Cboe plans expansion of drill-through protections
Cboe has unveiled its plans to expand drill-through protections. Effective November 9, 2020 for EDGX Options and November 10, 2020 for BZX Options, Cboe Options (C1), and C2 Options (C2) Exchanges, drill-through protections will be expanded for all single leg orders and for complex orders that do not specify a drill through override.
On the effective date, instead of canceling the order after posting it for the preset duration, the drill-through mechanism will repeatedly post the order at a more aggressive price for a configurable number of iterations. Upon conclusion of the final iteration, on BZX, C2, and EDGX, the order will automatically cancel.
On C1, upon conclusion of the final iteration, the order will automatically cancel only when FloorRoutingInst (FIX Tag 22303) = ‘Electronic only’. On C1, any other value for FloorRoutingInst will cause the order to route PAR.
The drill-through protection mechanism allows an order to be executed at a price no more than a specified amount (Drill-Through Amount or “DTA”) through the opposite-side NBBO at the time of order receipt. Upon reaching the allowable limit, the order displays for the current preset duration of 2000 milliseconds before canceling.
On the effective date, the drill-through process will iterate for all single leg orders and for complex orders that do not specify a drill through override in the DrillThruProtection field (FIX Tag 6253). Additionally, the preset duration will be reduced to 1000 milliseconds. Complex orders that do specify a drill through override will continue to function as they do currently.
After an order posts for the preset duration, the order will move up (buys) or down (sells) by an amount equal to the DTA, but not beyond the order’s limit, and execute against any resting liquidity within that price range. After posting at the new price for the preset duration, the order will repeat the process a configurable number of times as determined by the Exchange, with three iterations being the default. At the end of the final iteration, any remaining order quantity will route to PAR, if applicable, or cancel back to the Member.
If the order reaches its limit price at any time during the iterative drill-through process, the order will remain at its limit price and the drill-through protection mechanism will not continue.
This functionality will be available to test in the BZX, C1, C2, and EDGX Options certification environments on October 19, 2020.
The changes are subject to regulatory review.