[Federal Register Volume 89, Number 26 (Wednesday, February 7, 2024)]
[Notices]
[Pages 8460-8466]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-02414]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-99458; File No. SR-CboeEDGA-2024-003]


Self-Regulatory Organizations; Cboe EDGA Exchange, Inc.; Notice 
of Filing of a Proposed Rule Change To Amend Rule 11.6(n)(4) and Rule 
11.10(a)(4)(D) To Permit the Use of the Post Only Order Instruction at 
Prices Below $1.00

February 1, 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 19, 2024, Cboe EDGA Exchange, Inc. (the ``Exchange'' or 
``EDGA'') 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.
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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 EDGA Exchange, Inc. (the ``Exchange'' or ``EDGA'') proposes to 
amend Rule 11.6(n)(4) and Rule 11.10(a)(4)(D) to permit the use of the 
Post Only order instruction 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/edga/), 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

[[Page 8461]]

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 11.6(n)(4) in order to permit an order 
containing a Post Only instruction to post to the EDGA Book \9\ at 
prices below $1.00. As defined in Rule 11.6(n)(4), a Post Only 
instruction is ``[a]n instruction that may be attached to an order that 
is to be ranked and executed on the Exchange pursuant to Rule 11.9 and 
Rule 11.10(a)(4) or cancelled, as appropriate, without routing away to 
another trading center except that the order will not remove liquidity 
from the EDGA Book. . .''. Accordingly, an order containing a Post Only 
instruction does not remove liquidity, but rather posts to the EDGA 
Book to the extent permissible. Additionally, the Exchange proposes to 
amend Rule 11.10(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 EDGA 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. While the Exchange believes that expanding the use of the 
Post Only instruction 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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    \9\ See Rule 1.5(d). The EDGA Book means the System's electronic 
file of orders.
    \10\ See Rule 1.5(ee). 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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    Currently, orders containing a Post Only instruction priced below 
$1.00 are automatically treated as orders that remove liquidity.\11\ In 
order to permit an order containing a Post Only instruction to post to 
the EDGA Book at prices below $1.00, the Exchange proposes to amend 
Rule 11.6(n)(4) to remove language that states that an order containing 
a Post Only instruction ``will remove contra-side liquidity from the 
EDGA 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 for orders containing a Post Only instruction in 
securities priced below $1.00 for Users who choose to utilize this 
particular order type. Orders containing a Post Only instruction 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.\13\ The 
Exchange has received User feedback requesting the ability to utilize 
orders containing a Post Only instruction 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 
advantage for Users who choose to utilize a Post Only instruction in 
securities priced below $1.00.
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    \11\ Orders containing a Post Only instruction 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 EDGA 
Book and subsequently provided liquidity. The Exchange does not 
propose to change the functionality of orders containing a Post Only 
instruction 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 an 
order containing a Post Only instruction 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 EDGA Book and 
subsequently provided liquidity. The determination of whether an 
order containing a Post Only instruction will be allowed to post to 
the EDGA Book or be eligible to remove liquidity is based on the 
current fee schedule, the execution price, and the amount of price 
improvement received.
    \13\ The Exchange notes that EDGA currently offers a flat 
pricing structure for securities priced below $1.00 in which it does 
not assess any fees to Users that add liquidity or pay any rebates 
to Users that remove liquidity. For securities priced at or above 
$1.00, EDGA pays rebates to Users that remove liquidity and assesses 
fees to Users that add liquidity. All orders containing a Post Only 
instruction in securities priced at or above $1.00 are permitted to 
remove liquidity, as the Exchange's economic best interest 
calculation does not result in an economic benefit for Users.
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    Under the Exchange's current fee schedule, orders containing a Post 
Only instruction in securities priced below $1.00 will not result in an 
economic benefit for Users and as such, securities priced below $1.00 
containing a Post Only instruction will be permitted to remove 
liquidity upon entry. The Exchange is proposing to update the rule text 
to permit orders priced below $1.00 to include a Post Only instruction 
in order to maintain consistency with its affiliate exchanges (Cboe BYX 
Exchange, Inc. (``BYX''), Cboe BZX Exchange, Inc. (``BZX''), and Cboe 
EDGX Exchange, Inc. (``EDGX''). Functionally, there will be no change 
to how an order containing a Post Only instruction is treated (i.e., an 
order priced below $1.00 will continue to be permitted to remove 
liquidity just as it is today), however the ability of the order to 
remove liquidity will be the result of the Exchange's economic best 
interest calculation rather than the treatment of the order based on 
current rule text. If, in the future, the Exchange modifies its fee 
schedule such that there would be an economic benefit for orders priced 
below $1.00 containing a Post Only instruction to post to the EDGA Book 
rather than remove liquidity upon entry, then the proposed changes 
would result in a different outcome for Users who choose to submit 
orders containing a Post Only instruction in securities priced below 
$1.00.
    In addition to the proposed amendment to Rule 11.6(n)(4), 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 order containing a Post Only instruction to be executed at 
one minimum price variation less aggressive than the order's most 
aggressive price.\15\ Currently, similar order handling behavior is 
codified for securities priced at or above $1.00 in Rule 11.6(n)(4), 
but the Exchange's current fee schedule does not provide an economic 
benefit for orders containing a Post Only instruction to post to the 
EDGA Book, and as such, the order handling functionality is not 
currently

[[Page 8462]]

applicable.\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 EDGA Order Handling Filing to securities priced below 
$1.00 should the Exchange modify its fee schedule such that Users 
receive an economic benefit to utilize orders containing a Post Only 
instruction.
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    \14\ See Rule 11.6(e)(2). A User may attach a ``Non-Displayed 
Order'' instruction to an order stating that the order is not to be 
displayed by the System on the EDGA Book.
    \15\ See Securities Exchange Act Release No. 75700 (August 14, 
2015), 80 FR 50689 (August 20, 2015), SR-EDGA-2015-33 (``EDGA Order 
Handling Filing''). See also 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'') on the Exchange's affiliate, 
BZX (BATS) Exchange in 2011 and is incorporated by reference in the 
EDGA Order Handling Filing. 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 11.10(a)(4)(D).
    \17\ See Resting Order Execution Filing footnote 8.
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    Rule 11.10(a)(4)(D) states that for securities priced above $1.00, 
incoming orders that are Market Orders \18\ or Limit Orders \19\ priced 
more aggressively than an order displayed on the EDGA Book, 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 an order displayed on the EDGA Book, 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,\20\ which cannot process executions out 
to five decimal places.
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    \18\ See Rule 11.8(a). A ``Market Order'' is an order to buy or 
sell a stated amount of a security that is to be executed at the 
NBBO or better when the order reaches the Exchange.
    \19\ See Rule 11.8(b). A ``Limit Order'' is an order to buy or 
sell a stated amount of a security at a specified price or better.
    \20\ See Rule 1.5(cc). 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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    As stated previously, the Exchange is proposing changes to its rule 
text in order to maintain consistency with its affiliate exchanges, but 
so long as the current EDGA fee schedule remains in place, orders 
containing a Post Only instruction in securities priced below $1.00 
will continue to remove liquidity upon entry and the proposed order 
handling behavior change will not take effect, as no orders containing 
a Post Only instruction will be posted on the EDGA Book. The Exchange 
has included the following example to demonstrate the proposed changes, 
which shall only become effective should the Exchange modify its fee 
schedule such that Users receive an economic benefit to utilize orders 
containing a Post Only instruction.

Example 1

     Assume the NBB is $0.50 and the NBO is $0.53. There is no 
resting interest on the EDGA Book.

------------------------------------------------------------------------
                                                Bid              Offer
------------------------------------------------------------------------
National best..............................    $0.50      x       $0.53
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     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 11.6(l).\21\ Pursuant to Rule 
11.6(l), Order 1 is temporarily slid to a displayed price of $0.5001 as 
it locked the NBB upon entry.\22\ 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.\23\
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    \21\ See Rule 11.6(l)(1)(B)(i). An order instruction requiring 
that where an order would be a Locking Quotation or Crossing 
Quotation of an external market if displayed by the System on the 
EDGA Book at the time of entry, will be ranked at the Locking Price 
in the EDGA Book and displayed by the System at one Minimum Price 
Variation lower (higher) than the Locking Price for orders to buy 
(sell) (``Display-Price Sliding'').
    \22\ 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 
11.6(l)(1)(B)(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 11.6(l)(1)(B)(ii).
    \23\ Id.
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     Next, assume the Exchange received an incoming bid 
containing a Post Only instruction (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 EDGA Book and 
display at a price of $0.50. Orders containing a Post Only instruction 
are permitted to post and be displayed opposite the ranked price of 
orders subject to Display-Price Sliding.\24\ The result would be 
depicted as follows:
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    \24\ See Rule 11.6(l)(1)(B)(v).

------------------------------------------------------------------------
                                                 Bid             Offer
------------------------------------------------------------------------
National best................................    $0.50     x     $0.5001
EDGA best....................................     0.50     x      0.5001
------------------------------------------------------------------------

     The Exchange then receives an IOC \25\ 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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    \25\ See Rule 11.6(q)(1). ``IOC'' is an instruction the User may 
attach to an order stating the order 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 EDGA Book.
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    Consistent with the Exchange's rule regarding priority of orders, 
Rule 11.9, a Non-Displayed Order cannot be executed by the Exchange 
pursuant to Rule 11.10 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 EDGA Order 
Handling Filing granted the Exchange the ability to execute Non-
Displayed Orders and orders subject to NMS Price Sliding \26\ 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.
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    \26\ 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 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 priced of $0.5001 pursuant to Rule 11.6(l)(1)(B)(i) as 
it locked the NBB. Upon the arrival of Order 2, which is an order 
containing a Post Only instruction that is permitted to post to the 
EDGA Book and display opposite of Order 1, \27\ 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

[[Page 8463]]

locking price ($0.50). Without the proposed changes to Rule 
11.10(a)(4)(D), Order 3 would be cancelled upon entry at is cannot 
execute at a price of $0.50 due to Order 2's higher priority status.
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    \27\ Supra note 21.
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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.\28\ This 
behavior is substantially similar to the order handling functionality 
described in the EDGA Order Handling 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 EDGA Order 
Handling 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 at a price of $0.5001 and Order 3 would 
receive price improvement equal to the difference between its limit 
price and $0.5001.\29\
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    \28\ 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 
execution out to five decimal places, which is not supported by the 
System.
    \29\ 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 EDGA Order Handling 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 an order containing a Post Only 
instruction in order to optimize available liquidity for incoming 
orders and to provide price improvement for market participants.\30\ 
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 11.9.\31\ The Exchange recognizes that 
the order handling behavior for securities priced at or above $1.00 
described in the EDGA Order Handling 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 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 EDGA Book (depending on User instruction), which will 
result in higher overall market quality and likelihood of execution on 
EDGA 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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    \30\ See Resting Order Execution Filing at 28831.
    \31\ 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 EDGA 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 EDGA Book when an order containing a Post Only 
instruction is displayed opposite the ranked price of orders subject to 
display-price sliding. The Exchange believes that such specific 
circumstances, without modification of Rule 11.10(a)(4), would be 
present upon the expansion of Post Only instruction 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 11.10(a)(4)(D) is substantially 
similar to the order handling modification proposed and ultimately 
approved by the EDGA Order Handling 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 EDGA Order 
Handling 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 EDGA Book (depending on User 
instruction). Further, the Exchange believes that Users who received 
increased execution rates on EDGA 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 EDGA Order Handling Filing. The proposal to amend Rule 
11.10(a)(4)(D) is limited to certain circumstances that occur as a 
result of the presence of an order containing a Post Only instruction 
resting opposite a Non-Displayed Order or order subject to Display-
Price Sliding and is designed to optimize available

[[Page 8464]]

liquidity for incoming orders. As previously discussed, the proposed 
changes to Rule 11.10(a)(4)(D) will only modify current order handling 
functionality should the Exchange modify its fee schedule such that 
Users entering orders containing a Post Only instruction in securities 
priced below $1.00 receive an economic benefit for such order posting 
to the EDGA Book. The proposed change to Rule 11.10(a)(4)(D) is being 
proposed in order to keep the EDGA rulebook aligned with the rulebooks 
of the Exchange's affiliates. The Exchange also proposes to make a 
change to Rule 11.10(a)(4)(C) in order to correct a reference to 
subparagraph (d) in order to properly reflect subparagraph (D).
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.\32\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \33\ 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) \34\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \32\ 15 U.S.C. 78f(b).
    \33\ 15 U.S.C. 78f(b)(5).
    \34\ Id.
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    As discussed above, the Exchange is proposing to expand the use of 
its Post Only instruction to securities priced below $1.00.\35\ In 
conjunction with expanding the ability to utilize a Post Only 
instruction 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 EDGA Book when an order 
containing a Post Only instruction is displayed opposite the ranked 
price of orders subject to display-price sliding. The Exchange notes, 
however, that as the economic best interest calculation will not result 
in an economic benefit for Users utilizing the Post Only instruction 
for securities priced below $1.00, orders containing a Post Only 
instruction will continue to remove liquidity from EDGA and the 
proposed changes are simply being made to align the EDGA rulebook with 
the rulebooks of its affiliate exchanges. As discussed below, the 
Exchange believes its proposal is consistent with Section 6(b)(5) of 
the Act.
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    \35\ As stated previously, securities priced below $1.00 will 
continue to remove liquidity from the EDGA Book, however this will 
be the result of the Exchange's economic best interest calculation 
and not language in the rule text that directs the Exchange to treat 
orders containing a Post Only instruction as liquidity-removing 
orders.
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    In particular, the proposal to amend Rule 11.6(n)(4) to permit 
orders priced below $1.00 to utilize a Post Only instruction 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 Post Only 
instruction at any price, rather than being limited to securities 
priced above $1.00, should the Exchange amend its fee schedule such 
that Users receive an economic benefit for having an order containing a 
Post Only instruction that posts to the EDGA Book. 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 a Post 
Only instruction. A Post Only instruction allows Users to post 
aggressively priced liquidity, and 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 orders containing 
a Post Only instruction 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, 
should the Exchange amend its fee schedule such that Users which submit 
orders containing a Post Only instruction receive an economic benefit 
when the order posts to the EDGA Book.
    Allowing an order containing a Post Only instruction to be utilized 
at prices below $1.00 in the future, should the Exchange choose to 
amend its fee schedule, 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. Indeed, such market 
participants have asked the Exchange to implement such functionality 
across the Exchange's affiliates in order to permit them to utilize a 
single trading strategy across securities at all prices and the 
Exchange is proposing to update its rulebook in order to maintain 
consistency with its affiliates, even as the Exchange's current fee 
structure does not result in the economic benefit necessary for orders 
containing a Post Only instruction to post to the EDGA Book. The 
Exchange does not believe that the proposed amendment to Rule 
11.6(n)(4) is unfairly discriminatory as it will permit the Post Only 
instruction to be used by all Users at any price and the order 
instruction will no longer be limited to securities priced at or above 
$1.00, should the Exchange amend its fee schedule such that Users will 
receive an economic benefit when an order containing a Post Only 
instruction posts to the EDGA Book.
    Similarly, the proposal to amend Rule 11.10(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 an order 
containing a Post Only instruction 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 an order containing a Post Only 
instruction 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

[[Page 8465]]

11.10(a)(4)(D) is substantially similar to the order handling behavior 
change that was proposed (and later approved) by the Resting Order 
Execution Filing on the Exchange's affiliate, BZX Exchange, and 
subsequently by the EDGA Order Handling Filing, and will only serve to 
improve execution quality for participants sending orders to the 
Exchange. The Exchange notes, however, that under the current fee 
schedule, orders containing a Post Only instruction will continue to 
remove liquidity rather than post to the EDGA Book, and as such, the 
proposed amendment to Rule 11.10(a)(4)(D) will not have any affect on 
order behavior unless the Exchange amends its fee schedule and orders 
containing a Post Only instruction are permitted to post to the EDGA 
Book.
    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 priced at which the Resting Order is eligible to 
execute.\36\ 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 EDGA Book (depending on User 
instruction), which will result in higher overall market quality and 
likelihood of execution on EDGA 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 EDGA 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 order containing a Post Only instruction will benefit 
market participants and their customers by allowing them greater 
flexibility in their efforts to fill orders and minimize trading costs, 
should the Exchange amend its fee schedule such that Users will receive 
an economic benefit when an order containing a Post Only instruction 
posts to the EDGA Book.
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    \36\ Supra note 28.
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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 11.6(n)(4) will apply equally to all Users in that all 
Users will be eligible to utilize the Post Only instruction for 
securities priced below $1.00. Similarly, the proposed change to Rule 
11.10(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 order containing a Post Only instruction. 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 EDGA Book which results in increased overall market quality and a 
higher likelihood of execution on EDGA. The proposed changes are 
designed to align the Exchange rulebook with the rulebooks of its 
affiliate exchanges and provide the Exchange an opportunity to expand 
an existing Exchange order instruction and existing order handling 
behavior to securities priced below $1.00 should the Exchange amend its 
fee schedule in the future due to the growth in sub-dollar trading that 
has been seen since 2019.
    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.\37\ The 
Exchange believes its proposal to expand the use of the Post Only 
instruction to securities priced below $1.00 will promote competition 
between the Exchange and other exchanges for volume in sub-dollar 
securities should the Exchange amend its fee schedule such that Users 
will receive an economic benefit when an order containing a Post Only 
instruction posts to the EDGA Book. 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.\38\ The Exchange similarly believes that its 
proposal to grant it the ability to amend its order handling behavior 
in limited circumstances where a Resting Order cannot execute due to 
the presence of a contra-side order containing a Post Only instruction 
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 order 
containing a Post Only instruction.
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    \37\ See Nasdaq Equity 4, Rule 4702(b)(4) (``Post-Only Order''). 
See also NYSE Rule 7.31(e)(2) (``ALO Order'').
    \38\ 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.

[[Page 8466]]

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-CboeEDGA-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-CboeEDGA-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-CboeEDGA-2024-003 and should 
be submitted on or before February 28, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\39\
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    \39\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-02414 Filed 2-6-24; 8:45 am]
BILLING CODE 8011-01-P