[Federal Register Volume 83, Number 128 (Tuesday, July 3, 2018)]
[Notices]
[Pages 31198-31201]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-14297]


=======================================================================
-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83537; File No. SR-CboeBZX-2018-042]


Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change to Rule 
11.9, Orders and Modifiers

June 28, 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 18, 2018, Cboe BZX Exchange, Inc. (the ``Exchange'' or ``BZX'') 
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.
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange filed a proposal to add a new optional order type 
modifier to be known as Non-Displayed Swap. The proposed amendments are 
substantively 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\
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

    The text of the proposed rule change is available at the Exchange's 
website at

[[Page 31199]]

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 add a new optional order type modifier to 
be known as Non-Displayed Swap. The proposed amendments are 
substantively identical to the rules of EDGX \8\ and substantially 
similar to the rules of Nasdaq and Arca.\9\
---------------------------------------------------------------------------

    \8\ See supra note 5.
    \9\ See supra notes 6 and 7.
---------------------------------------------------------------------------

    The proposed Non-Displayed Swap (``NDS'') instruction would provide 
resting limit orders that are not displayed on the Exchange \10\ and 
Mid-Point Peg Orders resting on the BZX 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 
BZX 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 on an order resting on the BZX Book that, when locked by 
an incoming order with a Post Only instruction that does not remove 
liquidity pursuant to paragraph (c)(6) of Exchange Rule 11.9,\13\ 
causes such order to be converted to an executable order that removes 
liquidity against such incoming order. An NDS instruction would only be 
eligible for inclusion on a non-displayed limit order or a Mid-Point 
Peg Order. An order with a NDS instruction would not be eligible for 
routing pursuant to Exchange Rule 11.13, Order Execution and Routing. 
The proposed NDS instruction assists in the avoidance of an internally 
locked BZX Book (though such lock would not be displayed by the 
Exchange) \14\ by facilitating the execution of orders that would 
otherwise lock each other.
---------------------------------------------------------------------------

    \10\ See Exchange Rule 11.9(c)(11).
    \11\ See Exchange Rule 1.5(e).
    \12\ See Exchange Rule 1.5(cc).
    \13\ Under Exchange Rule 11.9(c)(6), a BZX Post Only Order will 
remove contra-side liquidity from the BZX 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 BZX 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 BZX 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 11.13(a)(4)(C).
---------------------------------------------------------------------------

    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 non-displayed limit order to buy resting on the BZX 
Book at $10.03. A BZX Post Only Order to sell priced at $10.03 is 
entered. Under current behavior, the incoming sell order marked as Post 
Only would post to the BZX Book because it would not receive sufficient 
price improvement.\15\ This would result in the BZX Book being 
internally locked.\16\ As proposed, if the non-displayed limit order to 
buy 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 BZX Post 
Only Order to sell becoming the liquidity provider.
---------------------------------------------------------------------------

    \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 11.13(a)(4)(C) and (D).
---------------------------------------------------------------------------

    Assume the same facts as above, but that a non-displayed limit 
order to buy at $10.03 (``Order A'') is also resting on the BZX Book 
with time priority ahead of the non-displayed limit order mentioned 
above (``Order B''). Like above, a BZX Post Only Order to sell priced 
at $10.03 is entered. Under current behavior, the incoming BZX Post 
Only Order to sell would post to the BZX 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 BZX 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 BZX Post Only Order to sell 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 BZX 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\
---------------------------------------------------------------------------

    \17\ Should the limit order to buy at $10.03 with time priority 
(i.e., Order A) be displayed on the BZX Book, the incoming BZX Post 
Only Order to sell at $10.03 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 11.9 and 
11.13(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 BZX Book 
and subsequently provided liquidity, including the applicable fees 
charged or rebates provided. See supra note 13.
---------------------------------------------------------------------------

    If the order with a NDS instruction is only partially executed, the 
unexecuted portion of that order remains on the BZX 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 are not 
displayed on the Exchange \21\ and MidPoint Peg Orders.\22\ Because the 
NDS instruction would be only available to limit orders not displayed 
on the Exchange and to MidPoint Peg Orders, the NDS instruction would 
not be available to other order types provided by the Exchange under 
its Rule 11.9, such as BZX Market Orders, Reserve Orders, and Market 
Maker Peg Orders,\23\ as the NDS instruction would be inconsistent with 
the use of those order types. The NDS instruction could, however, be 
combined with other instructions also

[[Page 31200]]

available to non-displayed limit orders, such as the Minimum Quantity 
Order instruction, the Primary Pegged Order instruction, the Market 
Pegged Order instruction or the Discretionary Order instruction.\24\
---------------------------------------------------------------------------

    \19\ See Exchange Rule 11.12(a)(5).
    \20\ See Exchange Rule 11.9(a)(1).
    \21\ See Exchange Rule 11.9(c)(11).
    \22\ See Exchange Rule 11.9(c)(9).
    \23\ See Exchange Rules 11.9(a)(2), 11.9(c)(1) and 11.9(c)(16), 
respectively.
    \24\ See Exchange Rules 11.9(c)(5), 11.9(c)(8)(A), 11.9(c)(8)(B) 
and 11.9(c)(10), respectively.
---------------------------------------------------------------------------

    The Exchange notes that similar functionality exists on Nasdaq and 
Arca. Nasdaq refers to their functionality as the ``Trade Now'' 
instruction \25\ and Arca refers to their functionality as the ``Non-
Display Remove Modifier''.\26\ 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.\27\ 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.\28\ 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.
---------------------------------------------------------------------------

    \25\ 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).
    \26\ 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).
    \27\ See Arca Rule 7.31-E(d)(2)(b).
    \28\ 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 non-displayed limit orders 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.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \29\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \30\ 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 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 BZX Book by facilitating the 
execution of orders that would otherwise post, or remain posted, to the 
BZX Book.
---------------------------------------------------------------------------

    \29\ 15 U.S.C. 78f(b).
    \30\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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).\31\ 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.
---------------------------------------------------------------------------

    \31\ See supra notes 5-7.
---------------------------------------------------------------------------

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 \32\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\33\
---------------------------------------------------------------------------

    \32\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \33\ 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.
---------------------------------------------------------------------------

    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) \34\ 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, BZX 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.\35\
---------------------------------------------------------------------------

    \34\ 17 CFR 240.19b-4(f)(6)(iii).
    \35\ 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).
---------------------------------------------------------------------------

    At any time within 60 days of the filing of the proposed rule 
change, the

[[Page 31201]]

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-CboeBZX-2018-042 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-CboeBZX-2018-042. 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-CboeBZX-2018-042, and should be 
submitted on or before July 24, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\36\
---------------------------------------------------------------------------

    \36\ 17 CFR 200.30-3(a)(12) and (59).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-14297 Filed 7-2-18; 8:45 am]
 BILLING CODE 8011-01-P