of the proposed C-SAM Auction process (such as
the eligibility requirements, the auction response period, the same-
side stop price requirements, response requirements, and auction
notification process),\55\ is substantively the same as the framework
of the SAM Auction for simple orders, except to account for the
differences between simple and complex orders, as described above. The
Exchange believes using the same general framework for the simple and
complex auctions will benefit investors, as it will minimize confusion
regarding how the auction mechanisms work.
---------------------------------------------------------------------------

    \54\ See, e.g., Cboe Options Rule 5.40; and Nasdaq ISE LLC
(``ISE'') Options 3, Section 11(e).
    \55\ See Rule 21.19.
---------------------------------------------------------------------------

    Further, the new functionality may lead to an increase in Exchange
volume and should allow the Exchange to better compete against other
markets that already offer an electronic price improvement solicitation
mechanism for larger-sized complex orders, while providing an
opportunity for price improvement for Agency Orders and ensuring that
Priority Customers on the Simple Book and the COB are protected. C-SAM
Auction functionality should promote and foster competition and provide
more options contracts with the opportunity for price improvement,
which should benefit market participants.
    The Exchange believes the proposed rule change will result in
efficient trading and reduce the risk for investors that seek access to
additional liquidity and price improvement for complex orders by
providing additional opportunities to do so. The proposed priority and
allocation rules in the C-SAM Auction are consistent with the
Exchange's current complex order priority principles, pursuant to which
complex orders may only trade against complex interest at prices that
improve the BBO of any component that is represented by a Priority
Customer order.\56\ This will ensure a fair and orderly market by
protecting Priority Customer orders on the Simple Book while still
affording the opportunity for price improvement for complex orders
during each C-SAM Auction commenced on the Exchange. The proposed
allocation is also consistent with the allocation principles for the
simple SAM Auction, which ensures protection of Priority Customer
orders resting on the Simple Book.\57\ In a simple SAM Auction, the
Solicited Order cannot execute if there is a Priority Customer order
resting on the Book at a price at or better than the stop price.
Similarly, in a C-SAM Auction, the Solicited Order will not execute if
there is a Priority Customer complex order resting on the COB at a
price at or better than the stop price.
---------------------------------------------------------------------------

    \56\ See proposed Rule 21.23(e)(4) and current Rule 21.20(f)(2).
    \57\ See Rule 21.19(e).
---------------------------------------------------------------------------

    The purpose of C-SAM is to provide a facility for Options Members
that locate liquidity for their larger-sized customer orders to execute
these orders (and potentially obtain better prices). An Initiating
Member that provides or locates interest to execute against its
customer orders at the best then-available price (or better) will
receive in exchange for that effort execution priority over non-
Priority Customers (who do not expend similar efforts to trade against
the Agency Order and do not provide price improvement) to trade against
a specified percentage of the Agency Order at the stop price. The
Exchange believes the proposed rule change promotes just and equitable
principles of trade, because it will protect Priority Customer complex
orders resting on the COB while encouraging Options Members to continue
to provide or locate liquidity against which their customers may
execute their complex orders. The Exchange believes this may also
encourage non-Priority Customers to submit interest at improved prices
if they seek to execute against Agency Orders.
    By keeping the priority and allocation rules for a C-SAM Auction
similar to the allocation used for a simple SAM Auction on the Exchange
and consistent with current complex order priority, the proposed rule
change reduces the ability of market participants to misuse the C-SAM
Auction to circumvent standard priority rules in a manner that is
designed to prevent fraudulent and manipulative acts and practices, and
to promote just and equitable principles of trade on the Exchange. The
proposed execution and priority rules will allow orders to interact
with interest in the COB, and will allow interest on the COB to
interact with option orders in the price improvement mechanism in an
efficient and orderly manner. The Exchange believes this interaction of
orders will benefit investors by increasing the opportunity for complex
orders to receive executions, while also enhancing the execution
quality for orders resting on the COB.
    The proposed C-SAM Auction eligibility requirements are reasonable
and promote a fair and orderly market and national market system,
because they are the same as the eligibility requirements for a simple
SAM Auction, except the proposed rule change excludes the requirement
related to the NBBO, because there is no NBBO for complex orders, and
the legs of complex orders are not subject to the restriction on NBBO
trade-throughs. Additionally, the proposed rule change references the
opening of the COB rather than the market open, as the opening of the
COB is when complex orders may begin trading. These are minor
differences that relate solely to underlying differences between simple
and complex orders.\58\
---------------------------------------------------------------------------

    \58\ The eligibility requirements are also substantially the
same as those for C-AIM, except for the minimum size requirement for
C-SAM. See Rule 21.22(a); see also Cboe Options Rule 5.40(a).
---------------------------------------------------------------------------

    The proposed rule that an Initiating Member may not designate an
Agency Order or Solicited Order as Post Only protects investors,
because it provides transparency regarding functionality that will not
be available for C-SAM. The Exchange believes this is appropriate, as
the purpose of a Post Only complex order is to not execute upon entry
and instead rest in the COB, while the purpose of submitting orders to
a C-SAM Auction is to receive an execution following the auction and
not enter the COB. Pursuant to proposed Rule 21.23, an Agency Order
will fully execute against contra-side interest (the Solicited Order or
other contra-side complex interest), and thus there cannot be remaining
contracts in an Agency Order to enter the COB. Similarly, the Solicited
Order may only execute against the Agency Order at the conclusion of a
C-SAM Auction, and thus will not enter the COB.
    The Exchange believes the proposed rule change to permit the
Solicited Order to be comprised of multiple orders that total the size
of the Agency Order may increase liquidity and opportunity for Agency
Orders to participate in C-SAM Auctions, and therefore provide Agency
Orders with additional opportunities for price improvement, which is
consistent with the principles behind the C-SAM Auction. The Exchange
believes this will be beneficial to participants because allowing
multiple contra-parties should foster competition for filling the
contra-side order and thereby result in potentially better prices, as
opposed to only allowing one contra-party, which would require that
contra-party to guarantee the entire Agency Order, which could result
in a worse price for the trade. The Solicited Order for simple SAM
Auctions may be comprised of multiple contra-parties.\59\
---------------------------------------------------------------------------

    \59\ See Rule 21.19; see also Rule 21.22 (which permits the
contra-side order in C-AIM Auctions to consist of multiple orders)
and Cboe Options Rule 5.40 (which permits the Solicited Order in
Cboe Options C-SAM Auctions to consist of multiple orders).

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

    The proposed C-SAM Auction requirements for the stop price are
reasonable and promote a fair and orderly market and national market
system, because they are consistent with the corresponding requirements
for a simple SAM Auction, except the proposed requirements are based on
the SBBO and complex order prices in the COB rather than the NBBO. As
noted above, there is no NBBO for complex orders. The proposed stop
price requirements promote just and equitable principles of trade,
because they protect Priority Customer orders in the Simple Book and
Priority Customer complex orders in the COB, and prevent trading
through the SBBO and the best-priced orders on the COB.\60\
---------------------------------------------------------------------------

    \60\ See also Rule 21.22(b) (which applies similar stop price
requirements in C-AIM Auctions) and Cboe Options Rule 5.40(b) (which
applies the same stop price requirements in C-SAM Auctions.
---------------------------------------------------------------------------

    As discussed above, the Exchange has proposed to allow C-SAM
Auctions to occur concurrently with other C-SAM Auctions for the same
complex strategies. Although C-SAM Auctions for Agency Orders will be
allowed to overlap, the Exchange does not believe this raises any
issues that are not addressed through the proposed rule change
described above. For example, although overlapping, each C-SAM Auction
will be started in a sequence and with a time that will determine its
processing. Thus, even if there are two C-SAM Auctions in the same
complex strategy that commence and conclude, at nearly the same time,
each C-SAM Auction will have a distinct conclusion at which time the C-
SAM Auction will be allocated. In turn, when the first C-SAM Auction
concludes, unrelated orders that then exist will be considered for
participation in the C-SAM Auction. If unrelated orders are fully
executed in such C-SAM Auction, then there will be no unrelated orders
for consideration when the subsequent C-SAM Auction is processed
(unless new unrelated order interest has arrived). If instead there is
remaining unrelated order interest after the first C-SAM Auction has
been allocated, then such unrelated order interest will be considered
for allocation when the subsequent C-SAM Auction is processed. As
another example, each C-SAM response is required to specifically
identify the Auction for which it is targeted and if not fully executed
will be cancelled back at the conclusion of the Auction. Thus, C-SAM
responses will be specifically considered only in the specified C-SAM
Auction.
    The Exchange does not believe that allowing multiple auctions to
overlap for Agency Orders presents any unique issues that differ from
functionality already in place on the Exchange. Pursuant to Rules
21.19(c)(1), 21.21(c)(1), and 21.22(c)(1), multiple AIM (for Agency
Orders for 50 or more contracts), SAM, and C-AIM (for Agency Orders
with the smallest leg for 50 or more contracts) Auctions, respectively,
may overlap.\61\ Different complex strategies are essentially different
products, as orders in those strategies cannot interact, just as orders
in different series or classes cannot interact. Therefore, the Exchange
believes concurrent C-SAM Auctions in different complex strategies is
appropriate given that concurrent simple SAM Auctions in different
series or different classes may occur. Similarly, while it is possible
for a complex order to leg into the Simple Book, a complex order may
only execute against simple orders if there is interest in each
component in the ratio of the complex strategy. A simple order in one
component of a complex strategy cannot on its own interact with a
complex order in that complex strategy. Therefore, the Exchange
believes it is appropriate to permit concurrent SAM and C-SAM Auctions
in the same component. As proposed, C-SAM Auctions will ensure that
Agency Orders execute at prices that protect Priority Customer orders
in the Simple Book and that are not inferior to the SBBO, even when
there are concurrent simple and complex auctions occurring. The
proposed rule change sets forth how any auctions with overlapping
components will conclude if terminated due to the same event. The Rules
do not currently prevent a C-AIM in a complex strategy from occurring
at the same time as an AIM in one of the components of the complex
strategy. Therefore, the Exchange believes it is similarly reasonable
to permit a C-SAM in a complex strategy to occur at the same time as a
SAM in one of the components of the complex strategy.
---------------------------------------------------------------------------

    \61\ See also Cboe Options Rules 5.37(c)(1), 5.38(c)(1),
5.39(c)(1), and 5.40(c)(1) (which permit concurrent AIM (for larger-
sized Agency Orders), C-AIM (for larger-sized Agency Orders), SAM,
and C-SAM Auctions, respectively).
---------------------------------------------------------------------------

    The proposed auction process will promote a free and open market,
because it ensures equal access to information regarding C-SAM Auctions
and the exposed Agency Orders for all market participants, as all
Options Members that subscribe to the Exchange's data feeds with the
opportunity to interact with orders submitted into C-SAM Auctions.\62\
The proposed auction notification message includes the same information
as the auction notification message for simple SAM Auctions, and will
be available in the same data feed. The Exchange has proposed a range
between no less than 100 milliseconds and no more than one second for
the duration of a C-SAM Auction, which is the same duration of a simple
SAM Auction. This will provide investors with more timely execution of
their complex orders, while ensuring there is an adequate exposure of
complex orders. This proposed auction response time should provide
investors with the opportunity to receive price improvement for complex
orders through C-SAM while reducing market risk. The Exchange believes
a briefer time period reduces the market risk for the Initiating
Member, versus an auction with a longer period, as well as for any
Options Member providing responses to a broadcast. As such, the
Exchange believes the proposed rule change would help perfect the
mechanism for a free and open national market system, and generally
help protect investors and the public interest. All Options Members
will have an equal opportunity to respond with their best prices during
the C-SAM Auction. Since the Exchange considers all complex interest
present in the System, and not solely C-SAM responses, for execution
against the Agency Order, those participants who are not explicit
responders to a C-SAM Auction may receive executions via C-SAM as
well.\63\
---------------------------------------------------------------------------

    \62\ Any Options Member can subscribe to the options data
disseminated through the Exchange's data feeds.
    \63\ See also Rule 21.22(c) and Cboe Options Rule 5.40(c).
---------------------------------------------------------------------------

    The proposed C-SAM Auction response requirements are reasonable and
promote a fair and orderly market and national market system, because
they are virtually identical to the corresponding requirements for a
simple SAM Auction and benefit investors by providing clarity regarding
how they may respond to a C-SAM Auction. The only differences are that
C-SAM responses will be aggregated with other complex size rather than
other simple interest, and C-SAM responses will be capped at the SBBO
or prices of complex orders rather than the NBBO (because, as discussed
above, there is no NBBO for complex orders and restricting prices based
on the SBBO and complex orders will ensure protection of Priority
Customer orders). This will further benefit investors by providing
consistency across the

Exchange's price improvement mechanisms.\64\
---------------------------------------------------------------------------

    \64\ See also Rule 21.22(c)(5) and Cboe Options Rule 5.40(c)(5).
---------------------------------------------------------------------------

    The proposed rule change will also perfect the mechanism of a free
and open market and a national market system, because it is consistent
with linkage rules. Rule 27.2(b)(8) provides that a transaction that is
effected as a portion of a complex trade is exception to the
prohibition on effecting trade-throughs. As discussed above, any
executions following a C-SAM Auction will not trade-through the SBBO or
prices of complex orders resting on the COB (and will always improve
the SBBO or COB prices if they consist of a Priority Customer order).
    The proposed events that will conclude a C-SAM Auction are
reasonable and promote a fair and orderly market and national market
system, because they are consistent with the corresponding events that
will conclude a simple SAM Auction, and benefit investors by providing
clarity regarding what will cause a C-SAM Auction to conclude. These
events would create circumstances under which a C-SAM would not have
been permitted to start, and thus the Exchange believes it is
appropriate to conclude a C-SAM Auction if those circumstances occur.
As is the case with a simple SAM Auction (which will not conclude early
due to the receipt of an opposite side simple order), the Exchange will
not conclude a C-SAM Auction early due to the receipt of an opposite
side complex order. The Exchange believes this promotes just and
equitable principles of trade, because these orders may have the
opportunity to trade against the Agency Order following the conclusion
of the C-SAM Auction, which execution must still be at or better than
the SBBO and prices of complex orders in the COB. The Exchange believes
this will protect investors, because it will provide more time for
price improvement, and the unrelated order will have the opportunity to
trade against the Agency Order in the same manner as all other contra-
side complex interest.\65\
---------------------------------------------------------------------------

    \65\ See also Rule 21.22(d) (pursuant to which the same events
will conclude a C-AIM Auction) and Cboe Options Rule 5.40(d)
(pursuant to which the same events will conclude a C-SAM Auction on
Cboe Options).
---------------------------------------------------------------------------

    With respect to trading halts, as described above, in the case of a
trading halt on the Exchange in the affected complex strategy or any
component series, the C-SAM Auction will be cancelled without
execution. This is consistent with simple SAM, which will be cancelled
without execution if there is a trading halt on the Exchange in the
affected series. Cancelling C-SAM Auctions without execution in this
circumstance is consistent with Exchange handling of trading halts in
the context of continuous trading on EDGX Options and promotes just and
equitable principles of trade and, in general, protects investors and
the public interest.\66\
---------------------------------------------------------------------------

    \66\ The Exchange notes that trading on the Exchange in any
option contract will be halted whenever trading in the underlying
security has been paused or halted by the primary listing market and
other circumstances. See Rule 20.3.
---------------------------------------------------------------------------

    Pursuant Rule 21.20, if an order is able to leg into the Simple
Book, the System would first execute an order against Priority Customer
orders in the Simple Book, then against any complex order interest in
the COB (or auction responses), and last against any other simple
interest in the Simple Book (with executions against the Simple Book
occurring in the applicable ratio). This would occur at each price at
which the complex order may execute. Requiring the System to make these
determinations by going ``back and forth'' between the Simple Book and
the COB at multiple price levels would be more complicated after a C-
SAM Auction. The System must determine the aggregate amount of interest
available at each execution price level before executing any portion of
the Agency Order to determine the final auction price and how to
allocate the Agency Order against contra-side interest at the
conclusion of a C-SAM Auction. This is necessary because the System
must determine at each price level the aggregate non-Priority Customer
interest to determine whether there is sufficient size of contra-side
interest at improved prices and thus whether the Agency Order will
execute against the Solicited Order or contra-side interest.
    As noted above, there would be significant technical complexities
associated with reprogramming priority within the System to permit
Agency Orders to leg into the Simple Book following a C-SAM Auction
\67\ and allocate the Agency Order in a manner consistent with standard
priority principles and crossing auctions, while making the most
crossing functionality available to Options Members. Pursuant to the
complex order priority principles in Rule 21.20(f)(2), if an order is
able to leg into the Simple Book, the System first executes an order
against Priority Customer orders in the Simple Book, then against any
complex order interest in the COB (or auction responses), and last
against any other simple interest in the Simple Book (with executions
against the Simple Book occurring in the applicable ratio). This occurs
at each price at which the complex order may execute. Requiring the
System to make these determinations by going ``back and forth'' between
the Simple Book and the COB at multiple price levels is more
complicated after a C-SAM Auction. The System must determine the
aggregate amount of interest available at each execution price level
before determining whether the Agency Order will execute against the
Solicited Order or contra-side complex interest.
---------------------------------------------------------------------------

    \67\ The Exchange notes AON complex orders will not be able to
leg into the Simple Book due to the same technical complexities. See
Rule 21.20(g).
---------------------------------------------------------------------------

    As discussed above, the Exchange believes the proposed rule change
protects Priority Customer orders on the Simple Book, because
executions following a C-SAM Auction will be subject to the general
complex order priority \68\ that will apply to all executions of all
complex orders on the Exchange. It ensures an Agency Order will only
execute at prices better than the SBBO existing at the conclusion of
the C-SAM Auction if there is a Priority Customer order at the BBO on
any leg, and at prices equal to or better than the SBBO existing at the
conclusion of the C-SAM Auction if there is no Priority Customer order
at the BBO on any leg. The proposed allocation will also ensure the
Agency Order does not trade at the same price as a Priority Customer
complex order resting on the COB or through the best-priced complex
orders on the COB, and will protect investors by providing Priority
Customer complex orders with priority at each price level.
---------------------------------------------------------------------------

    \68\ See proposed Rule 21.23(e)(4).
---------------------------------------------------------------------------

    Given the infrequency with which complex orders currently leg into
the Simple Book, the Exchange believes it is in the best interest of
investors to not implement additional technical complexities given the
expected minimal impact, if any, that not permitting Agency Orders to
leg into the Simple Book following a C-SAM Auction would have on
execution opportunities for orders in the Simple Book.\69\
---------------------------------------------------------------------------

    \69\ See also Rule 21.22(e) (pursuant to which Agency Orders
will not leg into the Simple Book following a C-AIM Auction) and
Cboe Options Rule 5.40(e) (pursuant to which Agency Orders will
execute in the same manner as the proposed rule change following a
C-SAM Auction).
---------------------------------------------------------------------------

    As is the case with SAM, an Options Member may not use C-SAM to
circumvent the Exchange's rules limiting principal transactions. The
proposed regulatory provisions are the same as those applicable to
simple

SAM,\70\ and the Exchange believes they will protect customers and the
public interest, prevent fraudulent and manipulative acts and
practices, and promote just and equitable principles of trade.
---------------------------------------------------------------------------

    \70\ See Rule 21.21, Interpretations and Policies .01 and .02;
see also Cboe Options Rule 5.40, Interpretations and Policies .01
and .02.
---------------------------------------------------------------------------

    The proposed rule change is also consistent with Section 11(a)(1)
of the Act \71\ 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 over which the member or a person
associated with the member exercises investment discretion
(collectively, referred to as ``covered accounts''), 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),\72\ the ``G'' exemption for
yielding priority to non-members under Section 11(a)(1)(G) of the Act
and Rule 11a1-1(T) thereunder,\73\ and ``Effect vs. Execute'' exemption
under Rule 11a2-2(T) under the Act.\74\
---------------------------------------------------------------------------

    \71\ 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.
    \72\ 15 U.S.C. 78k(a)(1)(A).
    \73\ 15 U.S.C. 78k(a)(1)(G) and 17 CFR 240.11a1-1(T).
    \74\ 17 CFR 240.11a2-2(T).
---------------------------------------------------------------------------

    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: (i) Must transmit the order from off the exchange
floor; (ii) may not participate in the execution of the transaction
once it has been transmitted to the member performing the execution;
\75\ (iii) may not be affiliated with the executing member; and (iv)
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 Options Members entering orders into a C-SAM would
satisfy the requirements of Rule 11a2-2(T).
---------------------------------------------------------------------------

    \75\ The member may, however, participate in clearing and
settling the transaction.
---------------------------------------------------------------------------

    The Exchange does not operate a physical trading floor. 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 a remote location directly to an exchange's floor by
electronic means.\76\ The Exchange represents that the System and the
proposed C-SAM Auction will receive all orders electronically through
remote terminals or computer-to-computer interfaces. The Exchange
represents that orders (as well as responses) for covered accounts from
Options Members will be transmitted from a remote location directly to
the proposed C-SAM mechanism by electronic means, and thus will satisfy
the off-floor transmission requirement.
---------------------------------------------------------------------------

    \76\ 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 the C-SAM Auction, an order or C-SAM response will be executed
automatically pursuant to the rules set forth for C-SAM Auctions. In
particular, execution of an order (including the Agency and Solicited
Order) or a C-SAM response sent to the mechanism depends not on the
Options Member entering the order or 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 an order or
response is an Options Member or associated person of such Options
Member able to acquire control or influence over the result or timing
of order or response execution.\77\ Once the Agency Order and Solicited
Order, or the response, as applicable, have been transmitted, the
Initiating Member that transmitted the orders, or the User that
submitted the response, respectively, will not participate in the
execution of the Agency Order or Solicited Order, or the response,
respectively. No Options Member, including the Initiating Member, will
see a C-SAM response submitted into C-SAM, and therefore and will not
be able to influence or guide the execution of their Agency Orders,
Solicited Orders, or C-SAM responses, as applicable.
---------------------------------------------------------------------------

    \77\ An Initiating Member may not cancel or modify an Agency
Order or Solicited Order after it has been submitted into C-SAM, but
Users may modify or cancel their responses after being submitted
into a C-SAM. See proposed Rule 5.40(c)(4) and (c)(5)(G). 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 C-SAM 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.\78\ The Exchange
represents that the C-SAM Auction is designed so that no Options Member
has any special or unique trading advantage in the handling of its
orders or responses after transmitting its orders to the mechanism.
---------------------------------------------------------------------------

    \78\ 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.
---------------------------------------------------------------------------

    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.\79\ The
Exchange

recognizes that Options Members relying on Rule 11a2-2(T) for
transactions effected through the C-SAM 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.
---------------------------------------------------------------------------

    \79\ 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, at 11548 (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'').
---------------------------------------------------------------------------

    The 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.
    The proposed rule change will also perfect the mechanism of a free
and open market and a national market system, because it is consistent
with linkage rules. Rule 27.2(b)(8) provides that a transaction that is
effected as a portion of a complex trade is exception to the
prohibition on effecting trade-throughs. As discussed above, any
executions following a C-SAM Auction will not trade-through the SBBO or
prices of complex orders resting on the COB (and will always improve
the SBBO or COB prices if they consist of a Priority Customer order).
The proposed rule change will also remove impediments to and perfect
the mechanism of a free and open market and a national market system,
because it is substantially similar to solicitation auction mechanisms
of other options exchanges.\80\
---------------------------------------------------------------------------

    \80\ See, e.g., Cboe Options Rule 5.40; and ISE Options 3,
Section 11(e).
---------------------------------------------------------------------------

    The proposed rule change enhances one of its price improvement
auction mechanisms to apply to complex orders, which enhanced auction
mechanism is substantially the same as one offered by Cboe Options and
has a framework that is aligned with the other auction mechanisms
offered by the Exchange and Cboe Options. Therefore, this proposed rule
change will ultimately provide a consistent technology offering across
the exchanges affiliated with the Exchange (the ``Cboe Affiliated
Exchanges,'' which include Cboe Options, Cboe C2 Exchange, Inc., and
Cboe BZX Exchange, Inc.), which, in turn, will simplify the technology
implementation, changes, and maintenance by Users of the Exchange that
are also participants on Cboe Affiliated Exchanges. This will provide
Users with greater harmonization of price improvement auction
mechanisms available among the Cboe Affiliated Exchanges, and therefore
perfect the mechanism of a free and open market and a national market
system and protect investors.

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 orders submitted to a C-SAM Auction. The proposed C-SAM Auction
is voluntary for Options Members to use and will be available to all
Options Members. As discussed above, the Exchange believes the proposed
rule change should encourage Options Members to compete amongst each
other by responding with their best price and size for a particular
auction. By offering all Options Members the ability to participate in
the proposed allocation during the C-SAM Auction, an Options Member
will be encouraged to submit complex orders outside of the C-SAM
Auction at the best and most aggressive prices. Within the C-SAM
Auction, the Exchange believes the proposed rule change will encourage
Options Member to compete vigorously to provide the opportunity for
price improvement in a competitive auction process. The proposed
execution and allocation rules are consistent with those applicable to
simple SAM, as well as complex order priority, and therefore will
ensure protection of Priority Customer orders in both the Simple Book
and the COB.
    The Exchange does not believe the proposed rule change will impose
any burden on intermarket competition, because other options exchanges
offer similar complex order price improvement auctions for larger-sized
orders.\81\ The general framework and primary features of the proposed
C-SAM Auction process (such as the eligibility requirements, auction
response period, response requirements, and auction notification
process), are substantively the same as the framework for simple
SAM.\82\ The auction process is also similar, and is modified to
address the underlying differences between simple and complex orders.
For example, C-SAM will base pricing and execution requirements on the
SBBO and complex orders in the COB, rather than the NBBO (which does
not apply to complex orders), to ensure consistency with Priority
Customer priority and complex order priority principles.
---------------------------------------------------------------------------

    \81\ See, e.g., Cboe Options Rule 5.40; and ISE Rule Options 3,
Section 11(e).
    \82\ See Rule 21.21. It is also substantially similar to the
general framework of the Exchange's other price improvement
auctions, AIM and C-AIM. See Rules 21.19 and 21.22 (respectively).
---------------------------------------------------------------------------

    The Exchange believes that the proposed rule change will relieve
any burden on, or otherwise promote, competition. The Exchange believes
this proposed rule change is necessary to permit fair competition among
the options exchanges and to establish more uniform price improvement
auction rules on the various options exchanges. The Exchange
anticipates that this proposal will create new opportunities for the
Exchange to attract new business and compete on equal footing with
those options exchanges with complex order price improvement auctions
and for this reason the proposal does not create an undue burden on
intermarket competition. Rather, the Exchange believes that the
proposed rule would bolster intermarket competition by promoting fair
competition among individual markets.

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

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

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

    Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the Exchange consents, the Commission will:
    A. By order approve or disapprove such proposed rule change, or
    B. institute proceedings to determine whether the proposed rule
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and
arguments concerning the foregoing,

including whether the proposed rule change is consistent with the Act.
Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to<EMAIL_ADDRESS>Please include
File Number SR-CboeEDGX-2019-064 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-CboeEDGX-2019-064. 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 such 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-CboeEDGX-2019-064, and should be
submitted on or before November 27, 2019.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\83\
---------------------------------------------------------------------------

    \83\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-24185 Filed 11-5-19; 8:45 am]
 BILLING CODE 8011-01-P