[Federal Register Volume 87, Number 197 (Thursday, October 13, 2022)]
[Notices]
[Pages 62123-62125]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-22177]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-95994; File No. SR-CboeBZX-2022-049]


Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
Rule 21.17 Concerning Drill-Through Protection and Fat Finger Check

October 6, 2022.
    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 October 4, 2022, 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 Options'') 
proposes to amend Rule 21.17. 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

[[Page 62124]]

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 Rule 21.17. Specifically, the 
Exchange proposes to amend its drill-through protection mechanism and 
limit order fat finger check.
    The Exchange proposes to amend Rule 21.17(d) to update the drill-
through protection mechanism to provide orders with additional 
execution opportunities. Pursuant to the current drill-through 
protection, if a buy (sell) order enters the Book at the conclusion of 
the opening auction process or would execute or post to the Book at the 
time of order entry, the System executes the order up to a buffer 
amount (the Exchange determines the buffer amount on a class and 
premium basis) above (below) the offer (bid) limit of the opening 
collar \3\ or the national best bid (``NBO'') (national best offer 
(``NBB'')) that existed at the time of order entry, respectively (the 
``drill-through price'').\4\ The System enters an order (or unexecuted 
portion) not executed pursuant to the provision in the immediately 
preceding sentence in the Book with a displayed equal to the drill-
through price.\5\ The order (or unexecuted portion) rests in the Book 
at the drill-through price \6\ until the earlier to occur of its full 
execution and the end of the duration of a number of consecutive time 
periods (the Exchange determines on a class-by-class basis the number 
of periods, which may not exceed five, and the length of the time 
period in milliseconds, which may not exceed three seconds).\7\
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    \3\ See Rule 21.7(a) for the definition of Opening Collars.
    \4\ See Rule 21.17(d)(1).
    \5\ See Rule 21.17(d)(2).
    \6\ The proposed rule change adds ``at the drill-through price'' 
in the first sentence of subparagraph (d)(2)(A), which is a 
nonsubstantive change, as it reflects current functionality and is 
stated in the introductory paragraph to Rule 21.17(d)(2). The 
proposed rule change merely includes this detail in the next portion 
of the rule for additional clarity.
    \7\ See Rule 21.17(d)(2)(A).
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    The proposed rule change amends Rule 21.17(d)(2)(A) to eliminate 
the concept that there will be a maximum number of time periods and 
proposes that the order (or unexecuted portion) will rest in the Book 
at the drill-through price for the duration of consecutive time 
periods.\8\ The proposed rule change makes conforming changes to 
subparagraph (ii) by deleting references to ``the final period'' and 
subparagraph (iv) by deleting the reference to ``any remaining time 
period(s),'' as there will no longer be an Exchange-determined limited 
number of time periods. Currently, as set forth in current subparagraph 
(i), the drill-through mechanism will continue until the earlier to 
occur of the order's full execution and the end of the duration of the 
Exchange-determined number of time periods. The Exchange proposes to 
amend subparagraph (iv) to describe when the drill-through process will 
conclude. Specifically, proposed Rule 21.17(d)(2)(D) provides that the 
order continues through the process described in subparagraph (ii) (as 
proposed to be amended) until the earliest of the following to occur: 
(a) the order fully executes; (b) the User cancels the order; and (c) 
the order's limit price equals or is less than (if a buy order) or 
greater than (if a sell order) the drill-through price at any time 
during application of the drill-through mechanism, in which case the 
order rests in the Book at its limit price, subject to a User's 
instructions. In other words, the order will continue through 
consecutive time periods until it fully executes (unless it is 
cancelled by the User or reaches its limit price prior to full 
execution), compared to today when the order will continue through 
consecutive time periods until it fully executes or reaches the 
Exchange-determined final time period, at which time the order would be 
cancelled (unless it reaches its limit price prior to full execution). 
The Exchange believes eliminating the limit on the number of time 
periods may increase execution opportunities for limit orders, which 
will still continue to be bound by their limit prices and protected by 
the limit order fat finger check.\9\
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    \8\ The Exchange will continue to determine on a class-by-class 
basis the length of the time periods in milliseconds, which may 
continue to not exceed three seconds.
    \9\ If a limit price is ``too far away'' from the market, the 
order will continue to be subject to the limit order fat finger 
protection set forth in Rule 21.17(b) and thus will still be subject 
to protection against a potentially erroneous execution due to an 
order pricing error upon submission.
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    In addition, the Exchange proposes to amend Rule 21.17(b) to add 
Limit-on-Close orders \10\ to the list of orders to which the limit 
order fat finger check does not apply. Pursuant to the limit order fat 
finger check, if a User submits a buy (sell) limit order to the System 
with a price that is more than a buffer amount above (below) the NBO 
(NBB), the System cancels or rejects the order.\11\ Currently, the 
simple limit order fat finger check does not apply to bulk messages or 
Stop-Limit Orders.\12\ The Exchange proposes to also not apply the 
limit order fat finger check to Limit-on-Close orders. The limit order 
fat finger check applies to orders upon entry to the System. However, 
the limit price of a Limit-on-Close order is intended to relate to the 
price at the market close, and thus may intentionally be further away 
from the NBBO at the time the order is entered. This may cause the 
order to be inadvertently rejected pursuant to this check. The Exchange 
believes it is not appropriate for this limit order to be subject to 
the fat finger check, as the check may inadvertently cause rejections 
for orders with limit prices that are intentionally ``far away'' from 
the market at the time of order entry.
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    \10\ A ``Limit-on-Close'' or ``LOC'' order is, for an order so 
designated, a limit order that may not execute on the Exchange until 
three minutes prior to market close. At that time, the System enters 
LOC orders into the Book in time sequence (based on the times at 
which the System initially received them), where they may be 
processed in accordance with Rule 21.8. The System cancels an LOC 
order (or unexecuted portion) that does not execute by the market 
close. Users may not designate bulk messages as LOC. See Rule 
21.1(f)(7) (definition of ``Limit-on-Close'' and ``LOC'' order).
    \11\ Rule 21.17(a).
    \12\ Id.
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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 the proposed rule change to 
eliminate

[[Page 62125]]

the maximum number of time periods for which an order will rest in the 
Book during application of the drill-through protection mechanism will 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system, and, in general, protect 
investors, because it will provide orders with additional execution 
opportunities. These orders may continue to be available on the Book 
for execution, at a wider range of prices, as opposed to today when 
such orders are cancelled after a specified number of time periods 
(depending on the User's instructions and if the order does not reach 
its limit price prior to the end of those time periods). The Exchange 
believes these additional execution opportunities will benefit 
investors that submit such orders and believes such orders will 
continue to receive protection against potentially erroneous 
executions, as the limit order fat finger check will continue to apply 
to them.
    Finally, the Exchange believes excluding Limit-on-Close orders from 
the limit order fat finger check will remove impediments to and perfect 
the mechanism of a free and open market and a national market system, 
and, in general, protect investors, because it may reduce inadvertent 
rejections of Limit-on-Close orders, which may be purposely priced 
further away from the NBBO at the time of entry, as their limit prices 
are intended to relate to price at the market close. Therefore, this 
proposed rule change may increase execution opportunities for Users 
that submit Limit-on-Close orders.

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 that 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, because the amended drill-
through protection mechanism and limit order fat finger check will 
continue to apply in the same manner to orders of all Users and may 
lead to increased execution opportunities. The Exchange does not 
believe that the proposed rule change will impose any burden on 
intermarket competition that is not necessary or appropriate in 
furtherance of purposes of the Act, because the proposed rule change 
relates solely to Exchange risk controls and how the Exchange handles 
orders subject to those risk controls.

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 foregoing proposed rule change does not:
    A. significantly affect the protection of investors or the public 
interest;
    B. impose any significant burden on competition; and
    C. become operative for 30 days from the date on which it was 
filed, or such shorter time as the Commission may designate, it has 
become effective pursuant to Section 19(b)(3)(A) of the Act \16\ and 
Rule 19b-4(f)(6) \17\ thereunder. 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.
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    \16\ 15 U.S.C. 78s(b)(3)(A).
    \17\ 17 CFR 240.19b-4(f)(6).
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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-2022-049 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-2022-049. 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 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-2022-049 and should be submitted 
on or before November 3, 2022.
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    \18\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
J. Lynn Taylor,
Assistant Secretary.
[FR Doc. 2022-22177 Filed 10-12-22; 8:45 am]
BILLING CODE 8011-01-P