[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