[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