[Federal Register Volume 83, Number 127 (Monday, July 2, 2018)]
[Notices]
[Pages 31001-31003]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-14108]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83521; File No. SR-CboeEDGA-2018-011]


Self-Regulatory Organizations; Cboe EDGA Exchange, Inc.; Notice 
of Filing and Immediate Effectiveness of a Proposed Rule Change to Rule 
11.6, Definitions and Rule 11.8, Order Types

June 26, 2018
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on June 13, 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 and 
II 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) 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).
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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 (i) amend paragraph (n) of 
Exchange Rule 11.6, Routing/Posting Instructions to add a new optional 
order instruction to be known as Non-Displayed Swap; and (ii) make a 
related change to description of Limit Orders and MidPoint Peg Orders 
under Exchange Rule 11.8. The proposed amendments are identical to the 
rules of Cboe EDGX Exchange, Inc. (``EDGX'') \5\ and substantially 
similar to the rules of the Nasdaq Stock Market LLC (``Nasdaq'') \6\ 
and NYSE Arca, Inc. (``Arca'').\7\
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    \5\ See EDGX Rules 11.6(n)(7), 11.8(b)(7) and 11.8(d)(5); see 
also Securities Exchange Act Release No. 80841 (June 1, 2017), 82 FR 
26559 (June 7, 2017), (Notice of Filing and Immediate Effectiveness 
To Add a New Optional Order Instruction Known as Non-Displayed 
Swap).
    \6\ See Nasdaq Rule 4703(m) (defining the Trade Now order 
modifier); see also Securities Exchange Act Release No. 79282 
(November 10, 2016), 81 FR 81219 (November 17, 2016) (Notice of 
Filing and Immediate Effectiveness of Proposed Rule change to Amend 
Rule 4702 and Rule 4703 to Add a ``Trade Now'' Instruction to 
Certain Order Types).
    \7\ See Arca Rule 7.31-E(d)(2)(B) (describing the Non-Display 
Remove Modifier); see also Securities Exchange Act Release No. 76267 
(October 26, 2015), 80 FR 66951 (October 30, 2015) (Order Approving 
Proposed Rule change Adopting New Equity Trading Rules Relating to 
Orders and Modifiers and Retail Liquidity Program To Reflect the 
Implementation of Pillar, the Exchange's New Trading Technology 
Platform).
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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 Exchange's principal office and 
at the Public Reference Room of the Commission.

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: (i) Amend paragraph (n) of Exchange Rule 
11.6, Routing/Posting Instructions to add a new optional order 
instruction to be known as Non-Displayed Swap; and (ii) make a related 
change to description of Limit Orders and MidPoint Peg Orders under 
Exchange Rule 11.8. These proposed amendments are identical to the 
rules of EDGX \8\ and substantially similar to the rules of Nasdaq and 
Arca.\9\
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    \8\ See supra note 5.
    \9\ See supra notes 6 and 7.
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    The proposed Non-Displayed Swap (``NDS'') instruction would provide 
orders with a Non-Displayed \10\ instruction resting on the EDGA Book 
\11\ with a greater ability to receive an execution when that resting 
order is locked by an incoming order (e.g., the price of the resting 
non-displayed order is equal to the price of the incoming order that is 
to be placed on the EDGA Book). The NDS instruction would be an 
optional order instruction that would allow Users \12\ to have their 
resting non-displayed orders execute against an incoming order with a 
Post Only instruction rather than have it be locked by the incoming 
order. NDS would be defined as an instruction that may be attached to 
an order with a Non-Displayed instruction that when such order is 
resting on the EDGA Book and would be locked by an incoming order with 
a Post Only instruction that does not remove liquidity pursuant to 
paragraph (4) of Exchange Rule 11.6(n),\13\ the order with a NDS

[[Page 31002]]

instruction is converted to an executable order and will remove 
liquidity against such incoming order. An order with a NDS instruction 
would not be eligible for routing pursuant to Exchange Rule 11.11, 
Routing to Away Trading Centers. The proposed NDS instruction assists 
in the avoidance of an internally locked EDGA Book (though such lock 
would not be displayed by the Exchange) \14\ by facilitating the 
execution of orders that would otherwise lock each other.
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    \10\ See Exchange Rule 11.6(e)(2).
    \11\ See Exchange Rule 1.5(d).
    \12\ See Exchange Rule 1.5(ee).
    \13\ Under Exchange Rule 11.6(n)(4), an order with a Post Only 
instruction will remove contra-side liquidity from the EDGA Book if 
the order is an order to buy or sell a security priced below $1.00 
or if the value of such execution when removing liquidity equals or 
exceeds the value of such execution if the order instead posted to 
the EDGA Book and subsequently provided liquidity, including the 
applicable fees charged or rebates provided. To determine at the 
time of a potential execution whether the value of such execution 
when removing liquidity equals or exceeds the value of such 
execution if the order instead posted to the EDGA Book and 
subsequently provided liquidity, the Exchange will use the highest 
possible rebate paid and highest possible fee charged for such 
executions on the Exchange.
    \14\ See Exchange Rule 11.10(a)(4)(C).
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    The following example illustrates the operation of an order with a 
NDS instruction. Assume the National Best Bid and Offer is $10.00 by 
$10.04. There is a Limit Order to buy with a Non-Displayed instruction 
resting on the EDGA Book at $10.03. An order to sell with a Post Only 
instruction priced at $10.03 is entered. Under current behavior, the 
incoming sell order with a Post Only instruction would post to the EDGA 
Book because it would not receive sufficient price improvement.\15\ 
This would result in the EDGA Book being internally locked.\16\ As 
proposed, if the Limit Order to buy with Non-Displayed instruction also 
included a NDS instruction, the orders would instead execute against 
each other at $10.03, with the resting buy order with the NDS 
instruction becoming the remover of liquidity and the incoming sell 
order with a Post Only instruction becoming the liquidity provider.
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    \15\ Id. [sic]
    \16\ In the event the incoming order with a Post Only 
instruction was to be displayed, it would post and display at $10.03 
and the resting buy order with a Non-Displayed instruction would not 
execute against it or subsequent incoming sell orders at $10.03 for 
so long as the sell order was displayed on the Exchange. See 
Exchange Rule 11.10(a)(4)(C) and (D).
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    Assume the same facts as above, but that a Limit Order with a Non-
Displayed instruction to buy at $10.03 (``Order A'') is also resting on 
the EDGA Book with time priority ahead of the Limit Order to buy with a 
Non-Displayed instruction mentioned above (``Order B''). Like above, an 
order to sell with a Post Only instruction priced at $10.03 is entered. 
Under current behavior, the incoming sell order with a Post Only 
instruction would post to the EDGA Book because the value of such 
execution against the resting buy interest when removing liquidity does 
not equal or exceed the value of such execution if the order instead 
posted to the EDGA Book and subsequently provided liquidity, including 
the applicable fees charged or rebates provided. As proposed, if Order 
B also included a NDS instruction, the incoming sell order would 
execute against Order B and such order would become the remover of 
liquidity and the incoming sell order with a Post Only instruction 
would become the liquidity provider. In such case, Order A cedes time 
priority to Order B because Order A did not also include a NDS 
instruction and thus the User that submitted Order A did not indicate 
the preference to be treated as the remover of liquidity in favor of an 
execution; instead, by not using NDS, a User indicates the preference 
to remain posted on the EDGA Book as a liquidity provider.\17\ However, 
if the incoming sell order was priced at $10.02, it would receive 
sufficient price improvement to execute upon entry against all resting 
buy Limit Orders in time priority at $10.03.\18\
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    \17\ Should the Limit Order to buy at $10.03 with time priority 
(i.e., Order A) be displayed on the EDGA Book, the incoming sell 
order at $10.03 with a Post Only instruction will not execute 
against the non-displayed buy order with a NDS instruction because 
displayed orders have priority over non-displayed orders. In such a 
case, the incoming Limit Order would be handled as it is today in 
accordance with existing Exchange rules. See, e.g., Exchange Rules 
11.6(l), 11.9, and 11.10(a).
    \18\ The execution occurs here because the value of the 
execution against the buy order when removing liquidity exceeds the 
value of such execution if the order instead posted to the EDGA Book 
and subsequently provided liquidity, including the applicable fees 
charged or rebates provided. See supra note 13.
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    If the order with a NDS instruction is only partially executed, the 
unexecuted portion of that order remains on the EDGA Book and maintains 
its priority, as is the case today for an order that is partially 
executed and not cancelled by the User.\19\ The Exchange is proposing 
to make the NDS instruction available to Limit Orders \20\ that include 
a Non-Displayed instruction and MidPoint Peg Orders.\21\ The NDS 
instruction would not be available to all other order types provided by 
the Exchange under its Rule 11.8, as the execution of these order types 
is governed by other Exchange rules and the NDS instruction would be 
inconsistent with the use of those order types.
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    \19\ See Exchange Rule 11.9(a)(5).
    \20\ See Exchange Rule 11.8(b).
    \21\ See Exchange Rule 11.8(d); the Exchange notes that NDS can 
be combined with other instructions also available to Limit Orders 
with a Non-Displayed instruction, such as the Discretionary Range 
instruction, the Minimum Execution Quantity instruction and the 
Pegged instruction, as such terms are defined in Exchange Rules 
11.6(d), 11.6(h) and 11.6(j), respectively.
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    The Exchange notes that similar functionality exists on Nasdaq and 
Arca. Nasdaq refers to their functionality as the ``Trade Now'' 
instruction \22\ and Arca refers to their functionality as the ``Non-
Display Remove Modifier''.\23\ On Arca, a Limit Non-Displayed Order may 
be designated with a Non-Display Remove Modifier. If so designated, a 
Limit Non-Displayed Order to buy (sell) will trade as the remover of 
liquidity with an incoming Adding Liquidity Only Order (``ALO Order'') 
to sell (buy) that has a working price equal to the working price of 
the Limit Non-Displayed Order.\24\ On Nasdaq, Trade Now is an order 
attribute that allows a resting order that becomes locked by an 
incoming Displayed Order to execute against the available size of the 
contra-side locking order as a liquidity taker, and any remaining 
shares of the resting order will remain posted on the Nasdaq Book with 
the same priority.\25\ Nasdaq requires the contra-side order to be 
display eligible, while the Exchange proposes to enable an order with a 
NDS instruction to remove liquidity regardless of whether the incoming 
order would have ultimately been eligible for display consistent with 
Arca's Non-Display Remove Modifier.
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    \22\ See Nasdaq Rule 4703(m). See also Securities and Exchange 
Act Release No. 79282 (November 10, 2016), 81 FR 81219 (November 17, 
2016) (SR-Nasdaq-2016-156) (Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change to Amend Rule 4703 and Rule 
4703 to add a ``Trade Now'' Instruction to Certain Order Types).
    \23\ See Arca Rule 7.31-E(d)(2)(B). See also Securities and 
Exchange Act Release No. 76267 (October 26, 2015), 80 FR 66951 
(October 30, 2015) (SR-NYSEArca-2015-56) (Order Approving Proposed 
Rule Change, and Notice of Filing and Order Granting Accelerated 
Approval of Amendment Nos. 1 and 2 Thereto, Adopting New Equity 
Trading Rules Relating to Orders and Modifiers and the Retail 
Liquidity Program To Reflect the Implementation of Pillar, the 
Exchange's New Trading Technology Platform) (including the Non-
Display Remove Modifier).
    \24\ See Arca Rule 7.31-E(d)(2)(b).
    \25\ Arca provides their Non-Display Remove Modifier to their 
Mid-Point Liquidity Orders (``MPL Orders'') designated Day and MPL-
ALO Orders and Arca Only Orders. Nasdaq's Trade Now functionality is 
available to Price to Comply Orders, Price to Display Orders, Non-
Displayed Orders, Post-Only Orders, Midpoint Peg Post-Only Orders, 
and Market Maker Peg Orders. To the extent the NDS instruction is 
only available to Limit Orders with a Non-Displayed instruction and 
MidPoint Peg Orders, the Exchange notes that the NDS instruction 
will apply to different order types than Arca's Non-Display Remove 
Modifier and Nasdaq's Trade Now functionality.
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \26\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \27\ 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

[[Page 31003]]

general, to protect investors and the public interest by offering Users 
optional functionality that will facilitate the execution of orders 
that would otherwise remain unexecuted, thereby increasing the 
efficient functioning of the Exchange. The NDS instruction is an 
optional feature that is intended to reflect the order management 
practices of various market participants. The proposed NDS instruction 
assists in the avoidance of an internally locked EDGA Book by 
facilitating the execution of orders that would otherwise post, or 
remain posted, to the EDGA Book.
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    \26\ 15 U.S.C. 78f(b).
    \27\ 15 U.S.C. 78f(b)(5).
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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 Exchange believes the proposed rule change promotes 
competition because it will enable the Exchange to offer functionality 
substantially similar to that offered by Nasdaq and Arca (in addition 
to the fact that such functionality is identical to that already 
offered by the Exchange's affiliate, EDGX).\28\ Therefore, the Exchange 
does not believe the proposed rule change will result in any burden on 
intermarket competition that is not necessary or appropriate in 
furtherance of the purposes of the Act. As the NDS feature will be 
equally available to all Users, the Exchange does not believe the 
proposed rule change will result in any burden on intramarket 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act.
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    \28\ See supra notes 5-7.
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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: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
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)(iii) of the Act \29\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\30\
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    \29\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \30\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file 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. 
The Exchange has satisfied this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative for 30 days after the date of the filing. However, 
Rule 19b-4(f)(6)(iii) \31\ permits the Commission to designate a 
shorter time if such action is consistent with the protection of 
investors and the public interest. In its filing, EDGA requested that 
the Commission waive the 30-day operative delay so that the Exchange 
can implement the proposed rule change promptly after filing. The 
Exchange noted that the proposed functionality is optional, may lead to 
increased order interaction on the Exchange, and is identical to 
functionality already provided on EDGX. The Commission believes that 
waiver of the 30-day operative delay is consistent with the protection 
of investors and the public interest, as such waiver will permit the 
Exchange to update its rule without delay so that it provides the same 
optional NDS functionality as is available on EDGX and potentially 
increase order interaction on the Exchange. Accordingly, the Commission 
waives the 30-day operative delay and designates the proposed rule 
change operative upon filing.\32\
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    \31\ 17 CFR 240.19b-4(f)(6)(iii).
    \32\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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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: (i) 
Necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) 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-2018-011 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-2018-011. 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-2018-011, and should be 
submitted on or before July 23, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\33\
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    \33\ 17 CFR 200.30-3(a)(12) and (59).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-14108 Filed 6-29-18; 8:45 am]
 BILLING CODE 8011-01-P