On March 14th, the SEC released a proposed rule filing submitted by Cboe Exchange, Inc. to facilitate the continued operation of the options exchange in light of Cboe’s decision to temporarily suspend open outcry trading on its Chicago trading floor. This SEC action has immediate effectiveness.
Effective Monday, March 16, Cboe (Chicago Board Options Exchange) temporarily closed its options trading floor as a precautionary measure to prevent the potential spread of COVID-19. The rule filing modifies trading rules with respect to Cboe’s exclusively listed index option and are intended to more fully replicate in an electronic trading environment the trading that occurs on the Cboe’s physical trading floor. The SEC considers its work with Cboe reflective of the its commitment to help market participants respond to operational and other challenges caused by COVID-19, including the implementation of business continuity measures.
The rule filing describes three modifications that are designed to help ensure an orderly transition from the electronic and floor trading environment to all-electronic trading without the Cboe trading floor. The modifications:
permit market makers with an appointment in an options class to be solicited for orders submitted into Cboe’s price improvement auction in order to more closely replicate the sourcing of liquidity that occurs on the trading floor and to ensure minimal disruption to the existing liquidity sources available via floor-based trading
exclude market makers that would not be subject to certain continuous quoting obligations in the trading floor environment from being subject to those requirements as a result of their participation in the all-electronic trading environment
permit Cboe to better enable certain complex strategies with multiple option components to function in an all-electronic trading environment
With these modifications, Cboe also provided additional information on its regulatory and surveillance procedures associated with these modifications. It will report on how these modifications are functioning in practice, and the SEC will continue to work with Cboe as these changes are implemented. The rule filing provides that the modifications are temporary until May 15, 2020 (or sooner if the floor becomes operable). If necessary, the effectiveness of the modifications could be extended at that time.