[Federal Register Volume 83, Number 233 (Tuesday, December 4, 2018)]
[Notices]
[Pages 62646-62648]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-26269]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-84670; File No. SR-BatsBZX-2017-34]
Self-Regulatory Organizations; Bats BZX Exchange, Inc.; Notice of
Filing of Amendment No. 2 To Proposed Rule Change To Introduce Cboe
Market Close, a Closing Match Process for Non-BZX Listed Securities
Under New Exchange Rule 11.28
November 28, 2018.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Exchange Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby
given that on October 4, 2018, the Bats BZX Exchange, Inc. (now known
as Cboe BZX Exchange, Inc.) (``BZX'' or ``Exchange'') filed with the
Securities and Exchange Commission (``SEC'' or ``Commission'')
Amendment No. 2 to the proposed rule change as described in Item I
below, which Item has been prepared by the Exchange and is reproduced
below verbatim in Section I.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
The proposed rule change seeks to adopt Cboe Market Close, a
closing match process for non-BZX Listed Securities. On January 17,
2018, after consideration of the record for the proposed rule change,
the Division of Trading and Markets, pursuant to delegated
authority,\3\ approved the proposed rule change, as modified by
Amendment No. 1 (``Approval Order'').\4\ On January 31, 2018, pursuant
to Commission Rule of Practice 430,\5\ NYSE Group, Inc. (``NYSE'') and
The Nasdaq Stock Market LLC (``Nasdaq'') each filed petitions for
review of the Approval Order. Pursuant to Commission Rule of Practice
431(e), the Approval Order is stayed by the filing with the Commission
of a notice of intention to petition for review.\6\ On March 1, 2018,
the Commission issued a scheduling order, pursuant to Commission Rule
of Practice 431, granting the petitions for review of the Approval
Order and providing until March 22, 2018 for any party or other person
to file a written statement in support of or in opposition to the
Approval Order.\7\ In statements filed with the Commission, two parties
stated, among other arguments, that Cboe Market Close would cause BZX
to violate Rule 201 of Regulation SHO.\8\ BZX subsequently filed
Amendment No. 2 to the proposed rule change to address this comment.
Because of this change, the Commission is publishing this notice to
solicit comments on the proposed rule change, as amended, from
interested persons.
---------------------------------------------------------------------------
\3\ 17 CFR 200.30 3(a)(12).
\4\ See Exchange Act Release No. 82522, 83 FR 3205 (January 23,
2018).
\5\ 17 CFR 201.430.
\6\ 17 CFR 201.431(e). See Letter from Secretary of the
Commission to Christopher Solgan, Assistant General Counsel, Cboe
Global Markets, Inc., dated January 24, 2018 (providing notice of
receipt of notices of intention to petition for review of delegated
action and stay of order), available at https://www.sec.gov/rules/sro/batsbzx/2018/sr-batsbzx-2017-34-letter-from-secretary-to-cboe.pdf.
\7\ See Exchange Act Release No. 82794, 83 FR 9561 (March 6,
2018). On March 16, 2018, the Office of Secretary, acting by
delegated authority, issued an order on behalf of the Commission
granting a motion for an extension of time to file statements on or
before April 12, 2018. See Exchange Act Release No. 82896, 83 FR
12633 (Mar. 22, 2018).
\8\ See NYSE Statement in Opposition to the Division's Order
Approving a Rule to Introduce Cboe Market Close, at 31-34 (April 12,
2018); Statement of the Nasdaq Stock Market LLC in Opposition to
Order Granting Approval of a Proposed Rule Change, as Modified by
Amendment No. 1, to Introduce Cboe Market Close, at 26 (April 12,
2018).
---------------------------------------------------------------------------
I. Amendment No. 2 to SR-BatsBZX-2017-34
Cboe BZX Exchange, Inc. (``BZX'' or the ``Exchange'') is filing
this Partial Amendment No. 2 to SR-BatsBZX-2017-34, which was
originally filed with the Securities and Exchange Commission (the
``Commission'') on May 5, 2017 (the ``Proposal''). The Proposal was
published for comment in the Federal Register on May 22, 2017, and
approved by the Division of Trading and Markets pursuant to delegated
authority on January 17, 2018.\9\ On January 24, 2018, the Commission
stayed the Proposal,\10\ and the Proposal is currently pending
Commission review.
---------------------------------------------------------------------------
\9\ See Securities Exchange Act Release Nos. 80683 (May 16,
2017), 82 FR 23320 (May 22, 2017) (Notice); 82522 (January 7, 2018),
83 FR 3205 (January 23, 2017) (Approval Order) (SR-BatsBZX-2017-34).
\10\ See Letter from Secretary of the Commission to Christopher
Solgan, Assistant General Counsel, Cboe Global Markets, Inc., dated
January 24, 2018.
---------------------------------------------------------------------------
The Proposal seeks to introduce the Cboe Market Close, an
innovative closing match process for non-BZX Listed Securities that is
designed to match buy and sell Market-On-Close (``MOC'') orders at the
official closing price for such security published by the primary
listing market. The Exchange proposed the Cboe Market Close in response
to interest from market participants, particularly buy-side firms, who
seek an alternative to participation on the primary listing market's
closing auction while still receiving an execution at the official
closing price. The Exchange continues to believe that the proposed
functionality promotes the maintenance of a free and open market
because it would increase competition for order flow at the close,
which is highly concentrated at the primary listing markets today,
without impacting price discovery.
The purpose of this amendment is to amend the Proposal at
Interpretations and Policies .04 to BZX Rule 11.28, which would be a
new rule that provides for the handling of short sale MOC orders that
are designated for participation in the Cboe Market Close.
Specifically, the Exchange proposes to reject short sale MOC orders
entered pursuant to BZX Rule 11.28 in order to comply with its
obligations under Rule 201 of Regulation SHO.\11\ MOC orders marked
short exempt are not subject to the short sale circuit breaker
restrictions under Regulation SHO, and would
[[Page 62647]]
therefore be accepted for participation in the Cboe Market Close.
---------------------------------------------------------------------------
\11\ 17 CFR 242.201.
---------------------------------------------------------------------------
19b-4 and Exhibit 1 Changes
1. The Exchange proposes to add the following sentences to the
purpose section of the Proposal at the end of the first paragraph on
page 8 of the 19b-4 and page 21 of the Exhibit 1:
All short sale MOC orders designated for participation in the Cboe
Market Close must be identified as ``short'' or ``short exempt''
pursuant to Exchange Rule 11.19(a).\12\ MOC orders marked short will be
rejected so as to maintain compliance with the Exchange's obligations
under Rule 201 of Regulation SHO in the event a short sale circuit
breaker is triggered and the official closing price determined by the
primary listing market is not above the national best bid. MOC orders
marked short exempt, which are not subject to short sale circuit
breaker restrictions under Regulation SHO, will be accepted and
processed in accordance with the proposed rules.
---------------------------------------------------------------------------
\12\ Exchange Rule 11.19(a) provides that all short sale orders
shall be identified as ``short'' or ``short exempt'' when entered
into the System.
---------------------------------------------------------------------------
2. The Exchange proposes to add the following paragraphs to the
basis section of the Proposal immediately prior to the Exchange's
statement on burden on competition on page 14 of the 19b-4 and page 28
of the Exhibit 1:
The Exchange also believes that the proposed language relating to
short sale handling is consistent with the Act and the rules and
regulations thereunder. Rules 201(b)(1)(i) and (ii) of Regulation SHO
generally require that trading centers such as the Exchange establish,
maintain, and enforce written policies and procedures reasonably
designed to: (i) Prevent the execution or display of a short sale order
of a covered security at a price that is less than or equal to the
current national best bid (``price restriction'') if the price of that
covered security decreases by 10% or more from the covered security's
closing price; \13\ and (ii) impose this price restriction for the
remainder of the day and the following day.\14\
---------------------------------------------------------------------------
\13\ The closing price is as determined by the listing market
for the covered security as of the end of regular trading hours on
the prior day.
\14\ This price restriction applies when a national best bid for
the covered security is calculated and disseminated on a current and
continuing basis by a plan processor pursuant to an effective
national market system plan.
---------------------------------------------------------------------------
The Cboe Market Close contemplates the pairing of MOC orders at the
MOC Cut-Off Time of 3:35 p.m. ET, and the ultimate execution of those
orders at the official closing price determined by the closing auction
of the primary listing market at 4:00 p.m. ET. As a result, it is
possible that a short sale MOC order paired at the MOC Cut-off Time
would not be eligible for execution at the ultimate execution price
determined by the primary listing market when the closing auction is
conducted. Should a short sale circuit breaker be triggered due to a
10% decline in the price of the security from the previous day's
closing price, a short sale MOC order executed at 4 p.m. ET would be
required to be executed above the national best bid. MOC orders paired
in the Cboe Market Close, however, are entitled to an execution at the
official closing price, which may be lower than, equal to, or above the
national best bid. Thus, it is possible that the eventual execution of
a short sale MOC order at 4 p.m. ET may violate the requirements of
Rule 201(b)(1). Specifically, it would be a violation of Regulation SHO
to execute a short sale MOC order at the official closing price if a
short sale circuit breaker is triggered, either before or after the MOC
Cut-off Time, and the official closing price is less than or equal to
the national best bid.
To prevent this result and maintain compliance with Rule 201 of
Regulation SHO, the Exchange is proposing to reject all short sale MOC
orders that are designated for participation in the Cboe Market Close.
Rejecting short sale MOC orders will ensure that the Exchange is able
to execute the MOC orders that are accepted and paired at the MOC Cut-
off Time as contemplated by the Cboe Market Close. Furthermore,
rejecting these orders would ensure that market participants are
provided an opportunity to enter any short interest on the primary
listing market, which may be able to re-price such interest to a
permitted price if a short sale circuit breaker has been triggered.\15\
The Exchange therefore believes that the proposed handling of short
sale MOC orders is consistent with the protection of investors and the
public interest.
---------------------------------------------------------------------------
\15\ See e.g., New York Stock Exchange LLC Rule 7.16(f)(5)(A),
which permits the re-pricing of short sale orders during the
duration of the short sale circuit breaker.
---------------------------------------------------------------------------
In addition, Rule 201(b)(1)(iii)(B) of Regulation SHO provides that
the Rule 201 policies and procedures described above must be reasonably
designed to permit the execution or display of a short sale order of a
covered security marked ``short exempt'' without regard to whether the
order is at a price that is less than or equal to the current national
best bid. As a result, MOC orders marked short exempt are not subject
to the short sale price restrictions of Regulation SHO, and may be
executed without regard to whether such execution is at a price that is
less than or equal to the current national best bid. The Exchange
therefore proposes to provide that orders marked short exempt will be
accepted by the System. The Exchange will pair and execute these orders
in the same manner as other MOC orders designated for participation in
the Cboe Market Close.
II. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change, as amended, is consistent with the Exchange 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-BatsBZX-2017-34 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-BatsBZX-2017-34. 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 such filing also will be available for inspection
and copying at the principal offices 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
[[Page 62648]]
to make available publicly. All submissions should refer to File Number
SR-BatsBZX-2017-34, and should be submitted on or before December 26,
2018.
By the Commission.
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-26269 Filed 12-3-18; 8:45 am]
BILLING CODE 8011-01-P