[Federal Register Volume 84, Number 121 (Monday, June 24, 2019)]
[Notices]
[Pages 29552-29555]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-13310]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-86130; File No. SR-CboeBZX-2019-049]


Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change Related To 
Updating Its Rule 21.1(h) To Allow for a User To Elect That a Bulk 
Message Opt-Out of the Display-Price Sliding Process, as Well as be 
Subject to the Lock-Only Display-Price Sliding Process

June 18, 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 4, 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 update its Rule 21.1(h) to allow for a User to elect that a 
bulk message opt-out of the display-price sliding process, as well as 
be subject to the lock-only display-price sliding process. 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.

[[Page 29553]]

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
    The Exchange proposes to amend its rules to allow for a User to 
elect that a bulk message be subject to the lock-only display-price 
sliding process under Rule 21.1(h), as well as instruct a bulk message 
not be subject to the display-price sliding process. The Exchange is 
proposing this change in order to provide Users that submit bulk 
messages with functionality that is currently available to them for 
orders.
    In December 2018, the Exchange adopted bulk messaging 
functionality, in which a User may enter, modify or cancel up to an 
Exchange-specified number of bids and offers in a single message. A 
User may submit a bulk message through a bulk port.\5\ The System \6\ 
handles bulk message bids and offers in the same manner as it handles 
an order, or quote if submitted by a Market Maker, unless the Rules 
specify otherwise. Bulk message functionality was implemented by the 
Exchange as a way for Users to efficiently update (e.g., modify, 
cancel, etc.) and designate order types for multiple bids and offers 
within a single message. Currently, Rule 21.1(h)(1) provides that an 
order (including a bulk message) \7\ that, at the time of entry, would 
lock or cross a Protected Quotation of another options exchange will be 
ranked at the locking price in the BZX Options Book and displayed by 
the System at one minimum price variation below the current NBO (for 
bids) or to one minimum price variation above the current NBB (for 
offers).\8\ Under current Rule 21.1(h)(1) a User may elect to have the 
System only apply display-price sliding to the extent an order at the 
time of entry would lock a Protected Quotation of another options 
exchange (``lock-only''). Orders under the lock-only option will be 
cancelled if, upon entry, such order would cross a Protected Quotation 
of another options exchange. The lock-only display-price sliding option 
is a variation of display-price sliding that is intended to allow Users 
to re-evaluate their orders and/or strategies in the event they are 
submitting orders to the Exchange that are crossing the market.\9\ 
Furthermore, Rule 21.1(h) does not currently state that a User may 
designate orders or bulk messages to not be subject to the display-
price sliding process. However, the ability for Users to opt-out of the 
display-price sliding process currently exists for a User's orders and 
is provided for under various other Exchange Rules.\10\ Current Rule 
21.1(h)(1) states that display-price sliding applies to all bulk 
messages, and, as such, a User is currently unable to elect the lock-
only or opt-out process (as currently provided for in other Exchange 
Rules) for bulk messages.
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    \5\ The ``System'' is the automated trading system used by BZX 
Options for the trading of options contracts. See Rule 21.1(1)(3).
    \6\ See Rule 16.1(a)(60).
    \7\ The Exchange notes that the display-price sliding 
designation, as well as the proposed opt-out and lock-only 
designations for a bulk message applies to all bulk message bids and 
offers within a single message.
    \8\ In accordance with the linkage rules. See Chapter XXVII of 
the Rules. See also Options Order Protection and Locked/Crossed 
Market Plan (the ``Linkage Plan'').
    \9\ See Securities Exchange Act No. 67657 (August 14, 2012), 77 
FR 50199 (August 20, 2012) (Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by BATS Exchange, Inc. To 
Amend BATS Rules Related to Price Sliding Functionality) (SR-BATS-
2012-035).
    \10\ See Rules 21.1(d)(6)-(9).
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    The Exchange now proposes to amend Rule 21.1(h)(1) to remove the 
language that applies display-price sliding to all bulk messages, 
therefore, subjecting bulk messages, like orders, to a User's election 
to have the System only apply the lock-only display-price sliding 
option or to opt-out of the display-price sliding process, pursuant to 
other Exchange Rules and as proposed (as described below). The Exchange 
notes that the lock-only and opt-out designations, as applicable, for 
bulk messages will apply to all bulk message bids and offers within a 
single message.
    Additionally, the Exchange proposes to explicitly state under Rule 
21.1(h)(1) that a User may enter instructions for an order (including 
bulk messages) not to be subject to the display-price sliding process. 
As stated, the ability for Users to opt-out of the display-price 
sliding process currently exists for a User's orders under other 
Exchange Rules.\11\ The Exchange is now proposing to make this existing 
instruction explicit under the display-price sliding provision and 
applicable to a User's orders and bulk messages. The proposed opt-out 
instruction is based on a similar re-pricing opt-out instruction under 
Rule 6.12(b) of the Exchange's affiliated exchange, Cboe C2 Exchange, 
Inc. (``C2'').\12\
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    \11\ Id.
    \12\ The Exchange notes that C2 is simultaneously proposing to 
include bulk messages in its re-pricing process.
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    The Exchange believes that as bulk messages have become more 
widely-used, Users would benefit from the expansion of the lock-only 
functionality and functionality to opt-out of the display-price sliding 
process for bulk messages, both of which are currently available for 
Users' orders. The Exchange believes that this proposed change provides 
Users with the flexibility to apply functionality currently available 
for their orders to their bulk messages. As proposed, Users will be 
able to instruct bulk message bids and offers not to be subject to 
display-price sliding and able to elect the lock-only option for bulk 
message bids and offers.
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 rule change 
allowing Users to elect that lock-only display-price sliding apply to 
bulk messages, and that the System cancel any such

[[Page 29554]]

bulk message that would cross another options exchange, will remove 
impediments to and perfect the mechanism of a free and open market 
because it provides Users with the flexibility to apply to bulk 
messages the same order handling functionality as they may apply to 
their orders. The Exchange also believes that the proposed change is 
consistent with the requirement that the rules facilitate transactions 
in securities, as well as remove impediments to and perfect the 
mechanism of a free and open market, because it will allow Users an 
additional opportunity to respond to continuously changing market 
conditions. The lock-only option provides Users an opportunity to re-
evaluate the price and/or strategy for bulk messages submitted that 
have been rejected for crossing another exchange. The Exchange believes 
that the ability to elect the lock-only option for bulk messages will 
give Users greater flexibility and control over the circumstances under 
which their orders are able to interact with contra side-interest. The 
Exchange notes that the lock-only option for bulk messages will also 
serve to protect investors because it is an additional protection 
mechanism that mitigates potential risk associated with Users 
submitting bulk messages at prices that are too aggressive or 
potentially erroneous. Furthermore, the proposed application of the 
lock-only option to bulk messages prevents the display of a locked or 
crossed market which is consistent with the Linkage Plan,\16\ thus, 
perfecting the mechanism of a free and open market and national market 
system and protecting investors.
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    \16\ See supra note 8.
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    The Exchange also believes that codifying the opt-out instruction 
within Rule 21.1(h) will protect investors by making this instruction, 
which exists under other Exchange Rules,\17\ explicit within the 
display-price sliding process provision, thereby making the rules 
easier to understand for investors. Furthermore, by allowing for a User 
to enter instructions for a bulk message not to be subject to the 
display-price sliding process under Rule 21.1(h)(1) this proposed 
change will serve to remove impediments to and perfect the mechanism of 
a free and open market and a national market system as it provides 
Users with additional flexibility regarding how they want the System to 
handle their orders and bulk messages. The Exchange notes that this is 
an additional way to ensure compliance with the linkage rules for both 
orders and bulk messages,\18\ thereby protecting investors and the 
public interest. Additionally, this change is consistent with the re-
pricing process under Rule 6.12(b) of the Exchange's affiliated 
exchange, C2. The Exchange believes that mirroring the corresponding C2 
opt-out instruction language will provide for better understanding for 
Users participating across the affiliated exchanges.
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    \17\ See supra note 10.
    \18\ See supra note 8.
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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 that is not necessary or appropriate in furtherance of the 
purposes of the Act, as the proposed application of the lock-only 
display-price sliding election and opt-out instructions to bulk 
messages will be available to all Users. The Exchange also notes that 
the opt-out and lock-only options are already available to all Users 
for their orders, and will apply to bulk messages in the same manner as 
they apply to orders.
    The Exchange does not believe the proposed rule change will impose 
any burden on intermarket competition that is not necessary or 
appropriate in furtherance of the purposes of the Act, because it will 
provide Users with an opt-out instruction option and a lock-only price 
sliding option for bulk messages that is similar to other opt-out and 
lock-only price sliding options available on other exchanges.\19\ The 
Exchange believes the proposed functionality will permit the Exchange 
to operate on an even playing field relative to other exchanges that 
have similar functionality.
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    \19\ See C2 Rule 6.12(b) and NYSE Chicago Article 1, Rule 
2(b)(1)(C)(iii).
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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

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \20\ and Rule 19b-4(f)(6) thereunder.\21\ 
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 prior to 
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 and Rule 19b-
4(f)(6)(iii) thereunder.
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    \20\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \21\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires the Exchange to give the Commission written notice of the 
Exchange's 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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    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. If the Commission 
takes such action, the Commission will institute proceedings to 
determine whether the proposed rule change 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-2019-049 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-2019-049. 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

[[Page 29555]]

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-2019-049 and should be submitted 
on or before July 15, 2019.

    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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Vanessa A. Countryman,
Acting Secretary.
[FR Doc. 2019-13310 Filed 6-21-19; 8:45 am]
BILLING CODE 8011-01-P