[Federal Register Volume 83, Number 61 (Thursday, March 29, 2018)]
[Notices]
[Pages 13544-13547]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-06302]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82944; File No. SR-CboeEDGA-2018-005]


Self-Regulatory Organizations; CboeEDGA Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
Paragraph (h) of Exchange Rule 11.6 Describing the Operation of Orders 
With a Minimum Execution Quantity Instruction

March 23, 2018.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on March 16, 2018, Cboe EDGA Exchange, Inc. (the ``Exchange'' or 
``EDGA'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the Exchange. The 
Exchange has designated this proposal as a ``non-controversial'' 
proposed rule change pursuant to Section 19(b)(3)(A) of the Act \3\ and 
Rule 19b-4(f)(6)(iii) thereunder,\4\ which renders it effective upon 
filing with the Commission. The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(6)(iii).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange filed a proposal to amend paragraph (h) of Exchange 
Rule 11.6 describing the operation of orders with a Minimum Execution 
Quantity \5\ instruction.
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    \5\ See Exchange Rule 11.6(h) for a complete description of the 
operation of the Minimum Execution Quantity order instruction.
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    The text of the proposed rule change is available at the Exchange's 
website at www.markets.cboe.com, at the principal office of the 
Exchange, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
Sections A, B, and C below, of the most significant parts of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend paragraph (h) of Exchange Rule 11.6 
describing the operation of orders with a Minimum Execution Quantity 
instruction by removing language that provided for the re-pricing of 
incoming

[[Page 13545]]

orders with a Minimum Execution Quantity instruction to avoid an 
internally crossed book. As a result of this change, the Exchange 
proposes to specify within the rule when an order with a Minimum 
Execution Quantity instruction would not be eligible to trade to 
prevent executions from occurring that may be inconsistent with intra-
market price priority or that would cause a Non-Displayed \6\ order to 
trade ahead of a Displayed \7\ order.
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    \6\ See also Exchange Rule 11.6(c)(2) for a definition of the 
Non-Displayed instruction.
    \7\ See Exchange Rule 11.6(c)(1) for a definition of the 
Displayed instruction.
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    In sum, a Minimum Execution Quantity is a non-displayed order that 
enables a User \8\ to specify a minimum share amount at which the order 
will execute.\9\ An order with a Minimum Execution Quantity will not 
execute unless the volume of contra-side liquidity available to execute 
against the order meets or exceeds the designated minimum size. By 
default, an order with a Minimum Execution Quantity instruction will 
execute upon entry against a single order or multiple aggregated orders 
simultaneously. The Exchange recently amended the operation of the 
Minimum Execution Quantity instruction to permit a User to 
alternatively specify the order not execute against multiple aggregated 
orders simultaneously and that the minimum quantity condition be 
satisfied by each individual order resting on the EDGA Book.\10\
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    \8\ The term ``User'' is defined as ``any Member or Sponsored 
Participant who is authorized to obtain access to the System 
pursuant to Rule 11.3.'' See Exchange Rule 1.5(ee).
    \9\ A Minimum Execution Quantity instruction may only be added 
to an order with a Non-Displayed instruction or a Time-in-Force of 
Immediate-or-Cancel. See Exchange Rule 11.6(h).
    \10\ See Securities Exchange Act Release No. 81859 (October 12, 
2017), 82 FR 48545 (October 18, 2017) (SR-BatsEDGA-2017-26). This 
functionality is pending deployment and the implementation date will 
be announced via a trading notice.
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    The Exchange also recently amended the operation of the Minimum 
Execution Quantity instruction to re-price incoming orders with the 
Minimum Execution Quantity instruction where that order may cross an 
order posted on the EDGA Book.\11\ Specifically, where there is 
insufficient size to satisfy an incoming order's minimum quantity 
condition and that incoming order, if posted at its limit price, would 
cross an order(s), whether displayed or non-displayed, resting on the 
EDGA Book, the order with the minimum quantity condition would be re-
priced to and ranked at the Locking Price.\12\ This functionality has 
not yet been implemented \13\ and the Exchange now proposes to amend 
paragraph (h) of Rule 11.6 to remove this re-pricing requirement.
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    \11\ Id.
    \12\ ``Locking Price'' is defined as ``[t]he price at which an 
order to buy (sell), that if displayed by the System on the EDGA 
Book, either upon entry into the System, or upon return to the 
System after being routed away, would be a Locking Quotation.'' See 
Exchange Rule 11.6(f).
    \13\ See supra note 10. Exchange Rule 11.6(h) does not require 
re-pricing where the order with a Minimum Execution Quantity is 
resting on the EDGA Book. As such, an internally crossed book may 
occur where the incoming order is of insufficient size to satisfy 
the resting order's minimum quantity condition and that incoming 
order, if posted at its limit price, would cross that order with a 
minimum quantity condition resting on the EDGA Book.
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    As a result of the above change, the Exchange proposes to amend 
paragraph (h) of Rule 11.6 to describe when an order with a Minimum 
Execution Quantity instruction will not be eligible to trade to prevent 
executions from occurring that may be inconsistent with intra-market 
price priority or would result in a Non-Displayed order trading ahead 
of a same-priced, same-side Displayed order.\14\ The Exchange would not 
permit an order with a Minimum Execution Quantity instruction that 
crosses other Displayed or Non-Displayed orders on the EDGA Book to 
trade at prices that are worse than the price of such contra-side 
orders. The Exchange would also not permit a resting order with a 
Minimum Execution Quantity instruction to trade at a price equal to a 
contra-side Displayed order. This proposal is based on recently adopted 
NYSE Arca, Inc. (``NYSE Arca'') Rule 7.31-E(i)(3)(C).\15\
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    \14\ Exchange Rule 11.9(a) states that orders on the EDGA Book 
are ranked and maintained by the Exchange according to price-time 
priority. Exchange Rule 11.9(a) further prohibits a Non-Displayed 
order from trading ahead of a same-side, same-priced Displayed 
order. This proposed rule change adds language to Exchange Rule 
11.6(h) to clarify this priority scheme during an internally crossed 
market.
    \15\ See Securities Exchange Act Release No. 82504 (January 16, 
2018), 83 FR 3038 (January 22, 2018) (SR-NYSEArca-2018-01) (Notice 
of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend Rule 7.31-E Relating to Mid-Point Liquidity Orders and the 
Minimum Trade Size Modifier and Rule 7.36-E To Add a Definition of 
``Aggressing Order'').
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    Paragraph (h) of Rule 11.6 would state that an order to buy (sell) 
with a Minimum Execution Quantity instruction that is ranked in the 
EDGA Book will not be eligible to trade: (i) At a price equal to or 
above (below) any sell (buy) orders that are Displayed and that have a 
ranked price equal to or below (above) the price of such order with a 
Minimum Execution Quantity instruction; or (ii) at a price above 
(below) any sell (buy) order that is Non-Displayed and has a ranked 
price below (above) the price of such order with a Minimum Execution 
Quantity instruction.\16\ However, an order with a Minimum Execution 
Quantity instruction that crosses an order on EDGA Book may execute at 
a price less aggressive than its ranked price against an incoming order 
so long as such execution is consistent with the above restrictions.
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    \16\ An order with a Minimum Execution Quantity instruction to 
buy (sell) may execute at a price above (below) any sell (buy) order 
that is Non-Displayed and has a ranked price below (above) the price 
of such order with a Minimum Execution Quantity instruction if that 
Non-Displayed order itself included a Minimum Execution Quantity 
instruction that prevented it from executing. See infra note 19.
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    The following examples describe the proposed operation of an order 
with a Minimum Execution Quantity during an internally crossed market. 
This first example addresses intra-market priority amongst an order 
with a Minimum Execution Quantity and other Non-Displayed orders in an 
internally crossed market as well as when an execution may occur at 
prices less aggressive than the resting order's ranked price. Assume 
the NBBO is $10.10 by $10.16. A Non-Displayed order to sell 50 shares 
at $10.12 is resting on the EDGA Book (``Order A''). A Non-Displayed 
order to sell 25 shares at $10.11 is also resting on the EDGA Book 
(``Order B''). The Exchange receives a MidPoint Peg \17\ order to buy 
at $10.14 with a minimum quantity condition to execute against a single 
order of 100 shares (``Order C''). Because Order C's minimum quantity 
condition cannot be met, Order C will not trade with Orders A or B and 
will be posted and ranked on the EDGA Book at $10.13, the midpoint of 
the NBBO. The Exchange now has a Non-Displayed order crossing both Non-
Displayed orders on the EDGA Book. If the Exchange then receives a Non-
Displayed order to sell for 100 shares at $10.11 (``Order D''),\18\ 
although Order D would be marketable against Order C at $10.13, it 
would not trade at $10.13 because it is above the price of all resting 
sell orders. Order D will instead execute against Order C at $10.11, 
receiving price improvement relative to the midpoint of the NBBO.
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    \17\ See Exchange Rule 11.8(d)(2).
    \18\ On NYSE Arca, Order D will be posted to the NYSE Arca book 
at $10.11 and not execute against Order C at $10.13. See supra note 
15.
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    This second example addresses intra-market priority amongst 
Displayed orders, Non-Displayed orders with a Minimum Execution 
Quantity and other Non-Displayed orders. The Exchange notes that the 
below behavior is not

[[Page 13546]]

unique to an internally crossed market as the Exchange's priority rule, 
11.9(a), currently prohibits Non-Displayed orders, including Non-
Displayed orders with a Minimum Execution Quantity, from trading ahead 
of same-priced, same-side Displayed orders. Assume the NBBO is $10.00 
by $10.04. A Non-Displayed order to buy 500 shares at $10.00 is resting 
on the EDGA Book (``Order A''). A Displayed order to buy 100 shares at 
$10.00 is then entered and posted to the EDGA Book (``Order B''). The 
Exchange receives a Non-Displayed order to sell 600 shares at $10.00 
with a minimum quantity condition to execute against a single order of 
500 shares (``Order C''). Although Order A satisfies Order C's minimum 
quantity condition and has time priority ahead of Order B, no execution 
occurs because Order B is a Displayed order and has execution priority 
over Order A, a Non-Displayed order. Order C does not execute against 
Order B because Order B does not satisfy Order C's minimum quantity 
condition. Order C is then posted to the EDGA Book at $10.00, non-
displayed.
    The Exchange also proposes two clarifying changes to paragraph (h) 
of Exchange Rule 11.6. The rule currently states that an order with the 
Minimum Execution Quantity instruction cedes execution priority when it 
would lock an order against which it would otherwise execute if it were 
not for the minimum execution size restriction.\19\ The Exchange now 
proposes to add additional language to the rule to clarify when a 
resting Non-Displayed order may cede execution priority to a subsequent 
arriving same-side order. As amended, paragraph (h) of Rule 11.6 would 
state that if a resting Non-Displayed sell (buy) order did not meet the 
minimum quantity condition of a same-priced resting order to buy (sell) 
with a Minimum Execution Quantity instruction, a subsequently arriving 
sell (buy) order that meets the minimum quantity condition will trade 
ahead of such resting Non-Displayed sell (buy) order at that price. For 
example, assume the NBBO is $10.00 by $10.10 and no orders are resting 
on the EDGA Book. A Non-Displayed order to buy 700 shares at $10.10 
with a minimum quantity condition to execute against a single order of 
500 shares is resting on the EDGA Book (Order A). A Non-Displayed order 
to sell 100 shares at $10.10 is then entered and posted to the EDGA 
Book (Order B). Order B does not execute against Order A because Order 
B does not satisfy Order A's single minimum quantity condition of 500 
shares. As a result, Order B is posted to the EDGA Book at $10.10, 
creating an internally locked book. An order to sell 500 shares at 
$10.10 is then entered and executes against Order A at $10.10 for 500 
shares because the incoming order is of sufficient size to satisfy 
Order A's minimum quantity condition of 500 shares. This clarification 
is also based on recently adopted NYSE Arca Rule 7.31-
E(i)(3)(E)(ii).\20\
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    \19\ The Exchange proposes to amend this provision to clarify 
that an order with a Minimum Execution Quantity instruction would 
cede execution priority when it would also cross an order against 
which it would otherwise execute if it were not for the minimum 
execution size restriction.
    \20\ Supra note 15.
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    Lastly, the Exchange proposes to clarify that an incoming order 
with a Minimum Execution Quantity would be canceled where, if posted, 
it would cross the displayed price of an order on the EDGA Book.\21\ 
Conversely, an incoming order with a Minimum Execution Quantity 
instruction would be posted to the EDGA Book where it would not cross 
the displayed price of a resting contra-side order. For example, an 
order to buy at $11.00 with a minimum quantity condition of 500 shares 
is entered (Order A) and there is a Displayed order resting on the EDGA 
Book to sell 200 shares at $10.99 (Order B). Order A would be cancelled 
because it crosses the displayed price of Order B and Order B does not 
contain sufficient size to satisfy Order A's minimum quantity condition 
of 500 shares. However, should Order A be priced at $10.99, it would 
not be cancelled and would be posted to the EDGA Book, resulting in an 
internally locked market. Order A would not be executable at that price 
because it is priced equal to a contra-side Displayed order. An 
internally crossed market may subsequently occur should an order to 
sell priced more aggressively than Order A be entered but not be of 
sufficient size to satisfy Order A's minimum quantity condition of 500 
shares (e.g., an order to sell 100 shares at $10.98) and posted to the 
EDGA Book.
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    \21\ An order with a Minimum Execution Quantity will be repriced 
in accordance with Exchange Rule 11.6(l)(3) where it would cross a 
protected quote displayed on an away market center.
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \22\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \23\ in particular, in that it is designed to 
promote just and equitable principles of trade, to foster cooperation 
and coordination with persons engaged in facilitating transactions in 
securities, to remove impediments to and perfect the mechanism of a 
free and open market and a national market system and, in general, to 
protect investors and the public interest. The proposed rule change 
removes impediments to and perfects the mechanism of a free and open 
market and a national market system because it would ensure that orders 
with a Minimum Quantity instruction do not trade through Displayed 
orders or violate intra-market price priority. Specifically, the 
proposed rule change would protect Displayed orders by preventing an 
order with a Minimum Execution Quantity instruction from executing 
where it is locked by a contra-side Displayed order. The proposed rule 
change protects intra-market price priority by preventing a resting 
order with a Minimum Execution Quantity instruction from executing 
where it is crossed by either a Displayed or Non-Displayed order on the 
EDGA Book. The proposed clarifications remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system because they provide additional specificity regarding the 
operation of an order with a Minimum Execution Quantity instruction, 
thereby avoiding potential investor confusion. In particular, the 
Exchange believes it is reasonable for a resting Non-Displayed order to 
cede execution priority to a subsequent arriving same-side order where 
that order is of sufficient size to satisfy a resting contra-side 
order's minimum quantity condition because doing so facilitates 
executions in accordance with the terms and conditions of each order. 
The proposed rule change is also substantially similar to a proposed 
rule change recently submitted by NYSE Arca for immediate effectiveness 
and published by the Commission.\24\ The only differences between the 
proposed rule change and that of NYSE Arca is that: (i) NYSE Arca does 
not cancel a minimum quantity order that would cross a displayed order 
on the NYSE Arca book; and (ii) NYSE Arca will not execute resting 
orders at prices less aggressive than their limit prices in crossed 
markets. The Exchange believes that these differences are immaterial 
because they are designed to reduce the occurrences of internally 
crossed markets and facilitate executions that may not otherwise occur. 
These differences will also continue to ensure that executions occur in 
accordance with intra-market price priority on the Exchange while

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accounting for the differences in functionality and order types.
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    \22\ 15 U.S.C. 78f(b).
    \23\ 15 U.S.C. 78f(b)(5).
    \24\ See supra notes 15 and 18.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act, as amended. On 
the contrary, the proposed rule change is not designed to address any 
competitive issues because it is intended to provide clarity regarding 
the operation of orders with a Minimum Quantity instruction and when 
such orders are eligible to trade and not trade through Displayed 
orders or violate intra-market price priority.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No comments were solicited or received on the proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not: (A) 
Significantly affect the protection of investors or the public 
interest; (B) impose any significant burden on competition; and (C) by 
its terms, become operative for 30 days from the date on which it was 
filed or such shorter time as the Commission may designate it has 
become effective pursuant to Section 19(b)(3)(A) of the Act \25\ and 
paragraph (f)(6) of Rule 19b-4 thereunder,\26\ the Exchange has 
designated this rule filing as non-controversial. The Exchange has 
given the Commission written notice of its intent to file the proposed 
rule change, along with a brief description and text of the proposed 
rule change at least five business days prior to the date of filing of 
the proposed rule change, or such shorter time as designated by the 
Commission.
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    \25\ 15 U.S.C. 78s(b)(3)(A).
    \26\ 17 CFR 240.19b-4.
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is: (1) 
Necessary or appropriate in the public interest; (2) for the protection 
of investors; or (3) otherwise in furtherance of the purposes of the 
Act. If the Commission takes such action, the Commission shall 
institute proceedings to determine whether the proposed rule should be 
approved or disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-CboeEDGA-2018-005 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-CboeEDGA-2018-005. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549 on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-CboeEDGA-2018-005, and should be 
submitted on or before April 19, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\27\
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    \27\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2018-06302 Filed 3-28-18; 8:45 am]
 BILLING CODE 8011-01-P