[Federal Register Volume 84, Number 116 (Monday, June 17, 2019)]
[Notices]
[Pages 28110-28113]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-12657]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-86085; File No. SR-CboeBZX-2019-050]
Self-Regulatory Organizations; Cboe BZX 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 11, 2019.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the
[[Page 28111]]
``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on June 6, 2019, Cboe BZX Exchange, Inc. (the ``Exchange'' or ``BZX'')
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 BZX Exchange, Inc. (the ``Exchange'' or ``BZX 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/equities/regulation/rule_filings/bzx/), 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 EDGX Exchange,
Inc. (``EDGX or EDGX Options''), and Cboe BYX Exchange, Inc. (``BYX''
and, together with the Exchange, C2, Cboe Options, EDGA, and EDGX, 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 EDGX 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 EDGX 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 the market close.\6\ 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.\7\ 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
market close. The Exchange queues LOC and MOC orders in the System
until three minutes before the 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 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 market close.\8\ 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
market close. This is consistent with the purpose of these orders,
which is to execute near the market close on the day they were
submitted to the Exchange. 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 liquidity to the Exchange's market
throughout the trading day and update bulk messages in response to
changed market conditions day-to-day.\9\ The proposed order types are
based on substantially similar order types available on Cboe
Options.\10\ MOC and LOC orders allow a User to execute orders in a
series close to the close time.
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\6\ See Rule 16.1(a)(35) which defines the term ``market close''
as the time specified by the Exchange for the cessation of trading
in contracts on the Exchange for options on that market day. The
time specified by the Exchange for the cessation of trading is set
out in Rule 21.2, which specifies that orders and bids and offers
shall be open and available for execution as of 9:30 a.m. Eastern
Time and shall close as of 4:00 p.m. Eastern Time except for option
contracts on Fund Shares, on exchange-traded notes including Index-
Linked Securities, and on broad-based indexes, which may close as of
4:15 p.m. Eastern Time. See Rule 21.2(a).
\7\ Rule 21.8 describes how the System processes orders and
quotes in the Book.
\8\ The Exchange notes that Cboe Options currently triggers the
MOC and LOC orders three minutes prior to the market close.
\9\ 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 market close. All bulk messages have a time-
in-force of Day. See also Securities Exchange Act Release No. 84928
(December 21, 2018), 83 FR 67794 (December 31, 2018) (Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change
Relating To Adopt Definitions of Ports and Discontinue Bulk Order
Functionality and Implement Bulk Message Functionality) (SR-CboeBZX-
2018-092). Note Users may submit bulk messages within three minutes
of the market close, which would ultimately be handled in the same
manner as an LOC order.
\10\ 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
[[Page 28112]]
is in a Limit or Straddle State three minutes prior to the market
close. If the underlying security exits the Limit or Straddle State
prior to the 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,\11\ as well as other
order type definitions within the Exchange Rules that provide for
similar additional handling during Limit and Straddle States.\12\
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\11\ See Cboe Options Rule 6.45(d)(2).
\12\ 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.\13\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \14\ 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) \15\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
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\13\ 15 U.S.C. 78f(b).
\14\ 15 U.S.C. 78f(b)(5).
\15\ 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.\16\
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\16\ See supra note 10.
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Furthermore, the Exchange believes specifying that the MOC and LOC
may execute no more than three minutes from the market 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 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 the 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
the trading day and update bulk messages in response to day-to-day
changed market conditions.\17\ Because MOC and LOC orders are only
available for execution for three minutes prior to the market close, as
opposed to during the entire trading day, 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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\17\ See supra note 9.
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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,\18\ as well as other order type definitions within the
Exchange Rules that provide for similar additional handling during
Limit and Straddle States.\19\
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\18\ See supra note 11.
\19\ See supra note 12.
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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 Affiliated
Exchanges.\20\ 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.\21\
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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\20\ See supra note 5.
\21\ 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.\22\
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\22\ See supra notes 10-11.
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[[Page 28113]]
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 \23\ and Rule 19b-4(f)(6)
thereunder.\24\
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\23\ 15 U.S.C. 78s(b)(3)(A).
\24\ 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) \25\ normally
does not become operative for 30 days after the date of filing.
However, pursuant to Rule 19b-4(f)(6)(iii) \26\ 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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\25\ 17 CFR 240.19b-4(f)(6).
\26\ 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.\27\
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\27\ 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-CboeBZX-2019-050 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-2019-050. 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-2019-050 and should be submitted
on or before July 8, 2019.
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\28\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\28\
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-12657 Filed 6-14-19; 8:45 am]
BILLING CODE 8011-01-P