Cboe Options to Update Price Buffer Logic

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Cboe Options to Update Price Buffer Logic Reference ID: C2020100101 Overview Applicable Cboe Exchange: Cboe Options Effective October 16, 2020, subject to regulatory review, Cboe Options (“C1”) will change the price buffer logic so that a two-legged spread order with a pair of AM-settled/PM-settled legs with the same expiration date will be considered a diagonal spread (where both legs have different expiration dates and different exercise prices), rather than a vertical spread, or a calendar spread (where both legs have the same exercise price). This change will apply to all index option products that are European-style exercised and have a pair of AM-settled/PM-settled legs, such as RUT/RUTW or SPX/SPXW. Technical Details The System cancels or rejects a complex order that is a limit order for a debit (credit) strategy with a net credit (debit) price that exceeds a pre-set buffer, determined by the Exchange on a class and strategy basis. Because a vertical spread, by definition, contains legs with the same expiration dates, the System currently rejects vertical spreads with AM-settled/PM-settled legs with a debit limit price when the strike price on the sell leg is more in-the-money than the buy leg. The System otherwise accepts spreads with different expiration dates and strike prices (i.e., diagonals) under the same conditions. Likewise, because a calendar spread, by definition, contains legs with different expiration dates, the System currently rejects calendar spreads with AM-settled/PM-settled legs and the same strike price for having duplicate legs. On the effective date, the System will consider the time difference between when AM-settled/PM-settled legs cease trading. As a result, the System will apply the same debit/credit price buffer logic it applies to diagonal spreads to vertical spreads with AM-settled/PM-settled legs, rather than rejecting such vertical orders with debit prices when the strike price on the sell leg is more in-the-money than the buy leg, and will no longer reject calendar spread orders with AM-settled/PM-settled legs for having duplicate legs. Testing Opportunities This functionality will be available to test in the C1 certification environment on October 2, 2020. Additional Information For more information, please refer to the following technical specifications: US Options BOE Specification US Options FIX Specification US Options Complex Book Process Please contact the Cboe Trade Desk for support or with any questions. We appreciate your business. Our trading community inspires and drives our mission of defining markets. Cboe Trade Desk 913.815.7001 [email protected] .

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