FR 2025-04336

Summary of the Document

The Federal Register document details a proposed rule change by Cboe Exchange, Inc. concerning the participation entitlement of Preferred Market-Makers (PMMs). Essentially, Cboe is adjusting its rules to apply a 60/40 participation entitlement percentage structure for PMMs. This change means that PMMs will be given a greater opportunity to participate in trades when they provide the best quotes in the market. Additionally, the rule change addresses how fractional fills for multi-contract orders are to be rounded and ensures that PMMs receive at least one contract in trades where they have the best quote. The Securities and Exchange Commission (SEC) granted immediate effectiveness to this rule change, signaling their confidence that it will improve liquidity and trading activities without introducing significant regulatory issues.

Significant Issues and Concerns

One of the major issues with the document is its lack of an abstract. An abstract could offer a brief overview, which would aid quick understanding. Furthermore, the document touches on the waiver of the 30-day operative delay but does not elaborate on how it specifically affects efficiency, competition, and capital formation. The document also omits discussions on possible downsides for non-PMM participants, raising concerns about whether this rule could be seen as giving preferential treatment to PMMs.

Moreover, the document is laden with technical jargon and abbreviations like PMM, SEC, and SR-CBOE-2025-013, which are not immediately clear to a general audience. While the proposed rule change specifies a 60/40 structure for PMMs, it does not clarify why this particular ratio was selected. Also, it lacks practical examples to help stakeholders understand the actual application and effects of the proposed changes.

Impact on the Public

Broadly speaking, the proposed rule change is projected to enhance the liquidity and efficiency of market exchanges. Since the rule aims to provide PMMs with more consistent participation benefits, it could lead to more active and vibrant trading, potentially resulting in better prices and reduced transaction costs for all market participants.

Impact on Specific Stakeholders

For PMMs, this rule change is beneficial as it promises an enhanced level of participation in trades, provided they offer the best quotes. This could incentivize PMMs to maintain competitive quoting behaviors, contributing to overall market health. However, the document does not indicate how it might affect other traders who are not PMMs. There is a possibility that these non-PMM traders could perceive the rule change as unfair, as it appears to favor PMMs in trade allocations. Thus, while the rule may enhance market liquidity and depth, Cboe should also be mindful of maintaining balanced opportunities for all market participants to avoid perceptions of favoritism.

In conclusion, while the proposed rule change by Cboe offers several benefits to PMMs and charges the market with potential positive liquidity effects, it would benefit from greater transparency and clarity in addressing its broader impacts. Encouragingly, the document invites public comments, providing an opportunity for all stakeholders to express their views and concerns, hopefully leading to more refined and equitable market policy decisions.