[Federal Register Volume 84, Number 197 (Thursday, October 10, 2019)]
[Notices]
[Pages 54671-54692]
[FR Doc No: 2019-22144]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87235; File No. SR-CBOE-2019-084]

Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
the Exchange's Rules Regarding the Trading of Flexible Exchange
Options, and Move Those Rules From the Currently Effective Rulebook to
the Shell Structure for the Exchange's Rulebook That Will Become
Effective Upon the Migration of the Exchange's Trading Platform to the
Same System Used by the Cboe Affiliated Exchanges

October 4, 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 2, 2019, Cboe Exchange, Inc. (the ``Exchange'' or
``Cboe Options'') filed with the Securities and Exchange Commission
(the ``Commission'') the proposed rule change as described in Items I
and II below, which Items have been prepared by the Exchange. The
Exchange filed the proposal as a ``non-controversial'' proposed rule
change pursuant to Section 19(b)(3)(A)(iii) of the Act \3\ and Rule
19b-4(f)(6) thereunder.\4\ The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    Cboe Exchange, Inc. (the ``Exchange'' or ``Cboe Options'') proposes
to amend the Exchange's Rules regarding the trading of flexible
exchange options ``FLEX Options'' \5\ and moves those Rules from the
currently effective Rulebook (``current Rulebook'') to the

shell structure for the Exchange's Rulebook that will become effective
upon the migration of the Exchange's trading platform to the same
system used by the Cboe Affiliated Exchanges (as defined below)
(``shell Rulebook''). The text of the proposed rule change is provided
in Exhibit 5.
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    \5\ See current Rule 24A.1(d), (f), and (g) (which define a FLEX
Option, FLEX Index Option, and FLEX Equity Option) and proposed
definition of FLEX Option in Rule 1.1 of the shell Rulebook (with
nonsubstantive changes to simplify the definition of FLEX Options).
A FLEX Option on an equity security may be referred to as a ``FLEX
Equity Option,'' and a FLEX Option on an index may be referred to as
a ``FLEX Index Option.'' The proposed rule change also adds a period
following the rule number of Rule 1.1 to conform to the formatting
of other Rules in the shell Rulebook. The proposed rule change also
deletes the corresponding definitions of Non-FLEX Option, Non-FLEX
Equity Option, and Non-FLEX Index Option, as the Exchange believes
the meanings of those terms are self-evident, making the definitions
unnecessary. See current Rule 24A.1(o), (p), and (q).
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    The text of the proposed rule change is also available on the
Exchange's website (http://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx), at the Exchange's Office of the
Secretary, and at the Commission's Public Reference Room.

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

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

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

1. Purpose
    In 2016, the Exchange's parent company, Cboe Global Markets, Inc.
(formerly named CBOE Holdings, Inc.) (``Cboe Global''), which is also
the parent company of Cboe C2 Exchange, Inc. (``C2''), acquired Cboe
EDGA Exchange, Inc. (``EDGA''), Cboe EDGX Exchange, Inc. (``EDGX'' or
``EDGX Options''), Cboe BZX Exchange, Inc. (``BZX'' or ``BZX
Options''), and Cboe BYX Exchange, Inc. (``BYX'' and, together with
Cboe Options, C2, EDGX, EDGA, and BZX, the ``Cboe Affiliated
Exchanges''). The Cboe Affiliated Exchanges are working to align
certain system functionality, retaining only intended differences
between the Cboe Affiliated Exchanges, in the context of a technology
migration. Cboe Options intends to migrate its trading platform to the
same system used by the Cboe Affiliated Exchanges, which the Exchange
expects to complete on October 7, 2019. In connection with this
technology migration, the Exchange has a shell Rulebook that resides
alongside its current Rulebook, which shell Rulebook will contain the
Rules that will be in place upon completion of the Cboe Options
technology migration.
    As part of this effort, the Exchange is reorganizing its Rules
within the shell Rulebook to, among other things, include all rules
regarding the Exchange's trading hours in a single rule, include all
rules related to listing of options products within one chapter, and
include all rules related to trading of all products within one
chapter. The Exchange has provided market participants with notice of
this change in advance of the system migration.\6\ Subject to
regulatory review, these proposed rule changes will be in effect
October 7, 2019, in conjunction with the system migration. For example,
rules related to the classes and series of FLEX Options the Exchange
may list for trading will be in the same chapter as the rules related
to the classes and series of equity options and index options the
Exchange may list for trading. Additionally, the rules related to the
manner in which FLEX Options may trade will be in the same chapter as
the rules related to the manner in which all other types of options may
trade.\7\ The shell Rulebook will clearly identify the Rules that apply
to the trading of FLEX Options.
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    \6\ See, e.g, Exchange Notice C2019092500, Trading of FLEX
Options on Cboe Options Exchange (September 25, 2019); Exchange
Notice<PHONE_NUMBER>, Cboe Town Hall on FLEX Trading on the New Cboe
Options Exchange Platform (September 25, 2019); BOE and FIX
Specifications, available at http://markets.cboe.com/us/options/support/technical/.
    \7\ In separate rule filings, the Exchange will move to the
shell Rulebook certain FLEX Rules not being moved in this rule
filing. These rules include Rule 24A.6 regarding discretionary
transactions, Rule 24A.7 regarding position limits and reporting
requirements, Rule 24A.8 regarding exercise limits, and Rule 24A.13
regarding Letters of guarantee or authorizations. The Exchange notes
it will not be making any substantive changes to those Rules, but
will rather merely be moving them into the shell Rulebook (and thus
will update the rule number, as well as the paragraph lettering and
numbering), and therefore these Rules will continue to apply to FLEX
trading in the same manner they apply today.
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    Chapter XXIVA of the current Rulebook sets forth the Rules
applicable to the trading of FLEX Options on the Exchange's hybrid
trading system (i.e., trading in both open outcry and electronically).
Trading of FLEX Options is subject to all other Rules applicable to the
trading of options on the Exchange, unless otherwise specified in
Chapter XXIVA of the current Rulebook (proposed Chapter 5, Section F in
the shell Rulebook).\8\ A Trading Permit Holder (a ``TPH'') may trade
FLEX Options if the Exchange has approved the TPH to trade FLEX Options
on the Exchange; such a TPH is referred to as a ``FLEX Trader.'' \9\
Currently, FLEX Options trade on the Exchange's FLEX Hybrid Trading
System, which is the Exchange's trading platform that allows FLEX
Traders to submit electronic and open outcry request for quotes
(``RFQs''), FLEX quotes in response to those RFQs, and FLEX Orders into
the electronic book.\10\ Upon the Exchange's trading platform
migration, FLEX trading will occur on the same Exchange System \11\ as
all other options trading occurs on the Exchange.
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    \8\ See current Introduction to Chapter XXIVA and proposed Rule
5.72(a).
    \9\ See current Rule 24A.1(l) in the current Rulebook and
proposed Rule 3.57 in the shell Rulebook. The proposed rule change
makes nonsubstantive changes to the definition of a FLEX Trader,
including to make the definition plain English by eliminating
passive voice and deleting the unnecessary language ``FLEX-
participating,'' as that is redundant of the provision that provides
the TPH is approved to trade FLEX Options on the Exchange.
    \10\ See current Rule 24A.1(e).
    \11\ The term ``System'' means the Exchange's hybrid trading
platform that integrates electronic and open outcry trading of
option contracts on the Exchange, and includes any connectivity to
the foregoing trading platform that is administered by or on behalf
of the Exchange, such as a communications hub. See Rule 1.1 in the
shell Rulebook. Because there will no longer be a separate FLEX
system, the proposed rule change deletes the definition of FLEX
Hybrid Trading System in current Rule 24A.1(e).
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    Pursuant to current Rule 24A.3, there are no trading rotations in
FLEX Options, either at the opening or at the close of trading. The
proposed rule change moves the provision that states there is no
opening rotation in FLEX Options to Rule 5.71(a) of the shell Rulebook.
The proposed rule change deletes the provisions from current Rule 24A.3
regarding the absence of closing rotations for FLEX Options, as closing
rotations do not occur in any class of options on the Exchange.
    Currently, FLEX Options open for trading at a randomly selected
time within a number of seconds after 9:30 a.m. Eastern Time.\12\
Currently, the Exchange has set that number of seconds at one. Proposed
Rule 5.71(b) states the times when FLEX Traders may begin submitting
FLEX Orders into an electronic FLEX Auction pursuant to proposed Rule
5.72(c), a FLEX AIM pursuant to proposed Rule 5.73, or a FLEX SAM
pursuant to proposed Rule 5.74,\13\ or initiate an open outcry FLEX
Auction the Exchange's trading floor

pursuant to proposed Rule 5.72(c).\14\ Specifically, FLEX Traders may
begin submitting FLEX Orders (a) with respect to the Regular Trading
Hours (``RTH'') trading session, after the System's observation after
9:30 a.m. Eastern Time of the first disseminated (1) transaction on the
primary market in the security underlying an equity option or (2) index
value for the index underlying an index option, and (b) with respect to
the Global Trading Hours (``GTH'') trading session, after 3:00 a.m.
Eastern Time.\15\
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    \12\ See current Rule 24A.3 (the current rule includes times in
Central Time, while the proposed rule includes times in Eastern
Time, consistent with Rule 1.6 in the shell Rulebook).
    \13\ The Exchange intends to amend and move current Rules 24A.5A
and 24A.5B regarding FLEX AIM and SAM Auctions, respectively, from
the currently Rulebook to Rules 5.73 and 5.74, respectively, of the
shell Rulebook in a separate rule filing.
    \14\ This is consistent with current Rule 24A.3, which states
after the time at which a FLEX Option series opens for trading, a
FLEX auction may be initiated. The proposed rule change deletes the
provision that states FLEX Orders may be entered directly into the
electronic book (if available), because, as discussed below, the
Exchange will not have an electronic book available for FLEX
Options.
    \15\ See Securities Exchange Act Release No. 86879 (September 5,
2019), 84 FR 47984 (September 11, 2019) (SR-CBOE-2019-034) (approval
of proposed rule change to provide that the opening rotation for
non-FLEX Options will be triggered by the same events, which are
substantially the same as those in current Rule 6.2(b)). Pursuant to
Rule 5.1(b)(3) in the shell Rulebook, Regular Trading Hours for FLEX
Options are the same as the corresponding non-FLEX Options, except
the Exchange may determine to narrow or otherwise restrict the
trading hours for FLEX Options. The rule change clarifies in Rule
5.1(b)(3)(A) that Regular Trading Hours for FLEX Options are the
same as the Regular Trading Hours for the corresponding non-FLEX
Options, as the Exchange inadvertently omitted the phrase ``the
Regular Trading Hours for'' from that Rule (therefore, the proposed
rule change makes no substantive changes to the trading hours for
FLEX Options). Additionally, pursuant to Rule 5.1(c)(1) in the shell
Rulebook, if the Exchange designates a class of index options as
eligible for trading during Global Trading Hours, FLEX Options with
the same underlying index are also deemed eligible for trading
during Global Trading Hours.
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    As discussed further below, while the Exchange currently has an
electronic book for orders for FLEX Options, it has only been used in
recent months by one customer for limited purpose, and for a minimal
amount of FLEX volume. Because of the limited usage of an electronic
book for FLEX Orders, the Exchange has determined there will be no
electronic book of resting orders for FLEX Options available following
the technology migration, which lack of availability of a FLEX Book is
consistent with current Exchange authority. Additionally, because there
will also be no opening rotation, at the time at which FLEX Trading
opens, there will be no automatic executions. Therefore, being ``open''
for FLEX trading merely means that FLEX Traders may submit FLEX Orders
into one of the various FLEX Auctions, at the conclusion of which
executions in FLEX Auctions may occur (which are all discussed below).
Because market participants incorporate transaction prices of
underlying securities or the values of underlying indexes when pricing
options (including FLEX Options), the Exchange believes it will benefit
investors for FLEX Options trading to not be available until that
information has begun to be disseminated in the market. Additionally,
the proposed trigger events occur for many underlying securities or
indexes within one second of 9:30 a.m. Eastern Time (which is
consistent with the current time at which the Exchange has determined
to open FLEX Option classes), and the majority occur within ten
seconds. Therefore, pursuant to the proposed rule change, the opening
of FLEX Options for trading may occur over a longer timeframe, which
would further reduce any potential market impact of the change to the
opening time for FLEX Options. While the Exchange believes it is
important to open series for trading as soon as possible, the Exchange
also believes the proposed rule change will permit it to manage the
number of FLEX Option series that may begin to trade during a short
time period to ensure a fair and orderly opening in all options listed
on the Exchange. The Exchange also notes that FLEX Options trading
volume currently represents approximately 1.5% of total trading volume
on the Exchange, and therefore the Exchange believes any potential
market impact of this change would be de minimis.
    The proposed rule change moves the provision in current Rule 24A.3
that states a new FLEX Option series may be established on any business
day prior to the expiration date and opened for trading pursuant to the
procedures and principles for trading as provided in other rules within
current Chapter XXIV, to proposed Rule 4.21(a)(2). As described below,
other current rules have the same provision, and the Exchange does not
believe they also need to be in the rule regarding the opening of
trading, but rather in the rules regarding permissible series.\16\ The
Exchange moves these provisions to the shell Rulebook as set forth
below. The Exchange also makes nonsubstantive changes to provisions
moved from current Rule 24A.3 to proposed Rule 5.71, including changes
to make the language more plain English, update cross-references,
update times to Eastern Time, and incorporate defined terms.
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    \16\ See, e.g., current Rule 24A.4(a)(1) (which the proposed
rule change moves to proposed Rule 4.21(a)(2)). The table below
describes the proposed changes to the language of this provision.
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    Current Rule 24A.4 (and other Rules in current Chapter XXIVA) sets
forth the terms of FLEX Options. The Exchange moves these provisions to
Chapter 4, Section C of the shell Rulebook.\17\ The Exchange moves the
provisions that state the Exchange may authorize for trading a FLEX
Option class on any equity security or index if it may authorize for
trading a non-FLEX Option class on that equity security or index
pursuant to Rules 4.3 and 4.10,\18\ respectively, of the shell
Rulebook, even if the Exchange does not list that non-FLEX Option class
for trading, from current Rule 24.4A(b)(1) and (c)(1) to proposed Rule
4.20.\19\ Because the provisions related to FLEX Index Options and FLEX
Equity Options provide the Exchange with the same authority with
respect to each type of FLEX Options, the proposed rule change combines
them into a single one.
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    \17\ Chapter 4 of the shell Rulebook will contain all Rules
related to the listing of options on the Exchange.
    \18\ The Exchange intends to move current Rules 5.3 and 24.2 to
Rules 4.3 and 4.10, respectively, in the shell Rulebook in a
separate rule filing.
    \19\ See also proposed Rule 4.21(a) (which states the Exchange
may approve a FLEX Option series for trading on any FLEX Option
class it may authorize for trading pursuant to proposed Rule 4.20).
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    The proposed rule change moves the following provisions regarding
the terms of FLEX Option series from the current Rulebook to the shell
Rulebook. In addition to the substantive changes described below, the
proposed rule change makes additional nonsubstantive changes to these
Rules, including to make the rule text plain English, simplify the rule
provisions, use consistent language throughout the Rules, use active
voice, incorporate defined terms, update cross-references and paragraph
numbering and lettering, and eliminate redundant provisions.

----------------------------------------------------------------------------------------------------------------
                                      Current rule (current   Proposed rule (shell
           Rule provision                   rulebook)               rulebook)              Proposed changes
----------------------------------------------------------------------------------------------------------------
FLEX Option series are not pre-      Rule 24A.4(a)(1)......  Rule 4.21(a)..........  The proposed rule change
 established.                                                                         incorporates the term FLEX
                                                                                Option series (rather than
                                                                                options series) into this
                                                                                rule provision.
The Exchange may approve a FLEX      Rule 24A.4(b)(1) and    4.21(a) (introductory   The proposed rule change
 Option series for trading in any     (c)(1).                 paragraph).             combines the provisions
 FLEX Option class it may authorize                                                   for trading FLEX Index
 for trading pursuant to proposed                                                     Options and FLEX Equity
 Rule 4.20.                                                                           Options into a single
                                                                                provision, as they provide
                                                                                the Exchange with the same
                                                                                authority. As further
                                                                                discussed below, a FLEX
                                                                                Option series is not
                                                                                created (and thus not
                                                                                eligible to trade) until a
                                                                                FLEX Order for the series
                                                                                is submitted into one of
                                                                                the FLEX Auctions.
                                                                                Therefore, the proposed
                                                                                rule change deletes the
                                                                                reference to the Exchange
                                                                                being able to ``open for
                                                                                trading'' any FLEX Option
                                                                                series.
A FLEX Option series is eligible     Rules 24A.4(a)(1) and   Rule 4.21(a)            The current rule states
 for trading on the Exchange upon     24A.5(a).               (introductory           FLEX Option series are
 submission to the System of a FLEX                           paragraph).             established through the
 Order for that series pursuant to                                                    bidding and offering
 proposed Rule 5.72 (as well as                                                       mechanics detailed in
 Rules 5.73 and 5.74) \20\.                                                           current Rule 24A.5. As
                                                                                discussed below, the
                                                                                proposed rule change
                                                                                amends the provisions
                                                                                governing how FLEX Options
                                                                                may trade on the Exchange.
                                                                                A FLEX Option series may
                                                                                only be eligible for
                                                                                trading after submission
                                                                                into one of the various
                                                                                auctions available for
                                                                                FLEX trading. A FLEX
                                                                                Option series may be
                                                                                established under current
                                                                                rules upon submission of a
                                                                                FLEX Order to a FLEX
                                                                                auction, as is the case
                                                                                pursuant to the proposed
                                                                                rule change, but will no
                                                                                longer be able to be
                                                                                established upon
                                                                                submission of a FLEX Order
                                                                                into the book (as there
                                                                                will be no book).\21\ See
                                                                                additional discussion
                                                                                below regarding the
                                                                                elimination of an
                                                                                electronic book for FLEX
                                                                                Options.
The Exchange only permits trading    Rule 24A.4,             Rule 4.21(a)(1).......  The proposed rule change
 in a put or call FLEX Option         Interpretation and                              deletes the introductory
 series that does not have the same   Policy .02(b).                                  clause in current Rule
 exercise style, same expiration                                                      24A.4, Interpretation and
 date, and same exercise price as a                                                   Policy .02(b) that
 non-FLEX Option series on the same                                                   references the requirement
 underlying security or index that                                                    that options on an
 is already available for trading.                                                    underlying security or
 This includes permitting trading                                                     index to be otherwise
 in a FLEX Option series before a                                                     eligible for FLEX Trading,
 series with identical terms is                                                       as that language is
 listed for trading as a non-FLEX                                                     redundant of the language
 Option series. If the Exchange                                                       in proposed Rule 4.21(a).
 lists for trading a non-FLEX                                                         The proposed rule change
 Option series with identical terms                                                   also eliminates the use of
 as a FLEX Option series, the FLEX                                                    passive voice and makes
 Option series will become fungible                                                   other nonsubstantive
 with the non-FLEX Options series                                                     changes to this provision.
 pursuant to proposed Rule 4.22.
 The System does not accept a FLEX
 Order for a put or call FLEX
 Option series if a non-FLEX Option
 series on the same underlying
 security or index with the same
 expiration date, exercise price,
 and exercise style is already
 listed for trading.
A FLEX Order for a FLEX Option       Rule 24A.3 and Rule     Rule 4.21(a)(2).......  Updated to reflect the
 series may be established on any     24A.4(a)(1).                                    proposed changes to the
 trading day prior to the                                                             FLEX trading procedures,
 expiration date.                                                                     which provide that a FLEX
                                                                                Option series is only
                                                                                available for trading upon
                                                                                submission of a FLEX Order
                                                                                (as noted above).
The Exchange may halt trading in a   N/A...................  Rule 4.21(a)(3).......  This provision is not
 FLEX Option class pursuant to Rule                                                   explicitly stated in
 5.20, and always halts trading in                                                    current Chapter XXIV.
 a FLEX Option class when trading                                                     However, it is consistent
 in a non-FLEX Option class with                                                      with Exchange authority to
 the same underlying equity                                                           halt trading in options
 security or index is halted on the                                                   classes listed for trading
 Exchange. The System does not                                                        on the Exchange (see
 accept a FLEX Order for a FLEX                                                       current Rules 6.3 and
 Option series while trading in a                                                     24.7, which were moved to
 FLEX Option class is halted.                                                         Rule 5.20 in the shell
                                                                                Rulebook), and current
                                                                                Exchange practice. The
                                                                                reasons why the Exchange
                                                                                would halt trading in a
                                                                                non-FLEX Option class
                                                                                (e.g., trading in the
                                                                                underlying security is
                                                                                halted) would generally be
                                                                                reasons why the Exchange
                                                                                would halt a FLEX Option
                                                                                class, and therefore the
                                                                                Exchange will always halt
                                                                                trading in a FLEX Option
                                                                                class when trading in a
                                                                                non-FLEX Option class with
                                                                                the same underlying equity
                                                                                security or index is
                                                                                halted on the
                                                                                Exchange.\22\
When submitting a FLEX Order for a   Rules 24A.1(w) and      Rule 4.21(b)..........  The current definition of a
 FLEX Option series to the System,    24A.4(a)(2).                                    series of FLEX Options
 the submitting FLEX Trader must                                                      (the proposed rule change
 include one of each of the                                                           uses the term FLEX Option
 following terms in the FLEX Order,                                                   series) is all option
 which terms constitute the FLEX                                                      contracts of the same
 Option series.                                                                       class having the same
                                                                                exercise price, exercise
                                                                                style, and expiration date
                                                                                (and with respect to FLEX
                                                                                Index Options, the same
                                                                                settlement value and index
                                                                                multiplier). The current
                                                                                Rules also require a FLEX
                                                                                Request for Quotes
                                                                                (``RFQ''), FLEX Order, or
                                                                                FLEX Option contract
                                                                                contain one element from
                                                                                the categories of
                                                                                underlying security, type,
                                                                                exercise style, expiration
                                                                                date, and exercise price.
                                                                                As noted above, a FLEX
                                                                                Option series may only be
                                                                                established through the
                                                                                submission of a FLEX
                                                                                Order, and therefore, the
                                                                                proposed rule change
                                                                                combines the provisions to
                                                                                provide that a FLEX Order
                                                                                must contain one element
                                                                                of each of the listed
                                                                                terms, which terms
                                                                                constitute the actual FLEX
                                                                                Option series being
                                                                                established by that order.
 underlying equity security  Rules 24A.1(m) and      Rule 4.21(b)(1).......  The proposed rule change
 or index, as applicable (the index   24A.4(a)(2)(i).                                 simplifies the language of
 multiplier for FLEX Index Options                                                    this provision and
 is 100).                                                                             includes the fact that the
                                                                                index multiplier for all
                                                                                FLEX Index Options is 100
                                                                                in this provision, rather
                                                                                than in a definition, as
                                                                                the term index multiplier
                                                                                is not otherwise used in
                                                                                the proposed rule.
 type of option (i.e., put   Rule 24A.4(a)(2)(ii),   Rule 4.21(b)(2).......  The proposed rule change
 or call), except an Asian-settled    (b)(5) and (6).                                 refers to type of option,
 or Cliquet-settled FLEX Option                                                       which is defined in Rule
 series may only be a call.                                                           1.1 in the shell Rulebook
                                                                                as put or call. The
                                                                                proposed rule change also
                                                                                combines the provisions
                                                                                regarding the permissible
                                                                                type of option available
                                                                                for Asian-settled and
                                                                                Cliquet-settled FLEX
                                                                                Options, so that
                                                                                provisions regarding types
                                                                                of options available for
                                                                                FLEX Option series are
                                                                                included in the same
                                                                                place.
 exercise style, which may   Rules 1.1(aa) and (cc)  Rule 4.21(b)(3).......  Only nonsubstantive
 be American-style or European-       and 24A.4(a)(2)(iii).                           changes.
 style, except an Asian-settled or
 Cliquet-settled FLEX Option series
 may only be European-style.

 expiration date, which may  Rule 24A.4(a)(2)(iv),   Rule 4.21(b)(4).......  The proposed rule change
 be any business day (specified to    (a)(5), and (a)(6).                             incorporates the concept
 the day, month, and year) no more                                                    that a FLEX Option series
 than 15 years from the date on                                                       is available for trading
 which a FLEX Trader submits a FLEX                                                   only when a FLEX Trader
 Order to the System, except an                                                       submits a FLEX Order to
 Asian-settled or Cliquet-settled                                                     the System, and therefore
 FLEX Option series, which must                                                       the date on which the FLEX
 have an expiration date that is a                                                    Order is submitted is the
 business day but may only expire                                                     date from which the
 350 to 371 days (which is                                                            expiration date is
 approximately 50 to 53 calendar                                                      measured (this is
 weeks) from the date on which a                                                      consistent with FLEX
 FLEX Trader submits a FLEX Order                                                     trading today, pursuant to
 to the System.                                                                       which a FLEX series may
                                                                                only be opened for trading
                                                                                through the RFQ process).
                                                                                The proposed rule change
                                                                                also includes all
                                                                                provisions regarding
                                                                                permissible expiration
                                                                                dates in the same place.
 settlement type \23\:
    [cir] FLEX Equity Options are    Rules 24A.1(aa)         Rule 4.21(b)(5).......  The proposed rule change
     (i) settled with physical        through (cc) and                                uses the term ``settlement
     delivery of the underlying       24A.4(a)(2)(iv) and                             type'' to describe all
     security; and (ii) subject to    (b)(3) through (6),                             potential ways in which
     the exercise by exception        (c)(3) through (4),                             the settlement value will
     provisions of OCC Rule 805.      and Interpretation                              be determined (current
                                      and Policy .01.                                 rules also use the term
                                                                                settlement style), and
                                                                                includes all provisions
                                                                                regarding the permissible
                                                                                settlement types in a
                                                                                single place.
    [cir] FLEX Index Options are
     settled in U.S. dollars and
     may be:
        (i) a.m.-settled; \24\
        (ii) p.m.-settled,\25\, or
        (iii) for a FLEX Index
         Option on a broad-based
         index, Asian-settled or
         Cliquet-settled (which
         have unique settlement
         procedures); \26\
 exercise price (which the   Rule 24A.4(a)(2)(v),    Rule 4.21(b)(6).......  The proposed rule change
 System rounds to the nearest         (b)(2)(i) and (iii),                            includes all provisions
 minimum increment), which may be     (b)(6), and (c)(2)(i)                           regarding permissible
 (1) for a FLEX Equity Option or      and (iii).                                      exercise prices in a
 FLEX Index Option that is not                                                        single place within the
 Cliquet-settled, (a) a fixed price                                                   Rules. In addition to the
 expressed in terms of dollars and                                                    exercise price options in
 cents or a specific index value,                                                     proposed Rule 4.21(b)(6),
 as applicable, or (b) a percentage                                                   current Rule 24A.4(b)(2)
 of the closing value of the                                                          and (c)(2) permits
 underlying equity security or                                                        exercise prices for FLEX
 index, as applicable, on the trade                                                   Index Options to be
 date; or (2) for a FLEX Index                                                        specified as a method for
 Option that is Cliquet-settled,                                                      fixing an index value or
 the capped monthly return (which                                                     dollar amount at the time
 must be expressed in dollars and                                                     of a FLEX RFQ or a FLEX
 cents).                                                                              Order is traded, or as a
                                                                                percentage of the index
                                                                                value calculated at the
                                                                                time of the trade, and for
                                                                                FLEX Equity Options, to be
                                                                                specified as a method for
                                                                                fixing a dollar amount at
                                                                                the time of a FLEX RFQ or
                                                                                a FLEX Order is traded, or
                                                                                as a percentage of the
                                                                                price of the underlying
                                                                                security at the time of
                                                                                the trade. In the past
                                                                                year, no FLEX Trader has
                                                                                designated the exercise
                                                                                price for a FLEX series in
                                                                                any of these manners--FLEX
                                                                                Traders have only
                                                                                designated the exercise
                                                                                price for a series as a
                                                                                fixed price or as a
                                                                                percentage of the closing
                                                                                value of the underlying on
                                                                                the trade date. Therefore,
                                                                                the Exchange proposes to
                                                                                only offer the two options
                                                                                for exercise prices for
                                                                                FLEX Options that are used
                                                                                by FLEX Traders.\27\
                                                                                Because FLEX Traders do
                                                                                not use the other types of
                                                                                exercise prices for FLEX
                                                                                Options, the Exchange
                                                                                believes elimination of
                                                                                that functionality will
                                                                                have a de minimis, if any,
                                                                                impact on FLEX trading.
 All other terms of a FLEX   Rule 24A.4(a)(1)......  Rule 4.21(b)..........  Only nonsubstantive changes
 Option series are the same as                                                        of types described above.
 those that apply to non-FLEX
 Options.
Bids and offers for FLEX Options     Rules 24A.4(b)(2) and   Rule 5.3(e)(3) \29\...  The proposed rule change
 must be expressed in (a) U.S.        (c)(2) and 24A.5(e).                            adds the term ``dollars
 dollars and decimals, if the                                                         and decimals'' regarding
 exercise price for the FLEX Option                                                   how bids and offers
 series is a fixed price, or (b) a                                                    (currently referred to as
 percentage, if the exercise price                                                    premiums in Rule 24A.4(b)
 for the FLEX Option series is a                                                      and (c)) \30\ to be
 percentage of the closing value of                                                   consistent with
 the underlying equity security or                                                    terminology in Rule 5.3 in
 index on the trade date, per unit                                                    the shell Rulebook (this
 of the underlying security or                                                        is merely a change in
 index, as applicable.\28\ The                                                        terminology). The proposed
 System rounds bids and offers to                                                     rule change moves the
 the nearest minimum increment.                                                       provisions regarding the
                                                                                form of bids and offers of
                                                                                FLEX Options to Rule 5.3
                                                                                in the shell Rulebook, so
                                                                                that all provisions
                                                                                regarding the form of bids
                                                                                and offers for all options
                                                                                eligible for trading on
                                                                                the Exchange are included
                                                                                in a single Rule. The
                                                                                proposed rule change adds
                                                                                detail that the bid and
                                                                                offer amount is per unit
                                                                                of the underlying security
                                                                                or index, as applicable.
                                                                                This is true today and is
                                                                                merely adding detail to
                                                                                the rules.\31\ The
                                                                                proposed rule change makes
                                                                                no substantive changes to
                                                                                the form and manner in
                                                                                which FLEX Traders may
                                                                                make bids and offers on
                                                                                FLEX Options.
The Exchange determines the minimum  Rules 24A.4(b)(2) and   Rule 5.4(c)(4) \33\...  The proposed rule change
 increment for bids and offers on     (c)(2) and 24A.5(e)                             moves the provisions
 FLEX Options on a class-by-class     \32\.                                           regarding the minimum
 basis, which may not be smaller                                                      increment for FLEX Options
 than (a) $0.01, if the exercise                                                      to Rule 5.4 in the shell
 price for the FLEX Option series                                                     Rulebook, so that all
 is a fixed price, or (b) 0.01%, if                                                   provisions regarding
 the exercise price for the FLEX                                                      permissible minimum
 Option series is a percentage of                                                     increments for all options
 the closing value of the                                                             eligible to trade on the
 underlying equity security or                                                        Exchange are included in a
 index on the trade date. The                                                         single Rule.\34\
 System rounds bids and offers to
 the nearest minimum increment.
FLEX Traders may apply trade         Rules 24A.1(y),         N/A...................  Currently, FLEX Traders may
 conditions to FLEX Orders.           24A.4(a)(3)(ii) and                             designate FLEX Orders as
                                      (4)(ii), and                                    immediate-or-cancel
                                      24A.5(d)(3) \35\.                               (``IOC''), which executes
                                                                                (in whole or in part) as
                                                                                soon as it is represented
                                                                                or is cancels (or the
                                                                                unexecuted portion
                                                                                cancels). As further
                                                                                discussed below, the will
                                                                                not make a FLEX Book
                                                                                available following the
                                                                                technology migration.
                                                                                Because there will be no
                                                                                book, all FLEX Orders will
                                                                                be functionally equivalent
                                                                                to an IOC, which can only
                                                                                trade (or partially trade)
                                                                                following an auction, and
                                                                                thus no designation will
                                                                                be necessary.\36\
                                                                                Additionally, FLEX Traders
                                                                                may currently designate a
                                                                                FLEX Order as a ``hedge,''
                                                                                which is an electronic
                                                                                condition that makes
                                                                                execution of a FLEX Option
                                                                                contingent on the trade of
                                                                                an execution in a non-FLEX
                                                                                Option or other non-FLEX
                                                                                components. In the past
                                                                                year, no FLEX Trader has
                                                                                applied this trade
                                                                                condition to a FLEX Order.
                                                                                Therefore, the Exchange no
                                                                                longer intends to offer
                                                                                this trade condition for
                                                                                FLEX Options. Because FLEX
                                                                                Traders do not use this
                                                                                trade condition for FLEX
                                                                                Options, the Exchange
                                                                                believes elimination of
                                                                                this functionality will
                                                                                have a de minimis, if any,
                                                                                impact on FLEX trading.

Fungibility of FLEX Options........  Rule 24A.4,             Rule 4.22.............  The proposed rule change
                                      Interpretation and                              makes no substantive
                                      Policy .02.                                     changes to the fungibility
                                                                                of FLEX Options with non-
                                                                                FLEX options, and makes
                                                                                various nonsubstantive
                                                                                changes of the type
                                                                                described above. The
                                                                                proposed rule change
                                                                                updates terminology in the
                                                                                proposed provision to
                                                                                reflect changes to the
                                                                                FLEX trading procedures,
                                                                                which are described below,
                                                                                and updates cross-
                                                                                references to applicable
                                                                                Rules in the shell
                                                                                Rulebook. The proposed
                                                                                rule change adds a cross-
                                                                                reference to the rule
                                                                                (Rule 5.1(d) in the shell
                                                                                Rulebook) that lists
                                                                                Exchange holidays rather
                                                                                than use the term
                                                                                ``Exchange holiday'' so
                                                                                that market participants
                                                                                will know where in the
                                                                                Rules to look to know what
                                                                                constitutes an Exchange
                                                                                holiday. The proposed rule
                                                                                change deletes the phrase
                                                                                that states Interpretation
                                                                                and Policy .02 (proposed
                                                                                Rule 4.22) applies to all
                                                                                FLEX Options. The proposed
                                                                                rule lists no exceptions
                                                                                for when this provision
                                                                                applies to FLEX Options,
                                                                                and therefore this phrase
                                                                                is unnecessary.
----------------------------------------------------------------------------------------------------------------

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

    \20\ As noted above, the Exchange intends to move current Rules
24A.5A and 24A.5B regarding FLEX AIM and SAM Auctions, respectively,
to Rules 5.73 and 5.74, respectively, in the shell Rulebook in a
separate filing.
    \21\ The Exchange notes there is an electronic book available
for FLEX Options today, but only being used by one FLEX Trader for a
limited purpose, as further discussed below, and only for
approximately 1.2% of FLEX trading. Therefore, the vast majority of
FLEX Option series are established for trading today in the same
manner as they will be able to be established pursuant to the
proposed rule change. See current Rule 24A.5(a) (which states the
Request for Quotes (``RFQ'') process is required to open trading in
a new series (unless the auction process under Rule 24A.5A or 24A.5B
is used to open trading in a new series); and (b).
    \22\ Rule 5.20 in the shell Rulebook also provides the Exchange
with authority to halt trading in a FLEX Option, even if trading in
a non-FLEX Option with the same underlying is not halted. While such
situation would be rare, there may be unusual circumstances that
would cause the Exchange to halt trading in the FLEX Option (see
Rule 5.20(a)(5) in the shell Rulebook).
    \23\ FLEX Index Options are cash-settled in U.S. dollars, and
FLEX Equity Options are physical settled, subject to the exercise by
exception provisions of Options Clearing Corporation (``OCC'') Rule
805. See current Rule 24A.4(b)(4) and (c)(3) and (4) (proposed Rule
4.21(a)(5)).
    \24\ The exercise settlement value for an a.m.-settled FLEX
Index Option series is determined by reference to the reported level
of the index derived from the reported opening prices of the
component securities. See current Rule 24A.4(b)(3) (proposed Rule
4.21(b)(5)(A)). The proposed rule change eliminates the defined term
Expiration Friday, as it is not used elsewhere in the Rules. The
proposed rule change deletes the provision regarding the exercise
settlement value of FLEX Index Options on the NYSE Composite Index,
as the Exchange no longer lists options on that index for trading.
The proposed rule change includes the provisions regarding how the
exercise settlement value is determined for each settlement type, as
how the exercise settlement value is determined is dependent on the
settlement type.
    \25\ The exercise settlement value for a p.m.-settled FLEX Index
Option series is determined by reference to the reported level of
the index derived from the reported closing prices of the component
securities. See current Rule 24A.4(b)(3) (proposed Rule
4.21(b)(5)(B)). A FLEX Index Option that expires on any business day
that falls on or within two business days of a third Friday-of-the-
month for a non-FLEX Option (other than a QIX option) may only be
a.m.-settled; however, FLEX Index Options with an expiration date on
the third-Friday of the month may be p.m.-settled pursuant to a
pilot program ending the earlier of November 4, 2019 or the date on
which the pilot program is approved on a permanent basis. See
current Rule 24A.4, Interpretation and Policy .01 (proposed Rule
4.21(a)(5)(B)).
    \26\ Asian-settled FLEX Index Options have an exercise
settlement value based on an arithmetic average of the specified
closing prices of an underlying broad-based index taken on 12
predetermined monthly observation dates (including on the expiration
date), which dates the FLEX Trader specifies. Cliquet-settled FLEX
Index Options have an exercise settlement value equal to the greater
of $0 or the sum of capped monthly returns (i.e., percent changes in
the closing value of the underlying broad-based index from one month
to the next) applied over 12 predetermined monthly observation dates
(including an expiration date), which dates and monthly cap value
(which must be no smaller than $0.05 and no larger than $25.95, and
in an increment of $0.05) the FLEX Trader specifies. For Asian- and
Cliquet-settled FLEX Index Options, if a monthly observation date
falls on a non-business day, the monthly observation occurs on the
immediately preceding business days. See current Rule 24A.1(aa)
through (cc) and 24A.4(b)(5) and (6) (proposed Rule 4.21(b)(5)(C)
and (D)). The proposed rule change deletes the definition of
``preceding business day convention'' and incorporates its meaning
into the descriptions of each of Asian-settled and Cliquet-settled,
as that defined term is not otherwise used in the Rules, and also
incorporates the defined term ``business day.'' See Rule 1.1 in the
shell Rulebook.
    \27\ The proposed rule change also deletes current Rule 24A.5,
Interpretation and Policy .02, which relates only to FLEX Options
with exercise prices specified using the terms that the proposed
rule change deletes (i.e., exercise prices for FLEX Index Options
specified as a method for fixing an index value or dollar amount at
the time of a FLEX RFQ or a FLEX Order is traded, or as a percentage
of the index value calculated at the time of the trade, and for FLEX
Equity Options, specified as a method for fixing a dollar amount at
the time of a FLEX RFQ or a FLEX Order is traded, or as a percentage
of the price of the underlying security at the time of the trade),
and any other provisions in Rules 24A.1, 24A.4, and 24A.5 related to
these exercise types.
    \28\ While the current rule permits bids and offers to be in a
different format than the exercise price, the current functionality
does not permit this. Therefore, the proposed rule change makes it
clear that bids and offers must be in the same format as the
exercise price, as it would be difficult to apply a dollar price for
a FLEX Option series with a percentage-based exercise price.
    \29\ The proposed rule change also updates the subparagraph
numbering in Rule 5.3(e) in the shell Rulebook.
    \30\ The term ``premium'' refers to the prices at which a market
participant is willing to trade an option, which is also referred to
as a bid or offer. The proposed rule change just uses the terms bids
and offers in proposed Rule 5.3(e)(3), which is consistent with the
bid and offer provisions for other types of options in Rule 5.3 in
the shell Rulebook.
    \31\ It is also consistent with language applicable to bids and
offers in non-FLEX Options. See Rule 5.3(a) in the shell Rulebook.
    \32\ The proposed rule change deletes the provision regarding
the Exchange's pronouncement of minimum increments for FLEX by
regulatory circular, as the Exchange will announce all
determinations pursuant to Rule 1.5 in the shell Rulebook (see also
Rule 1.2 in the current Rulebook).
    \33\ The proposed rule change also updates the subparagraph
numbering in Rule 5.4(c) in the shell Rulebook.
    \34\ The Exchange notes the current rules reference the term
``minimum tick'' as well as ``other decimal increment.'' The term
``minimum tick'' generally refers to the minimum increment
applicable to an option, which in non-FLEX trading is a dollar
amount. Because FLEX Options may also have a minimum increment in a
percentage, that is included in the reference in the current rules
to ``other decimal increment.'' However, the Exchange believes the
term ``minimum increment'' applies to both formats (dollars and
percentage), and therefore eliminates the reference to tick.
    \35\ The proposed rule change deletes all additional provisions
in current Chapter XXIVA of the current Rulebook related to these
trade conditions.
    \36\ As set forth in proposed Rule 5.72(c)(3)(B), and as
discussed below, a FLEX Order may trade in whole or in part
following an electronic FLEX Auction, as any unexecuted FLEX Order
(or unexecuted portion) cancels at the conclusion of the auction.
---------------------------------------------------------------------------

    Pursuant to Rule 5.6(a) in the shell Rulebook, the Exchange may
make order types, Order Instructions, and Times-in-Force available on a
class basis. Pursuant to that authority, which authority the Exchange
currently has pursuant Rule 6.53 in the current Rulebook, the proposed
rule change adopts Rule 5.70(a) in the shell Rulebook to state that it
may make the following order types, Order Instructions, and Times-in-
Force available for orders submitted in FLEX Options (``FLEX Orders''):
\37\
---------------------------------------------------------------------------

    \37\ See Rule 5.6 in the shell Rulebook for definitions of these
order types, Order Instructions, and Times-in-Force. The proposed
rule change deletes the corresponding current definition of FLEX
Order in current Rule 24A.1(j). The only proposed substantive change
to the definition of FLEX Order is the deletion of the reference to
the submission of FLEX Orders to the electronic book, as there will
no longer be a FLEX Book available (consistent with the Exchange's
current authority to not make a FLEX Book available), as discussed
below. Because all FLEX Traders, including FLEX Market-Makers, will
submit FLEX Orders, and responses to FLEX Auctions, in the same
manner, the proposed rule change does not distinguish between bids
and offers submitted by different types of FLEX Traders, and also
deletes the defined term ``FLEX Quote'' from current Rule 24A.1(k).

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

 Order Types--limit orders
 Order Instructions--All Sessions, Attributable, Direct to PAR,
Electronic Only, Non-Attributable, Not Held, and RTH Only
 Times-in-Force--Day

Given that FLEX Orders will only be eligible to trade following an
electronic or open outcry FLEX Auction and not rest in an electronic
book or route away (for which most Order Instructions and Times-in-
Force set forth in Rule 5.6 in the shell Rulebook are relevant), the
Exchange believes these are appropriate designations for FLEX Orders.
Because there is no existing market for FLEX Options, and thus no price
protections available to ensure execution of FLEX Orders at reasonable
prices, the Exchange believes it is appropriate to only permit FLEX
Options be submitted as limit orders. The Direct to PAR and Electronic
Only Order Instructions permit a FLEX Trader to determine whether it
wants a FLEX Order to be eligible for electronic execution or subject
to manual handling for execution in open outcry on the Exchange's
trading floor. Additionally, as set forth in Rule 5.1(c) of the shell
Rulebook, following the migration the Exchange may designate certain
FLEX Option classes as eligible for trading during the Global Trading
Hours sessions, and the All Sessions and RTH Only designations will
permit a FLEX Trader to determine in which trading session(s) it wants
a FLEX Order to be eligible for execution. While not specified in the
Rules, FLEX Traders may designate a FLEX Order as Attributable
(pursuant to the Exchange's authority pursuant to current Rule 6.53,
which permits the Exchange to make certain order types available on a
class basis). FLEX Orders not designated as Attributable will be Non-
Attributable.\38\
---------------------------------------------------------------------------

    \38\ See definitions of ``Attributable Order'' and ``Non-
Attributable Order'' in current Rule 6.53 (Rule 5.6(c) in the shell
Rulebook). Attribution has no impact on trading, and merely relates
to information that a FLEX Trader may want disseminated with respect
to its orders.
---------------------------------------------------------------------------

    Current Rules 24A.4(a)(2) and 24A.5, Interpretation and Policy .01
contemplate the availability of complex orders for FLEX trading.
Proposed Rule 5.70(b) explicitly states the Exchange may make complex
orders, including security future-option orders and stock-option
orders,\39\ available for FLEX trading. Complex FLEX Orders may have up
to the maximum number of legs determines by the Exchange. Each leg of a
complex FLEX Order:
---------------------------------------------------------------------------

    \39\ See definition of complex order in Rule 1.1 of the current
Rulebook and Rule 1.1 of the shell Rulebook, which provide that
unless the context otherwise requires, the term ``complex order''
includes a stock-option order and a security future-option order.
Additionally, proposed Rule 5.70(b) is consistent with current
Exchange authority to determine in which classes complex orders
(including FLEX classes) may be made available for trading, and to
determine the maximum number of legs for a complex order. See
definition of complex order in Rule 1.1 of the current Rulebook
(which states the Exchange determines in which classes complex
orders are eligible for processing). The proposed rule change merely
states this authority explicitly for FLEX complex orders.
---------------------------------------------------------------------------

     Must be for a FLEX Option series authorized for trading
\40\ with the same underlying equity security or index; \41\
---------------------------------------------------------------------------

    \40\ Current Rule 24A.4(a)(2) provides that each component of a
multi-legged RFQ or FLEX Order must contain the information required
for a FLEX series, as specified in that Rule and in proposed Rule
4.21(b).
    \41\ This is consistent with current Rules (see Rule 1.1 of the
current Rulebook and Rule 1.1 of the shell Rulebook), as a complex
order may consist of legs in multiple series in the same class
(i.e., the same underlying security or index). Therefore, the
proposed rule change merely explicitly states this in the rules for
FLEX Option complex orders.
---------------------------------------------------------------------------

     must have the same exercise style (American or European);
and
     for a FLEX Index Option, may have different settlement
types (a.m.-settled or p.m.-settled),\42\ except each leg must have the
same settlement type if designated as Asian-settled or Cliquet-settled.
---------------------------------------------------------------------------

    \42\ The current Rules does not restrict legs of a complex order
to all be either a.m.-settled or p.m.-settled.

The Exchange believes requiring the legs of a FLEX Option complex order
to have the same exercise style is appropriate given the conflict that
would arise with legs with different exercise styles. Similarly, the
Exchange believes requiring the legs of a FLEX Option complex order to
have the same settlement type for Asian-settled and Cliquet-settled
FLEX Index Options is appropriate given the complex nature of those
settlement types. The Exchange believes this may alleviate any
potential difficulties that may arise if the market needed to price
such complex strategies. The Exchange notes it has not receive any
complex orders at least within the last year that have legs with
difference exercise styles, or that have legs that are Asian-settled
and Cliquet-settled with other legs that have a different settlement
types.
    Proposed Rule 5.70(c) states a FLEX Trader may enter a FLEX Order
into the System during the times set forth in Rule 5.7 of the shell
Rulebook.\43\ This proposed rule change merely applies the rule that
sets forth the times at which the System is available to receive orders
to FLEX Orders. The System only available for receipt of a FLEX Order
at the times at which the System is available for all other orders.
---------------------------------------------------------------------------

    \43\ Rule 5.7 in the shell Rulebook provides that Users can
enter orders and quotes into the System, or cancel previously
entered orders and quotes, from 2:00 a.m. Eastern Time until Regular
Trading Hours market close, subject to certain terms and conditions.
---------------------------------------------------------------------------

    A FLEX Trader must designate a FLEX Order entered prior to the
opening of the applicable trading session or during a trading halt as
Direct to PAR; the System rejects a FLEX Order designated as Electronic
Only prior to the opening of the applicable trading session or during a
trading halt. As discussed below, there will be no electronic book in
which FLEX Orders may rest, and FLEX Orders may only be submitted for
electronic execution into a FLEX auction. Therefore, a FLEX Order
designated for electronic execution would have nowhere to rest if
submitted when trading on the Exchange is not open. Because a FLEX
Order designated as Direct to PAR (like any order designated as Direct
to PAR) would rest on a PAR workstation and be available for manual
handling by a Floor Broker after the opening of trading, there is not
risk of execution of such an order submitted to the Exchange while
trading is not available on the Exchange.
    Proposed Rule 5.72 describes the procedures for FLEX trading on the
Exchange following the migration. As noted above, trading of FLEX
Options is subject to all other Rules applicable to the trading of
options on the Exchange, unless otherwise provided in proposed Chapter
5, Section F of the shell Rulebook.\44\ Because there will be no
electronic book available in which FLEX Orders may rest,\45\ a FLEX
Option series is only eligible for trading if a FLEX Trader (the
``Submitting FLEX Trader'') (a) submits a FLEX Order for that series
into an electronic FLEX Auction pursuant to proposed Rule 5.72(c) (as
described below); (b) represents the FLEX Order in an open outcry FLEX
Auction pursuant to proposed Rule 5.72(d) (as described below); or
submits the FLEX Order to a FLEX AIM or SAM Auction pursuant to Rule
5.73 or 5.74, respectively, of the shell Rulebook.\46\

This is consistent with current Rule 24A.5(a), which states the current
RFQ process is required to open trading in a new series (unless the
auction process in current Rules 24A.5A or 24A.5B (current Rules
describing FLEX AIM and SAM Auctions, respectively) is used to open
trading in a new series), which RFQ process may be conducted through
the System or in open outcry. The proposed rule change only makes
nonsubstantive changes, including to update rule cross-references and
conform terminology to the proposed trading procedures.
---------------------------------------------------------------------------

    \44\ See proposed Rule 5.72(a) (current Chapter XXIV,
Introduction).
    \45\ This is consistent with current Exchange authority pursuant
to current Rule 24A.5(b) to not make an electronic book available
for FLEX Auctions.
    \46\ See proposed Rule 5.72(b).
---------------------------------------------------------------------------

    The proposed rule change makes explicit the requirements for both
simple and complex FLEX Orders:
     A FLEX Order for a FLEX Option series submitted to the
System must include all terms for a FLEX Option series set forth in
Rule 4.21 (including that a non-FLEX Option series with identical terms
is not listed for trading), size, side of the market, and a bid or
offer price, subject to the order entry requirements set forth in Rule
5.7 of the shell Rulebook.\47\
---------------------------------------------------------------------------

    \47\ See proposed Rule 5.72(b)(1).
---------------------------------------------------------------------------

     A FLEX Order for a FLEX Option complex strategy submitted
to the System must satisfy the criteria for a complex FLEX Order set
forth in proposed Rule 5.70(b) (see discussion above) and include size,
side of the market, a net debit or credit price, and a bid or offer
price for each leg of the FLEX Order, which leg prices must add
together to equal the net price.\48\ Additionally, each leg of the FLEX
Option complex strategy must include all terms for a FLEX Option series
set forth in Rule 4.21 (including that a non-FLEX Option series with
identical terms is not listed for trading), subject to the order entry
requirements set forth in Rule 5.7 of the shell Rulebook.\49\
---------------------------------------------------------------------------

    \48\ As discussed below, current Rules requires a FLEX Trader to
input leg prices for a complex FLEX Order following a transaction.
The proposed rule change merely moves the requirement to input this
information upon submission of the FLEX Order, rather than following
a transaction.
    \49\ See proposed Rule 5.72(b)(2).
---------------------------------------------------------------------------

    These proposed order requirements are consistent with current Rule
24A.4(a)(2), 24A.4(a)(3)(iv), and 24A.4(a)(4). Those current provisions
state every RFQ Order must contain one element from each contract term
category and the same transaction specifications as the related RFQ
(and any additional trade conditions, which as discussed below, will no
longer be available following migration), and that every RFQ Order must
contain the quote type and form sought (i.e., the RFQ order must
specify whether it seeks bids or offers, the size of the order, whether
it seeks responses as a dollar amount or percentage, and contingencies
and trade conditions (which will no longer be available following
migration)). Additionally, with respect to complex orders, the current
rules add that each component series in a multilegged FLEX RFQ or FLEX
Order must include all terms of a FLEX Option series. As discussed
above, pursuant to the proposed rule change, bids and offers for a FLEX
Option series must be expressed in dollars and decimals, if the
exercise price of the series is a fixed price, or as a percentage, if
the exercise price of the series is a percentage of the closing value
of the underlying equity security or index. Therefore, the proposed
rule change does not require the submission of a FLEX Order to identify
whether it seeks bid and offer responses in the form of a dollar amount
or percentage, as that is dictated by the format of the exercise price
of the FLEX Option series in the FLEX Order. Rule 5.7 of the shell
Rulebook includes provisions that apply to all order submitted to the
Exchange, including FLEX Orders. Therefore, the proposed rule change
makes no substantive changes to the required information for a simple
FLEX Order, and makes only nonsubstantive changes to the language in
the proposed provision.
    Current Rule 24A.5 describes how electronic and open outcry trading
in FLEX Options may occur on the Exchange today.\50\ To initiate an
electronic RFQ,\51\ a TPH (the ``Submitting TPH'') \52\ submits an RFQ
with the terms of a FLEX Option series, as well as whether the
Submitting TPH is requesting a bid, offer, or both.\53\ The System then
communicates the terms of the RFQ to FLEX Traders.\54\ Only one
electronic RFQ may be ongoing at a given time in a series, and
electronic RFQs may not overlap or queue.\55\ During the RFQ Response
Period (which is the period of time during which FLEX Traders may
provide bids and offers in response to RFQs),\56\ FLEX Traders
(including the Submitting TPH) \57\ may then submit bids and offers in
response to the RFQ, which they may withdraw during that period.\58\
Current Rule 24A.5(a)(1)(ii)(A) does not permit options market-makers
from another options exchange to enter bids and offers (currently
referred to in the Rules as FLEX Quotes (see current Rule 24A.1(k)) in
response to an RFQ. The Exchange does not believe this restriction is
necessary and proposes to delete it, and therefore permit all FLEX
Traders to provide liquidity in electronic FLEX auctions. The Exchange
believes permitting additional participants to submit responses to FLEX
Auctions will provide the opportunity for additional liquidity in these
auctions, which could lead to additional price improvement
opportunities.
---------------------------------------------------------------------------

    \50\ Current Rule 24A.5, Interpretation and Policy .01 describes
how the electronic RFQ process applies to complex FLEX Orders, which
the proposed rule change also deletes, as complex FLEX orders will
trade electronically in the same manner as simple FLEX orders.
    \51\ See current Rule 24A.5(a)(1) for a description of the
electronic RFQ process.
    \52\ This proposed definitions replaces the current definition
of a Submitting TPH in current Rule 24A.1(x), which the proposed
rule change deletes. The proposed rule change also deletes the
provision in current Rule 24A.1(x) regarding the ability of a
Submitting TPH to submit a FLEX Order into an electronic book, as
there will be no electronic book available following the migration.
    \53\ See current Rules 24A.4(a)(3)(i) and 24A.5(a)(1)(i)(A).
    \54\ See current Rule 24A.5(a)(1)(i)(B).
    \55\ Id.
    \56\ See current Rule 24A.1(u).
    \57\ Pursuant to Rule 1.1 in the shell Rulebook, a User must
specify the Capacity (which is defined in Rule 1.1 of the shell
Rulebook as the capacity in which a User submits an order, which the
User specifies by applying the corresponding code to the order; the
Exchange notes the various Capacity codes listed in Rule 1.1 will be
available for FLEX Orders) of each order upon submission to the
Exchange (Rule 5.7(f) in the shell Rulebook requires at least the
information specified in that rule to be input upon submission of an
order prior to representation on the Exchange, and requires any
additional information with respect to that order to be input
contemporaneously). While responses to FLEX Auctions will no longer
be restricted by Capacity, the Exchange uses Capacity information
for a variety of reasons, including prioritization in certain
transactions as well as several surveillances for compliance with
various regulatory obligations.
    \58\ See current Rule 24A.5(a)(1)(ii)(B). The proposed rule
change permits responses to be modified or cancelled, as opposed to
just cancelled/withdrawn. Modification of a response is equivalent
to cancelling and reentering a response, which is permitted under
the current rule, and is merely a different type of message to
accomplish the same thing. The proposed rule change deletes the
reference to the obligations of a FLEX Appointed Market-Maker from
that provision in the current Rules, as the Exchange does not
currently have any FLEX Appointed Market-Makers and does not intend
to in the future, and thus is deleting provisions related to FLEX
Appointed Market-Makers from the Rules.
---------------------------------------------------------------------------

    Currently, the Submitting TPH may designate the length of the RFQ
Response Period when initiating the RFQ, which time must be within a
time range established by the Exchange and not less than three
seconds.\59\ During the RFQ Response Period, the System calculates and
disseminates the then-current market given current FLEX orders and
quotes.\60\ At the conclusion of the RFQ Response Period, the
Submitting TPH may accept or reject the

bids and offers submitted during the RFQ Response Period within an RFQ
Reaction Period, the length of which the Exchange determines on a
class-by-class basis and may not be more than five minutes.\61\ During
the RFQ Reaction Period, FLEX Traders may continue to submit or cancel
responses, and the Submitting TPH may accept bids and offers or cancel
the RFQ (or let it expire).\62\ During the RFQ Reaction Period, the
System calculates and disseminates the then-current market given
current FLEX orders and quotes.\63\
---------------------------------------------------------------------------

    \59\ See current Rule 24A.4(a)(3)(iii); see also Cboe Options
Regulatory Circular RG12-056 (April 20, 2012) (which sets the
current range for RFQ Response Periods as three seconds to ten
minutes).
    \60\ See current Rule 24A.5(a)(1)(ii)(C).
    \61\ See current Rule 24A.5(a)(1)(iii)(A). Currently, the
Exchange has set the maximum time of the Reaction Period at three
minutes. See Cboe Options Regulatory Circular RG12-056 (April 20,
2012).
    \62\ See current Rule 24A.5(a)(1)(iii)(B)(I) and (III). The
proposed rule change deletes the reference to the obligations of a
FLEX Appointed Market-Maker from that provision in the current
Rules, as the Exchange does not currently have any FLEX Appointed
Market-Makers and does not intend to in the future, and thus is
deleting provisions related to FLEX Appointed Market-Makers from the
Rules. The proposed rule change also deletes the provision regarding
the inability to submit FLEX Orders to the electronic book during
the RFQ Reaction Period, as there will be no electronic book for
FLEX Orders, as further discussed below.
    \63\ See current Rule 24A.5(a)(1)(iii)(B)(II).
---------------------------------------------------------------------------

    If the Submitting TPH chooses to trade, it may enter the RFQ Order
to trade with one side of the market provided by the RFQ.\64\ The FLEX
Order will trade with contra-side interest first at the best prices. If
there are multiple bids or offers available at the same price, then the
FLEX Order is allocated as follows:
---------------------------------------------------------------------------

    \64\ See current Rule 24A.5(a)(1)(iii)(B)(IV). If the Submitting
TPH enters a response during the RFQ Reaction Period, it must bid or
offer for at least the crossing exposure period prior to entering
the FLEX Order (which period the Exchange establishes on a class-by-
class basis and may not be less than three seconds, which the
Exchange has currently established as three seconds).
---------------------------------------------------------------------------

     Bids and offers for the account of public customers and
non-TPH broker-dealers in time priority;
     bids and offers of a FLEX Appointed Market-Maker if the
Exchange has applied a participation entitlement; \65\ and
---------------------------------------------------------------------------

    \65\ See current Rule 24A.5(d)(2)(ii). Current Rule 24A.1(h)
defines a ``FLEX Market-Maker'' as a FLEX Trader (see proposed Rule
3.57 in the shell Rulebook) that is appointed as a FLEX Appointed
Market-Maker or a FLEX Qualified Market-Maker, each as described in
current Rule 24A.9. The proposed rule change intends to move the
definition of a FLEX Market-Maker, as well as the rule provisions
regarding the roles of a FLEX Market-Maker, to the shell Rulebook in
a separate rule filing.
---------------------------------------------------------------------------

     all other bids and offers in time priority.
    Any remaining balance of the FLEX Order would enter the FLEX Book
(if the Exchange made a FLEX Book available) or be cancelled (if there
was no FLEX Book). The Submitting TPH has no obligation to accept any
FLEX bid or offer.\66\
---------------------------------------------------------------------------

    \66\ See current Rule 24A.5(a)(iii)(C). The current Rules
include additional provisions regarding what happens if the RFQ
Market is locked or crossed, and what happens to any unexecuted
responses at the conclusion of the RFQ Reaction Period. As discussed
below, there will be no market, as FLEX electronic auctions will be
one-sided, so there cannot be a locked or crossed market, and
responses may only execute against the FLEX Order submitted into the
auction.
---------------------------------------------------------------------------

    The Exchange proposes to replace the current electronic RFQ process
\67\ with a new electronic FLEX Auction process. Pursuant to proposed
Rule 5.72(c), a Submitting FLEX Trader may electronically submit a FLEX
Order (simple or complex) into an electronic FLEX Auction for
execution. Pursuant to proposed Rule 5.72(c)(1), the Submitting FLEX
Trader may initiate a FLEX Auction if all of the following conditions
are met:
---------------------------------------------------------------------------

    \67\ Therefore, the proposed rule change deletes all provisions
that describe the current electronic RFQ process and related
definitions, including Rules 24A.1(a), (b), (k), (r), (s), (t), (u),
(v), and (z) (note certain of these definitions also apply to open
outcry RFQs, which the Exchange proposes to eliminate and replace
with a different manner of open outcry trading for FLEX options, as
discussed below), 24A.4(a)(3), and 24A.5(a)(1).
---------------------------------------------------------------------------

     The FLEX Order is in a class of options the Exchange is
authorized to list for trading on the Exchange.\68\ As discussed above
regarding proposed Rule 5.72(b), a FLEX Order must be in a FLEX Option
series (or FLEX Option complex strategy, each of which consists of a
FLEX Option series), which series must be in a FLEX eligible class.\69\
The proposed rule change is therefore consistent with current
requirements for submission of a FLEX Order into a FLEX Auction.
---------------------------------------------------------------------------

    \68\ See current Rule 24A.4(a)(2), (b)(1) and (c)(1) (which
provide that a FLEX Order must contain the underlying security or
index, as applicable, which underlying must be eligible for non-FLEX
trading pursuant to current Rules 5.3 or 24.2, respectively).
    \69\ See proposed Rule 4.21 and accompanying discussion above,
demonstrating the proposed rule change makes no substantive changes
to the classes that are eligible for FLEX trading on the Exchange.
---------------------------------------------------------------------------

     There is no minimum size for FLEX Orders. Current Rule
24A.5 includes no restrictions on the size of FLEX Orders that may be
submitted for electronic execution. Therefore, the proposed rule change
is consistent with current functionality and merely specifies this in
the Rules.
     A simple or complex FLEX Order must comply with proposed
paragraph (b) above. As discussed above, current Rules require FLEX
Orders (and RFQ Orders, which are orders submitted into an electronic
FLEX RFQ, which is being replaced by the proposed electronic FLEX
Auction) to include the information in proposed paragraph (b), so this
proposed rule change imposes no new requirements on the submission of
FLEX Orders into an auction. As discussed below, the only difference is
that the Submitting TPH must submit the FLEX Order to initiate the
electronic FLEX Auction, rather than initiate an RFQ and only submit an
order if it chooses to trade following the conclusion of the RFQ
Response Period.
     A simple FLEX Order must include a bid or offer price (the
``auction price''). A complex FLEX Order must include a net bid or
offer price and a bid or offer price for each leg of the FLEX Order,
which leg prices must add together to equal the net price (the
``auction price''). Because the current process is an RFQ rather than
an auction, the Submitting TPH does not include a price on RFQ when
initiating an RFQ. Requiring the inclusion of a price on a FLEX Order
when initiating an electronic FLEX Auction is consistent with an
auction process. As discussed below, the auction price will not be
included on the auction notification message disseminated to FLEX
Traders,\70\ and therefore FLEX Traders will be encouraged to submit
their best priced responses in response to the auction as they are
today when submitting their markets in response to the RFQ.
---------------------------------------------------------------------------

    \70\ Other Exchange auction mechanisms do not include the price
on the auction notification message disseminated to market
participants. See, e.g., Rules 5.33(d)(1) (regarding the auction
message for a complex order auction (``COA'') and 5.37(d)(2)
(regarding the notification message for an AIM Auction for non-FLEX
Options).
---------------------------------------------------------------------------

     The Submitting FLEX Trader may only submit a FLEX Order
for electronic execution in a FLEX Auction after FLEX trading has
opened pursuant to proposed Rule 5.71 (as discussed above). This is
consistent with current Rule 24A.3, which states only after the open of
FLEX trading may FLEX Orders be submitted into a FLEX Auctions pursuant
to current Rules 24A.5, 24A.5A, or 24A.5B.
     The Submitting FLEX Trader must designate the length of
the ``exposure interval,'' which must be between three seconds and five
minutes. The designated time may not go beyond the market close.
Current Rule 24A.4(a)(3)(iii) also requires the Submitting FLEX Trader
to designate the length of the RFQ Response Period, the permissible
range of which is established by the Exchange but may not be less than
three seconds. Currently, the Exchange has set the range at three
seconds to ten minutes.\71\ The proposed rule change to set the
exposure interval between three seconds and five minutes is consistent
with the

Exchange's current authority in the Rules, as it only requires a
minimum of three seconds. The Exchange believes this interval is
reasonable, because it is consistent with the lengths designated by
FLEX Traders in the current electronic RFQ process. Specifically, the
Exchange notes that from January through August of 2019, the average
RFQ Response period is less than nine seconds, and the average RFQ
Reaction period is approximately three minutes. Therefore, the average
length of the electronic RFQ process is within the proposed exposure
interval. Additionally, in 2019, only 25 of 3457 (or 0.7%) of
electronic FLEX RFQs lasted for a total of more than five minutes in
2019, so the Exchange does not believe capping the length of the
proposed electronic FLEX Auction at five minutes will have a
significant impact on FLEX trading. In addition, the Exchange believes
a shorter maximum time is appropriate based on feedback received from
market participants, and because FLEX Traders will only need to submit
responses on the opposite side of the auctioned FLEX Order, rather than
responses on potentially both sides to create a market. As further
discussed below, the Exchange believes a shortened auction process may
increase liquidity in the electronic FLEX market on the Exchange.
---------------------------------------------------------------------------

    \71\ See Cboe Options Regulatory Circular RG12-056 (April 20,
2012).

The System rejects or cancels a FLEX Order that does not meet the
conditions in proposed Rule 5.72(c)(1). This is consistent with the
concept of eligibility requirements, as well as current Rule
24A.5(a)(1)(i)(A), which states a Submitting TPH may submit a FLEX RFQ
using the form, format, and procedures prescribed by the Exchange.
    As described in the bulleted paragraphs above, the proposed
requirements to initiate an electronic FLEX Auction are substantially
similar to the current requirements to initiate an electronic RFQ. The
proposed electronic FLEX Auction will be voluntary, just as the current
electronic RFQ is voluntary, and all FLEX Traders will be able to
initiate an electronic FLEX Auction, just as they are all able to
currently initiate an electronic RFQ, if they so choose. However,
rather than submit an order in response/following to an RFQ if and when
the Submitting TPH determines to trade against RFQ responses, the
proposed rule change requires the Submitting TPH to submit a FLEX Order
to initiate the electronic FLEX Auction. This is consistent with the
Exchange's other electronic auction processes,\72\ as the auction will
result in automatic execution against any responses (if they satisfy
the auction price) at the conclusion of the auction. The unique feature
of FLEX Options is the flexibility with respect to their terms, which
is why current FLEX Rules, and the proposed FLEX Rules, provide a
longer time frame for FLEX Traders to submit bids and offers. As noted
above, the proposed exposure interval is consistent with the Exchange's
authority under the current Rules, and appropriately shortened given
the one-sided nature of the proposed auction.\73\ Additionally, as
further discussed below, the Exchange believes a generally shorter
electronic auction process, combined with the certainty of execution at
the conclusion if responses satisfy the price of the auctioned order,
may encourage additional market participants to submit FLEX Orders to
the Exchange for electronic execution.
---------------------------------------------------------------------------

    \72\ See, e.g., current Rules 6.14A (describing the Exchange's
step-up mechanism), 6.53C (describing the Exchange's single-sided
complex order auction), and 6.74A (describing the Exchange's price
improvement automated improvement mechanism), all of which require
an order with a price to initiate.
    \73\ As noted above, the length of auction intervals for non-
FLEX Options is generally under one second.
---------------------------------------------------------------------------

    Proposed Rule 5.72(c)(2) describes the FLEX Auction process. Upon
receipt of a FLEX Order that meets the conditions in proposed
subparagraph (c)(1), the FLEX Auction Process commences. As it does
today,\74\ the System will initiate a FLEX Auction by sending a FLEX
Auction notification message to FLEX Traders detailing the FLEX Option
series or complex strategy (as applicable).\75\ The current RFQ
identifies the terms of the FLEX Option (see current Rule 24A.4(a)(2)),
which correspond to the series or complex strategy. Additionally, the
current RFQ identifies whether a bid, offer, or both are sought (see
current Rule 24A.4(a)(3)), and whether a price in dollars or percentage
is sought (as discussed above, bids and offers must be in the same
format as the exercise price of the FLEX Option series under proposed
Rule 5.3(e)(3), and thus there is no need to separately identify
whether a price in dollars or percentage is sought, as that will be
dictated by the series' exercise price). Because the proposed process
is a one-sided auction process, the proposed auction notification
message will include the side and size of the auctioned order, which
will permit FLEX Traders to focus their responses on the side on which
a potential execution may occur. Auction ID,\76\ Capacity,\77\ the time
at which the exposure interval will conclude,\78\ and Attribution (if
the FLEX Order is designated as Attributable).\79\ FLEX Auction
notification messages are not disseminated to OPRA.\80\
---------------------------------------------------------------------------

    \74\ See current Rule 24A.5(a)(1)(i)(B) (pursuant to which the
System causes the terms and specifications of the RFQ to be
communicated to FLEX Traders upon receipt of an RFQ in proper form).
    \75\ See proposed Rule 5.72(c)(2)(A).
    \76\ This is new information on the auction message based on the
proposed rule change discussed below, which permits responses to
only execute at the conclusion of the auction into which the
responses were submitted.
    \77\ This is new information on the auction message. Because an
order was not previously required to initiate an RFQ, there was no
Capacity to include. Capacity will be provided on the auction
message for informational purposes, and FLEX Traders may consider
the Capacity in any manner they see fit when determining how to
respond to an electronic FLEX Auction.
    \78\ While not specified in the Rules, this is true today, so
that FLEX Traders know how long they have to submit responses.
    \79\ While not specified in the Rules, this is true today, as it
is consistent with the concept of an attributable order. See
definition of ``Attributable Order'' in current Rule 6.53 (Rule
5.6(c) in the shell Rulebook).
    \80\ This is true today, as RFQs are only sent to FLEX Traders.
See id.
---------------------------------------------------------------------------

    The FLEX Auction message will not include the price of the
auctioned FLEX Order. The Exchange believes not including the auction
price in the notification message will encourage FLEX Traders to
respond with the best prices at which they are willing to trade against
the auctioned FLEX Order. If the message included the price, FLEX
Traders may only respond to trade at that price; without the price,
FLEX Traders may respond at better prices, which may result in price
improvement opportunities for the auctioned FLEX Order. This is
consistent with other electronic auctions on the Exchange.\81\ This is
similar to the current RFQ process today, in which there is no
disseminated price, and instead market participants submit bids and
offers based on prices at which they are willing to transact in the
series subject to the RFQ.
---------------------------------------------------------------------------

    \81\ See also current Rules 6.53C and 6.74A (Rules 5.33 and 5.37
in the shell Rulebook) pursuant to which COA auction messages and
AIM auction messages do not include the auction price.
---------------------------------------------------------------------------

    Pursuant to current Rule 24A.5(a)(1)(i)(B), only one electronic RFQ
may be ongoing at any given time in a series, and electronic RFQs in
the same series may not queue or overlap in any manner. Similarly,
pursuant to Rule 24A.5, Interpretation and Policy .01, only one
electronic RFQ may be ongoing at any given time for a given complex
order strategy, and electronic RFQs may not queue or overlap in any
manner.\82\

Due to current limitations, the Exchange's System is not currently able
to process multiple electronic RFQs at the same time, nor is it able to
process an electronic RFQ for a complex strategy if an order in any of
the leg series that comprise that complex order is present in the
System. However, different types of auctions for the same series or
complex strategy may occur at the same time. For example, the Rules do
not currently prevent a complex order auction (``COA'') of a complex
order from occurring at the same time as an AIM in one of the leg
series of the complex order subject to a COA. The System to which the
Exchange's trading platform will move upon completion of the technology
migration is able to process concurrent auctions for orders in the same
series (including auctions for complex strategies and for legs series
that comprise those strategies).\83\ Therefore, the Exchange believes
it is similarly reasonable to permit multiple FLEX Auctions in the same
series to occur at the same time. As proposed, one or more FLEX
Auctions in the same FLEX Option series or complex strategy (as
applicable) may occur at the same time.\84\ To the extent there is more
than one FLEX Auction in a FLEX Option series or complex strategy (as
applicable) underway at the same time, the FLEX Auctions conclude
sequentially based on the times at which each FLEX Auction's exposure
interval concludes. At the time each FLEX Auction concludes, the System
allocates the FLEX Order pursuant to proposed subparagraph (b)(3) (as
described below), and takes into account all FLEX responses submitted
during the exposure interval. Concurrent auctions will be permitted in
various other electronic auctions on the Exchange following
migration.\85\ If a FLEX Trader attempts to initiate an electronic FLEX
Auction in a FLEX Option series while another auction in that series is
ongoing, the Exchange believes it will provide that second FLEX Order
with an opportunity for execution in a timely manner by initiating
another FLEX Auction, rather than requiring the FLEX Trader to wait for
the first auction to conclude. The second FLEX Trader may not be able
to submit a response to trade in the ongoing FLEX Auction, because the
terms may not be consistent with that FLEX Trader's order (for example,
there may not be sufficient size, and the FLEX Trader may only receive
a share of the auctioned order depending on other responses).
Therefore, the Exchange believes providing this functionality for
electronic FLEX Auctions may similarly lead to an increase in
electronic FLEX Auctions, which may provide additional opportunities
for execution of FLEX Orders. Pursuant to proposed Rule 5.72(c)(2)(C),
the Submitting FLEX Trader may cancel a FLEX Auction prior to its
conclusion. This is consistent with a Submitting TPH's current ability
to not accept any FLEX bid or offer, and thus not execute an order for
which it requests a market pursuant to an RFQ.\86\
---------------------------------------------------------------------------

    \82\ In the event there are bids (offers) in any of the
individual component series legs represented in the electronic book
when an electronic RFQ for a complex strategy is submitted to the
System, the electronic RFQ will not commence, and an unrelated FLEX
Order in any of the individual series legs may not be submitted to
the electronic book or for electronic RFQ processing during the
duration of an electronic RFQ. See current Rule 24A.5,
Interpretation and Policy .01.
    \83\ See Rules 5.33(d), 5.37(c)(1), 5.38(c)(1), 5.39(c)(1), and
5.40(c)(1) in the shell Rulebook; see also EDGX Options Rules
21.19(c)(1), 21.20(d), 21.21(c)(1), and 21.22(c)(1).
    \84\ See current Rule 24A.5(a)(1)(i)(B) and Interpretation and
Policy .01; and proposed Rule 5.72(c)(2)(B).
    \85\ See, e.g., Rules 5.33, 5.37, and 5.38 in the shell
Rulebook; see also EDGX Options Rules 21.19, 21.20, and 21.22.
    \86\ See current Rule 24A.5(1)(iii).
---------------------------------------------------------------------------

    Proposed Rule 5.72(c)(2)(D) describes the requirements for
responses that FLEX Traders may submit to an electronic FLEX
Auction.\87\ Any FLEX Trader (including the Submitting FLEX Trader if
it is seeking to effect a cross) \88\ may submit responses to a FLEX
Auction that are properly marked specifying the FLEX Option series or
complex strategy (as applicable), bid or offer price or net price
(respectively), size, side of the market, and the Auction ID for the
FLEX Auction to which the User is submitting the response. This
information is currently required to be included on response to RFQs
(other than an Auction ID), and the proposed rule change merely adds
this detail to the Rules. A FLEX response may only participate in the
FLEX Auction with the Auction ID specified in the response, which is
why the auction notification will include an Auction ID and response
must identify the applicable Auction ID.\89\ The Exchange proposes to
include this given the above proposal that permits concurrent
electronic FLEX Auctions in the same series or complex strategy.
---------------------------------------------------------------------------

    \87\ The proposed provisions regarding FLEX responses are
consistent with rules regarding responses to other electronic
auctions. See, e.g., Rules 5.33, 5.37, and 5.38 in the shell
Rulebook; see also EDGX Options Rules 21.19, 21.20, and 21.22.
    \88\ Current Rule 24A.5(a)(1)(iii)(B)(IV) states if a Submitting
TPH enters a response (referred to in the current Rule as a FLEX
Quote) during the RFQ Reaction Period (and thus a quote to trade
against the RFQ Order, should the Submitting TPH decide to execute
during the RFQ Reaction Period), it must be bidding (offering) for
at least the crossing exposure period prior to entering the RFQ
Order to trade. The Exchange may determine the duration of this
period, which must be at least three seconds (and which the Exchange
has currently set at three seconds). The purpose of this time period
is to ensure all FLEX Traders have an opportunity to submit
responses if the Submitting TPH decides to execute a cross. Because
the exposure interval (which occurs after the submission of a FLEX
Order) in the new process must be at least three seconds, which will
be the earliest time at which execution of the FLEX Order may occur,
all FLEX Traders will have the same opportunity and time to
participate in an execution against the FLEX Order.
    \89\ If there are concurrent FLEX Auctions occurring, a FLEX
Trader may submit responses to all ongoing auctions, and thus
concurrent auctions will not hinder a FLEX Trader's ability to
participate in any FLEX Auction.
---------------------------------------------------------------------------

    A FLEX Trader may submit multiple FLEX responses at the same or
multiple prices to a FLEX Auction. This is consistent with current
functionality. Current Rule 24A.5(a)(1) contains no restriction on how
many responses a FLEX Trader may submit; the proposed rule change
merely makes this explicit in the Rules. For purposes of a FLEX
Auction, the System aggregates all of a FLEX Trader's FLEX responses
for the same Executing Firm ID (``EFID'') at the same price. The System
will cap the size of a FLEX response, or the aggregate size of a FLEX
Trader's FLEX responses for the same EFID at the same price, at the
size of the FLEX Order (i.e., the System ignores the size in excess of
the size of the FLEX Order when processing the FLEX Auction). These
provisions are new given the potential for an automatic execution at
the conclusion of the FLEX Auction (unlike the current process which
provides the Submitting TPH with the opportunity to trade or not
trade). Additionally, the Exchange proposes to add these provisions
given the proposed rule change to apply a pro-rata allocation to
responses at the conclusion of an electronic FLEX Auction, as further
discussed below. These provisions are consistent with other auction
functionality that apply a pro-rata allocation to executions following
those auctions.\90\ The Exchange believes these proposed changes are
reasonable to prevent a User from submitting a response with an
extremely large size in order to obtain a larger pro-rata share of the
FLEX Order.
---------------------------------------------------------------------------

    \90\ See, e.g., Rules 5.33, 5.37, and 5.38 in the shell
Rulebook; see also EDGX Options Rules 21.19, 21.20, and 21.22.
---------------------------------------------------------------------------

    FLEX responses must be on the opposite side of the market as the
FLEX Order. The System rejects a FLEX response on the same side of the
market as the FLEX Order. Unlike the current RFQ process, FLEX Traders
will know the side of the market on which the Submitting FLEX Trader is
looking to trade, and therefore the Exchange believes this is
reasonable given that the purpose of a response is to trade against the
FLEX Order in the auction into which the response was submitted.
Pursuant to the current RFQ process, the

Submitting TPH may request bids and offers on both sides of the market.
By only requesting responses on the opposite side of the market, the
proposed rule change will allow FLEX Traders to focus on pricing
responses that would be eligible to execute (i.e., on the opposite side
of the market on which the Submitting FLEX Trader is looking to trade).
    FLEX responses are not visible to FLEX Traders or disseminated to
OPRA. RFQ responses are also not currently disseminated to OPRA.\91\
However, while the Exchange does not disseminate all individual
responses to an electronic RFQ, the best market created by responses is
intermittently calculated and disseminated during the RFQ Response
Period and Reaction Period, during which time FLEX Traders may withdraw
those responses.\92\ The proposed rule change is consistent with many
electronic auctions, in which responses are not visible to the
market.\93\ Responses to electronic auctions are not firm prior to the
conclusion of the auction, and thus are not disseminated to OPRA,
because they are not executable until the conclusion of the auction, at
which time their price and size are firm.\94\ For the same reason as
the Exchange does not disseminate the auction price on the auction
notification message as discussed above, the Exchange believes it will
encourage FLEX Traders to submit their best possible priced-responses
if they do not know the prices at which other FLEX Traders are willing
to trade. For example, if during a FLEX Auction of a buy FLEX Order, a
FLEX Trader submitted a response to sell at $1.05, if another FLEX
Trader saw that response, it may merely respond to sell at $1.05, or
maybe $1.04, even though it may ultimately be willing to sell at $1.03.
Without seeing the other responses, the second FLEX Trader may instead
submit a response to sell at $1.03, which could result in price
improvement for the auctioned order. The Exchange appreciates that
there is no disseminated market in FLEX Options. However, the length of
the exposure interval (which, as discussed above, is longer than the
interval in typical electronic auctions and consistent with the minimum
RFQ response period in the current RFQ process) will provide all FLEX
Traders with the same opportunity to submit responses. A FLEX Trader
may modify or cancel its FLEX responses during the exposure interval.
As noted above, the current Rule permits FLEX Traders to withdraw
(which is the equivalent of cancel) a response to a FLEX RFQ, but does
not explicitly state that those responses may be modified. A
modification of a response is equivalent to a cancellation of an
existing response and submission of a new response, but may instead be
done through a different message type. Therefore, the proposed rule
change permits the same activity that can be done pursuant to the
current rule, but merely in a different manner (i.e., modification
rather than cancellation and separate entry).
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    \91\ Responses to an RFQ are considered indications of interest,
which are exempt from disseminated bids and offers. See, e.g.,
current Rule 6.80(2).
    \92\ See current Rule 24A.5(a)(ii)(C) and (iii)(B)(II).
    \93\ See, e.g., current Rules 6.53C and 6.74A (Rules 5.37 and
5.38 in the shell Rulebook); see also EDGX Options Rules 21.19,
21.20, and 21.22.
    \94\ See, e.g., Rules 5.33(d)(4)(C) and (D), 5.37(c)(5)(H),
5.38(c)(5)(H), 5.39(c)(5)(F), 5.40(c)(5)(F).
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    Pursuant to proposed Rule 5.72(c)(3), the FLEX Auction concludes at
the end of the exposure interval, unless the Exchange halts trading in
the affected series or the Submitting FLEX Trader cancels the FLEX
Auction, in which case the FLEX Auction concludes without execution.
There are no events that will cause the current RFQ Response Period to
conclude early pursuant to current Rule 24A.5(a)(1). While the current
Rule does not discuss how a trading halt may impact an ongoing
electronic RFQ, the proposed rule change is consistent with current
functionality, as the Exchange would not permit any executions to occur
during a trading halt.\95\
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    \95\ Concluding an electronic auction without an execution due
to a trading halt is consistent with other electronic auctions on
the Exchange. See, e.g., current Rules 6.53C and 6.74A (Rules 5.33,
5.37, and 5.38 in the shell Rulebook); see also EDGX Options Rules
21.19, 21.20, and 21.22.
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    At the conclusion of the FLEX Auction:
     The System executes the FLEX Order against the FLEX
responses at the best price(s), to the price at which the balance of
the FLEX Order or the FLEX responses can be fully executed (the ``final
auction price''). If there are multiple FLEX responses at the same
price level, then the contracts in those FLEX responses are allocated
proportionally, according to size (in a pro-rata fashion).\96\
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    \96\ The executable quantity is allocated to the nearest whole
number, with fractions \1/2\ or greater rounded up and fractions
less than \1/2\ rounded down. If the executable quantity cannot be
evenly allocated, contracts will be distributed using this pro-rata
priority methodology until there are no contracts remaining. This is
consistent with the Exchange's standard pro-rata electronic
allocation algorithm. See Rule 5.32(a)(1)(B) in the shell Rulebook.
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     The System cancels an unexecuted FLEX Order (or unexecuted
portion).
     The System cancels any unexecuted FLEX responses (or
unexecuted portions).
    The proposed allocation process is consistent with the electronic
pro-rata allocation with no overlays that they Exchange may apply to
trading in non-FLEX Options.\97\ Unlike the proposed allocation
process, the current allocation at the conclusion of an electronic FLEX
RFQ provides priority to Priority Customers and non-TPH broker-dealers
orders and quotes, the purpose of which was to accommodate TPHs that
rely on the ``G'' exemption from Section 11(a)(1) of the Exchange Act
when submitting orders for electronic execution. While certain other
electronic auctions available on the Exchange prioritize Priority
Customer orders, none prioritize non-TPH broker-dealers, and thus
electronic submission of an order into those auctions would not be
eligible for the ``G'' exemption either. Currently, a minimal number of
TPHs rely on the ``G'' exemption. As discussed below, the Exchange
believes the proposed electronic FLEX Auction satisfies the ``Effect
vs. Execute'' exemption, and will permit TPHs to rely on that exemption
(subject to satisfaction of the requirements of that exemption) when
submitting FLEX Orders for electronic execution. A TPH (not acting in a
market-maker capacity) could submit an order for a covered account from
off of the Exchange's trading floor to an unaffiliated Floor Broker for
submission for execution in the FLEX Auction from the trading floor and
satisfy the ``Effect vs. Execute'' exemption (assuming the other
conditions are satisfied).\98\ However, a TPH could not submit an order