[Federal Register Volume 89, Number 120 (Friday, June 21, 2024)]
[Notices]
[Pages 52148-52152]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-13540]



[[Page 52148]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-100337; File No. SR-CboeBYX-2024-009]


Self-Regulatory Organizations; Cboe BYX Exchange, Inc.; Notice of 
Filing of a Proposed Rule Change To Amend Exchange Rule 11.25(e) 
(``Priority and Execution of Orders'') To Allow Users To Utilize the 
Exchange's Match Trade Prevention Functionality When Entering Periodic 
Auction Orders Onto the Exchange for Execution

June 14, 2024.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on June 6, 2024, Cboe BYX Exchange, Inc. (``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 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 Exchange Rule 11.25(e) (``Priority and Execution of Orders'') to 
allow Users to utilize the Exchange's Match Trade Prevention 
functionality when entering Periodic Auction Orders onto the Exchange 
for execution. 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
    The Exchange proposes to amend Rule 11.25(e) to allow Users \3\ to 
utilize the Exchange's Match Trade Prevention (``MTP'') functionality 
when entering Periodic Auction Orders \4\ onto the Exchange for 
execution.\5\ By way of background, MTP is an existing process \6\ 
through which Users can prevent their incoming orders designated with a 
MTP modifier from executing against a resting opposite side order also 
designated with an MTP modifier and originating from the same market 
participant identifier (``MPID''), Exchange Member identifier, trading 
group identifier, Exchange Sponsored Participant identifier, affiliate 
identifier, or Multiple Access identifier (any such identifier, a 
``Unique Identifier'').\7\ Both the buy and the sell order must include 
the same Unique Identifier in order to prevent an execution from 
occurring and to effect a cancel instruction. MTP is a valuable tool 
for Exchange Users because it allows them to better manage order flow 
and prevent undesirable trading activity such as wash sales \8\ or 
self-trades \9\ that may occur because of the high-speed nature of 
trading in today's marketplace.
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    \3\ The term ``User'' shall mean any Member or Sponsored 
Participant who is authorized to obtain access to the System 
pursuant to Rule 11.3. See Rule 1.5(cc), definition of ``User''.
    \4\ The term ``Periodic Auction Order'' shall mean a ``Periodic 
Auction Only Order'' or ``Periodic Auction Eligible Order'' as those 
terms are defined in Rules 11.25(b)(1)-(2), and the term ``Periodic 
Auction Book'' shall mean the System's electronic file of such 
Periodic Auction Orders. See Rule 11.25(a)(6). Hereinafter, a 
Periodic Auction Only Order may be referred to as a ``PAO Order'', 
and a Periodic Auction Eligible Order may be referred to as a, ``PAE 
Order''.
    \5\ The Exchange plans to implement the proposed rule change on 
a date that will be circulated in a notice from the Cboe Trade Desk 
to all Members.
    \6\ The Exchange notes that previous proposals extending the 
functionality of MTP to other trading scenarios were effective upon 
filing with the Commission. See generally Securities and Exchange 
Act Release No. 53429 (December 3, 2010), 75 FR 76763 (December 9, 
2010) (SR-EDGX-2010-18); Securities and Exchange Act Release No. 34-
96292 (November 10, 20220), 87 FR 68766 (November 16, 2022) (SR-
CboeEDGX-2022-048).
    \7\ See Rule 11.9(f)--Match Trade Prevention (``MTP'') 
Modifiers.
    \8\ A ``wash sale'' is generally defined as a trade involving no 
change in beneficial ownership that is intended to produce the false 
appearance of trading and is strictly prohibited under both the 
federal securities laws and FINRA rules. See, e.g., 15 U.S.C. 
78i(a)(1); FINRA Rule 6140(b) (``Other Trading Practices'').
    \9\ Self-trades are ``transactions in a security resulting from 
the unintentional interaction of orders originating from the same 
firm that involve no change in beneficial ownership of the 
security.'' FINRA requires members to have policies and procedures 
in place that are reasonably designed to review trading activity 
for, and prevent, a pattern or practice of self-trades resulting 
from orders originating from a single algorithm or trading desk, or 
related algorithms or trading desks. See FINRA Rule 5210, 
Supplementary Material .02, available at: https://www.finra.org/rules-guidance/rulebooks/finra-rules/5210.
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    Currently, Rule 11.25(e) states that all MTP modifiers (as defined 
in Rule 11.9(f)(1)-(5)) for Periodic Auction Orders will be ignored for 
executions occurring during a Periodic Auction. As part of the 
Exchange's prior Periodic Auction Rule filings,\10\ the Exchange 
reasoned that MTP is mainly designed for use on the Continuous 
Book,\11\ and use of MTP for Periodic Eligible Orders \12\ and Periodic 
Auction Only Orders \13\ (collectively, Periodic Auction Orders) may 
complicate the execution of an auction that requires the pooling and 
matching of multiple orders against other orders at the Periodic 
Auction Book Price.\14\ Based on User feedback,

[[Page 52149]]

however, Users of Periodic Auctions desire the ability to utilize MTP 
for their Periodic Auction Orders outside of a Periodic Auction to help 
them manage their order flow and prevent undesirable executions against 
themselves. Users are not asking to utilize MTP for their Periodic 
Auction Orders when a Periodic Auction is occurring.
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    \10\ See Securities and Exchange Act Release No. 34-91423 (March 
26, 2021), 86 FR 17230 (April 1, 2021) (SR-CboeBYX-2020-021).
    \11\ The term ``Continuous Book'' shall mean an order on the BYX 
Book that is not a Periodic Auction Order, and the term ``Continuous 
Book'' shall mean the System's electronic file of such Continuous 
Book Orders. See Rule 11.25(a)(2), definition of ``Continuous Book 
Order''.
    \12\ ``A `Periodic Auction Eligible Order' is a non-displayed 
limit order eligible to trade on the Continuous Book that is entered 
with an instruction to also initiate a Periodic Auction, if possible 
. . . Periodic Auction Eligible Orders will be ranked as Non-
Displayed Limit Orders consistent with the priority of order 
outlined in Rule 11.12(a). An incoming Periodic Auction Eligible 
Order that is eligible both to trade on the Continuous Book and 
initiate a Periodic Auction against a Periodic Auction Only Order at 
the same price will trade immediately with the Continuous Book. 
Incoming Periodic Auction Eligible Orders will upon entry interact 
with Continuous Book Orders and other Periodic Auction Eligible 
Orders according to their rank under Rule 11.12(a). Periodic Auction 
Eligible Orders will not trade on the Continuous Book during a 
Periodic Auction Period in the security.'' See 11.25(b)(2).
    \13\ ``A `Periodic Auction Only Order' is a non-displayed limit 
order entered with an instruction to participate solely in Periodic 
Auctions pursuant to this Rule 11.25. Periodic Auction Only Orders 
are not eligible for executions on the Continuous Book.'' See Rule 
11.25(b)(1). Hereinafter, Periodic Auction Only Orders as, ``PAO 
Orders.''
    \14\ ``The term `Periodic Auction Book Price' shall mean the 
price within the Collar Price Range at which the most shares from 
the Periodic Auction Book would match. In the event of a volume-
based tied at multiple price-levels, the Periodic Auction Book Price 
will be the price that results in the minimum total imbalance. In 
the event of a volume-based tie and a tie in minimum total imbalance 
at multiple price levels, the Periodic Auction Book Price will be 
the price closest to the Volume Based Tie Breaker. The Periodic 
Auction Book Price will be expressed in the minimum increment for 
the security unless the midpoint of the NBBO establishes the 
Periodic Auction Book Price.'' See 11.25(a)(5), definition of 
``Periodic Auction Book Price''.
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    Accordingly, the Exchange now seeks to allow Users to utilize MTP 
when entering Periodic Auction Orders onto the Exchange.\15\ 
Importantly, allowing Users to designate Periodic Auction Orders with 
MTP modifiers will not impact how the Periodic Auction itself is 
conducted, and the proposed MTP functionality will not prevent the 
completion of a Periodic Auction once it has been initiated. As 
proposed, however, there will be instances where the Exchange has 
elected to temporarily bypass a User's MTP instruction. The Exchange 
believes this is necessary and appropriate to help strike a responsible 
balance between providing Users with an optional risk tool to prevent 
undesirable executions and ensuring that Periodic Auctions will 
complete. Moreover, the current architecture and design of Exchange 
Systems \16\ require that MTP for Periodic Auctions function as 
described.
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    \15\ The Exchange notes that previous proposals extending the 
functionality of MTP to other trading scenarios were effective upon 
filing with the Commission. See Securities and Exchange Act Release 
No. 53429 (December 3, 2010), 75 FR 76763 (December 9, 2010) (SR-
EDGX-2010-18); see also Securities and Exchange Act Release No. 34-
96292 (November 10, 20220), 87 FR 68766 (November 16, 2022) (SR-
CboeEDGX-2022-048).
    \16\ The term ``System'' shall mean the electronic 
communications and trading facility designed by the Board through 
which securities orders of Users are consolidated for ranking, 
execution and, when applicable, routing away. See Rule 1.5(aa), 
definition of ``System''.
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    To illustrate how Periodic Auction Orders designated with MTP 
modifiers will behave, the Exchange offers the following examples: \17\
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    \17\ For each example, assume that all trade prices are within 
the National Best Bid or National Best Offer (``NBBO''). 
Additionally, note that while Exchange Rule 11.9(f) provides for 
various MTP modifiers--including Cancel Newest, Cancel Oldest, 
Decrement and Cancel, Cancel Both, and Cancel Smallest--the Examples 
provided in this rule filing only demonstrate how certain of these 
modifiers will operate. Including examples for every possible MTP 
scenario would be difficult to efficiently demonstrate in a rule 
filing. Nevertheless, the MTP modifier exemplified in the provided 
Examples is not critical to understanding how the proposed 
functionality will operate because as demonstrated below, when a 
Periodic Auction is not in progress MTP will operate as it does 
today, and when a Periodic Auction is in progress, the System will, 
as described below, temporarily bypass an order's MTP instruction.
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Example 1: Two PAE Orders Matching--MTP Action Occurs
    Example 1 illustrates how MTP will operate when Firm A's resting 
PAE Order with an MTP modifier of MTP Cancel Oldest (``MCO''),\18\ 
interacts with a subsequent inbound PAE Order submitted by Firm A with 
an MTP modifier of MCO and a Periodic Auction is not in progress. Here, 
MTP operates in the same manner as it would for Continuous Book Orders 
\19\ and predictably cancels Firm A's Order 1, based on Firm A's Order 
2 MCO modifier, thereby preventing Firm A from potentially trading with 
itself either on the Continuous Book or during a Periodic Auction.\20\
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    \18\ MTP Cancel Oldest (``MCO'') is defined as ``[a]n incoming 
order marked with the ``MCO'' modifier will not execute against 
opposite side resting interest marked with any MTP modifier 
originating from the same Unique Identifier. The resting order 
marked with the MCO modifier will be cancelled back to the 
originating User(s). The incoming order marked with the MCO modifier 
will remain on the BYX Book. See Rule 11.9(f)(2).
    \19\ The term ``Continuous Book Order'' shall mean an order on 
the BYX Book that is not a Periodic Auction Order, and the term 
``Continuous Book'' shall mean System's electronic file of such 
Continuous Book Orders. See Rule 11.25(a)(2).
    \20\ As MTP action is controlled by the incoming order (``. . . 
the MTP modifier on the incoming order controls the interaction 
between two orders marked with MTP modifiers.'' See Rule 11.21(g)), 
Firm A's Order 1 was correctly cancelled in this situation. Note, 
however, that if Firm A's Order 2 had included an MTP modifier of 
MTP Cancel Newest (``MCN''), the result would simply be that Order 2 
is instead canceled. MTP Cancel Newest (``MCN'') is defined as 
``[a]n incoming order marked with the ``MCN'' modifier will not 
execute against opposite side resting interest marked with any MTP 
modifier originating from the same Unique Identifier. The incoming 
order marked with the MCN modifier will be cancelled back to the 
originating User(s). The resting order marked with an MTP modifier 
will remain on the BYX Book.'' See Rule 11.9(f)(1). Similarly, if we 
changed Order 1's MTP Modifier to Cancel Newest and Order 2 remained 
as MTP Cancel Oldest, Order 1 would be canceled as Order 2's 
instruction controls MTP action.

 Order 1--Resting (Firm A): PAE Order (MTP = Cancel Oldest), 
Buy 100 @ 1.00
 Order 2--Inbound order (Firm A): PAE Order (MTP = Cancel 
Oldest), Sell 200 @ 1.00
 Result: Order 1 is canceled.
Example 2: Two PAO Orders Matching--MTP Action Occurs
    Example 2 illustrates how MTP will operate when Firm A's resting 
PAO Order with an MTP Modifier of MCN, interacts with Firm A's inbound 
PAO Order with an MCN modifier, and a Periodic Auction is not in 
progress. Here, MTP operates in the same manner as it would for 
Continuous Book Orders and predictably cancels Firm A's Order 2 based 
on Order 2's MCN Modifier, thereby preventing Firm A from potentially 
trading with itself during a Periodic Auction.

 Order 1--Resting (Firm A): PAO Order (MTP = Cancel Newest), 
Buy 100 @ 1.00
 Order 2--Inbound order (Firm A): PAO Order (MTP = Cancel 
Newest), Sell 200 @ 1.00
 Result: Order 2 is canceled

    For the sake of clarity, the Exchange also wishes to explain what 
would happen to Order 2 if a Periodic Auction was in progress when 
Order 2 arrived. To address this scenario, assume an inbound Periodic 
Auction Order from Firm B--Order X--arrived between Order 1 and Order 
2, and initiated a Periodic Auction with Order 1. Here, when Order 2 
arrives, and the Periodic Auction is in progress, Order 2 would still 
be canceled. When a Periodic Auction is in progress, and an inbound 
Periodic Auction Order is designated with an MTP modifier, and such 
order matches against a resting contra-side order originating from the 
same Unique Identifier that is also designated with a MTP modifier, the 
inbound Periodic Auction Order will be canceled. This behavior will 
enable Users to better manage their order flow and prevent undesirable 
executions in Periodic Auctions, just as they do today for their 
Continuous Book orders.
Example 3: Incoming PAE Order Matching Against a PAO Order--MTP Action 
Occurs
    Example 3 illustrates how MTP will operate when Firm A's resting 
PAO Order with a MTP modifier of MTP Cancel Smallest (``MCS''),\21\ 
interacts with Firm A's inbound PAE Order with an MCS modifier, and an 
auction is not in progress. Here, MTP operates in the same manner as it 
would for Continuous Book Orders and predictably cancels Firm A's Order 
1 based on Firm A's Order 2 MCS modifier because Order 1 is smaller 
than Order 2, thereby preventing Firm A from potentially trading with 
itself during a Periodic Auction.
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    \21\ MTP Cancel Smallest (``MCS'') is defined as ``[a]n incoming 
order marked with the ``MCS'' modifier will not execute against 
opposite side resting interest marked with any MTP modifier 
originating from the same Unique Identifier. If both orders are 
equivalent in size, both orders will be cancelled back to the 
originating User(s). If the orders are not equivalent in size, the 
smaller of the two orders will be cancelled back to the originating 
User and the larger order will remain on the book. See Rule 
11.9(f)(5).

 Order 1--Resting (Firm A): PAO Order (MTP = Cancel Smallest), 
Buy 100 @ 1.00

[[Page 52150]]

 Order 2--Inbound order (Firm A): PAE Order (MTP = Cancel 
Smallest), Sell 200 @ 1.00
 Result: Order 1 is canceled.
Example 4: Incoming PAE Order Matching Against a Continuous Book 
Order--MTP Action Occurs
    Example 4 illustrates how MTP will operate when Firm A's incoming 
PAE Order with a MCS modifier, matches against Firm A's resting 
Continuous Book Order, and a Periodic Auction is not in progress. Here, 
Firm's A's Order 1 is canceled based on Firm A's Order 2 MCS modifier 
because Order 1 is smaller than Order 2. Because a PAE Order is 
eligible to receive an execution on the Continuous Book, and both Order 
1 and Order 2 are designated with MTP modifiers, the System correctly 
cancels Order 1, thereby preventing Firm A from potentially trading 
with itself on the Continuous Book.

 Order 1--Resting (Firm A): Continuous Book order (MTP = Cancel 
Smallest), Buy 100 @ 1.00
 Order 2--Inbound order (Firm A): PAE Order (MTP = Cancel 
Smallest), Sell 200 @ 1.00
 Result: Order 1 is canceled.

    For the sake of clarity, the Exchange wishes to describe what would 
happen to Order 1 if a Periodic Auction was in progress when Order 2 
arrived.\22\ First, note that a Continuous Book Order cannot initiate a 
Periodic Auction.\23\ Therefore, to initiate a Periodic Auction in this 
example, assume that two Periodic Auction Orders arrived, from Firm B 
and Firm C, and in between Order 1 and Order 2--e.g., Order X (Firm B) 
and Order Y (Firm C). Further assume that Order X and Order Y are 
marketable versus each other. If Order X and Order Y arrived post-entry 
of Order 1, and initiated a Periodic Auction, Order 2 would be included 
in the Periodic Auction. The System will temporarily bypass Order 1's 
MTP instruction, and Order 1 and Order 2 could then potentially trade 
at the end of the Periodic Auction, assuming of course Order 1 did not 
already receive an execution on the Continuous Book while the Periodic 
Auction was in progress, and that Order 1 has priority as determined by 
Rule 11.25(d). Note that the bypassing of the MTP modifiers in this 
scenario occurs only upon entry of Order 2 to prevent the cancelation 
of orders in situations where an immediate execution would not occur. 
Otherwise, MTP remains in effect, and would cause the cancelation of 
contra side Continuous Book Orders originating from the same Unique 
Identifier as Order 1 while the Periodic Auction is in progress, as 
well as the cancelation of any contras side Periodic Auction Orders 
originating from the same Unique Identifier as Order 2, seeking to join 
the Periodic Auction.
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    \22\ This iteration of Example 4 demonstrates the proposed 
functionality described in proposed Rule 11.25(e)(1).
    \23\ See Rule 11.25(c), Initiation and Publication of Periodic 
Auction Information, ``A Periodic Auction will be initiated in a 
security during Regular Trading Hours when one or more Periodic 
Auction Orders to buy become executable against one or more Periodic 
Auction Orders to sell pursuant to this Rule 11.25.''
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    Here, even though Order 1 and Order 2 both originated from Firm A, 
and are designated with an MTP modifier, Order 1 is not canceled upon 
Order 2's arrival because Order 1 is a Continuous Book Order that may 
or may not end up trading with Order 2 once the Periodic Auction is 
complete. Because Order 1 could receive an execution on the Continuous 
Book while the Periodic Auction is in progress, the Exchange 
temporarily bypasses Order 1's MTP instruction upon Order 2's arrival 
to prevent Order 1 from forfeiting a Continuous Book execution based on 
a possibility that Order 1 would be executable versus Order 2 at the 
completion of the Periodic Auction.
Example 5: Incoming Continuous Book Order Matching Against a PAO 
Order--No MTP Action Occurs
    Example 5 illustrates how MTP will operate when Firm A's incoming 
Continuous Book Order with an MCS modifier matches with Firm A's 
resting PAO Order with an MCS modifier, and a Periodic Auction is not 
in progress. Here, MTP will not be applied because PAO Orders and 
Continuous Book Orders are not permitted to trade with one another.\24\ 
As such, MTP is not needed to prevent Firm A's Order 1 from trading 
with Firm A's Order 2 and as such, Order 2 is permitted to post to the 
BYX Book.
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    \24\ Supra note 11 (``Periodic Auction Only Orders are not 
eligible for execution on the Continuous Book.'').

 Order 1--Resting (Firm A): PAO Order (MTP = Cancel Smallest), 
Buy 100 @ 1.00
 Order 2--Inbound order (Firm A): Continuous Book order (MTP = 
Cancel Smallest), Sell 200 @ 1.00
 Result: Order 2 will rest in the Continuous Book, and there is 
no MTP action.
Example 6: Incoming Order Is Canceled Due to ``Periodic Auction in 
Progress'' Involving a PAO Order
    Example 6 illustrates how an incoming order with a MTP modifier is 
canceled because a Periodic Auction is in progress.\25\ Here, Firm A's 
inbound Order 2, a PAE Order to sell 200 @ 1.00, with a MTP modifier of 
MTP Cancel Both (``MCB''),\26\ immediately starts an auction with Firm 
B's Order 1, a resting PAO Order to Buy 100 @ 1.00. While the Periodic 
Auction is in progress, Firm A enters Order 3, a PAE Order to Buy 200 @ 
1.00 with an MCB instruction.
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    \25\ Example 6 demonstrates the proposed functionality described 
in proposed Rule 11.25(e)(2).
    \26\ MTP Cancel Both (``MCB'') is defined as ``[a]n incoming 
order marketed with the ``MCB'' modifier will not execute against 
opposite side resting interest marked with any MTP modifier 
originating from the same Unique Identifier. The entire size of both 
orders will be cancelled back to the originating User(s). See Rule 
11.9(f)(4).
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    The entry of Order 3 presents a scenario in which the Exchange 
seeks to implement MTP functionality that behaves differently than 
demonstrated in each of the preceding five examples. Specifically--and 
only in these circumstances--when a Periodic Auction is in progress, 
and an inbound PAO or PAE Order containing an MTP instruction that 
matches against a contra-side order from the same firm also containing 
an MTP instruction, the inbound PAO or PAE order will be canceled. 
Importantly, this behavior is necessary to help ensure that once a 
Periodic Auction is initiated it will be completed.
    Applying this proposed behavior to Example 6's fact pattern, when 
Firm A's Order 3, a PAE Order with an MCB modifier is entered after 
Periodic Auction has been initiated and Order 3 subsequently matches 
with Firm A's Order 2 (a PAE Order with a MCB modifier), Order 3 will 
be cancelled. Without this proposed behavior, Order 3 would otherwise 
be included in the Periodic Auction, and its MTP Cancel Both 
instruction would result in the cancelation of Order 2, preventing the 
Periodic Auction from completing, and denying Firm A an execution it 
would otherwise have expected to receive. The Exchange believes that 
this proposed behavior appropriately balances the dual goals of 
ensuring that Periodic Auctions complete once initiated and providing 
Members the ability to utilize MTP for their Periodic Auction Orders in 
each of the scenarios described in the preceding five examples.\27\
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    \27\ The Exchange notes that the proposed MTP functionality is 
intended as a supplementary risk tool that Members may voluntarily 
use to help them manage their risk and compliance with applicable 
securities rules. As registered broker-dealers, Members are 
ultimately responsible for compliance with applicable securities 
rules, and should not rely on the proposed functionality as a sole 
means of compliance. As such, while the proposed MTP functionality 
will, in some instances, operate differently than it does outside of 
the context of Periodic Auctions, its design as a supplementary risk 
tool will still serve to benefit Members that choose to utilize this 
tool.


[[Page 52151]]


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 Order 1--Resting (Firm B): PAO Order, Buy 100 @ 1.00
 Order 2--Inbound Order (Firm A): PAE Order (MTP = Cancel Both 
\28\), Sell 200 @ 1.00
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    \28\ MTP Cancel Both is defined as ``[a]n incoming order marked 
with the ``MCB'' modifier will not execute against the opposite side 
resting interest marked with any MTP modifier originating from the 
same Unique Identifier. The entire size of both orders will be 
cancelled back to the originating User(s). See Rule 11.9(f)(4).
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 Action: Order 2 initiates a Periodic Auction with Order 1
 Order 3--Inbound order (Firm A): PAE Order (MTP = Cancel 
Both), Buy 200 @ 1.00
 Action: Order's 3's MCB modifier is automatically converted to 
MCN
 Result: Order 3 is canceled due to ``Cancel Newest'' rule (for 
Periodic Auction Orders only) that applies when there is a Periodic 
Auction in progress.
Example 7: Incoming Order Has MTP Temporarily Bypassed in a Periodic 
Auction
    Example 7 is another example of MTP modifiers not being applied 
when a Periodic Auction is in progress, despite the Member adding MTP 
instructions to their Periodic Auction Order(s) and Continuous Book 
Order(s). Here, Firm B's Order 2, a PAE Order with an MCO modifier, 
initiates a Periodic Auction upon entry with Firm A's Order 1, a 
resting PAE Order with an MCO modifier. Firm A subsequently enters a 
Continuous Book Order (Hidden) with an MCO modifier. Here, the Exchange 
will temporarily bypass \29\ an inbound Continuous Book Order's MTP 
modifier when a Periodic Auction is in progress, and such Continuous 
Book Order would post to the Continuous Book, and be eligible to 
participate in the Periodic Auction, or alternatively receive an 
execution from the Continuous Book. In such instance, applying the 
Continuous Book Order's MPT modifier and canceling such order based on 
the potential that the order could trade in the Periodic Auction, would 
be unnecessarily prohibitive. By posting to the Continuous Book, such 
order could still execute without violating its MTP instructions.
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    \29\ The Exchange notes that the bypassing of the Continuous 
Book Order's MTP modifier in this scenario is temporary. Should the 
Periodic Auction complete and Order 3 does not have the opportunity 
to trade with Order 1 in the Periodic Auction, then Order 3 would 
remain posted on the Continuous Book with its MTP modifier and be 
afforded the protections of MTP.
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    Based on the proposed MTP functionality, Order 3 will post to the 
BYX Book prior to the end of the Periodic Auction as the MTP modifier 
is temporarily bypassed. Order 1 and Order 2 will trade in the Periodic 
Auction for 500 shares @ 10.02. After trading with Order 2, Order 1 
still has 500 shares remaining. Prior to the end of the Periodic 
Auction, Order 3 will be matched in the Periodic Auction and trade 200 
shares with Order 1 @ 10.02, bypassing the MCO modifier assigned by 
Firm A to its Order 1 and Order 3.
    The Exchange believes that temporarily bypassing an MTP modifier in 
this scenario is necessary to ensure that a Periodic Auction completes 
once it is initiated.\30\ Additionally, bypassing Order 3's MTP 
instruction is also necessary to avoid disrupting trading in the 
Continuous Book, because Order 3 could perhaps post and trade while the 
auction is in progress. The Exchange therefore believes cancelling 
Order 3 based on its potential to trade in the Periodic Auction would 
unnecessarily prevent a Member from potentially receiving a Continuous 
Book execution. While the proposed MTP functionality will explicitly 
and automatically temporarily bypass a Member's MTP modifier when the 
scenario described in Example 7 is present, the Exchange believes that 
such behavior appropriately balances the dual goals of ensuring that 
Periodic Auctions operate as designed (i.e., once initiated they will 
complete, executing the maximum number of shares), and still provides 
Members the ability to utilize MTP for their Periodic Auction Orders in 
majority of instances described in each of the preceding six 
examples.\31\
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    \30\ Example 7 demonstrates the proposed functionality described 
in proposed Rule 11.25(e)(3).
    \31\ The Exchange notes that the proposed MTP functionality is 
intended as a supplementary risk tool that Members may voluntarily 
use to help them manage their risk and compliance with applicable 
securities rules. As registered broker-dealers, Members are 
ultimately responsible for compliance with applicable securities 
rules, and should not rely on the proposed functionality as a sole 
means of compliance. As such, while the proposed MTP functionality 
will, in some instances, operate differently than it does outside of 
the context of Periodic Auctions, its design as a supplementary risk 
tool will still serve to benefit Members that choose to utilize this 
tool.

 Order 1--Firm A: PAE Order (MTP = Cancel Oldest), Buy 1000 @ 
10.02
 Order 2--Firm B: PAE Order (MTP = Cancel Oldest), Sell 500, @ 
10.02
 Action: Order 2 initiates an auction with Order 1, because 
Firm A and Firm B are different entities.
 Order 3--Inbound order (Firm A): Continuous Book Order (MTP = 
Cancel Oldest), Sell 200 @ 10.02
 Action: MTP modifier on Order 3 is temporarily bypassed

    Result: Order 3 posts to the BYX Book prior to the end of the 
auction; Order 1 and Order 2 trade in the Periodic Auction for 500 @ 
10.02; Order 3 then trades 200 @ 10.02 with Order 1 (bypassing MTP).
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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    In particular, the Exchange believes that its proposed MTP 
functionality is designed to promote the just and equitable principles 
of trade, and to protect investors and the public interest, by enabling 
Users to better prevent undesirable trading activity such as wash sales 
or self-trades for not only their Continuous Book Orders, but their 
Periodic Auction Orders as well. Additionally, by providing Users with 
a supplemental risk tool that will better enable them to achieve 
compliance with applicable securities rules and regulations, the 
proposed rule change will help to further ensure that orders eligible 
for execution in the Periodic Auction indeed represent genuine trading 
interest from separate and distinct firms. While the proposed MTP 
functionality would not operate identically to MTP as it is used in 
non-Periodic Auction scenarios, the Exchange believes that its proposal 
strikes an appropriate balance between ensuring Users receive 
executions in the Periodic Auction and providing Users' the ability to 
utilize MTP in most

[[Page 52152]]

trading situations involving Periodic Auctions (as demonstrated in 
Examples 1--6). By making this clear to Users,\35\ they will be able to 
anticipate how MTP modifiers will interact with their Periodic Auction 
Orders and mitigate any confusion that Users may have in using the 
proposed functionality.
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    \35\ In addition to codifying the proposed functionality, the 
Exchange will send out a Member notice that includes information 
about the proposed MTP functionality for Periodic Auctions.
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    Additionally, the Exchange believes that the proposed rule change 
is designed to facilitate transactions in securities, and to remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system. Based on User feedback, the lack of MTP 
functionality for Periodic Auction Orders may discourage Users from 
entering Periodic Auction Orders because they do not have an automated 
way to systematically prevent undesirable executions resulting from 
orders originating from a User's algorithm or trading desk, or their 
related algorithms or trading desks. In this regard, the proposed rule 
may encourage Users to increase their Periodic Auction participation, 
thereby further enhancing the Periodic Auction liquidity pool and the 
ability of investors to execute larger orders that may otherwise be 
difficult to execute without market impact in the continuous market. 
Additionally, because Periodic Auctions are price-forming, the enhanced 
liquidity pools would indeed augment Periodic Auction's valuable price 
discovery function, which may be particularly helpful for investors 
when trading securities that typically trade with wider spreads.
    Again, while the proposed MTP functionality may not apply a User's 
MTP modifiers in all instances, the Exchange as well as its Users 
believe that some level of MTP protection is more beneficial than 
completely foregoing MTP protection in its entirety. By making clear to 
Users how MTP for Periodic Auction Orders will operate, Users can 
better manage their use of MTP modifiers, and anticipate how their 
Periodic Auction Orders will behave.
    Finally, the Exchange further believes that the proposed rule 
change does not unfairly discriminate amongst Users because the 
proposal will allow all Periodic Auction Users to utilize MTP just as 
all Users entering Continuous Book Orders may utilize MTP today. In 
this regard, the proposed amendment will avoid disparate treatment of 
Users. Furthermore, the bypassing or amending of MTP modifiers, as 
described in the Examples above, will apply equally to all Periodic 
Auction Users, regardless of their size.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. MTP is an optional 
functionality offered by the Exchange and Periodic Auction Users are 
free to decide whether to use MTP in their decision-making process when 
submitting Periodic Auction Orders to the Exchange.
    Similarly, the Exchange does not believe that the proposed 
amendment poses a burden on intermarket competition that is not 
necessary or appropriate in furtherance of the Act. Indeed, the 
proposed rule change is designed to increase competition by offering 
Periodic Auction Users the ability to better manage their order flow 
and prevent undesirable executions. In turn, Users may be further 
incentivized to send additional orders to BYX's Periodic Auction 
mechanism, thereby fostering competition amongst exchanges.

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-2024-009 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-2024-009. 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-2024-009 and should 
be submitted on or before July 12, 2024.

    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. 2024-13540 Filed 6-20-24; 8:45 am]
BILLING CODE 8011-01-P