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Federal Register / Vol. 86, No. 31 / Thursday, February 18, 2021 / Notices Amendment No. 2 to the proposed rule change.5 On July 27, 2020, pursuant to Section 19b2 of the Act,6 the Commission designated a longer period within which to approve the proposed rule change, disapprove the proposed rule change, or institute proceedings to determine whether to disapprove the proposed rule change.7 On August 21, 2020, the Commission published notice of Amendment Nos. 1 and 2 and instituted proceedings under Section 19b2B of the Act 8 to determine whether to approve or disapprove the proposed rule change, as modified by Amendment Nos. 1 and 2.9 On December 8, 2020, pursuant to Section 19b2 of the Act,10 the Commission designated a longer period within which to approve or disapprove the proposed rule change, as modified by Amendment Nos. 1 and 2.11 This order approves the proposed rule change, as modified by Amendment Nos. 1 and 2.

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II. Description of the Proposal, as Modified by Amendment Nos. 1 and 2
The Exchange proposes to permit orders for the accounts of market makers with an appointment in SPX to be solicited for the initiating order submitted for execution against an agency order in SPX options into a simple AIM auction pursuant to Rule 5.37 or a simple FLEX AIM auction pursuant to Rule 5.73.12 Currently, the introductory paragraphs of Rules 5.37
and 5.73 prohibit orders for the accounts of market makers with an 5 In Amendment No. 2, the Exchange: 1
Provided additional data, justification, and support for its proposal; and 2 made technical corrections and clarifications to the description of the proposal.
The full text of Amendment No. 2 is available on the Commissions website at: https www.sec.gov/
comments/sr-cboe-2020-050/srcboe20200507464399-221161.pdf.
6 15 U.S.C. 78sb2.
7 See Securities Exchange Act Release No. 89398, 85 FR 46197 July 31, 2020. The Commission designated September 16, 2020 as the date by which the Commission shall approve or disapprove, or institute proceedings to determine whether to disapprove, the proposed rule change.
8 15 U.S.C. 78sb2B.
9 See Securities Exchange Act Release No. 89635, 85 FR 53051 August 27, 2020.
10 15 U.S.C. 78sb2.
11 See Securities Exchange Act Release No. 90593, 85 FR 80842 December 14, 2020. The Commission designated February 13, 2021 as the date by which the Commission shall approve or disapprove the proposed rule change, as modified by Amendment Nos. 1 and 2.
12 The initiating order is the order comprised of principal interest or a solicited orders submitted to trade against the order the submitting trading permit holder the Initiating TPH or Initiating FLEX Trader, as applicable represents as agent the agency order. The Exchange states that AIM
is currently not activated for SPX options, although FLEX AIM is currently activated for FLEX SPX
options. See Amendment No. 1, supra note 4, at 4
& n.2.

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appointment in the applicable class to be solicited to execute against the agency order in a simple AIM or FLEX
AIM auction, respectively. The Exchange states that no similar restriction applies to crossing transactions in open outcry trading, where a significant portion of SPX
options trade.13 The Exchange represents that brokers seeking liquidity to execute against customer orders on the trading floor regularly solicit appointed SPX market makers for this liquidity, as they are generally the primary source of pricing and liquidity for those options.14
The Exchange states that, during a period of time in which it suspended open outcry trading to help prevent the spread of the novel coronavirus and began operating in an all-electronic configuration, it activated AIM for SPX
options and adopted a temporary rule change to permit market makers to be solicited for electronic crossing transactions in its exclusively-listed index options including SPX options when the Exchanges trading floor was inoperable.15 According to the Exchange, while AIM was activated for SPX options, the Exchange observed price improvement benefits in AIM
auctions for smaller, retail-sized SPX
options.16 Although the Exchange has deactivated AIM for SPX options with the reopening of its trading floor, the Exchange further states that, if it determines to reactivate AIM for SPX
options, it believes it is appropriate to permit orders for the account of an appointed SPX market maker to be submitted as the contra order, as the Exchange believes the liquidity provided by SPX market makers is necessary for brokers to initiate AIM
auctions and create potential price improvement opportunities for those retail-sized orders.17 The Exchange also states that with additional market participants available for solicitation to represent the initiating order, the increased competition may encourage these participants to provide more aggressive prices to initiate an auction in SPX.18
The Exchange further states that, in multi-list classes, many market makers 13 See Rules 5.86 and 5.87. See also Amendment No. 1, supra note 4, at 4.
14 See Amendment No. 1, supra note 4, at 4.
15 See id. at 45. See also Rule 5.24e1A;
Securities Exchange Act Release No. 88886 May 15, 2020, 85 FR 31008 May 21, 2020 SRCBOE
2020047.
16 See Securities Exchange Act Release No. 89058
June 12, 2020, 85 FR 36918 June 18, 2020 SR
CBOE2020051.
17 See Amendment No. 1, supra note 4, at 56.
18 See Amendment No. 2, supra note 5, at 4.

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serve as both appointed market makers on the Exchange and as market makers on other options exchanges and, as a result, can use their away market maker accounts to be solicited as a contra order for AIM auctions.19 The Exchange provides data from April 2020
demonstrating that approximately 99.6% of the orders submitted into all AIM auctions had initiating orders comprised of orders for accounts of away market makers, making up approximately 86.2% of the volume executed through AIM auctions.20
According to the Exchange, however, because SPX is an exclusively-listed class on the Exchange, a firm cannot serve as an SPX market maker at another options exchange.21 The Exchange represents that there are currently 28
trading permit holders with SPX
appointments that would be available to participate in AIM auctions through both contra orders and auction responses.22 The Exchange provides data showing that during April and May 2020, when initiating orders could be comprised of orders for accounts of SPX
market makers pursuant to a temporary rule, approximately 22% of initiating orders executed in SPX AIM auctions were comprised of orders for SPX
market makers, representing approximately 45% of SPX volume executed in AIM auctions.23 The Exchanges data further demonstrates that during April and May 2020, while approximately 76% of initiating orders executed in SPX AIM auctions were comprised of orders for accounts of away market makers, those orders represented only approximately 5% of the SPX volume executed through AIM
auctions.24 The Exchanges data also shows that during April and May 2020, SPX market makers executed approximately 31% of SPX volume executed through AIM auctions with auction responses.25
The Exchange also states that SPX
market makers frequently serve as contra parties to crossing transactions on the trading floor and the proposed rule change will further align AIM
auctions with SPX crossing executions that occur on the trading floor.
According to the Exchange, for example, during February 2020, approximately 76% of SPX orders crossed on the trading floor consisting of 2,944,161
contracts included an order of an SPX
19 See
Amendment No. 1, supra note 4, at 7.
id.
21 See id.
22 See Amendment No. 2, supra note 5, at 3.
23 See Amendment No. 1, supra note 4, at 7.
24 See id.
25 See id.
20 See
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