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Cboe Proposed Amendments Concerning Market Makers’ Complex Orders, Quoting Obligations, and Volume

December 1st | 2020



Cboe recently proposed amendments concerning market makers’ complex orders, quoting obligations, and volume. The proposal clarifies various aspects of Rules 5.33, 5.52(g) and 5.52(d)(1), and 5.52(d)(2).


The proposed rule change updates Interpretation and Policy .01 to Rule 5.33, which inadvertently refers to volume executed rather than orders, as “quoting” obligations relate to the submission of quotes and orders rather than executed volume. The proposal further codifies Cboe limits on marker makers’ trading in non-appointed classes and limits on market makers’ electronic volume in Rule 5.52(g), and 5.52(d)(1) and 5.52(d)(2).


Rule 5.52(g) limits the total number of contracts a market maker may execute in classes in which it has no appointment to 25% of the total number of all contracts the Market-Marker executes on the Exchange in any calendar quarter.


Rule 5.52(d)(1) provides that if a Market-Maker never trades more than 20% of the Market-Maker’s contract volume electronically in an appointed class during any calendar quarter, a Market-Maker will not be obligated to quote electronically in any designated percentage of series within that class pursuant to subparagraph (d)(2), and Rule 5.52(d)(2) provides that If a Market-Maker trades more than 20% of the Market-Maker’s contract volume electronically in an appointed class during any calendar quarter, commencing the next calendar quarter, a Market-Maker must provide continuous electronic quotes.


Cboe’s proposed rule change makes it clear that market makers orders for complex strategies executed in classes in which it has no appointment are included in the total number of all contracts the Market-Maker executes on the Exchange in any calendar quarter in determining whether the Market-Maker exceeds the 25% threshold pursuant to Rule 5.52(g).


Similarly, market makers orders’ for complex strategies executed in classes in which it has an appointment are included in the total number of all contracts the market maker executes electronically in an appointed class during any calendar quarter in determining whether the Market-Maker exceeds the electronic volume threshold pursuant to Rule 5.52(d)(1) and (d)(2).


According to Cboe, the rationale behind these rules are to prevent a Market-Maker from executing volume in a manner that potentially derogates the performance of its obligations and provision of liquidity in its appointed option classes.


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