[Federal Register Volume 83, Number 174 (Friday, September 7, 2018)]
[Notices]
[Pages 45472-45474]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-19375]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-84011; File No. SR-CboeEDGX-2018-038]
Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice
of Filing and Immediate Effectiveness of a Proposed Rule Change To
Expand the Types of Messages That Users May Submit Into Bulk Order
Ports
August 31, 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 August 24, 2018, Cboe EDGX Exchange, Inc. (the ``Exchange'' or
``EDGX'') 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)(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 is proposing to expand the types of messages that
Users may submit into bulk order ports.
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.
[[Page 45473]]
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 proposed rule change expands the types of messages that Users
may submit into bulk order ports. A bulk order port is a logical port
that provides Users with the ability to submit bulk messages to enter,
modify, or cancel orders designated as Post Only Orders, provided such
orders are entered with a Time-in-Force of Day \5\ or GTD \6\ with an
expiration time on that trading day. Post Only Orders \7\ with a Time-
in-Force of Day or GTD are orders that will be posted to and displayed
by the Exchange, rather than removing liquidity or routing to another
options exchange. The Exchange currently limits the use of bulk order
ports to these orders to limit the use of these ports to liquidity
provision. The primary purpose of bulk order ports is to encourage
Users, and Market-Makers in particular, to quote on the Exchange. As a
general matter, however, the overall purpose of bulk order ports is to
allow Users to bundle multiple instructions in a single message and
provide all Users (not just Market-Makers) with an efficient way to
provide liquidity on the Exchange.
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\5\ An order designated as ``Day'' means a limit order to buy or
sell that, if not executed expires at market close. See Rule
21.1(f)(3).
\6\ An order designated as ``GTD'' means an order (or unexecuted
portion) that will remain available for potential display and/or
execution for the amount of time specified by the entering User
unless cancelled by the entering party. See Rule 21.1(f)(1).
\7\ A ``Post Only Order'' is an order that is to be ranked and
executed on the Exchange pursuant to Rule 21.8 (Order Display and
Book Processing) or cancelled, as appropriate, without routing away
to another options exchange except that the order will not remove
liquidity from the EDGX Options Book. A Post Only Order that is not
subject to the Price adjust process that would lock or cross a
Protected Quotation of another options exchange or the Exchange will
be cancelled. See Rule 21.1(d)(8).
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The proposed rule change permits Users to submit auction responses
into bulk order ports, in addition to Post Only Orders with a Time-in-
Force of Day or GTD with an expiration time on that trading day. The
Exchange offers various auction mechanisms that provide Users with
additional execution opportunities and potential price improvement for
their orders.\8\ When the Exchange initiates an auction, it
disseminates messages that contain the relevant information about the
auction order.\9\ The purpose of these messages is to encourage Users
to provide liquidity against which the auctioned orders may trade.
Users submit this liquidity in the form of auction responses. Like Post
Only Orders with a Time-in-Force of Day or GTD with an expiration time
on the applicable trading day, auction responses will not remove
liquidity from the Exchange order book or route to another options
exchange. Auction responses are similarly available for execution for a
limited time period. Unexecuted auction responses are cancelled at the
end of the auction, and thus do not last beyond the auction to which
they were submitted.\10\ Because the purpose of auction responses is to
provide liquidity, which is the purpose of bulk order ports, the
Exchange believes it is appropriate to permit Users to submit auction
responses into bulk order ports.
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\8\ See Rules 21.18 (Step Up Mechanism (``SUM''), pursuant to
which eligible marketable orders are auctioned when the Exchange's
disseminated quote is not at the national best bid or offer
(``NBBO'')); 21.19 (Bats Auction Mechanism (``BAM''), pursuant to
which a Member may submit an eligible order paired with contra
interest for potential price improvement); and 21.20(d) (Complex
Order Auction (``COA''), pursuant to which eligible complex orders
are auctioned for execution and potential price improvement).
\9\ See Rules 21.18(b) (the Exchange exposes orders received by
SUM); 21.19(b)(1)(C) (the Exchange sends an auction notification
message when it receives an order for BAM processing); and
21.20(d)(2) (the Exchange initiates the COA process by sending a COA
auction message).
\10\ See Rules 21.18(b)(3), 21.19(b)(5), and 21.20(d)(4).
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Orders submitted to the Exchange through all ports are subject to
various parameters, such as price reasonability checks and volume
restrictions.\11\ These parameters may be configured either by the
Exchange or the Member. Orders are also subject to other validation
checks and processes before execution, entry into the book, or
cancellation. Examples of such validation checks include validating an
order's Capacity, Time-in-Force, order instructions, and routing
options. While orders submitted through bulk order ports pass through
these same validation checks and processes, they are not subject to
parameters such as routing options and are restricted to one order
instruction and two Time-in-Force options. As a result, the System can
perform these validation checks with respect to orders submitted
through bulk order ports in a more efficient manner.
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\11\ See, e.g., Rules 21.16 and 21.17 and technical
specifications available at http://markets.cboe.com/us/options/support/technical/.
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Pursuant to Exchange technical specifications,\12\ the order
messages per second that a User may submit through a non-bulk order
port is smaller than the order messages per second that a User may
submit through a bulk order port. The Exchange understands from certain
Members that they may restrict the number of auction response messages
they submit to avoid having to obtain additional ports. The Exchange
believes permitting Users to submit auction responses through bulk
order ports will encourage Users to provide increased liquidity to
auction mechanisms in a more cost-efficient manner. While bulk order
ports have a higher monthly cost, the higher order message/second rate
may ultimately be more cost-efficient than a User having to obtain
multiple additional non-bulk ports to accommodate the submission of
auction responses. Additionally, Users that have both bulk and non-bulk
order ports would be able to increase their submission of auction
responses without additional monthly fees.\13\
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\12\ These technical specifications are available at http://markets.cboe.com/us/options/support/technical/.
\13\ The Exchange notes certain Market-Makers currently only
have bulk order ports, and thus are unable to provide liquidity to
auction mechanisms without obtaining additional non-bulk order
ports.
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2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Securities Exchange Act of 1934 (the ``Act'') and the rules and
regulations thereunder applicable to the Exchange and, in particular,
the requirements of Section 6(b) of the Act.\14\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \15\ requirements that the rules of an exchange be
designed to prevent fraudulent and manipulative acts and practices, to
promote just and equitable principles of trade, to foster cooperation
and coordination with persons engaged in regulating, clearing,
settling, processing information with respect to, and facilitating
transactions in securities, to remove impediments to and perfect the
mechanism of a free and
[[Page 45474]]
open market and a national market system, and, in general, to protect
investors and the public interest. Additionally, the Exchange believes
the proposed rule change is consistent with the Section 6(b)(5) \16\
requirement that the rules of an exchange not be designed to permit
unfair discrimination between customers, issuers, brokers, or dealers.
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\14\ 15 U.S.C. 78f(b).
\15\ 15 U.S.C. 78f(b)(5).
\16\ Id.
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In particular, the Exchange believes the proposed rule change
protects investors and the public interest because it provides all
Users with an efficient process to enter and update auction responses.
Like quoting, auction responses are a critical form of liquidity on the
Exchange. Auction mechanisms and the execution and price improvement
opportunities they provide are dependent on auction responses submitted
during the auctions. Permitting Users to submit auction responses into
bulk order ports is consistent with the purpose of these ports and have
a similar purpose as the orders that Users are currently permitted to
enter into bulk order ports. The Exchange believes the proposed rule
change may encourage the provision of additional liquidity in auctions,
which will provide additional execution and price improvement
opportunities to auctioned orders, which ultimately benefit investors.
(B) Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The Exchange does not
believe the proposed rule change will impose any burden on intramarket
competition, as the use of bulk order ports and the proposed
functionality is voluntary and available to all Users of the Exchange.
Bulk order entry functionality is available to all Users of the
Exchange, as is the proposed functionality to submit auction responses
into bulk order ports. Users may already submit auction responses to
the Exchange using other types of ports--the proposed rule change
merely provides Users of the Exchange with an additional method to
submit auction responses to the Exchange. The Exchange does not believe
the proposed rule change will have any direct impact on intermarket
competition, as the proposed rule change relates solely to the manner
in which Users may submit auction responses into auctions occurring on
the Exchange.
(C) Self-Regulatory Organization's Statement on Comments on the
Proposed Rule Change Received From Members, Participants or Others
The Exchange has neither solicited nor received written comments 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 \17\ and
subparagraph (f)(6) of Rule 19b-4 thereunder.\18\
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\17\ 15 U.S.C. 78s(b)(3)(A)(iii).
\18\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires a self-regulatory organization to give 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.
The Exchange has satisfied this requirement.
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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-CboeEDGX-2018-038 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-CboeEDGX-2018-038. 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-CboeEDGX-2018-038 and should be
submitted on or before September 28, 2018.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\19\
Eduardo A. Aleman,
Assistant Secretary.
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\19\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2018-19375 Filed 9-6-18; 8:45 am]
BILLING CODE 8011-01-P