[Federal Register Volume 89, Number 19 (Monday, January 29, 2024)]
[Notices]
[Pages 5596-5601]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-01618]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-99414; File No. SR-CboeBZX-2024-006]


Self-Regulatory Organizations; Cboe BZX 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 BZX 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 BZX Exchange, Inc. (the ``Exchange'' or 
``BZX'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I, 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

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 
amend Rule 11.9(c)(6) and Rule 11.13(a)(4)(D) to permit the use of BZX 
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/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
    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 
313% 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

[[Page 5597]]

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\
---------------------------------------------------------------------------

    \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 5.
    \8\ Id.
---------------------------------------------------------------------------

    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 BZX Post Only 
Order to post to the BZX Book \9\ at prices below $1.00. As defined in 
Rule 11.9(c)(6), a BZX 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 BZX Book. . .''. Accordingly, a BZX Post Only Order does not 
remove liquidity, but rather posts to the BZX 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 BZX 
Book. The Exchange believes the proposed changes will provide Users 
\10\ 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.
---------------------------------------------------------------------------

    \9\ See Rule 1.5(e). The BZX Book means the System's electronic 
file of orders.
    \10\ 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.
---------------------------------------------------------------------------

    Currently, BZX Post Only Orders priced below $1.00 are 
automatically treated as orders that remove liquidity.\11\ In order to 
permit a BZX Post Only Order to post to the BZX Book at prices below 
$1.00, the Exchange proposes to amend Rule 11.9(c)(6) to remove 
language that states that a BZX Post Only Order ``will remove contra-
side liquidity from the BZX Book if the order is an order to buy or 
sell a security priced below $1.00. . .''. While the Exchange's 
economic best interest calculation \12\ will remain the same as is 
currently in-place for securities priced at or above $1.00, the impact 
of this proposal will modify the outcome of BZX Post Only Orders in 
securities priced below $1.00 for Users who choose to utilize this 
particular order type. Under this proposal, BZX 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 BZX Post 
Only Orders in securities priced below $1.00 in order to allow Users to 
operate a single trading 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 BZX Post Only Orders in securities priced below $1.00.
---------------------------------------------------------------------------

    \11\ BZX Post Only Orders in securities priced at or above $1.00 
remove contra-side liquidity only if the value of such execution 
when removing liquidity equals or exceeds the value of such 
execution if the order instead posted to the BZX Book and 
subsequently provided liquidity. The Exchange does not propose to 
change the functionality of BZX Post Only Orders in securities 
priced at or above $1.00.
    \12\ The Exchange's economic best interest calculation 
determines whether the value of price improvement associated with a 
BZX 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 BZX Book and subsequently provided 
liquidity. The determination of whether a BZX Post Only Order will 
be allowed to post to the BZX Book or be eligible to remove 
liquidity is based on the current fee schedule, the execution price, 
and the amount of price improvement received.
---------------------------------------------------------------------------

    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 \13\ 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 BZX Post Only Order to be executed at one minimum price 
variation less aggressive than the order's most aggressive price.\14\ 
Currently, similar order handling behavior applies only to securities 
priced at or above $1.00.\15\ 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.\16\ 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.
---------------------------------------------------------------------------

    \13\ See Rule 11.9(c)(11). A ``Non-Displayed Order'' is a market 
or limit order that is not displayed on the Exchange.
    \14\ See Securities Exchange Act Release No. 64475 (May 12, 
2011), 76 FR 28830 (May 18, 2011), SR-BATS-2011-015 (``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.
    \15\ See Rule 11.13(a)(4)(D).
    \16\ See Resting Order Execution Filing footnote 8.
---------------------------------------------------------------------------

    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,\17\ which cannot 
process executions out to five decimal places.
---------------------------------------------------------------------------

    \17\ 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.
---------------------------------------------------------------------------

    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 BZX Book.

[[Page 5598]]



------------------------------------------------------------------------
                            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).\18\ 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.\19\ 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.\20\
---------------------------------------------------------------------------

    \18\ 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 BZX Book and displayed by the System at one minimum price 
variation below the current NBO (for bids) or to one minimum price 
variation above the current NBB (for offers) (``display-price 
sliding'').
    \19\ 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)(i). 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. See also Rule 11.9(g)(1)(A)(ii).
    \20\ Id.
---------------------------------------------------------------------------

     Next, assume the Exchange received an incoming BZX 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 BZX Book and display at a price 
of $0.50. BZX Post Only Orders are permitted to post and be displayed 
opposite the ranked price of orders subject to display-price 
sliding.\21\ The result is depicted as follows:
---------------------------------------------------------------------------

    \21\ See Rule 11.9(g)(1)(E).

------------------------------------------------------------------------
                            Bid                              Offer
------------------------------------------------------------------------
National best:        $0.50            x               $0.5001
BZX best:             $0.50            x               $0.5001
------------------------------------------------------------------------

     The Exchange then receives an IOC \22\ 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.
---------------------------------------------------------------------------

    \22\ 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 BZX Book.
---------------------------------------------------------------------------

    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 \23\ priced at 
or above $1.00 at one-half minimum price 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.
---------------------------------------------------------------------------

    \23\ 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 BZX Book opposite a displayed order.
---------------------------------------------------------------------------

    In the example above, Order 1, ranked at $0.50 upon entry, was slid 
to a displayed price of $0.5001 pursuant to Rule 11.9(g)(1)(A) as it 
locked the NBB. Upon the arrival of Order 2, which is a BZX Post Only 
Order that is permitted to post to the BZX Book and display opposite of 
Order 1,\24\ 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.
---------------------------------------------------------------------------

    \24\ Supra note 18.
---------------------------------------------------------------------------

    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.\25\ 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.\26\
---------------------------------------------------------------------------

    \25\ 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 result in trades 
executing out to five decimal places, which is not supported by the 
System.
    \26\ 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.
---------------------------------------------------------------------------

    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 BZX Post Only Order in order to 
optimize available liquidity for incoming orders and to provide price 
improvement for market participants.\27\ 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.\28\ 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

[[Page 5599]]

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 a price equal 
to 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 BZX Book (depending on User 
instruction), which will result in higher overall market quality and 
likelihood of execution on BZX 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.
---------------------------------------------------------------------------

    \27\ See Resting Order Execution Filing at 28831
    \28\ Id.
---------------------------------------------------------------------------

    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 BZX 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 BZX Book when a BZX 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 BZX 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 proposed 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 BZX Book (depending on User 
instruction). Further, the Exchange believes that Users who receive 
increased execution rates on BZX 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 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 BZX 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.\29\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \30\ 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) \31\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
---------------------------------------------------------------------------

    \29\ 15 U.S.C. 78f(b).
    \30\ 15 U.S.C. 78f(b)(5).
    \31\ Id.
---------------------------------------------------------------------------

    As discussed above, the Exchange is proposing to expand its BZX 
Post Only Order functionality to securities priced below $1.00. In 
conjunction with expanding the ability to utilize BZX 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 BZX Book when a BZX 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 BZX 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 BZX 
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 BZX Post Only Order 
functionality, which will permit orders to post on the Exchange without 
removing liquidity or routing to away to another trading center. BZX 
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

[[Page 5600]]

market participants, including retail investors, would deteriorate. 
Accordingly, the Exchange believes that BZX 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 BZX 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 BZX 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 BZX Post 
Only Order to execute at one minimum price variation above (below) the 
locking price upon the receipt of an incoming, marketable offer (bid) 
that would otherwise be prohibited from executing due to the presence 
of a BZX 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.\32\ 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 BZX Book (depending on User 
instruction), which will result in higher overall market quality and 
likelihood of execution on BZX 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, 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 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 BZX 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 BZX 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.
---------------------------------------------------------------------------

    \32\ Supra note 25.
---------------------------------------------------------------------------

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 BZX 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 BZX 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 BZX Book which 
results in increased overall market quality and a higher likelihood of 
execution on BZX.
    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.\33\ The 
Exchange believes its proposal to expand the use of the BZX 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.\34\ 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 BZX 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 BZX Post Only 
Order.
---------------------------------------------------------------------------

    \33\ See Nasdaq Equity 4, Rule 4702(b)(4) (``Post-Only Order''). 
See also NYSE Rule 7.31(e)(2) (``ALO Order'').
    \34\ 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/.

---------------------------------------------------------------------------

[[Page 5601]]

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-CboeBZX-2024-006 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-2024-006. 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-CboeBZX-2024-006 and should 
be submitted on or before February 20, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\35\
---------------------------------------------------------------------------

    \35\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-01618 Filed 1-26-24; 8:45 am]
BILLING CODE 8011-01-P