[Federal Register Volume 89, Number 19 (Monday, January 29, 2024)]
[Notices]
[Pages 5582-5588]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-01617]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-99413; File No. SR-CboeBYX-2024-003]
Self-Regulatory Organizations; Cboe BYX Exchange, Inc.; Notice of
Filing of a Proposed Rule Change To Amend Rule 11.9(c)(6) and Rule
11.13(a)(4)(D) To Permit the Use of BYX Post Only Orders at Prices
Below $1.00
January 23, 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 January 8, 2024, Cboe BYX Exchange, Inc. (the ``Exchange'' or
``BYX'') 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
Commission is publishing this notice to
[[Page 5583]]
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 BYX Exchange, Inc. (the ``Exchange'' or ``BYX'') proposes to
amend Rule 11.9(c)(6) and Rule 11.13(a)(4)(D) to permit the use of BYX
Post Only Orders at prices below $1.00. 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/byx/), 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
Trading in sub-dollar securities both on- and off-exchange has
grown significantly since early 2019. An analysis of SIP \3\ data by
the Exchange found that sub-dollar average daily volume has increased
over 300% as compared to volumes in the first quarter of 2019.\4\
During this period, on-exchange average daily volume in sub-dollar
securities grew from 442 million shares per day to 1.8 billion shares
per day.\5\ A separate analysis of SIP and FINRA Trade Reporting
Facility (``TRF'') \6\ data indicated that exchanges represented
approximately 39.8% market share in sub-dollar securities, with a total
of 1,638 securities trading below $1.00.\7\ As an exchange group, Cboe
had approximately 13.3% of market share in sub-dollar securities in the
first quarter of 2023.\8\ Additionally, an analysis of internal data
showed that the Exchange's affiliate exchange, EDGX Exchange, Inc.
(``EDGX''), has seen retail sub-dollar average daily volume grow from
approximately $40 million during the first quarter of 2022 to over $100
million during the third quarter of 2023.
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\3\ The ``SIP'' refers to the centralized securities information
processors.
\4\ See ``How Subdollar Securities are Trading Now'' (March 16,
2023). Available at https://www.cboe.com/insights/posts/how-subdollar-securities-are-trading-now/.
\5\ Id.
\6\ Trade Reporting Facilities are facilities through which
FINRA members report off-exchange transactions in NMS stocks, as
defined in SEC Rule 600(b)(47) of Regulation NMS. See Securities
Exchange Act Release No. 96494 (December 14, 2022), 87 FR 80266
(December 29, 2022) (``Tick Size Proposal'') at 80315.
\7\ Supra note 4.
\8\ Id.
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As a result of the growth in sub-dollar trading, the Exchange
proposes to amend Rule 11.9(c)(6) in order to permit a BYX Post Only
Order to post to the BYX Book \9\ at prices below $1.00. Currently, the
BYX fee schedule does not assess a fee or provide a rebate for adding
liquidity in securities priced below $1.00 and charges a fee of 0.10%
of the total dollar value of the transaction for removing liquidity in
securities priced below $1.00.\10\ While the Exchange's economic best
interest calculation \11\ will remain the same as is currently in-
place, the impact of this proposal will allow certain BYX Post Only
Orders in securities priced below $1.00 to post to the BYX Book for
Users who receive an economic benefit.\12\
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\9\ See Rule 1.5(e). The BYX Book means the System's electronic
file of orders.
\10\ See BYX Equities Fee Schedule, Standard Rates. In
securities priced at or above $1.00, BYX pays rebates for Users that
remove liquidity and assesses fees for Users that add liquidity.
Under the current fee schedule for securities priced at or above
$1.00 there is no economic benefit to utilize the BYX Post Only
Order due to the Exchange's economic best interest calculation, and
as such, BYX Post Only Orders are eligible to remove liquidity when
priced at or above $1.00.
\11\ The Exchange's economic best interest calculation
determines whether the value of price improvement associated with a
BYX Post Only Order equals or exceeds the sum of fees charged for
such execution and the value of any rebate that would be provided if
the order posted to the BYX Book and subsequently provided
liquidity. The determination of whether a BYX Post Only Order will
be allowed to post to the BYX Book or be eligible to remove
liquidity is based on the current fee schedule, the execution price,
and the amount of price improvement received.
\12\ Based on the current fee schedule, the proposal will not
modify the functionality of BYX Post Only Orders in securities
priced at or above $1.00 as these orders will remain eligible to
remove liquidity upon entry under the current economic best interest
calculation.
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As defined in Rule 11.9(c)(6), a BYX Post Only Order is ``[a]n
order that is to be ranked and executed on the Exchange pursuant to
Rule 11.12 and Rule 11.13(a)(4) or cancelled, as appropriate, without
routing away to another trading center except that the order will not
remove liquidity from the BYX Book. . .''. Accordingly, a BYX Post Only
Order does not remove liquidity, but rather posts to the BYX Book to
the extent permissible. Additionally, the Exchange proposes to amend
Rule 11.13(a)(4)(D) to describe the manner in which bids or offers
priced below $1.00 per share are executed against orders resting on the
BYX Book. The Exchange believes the proposed changes will provide Users
\13\ with an additional order type to utilize when submitting order
flow to the Exchange in securities priced below $1.00, thereby
contributing to a deeper and more liquid market, which benefits all
market participants and provides greater execution opportunities on the
Exchange. While the Exchange believes that expanding the use of the BYX
Post Only Order to securities priced below $1.00 will contribute to a
deeper and more liquid market, the Exchange does not anticipate any
capacity issues as a result of its proposal.
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\13\ See Rule 1.5(cc). The term ``User'' shall mean any Member
or Sponsored Participant who is authorized to obtain access to the
System pursuant to Rule 11.3.
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In order to permit a BYX Post Only Order to post to the BYX Book at
prices below $1.00, the Exchange proposes to amend Rule 11.9(c)(6) to
remove language that states that a BYX Post Only Order ``will remove
contra-side liquidity from the BYX Book if the order is an order to buy
or sell a security priced below $1.00 . . .''. Currently, BYX Post Only
Orders priced below $1.00 are automatically treated as orders that
remove liquidity, while BYX Post Only Orders priced at or above $1.00
will only remove liquidity if the value of the overall execution
(taking into account all applicable fees and rebates) make it
economically beneficial for the order to remove liquidity. A BYX Post
Only Order priced at or above $1.00 will continue to remove contra-side
liquidity if the value of such execution when removing liquidity equals
or exceeds the value of such execution if the order instead posted to
the BYX Book and subsequently provided liquidity, including the
applicable fees charged or rebates provided. BYX Post Only Orders
priced below $1.00 will be treated in the same manner as BYX Post Only
Orders priced at or above $1.00 in that BYX Post Only Orders priced
below $1.00 will only remove liquidity if the value of the overall
execution (taking into account all applicable fees and rebates) make it
economically beneficial for the order to remove liquidity. The Exchange
has received User feedback requesting the ability to utilize BYX Post
Only
[[Page 5584]]
Orders in securities priced below $1.00 in order to allow Users to
operate a single strategy for securities at all prices even though the
execution cost economics for securities priced below $1.00 may only
provide a slight economic benefit for Users who choose to utilize BYX
Post Only Orders in securities priced below $1.00.
In addition to the proposed amendment to Rule 11.9(c)(6), the
Exchange proposes an amendment to its order handling procedures in
order to permit Non-Displayed Orders \14\ and orders subject to
display-price sliding (collectively, ``Resting Orders'') which are not
executable at their most aggressive price due to the presence of a
contra-side BYX Post Only Order to be executed at one minimum price
variation less aggressive than the order's most aggressive price.\15\
Currently, similar order handling behavior applies only to securities
priced at or above $1.00.\16\ When proposed in 2011, the Resting Order
Execution Filing stated that the order handling functionality was not
necessary for securities priced below $1.00 as the Exchange did not
have the ability to quote in sub-pennies and the system limitations
that market participants may encounter if attempting to execute in
increments finer than $0.0001.\17\ Given the rise in sub-dollar trading
discussed above, the Exchange now proposes to expand the order handling
functionality introduced by the Resting Order Execution Filing to
securities priced below $1.00.
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\14\ See Rule 11.9(c)(11). A ``Non-Displayed Order'' is a market
or limit order that is not displayed on the Exchange.
\15\ See Securities Exchange Act Release No. 64753 (June 27,
2011), 76 FR 38714 (July 1, 2011), SR-BYX-2011-009 (``Resting Order
Execution Filing''). The Resting Order Execution Filing introduced
an order handling change for certain Non-Displayed Orders and orders
subject to display-price sliding that are not executable at prices
equal to displayed orders on the opposite side of the market (the
``locking price''). The Resting Order Execution Filing permits
Resting Orders priced at or above $1.00 to be executed at one-half
minimum price variation less aggressive than the locking price (for
bids) and one-half minimum price variation more aggressive than the
locking price (for offers), under certain circumstances.
\16\ See Rule 11.13(a)(4)(D).
\17\ See Resting Order Execution Filing footnote 8.
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Rule 11.13(a)(4)(D) states that for securities priced above $1.00,
incoming orders that are market orders or limit orders priced more
aggressively than a displayed order on the same side of the market, the
Exchange will execute the incoming order at, in the case of an incoming
sell order, one-half minimum price variation less than the price of the
displayed order, and, in the case of an incoming buy order, at one-half
minimum price variation more than the price of the displayed order. The
Exchange proposes that for securities priced below $1.00, incoming
orders that are market orders or limit orders priced more aggressively
than a displayed order on the same side of the market, the Exchange
will execute the incoming order at, in the case of an incoming sell
order, one minimum price variation less than the price of the displayed
order, and, in the case of an incoming buy order, at one minimum price
variation more than the price of the displayed order. The different
treatment of securities priced below $1.00 from securities priced at or
above $1.00 arises from limitations within the System,\18\ which cannot
process executions out to five decimal places.
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\18\ See Rule 1.5(aa). The term ``System'' shall mean the
electronic communications and trading facility designated by the
Board through which securities orders of Users are consolidated for
ranked, executions and, when applicable, routing away.
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Under the Exchange's current fee schedule, there may be an economic
benefit for Users to submit a BYX Post Only Order in securities priced
below $1.00, which represents a change to how the System will process
BYX Post Only Orders in securities priced below $1.00. In order to
demonstrate the proposed order handling behavior for securities priced
below $1.00, the Exchange has included the following examples:
Example 1
Assume the NBB is $0.50 and the NBO is $0.53. There is no
resting interest on the BYX Book.
Bid Offer
National best.................................. $0.50 x $0.53
Next, assume the Exchange received an incoming displayed
offer (Order 1) to sell 100 shares at $0.50. Order 1 is eligible for
display-price sliding pursuant to Rule 11.9(g).\19\ Pursuant to Rule
11.9(g), Order 1 is temporarily slid to a displayed price of $0.5001 as
it locked the NBB upon entry.\20\ Even though Order 1 is now
temporarily displayed at a price of $0.5001, Order 1's ranked price
remains $0.50, as $0.50 is the locking price.\21\
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\19\ See Rule 11.9(g)(1)(A). An order eligible for display by
the Exchange that, at the time of entry, would create a violation of
Rule 610(d) of Regulation NMS by locking or crossing a Protected
Quotation of an external market will be ranked at the locking price
in the BYX 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 NBB (for offers) (``display-price sliding).
\20\ The Exchange notes that the reference to ``temporarily'' is
meant to convey that for so long as the NBB is locked, Order 1 will
be displayed at a price of $0.5001 pursuant to Rule 11.9(g)(1)(A).
In the event that the NBB moves so that Order 1 is no longer locking
the NBB, Order 1 will be displayed at the most aggressive
permissible price.
\21\ Id.
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Next, assume the Exchange received an incoming BYX Post
Only Order bid (Order 2) to buy 100 shares at $0.50. The Exchange's
economic best interest calculation determined that it was more
beneficial for Order 2 to post to the BYX Book and display at a price
of $0.50. BYX Post Only Orders are permitted to post and be displayed
opposite the ranked price of orders subject to display-price
sliding.\22\ The result is depicted as follows:
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\22\ See Rule 11.9(g)(1)(E).
Bid Offer
National best.................................. $0.50 x $0.5001
BYX best....................................... $0.50 x $0.5001
The Exchange then receives an IOC \23\ order to buy (Order
3) 100 shares at $0.5001. Order 3 executes against Order 1 in its
entirety at a price of $0.5001.
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\23\ See Rule 11.9(b)(1). An ``IOC'' order is a limit order that
is to be executed in whole or in part as soon as such order is
received. The portion not executed immediately on the Exchange or
another trading center is treated as cancelled and is not posted to
the BYX Book.
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Consistent with the Exchange's rule regarding priority of orders,
Rule 11.12, a Non-Displayed order cannot be executed by the Exchange
pursuant to Rule 11.13 when such order would be executed at the locking
price. Specifically, if an incoming, marketable order was allowed to
execute against the resting, non-displayed portion of Order 1 at the
locking price, such order would receive a priority advantage over Order
2, a resting, displayed order at the locking price. The Resting Order
Execution Filing granted the Exchange the ability to execute Non-
Displayed Orders and orders subject to NMS Price Sliding \24\ priced at
or above $1.00 at one-half minimum variation (more) less than the
locking price in the event that a bid (offer) submitted to the Exchange
opposite such Resting Order is a market order or limit order priced
more aggressive than the locking price.
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\24\ Orders subject to NMS Price Sliding (``display-price
sliding'') that are temporarily slid to one minimum price variation
above (below) the NBO (NBB) will consist of a non-displayed ranked
price that is equal to the locking price while simultaneously
showing a displayed price that is one minimum price variation above
(below) the NBO (NBB). Given that orders subject to display-price
sliding contain a non-displayed ranked price in addition to the
order's displayed price, the particular priority issue identified in
the Resting Order Execution Filing with regard to Non-Displayed
Orders is also present when an order subject to display-price
sliding is resting on the BYX Book opposite a displayed order.
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In the example above, Order 1, ranked at $0.50 upon entry, was slid
to a displayed price of $0.5001 pursuant to
[[Page 5585]]
Rule 11.9(g)(1)(A) as it locked the NBB. Upon the arrival of Order 2,
which is a BYX Post Only Order that is permitted to post to the BYX
Book and display opposite of Order 1,\25\ the Exchange's current
priority rule prohibits Order 1 from executing at a price of $0.50 in
the event a subsequent contra-side incoming order is entered at a more
aggressive price than the locking price. In the example above, Order 3
was entered at a more aggressive price ($0.5001) than the locking price
($0.50). Without the proposed changes to Rule 11.13(a)(4), Order 3
would be cancelled upon entry as it cannot execute at a price of $0.50
due to Order 2's higher priority status.
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\25\ Supra note 19.
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As discussed above, the Exchange is proposing that a Resting Order
priced below $1.00 be permitted to execute at one minimum price
variation above the locking price (in the event of a Resting Order
offer) or one minimum price variation below the locking price (in the
event of a Resting Order bid) in the event that an order submitted to
the Exchange on the side opposite such Resting Order is a market or
limit order priced more aggressively than the locking price.\26\ This
behavior is substantially similar to the order handling functionality
described in the Resting Order Execution Filing, with one difference
being that securities priced below $1.00 will execute at one full
minimum price variation above (below) the locking price for offers
(bids) rather than one-half minimum price variation above (below) the
locking price for offers (bids) in securities priced at or above $1.00.
While the example above shows a scenario in which only the Resting
Order will receive $0.0001 of price improvement, rather than each side
of the transaction as is the case in the scenarios described in the
Resting Order Execution Filing, the Exchange notes that if Order 3 in
the example above was entered at any price more aggressive than
$0.5001, Order 3 would continue to execute against Order 1 at a price
of $0.5001 and Order 3 would receive price improvement equal to the
difference between its limit price and $0.5001.\27\
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\26\ See 17 CFR 242.612 (``Minimum pricing increment''). Given
that the minimum pricing increment for securities priced below $1.00
is $0.0001, the Exchange believes that allowing orders to execute at
one minimum price variation above (for offers) or below (for bids)
the locking price is appropriate, as requiring executions to occur
at one-half minimum price variation above (for offers) or below (for
bids) the locking price, which is the current behavior for
securities priced at or above $1.00, would results in trades
executing out to five decimal places, which is not supporting by the
System.
\27\ For example, if all facts from Example 1 remain the same
except that Order 3 is an IOC buy order entered with a limit price
of $0.5005, then Order 3 will execute against Order 1 at a price of
$0.5001 and receive $0.0004 of price improvement.
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The Resting Order Execution Filing specifically introduced order
handling behavior that would permit Resting Orders to be executed at
one-half minimum price variation above (below) the locking price when
an incoming, marketable offer (bid) would otherwise be prevented from
executing due to the presence of a BYX Post Only Order in order to
optimize available liquidity for incoming orders and to provide price
improvement for market participants.\28\ This change to order handling
behavior was required because, if incoming orders were allowed to
execute against Resting Orders at the locking price, such incoming
order would receive a priority advantage over the resting, displayed
order at the locking price, contrary to the Exchange's priority rule,
Rule 11.12.\29\ The Exchange recognizes that the order handling
behavior for securities priced at or above $1.00 described in the
Resting Order Execution Filing results in price improvement for both
sides of an affected transaction and the Exchange's proposed order
handling change will result in $0.0001 of price improvement only for
the Resting Order, however this situation is limited to instances where
the incoming order is entered at a price equal to the displayed price
of the Resting Order. While only the Resting Order will receive $0.0001
of price improvement when an incoming order is entered at the Resting
Order's displayed price, the Exchange believes the incoming order is
receiving the benefit of immediate execution rather than cancelling
back or posting to the BYX Book (depending on User instruction), which
will result in higher overall market quality and likelihood of
execution on BYX for Users. In situations where the incoming order is
entered at a more aggressive price than the displayed price of the
Resting Order, however, each side of the transaction will be receiving
at least $0.0001 of price improvement.
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\28\ See Resting Order Execution Filing at 28831.
\29\ Id.
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Without the proposed order handling change for securities priced
below $1.00, a Resting Order may be priced at the very inside of the
market at a price below $1.00 but temporarily unable to execute at its
full limit price due to the Exchange's priority rule and current order
handling procedures. The Exchange notes that by permitting a User's
Resting Order to rest at a locking price opposite a displayed order and
receive an execution against an incoming order that is priced equal to
or more aggressively than the displayed price, the Exchange is
incentivizing Users to post aggressively priced liquidity on both sides
of the market, rather than discouraging such liquidity by leaving
orders unexecuted. In addition, if the BYX Book changes so that such
orders are no longer resting or ranked opposite a displayed order, then
such orders will again be executable at their full limit price, and in
the case of price slid orders, will be displayed at that limit price.
The Exchange is proposing a solution to address specific conditions
that are present on the BYX Book when a BYX Post Only Order is
displayed opposite the ranked price of orders subject to display-price
sliding. The Exchange believes that such specific circumstances,
without modification of Rule 11.13(a)(4), would be present upon the
expansion of BYX Post Only Order functionality to securities priced
below $1.00 and would result in Users receiving fewer executions than
the Exchange could otherwise facilitate. The Exchange believes the
proposed change to Rule 11.13(a)(4)(D) is substantially similar to the
order handling modification proposed and ultimately approved by the
Resting Order Execution Filing and does not introduce any novel order
handling behavior that has not previously been proposed. While the
Exchange is proposing to use a full minimum price variation rather than
the one-half minimum price variation currently used for securities
priced at or above $1.00 as detailed in the Resting Order Execution
Filing, the minimum price variation for securities priced below $1.00
is commensurate with the standard minimum pricing increment for
securities priced below $1.00.
The Exchange believes the absence of price improvement for the
incoming order is diminished by the incoming order's ability to receive
an execution on the Exchange against the Resting Order, rather than
receive a cancellation or be posted to the BYX Book (depending on User
instruction). Further, the Exchange believes that Users who receive
increased execution rates on BYX will be more likely to submit
additional order flow to the Exchange. Additional increased order flow
benefits all market participants by contributing to a deeper, more
liquid market and provides even more execution opportunities for active
market participants. Additionally, this difference is necessary due to
System
[[Page 5586]]
limitations that do not support executions out to five decimal places
($0.00001) in securities priced below $1.00, which would occur should
the Exchange utilize the same minimum price variation described in the
Resting Order Execution Filing. The proposal to amend Rule
11.13(a)(4)(D) is limited to certain circumstances that occur as a
result of the presence of a BYX Post Only Order resting opposite a Non-
Displayed Order or order subject to display-price sliding and is
designed to optimize available liquidity for incoming orders.
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.\30\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \31\ 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) \32\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
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\30\ 15 U.S.C. 78f(b).
\31\ 15 U.S.C. 78f(b)(5).
\32\ Id.
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As discussed above, the Exchange is proposing to expand its BYX
Post Only Order functionality to securities priced below $1.00. In
conjunction with expanding the ability to utilize BYX Post Only Orders
at prices below $1.00, the Exchange also proposes that a Resting Order
priced below $1.00 be permitted to execute at one minimum price
variation above the locking price (in the event of a Resting Order
offer) or one minimum price variation below the locking price (in the
event of a Resting Order bid) in the event that an order submitted to
the Exchange on the side opposite such Resting Order is a market or
limit order priced more aggressively than the locking price. This
change in order handling behavior is necessary in order to address
specific conditions that are present on the BYX Book when a BYX Post
Only Order is displayed opposite the ranked price of orders subject to
display-price sliding. As discussed below, the Exchange believes its
proposal is consistent with Section 6(b)(5) of the Act.
In particular, the proposal to amend Rule 11.9(c)(6) to permit
orders priced below $1.00 to utilize BYX Post Only Order functionality
promotes just and equitable principles of trade and removes impediments
to, and perfects the mechanism of a free and open market and a national
market system because it will allow Users to enter orders with a BYX
Post Only instruction at any price, rather than being limited to
securities priced above $1.00. The growth in trading of sub-dollar
securities has expanded significantly since 2019 and as such, the
Exchange believes that orders at all prices, not only securities priced
above $1.00, should be permitted to utilize BYX Post Only Order
functionality, which will permit orders to post on the Exchange without
removing liquidity or routing to away to another trading center. BYX
Post Only Orders allow Users to post aggressively priced liquidity, as
such Users have certainty as to the fee or rebate they will receive
from the Exchange if their order is executed. Without such ability, the
Exchange believes that certain Users would simply post less
aggressively priced liquidity, and prices available for market
participants, including retail investors, would deteriorate.
Accordingly, the Exchange believes that BYX Post Only Orders enhance
the liquidity available to all market participants by allowing market
makers and other liquidity providers to add liquidity to the Exchange
at or near the inside of the market. Indeed, such market participants
have asked the Exchange to implement such functionality in order to
permit them to utilize a single trading strategy across securities at
all prices. Allowing BYX Post Only Orders to be utilized at prices
below $1.00 will deepen the Exchange's pool of available liquidity in
sub-dollar securities, which is a growing area of trading, particularly
for retail investors. A deeper and more liquid market supports the
quality of price discovery, promotes market transparency, and improves
market quality for all investors. The Exchange does not believe that
the proposed amendment to Rule 11.9(c)(6) is unfairly discriminatory as
it will permit the BYX Post Only Order type to be used by all Users at
any price and the order type will no longer be limited to securities
priced at or above $1.00.
Similarly, the proposal to amend Rule 11.13(a)(4)(D) to allow,
under limited circumstances, a Resting Order priced below $1.00 that
would otherwise be non-executable due to the presence of a BYX Post
Only Order to execute at one minimum price variation above (below) the
locking price upon receipt of an incoming, marketable offer (bid) that
would otherwise be prohibited from executing due to the presence of a
BYX Post Only Order promotes just and equitable principles of trade and
removes impediments to, and perfects the mechanism of a free and open
market and a national market system because it extends functionality
currently available to orders priced at or above $1.00 to orders priced
below $1.00, with a slight difference in the minimum price variation to
account for the System's inability to display orders out to five
decimal places ($0.00001). The proposed amendment to Rule
11.13(a)(4)(D) is substantially similar to the order handling behavior
change that was proposed (and later approved) by the Resting Order
Execution Filing and will only serve to improve execution quality for
participants sending orders to the Exchange.
The Exchange does not believe that the treatment of sub-dollar
securities is unfairly discriminatory as the Exchange will be using the
standard minimum pricing increment for sub-dollar securities in order
to determine the price at which the Resting Order is eligible to
execute.\33\ While the Exchange recognizes that under its proposal for
securities priced below $1.00 results in a limited situation in which
only the Resting Order will receive $0.0001 of price improvement (i.e.,
when an incoming order is entered at the same price as the displayed
price of the Resting Order), the Exchange believes the incoming,
contra-side order is receiving the benefit of immediate execution
rather than cancelling or posting to the BYX Book (depending on User
instruction), which will result in higher overall market quality and
likelihood of execution on BYX for Users. In situations where the
incoming order is entered at a more aggressive price than the displayed
price of the Resting Order, however, each side of the transaction will
receive at least $0.0001 of price improvement, which is substantially
similar to how the order handling functionality works for securities
priced at or above $1.00. The Exchange believes the proposed change to
execute marketable orders that are
[[Page 5587]]
currently not executed under specific scenarios will help provide price
improvement to Resting Orders that, in these limited circumstances,
otherwise would not receive an execution even though their order is
priced at the inside of the market and would also provide increased
execution opportunities to aggressively priced incoming orders rather
than requiring these orders to be cancelled or post to the BYX Book.
Thus, the Exchange believes that its proposed order handling process in
the limited scenario where a Resting Order is ineligible to execute due
to the presence of a contra-side BYX Post Only Order will benefit
market participants and their customers by allowing them greater
flexibility in their efforts to fill orders and minimize trading costs.
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\33\ Supra note 26.
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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 intramarket competition that is not necessary or
appropriate in furtherance of the purposes of the Act. The proposed
change to Rule 11.9(c)(6) will apply equally to all Users in that all
Users will be eligible to utilize the BYX Post Only Order for
securities priced below $1.00. Similarly, the proposed change to Rule
11.13(a)(4)(D) applies equally to all Users in that all Resting Orders
will benefit from the proposed order handling behavior change that will
execute Resting Orders at one minimum price variation above (below) the
locking price upon the receipt of a marketable offer (bid) should a
Resting Order be ineligible to execute due to the presence of a contra-
side BYX Post Only Order. The proposed changes are designed to expand
an existing Exchange order type and existing order handling behavior to
securities priced below $1.00 due to the growth in sub-dollar trading
that has been seen since 2019. Further, the Exchange does not believe
that Users submitting incoming, contra-side orders are burdened by
virtue of not receiving price improvement in limited situations as they
instead receive the benefit of an immediate execution as opposed to
being cancelled back to the User or posting on the BYX Book which
results in increased overall market quality and a higher likelihood of
execution on BYX.
The Exchange similarly 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. In
fact, the Exchange notes that other exchanges already offer the ability
to submit an order that is not eligible for routing to away markets and
posts to the relevant exchange book at prices below $1.00.\34\ The
Exchange believes its proposal to expand the use of the BYX Post Only
Order to securities priced below $1.00 will promote competition between
the Exchange and other exchanges for volume in sub-dollar securities.
Furthermore, the Exchange believes its proposal will promote
competition between the Exchange and off-exchange trading venues, where
a significant amount of sub-dollar trading occurs today.\35\ The
Exchange similarly believes that its proposal to amend its order
handling behavior in limited circumstances where a Resting Order cannot
execute due to the presence of a contra-side BYX Post Only Order does
not impose a burden on intermarket competition as the change is not
designed to address any competitive issue, but rather to address order
handling behavior in a substantially similar manner to how the Exchange
treats Resting Orders priced at or above $1.00 in the limited scenario
where a Resting Order is ineligible to execute against an incoming,
marketable order due to the presence of a contra-side BYX Post Only
Order.
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\34\ See Nasdaq Equity 4, Rule 4702(b)(4) (``Post-Only Order'').
See also NYSE Rule 7.31(e)(2) (``ALO Order'').
\35\ See ``Off-Exchange Trends: Beyond Sub-dollar Trading'' (May
17, 2023). Available at https://www.cboe.com/insights/posts/off-exchange-trends-beyond-sub-dollar-trading/.
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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
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 (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
file number SR-CboeBYX-2024-003 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-CboeBYX-2024-003. 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-CboeBYX-2024-003 and should
be submitted on or before February 20, 2024.
[[Page 5588]]
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\36\
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\36\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-01617 Filed 1-26-24; 8:45 am]
BILLING CODE 8011-01-P