[Federal Register Volume 86, Number 67 (Friday, April 9, 2021)]
[Notices]
[Pages 18580-18583]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-07274]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-91479; File No. SR-CboeBZX-2021-023]


Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing of a Proposed Rule Change To Extend the Cutoff Time for 
Accepting on Close Orders Entered for Participation in the Exchange's 
Closing Auction and To Clarify Changes to the Definitions of Late-
Limit-On-Close and Late-Limit-On-Open Orders as Provided in Exchange 
Rule 11.23

April 5, 2021.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on March 26, 2021, Cboe BZX Exchange, Inc. (``Exchange'' or ``BZX'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I, II, and III below, which 
Items have been prepared by the Exchange. 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.
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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'') proposes to 
extend the cutoff time for accepting on close orders entered for 
participation in the Exchange's Closing Auction and make clarifying 
changes to the definitions of Late-Limit-On-Close (``LLOC'') and Late-
Limit-On-Open (``LLOO'') orders as provided in Exchange Rule 11.23. 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
    The purpose of the proposed rule change is to extend the cutoff 
time for accepting on close orders entered for participation in the 
Exchange's Closing Auction.\3\ Additionally, the Exchange proposes to 
make clarifying changes to the definition of Late-Limit-On-Close 
(``LLOC'') \4\ and Late-Limit-On-Open (``LLOO'') \5\ as provided in 
Exchange Rules 11.23(a)(11) and (12), respectively.
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    \3\ See Exchange Rule 11.23(c).
    \4\ The term ``Late-Limit-On-Close'' or ``LLOC'' shall mean a 
BZX limit order that is designated for execution only in the Closing 
Auction. To the extent a LLOC bid or offer received by the Exchange 
has a limit price that is more aggressive than the NBB or NBO, the 
price of such bid or offer is adjusted to be equal to the NBB or 
NBO, respectively, at the time of receipt by the Exchange. Where the 
NBB or NBO becomes more aggressive, the limit price of the LLOC bid 
or offer will be adjusted to the more aggressive price, only to the 
extent that the more aggressive price is not more aggressive than 
the original User entered limit price. The limit price will never be 
adjusted to a less aggressive price. If there is no NBB or NBO, the 
LLOC bid or offer, respectively, will assume its entered limit 
price. See Exchange Rule 11.23(a)(11).
    \5\ The term ``Late-Limit-On-Open'' or ``LLOO'' shall mean a BZX 
limit order that is designated for execution only in the Opening 
Auction. To the extent a LLOO bid or offer received by the Exchange 
has a limit price that is more aggressive than the NBB or NBO, the 
price of such bid or offer is adjusted to be equal to the NBB or 
NBO, respectively, at the time of receipt by the Exchange. Where the 
NBB or NBO becomes more aggressive, the limit price of the LLOO bid 
or offer will be adjusted to the more aggressive price, only to the 
extent that the more aggressive price is not more aggressive than 
the original User entered limit price. The limit price will never be 
adjusted to a less aggressive price. If there is no NBB or NBO, the 
LLOO bid or offer, respectively, will assume its entered limit 
price. Notwithstanding the foregoing, a LLOO order entered during 
the Quote-Only Period of an IPO will be converted to a limit order 
with a limit price equal to the original User entered limit price 
and any LLOO orders not executed in their entirety during the IPO 
Auction will be cancelled upon completion of the IPO Auction. See 
Exchange Rule 11.23(a)(12).
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    Currently, Users may submit Market-On-Close (``MOC'') \6\ and 
Limit-On-Close (``LOC'') \7\ [sic] until 3:55 p.m. ET (``Closing 
Auction Cutoff''), at which point any additional MOC and LOC

[[Page 18581]]

orders are rejected. Similarly, Users may submit LLOC orders between 
the Closing Auction Cutoff (i.e., 3:55 p.m.) and 4:00 p.m. ET. Any LLOC 
orders submitted before 3:55 p.m. or after 4:00 p.m. are rejected. 
Further, Eligible Auction Orders designated for the Closing Auction may 
not be cancelled between 3:55 p.m. and 4:00 p.m. The Exchange's Closing 
Auction provides a transparent auction process that determines a single 
price for the close. As the equities markets continue to evolve and 
become more efficient and automated, the Exchange believes that the 
current Closing Auction Cutoff is overly restrictive to market 
participants that wish to participate in the Exchange's Closing Auction 
and that typically have to tie up on close interest for five minutes or 
more at the end of the trading day to participate in the Closing 
Auction. Therefore, the Exchange proposes to modify Rule 11.23(c)(1)(A) 
to provide that Users may submit LOC and MOC orders until 3:59 p.m., at 
which point any additional LOC and MOC orders submitted will be 
rejected. Additionally, that the Exchange proposes to modify Rule 
11.23(c)(1)(A) to provide that Users may submit LLOC orders between 
3:59 p.m. and 4:00 p.m. and any LLOC orders submitted before 3:59 p.m. 
or after 4:00 p.m. will be rejected. The Exchange also proposes to 
modify Rule 11.23(c)(1)(B) to provide that Eligible Auction Orders 
designated for the Closing Auction may not be canceled between 3:59 and 
4:00 p.m. The Exchange believes that this proposed change will enhance 
the experience provided to market participants who will be able to 
enter and interact with their on close orders later in the trading day. 
Similar to cutoffs provided by another equities exchange that operates 
a closing auction, the Exchange believes that the proposed Closing 
Auction Cutoff would give Participants greater control over their on 
close orders while still leaving enough time at the end of the trading 
day for market participants to react to and offset imbalances. Further, 
NYSE Arca, Inc. (``Arca''), already uses a 3:59 p.m. ET cutoff for 
regular MOC/LOC order entry in its closing auction, and the Exchange 
believes that this cutoff time reflects the efficiency and more 
automated nature of trading in today's market.\8\
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    \6\ The term ``Market-On-Close'' or ``MOC'' shall mean a BZX 
market order that is designated for execution only in the Closing 
Auction or Cboe Market Close. See Exchange Rule 11.23(a)(15).
    \7\ The term ``Limit-On-Close'' or ``LOC'' shall mean a BZX 
limit order that is designated for execution only in the Closing 
Auction. See Exchange Rule 11.23(a)(13).
    \8\ See Arca Rule 7.35-E(d)(2).
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    The Exchange also proposes to amend the definitions of the LLOC and 
LLOO as provided in Rules 11.23(a)(11) and (12), respectively. The 
definitions of LLOC and LLOO provide that to the extent a LLOC or LLOO 
bid or offer received by the Exchange has a limit price that is more 
aggressive than the National Best Bid (``NBB''),\9\ or National Best 
Offer (``NBO''),\10\ the price of such bid or offer is adjusted to be 
equal to the NBB or NBO, respectively, at the time of receipt by the 
Exchange. Where the NBB or NBO becomes more aggressive, the limit price 
of the LLOC or LLOO bid or offer will be adjusted to the more 
aggressive price, only to the extent that the more aggressive price is 
not more aggressive than the original User entered limit price. In 
addition, the current definitions provide that the limit price will 
``never'' be adjusted to a less aggressive price.
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    \9\ See Exchange Rule 1.5(o).
    \10\ Id.
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    Now, the Exchange proposes to amend Rules 11.23(a)(11) and (12) to 
provide that the limit price will not be adjusted to a less aggressive 
price, unless otherwise provided under Exchange Rules, rather than 
``never'' be adjusted to a less aggressive price. In certain instances 
the System \11\ may adjust the limit price to a less aggressive price 
if otherwise provided for by Exchange Rules. For example, assume a 
short sale LLOO or LLOC order was entered at a price less than the NBB 
while a short sale circuit breaker pursuant to Regulation SHO (the 
``SCCB'') \12\ was in effect. Pursuant to Rules 11.9(g)(5) and (6), the 
LLOO or LLOC order would be re-priced by the System at one minimum 
price variation above the NBB. If the NBB then increased, the limit 
price of the LLOO or LLOC would again be re-priced by the System to the 
less aggressive price of one minimum price variation above the new NBB. 
Given the foregoing, the Exchange is proposing to amend the Rule text 
to provide that the limit price will not update to a less aggressive 
price, unless otherwise provided by Exchange Rules, rather than will 
``never'' update to a less aggressive price. Therefore, the proposed 
change is intended to provide that LLOO or LLOC orders may be re-priced 
if otherwise provided by Exchange Rules, such as pursuant to the Reg 
SHO price sliding.
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    \11\ See Exchange Rule 1.5(aa).
    \12\ See 17 CFR 242.201; Securities Exchange Act Release No. 
61595 (February 26, 2010), 75 FR 11232 (March 10, 2010).
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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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    Specifically, the Exchange believes that extending the Closing 
Auction Cutoff for submitting on close orders will allow market 
participants to retain control over their orders for a longer period of 
time, and thereby assist those market participants in managing their 
trading at the close. While the Exchange currently has a Closing 
Auction Cutoff of 3:55 p.m., the Exchange does not believe five minutes 
is necessary for market participants to respond to and offset 
imbalances. In fact, in the Commission's approval order for a similar 
proposal by the Nasdaq Stock Market, LLC (``Nasdaq''),\16\ the 
Commission stated that it ``believes that extending these cutoff times 
would allow Exchange participants to retain flexibility with respect to 
entering, modifying, and cancelling their on close orders until a later 
time, while still providing time for Exchange participants to react and 
resolve imbalances in the Nasdaq Closing Cross.'' \17\ Further, the 
Commission stated that it believes Nasdaq's proposal could encourage 
participation in the Nasdaq Closing Cross by market participants who 
are unwilling to give up flexibility and control over their on close 
orders at 3:50 p.m. The Exchange believes that market participants 
would be better served if the Closing Auction Cutoff was extended to 
3:59 p.m. so that the period of time where market

[[Page 18582]]

participants have limited control over their orders is reduced. The 
Exchange believes that this will reduce risk for market participants 
that participate in the Exchange's Closing Auction, and improve price 
discovery by facilitating additional participation by market 
participants that may not be willing to lose control over their on 
close interest for five minutes.
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    \16\ See Securities Exchange Act [sic] No. 84454 (October 19, 
2018), 83 FR 53923 (October 25, 2018) (SR-NASDAQ-2018-068) (Order 
Approving Proposed Rule Change, as Modified by Amendment No. 1, To 
Extend the Cutoff Times for Accepting on Close Orders Entered for 
Participation in the Nasdaq Closing Cross and to Make Related 
Changes).
    \17\ Nasdaq proposed to extend the cutoff time from 3:50 p.m. to 
3:55 p.m.
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    The Exchange further believes that the proposal to extend the 
Closing Auction Cutoff would remove impediments to and perfect the 
mechanism of free and open markets and a national market system because 
it would more closely align the Exchange's Closing Auction Cutoff time 
with those of another equity exchange. For example, Arca already uses a 
3:59 p.m. cutoff for regular MOC/LOC order entry in its closing auction 
and the Exchange believes that this cutoff time reflects the efficiency 
and more automated nature of trading in today's market.\18\ The 
Exchange, therefore, believes that there is sufficient precedent in the 
industry for extending the Closing Auction Cutoff time to 3:59 p.m. as 
proposed. The Exchange also believes that the proposal would promote 
just and equitable principles of trade because the proposed rule change 
would not alter the basic operations of the Exchange's closing 
procedures. Rather, the proposed rule change would provide more time 
for order entry and cancellation leading into the close.
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    \18\ See Arca Rule 7.35-E(d)(2).
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    The Exchange's proposal to amend Rules 11.23(a)(11) and (12) to 
provide that a limit price will not be adjusted to a less aggressive 
price, rather than never be adjusted to a less aggressive price will 
clarify how the System handles LLOC and LLOO orders in conjunction with 
other applicable Exchange Rules. As noted above, in certain instances, 
such as when a short sale LLOC or LLOO order is entered during a SSCB, 
the System may re-price the order pursuant to Exchange Rules 11.9(g)(5) 
and (6). Therefore, the Exchange believes that amending Rules 
11.23(a)(11) and (12) to provide that the limit price will not update 
to a less aggressive price, unless otherwise provided by Exchange 
Rules, will increase transparency around the operation of the Exchange 
to the benefit of all market participants. Therefore, the proposed 
change is intended only to clarify the Exchange Rules.

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 intermarket or intramarket competition not 
necessary or appropriate in furtherance of the purposes of the Act. 
Rather, the Exchange believes that the proposed rule change is evidence 
of the competitive forces in the equities markets. The Exchange 
currently uses a 3:55 p.m. Closing Auction Cutoff, which results in a 
five-minute period where participants in the Closing Auction no longer 
have the ability to enter additional MOC/LOC Orders, and have limited 
ability to interact with their already entered orders. Other exchanges, 
such as Arca, have adopted a shorter cutoff period.\19\ The Exchange 
believes that the market participants that trade in the Exchange's 
Closing Auction would similarly benefit from a later Closing Auction 
Cutoff. The proposed cutoff time would apply equally to all market 
participants, and reflects the current market environment where trading 
is increasingly more automated and efficient, and where competing 
exchanges already offer a later cutoff time than those currently in 
place on the Exchange.
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    \19\ Id.
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    The Exchange believes the change to the definition of LLOC and LLOO 
as provided in Exchange Rules 11.23(a)(11) and (12) will have no impact 
on competition, as it is intended to clarify that such orders will not 
update to a less aggressive price unless otherwise provided by Exchange 
Rules.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission will:
    (A) By order approve or disapprove such proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be 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-2021-023 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-2021-023. 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-2021-023 and should be submitted 
on or before April 30, 2021.


[[Page 18583]]


    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-07274 Filed 4-8-21; 8:45 am]
BILLING CODE 8011-01-P