[Federal Register Volume 83, Number 200 (Tuesday, October 16, 2018)]
[Notices]
[Pages 52264-52266]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-22426]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-84393; File No. SR-CboeEDGX-2018-043]
Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice
of Filing of a Proposed Rule Change To Amend the Exchange's Rulebook To
Allow the Post Only Order Instruction on Complex Orders That Route to
Its Electronic Book for Trading Options
October 10, 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 October 1, 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, II,
and III below, which Items have been prepared by the Exchange. 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.
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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 amend the Exchange's rulebook to allow
the Post Only Order instruction on complex orders that route to its
electronic book for trading options (``EDGX Options'').
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 52265]]
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
EDGX Options currently offers the Post Only Order instruction on
simple orders that route to its electronic book (``Simple Book'') and
now proposes to adopt the Post Only Order instruction on complex orders
that route to its electronic book (``COB'').
Background
Pursuant to Exchange Rule 21.1(d)(8), Post Only Orders are ``orders
that are 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.'' In other words,
if a Post Only Order is entered into the EDGX Options electronic
trading facility (``System''), it will not execute against an order
resting in the Simple Book or route to another exchange. The purpose of
the Post Only Order is to add liquidity to the Simple Book.
Complex Orders
EDGX Options does not currently offer Post Only complex orders.
Based on the EDGX Options fee structure, the execution of a complex
order taking liquidity from the COB is subject to a higher fee than the
execution of a complex order adding liquidity to the COB. For example,
a Non-Customer complex order that adds liquidity to the COB in a non-
penny class incurs a fee of $0.10, whereas a Non-Customer complex order
that removes liquidity from the COB in a non-penny class incurs a fee
of $0.75. Without the ability to mark a complex order as Post Only, a
Member that intends to submit a complex order to add liquidity to the
COB may not receive the benefit of the reduced fee. Accordingly, EDGX
Options is proposing to add Post Only to the available types of complex
orders submitted to the Exchange in Exchange Rule 21.20(b).
Proposed Exchange Rule 21.20(b)(2) states that complex Orders that
are marked Post Only with any Time in Force will, by default, not
initiate a complex order auction (``COA''), and if a Member marks a
Post Only complex order to initiate a COA, that order will be
cancelled.. [sic] This is consistent with the purposes of a Post Only
Order, which as discussed above is to add liquidity to the COB.
Proposed Exchange Rule 21.20(c)(2)(F) states that complex orders marked
Post Only may not Leg into the Simple Book, and proposed Exchange Rule
21.20(c)(4)(C) states that the System will cancel or reject a Post Only
complex order if it locks or crosses a resting complex order in the COB
or the then-current opposite side synthetic best bid or offer
(``SBBO''). For example, assume there are no orders for a specific
strategy resting on the COB, the synthetic national best bid or offer
(``SNBBO'') is $3.00 by $3.15, and the SBBO is $2.95 by $3.15. Assume
next that Complex Order 1 enters the COB to sell 10 of that strategy at
$3.14 and such order is posted to the COB. If Complex Order 2 then
enters the COB to buy 10 contracts of that strategy at $3.14, but
Complex Order 2 also contains the Post Only instruction, Complex Order
2 is rejected since it locks the resting contra order. Similarly,
assume there are no orders for a specific strategy resting on the COB,
the SNBBO is $3.00 by $3.15, and the SBBO is $2.95 by $3.20. If a two-
leg Complex Order with the Post Only instruction enters the COB to buy
10 contracts of that strategy at $3.20, that Complex Order is rejected
since it cannot leg in to the Simple Book and it locks the contra side
SBBO. This proposed functionality is consistent with the purpose of the
Post Only instruction and ensures a Post Only complex order will not
remove liquidity from the COB. This is also consistent with the
functionality and purpose of the Post Only Order instruction on simple
orders.
By adding the Post Only Order instruction for complex orders,
Members will be given the ability to exercise more control over the
circumstances in which their complex orders are executed and be
encouraged to add liquidity in the complex order market. Any additional
liquidity will subsequently benefit all participants who trade complex
orders on the Exchange.
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.\3\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \4\ 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 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) \5\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
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\3\ 15 U.S.C. 78f(b).
\4\ 15 U.S.C. 78f(b)(5).
\5\ Id.
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Specifically, the Post Only Order instruction on complex orders is
designed to encourage market participants to add liquidity in the
complex order market, which will benefit investors. By giving market
participants the flexibility to manage their execution costs and the
circumstances in which their complex orders are executed, the Exchange
believes the proposed rule change would remove impediments to perfect
the mechanism of a free and open market and a national market system
and protect investors. The Exchange also believes that the proposed
rule change will contribute to the protection of investors and the
public interest by assuring compliance with rules related to locked and
crossed markets.
Additionally, the Exchange notes that Post Only functionality is
not new or unique functionality and is already available in a similar
capacity. While the Post Only complex order type is not currently
available in the market, the Exchange and other exchanges have
implemented the Post Only simple order type, which functions in the
same manner as the proposed Post Only complex order type. The purpose
of a Post Only complex order is the same as the purpose of a Post Only
simple order, and the Post Only Order instruction on complex orders
ensures the submitter
[[Page 52266]]
receives the benefit of a reduced fee when intending to add liquidity.
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 intramarket or intermarket competition that is not
necessary or appropriate in furtherance of the purposes of the Act. In
particular, the Exchange believes the proposed rule change will not
burden intramarket competition because the Post Only Order instruction
on complex orders will be available to all market participants.
Additionally, use of the Post Only Order instruction on complex orders
is voluntary. The Exchange also believes the proposed rule change will
not impose any burden on intermarket competition because this relates
to an instruction on orders that are submitted to the Exchange and may
only execute on the Exchange. Additionally, nothing prevents other
options exchanges that offer complex orders from adopting a Post Only
complex order type. The Exchange also believes the proposed rule change
will promote competition, as the Exchange believes it will encourage
the provision of additional liquidity in the complex order market,
which benefits all market participants.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received comments on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the Exchange consents, the Commission will: (a) By order approve
or disapprove such proposed rule change, or (b) institute proceedings
to determine whether the proposed rule change should be 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-2018-043 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-2018-043. 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-2018-043, and should be
submitted on or before November 6, 2018.
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\6\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\6\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-22426 Filed 10-15-18; 8:45 am]
BILLING CODE 8011-01-P