[Federal Register Volume 84, Number 115 (Friday, June 14, 2019)]
[Notices]
[Pages 27812-27814]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-12543]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-86076; File No. SR-CboeEDGX-2019-035]


Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice 
of Filing and Immediate Effectiveness of a Proposed Rule Change 
Relating To Adopt Limit-on-Close (``LOC'') and Market-on-Close 
(``MOC'') Orders

June 10, 2019.
    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 June 6, 2019, Cboe EDGX Exchange, Inc. (the ``Exchange'' or 
``EDGX'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I and II 
below, which Items have been prepared by the Exchange. The Exchange 
filed the proposal as a ``non-controversial'' proposed rule change 
pursuant to Section 19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-
4(f)(6) thereunder.\4\ 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)(iii).
    \4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Cboe EDGX Exchange, Inc. (the ``Exchange'' or ``EDGX Options'') 
proposes to adopt limit-on-close (``LOC'') and market-on-close 
(``MOC'') orders. The text of the proposed rule change is provided in 
Exhibit 5.
    The text of the proposed rule change is also available on the 
Exchange's website (http://markets.cboe.com/us/options/regulation/rule_filings/edgx/), at the Exchange's Office of the Secretary, 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 aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    In 2016, the Exchange's parent company, Cboe Global Markets, Inc. 
(``Cboe Global''), which is also the parent company of Cboe Exchange, 
Inc. (``Cboe Options'') and Cboe C2 Exchange, Inc. (``C2''), acquired 
the Exchange, Cboe EDGA Exchange, Inc. (``EDGA''), Cboe BZX Exchange, 
Inc. (``BZX or BZX Options''), and Cboe BYX Exchange, Inc. (``BYX'' 
and, together with the Exchange, C2, Cboe Options, EDGA, and BZX, the 
``Cboe Affiliated Exchanges''). The Cboe Affiliated Exchanges are 
working to align certain system functionality, retaining only intended 
differences between the Cboe Affiliated Exchanges, in the context of a 
technology migration. Cboe Options intends to migrate its technology to 
the same trading platform used by the Exchange, C2 and BZX Options in 
the fourth quarter of 2019. The proposal set forth below is intended to 
add certain functionality to the Exchange's System that is available on 
Cboe Options in order to ultimately provide a consistent technology 
offering for market participants who interact with the Cboe Affiliated 
Exchanges.\5\ Although the Exchange intentionally offers certain 
features that differ from those offered by its affiliates and will 
continue to do so, the Exchange believes that offering similar 
functionality to the extent practicable will reduce potential confusion 
for Users.
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    \5\ The Exchange also notes that its affiliated exchanges, C2 
and BZX Options, are simultaneously proposing to make similar 
changes in order to align functionality with Cboe Options.
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    The Exchange proposes to adopt LOC and MOC orders under Rule 
21.1(f). Proposed Rule 21.1(f)(7) defines an LOC order as a limit 
order, and proposed Rule 21.1(f)(8) defines a MOC order as a market 
order, respectively, that it may only execute on the Exchange no 
earlier than three minutes prior to Regular Trading Hours (``RTH'') 
market close. The System enters LOC and MOC orders into the Book in 
time sequence (based on the times at which the Exchange initially 
received them), where they may be processed in accordance with Rule 
21.8.\6\ The Exchange notes that it does not have a closing auction in 
which market participants may participate in an auction rotation that 
determines the closing price for a series, like that of the equities 
space, but that the proposed MOC and LOC orders merely become 
executable three minutes prior to the close of RTH. The Exchange queues 
LOC and MOC orders in the System until three minutes before the RTH 
market close. At that time, the System handles a LOC or MOC order as a 
limit order or market order, as applicable, and processes them in 
accordance with Rule 21.8. The Exchange believes that three minutes 
prior to the RTH market close is a reasonable time prior to the market 
close to trigger MOC and LOC orders, as it provides those orders with 
sufficient time to interact with contra-side interest and potentially 
execute at a time close to the RTH market close.\7\ The proposed LOC 
and MOC order definitions also provide that the System cancels an LOC 
order or an MOC order (or an unexecuted portion of an LOC or MOC order) 
that does not execute by the RTH market close. This is consistent with 
the purpose of these orders, which is to execute near the RTH market 
close on the day they were submitted to the Exchange. As the execution 
of MOC and LOC orders is linked to the RTH market close, such orders 
will be valid only during RTH; however, the System will accept such 
orders during any trading session.\8\ A User may not designate an MOC 
or LOC order as ``All Sessions''; \9\ any MOC or LOC order designated 
as All Sessions will be rejected. In addition to this, the Exchange 
notes that Users may not designate bulk messages as MOC or LOC, which 
is consistent with the current requirement that bulk messages must have 
a time-in-force of Day to encourage Users to provide

[[Page 27813]]

liquidity to the Exchange's market throughout the trading day and 
update bulk messages in response to changed market conditions day-to-
day.\10\ The proposed order types are based on substantially similar 
order types available on Cboe Options.\11\ MOC and LOC orders allow a 
User to execute orders in a series close to the close time.
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    \6\ Rule 21.8 describes how the System processes orders and 
quotes in the Book.
    \7\ The Exchange notes that Cboe Options currently triggers the 
MOC and LOC orders three minutes prior to the RTH market close.
    \8\ The Exchange notes that an RTH Only MOC or LOC order 
submitted during Global Trading Hours (``GTH'') will remain on the 
book until the close of RTH.
    \9\ See Rule 21.1(d)(13) which defines ``All Sessions'' as an 
order a User designates as eligible to trade during both Global 
Trading Hours (``GTH'') and RTH. The Exchange also notes that Rule 
21.1(d)(14) defines ``RTH Only'' as an order a User designates as 
eligible to trade only during RTH or not designated as All Sessions. 
Therefore, the default instruction is RTH Only and an unmarked MOC 
or LOC order will be treated as RTH Only. See also Securities 
Exchange Act Release No. 85797 (May 7, 2019), 84 FR 20920 (May 13, 
2019) (Notice of Filing and Immediate Effectiveness of a Proposed 
Rule Change Relating to Amend the Exchange's Opening Process and add 
a Global Trading Hours Session for XSP Options) (SR-CboeEDGX-2019-
027).
    \10\ See Rule 21.1(f)(3), which defines time-in-force of ``Day'' 
as an order so designated, a limit order to buy or sell which, if 
not executed expires at the RTH market close. All bulk messages have 
a time-in-force of Day. See also Securities Exchange Act Release No. 
84929 (December 21, 2018), 84 FR 67785 (December 31, 2018) (Notice 
of Filing and Immediate Effectiveness of a Proposed Rule Change 
Relating To Discontinue Bulk Order Functionality and Implement Bulk 
Message Functionality, and Make Other Nonsubstantive Changes) (SR-
CboeEDGX-2018-060). Note Users may submit bulk messages within three 
minutes of the RTH market close, which would ultimately be handled 
in the same manner as an LOC order.
    \11\ See Cboe Options Rule 6.53, which defines a ``market-on-
close'' order as a market or limit order to be executed as close as 
possible to the close of the market near to or at the closing price 
for the particular option series. The Exchange notes that in 
connection with migration, Cboe Options intends to propose the same 
definitions of market- and limit-on-close orders as proposed in this 
rule filing.
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    The Exchange also proposes to include in the proposed MOC 
definition additional order handling for MOC orders during a ``Limit 
State'' or ``Straddle State'' as defined in the Regulation NMS Plan to 
Address Extraordinary Market Volatility (``Limit Up-Limit Down Plan''). 
The proposed change provides that a MOC order will not be elected if 
the underlying security is in a Limit or Straddle State three minutes 
prior to the RTH market close. If the underlying security exits the 
Limit or Straddle State prior to the RTH market close, the System will 
attempt to re-evaluate, elect, and execute the order. The Exchange 
notes that the proposed handling of MOC orders in a Limit or Straddle 
State is consistent with the Limit Up-Limit Down Plan and is based on 
the corresponding Cboe Options rule regarding handling of MOC 
orders,\12\ as well as other order type definitions within the Exchange 
Rules that provide for similar additional handling during Limit and 
Straddle States.\13\
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    \12\ See Cboe Options Rule 6.45(d)(2).
    \13\ See Rule 21.1(d)(5) and (d)(11), which provide additional 
order handling for Market Orders and Stop Orders, respectively, in a 
Limit and/or Straddle State. The Exchange notes that during a Limit 
or Straddle State limit orders are not impacted and continue to be 
eligible for execution.
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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 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 that the proposed adoption of 
MOC and LOC orders serves to benefit investors by allowing Users 
flexibility to have orders only be eligible for execution near the 
close, a time in which maximum significant number of participants 
interact on the Exchange. The Exchange believes that the proposed 
change promotes just and equitable principles of trade because it 
encourages increased participation near the close, thereby contributing 
to enhanced price discovery and transparency that will result in a 
closing price point that more closely reflects the interest of market 
participants. The Exchange also believes that the proposed change will 
benefit investors by fostering increased liquidity near the close. As 
stated, the proposed change is based on Cboe Options rules.\17\
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    \17\ See supra note 11.
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    Furthermore, the Exchange believes specifying that the MOC and LOC 
may execute no more than three minutes from the RTH close removes 
impediments to and perfects the mechanism of a free and open market and 
national market system and protects investors because it will allow 
Users greater flexibility regarding the execution of their orders and/
or their customers' orders. The Exchange believes this three minute 
time-frame prior to the RTH market close is a reasonable time prior to 
the market close to trigger MOC and LOC orders, because it provides 
those orders with sufficient times to interact with contra-side 
interest and to potentially execute at a time close to RTH market 
close.
    The Exchange also believes not permitting bulk messages to be MOC 
and LOC orders will remove impediments to and perfect the mechanism of 
a free and open market and protect investors because it is consistent 
with the purpose of bulk messages. As stated, bulk messages are 
currently restricted to designation as time-in-force of Day in order to 
encourage Users to provide liquidity to the Exchange's market during 
RTH and update bulk messages in response to day-to-day changed market 
conditions.\18\ Because MOC and LOC orders are only available for 
execution for three minutes prior to the RTH market close, as opposed 
to during the entire RTH session, Exchange believes that not permitting 
bulk messages to be MOC or LOC orders ensures that functionality 
available to Users is consistent with the purpose of bulk messages.
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    \18\ See supra note 10.
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    Moreover, the Exchange also believes that rejecting MOC and LOC 
orders if designated as ``All Sessions'' serves to remove impediments 
to and perfect the mechanism of a free and open market and protect 
investors by providing functionality that is consistent with the 
purpose of MOC and LOC orders. As described above, because MOC and LOC 
orders are linked to the RTH close, allowing MOC or LOC orders to be 
marked for All Sessions (i.e., RTH and GTH) would be inconsistent with 
the function of MOC and LOC orders. Therefore, the Exchange believes 
that not permitting MOC and LOC orders to be marked as All Sessions 
will protect investors by ensuring instructions for MOC and LOC orders 
are consistent with their purpose.
    Additionally, the Exchange believes that the proposed additional 
order handling for MOC during a Limit or Straddle State protects 
investors because it is consistent with the Limit Up-Limit Down Plan 
and prevents a market order from executing outside of the specified 
price bands. This order handling is consistent with that of Cboe 
Options rules,\19\ as well as other order type definitions within the 
Exchange Rules that provide for similar additional handling during 
Limit and Straddle States.\20\
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    \19\ See supra note 12.
    \20\ See supra note 13.
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    Lastly, the Exchange notes that the proposed rule change is 
generally intended to align the functionality offered by the Exchange 
with functionality currently offered by Cboe Options in order to 
provide a consistent technology offering for the Cboe

[[Page 27814]]

Affiliated Exchanges.\21\ A consistent technology offering, in turn, 
will simplify the technology implementation, changes, and maintenance 
by Users of the Exchange that are also participants on Cboe Affiliated 
Exchanges.\22\ The Exchange believes this consistency will promote a 
fair and orderly national options market system. When Cboe Options 
migrates to the same technology as that of the Exchange and other Cboe 
Affiliated Exchanges, Users of the Exchange and other Cboe Affiliated 
Exchanges will have access to similar functionality on all Cboe 
Affiliated Exchanges. As such, the proposed rule change would foster 
cooperation and coordination with persons engaged in facilitating 
transactions in securities and would remove impediments to and perfect 
the mechanism of a free and open market and a national market system.
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    \21\ See supra note 5.
    \22\ Id.
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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 proposed rule change will apply in the same manner 
to all orders submitted as MOC or as LOC. MOC and LOC orders will be 
available to all Users, and MOC and LOC orders from all Users will be 
handled in the same manner. The use of MOC and LOC orders will be 
voluntary. The Exchange does not believe the proposed rule change will 
impose any burden on intermarket competition because the proposed 
change is based on rules that allow for substantially the same order 
types that are available on another options exchange.\23\
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    \23\ See supra note 11.
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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

    Because the 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 if consistent with the protection of investors 
and the public interest, the proposed rule change has become effective 
pursuant to Section 19(b)(3)(A) of the Act \24\ and Rule 19b-4(f)(6) 
thereunder.\25\
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    \24\ 15 U.S.C. 78s(b)(3)(A).
    \25\ 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 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) \26\ normally 
does not become operative for 30 days after the date of filing. 
However, pursuant to Rule 19b-4(f)(6)(iii) \27\ the Commission may 
designate a shorter time if such action is consistent with the 
protection of investors and the public interest.
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    \26\ 17 CFR 240.19b-4(f)(6).
    \27\ 17 CFR 240.19b-4(f)(6)(iii).
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    The Exchange has asked the Commission to waive the 30-day operative 
delay. The Commission believes that waiving the 30-day operative delay 
is consistent with the protection of investors and the public interest 
as it will allow the Exchange to offer two order types that are 
substantially similar to order types that are currently available on 
Cboe Options. Thus, as represented by the Exchange, the proposed rule 
change does not introduce any new functionality or present any novel 
issues. For this reason, the Commission designates the proposed rule 
change to be operative on June 20, 2019, the day before the Exchange 
would like to implement MOC and LOC orders.\28\
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    \28\ 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 necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act.

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-2019-035 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-2019-035. 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-2019-035 and should be 
submitted on or before July 5, 2019.
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    \29\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\29\
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-12543 Filed 6-13-19; 8:45 am]
BILLING CODE 8011-01-P