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Federal Register / Vol. 86, No. 162 / Wednesday, August 25, 2021 / Notices
khammond on DSKJM1Z7X2PROD with NOTICES

trade ahead of customers on the book and that the benefits of permitting all complex orders to trade in pennies significantly outweigh this risk.
2. Statutory Basis The Exchange believes the proposed rule change is consistent with the Securities Exchange Act of 1934 the Act and the rules and regulations thereunder applicable to the Exchange and, in particular, the requirements of Section 6b of the Act.17 Specifically, the Exchange believes the proposed rule change is consistent with the Section 6b5 18 requirements that the rules of an exchange be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in securities, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest.
Additionally, the Exchange believes the proposed rule change is consistent with the Section 6b5 19 requirement that the rules of an exchange not be designed to permit unfair discrimination between customers, issuers, brokers, or dealers.
In particular, the Exchange believes the proposed rule change will remove impediments to and perfect the mechanism of a free and open market and benefit investors, because it will provide market participants with the same pricing flexibility with respect to all their complex trading and hedging strategies. Market participants may determine that investment and hedging strategies with ratios greater than threeto-one or less than one-to-three are appropriate for their investment purposes, and the Exchange believes it will benefit market participants if they have additional flexibility to price their investment and hedging strategies to achieve their desired investment results.
The Exchange believes the proposed rule change will help protect investors by allowing market participants to receive the benefit of complex order pricing when executing bona-fide multilegged trading or hedging strategies. The Exchange sees no reason to restrict complex orders with a ratio of greater three-to-one or less than one-to three in a class with a minimum increment of $0.05 from being expressed in, or having their legs execute in, $0.01 increments 17 15
18 15

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while legs of complex orders with a ratio equal to or less than or equal to three-to-one or greater than or equal to one-to-three in the same class may be expressed in, and have their legs execute in, $0.01 increments. The proposed rule change will further remove impediments to and perfect the mechanism of a free and open market and a national market system, as another options exchange permits complex orders with any ratio and their legs to trade in pennies.20
These changes will also enable traders on the Exchanges trading floor to more efficiently execute all complex orders, including on behalf of customers that wish to execute highly complicated complex orders, by permitting the parties to execute the trades more expeditiously.21 Additionally, as discussed above, this may enable TPHs to execute customers complex orders at better prices, rather than executing at prices that fit within the confines of a larger increment, which ultimately benefits investors.
The proposed rule change will continue to protect priority customer order interest on the Simple Book in the same manner it does today, as all complex orders with a ratio greater than three-to-one or less than one-to-three except Index Combo orders will continue to be executed only if each leg of the order improves the price of a priority customer order on the Simple Book on each leg by at least the applicable minimum trading increment.22 The proposed rule change has no impact on the priority of complex orders, as complex orders with ratios less than .333 or greater than 3.00
will continue to be required to improve the price of leg of the complex order for which a Priority Customer Order is resting at the BBO in the Simple Book, and thus will continue to protect Priority Customer Orders in the Simple Book.
Furthermore, the Exchange believes this proposal is consistent with the Act 20 See BOX Options LLC BOX Rule 7600c which rule is silent on the minimum increment for orders submitted for execution on BOXs trading floor, but the Exchange has been informed by multiple TPHs that are also members of BOX that they may execute multi-legged orders with ratios greater than three-to-one or less than one-to-three on BOXs trading floor in penny increments.
21 As noted above, there are instances in which simple orders with minimum increments of $0.05
or $0.10 may trade in penny increments. See supra note 8.
22 See proposed Rule 5.34fAv and current Rule 5.85b. As noted above, currently, complex orders with ratios greater than three-to-one or less than one-to-three may only be submitted for open outcry trading. If the Commission approves the proposed rule change, the Exchange will permit such orders to be submitted for electronic execution in addition to open outcry execution.

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and SRCBOE2003007 because in the same way that the Commission held that ratio orders within certain permissible ratios may provide market participants with greater flexibility and precision in effectuating trading and hedging strategies, 23 complex orders that are fully hedged may provide market participants with greater flexibility and precision in effectuating trading and hedging strategies. The Exchange also believe this proposal is consistent with the Act and SRCBOE2003007
because in the same way that the Commission held that including such ratio orders in the exception to the priority rules provided in CBOE Rule 6.45e will facilitate the execution of ratio orders, 24 including fully hedged complex orders in the exception to the priority rules provided in CBOE Rule 6.45bii will facilitate the execution of fully hedged complex orders. Finally, in the same way that the Commission held that the procedures governing the execution of complex orders, such as ratio orders, serve to reduce the risk of incomplete or inadequate executions while increasing efficiency and competitive pricing by requiring price improvement before the order can receive priority over other orders, 25
the Exchange believes the procedures governing the execution of fully hedged complex orders serve to reduce the risk of incomplete or inadequate executions while increasing efficiency and competitive pricing by requiring price improvement before the order can receive priority over other orders. The Exchange believes the proposed changes will increase opportunities for execution of complex orders and lead to tighter spreads on CBOE, which will benefit investors. The Exchange also believes that the proposed rule change is designed to not permit unfair discrimination among market participants, as all market participants may trade complex orders, and the priority eligibility requirements apply to complex orders of all market participants.
B. Self-Regulatory Organizations Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The Exchange does not believe the proposed rule change will impose any burden on intramarket competition, as the proposed rule change will apply in the 23 See
Approval Order at 68128.
Id.
25 See Id.
24 See
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