[Federal Register Volume 89, Number 7 (Wednesday, January 10, 2024)]
[Notices]
[Pages 1619-1621]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-00284]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-99273; File No. SR-CboeEDGX-2023-082]


Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice 
of Filing and Immediate Effectiveness of a Proposed Rule Change To 
Amend Rule 21.17

January 4, 2024.
    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 December 21, 2023, Cboe EDGX Exchange, Inc. (the ``Exchange'' 
or ``EDGX'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I, II, 
and III 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 EDGX Exchange, Inc. (the ``Exchange'' or ``EDGX'') proposes to 
amend Rule 21.17. The text of the proposed rule change is provided 
below.

(additions are italicized; deletions are [bracketed])
* * * * *
Rules of Cboe EDGX Exchange, Inc.
* * * * *

Rule 21.17. Additional Price Protection Mechanisms and Risk Controls

    The System's acceptance and execution of orders, quotes, and bulk 
messages, as applicable, are subject to the price protection mechanisms 
and risk controls in Rule 21.16, this Rule 21.17, and as otherwise set 
forth in the Rules. Unless otherwise specified the price protections 
set forth in this Rule, including the numeric values established by the 
Exchange, may not be disabled or adjusted. The Exchange may share any 
of a User's risk settings with the Clearing Member that clears 
transactions on behalf of the User.
    (a) Simple Orders.
    (1)-(3) No change.
    (4) Drill-Through Price Protection.
    (A)-(B) No change.
    (C) The System enters a market order with a Time-in Force of Day or 
limit order with a Time-in-Force of Day, GTC, or GTD (or unexecuted 
portion) not executed pursuant to subparagraph (A) in the EDGX Options 
Book with a displayed price equal to the Drill-Through Price, unless 
the terms of the order instruct otherwise.
    (i)-(vii) No change.
    ([viii]D) This protection does not apply to bulk messages or ISOs.
* * * * *
    The text of the proposed rule change is also available on the 
Exchange's website (http://markets.cboe.com/us/options/regulation/rule_filings/edgx/), 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 Exchange proposes to amend Rule 21.17. Specifically, the 
Exchange proposes to exclude Intermarket Sweep Orders (``ISOs'') from 
its drill-through protection. Pursuant to Rule 21.17(a)(4)(A), if a buy 
(sell) order enters the book at the conclusion of the opening auction 
process or would execute or post to the book when it enters the book, 
the Exchange's system executes the order up to an Exchange-determined 
buffer amount (determined on a class and premium basis) above (below) 
the offer (bid) limit of the Opening Collar \5\ or the National Best 
Offer (``NBO'') (National Best Bid (``NBB'')) that existed at the time 
of order entry, respectively (the ``drill-through price''). The System 
cancels or rejects any market order with a time-in-force of immediate-
or-cancel (``IOC'') (or unexecuted portion or limit order with time-in-
force of IOC or fill-or-kill (``FOK'') (or unexecuted portion not 
executed pursuant to the previous sentence.\6\ Rule 21.17(a)(4)(C) 
establishes an iterative drill-through process, whereby the Exchange 
permits orders to rest in the book for multiple time periods and at 
more aggressive displayed prices during each time period. Specifically, 
for a market order with a time-in-force of day or limit order with a 
time-in-force of day, good-til-cancelled (``GTC''), or good-til-gate 
(``GTD'') (or unexecuted portion), the Exchange system enters the order 
in the book with a displayed price equal to the drill-through price 
(unless the terms of the order instruct otherwise). The order (or 
unexecuted portion) will rest in the book at the drill-through price 
for the

[[Page 1620]]

duration of consecutive time periods (the Exchange determines on a 
class-by-class basis the length of the time period in milliseconds, 
which may not exceed three seconds), which are referred to as 
``iterations.'' Following the end of each period, the Exchange system 
adds (if a buy order) or subtracts (if a sell order) one buffer amount 
(the Exchange determines the buffer amount on a class-by-class basis) 
to the drill-through price displayed during the immediately preceding 
period (each new price becomes the ``drill-through price''). The order 
(or unexecuted portion) rests in the book at that new drill-through 
price for the duration of the subsequent period. The Exchange system 
applies a timestamp to the order (or unexecuted portion) based on the 
time it enters or is re-priced in the book for priority reasons. The 
order continues through this iterative process until the earliest of 
the following to occur: (a) the order fully executes; (b) the user 
cancels the order; and (c) the buy (sell) order's limit price equals or 
is less (greater) than 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.
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    \5\ See Rule 21.7(a) for the definition of Opening Collars.
    \6\ See Rule 21.17(a)(4)(B).
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    Currently, the drill-through protection applies to ISOs. An ISO is 
a limit order for an options series that meets the following 
requirements: (1) when routed to an Eligible Exchange,\7\ the order is 
identified as an ISO; and (2) simultaneously with the routing of the 
order, one or more additional ISOs, as necessary, are routed to execute 
against the full displayed size of any Protected Bid, in the case of a 
limit order to sell, or any Protected Offer, in the case of a limit 
order to buy, for the options series with a price that is superior to 
the limit price of the ISO, with such additional orders also marked as 
ISOs.\8\
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    \7\ An ``Eligible Exchange'' means a national securities 
exchange registered with the SEC in accordance with Section 6(a) of 
the Securities Exchange Act of 1934 (the ``Act'') that: (a) is a 
Participant Exchange in OCC (as that term is defined in Section VII 
of the OCC by-laws); (b) is a party to the OPRA Plan (as that term 
is described in Section I of the OPRA Plan); and (c) if the national 
securities exchange chooses not to become a party to this Plan, is a 
participant in another plan approved by the Securities and Exchange 
Commission (the ``Commission'') providing for comparable Trade-
Through and Locked and Crossed Market protection. The term ``Trade-
Through'' means a transaction in an options series at a price that 
is lower than a Protected Bid or higher than a Protected Offer. A 
``Protected Bid'' or ``Protected Offer'' means a bid or offer in an 
options series, respectively, that (a) is disseminated pursuant to 
the OPRA Plan; and (b) is the best bid or best offer, respectively, 
displayed by an Eligible Exchange. A ``Locked Market'' means a 
quoted market in which a Protected Bid is equal to a Protected Offer 
in a series of an options class, and a ``Crossed Market'' means a 
quoted market in which a Protected bid is higher than a Protected 
Offer in a series of an options class. See Rule 27.1(a)(5), (7), 
(10), (18), and (22).
    \8\ See Rules 21.1(d)(9) and 27.1(a)(9).
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    The Exchange proposes to exclude ISOs from the drill-through 
protection.\9\ The primary purpose of the drill-through price 
protection is to prevent orders from executing at prices ``too far 
away'' from the market when they enter the book for potential 
execution. This is inconsistent with the primary purpose of ISOs, which 
is to permit orders to trade at prices outside of the market. The 
Exchange believes excluding ISOs from the drill-through is consistent 
with the purpose of each type of functionality.
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    \9\ See proposed Rule 21.17(a)(4)(D). As set forth in current 
Rule 21.17(a)(4)(C)(viii), the drill-through protection does not 
apply to bulk messages. The proposed rule change moves this current 
exclusion to proposed Rule 21.17(a)(4)(D) so that all orders and 
quotes that are excluded from the drill-through protection are 
maintained in the same rule provision, and the Exchange believes 
proposed subparagraph (D) is a more appropriate place for listing 
excluded orders and quotes. This nonsubstantive change regarding the 
exclusion of bulk messages from the drill-through protection has no 
impact on current behavior and merely moves the exclusion to a 
different subparagraph.
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2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Act and the rules and regulations thereunder applicable to the 
Exchange and, in particular, the requirements of Section 6(b) of the 
Act.\10\ Specifically, the Exchange believes the proposed rule change 
is consistent with the Section 6(b)(5) \11\ 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) \12\ requirement that the rules of 
an exchange not be designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(5).
    \12\ Id.
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    In particular, the Exchange believes the proposed rule change will 
promote just and equitable principles of trade, remove impediments to 
and perfect the mechanism of a national market system, and protect 
investors and the public interest, because it will increase instances 
in which ISOs receive executions up to their limit prices, including 
outside of the market prices when the ISOs were submitted to the 
Exchange, which the Exchange believes is consistent with the 
expectations of users that submit those orders. As noted above, the 
primary purpose of ISOs is to permit orders to trade at prices outside 
of the market. The primary purpose of the drill-through price 
protection is to prevent orders from executing at prices ``too far 
away'' from the market when they enter the book for potential 
execution. The Exchange believes excluding ISOs from the drill-through 
is consistent with the purpose of each type of functionality. 
Therefore, the Exchange believes the proposed rule change will enhance 
the Exchange system by aligning its drill-through protection with the 
intended purpose of ISOs.\13\ The Exchange believes the proposed rule 
change may ultimately result in additional executions consistent with 
the expectations of users that submit ISOs, which ultimately benefits 
investors. The Exchange further believes the proposed rule change is 
not designed to permit unfair discrimination between customers, 
issuers, brokers, or dealers, as it will apply to ISOs of all users.
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    \13\ The Exchange notes ISOs will continue to receive price 
protection, such as from the limit order fat finger check. See Rule 
21.17(a)(2).
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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 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 it will apply in the 
same manner to ISOs of all Members. 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 the 
purposes of the Act, because it relates solely to the application of 
one of the Exchange's price protection mechanisms to ISOs. The Exchange 
notes at least one other options exchange excludes ISOs from certain of 
its price protection measures.\14\
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    \14\ See Miami International Securities Exchange, LLC (``MIAX'') 
Rule 515(c)(1) (ISOs excluded from MIAX's price protection on non-
market maker orders in non-proprietary products, which prevents 
orders from executing more than a specified number of increments 
away from the national best bid or offer (``NBBO'') at the time the 
order is received).

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[[Page 1621]]

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 foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act \15\ and Rule 19b-4(f)(2) \16\ thereunder.
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    \15\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \16\ 17 CFR 240.19b-4(f)(2).
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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 shall 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 (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-CboeEDGX-2023-082 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-CboeEDGX-2023-082. 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 (https://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 
a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of the Exchange. Do not 
include personal identifiable information in submissions; you should 
submit only information that you wish to make available publicly. We 
may redact in part or withhold entirely from publication submitted 
material that is obscene or subject to copyright protection. All 
submissions should refer to file number SR-CboeEDGX-2023-082 and should 
be submitted on or before January 31, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-00284 Filed 1-9-24; 8:45 am]
BILLING CODE 8011-01-P