Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Its Automated Price Improvement for Complex Orders Comprised of Flexible Exchange Option Series and Non-FLEX Option Series for S&P 500 Index Options

<NOTICE> SECURITIES AND EXCHANGE COMMISSION <DEPDOC>[Release No. 34-103167; File No. SR-CBOE-2025-039]</DEPDOC> <SUBJECT>Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Its Automated Price Improvement for Complex Orders Comprised of Flexible Exchange Option Series and Non-FLEX Option Series for S&P 500 Index Options</SUBJECT> <DATE>June 2, 2025.</DATE> Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”), <SU>1</SU> <FTREF/> and Rule 19b-4 thereunder, <SU>2</SU> <FTREF/> notice is hereby given that on May 23, 2025, Cboe Exchange, Inc. (“Exchange” or “Cboe Options”) filed with the Securities and Exchange Commission (“Commission”) the proposed rule change as described in Items I, II, and III 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  <SU>3</SU> <FTREF/> and Rule 19b-4(f)(6) thereunder. <SU>4</SU> <FTREF/> The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. <FTNT> <SU>1</SU>  15 U.S.C. 78s(b)(1). </FTNT> <FTNT> <SU>2</SU>  17 CFR 240.19b-4. </FTNT> <FTNT> <SU>3</SU>  15 U.S.C. 78s(b)(3)(A)(iii). </FTNT> <FTNT> <SU>4</SU>  17 CFR 240.19b-4(f)(6). </FTNT> <HD SOURCE="HD1">I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change</HD> Cboe Exchange, Inc. (the “Exchange” or “Cboe Options”) proposes to amend its automated price improvement (“AIM”) for complex orders comprised of flexible exchange (“FLEX”) Option series and non-FLEX Option series (“FLEX v. Non-FLEX Order”) for S&P 500 Index options (“SPX options”). The text of the proposed rule change is provided in Exhibit 5. The text of the proposed rule change is also available on the Exchange's website ( <E T="03">http://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx</E> ), at the Exchange's Office of the Secretary, and at the Commission's Public Reference Room. <HD SOURCE="HD1">II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change</HD> 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. <HD SOURCE="HD2">A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change</HD> <HD SOURCE="HD3">1. Purpose</HD> In 2021, the Exchange amended Rules 5.37 and 5.38 regarding its Automated Improvement Mechanism (“AIM”) and Complex Automated Improvement Mechanism (“C-AIM”) to permit the Exchange to determine, per trading session ( <E T="03">e.g.,</E> Regular Trading Hours (“RTH”) or Global Trading Hours (“GTH”)), <SU>5</SU> <FTREF/> that the maximum size for all SPX Agency Orders, or the maximum size for the smallest leg for all SPX Agency Orders, respectively, is 10 contracts. <SU>6</SU> <FTREF/> As set forth in the filing to adopt those maximum size provisions, the Exchange noted that the maximum size was appropriate given that SPX has a different and more complicated market model, involves taking on greater risk, has a significantly higher notional value ( <E T="03">e.g.,</E> SPX Options are ten times the notional size of SPY options), tends to have larger size, tends to have larger volume executed in open outcry, and tends to execute increasingly more complex strategies compared to other options classes. <SU>7</SU> <FTREF/> Additionally, the Exchange had observed that smaller size order flow tends to attract liquidity provider responses, as such orders are generally easier to hedge than larger orders, which may encourage market participants to compete to provide price improvement in an electronic competitive auction process. This, in turn, may contribute to a deeper, more liquid auction process with additional price improvement opportunities for market participants that submit smaller size orders, particularly retail customers. Further, the Exchange had observed that smaller SPX orders are not commonly executed on the floor. When the Exchange activated AIM and C-AIM for SPX for the first time when the trading floor was temporarily closed due to the Covid-19 pandemic, and then deactivated those auctions for SPX when the trading floor re-opened, the Exchange observed a significant decline in the number of smaller SPX orders submitted for execution on the trading floor compared to smaller SPX orders submitted into AIM and C-AIM. However, the trading floor is generally better suited for the larger complex orders typical in SPX. Therefore, the Exchange proposed to permit it to impose a maximum contract size for SPX Agency Orders as way to provide smaller orders with price improvement opportunities that AIM and C-AIM offer while also continuing to incentivize SPX liquidity on the trading floor to continue to accommodate larger, more complicated SPX orders. <SU>8</SU> <FTREF/> <FTNT> <SU>5</SU>  The Exchange notes since the adoption of that proposed rule change it added another trading session, the Curb trading session, to its Rules. <E T="03">See</E> Rule 5.1(d). The Exchange has chosen to leave two trading sessions listed as examples in these current Rules, as well as the proposed rules, to accommodate for the possibility that other trading sessions are adopted. However, the current and proposed rules would permit the Exchange to determine to apply the maximum contract size to SPX Agency Orders in any available trading session set forth in Rule 5.1. </FTNT> <FTNT> <SU>6</SU>   <E T="03">See</E> Rules 5.37(a)(3) (AIM Auctions) and 5.38(a)(3) (C-AIM Auctions); <E T="03">see also</E> Securities Exchange Act Release No. 91119 (February 12, 2021), 86 FR 10381 (February 19, 2021) (SR-CBOE-2020-051) (“AIM/C-AIM SPX Max Size Approval”). </FTNT> <FTNT> <SU>7</SU>   <E T="03">Id.</E> at 10382. </FTNT> <FTNT> <SU>8</SU>   <E T="03">Id.</E> at 10382-10383. </FTNT> The Exchange now proposes to amend Rule 5.73 regarding FLEX AIM Auctions with respect to FLEX v. Non-FLEX Orders for SPX options. <SU>9</SU> <FTREF/> Current Rule 5.38(a)(3) regarding non-FLEX complex AIM Auctions (“C-AIM Auctions”) provides the Exchange may determine, per trading session ( <E T="03">e.g.,</E> Regular Trading Hours (“RTH”) or Global Trading Hours (“GTH”)), <SU>10</SU> <FTREF/> that the maximum size for the smallest leg of all Agency Orders in SPX is 10 contracts. The proposed rule change amends Rule 5.73(a)(4) to similarly provide that if the Exchange determines to apply a maximum size for a trading session ( <E T="03">e.g.,</E> RTH or GTH) for all Agency Orders in SPX for non-FLEX C-AIM Auctions pursuant to Rule 5.38(a)(3), that maximum size will apply to the smallest leg of all SPX FLEX v. Non-FLEX Agency Orders submitted into FLEX AIM Auctions. The Exchange states that it will announce any determination it makes in connection with the application of the maximum size requirement of ten contracts for agency orders in SPX to a trading session via Exchange notice pursuant to Rule 1.5. <SU>11</SU> <FTREF/> <FTNT> <SU>9</SU>  The Exchange notes it inadvertently did not include the proposed rule change in the rule filing to adopt FLEX v. Non-FLEX Order functionality. </FTNT> <FTNT> <SU>10</SU>   <E T="03">See supra</E> note 5. </FTNT> <FTNT> <SU>11</SU>  The Exchange has announced the planned launch date of June 23, 2025 for implementation of FLEX v. Non-FLEX Orders. <E T="03">See</E> Update—Cboe Options Allows FLEX and Non-FLEX Instruments on Complex FLEX Orders (May 19, 2025). That notice included the Exchange's plan to impose a maximum size cap of 10 contracts to SPX FLEX v. Non-FLEX Agency Orders submitted into FLEX AIM (subject to effectiveness of this proposed rule change), so Trading Permit Holders are aware the Exchange has determined to apply the maximum size of 10 contracts to SPX FLEX v. Non-FLEX Orders. </FTNT> The Exchange recently amended its Rules to permit FLEX v. Non-FLEX Orders. <SU>12</SU> <FTREF/> Currently, as noted above, the Exchange may determine for a trading session to subject SPX Agency Orders submitted into AIM or C-AIM Auctions to a maximum size of 10 contracts. The Exchange believes if it makes such a determination for non-FLEX SPX complex orders, it is reasonable to apply the same maximum size restriction to SPX non-FLEX v. FLEX Orders since such orders would contain a non-FLEX SPX leg that would be subject to the maximum size if submitted into a non-FLEX AIM Auction. Specifically, the different trading characteristics, market model, investor basis and conditions presented in SPX as compared to different option classes described above would apply to SPX FLEX v. Non-FLEX Orders. <SU>13</SU> <FTREF/> Further, not applying a maximum contract size applicable to SPX FLEX v. Non-FLEX Agency Orders would provide market participants with opportunities to attempt to circumvent the size maximum applicable to non-FLEX SPX orders. For example, without the proposed rule change, a market participant could circumvent the non-FLEX AIM maximum size requirement by combining its order for a non-FLEX SPX leg with a smaller SPX leg and submitting into FLEX AIM. The Exchange intends to not permit nonconforming SPX FLEX v. Non-FLEX Orders to be eligible for electronic processing (as is currently the case for non-FLEX SPX orders), which will prevent market participants from attaching a one contract FLEX SP ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 24k characters. Full document text is stored and available for version comparison. ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━