[Federal Register Volume 83, Number 201 (Wednesday, October 17, 2018)]
[Notices]
[Pages 52588-52591]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-22535]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84406; File No. SR-CboeBZX-2018-074]


Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To 
Introduce Equities Purge Ports To (1) Establish Purge Ports for 
Equities Trading and Amend the Interpretations and Policies to Rule 
11.10, Order Execution, To Reflect the Proposed Purge Ports, and (2) 
Modify the Fee Schedule Applicable to the Exchange's Equities Platform 
(``BZX Equities'') To Identify and To Set Fees for Purge Ports

October 11, 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 September 28, 2018, Cboe BZX Exchange, Inc. (``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)(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 (1) establish Purge Ports for equities 
trading and amend the Interpretations and Policies to Rule 11.13, Order 
Execution and Routing, to reflect the proposed Purge Ports, and (2) 
modify the fee schedule applicable to the Exchange's equities platform 
(``BZX Equities'') to identify and to set fees for Purge 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.

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 purpose of the proposed rule change is to offer Users \5\ an 
additional tool to manage risk and exercise additional control over 
their quotations in equity securities (i.e., ``Purge Ports''). 
Specifically, the Exchange proposes to: (1) Establish Purge Ports for 
equities trading and amend the Interpretations and Policies to Rule 
11.13, Order Execution and Routing, to reflect the proposed Purge 
Ports, and (2) modify the fee schedule applicable to BZX Equities to 
identify and to set fees for Purge Ports.
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    \5\ A ``User'' is any Member or Sponsored Participant who is 
authorized to obtain access to the System pursuant to Rule 11.3. See 
Rule 1.5(cc).
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    Purge Ports are already available on the Exchange's affiliated 
options markets--i.e., the Exchange's options trading platform (``BZX 
Options''), the options trading platform of Cboe EDGX Exchange, Inc. 
(``EDGX Options''), and Cboe C2 Exchange, Inc. (``C2'').\6\ Based on 
the successful experience with Purge Ports for options, and in response 
to demand for similar functionality for equities trading, the Exchange 
has determined to offer Purge Ports on BZX Equities. The Exchange 
believes that the proposed Purge Port functionality will provide an 
effective tool for Users to manage their risk associated with equities 
trading.
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    \6\ See Securities Exchange Act Release Nos. 79956 (February 3, 
2017), 82 FR 10102 (February 9, 2017) (SR-BatsBZX-2017-05); 79957 
(February 3, 2017), 82 FR 10070 (February 9, 2017) (SR-BatsEDGX-
2017-07); 83201 (May 9, 2018), 83 FR 22546 (May 15, 2018) (SR-C2-
2018-006).
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Background
    A logical port represents a port established by the Exchange within 
the Exchange's system for trading and billing purposes. Each logical 
port established is specific to a Member or non-Member and grants that 
Member or non-Member the ability to accomplish a specific function, 
such as order entry, order cancellation, or data receipt. In addition, 
logical ports enable Users to access information such as execution 
reports, execution report messages, auction notifications, and 
administrative data through a single feed.
Purge Ports
    The Exchange now proposes to amend the Interpretations and Policies 
to Rule 11.13, Order Execution and Routing, to identify Purge Ports, a 
new type of logical port that would enable Users to cancel all open 
orders, or a subset thereof, across multiple logical ports through a 
single cancel message. The Exchange also proposes to amend the BZX 
Equities fee schedule to adopt fees for Purge Ports.
    The proposed ports are designed to assist Users, including Market 
Makers,\7\ in the management of, and risk control over, their quotes, 
particularly if the firm is quoting a large number of

[[Page 52589]]

securities. For example, if a Market Maker detects market indications 
that may influence the direction or bias of his or her quotes, the 
Market Maker may use the proposed Purge Port(s) to reduce uncertainty 
and to manage risk by purging all quotes in a number of securities. 
This would allow the firm to seamlessly avoid unintended executions, 
while continuing to evaluate the direction of the market. While Purge 
Ports will be available to all Users, the Exchange anticipates they 
will be used primarily by Market Makers or firms that conduct similar 
business activity and are therefore exposed to a large amount of risk 
across a number securities.
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    \7\ A ``Market Maker'' is a Member that acts as a Market Maker 
pursuant to Chapter XI. See Rule 1.5(l).
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    Users may currently cancel orders through their existing logical 
ports. In addition, the Exchange offers risk functionality pursuant to 
Interpretation and Policies .01 to Rule 11.13 that permits Users to 
block new orders from being submitted, to cancel all open orders, or to 
both block new orders and cancel all open orders. In addition to the 
current risk functionality, which is being retained, the Exchange now 
proposes to expand the ability of Users to cancel orders through the 
proposed Purge Ports, which would enable them to cancel all open 
orders, or a subset thereof, across multiple logical ports through a 
single cancel message. The mass cancel request may be limited to a 
subset of orders by identifying the range of orders to be purged. Users 
may also request via a Purge Port that the Exchange block all or a 
subset of new orders submitted, and the block will remain in effect 
until the User requests that the Exchange remove the block.
    The Exchange proposes to amend the Interpretations and Policies to 
Rule 11.13, Order Execution and Routing, to reflect the proposed Purge 
Port functionality. As described above, Interpretation and Policies .01 
to Rule 11.13 currently states that the Exchange offers risk 
functionality that permits Users to block new orders submitted, to 
cancel all open orders, or to both block new orders and cancel all open 
orders. The Exchange proposes to move this language to Interpretations 
and Policies .02(a) to Rule 11.13,\8\ and add additional language to 
describe the flexibility provided using the proposed Purge Ports. 
Specifically, as proposed, Interpretations and Policies .02(b) to Rule 
11.13 will state that a ``Purge Port'' is a dedicated port that permits 
a User to simultaneously cancel all or a subset of its orders in one or 
more symbols across multiple logical ports by requesting the Exchange 
to effect such cancellation. The proposed rule will also provide that a 
User initiating such a request may also request that the Exchange block 
all or a subset of its new inbound orders in one or more symbols across 
multiple logical ports. The block will remain in effect until the User 
requests the Exchange remove the block.
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    \8\ The Exchange also proposes to make a non-substantive change 
that deletes the introductory clause of this sentence.
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    In addition, the Exchange proposes to modify the Logical Port Fees 
section of the BZX Equities fee schedule to adopt a fee for Purge Ports 
of $650 per port/per month, which would compensate the Exchange for the 
investment that it has made in making Purge Ports available to firms 
that believe they would benefit from a dedicated purge mechanism. Only 
firms that request Purge Ports would be subject to the proposed fees, 
and other firms can continue to operate in exactly the same manner as 
they do today without dedicated Purge Ports.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder that are applicable to a national securities exchange, and, 
in particular, with the requirements of Section 6(b) of the Act.\9\ 
Specifically, the proposed rule change is consistent with Sections 
6(b)(4) and 6(b)(5) of the Act,\10\ because it is designed to provide 
for the equitable allocation of reasonable dues, fees and other charges 
among its members and other persons using its facilities, and 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.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange believes that the proposed rule change would promote 
just and equitable principles of trade and remove impediments to and 
perfect the mechanism of a free and open market because offering Users, 
including Market Makers, designated Purge Ports would enhance their 
ability to manage quotes, quote traffic, and their quoting 
obligations,\11\ which would, in turn, improve their risk controls to 
the benefit of all market participants. The Exchange believes that the 
Purge Ports would foster cooperation and coordination with persons 
engaged in facilitating transactions in securities because designating 
Purge Ports for purge messages (including blocking subsequent order 
entry) may encourage better use of such dedicated ports. This may, 
concurrent with the logical ports that carry quote and other 
information necessary for market making activities, enable more 
efficient, as well as fair and reasonable, use of Market Makers' 
resources. Although dedicated Purge Ports are a new innovation for 
equities exchanges, similar connectivity and functionality is offered 
by options exchanges, including the Exchange's own affiliated options 
exchanges.\12\ The Exchange believes that proper risk management, 
including the ability to efficiently cancel multiple orders at once, is 
similarly important to firms that trade in the equities market, 
including Market Makers that have heightened quoting obligations that 
are not applicable to other market participants.
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    \11\ See Rule 11.8(d).
    \12\ See supra note 7. See also e.g. Nasdaq ISE, LLC, Schedule 
of Fees, V. Connectivity Fees, C. Ports and Other Services, SQF 
Purge Port Fee.
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    The proposed rule change will not relieve Market Makers of their 
continuous quoting obligations under Rule 11.8(d) or firm quote 
obligations under Regulation NMS Rule 602.\13\ Specifically, any 
interest that is executable against a User's or Market Maker's quotes 
and orders that is received by the Exchange prior to the time of the 
removal of quotes request will automatically execute at that price, up 
to the quote's size. Market Makers that purge their quotes will not be 
relieved of the obligation to provide continuous two-sided quotes on a 
daily basis, nor will it prohibit the Exchange from taking disciplinary 
action against a Market Maker for failing to meet their continuous 
quoting obligation each trading day.
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    \13\ 17 CFR 242.602.
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    Dedicated Purge Ports, which were originally introduced for options 
trading, are a new feature in the equities market, and the Exchange is 
the first equities exchange to offer this functionality to Users. The 
Exchange has incurred additional infrastructure and technology costs in 
offering the proposed Purge Ports, including costs associated with the 
purchase of new hardware to support these dedicated ports, and software 
development, testing, and certification work associated with the risk 
management functionality made available through such ports. The 
Exchange also has continuing costs associated with maintenance and 
monitoring of the proposed ports. The Exchange believes

[[Page 52590]]

that its proposed fees should facilitate the ability of the Exchange to 
recoup some costs associated with Purge Ports as well as provide, 
maintain, and improve Purge Ports.\14\ The proposed fees therefore 
directly support the introduction of new and innovative risk management 
features to the market.
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    \14\ Purge Ports will be fee liable on a monthly basis (and not 
only when such ports are active), which will help the Exchange to 
recoup the cost of these ports.
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    The Exchange believes the proposed fee for Purge Ports is equitable 
and reasonable. The Exchange currently charges $550 per port/per month 
for logical ports.\15\ The Exchange believes it is equitable and 
reasonable to charge $650 per month for the proposed Purge Ports as 
such ports were specially developed to allow for the sending of a 
single message to cancel multiple orders, thereby assisting firms in 
effectively managing risk. In addition, Purge Port requests may cancel 
orders submitted over numerous ports and contain added functionality to 
purge only a subset of these orders. Effective risk management is 
important both for individual market participants that choose to 
utilize risk features provided by the Exchange, as well as for the 
market in general. As a result, the Exchange believes that it is 
appropriate to charge fees that compensate for the development of such 
functionality as doing so aids in the maintenance of a fair and orderly 
market.
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    \15\ The fee for Multicast PITCH Spin Server ports provides 
access to a set of primary ports (A or C feed) and the fee for 
Multicast PITCH GRP Ports provides access to a primary port (A or C 
feed).
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    The Exchange also believes that offering such functionality at the 
Exchange level promotes robust risk management across the industry, and 
thereby facilitates investor protection. Some market participants, and, 
in particular, the larger firms could build similar risk functionality 
on their trading systems that permit the flexible cancellation of 
orders entered on the Exchange. Offering Exchange level protections 
ensures that such functionality is widely available to all firms, 
including smaller firms that may otherwise not be willing to incur the 
costs and development work necessary to support their own customized 
mass cancel functionality.
    Although the Exchange is the first exchange to develop and offer 
dedicated Purge Ports for equities trading, the proposed rate is lower 
than that charged by options exchanges for similar functionality, 
including the fees charged by the Exchange's affiliated options 
exchanges for Options Purge Ports, which are billed at a rate of $750 
per month, and fees charged by unaffiliated options exchanges, such as 
ISE, which charges a fee of $1,100 per month for SQF Purge Ports. The 
Exchange operates in a highly competitive market in which exchanges 
offer connectivity and related services as a means to facilitate the 
trading activities of Members and other participants. As the proposed 
Purge Ports provide voluntary risk management functionality, excessive 
fees would simply serve to reduce demand for this optional product.
    The Exchange also believes that the proposed amendments to its fee 
schedule are not unfairly discriminatory because they will apply 
uniformly to all Members that choose to use dedicated Purge Ports. The 
proposed Purge Ports are completely voluntary and, as they relate 
solely to optional risk management functionality, no Member is required 
or under any regulatory obligation to utilize them. The Exchange 
believes that adopting separate fees for these ports ensures that the 
associated costs are borne exclusively by Members that determine to use 
them based on their business needs, including Market Makers or 
similarly situated market participants that enter orders simultaneously 
in a number of securities. All Members that voluntarily select this 
service option will be charged the same amount for the same services. 
All Members have the option to select any connectivity option, and 
there is no differentiation among Members with regard to the fees 
charged for the services offered by the Exchange.

(B) Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change would 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. To the contrary, the 
Exchange believes the proposed rule change will enhance competition 
because it will enable the Exchange to innovate and offer similar 
equities Purge Port functionality to that offered on options markets 
today, at a competitive price.\16\ The proposed Purge Ports are 
completely voluntary and will be made available to all Members on an 
equal basis. While the Exchange believes that the proposed Purge Ports 
provide a valuable service, Members can choose to purchase, or not 
purchase, these ports based on their business needs. No Member is 
required or under any regulatory obligation to utilize Purge Ports. 
Furthermore, fees for Purge Ports, and connectivity in general, are 
constrained by the robust competition for order flow among exchanges 
and non-exchange markets. Members may opt to disfavor the Exchange's 
pricing if they believe that alternatives offer them better value. As a 
result, excessive fees for connectivity, including Purge Port fees, 
would serve to impair the Exchange's ability to compete for order flow 
rather than burdening competition. Accordingly, the Exchange believes 
that the proposed rule change is designed to offer appropriate risk 
management functionality to firms that trade on the Exchange without 
imposing an unnecessary or inappropriate burden on competition.
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    \16\ See supra note 13.
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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 \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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    A proposed rule change filed under Rule 19b-4(f)(6) \19\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, Rule 19b-4(f)(6)(iii) \20\ permits the Commission to 
designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay so that the proposed 
rule change may become effective and operative immediately upon filing. 
The Exchange noted that its affiliated options exchanges provide Purge 
Ports and that they have been successful for options. The Exchange 
noted that there is a demand for Purge Ports for equities

[[Page 52591]]

and that it believes that the Purge Ports will provide an effective 
risk management tool for Users trading equities. The Commission 
believes that Purge Ports may be a helpful tool for managing the risk 
associated with trading equities, and notes that this can be important 
both for individual market participants and the market in general. 
Accordingly, the Commission believes that permitting this feature to be 
operative upon filing is consistent with the protection of investors 
and the public interest. Therefore, the Commission hereby waives the 
30-day operative delay and designates the proposed rule change as 
operative upon filing.\21\
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    \19\ 17 CFR 240.19b-4(f)(6).
    \20\ 17 CFR 240.19b-4(f)(6)(iii).
    \21\ 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-CboeBZX-2018-074 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-2018-074. 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-2018-074 and should be submitted 
on or before November 7, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-22535 Filed 10-16-18; 8:45 am]
 BILLING CODE 8011-01-P