Self-Regulatory Organizations; Cboe Exchange, Inc.; Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change To Amend Functionality Relating to the Processing of Auction Responses

<NOTICE> SECURITIES AND EXCHANGE COMMISSION <DEPDOC>[Release No. 34-104440; File No. SR-CBOE-2025-074]</DEPDOC> <SUBJECT>Self-Regulatory Organizations; Cboe Exchange, Inc.; Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change To Amend Functionality Relating to the Processing of Auction Responses</SUBJECT> <DATE>December 17, 2025.</DATE> <HD SOURCE="HD1">I. Introduction</HD> On September 30, 2025, Cboe Exchange, Inc. (“Exchange” or “Cboe”) filed with the Securities and Exchange Commission (“Commission”), pursuant to Section 19(b)(1)  <SU>1</SU> <FTREF/> of the Securities Exchange Act of 1934 (“Act”)  <SU>2</SU> <FTREF/> and Rule 19b-4 thereunder, <SU>3</SU> <FTREF/> a proposed rule change to amend the maximum amount of time permitted for processing auction responses in non-FLEX classes. The proposed rule change was published for comment in the <E T="04">Federal Register</E> on October 3, 2025. <SU>4</SU> <FTREF/> On November 3, 2025, pursuant to Section 19(b)(2)(A)(ii)(I) of the Act, <SU>5</SU> <FTREF/> 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. <SU>6</SU> <FTREF/> The Commission has not received any comments on the proposal. Pursuant to Section 19(b)(2)(B) of the Act, <SU>7</SU> <FTREF/> the Commission is hereby instituting proceedings to determine whether to approve or disapprove the proposed rule change. <FTNT> <SU>1</SU>  15 U.S.C. 78s(b)(1). </FTNT> <FTNT> <SU>2</SU>  15 U.S.C. 78a. </FTNT> <FTNT> <SU>3</SU>  17 CFR 240.19b-4. </FTNT> <FTNT> <SU>4</SU>   <E T="03">See</E> Securities Exchange Act Release No. 104159 (Sep. 30, 2025), 90 FR 48094 (“Notice”). </FTNT> <FTNT> <SU>5</SU>   <E T="03">See</E> 15 U.S.C. 78s(b)(2)(A)(ii)(I). </FTNT> <FTNT> <SU>6</SU>   <E T="03">See</E> Securities Exchange Act Release No. 104173, 90 FR 51424 (Nov. 17, 2025). The Commission designated January 1, 2026, as the date by which the Commission shall approve or disapprove, or institute proceedings to determine whether to disapprove, the proposed rule change. </FTNT> <FTNT> <SU>7</SU>  15 U.S.C. 78s(b)(2)(B). </FTNT> <HD SOURCE="HD1">II. Description of the Proposed Rule Change</HD> The Exchange currently offers the following auction and exposure mechanisms (“auctions”): Complex Order Auction (“COA”), <SU>8</SU> <FTREF/> Step Up Mechanism (“SUM”), <SU>9</SU> <FTREF/> Automated Improvement Mechanism (“AIM”), and FLEX SAM. <SU>16</SU> <FTREF/> In general in these auctions, the System  <SU>17</SU> <FTREF/> electronically exposes eligible orders for an Exchange-determined period of time in accordance with the applicable Exchange Rule, during which time, in response to an auction notification message, Users  <SU>18</SU> <FTREF/> may submit auction responses or auction response messages. <FTNT> <SU>8</SU>   <E T="03">See</E> Cboe Rule 5.33(d). </FTNT> <FTNT> <SU>9</SU>   <E T="03">See</E> Cboe Rule 5.35. </FTNT> <FTNT> <SU>10</SU>   <E T="03">See</E> Cboe Rule 5.37. </FTNT> <FTNT> <SU>11</SU>   <E T="03">See</E> Cboe Rule 5.38. </FTNT> <FTNT> <SU>12</SU>   <E T="03">See</E> Cboe Rule 5.39. </FTNT> <FTNT> <SU>13</SU>   <E T="03">See</E> Cboe Rule 5.40. </FTNT> <FTNT> <SU>14</SU>   <E T="03">See</E> Cboe Rule 5.72(c). </FTNT> <FTNT> <SU>15</SU>   <E T="03">See</E> Cboe Rule 5.73. </FTNT> <FTNT> <SU>16</SU>   <E T="03">See</E> Cboe Rule 5.74. </FTNT> <FTNT> <SU>17</SU>  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. <E T="03">See</E> Cboe Rule 1.1. </FTNT> <FTNT> <SU>18</SU>  The term “User” means any TPH or sponsored user who is authorized to obtain access to the System pursuant to Cboe Rule 5.5. <E T="03">See</E> Cboe Rule 1.1. </FTNT> Cboe Rule 5.25(c) provides that at the conclusion of an auction response or exposure period, the System will continue to process any messages in its inbound queue that were received by the System before the end of the auction response or exposure period, as identified by each message's timestamp, for up to an Exchange-determined period of time on a class-by-class basis. This Exchange-determined period of time may not exceed 100 milliseconds, except in the case of non-FLEX S&P 500 Index options “SPX options.”  <SU>19</SU> <FTREF/> For non-FLEX SPX options, this Exchange-determined period of time plus the length of the auction response or exposure period, as applicable, may not exceed 1000 milliseconds (until December 31, 2025). <SU>20</SU> <FTREF/> The applicable auction will execute once all messages, including auction responses, received before the end time of the auction response period have been processed or the Exchange-determined maximum time limit has elapsed, whichever occurs first. <SU>21</SU> <FTREF/> <FTNT> <SU>19</SU>   <E T="03">See</E> Cboe Rule 5.25(c); <E T="03">see also</E> Securities Exchange Act Release No. 97738 (June 15, 2023), 88 FR 40878 (June 22, 2023) (order approving SR-CBOE-2022-051, which established the 100-millisecond maximum processing time period) (“100 Millisecond Order”). </FTNT> <FTNT> <SU>20</SU>   <E T="03">See</E> Cboe Rule 5.25(c); <E T="03">see also</E> Securities Exchange Act Release No. 102966 (May 1, 2025), 90 FR 19330 (May 7, 2025) (SR-CBOE-2025-031). The auction response processing time is currently set to 900 milliseconds for SPX options and 100 milliseconds for all other classes. <E T="03">See</E> Notice, <E T="03">supra</E> note 4, at 48095, n. 13. </FTNT> <FTNT> <SU>21</SU>   <E T="03">See</E> Notice, <E T="03">supra</E> note 4, at 48095. </FTNT> The Exchange is proposing to make permanent the non-FLEX SPX functionality and broaden it such that it applies to all non-FLEX option classes, and the Exchange is proposing not to apply any auction response processing time to FLEX auctions. <SU>22</SU> <FTREF/> Specifically, the Exchange is proposing to amend Cboe Rule 5.25(c) to provide that, for non-FLEX auction or exposure mechanisms, the System processing time for any messages in its inbound queue that were received by the System before the end of the auction response or exposure period (as identified by each message's timestamp), plus the length of the auction response or exposure period, as applicable, may not exceed 1000 milliseconds. <SU>23</SU> <FTREF/> Only auction responses submitted during the auction response or exposure period would be eligible for processing, <SU>24</SU> <FTREF/> in time priority, <SU>25</SU> <FTREF/> and the proposed rule change would make no changes to how the auction rules operate regarding allocation and execution priority. <SU>26</SU> <FTREF/> <FTNT> <SU>22</SU>   <E T="03">See</E> proposed Cboe Rule 5.25(c); <E T="03">see also</E> Notice, <E T="03">supra</E> note 4, at 48095, n. 17. The term “FLEX auction” refers to the FLEX Auction process, FLEX AIM, and FLEX SAM. </FTNT> <FTNT> <SU>23</SU>   <E T="03">See</E> proposed Cboe Rule 5.25(c). The Exchange will announce the length of the Exchange-determined processing period with reasonable advance notice via Exchange Notice. <E T="03">See</E> Cboe Rule 5.25(c). </FTNT> <FTNT> <SU>24</SU>   <E T="03">See</E> Notice, <E T="03">supra</E> note 4, at 48095. </FTNT> <FTNT> <SU>25</SU>   <E T="03">See id.</E> at 48097. </FTNT> <FTNT> <SU>26</SU>   <E T="03">See id.</E> at 48097, 48098. </FTNT> The Exchange states, among other things, <SU>27</SU> <FTREF/> that the proposed, increased maximum processing time will result in more timely-submitted auction responses having the opportunity to participate in the auction and being executed in all classes, particularly in times of volatility and high message traffic. <SU>28</SU> <FTREF/> According to the Exchange, this may provide further opportunities for auctioned orders to receive price improvement, and may encourage liquidity providers to submit more auction responses, which may contribute to a deeper, more liquid action process. <SU>29</SU> <FTREF/> The Exchange believes the proposal will continue to appropriately balance providing investors with timely processing of their options quote and order messages with providing investors who submit orders that are auctioned with additional liquidity. <SU>30</SU> <FTREF/> The Exchange also states that given the much longer length of FLEX auctions, which may last three seconds to five minutes, <SU>31</SU> <FTREF/> the Exchange believes an increase in auction response processing is unnecessary for FLEX SPX options. <SU>32</SU> <FTREF/> <FTNT> <SU>27</SU>   <E T="03">See generally,</E> note 4, for the entirety of the Exchange's statements in support of its proposal. </FTNT> <FTNT> <SU>28</SU>   <E T="03">See</E> Notice, <E T="03">supra</E> note 4, at 48095-96. The Exchange states that it generally experiences significant increases in volumes and messages traffic when the market experiences volatility. As a result, the Exchange states that it has observed deeper pending message queues, which results in an increased number of timely received auction responses not being processed as part of the execution at the conclusion of an auction. The Exchange believes, based on its observations, that the proposed maximum time may increase the number of timely received auction responses that may execute against an auction order. <E T="03">See id ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 21k characters. Full document text is stored and available for version comparison. ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━