[Federal Register Volume 91, Number 93 (Thursday, May 14, 2026)]
[Notices]
[Pages 27406-27419]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2026-09596]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-105436; File No. SR-CboeBYX-2026-014]
Self-Regulatory Organizations; Cboe BYX Exchange, Inc.; Notice of
Filing of a Proposed Rule Change To Amend Rule 11.25 To Introduce an
Optional, Contingent Instruction Applicable to Periodic Auction Only
Orders, Introduce a Time-in-Force of Auction or Cancel, and Make
Conforming Changes to Its Periodic Auction Processing Behavior To
Support the Proposed Contingent Instruction
May 11, 2026.
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 April 28, 2026, Cboe BYX Exchange, Inc. (the ``Exchange'' or
``BYX'') filed with the Securities and Exchange Commission
(``Commission'') a 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 Rule 11.25 to introduce an optional, Contingent Instruction
applicable to Periodic Auction Only Orders, introduce a time-in-force
of Auction or Cancel, and make conforming changes to its Periodic
Auction processing behavior to support the proposed Contingent
Instruction. The text of the proposed rule change is provided in
Exhibit 5.
The text of the proposed rule change is also available on the
Commission's website (https://www.sec.gov/rules/sro.shtml), the
Exchange's website (https://www.cboe.com/us/equities/regulation/rule_filings/bzx/) [sic], and at the principal office of the Exchange.
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 (``Periodic Auctions'')
to introduce an optional, Contingent Instruction (discussed in detail,
infra) applicable to Periodic Auction Only Orders.\3\ The Exchange also
seeks to introduce a time-in-force of Auction or Cancel and make
conforming changes to its Periodic Auction processing behavior to
support the proposed Contingent Instruction. By way of background, a
Periodic Auction is an intraday price forming auction that the Exchange
developed as a way to provide an additional price discovery function to
investors seeking liquidity in U.S. equity securities, including block-
size liquidity, during the course of the trading day.\4\ Periodic
Auctions do not interrupt trading in the continuous market and execute
at the price level that maximizes the total number of shares in both
the Periodic Auction Book \5\ and the Continuous Book.\6\ Periodic
Auctions are available in all securities traded on the Exchange.
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\3\ See Rule 11.25(b)(1). A ``Periodic Auction Only Order'' is a
non-displayed limit order entered with an instruction to participate
solely in Periodic Auctions pursuant to Rule 11.25. Periodic Auction
Only Orders are not eligible for execution on the Continuous Book.
\4\ See Securities Exchange Act Release No. 91423 (March 26,
2021), 86 FR 17230 (April 1, 2021), SR-CboeBYX-2020-021 (``Periodic
Auction Approval Order'').
\5\ See Rule 11.25(a)(6). The term ``Periodic Auction Book''
shall mean the System's electronic file of such Periodic Auction
Orders. The term ``Periodic Auction Order'' shall mean a ``Periodic
Auction Order'' or a ``Periodic Auction Eligible Order''.
\6\ See Rule 11.25(a)(2). The term ``Continuous Book'' shall
mean the System's file of such Continuous Book Orders. The term
``Continuous Book Order'' shall mean an order on the BYX Book that
is not a Periodic Auction Order.
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Periodic Auctions were designed, in part, to improve market quality
in thinly-traded securities that suffer from diminished market quality
as compared to their more actively-traded counterparts.\7\ Periodic
Auctions are intended to facilitate the sourcing of larger blocks of
liquidity that may not be available in continuous trading.\8\
Specifically, Periodic Auction Orders are required to have a size of
100 shares or more in securities priced below $500.00 based on the
consolidated last sale price as one way to attract larger blocks of
liquidity.\9\ Additionally, the Exchange permits market participants
seeking to execute larger orders to include a minimum execution
quantity instruction that would allow the Periodic Auction Order to
execute in a Periodic Auction only if the minimum size specified can be
executed against one or more contra-side Periodic Auction Orders or
Continuous Book Orders.\10\ While the Exchange believed that these
optional order instructions would attract significant order flow to
Periodic Auctions, current data suggests that enhancements to Periodic
Auctions are needed to make this offering more attractive to potential
Users. Exchange data indicates that between July 2025-December 2025
(the ``Reference Period''), there were a total of 411,557,479 Periodic
Auction Orders (this includes both Periodic Auction Only Orders and
Periodic Auction Eligible Orders) received by the Exchange. However,
during this same period only 2,259,916 Periodic Auction Orders were
filled by the Exchange, representing approximately 0.55% of Periodic
Auction Orders received by the Exchange.
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\7\ See Periodic Auction Approval Order at 17231.
\8\ Id. at 17232.
\9\ See Rule 11.23(b).
\10\ See Rule 11.25(b)(1)(B).
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User \11\ feedback has indicated that additional functionality is
needed in order to encourage additional Users to submit Periodic
Auction Orders. Particularly, the current Users of Periodic Auctions
have told the Exchange that it is difficult to send large block-size
orders to the Exchange without a reasonable expectation that sufficient
contra-side liquidity exists. As such, the Exchange now proposes to
introduce an optional, Contingent Instruction that would be applicable
only to Periodic Auction Only Orders as a way to encourage additional
[[Page 27407]]
participation in Periodic Auctions. As discussed further, infra, the
proposed Contingent Instruction would provide a way for Users to
indicate to other market participants that they have liquidity
available to participate in a Periodic Auction without being required
to confirm the size and price of such liquidity until a Periodic
Auction begins. The Exchange proposes various amendments to Rule 11.25,
as discussed below, to properly describe the application of its
proposed Contingent Instruction.
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\11\ See Rule 1.5(cc). The term ``User'' shall mean any Member
or Sponsored Participant who is authorized to obtain access to the
System pursuant to Rule 11.3.
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Definitions
The Exchange proposes to amend various provisions of Rule 11.25(a),
which currently provides various definitions associated with Periodic
Auctions. First, the Exchange proposes to introduce Rule 11.25(a)(10)
to define the term ``Contingent Instruction.'' The term Contingent
Instruction shall mean an optional order instruction that may be
appended to a Periodic Auction Only Order. A Contingent Instruction is
an instruction that renders a Periodic Auction Only Order non-binding
upon entry. A Periodic Auction Only Order containing a Contingent
Instruction will only become binding after: (i) matching with contra-
side liquidity; and (ii) the sender of the Periodic Auction Only Order
containing a Contingent Instruction confirming its intent to trade as
described in proposed Rule 11.25(h). A Contingent Instruction may not
be appended to a Periodic Auction Eligible Order or a Continuous Book
Order. To participate in a Periodic Auction, a Periodic Auction Only
Order containing a Contingent Instruction must initiate a Periodic
Auction or be resting on the BYX Book \12\ when a Periodic Auction is
initiated. A Periodic Auction Only Order containing a Contingent
Instruction (a ``PAOC'') will not be eligible to participate in a
Periodic Auction that is already in progress if it is received by the
Exchange after the Periodic Auction Period has begun.
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\12\ See Rule 1.5(e). The term ``BYX Book'' shall mean the
System's electronic file of orders.
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Next, the Exchange proposes to amend Rule 11.25(a)(8) to revise the
Periodic Auction Period.\13\ Currently, the Periodic Auction Period is
a fixed time period of 100 milliseconds.\14\ The Exchange proposes to
amend the Periodic Auction Period from a fixed time of 100 milliseconds
to a fixed time of 70 milliseconds plus a random time period of 0-30
milliseconds immediately following the fixed time period of 70
milliseconds. The effect of this proposed change is that a Periodic
Auction Period would be a minimum of 70 milliseconds in length, but no
longer than 100 milliseconds in length. As discussed further, infra,
the Exchange also proposes to amend Rule 11.25(c) to revise when a
Periodic Auction Message is sent to market participants upon the
initiation of a Periodic Auction. In addition to revising the time
period of the Periodic Auction Period, the Exchange also proposes to
amend Rule 11.25(a)(8) to include language regarding the initiation and
length of subsequent Periodic Auctions that immediately follow the
conclusion of a Periodic Auction Period. Specifically, the Exchange
proposes that a subsequent Periodic Auction Period may begin
immediately following the conclusion of a Periodic Auction (a
``Subsequent Auction''). A Subsequent Auction would occur for a fixed
time period of 70 milliseconds for conducting a Periodic Auction. There
is no limit to the number of Subsequent Auctions that may occur.
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\13\ See Rule 11.25(a)(8). The term ``Periodic Auction Period''
is the time period for conducting a Periodic Auction.
\14\ See Rule 11.25(a)(8).
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The Exchange also proposes a non-substantive change to Rule
11.25(a)(2) in order to add the word ``the'' ahead of the word
``System's'' as this word was inadvertently left out of the sentence
upon drafting.
Order Entry and Cancellation
Current Rule 11.25(b) describes the manner in which Users may enter
Periodic Auction Orders and Continuous Book Orders on the Exchange to
participate in a Periodic Auction. The Exchange proposes to amend Rule
11.25(b)(1) to include a new time-in-force of Auction-or-Cancel
(``AOC'') that may be appended to a Periodic Auction Only Order. A
Periodic Auction Order with a time-in-force of AOC is to be executed in
whole or in part at the end of the Periodic Auction Period immediately
following receipt of such order.\15\ A Periodic Auction Only Order with
a time-in-force of AOC may join a Periodic Auction that is already in
progress when the order is received by the Exchange. A Periodic Auction
Only Order with a time-in-force of AOC is not eligible for routing to
another trading center. The portion of a Periodic Auction Only Order
not immediately executed in a Periodic Auction is treated as cancelled
and is not posted to the Continuous Book. Additionally, the Exchange
proposes to introduce subparagraph (i) to Rule 11.25(b)(1) to note that
a Periodic Auction Only Order containing a Contingent Instruction and a
time-in-force of AOC will not be permitted to join a Periodic Auction
that is already in progress when the order is received by the Exchange.
The Exchange also proposes to amend Rule 11.25(b)(1) by introducing
subparagraph (D), which would provide that a User may include a
Contingent Instruction on its Periodic Auction Only Order.
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\15\ The proposed AOC time-in-force is intended to be
substantially similar to an order containing a time-in-force of
Immediate-or-Cancel (``IOC''), with the only difference being that
the order is not immediately executable on the Continuous Book but
rather only immediately executable if it initiates a Periodic
Auction or is received by the Exchange while a Periodic Auction is
in progress.
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In addition, the Exchange proposes to amend Rule 11.25(b)(2)(A) to
make clear that a Periodic Auction Eligible Order may not be entered
with a time-in-force of AOC.
Initiation and Publication of Periodic Auction Information
Existing Rule 11.25(c) describes the manner in which a Periodic
Auction may be initiated and the messaging sent out by the Exchange
upon the initiation of a Periodic Auction. The Exchange does not
propose to change how a Periodic Auction may be initiated--namely, that
when one or more Periodic Auction Orders to buy become executable
against one or more Periodic Auction Orders to sell, a Periodic Auction
will be initiated. The Exchange proposes to amend Rule 11.25(c) in
order to describe the timing of the initial Periodic Auction Message
that will be disseminated by the Exchange. Currently, a Periodic
Auction Message is sent at a randomized time in one millisecond
intervals after a Periodic Auction has been initiated and before the
end of the Periodic Auction. As proposed, a Periodic Auction Message
would be sent immediately following the initiation of a Periodic
Auction rather than at a randomized time following the initiation of a
Periodic Auction and before the end of the Periodic Auction. The
initial Periodic Auction Message would continue to include the Periodic
Auction Book Price \16\ and the total number of shares of Periodic
Auction Orders that are matched at the Periodic Auction Book Price. The
revised Periodic Auction Message would continue to be disseminated in
five millisecond intervals for the remaining duration of the Periodic
Auction.
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\16\ See Rule 11.25(a)(5). 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.
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The Exchange also proposes to introduce subparagraph (1) to Rule
11.25(c) to describe the proposed
[[Page 27408]]
Contingent Instruction's impact to the Periodic Auction Message.
Proposed Rule 11.25(c)(1) would state that if one or both sides of the
orders initiating a Periodic Auction contain a Contingent Instruction,
the Periodic Auction Message will include the matched quantity
executable at the Periodic Auction Book Price of any order(s)
containing a Contingent Instruction that matched with a contra-side
Periodic Auction Order and where a confirmation request has been
sent.\17\ The Periodic Auction Message would also indicate that at
least one order participating in the Periodic Auction contains a
Contingent Instruction.
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\17\ The Exchange notes that there would be no change to the
content of the Periodic Auction Message (i.e., the Periodic Auction
Message would continue to include the Periodic Auction Book Price
and the total number of shares of Periodic Auction Orders that are
matched at the Periodic Auction Book Price). Subparagraph (1) is
included only to note that the full quantity and price of orders
containing a Contingent Instruction would be included in the
Periodic Auction Message.
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Priority and Execution of Orders
Rule 11.25(e) describes the order priority of orders that are
executable at the end of the Periodic Auction Period. No changes to
order priority and execution of orders will occur as a result of the
introduction of the optional Contingent Instruction. At the end of a
Periodic Auction, any displayed Continuous Book Orders executable at
the Periodic Auction Price will continue to be executed in price/time
priority, any Periodic Auction Orders executable at the Periodic
Auction Price will continue to be executed in size/time priority, and
any non-displayed Continuous Book Orders that are executable at the
Periodic Auction Price will continue to be executed as provided in Rule
11.12(a)(2)(B).\18\ The Exchange proposes to amend Rule 11.25(e) to
further provide that size and time priority for a PAOC is based on
receipt of the Confirmation Order and not the size of or time that the
PAOC is received by the System.\19\
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\18\ The Exchange notes that the current rule text incorrectly
states that non-displayed Continuous Book Orders executable at the
Periodic Auction Price are executed as provided in Rule
11.9(a)(2)(B). As part of this proposal the Exchange will amend the
rule reference to Rule 11.12(a)(2)(B), which describes order
priority.
\19\ As discussed infra, a Periodic Auction Only Order
containing a Contingent Instruction is automatically cancelled when
the System-generated request for confirmation is sent to the sender
of the order containing the Contingent Instruction. As such, time
priority for an order containing a Contingent Instruction shall be
based on receipt of the Confirmation Order.
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Confirmation of Orders Containing a Contingent Instruction
The Exchange proposes to introduce Rule 11.25(h), which will
describe the process for the sender of a PAOC to confirm its intent to
trade after the initiation of a Periodic Auction. When a Periodic
Auction is initiated and one or both sides of the initiating orders
contain a Contingent Instruction, the sender(s) of the orders
containing a Contingent Instruction shall be required to confirm their
intent to trade before the order(s) containing a Contingent Instruction
may participate in the Periodic Auction. Users shall confirm their
intent to trade by responding to the System-generated confirmation
request with a Periodic Auction Only Order (the ``Confirmation
Order'').\20\ The PAOC will be cancelled as soon as the System-
generated confirmation request is sent. A Confirmation Order may be
submitted for any size and any price, and does not have to match the
size and/or price of the order containing a Contingent Instruction.
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\20\ The Confirmation Order may contain either a time-in-force
of AOC or a time-in-force of RHO.
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Scoring Measurements for Sending of Orders With Contingent Instructions
Under the Interpretations and Policies section of Rule 11.25 the
Exchange proposes to introduce subparagraph .05, which would contain
rule text that describes the scoring measurements that will be utilized
by the Exchange to track confirmation responses by senders of orders
containing a Contingent Instruction following the initiation of a
Periodic Auction. The scoring measurements will be calculated by the
System daily, on a per symbol basis. A User's scoring measurement shall
be used: (i) to determine priority of receiving a confirmation request
when multiple orders containing Contingent Instructions are able to
match with a contra-side Periodic Auction Order; and (ii) to determine
whether a User is prohibited from submitting additional orders
containing a Contingent Instruction. The following components will be
tracked by the System: (i) confirmation response rate; (ii)
confirmation response size; and (iii) confirmation response price. The
weighting of each individual component of a User's scoring measurement
shall be made publicly available on the Exchange's website. Any changes
to the weighting or components comprising a User's scoring measurement
shall be communicated to Users at least 30 days in advance by a Trade
Desk Notice. The System will calculate and track a User's score at the
MPID level. Scoring will be based on the current trading day's activity
only and will be tracked at the individual symbol level. A minimum of
10 confirmation requests are required before a score may be assigned to
an MPID and Users will automatically be placed in the top scoring band
until 10 confirmation requests have been sent for a given symbol.
The Exchange believes that the confirmation response rate,
confirmation response size, and confirmation response price are the
elements of a Confirmation Order that are most relevant in determining
the order in which confirmation requests are sent to Users in the event
that multiple orders containing a Contingent Instruction can match with
a contra-side Periodic Auction Order and in determining whether a User
is prohibited from submitting additional orders containing a Contingent
Instruction on a given trading day. By tracking a User's confirmation
response rate, the Exchange is seeking to identify how many times a
User responds to a confirmation request with a Confirmation Order.
However, the Exchange believes that tracking a User's response rate
alone does not provide an adequate view of whether that particular User
is confirming its intent to trade and as such, also proposes to track
the User's confirmation response size and confirmation response price.
By also tracking size, the Exchange is seeking to determine whether
a User is responding with a Confirmation Order that is at least equal
to the size of the PAOC's matched quantity. While Users are free to
respond with any size, if a User responds with a size that is less than
its matched size, its score will be lower as compared to a User who
responds with a size that is equal to or greater than the size of its
matched size. Similarly, by tracking the price of the Confirmation
Order, the Exchange is seeking to determine whether a User is
responding to a confirmation request with a Confirmation Order that is
priced equal to or better than the less aggressive of the Periodic
Auction Book Price at the time the confirmation request was sent to the
User or the NBBO midpoint at the time the Confirmation Order is
received. Just as with size, a User is free to respond to a
confirmation request with any price, but if a User chooses to respond
with a price that is lower than (for buy Confirmation Orders) or higher
than (for sell Confirmation Orders) the less aggressive of the Periodic
Auction Book Price at the time the confirmation request was sent to the
User or the NBBO midpoint at the time the Confirmation Order is
received, its score
[[Page 27409]]
in the price category will be lower as compared to a User who responds
with a price that is equal to or higher than (for buy Confirmation
Orders) or lower than (for sell Confirmation Orders) the less
aggressive of the Periodic Auction Book Price at the time the
confirmation request was sent to the User or the NBBO midpoint at the
time the Confirmation Order is received.
At the outset, the Exchange proposes that a User's overall scoring
measurement shall be composed of the three components identified above
(i.e., response rate, response size, and response price). As discussed
infra, Users responding to confirmation requests will be ranked within
different scoring bands and the scoring bands shall be used to
determine the order in which confirmation requests are sent to Users in
the event that multiple orders containing a Contingent Instruction
match with a contra-side Periodic Auction Order. The scoring
measurement components and weighting shall be made publicly available
on the Exchange's website. Any changes to the weighting or components
comprising a User's scoring measurement shall be communicated to Users
at least 30 days in advance by a Trade Desk Notice.
To determine the score for each User, the System will assign a
value based on a User's Confirmation Order (or lack of response). To
determine a score for the response rate metric, a User that provides
any Confirmation Order would receive a value of 1, regardless of
whether the response size and response price satisfies the criteria set
forth by the Exchange. On the contrary, a User that does not submit a
Confirmation Order would receive a value of 0. To determine a score for
the response price metric, a User that provides a Confirmation Order
price that is priced equal to or better than the less aggressive of the
Periodic Auction Book Price at the time the confirmation request was
sent to the User or the NBBO midpoint at the time the Confirmation
Order is received would receive a value of 1, while a User that
provides a Confirmation Order price that is priced worse than the less
aggressive of the Periodic Auction Book Price at the time the
confirmation request was sent to the User or the NBBO midpoint at the
time the Confirmation Order is received would receive a value of 0. To
determine a score for the response size metric, a User that provides a
Confirmation Order size that is at least equal to the matched size
would receive a value of 1. However, a User that provides a
Confirmation Order size that is lower than the size of its matched
quantity would receive a value based on the size provided in the
Confirmation Order as a percentage of the matched quantity. For
example, assume the matched quantity was 500 shares. A User that
responds with a Confirmation Order size of 500 shares receives a value
of 1, whereas a User that responds with a Confirmation Order size of
250 shares receives a value of .5 (250 shares is 50% of the matched
quantity of 500 shares, thus earning 50% of the value of 1). Any User
that does not provide a Confirmation Order would receive a 0 for the
response rate metric and would not receive a score for either the
response price metric or the response size metric. Once a User has
received 10 confirmation requests, the System will calculate a separate
average for each of the three scoring measurements (i.e., confirmation
response rate, confirmation response size, and confirmation response
price). The average of each scoring measurement is then multiplied by
the respective weight assigned to each scoring measurement. The three
resulting values are then added together to determine a User's
score.\21\
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\21\ For example, assume that the three scoring measurements are
equal-weighted (i.e., 33.33%, 33.33%, and 33.34%). User 1 has an
average response rate of 80%, an average response size of 60%, and
an average response price of 90%. The average scoring measurements
multiplied by the weight of each scoring measurement results in a
value of 26.66% for the User's average response rate (80% x 33.33%),
a value of 19.99% for the User's average response size (60% x
33.33%), and a value of 30% for the User's average response price.
User 1's score is therefore 76.65% (26.66 + 19.99 + 30).
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The combination of response rate, response size, and response price
provides the Exchange with a holistic view of how a User is responding
to confirmation requests sent by the System. The Exchange believes that
by requiring a minimum of 10 confirmation requests in an individual
symbol before calculating a score is appropriate in that it would
provide for an adequate number of requests before a User could
potentially be ranked lower than its peers should it choose to not
respond to confirmation requests or should it choose to provide
responses to confirmation requests with Confirmation Orders that have a
size or price that do not match the scoring measurements as discussed
supra. Additionally, the Exchange believes it is appropriate to track a
User's confirmation responses at the individual symbol level rather
than across all symbols because volume in individual symbols can vary
widely. As such, the Exchange does not believe it is appropriate to
attribute a User's performance in one symbol that has a limited number
of Periodic Auctions throughout the trading day to other symbols that
may have a much higher volume of Periodic Auctions and vice versa.
Scoring Based Confirmation Request Priority
The Exchange proposes to introduce subparagraph .06 to Rule 11.25,
Interpretations and Policies in order to describe the scoring bands
that will be utilized to determine the order in which confirmation
requests are sent to Users in the event that multiple orders containing
a Contingent Instruction can match with a contra-side Periodic Auction
Order. In the event that there are multiple Users within the same
scoring band that can match with a contra-side Periodic Auction Order,
size/time priority will be used to determine the order in which
confirmation requests are sent to Users. Scoring bands shall be made
publicly available on the Exchange's website. Any changes to the
scoring bands shall be communicated at least 30 days in advance by a
Trade Desk Notice.
The Exchange believes it is appropriate to have different scoring
bands in order to encourage Users to submit responses to confirmation
requests in a timely manner that also align with the size of the
original order containing a Contingent Instruction and the Periodic
Auction Book Price. Attaining a higher score based on the scoring
measurement components described above will allow a User to be ranked
higher in terms of how the Exchange prioritizes when the User is sent a
confirmation request when an order containing a Contingent Instruction
matches with a contra-side Periodic Auction Order and initiates a
Periodic Auction as compared to Users with lower scores. For example,
if there are three scoring bands, all Users in band one would be sent
confirmation requests before any User in band two is sent a
confirmation request, and all Users in band two would be sent
confirmation requests before any User in band three is sent a
confirmation request. If there are multiple Users within each band that
have matched with the contra-side Periodic Auction Order, the Exchange
will then utilize size/time priority of the PAOC to determine the order
in which confirmation requests are sent to those Users.
Scoring Based Automated Lock-Out
The Exchange also proposes to introduce subparagraph .07 to the
Interpretations and Policies section of
[[Page 27410]]
Rule 11.25, which would describe the proposed lock-out of Users that
fall below a certain scoring measurement. Proposed subparagraph .07
would provide that a User that submits Periodic Auction Only Orders
containing a Contingent Instruction shall be prohibited from submitting
additional Periodic Auction Only Orders containing a Contingent
Instruction in a given symbol if the User's intraday score at the MPID
level falls below the lock-out threshold determined by the Exchange.
The lock-out shall apply for the remainder of the trading day and is
applicable only in the symbol(s) where the User's score is below the
applicable lock-out threshold. Users would only be prohibited from
submitting additional Periodic Auction Only Orders containing a
Contingent Instruction and would be permitted to submit orders without
a Contingent Instruction to the Exchange. The applicable lock-out
threshold shall be made publicly available on the Exchange's website
and any changes to the lock-out threshold shall be communicated at
least 30 days in advance by a Trade Desk Notice.
The proposed lock-out would be controlled at the System-level and
would utilize the same scoring measurements described above that are
utilized to determine the order in which confirmation requests are sent
to Users in the event that multiple Periodic Auction Only Orders
containing a Contingent Instruction match with a contra-side Periodic
Auction Order. As described above, the System will not assign a score
to an MPID until a minimum of 10 confirmation requests have been sent
to the individual MPID. Each MPID will begin the trading day with a
score of 100% and will keep that score of 100% until the MPID reaches
10 confirmation requests.
In order to show how the proposed Periodic Auction Only Order with
a Contingent Instruction would operate, the Exchange has included the
following examples: \22\
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\22\ Unless otherwise indicated, the Periodic Auction Period
described in the examples would last for a minimum of 70
milliseconds but no longer than 100 milliseconds, with no subsequent
auction being trigged.
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Example 1
This example is intended to demonstrate the process of an incoming
PAOC matching with a resting Periodic Auction Order.
NBBO for security ABC is $10.00 x $10.05.
User 1 enters a Periodic Auction Only Order with a
Midpoint Peg instruction to buy 200 shares of ABC at $10.03.
[cir] User 1's order is posted and ranked at $10.025.
User 2 enters a PAOC with a Midpoint Peg instruction to
sell 100 shares of ABC at $10.02.
[cir] User 2's order immediately initiates a Periodic Auction with
User 1's order for 100 shares at $10.025.
[cir] A confirmation request is sent to User 2. User 2's order is
cancelled and a placeholder is kept in the System awaiting a response
from User 2. The confirmation request would indicate a matched size of
100; total auction matched size of 100, and an indicative auction price
of $10.025.
[cir] Simultaneously with the sending of the confirmation request
to User 2, a Periodic Auction Message is sent over the Exchange's
market data feed. The message indicates 100 shares have matched at a
price of $10.025 and has an indicator that at least one side of the
order contains an order with a Contingent Instruction.
User 2 sends a Periodic Auction Only Order with a Midpoint
Peg instruction and a time-in-force of RHO as its Confirmation Order
before the end of the Periodic Auction Period to sell 200 shares of ABC
at $10.02. User 2 increases the size of its order from 100 shares to
200 shares, as permitted under proposed Rule 11.25(h).
[cir] The next Periodic Auction Message sent out indicates a
matched quantity of 200 shares at a price of $10.025.
Result: At the end of the Periodic Auction Period, User 1
and User 2's orders execute in a Periodic Auction for 200 shares at a
price of $10.025. Since User 2 sent a Confirmation Order for 200
shares, User 1 was able to have its entire order filled at a price of
$10.025 at the conclusion of the Periodic Auction Period.
Example 2
This example is intended to demonstrate the process when a Periodic
Auction Only Order containing a Contingent Instruction and a resting
Periodic Auction Order match with an incoming, contra-side Periodic
Auction Order.
NBBO for security ABC is $10.00 x $10.05.
User 1 enters a Periodic Auction Only Order with a
Midpoint Peg instruction to buy 200 shares of ABC at $10.03.
[cir] User 1's order is posted and ranked at $10.025.
User 2 enters a Periodic Auction Only Order containing a
Contingent Instruction and a Midpoint Peg instruction to buy 300 shares
of ABC at $10.03.
[cir] User 2's order is posted and ranked at $10.025.
User 3 enters a Periodic Auction Eligible Order with a
Midpoint Peg instruction to sell 600 shares of ABC at $10.02.
[cir] User 3's order immediately initiates a Periodic Auction with
User 1 and User 2's orders for 500 shares at $10.025.
[cir] A confirmation request is sent to User 2. User 2's order is
cancelled and a placeholder is kept in the System awaiting a response
from User 2. The confirmation request would indicate a matched size of
300 shares; total auction matched size of 500 shares, and an indicative
auction price of $10.025.
[cir] Simultaneously with the sending of the confirmation request
to User 2, a Periodic Auction Message is sent over the Exchange's
market data feed. The message indicates 500 shares have matched at a
price of $10.025 and has an indicator that at least one side of the
order contains an order with a Contingent Instruction.
User 2 sends a Periodic Auction Only Order with a Midpoint
Peg instruction and a time-in-force of RHO as its Confirmation Order
before the end of the Periodic Auction Period to sell 100 shares of ABC
at $10.03. User 2 decreases the size of its order from 300 shares to
100 shares, as permitted under proposed Rule 11.25(h).
[cir] The next Periodic Auction Message sent out indicates a
matched quantity of 300 shares at a price of $10.025.
Result: At the end of the Periodic Auction Period, User
1's order executes against User 3's order for 200 shares and User 2's
order executes against User 3's order for 100 shares in the Periodic
Auction at a price of $10.025. Since User 2 sent a Confirmation Order
for 100 shares, which was lower than its original order containing 300
shares, the amount of matched shares in the Periodic Auction decreased
from 500 shares to 300 shares. The remaining 300 shares of User 3's
Periodic Auction Eligible Order post to the BYX Book at a price of
$10.025 (assuming the NBBO remains at $10.00 x $10.05).
Example 3
This example is intended to demonstrate what occurs when a Periodic
Auction Only Order containing a Contingent Instruction matches with a
resting Periodic Auction Order for a partial amount of the size of the
order containing the Contingent Instruction.
NBBO for security ABC is $10.00 x $10.05.
User 1 enters a Periodic Auction Only Order with a
Midpoint Peg
[[Page 27411]]
instruction to buy 100 shares of ABC at $10.03.
[cir] User 1's order is posted and ranked at $10.025.
User 2 enters a Periodic Auction Only Order containing a
Contingent Instruction and a Midpoint Peg instruction to sell 200
shares of ABC at $10.02.
[cir] User 2's order immediately initiates a Periodic Auction with
User 1's order for 100 shares at $10.025.
[cir] A confirmation request is sent to User 2. User 2's order is
cancelled and a placeholder is kept in the System awaiting a response
from User 2. The confirmation request would indicate a matched size of
100; total auction matched size of 100, and an indicative auction price
of $10.025.
[cir] Simultaneously with the sending of the confirmation request
to User 2, a Periodic Auction Message is sent over the Exchange's
market data feed. The message indicates 100 shares have matched at a
price of $10.025 and has an indicator that one side of the order
contains an order with a Contingent Instruction.
User 2 sends a Periodic Auction Only Order with a Midpoint
Peg instruction and a time-in-force of RHO as its Confirmation Order
before the end of the Periodic Auction Period to sell 100 shares of ABC
at $10.02. User 2 decreases the size of its order from 200 shares to
100 shares, as permitted under proposed Rule 11.25(h).
[cir] The next Periodic Auction Message sent out indicates a
matched quantity of 100 shares at a price of $10.025.
Result: At the end of the Periodic Auction Period, User 1
and User 2's orders execute in a Periodic Auction for 100 shares at a
price of $10.025.
Example 4
This example is intended to demonstrate the process when two PAOCs
match and initiate a Periodic Auction.
NBBO for security ABC is $10.00 x $10.05.
User 1 enters a PAOC with a Midpoint Peg instruction to
buy 100 shares of ABC at $10.03.
[cir] User 1's order is posted and ranked at $10.025.
User 2 enters a PAOC with a Midpoint Peg instruction to
sell 100 shares of ABC at $10.02.
[cir] User 2's order immediately initiates a Periodic Auction with
User 1's order for 100 shares at $10.025.
[cir] A confirmation request is sent to User 1. User 1's PAOC is
cancelled and a placeholder is kept in the System awaiting a response
from User 1. The confirmation request would indicate a matched size of
100; total auction matched size of 100, and an indicative auction price
of $10.025.
[cir] Simultaneously, a confirmation request is sent to User 2.
User 2's PAOC is cancelled and a placeholder is kept in the System
awaiting a response from User 2. The confirmation request would
indicate a matched size of 100; total auction matched size of 100, and
an indicative auction price of $10.025.
[cir] Simultaneously with the sending of the confirmation request
to User 1 and User 2, a Periodic Auction Message is sent over the
Exchange's market data feed. The message indicates 100 shares have
matched at a price of $10.025 and has an indicator that at least one
side of the order contains an order with a Contingent Instruction.
User 1 sends a Periodic Auction Only Order with a Midpoint
Peg instruction as its Confirmation Order to buy 100 shares of ABC at a
price of $10.03 prior to the expiration of the Periodic Auction Period.
User 2 sends a Periodic Auction Only Order with a Midpoint
Peg instruction as its Confirmation Order and a time-in-force of RHO to
sell 100 shares of ABC at a price of $10.02 prior to the expiration of
the Periodic Auction Period.
Result: At the conclusion of the Periodic Auction Period,
User 1 and User 2 trade 100 shares at $10.025.
Example 5
This example is intended to demonstrate the outcome when a User
submits a Periodic Auction Only Confirmation Order that would have a
remaining quantity after the conclusion of the Periodic Auction.
NBBO for security ABC is $10.00 x $10.05.
User 1 enters a Periodic Auction Only Order with a
Midpoint Peg instruction to buy 100 shares of ABC at $10.03.
[cir] User 1's order is posted and ranked at $10.025.
User 2 enters a PAOC with a Midpoint Peg instruction to
sell 200 shares of ABC at $10.02.
[cir] User 2's order immediately initiates a Periodic Auction with
User 1's order for 100 shares at $10.025.
[cir] A confirmation request is sent to User 2. User 2's PAOC is
cancelled and a placeholder is kept in the System awaiting a response
from User 2. The confirmation request would indicate a matched size of
100; total auction matched size of 100, and an indicative auction price
of $10.025.
[cir] Simultaneously with the sending of the confirmation request
to User 2, a Periodic Auction Message is sent over the Exchange's
market data feed. The message indicates 100 shares have matched at a
price of $10.025 and has an indicator that at least one side of the
order contains an order with a Contingent Instruction.
User 2 sends a Periodic Auction Only Order with a Midpoint
Peg instruction and a time-in-force of RHO as its Confirmation Order
before the end of the Periodic Auction Period to sell 200 shares of ABC
at $10.02.
Result: At the conclusion of the Periodic Auction Period,
User 1 and User 2 trade 100 shares at $10.025 in the Periodic Auction.
User 2's remaining 100 shares from its Periodic Auction Only
Confirmation Order are posted on the BYX Periodic Auction Book as a
traditional Periodic Auction Only Order with a Midpoint Peg instruction
(and would not contain a Contingent Instruction).
Example 6
This example is intended to demonstrate the outcome when a User
submits an Auction or Cancel Confirmation Order that would have a
remaining quantity after the conclusion of the Periodic Auction.
NBBO for security ABC is $10.00 x $10.05.
User 1 enters a Periodic Auction Only Order with a
Midpoint Peg instruction to buy 100 shares of ABC at $10.03.
[cir] User 1's order is posted and ranked at $10.025.
User 2 enters a PAOC with a Midpoint Peg instruction to
sell 200 shares of ABC at $10.02.
[cir] User 2's order immediately initiates a Periodic Auction with
User 1's order for 100 shares at $10.025.
[cir] A confirmation request is sent to User 2. User 2's PAOC is
cancelled and a placeholder is kept in the System awaiting a response
from User 2. The confirmation request would indicate a matched size of
100; total auction matched size of 100, and an indicative auction price
of $10.025.
[cir] Simultaneously with the sending of the confirmation request
to User 2, a Periodic Auction Message is sent over the Exchange's
market data feed. The message indicates 100 shares have matched at a
price of $10.025 and has an indicator that at least one side of the
order contains an order with a Contingent Instruction.
User 2 sends a Confirmation Order with a Midpoint Peg
instruction and a time-in-force of AOC before the end of the Periodic
Auction Period to sell 200 shares of ABC at $10.02.
Result: At the conclusion of the Periodic Auction Period,
User 1 and
[[Page 27412]]
User 2 trade 100 shares at $10.025 in the Periodic Auction. User 2's
remaining 100 shares from its Confirmation Order are immediately
cancelled pursuant to proposed Rule 11.25(b)(1) as the remainder of a
Periodic Auction Only Order with a time-in-force of AOC not executed in
a Periodic Auction is treated as cancelled and is not posted to the
Continuous Book.
Example 7
This example is intended to show how confirmation requests will be
sent when multiple orders containing a Contingent Instruction match
with a contra-side Periodic Auction Order.
For this example, assume that the following scoring bands are in
effect:
Band 1: 80% and above.
Band 2: Below 80% to 70%.
Band 3: Below 70%.
NBBO for security ABC is $10.00 x $10.05.
User 1 enters a PAOC with a Midpoint Peg instruction to
buy 200 shares of ABC at $10.03.
[cir] User 1's order is posted and ranked at $10.025.
[cir] Assume User 1 has an intraday scoring measurement of 70%.
User 2 enters a PAOC with a Midpoint Peg instruction to
buy 100 shares of ABC at $10.03.
[cir] User 2's order is posted and ranked at $10.025.
[cir] Assume User 2 has an intraday scoring measurement of 81%.
User 3 enters a PAOC with a Midpoint Peg instruction to
buy 100 shares of ABC at $10.03.
[cir] User 3's order is posted and ranked at $10.025.
[cir] Assume User 3 has an intraday scoring measurement of 75%.
User 4 enters a Periodic Auction Only Order with a
Midpoint Peg instruction to sell 200 shares of ABC at $10.02.
Result: User 4's Periodic Auction Only Order immediately
initiates a Periodic Auction with User 2's PAOC and User 1's PAOC. User
2's PAOC is included in the initiation of the Periodic Auction because
it has the highest intraday scoring measurement (for this example, it
is the only order in scoring band 1). User 1's PAOC is included in the
initiation of the Periodic Auction because it has size priority over
User 3's order (both User 1 and User 3 are in scoring band 2). User 3
will not participate in this Periodic Auction but will remain on the
BYX Periodic Auction Book to participate in later Periodic Auctions. A
confirmation request is immediately sent to both User 2 and User 1
showing a matched size of 100 shares, a total auction matched size of
200 shares, and a Periodic Auction Book Price of $10.025. Concurrently
with the sending of the confirmation requests to User 2 and User 1,
User 2 and User 1's PAOCs are cancelled and a placeholder is kept in
the System awaiting a response from each User. Simultaneously with the
sending of the confirmation requests, a Periodic Auction Message is
sent over the Exchange's market data feed. The message indicates 200
shares have matched at a price of $10.025 and has an indicator that at
least one side of the auction contains an order with a Contingent
Instruction. User 2 and User 1 both send a Periodic Auction Only Order
with a Midpoint Peg instruction and a time-in-force of RHO as its
respective Confirmation Order to buy 100 shares of ABC at a price of
$10.03 prior to the end of the Periodic Auction Period. At the end of
the Periodic Auction Period, User 1 and User 2 each trade 100 shares at
$10.025 with User 4 in the Periodic Auction.
Example 8
This example is intended to show how confirmation requests will be
sent when multiple orders containing a Contingent Instruction match
with a contra-side Periodic Auction Order.
For this example, assume that the following scoring bands are in
effect:
Band 1: 80% and above.
Band 2: Below 80% to 70%.
Band 3: Below 70%.
NBBO for security ABC is $10.00 x $10.05.
User 1 enters a PAOC with a Midpoint Peg instruction to
buy 500 shares of ABC at $10.03.
[cir] User 1's order is posted and ranked at $10.025.
[cir] Assume User 1 has an intraday scoring measurement of 75%.
User 2 enters a PAOC with a Midpoint Peg instruction to
buy 100 shares of ABC at $10.03.
[cir] User 2's order is posted and ranked at $10.025.
[cir] Assume User 2 has an intraday scoring measurement of 80%.
User 3 enters a Periodic Auction Only Order with a
Midpoint Peg instruction to sell 200 shares of ABC at $10.02.
Result: User 3's Periodic Auction Only Order immediately
initiates a Periodic Auction with User 2's PAOC and User 1's PAOC. A
confirmation request is immediately sent to both User 2 and User 1
showing a matched size of 100 shares, a total auction matched size of
200 shares, and an indicative auction price of $10.025. Concurrently
with the sending of the confirmation requests to User 2 and User 1,
User 2 and User 1's PAOCs are cancelled and a placeholder is kept in
the System awaiting a response from each User. Simultaneously with the
sending of the confirmation requests, a Periodic Auction Message is
sent over the Exchange's market data feed. The message indicates 200
shares have matched at a price of $10.025 and has an indicator that at
least one side of the order contains an order with a Contingent
Instruction. User 2 sends a Periodic Auction Only Order containing a
Midpoint Peg instruction and a time-in-force of RHO as its Confirmation
Order to buy 100 shares of ABC at a price of $10.03 prior to the end of
the Periodic Auction Period. User 1 sends a Periodic Auction Only Order
containing a Midpoint Peg instruction and a time-in-force of RHO as its
Confirmation Order to buy 200 shares (an increase in quantity from its
original 100 share order) of ABC at a price of $10.03 prior to the end
of the Periodic Auction Period. At the end of the Periodic Auction
Period, User 1 trades 200 shares at $10.025 with User 4 in the Periodic
Auction due to having size priority at the final auction price over
User 2.
Regulatory Considerations
The Exchange notes that its existing Regulatory obligations as
described in the Interpretations and Policies section of Rule 11.25
would continue to apply should the proposed Contingent Instruction be
approved. These existing rules describe how Periodic Auctions are
processed consistent with certain other regulatory obligations,
including obligations related to member conduct, or otherwise to ensure
transparent handling in certain specified circumstances and provide
transparency to members and investors with respect to how the Exchange
processes Periodic Auctions consistent with relevant obligations under
the Exchange Act, or as otherwise necessary or appropriate to maintain
a fair and orderly market on the Exchange. The Exchange does not
propose to amend existing Interpretations and Policies .01-.03 of Rule
11.25. The Exchange proposes to amend existing Interpretations and
Policies .04 as described infra and proposes to introduce additional
Interpretations and Policies related to the automated scoring mechanism
described above.
The Exchange proposes to amend Interpretations and Policies .04
(Member Conduct) to add language that provides that a pattern or
practice of failing to respond to a confirmation request will be deemed
conduct inconsistent with just and equitable principles of trade. Just
as the Exchange
[[Page 27413]]
currently makes Members aware that certain conduct (i.e., a pattern or
practice of entering and immediately cancelling Periodic Auction
Orders) will be deemed conduct inconsistent with just and equitable
principles of trade, the Exchange believes it is necessary to notify
Members that a pattern or practice of failing to respond to a
confirmation request similarly will be deemed conduct inconsistent with
just and equitable principles of trade. However, the Exchange also
proposes to add language to Interpretations and Polices .04 to codify
that there may be a legitimate business reason that a Member may engage
in a pattern or practice of entering and immediately cancelling
Periodic Auction Orders and a legitimate business reason that a Member
may engage in a pattern or practice of failing to respond to a
confirmation request. The addition of the ``legitimate business
reason'' language is necessary to make clear that should a Member
provide sufficient documentation that its behavior of entering and
immediately cancelling Periodic Auction Orders or failing to respond to
confirmation requests is, in fact, related to legitimate business
activities, its conduct in question would not be deemed inconsistent
with just and equitable principles of trade.
Proposed Interpretations and Policies .05-.07 to Rule 11.25
describe the automated scoring mechanism used for senders of PAOCs. As
described above, a User's scoring mechanism is used (i) to determine
priority of receiving a confirmation request when multiple orders
containing Contingent Instructions match with a contra-side Periodic
Auction Order; and (ii) to determine whether a User is prohibited from
submitting additional orders containing a Contingent Instruction. The
User's score will be automatically calculated and tracked by the System
at the individual symbol level and will automatically place a User in
the appropriate scoring band once the minimum amount of confirmation
requests have been sent to the User. The User would also automatically
be prohibited from sending additional PAOCs to the Exchange in a given
symbol for the remainder of a trading day should its score fall below
the designated threshold.
The use of a PAOC is entirely voluntary and is not required for
participation in Periodic Auctions. Users who choose to utilize the
proposed Contingent Instruction do so with the understanding that they
are choosing to subject themselves to the automated scoring mechanism
and that they may be prohibited from submitting additional PAOCs in a
particular symbol on a given trading day should they fall below the
designated threshold. The applicable scoring bands and designated
threshold shall be made publicly available by the Exchange and would
require a minimum 30-day notice to customers in advance of any proposed
changes to the scoring bands, designated threshold, or components and/
or weighting of the scoring mechanism.
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.\23\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \24\ 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) \25\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
---------------------------------------------------------------------------
\23\ 15 U.S.C. 78f(b).
\24\ 15 U.S.C. 78f(b)(5).
\25\ Id.
---------------------------------------------------------------------------
I. Proposal
As discussed in the Purpose section, Periodic Auctions were
originally designed to facilitate the sourcing of larger blocks of
liquidity that may not be available in continuous trading. The
Exchange's experience, however, indicates that additional functionality
is needed to encourage additional Users to submit Periodic Auction
Orders. Particularly, the current Users of Periodic Auctions have told
the Exchange that it is difficult to send large block-size orders to
the Exchange without a reasonable expectation that sufficient contra-
side liquidity exists. As such, the Exchange believes that the proposed
enhancements to this product may therefore contribute to a free and
open market and national market system. Specifically, the proposed
optional Contingent Instruction appliable to Periodic Auction Only
Orders would provide investors trading on a national securities
exchange with a mechanism that is currently available only in off-
exchange trading venues. This optional functionality would provide
Users an additional venue to which a non-firm order could be sent, and
would be the first-of-its kind order instruction on a national
securities exchange. The proposed PAOC order instruction would provide
additional price improvement opportunities and allow market
participants to reduce risks that may be associated with placing large
orders on a traditional limit order book. As such, PAOCs may improve
market quality in U.S. equity securities traded on the Exchange, and
these benefits may be even more pronounced in securities that currently
trade with diminished market quality. The paragraphs that follow
address each aspect of the proposed Contingent Instruction applicable
to Periodic Auction Only Orders in turn.
In addition to contributing to a free and open market and national
market system, the Exchange believes its proposal promotes just and
equitable principles of trade by bringing a concept that is well-
established in off-exchange trading venues to a national securities
exchange, which, if approved, could help drive volume back to
regulated, national securities exchanges rather than continuing the
trend of ever-growing off-exchange trading volumes. Former Commission
Chair Gary Gensler noted in a June 2022 speech that ``[R]ight now,
there isn't a level playing field among different parts of the market:
wholesalers, dark pools, and lit exchanges. Further, the markets have
become increasingly hidden from view.'' \26\ The Exchange submits its
proposal with the intent of offering a non-firm order instruction that
market participants are already familiar with on a regulated, national
securities exchange to narrow the gap between national securities
exchanges and off-exchange venues. While the proposed Contingent
Instruction is not necessarily innovative in that it is already
utilized across off-exchange venues today, seeking to utilize the
proposed Contingent Instruction on a national securities exchange is
innovative and promotes just and equitable principles of trade. Current
Commission Chairman Paul Atkins has explicitly encouraged a regulatory
approach that supports
[[Page 27414]]
innovation across U.S. markets, stating ``[T]he SEC should not fear
innovation. Rather, it should embrace and champion it.'' \27\
Similarly, the Commission's Director of Trading and Markets, Jamie
Selway, has also indicated that he would work with Chairman Atkins to
encourage innovation by stating ``[C]hairman Atkins is bringing about a
`new day' at the SEC. . . Together, we will promote the SEC's mission
and enable innovation, to the benefit of our nation's investors.'' \28\
The Exchange is committed to innovation that improves the quality of
the equities markets and believes that the proposed addition of the
Contingent Instruction may increase the attractiveness of the Exchange
for the execution of large, institutional orders that may otherwise
seek to be executed on off-exchange venues.
---------------------------------------------------------------------------
\26\ See ``Market Structure and the Retail Investor:'' Remarks
Before the Piper Sandler Global Exchange Conference (June 8, 2022),
available at: https://www.sec.gov/newsroom/speeches-statements/gensler-remarks-piper-sandler-global-exchange-conference-060822.
\27\ See ``Prepared Remarks Before SEC Speaks'' (May 19, 2025),
available at: https://www.sec.gov/newsroom/speeches-statements/atkins-prepared-remarks-sec-speaks-051925.
\28\ See ``SEC Names Jamie Selway as Director of Trading and
Markets'' (June 13, 2025), available at: https://www.sec.gov/newsroom/press-releases/2025-87-sec-names-jamie-selway-director-trading-markets.
---------------------------------------------------------------------------
The Exchange believes that introducing a Contingent Instruction
applicable to Periodic Auction Only Orders to enhance its existing
Periodic Auction functionality contributes to a free and open market
and national market system. Use of the Contingent Instruction would be
strictly voluntary, and market participants would be able to determine
whether and how the proposed Contingent Instruction fits into their
existing workflows. Specifically, the proposed Contingent Instruction
would be eligible to be appended only to Periodic Auction Only Orders
and if included on a User's Periodic Auction Only Order would render
the Periodic Auction Only Order non-binding upon entry. The Exchange
believes it is appropriate to offer Users the ability to enter Periodic
Auction Only Orders as binding or non-binding upon entry so that Users
can decide whether to use Periodic Auctions as the sole means of
sourcing liquidity (in the event that the User elects to use the
Periodic Auction Only Order without a Contingent Instruction) or as
part of a strategy where the User posts non-binding orders across
multiple venues in an attempt to secure an execution while minimizing
the risk of displaying orders in the public market (by utilizing the
proposed Contingent Instruction appended to a Periodic Auction Only
Order).
The Exchange does not propose to make any changes to the current
operation of a Periodic Auction Only Order in conjunction with the
introduction of its proposed Contingent Instruction. All existing
instructions that are currently applicable to Periodic Auction Only
Orders, such as minimum execution quantity instruction and pegging
instructions, will continue to be accepted if the User elects to append
a Contingent Instruction to its Periodic Auction Only Order. The
Exchange believes that it is important to continue to offer existing
Periodic Auction Only Order functionality without change and allow a
User to merely supplement its Periodic Auction Only Orders with an
optional, Contingent Instruction should the User decide that the
Contingent Instruction is appropriate in its workflow. Offering
additional, optional functionality to enhance the Exchange's Periodic
Auction process without changing the foundation upon which Periodic
Auctions were built is consistent with the maintenance of a fair and
orderly market and will promote just and equitable principles of trade.
The Exchange proposes to introduce a time-in-force of Auction or
Cancel to Rule 11.25(b)(1) that would be available to all Periodic
Auction Only Orders, including PAOCs. As described in the Purpose
section, a Periodic Auction Only Order containing a time-in-force of
AOC is to be executed in whole or in part at the end of the Periodic
Auction Period immediately following receipt of such order. A Periodic
Auction Only order containing a time-in-force of AOC may be used to
attempt to initiate a Periodic Auction or as a response to a System-
generated request to confirm the sender of a PAOC's intent to trade.
The introduction of the proposed AOC time-in-force provides an
alternative option for Users of PAOCs to confirm their intent to trade
and submit a binding order for participation in a Periodic Auction that
will immediately cancel upon the conclusion of the Periodic Auction if
the order is not filled. Users of PAOCs have elected to use a non-
binding order instruction rather than a traditional Periodic Auction
Only Order as part of a broader trading strategy and the proposed AOC
time-in-force further perpetuates that strategy by limiting any
potential execution to a single Periodic Auction. If, instead, a User
were forced to respond to a confirmation request with a Continuous Book
Order or a Periodic Auction Only Order containing a time-in-force of
RHO, the User's order could then persist beyond the Periodic Auction in
progress and deviate from the User's intended strategy. As such, the
Exchange believes that the introduction of the AOC time-in-force would
facilitate the operation of a fair and orderly market and promotes just
and equitable principles of trade.
The Exchange believes the addition of the time-in-force of AOC is
not unfairly discriminatory because all Users of Periodic Auction Only
Orders may utilize a time-in-force of AOC and the use case is not
limited to senders of PAOCs who are responding to confirmation
requests. Additionally, the Exchange does not believe that it is
unfairly discriminatory to not allow Users of Periodic Auction Eligible
Orders to use the AOC time-in-force as the purpose of a Periodic
Auction Eligible Order is to interact with both the Periodic Auction
Book and the Continuous Book. Should a User of a Periodic Auction
Eligible Order have the option to include a time-in-force of AOC, then
any remainder of a Periodic Auction Eligible Order that does not
immediately initiate a Periodic Auction upon receipt of the order by
the Exchange would be cancelled and would not have the opportunity to
post to the Continuous Book. Further, use of the AOC time-in-force is
completely voluntary and Users are free to utilize other times-in-force
as appropriate for the order type which they are sending to the
Exchange. Periodic Auctions are also voluntary, and no User is required
to participate in Periodic Auctions nor submit Periodic Auction Orders
to the Exchange.
The Exchange believes it is consistent with just and equitable
principles to trade to limit the ability of a PAOC to become binding
subject to certain requirements. The proposed Periodic Auction Only
Order containing a Contingent Instruction would only become binding
after i) matching with contra-side liquidity; and ii) the sender of the
PAOC confirming its intent to trade as described in proposed Rule
11.25(h). Without requiring a sender of a PAOC to confirm its intent to
trade upon matching with contra-side liquidity, the PAOC would not be
``contingent'' and would instead function as a traditional, binding
order. Just as with Periodic Auction Only Orders entered today, a PAOC
would not be eligible to match with a Continuous Book Order and would
only be eligible to match with contra-side Periodic Auction Orders
(which include Periodic Auction Only Orders, and Periodic Auction
Eligible Orders)). Additionally, to participate in a Periodic Auction,
a PAOC must either initiate a Periodic Auction or be resting on the BYX
Book when a Periodic Auction is initiated and will not be permitted to
join a Periodic Auction that is already in progress. The proposed
limitations on
[[Page 27415]]
PAOCs becoming binding and participating in a Periodic Auction are
consistent with just and equitable principles of trade because they are
designed to ensure that an order containing a Contingent Instruction
does not introduce any additional delay to the Periodic Auction process
by executing against Continuous Book Orders that are not participating
in a Periodic Auction, or joining a Periodic Auction already in
progress.
As part of the proposed introduction of the Contingent Instruction,
the Exchange proposes to amend certain aspects of timing related to the
Periodic Auction process that are currently in place. First, the
Exchange proposes to amend the Periodic Auction Period from a fixed
time period of 100 milliseconds to a combination of a fixed time period
of 70 milliseconds plus a random time period of 0-30 milliseconds
immediately following the fixed time period of 70 milliseconds. The
Exchange also proposes to make clear that any Subsequent Auction shall
have a fixed time period of 70 milliseconds. Next, the Exchange
proposes to update the timing with which the initial message containing
Periodic Auction Information is disseminated over the Exchange's market
data feed. Currently, an initial Periodic Auction Information message
is sent at a randomized time in one millisecond intervals. The Exchange
proposes to now send the initiate Periodic Auction Information message
immediately after a Periodic Auction has been initiated to minimize any
advantage that the sender of a PAOC would have otherwise received
should the Exchange send a confirmation request prior to the initial
Periodic Auction Information message.
The Exchange believes these changes would facilitate the operation
of a fair and orderly market. Functionally, the Exchange's proposal
changes the length of a Periodic Auction from 100 milliseconds to a
fixed time of at least 70 milliseconds but with an end time between 70
and 100 milliseconds. Practically speaking, however, Users currently do
not have the full 100 milliseconds to join a Periodic Auction due to
the randomization of the initial Periodic Auction Message that is sent
out by the Exchange. By standardizing the initial Periodic Auction
Message and randomizing the end time of the Periodic Auction, the
Exchange would be able to promptly process and execute a Periodic
Auction while continuing to provide time for interested market
participants to enter order to participate in the auction, including
those Users who have submitted an order with a Contingent Instruction.
A User that elects to utilize the Contingent Instruction will be
required to confirm its intent to trade before the PAOC is a binding
order and as such, the Exchange proposes to send a System-generated
request to the sender of a PAOC immediately upon a PAOC matching with a
contra-side order. This confirmation request will be sent to the sender
of a PAOC at the same time that the initial Periodic Auction
Information message is sent out on the Exchange's market data feed. To
ensure that all Users were receiving the same information at the same
time, the Exchange needed to align the timing of three related pieces
of a Periodic Auction: (i) the Periodic Auction Period; (ii) the
sending of the initial Periodic Auction Information message; and (iii)
and the System-generated confirmation request. The Exchange believes
the proposed changes to standardize the timing of (i) the Periodic
Auction Period; (ii) the sending of the initial Periodic Auction
Information message; and (iii) and the System-generated confirmation
request is not unfairly discriminatory because the Exchange is seeking
to provide access to information to all participants at the same time
and is not seeking to favor those participants that choose to submit
PAOCs or those who choose to participate in Periodic Auctions using
binding order types by either sending different messages on the market
data feed or sending messages only after a Confirmation Order has been
received. Recipients of Exchange market data will receive an initial
Periodic Auction Information message at the same time that the sender
of a PAOC receives a confirmation request to confirm its intent to
trade. Additionally, if one or both sides of the orders initiating a
Periodic Auction contain a Contingent Instruction, the initial Periodic
Auction Information message will indicate that at least one order
participating in the Periodic Auction contains a Contingent
Instruction. Further, the initial Periodic Auction Message will include
the full quantity and price of any order(s) containing a Contingent
Instruction. By providing all participants with the same information at
the same time, the Exchange would not preference one side of the
Periodic Auction over another and would not preference the non-firm
order instruction over a binding order type. All participants would
have access to the same Periodic Auction Message information, with the
only difference being that the sender of a PAOC would receive a
confirmation request in addition to the initial Periodic Auction
Message.
The Exchange believes the confirmation request sent to the sender
of a PAOC that has matched against a contra-side order in a Periodic
Auction is not unfairly discriminatory as it is necessary to allow the
sender of a PAOC to confirm its intent to trade. The confirmation
request would provide the same information that is contained in the
initial Periodic Auction Message but would also contain the quantity of
the PAOC that matched with a contra-side order in the Periodic Auction.
This additional piece of information in the confirmation request is
essential to the sender of the PAOC so that it may (i) confirm its
intent to trade in the Periodic Auction; and (ii) if necessary, update
or cancel any other non-firm orders that may exist on other venues.
Since senders of non-firm orders generally submit non-firm orders
across multiple venues at the same time to maximize the odds that an
order will match against contra-side liquidity, the sender of the non-
firm order must act quickly to confirm its intent to trade and
simultaneously update or cancel other non-firm orders on other venues
to reflect the confirmation and subsequent execution of its matched
order. The utility of providing this additional piece of information
regarding the matched size of the PAOC is not discriminatory, but
rather necessary to offer identical functionality for non-firm orders
that exists on off-exchange venues today.
The Exchange notes that its existing Regulatory obligations as
described in the Interpretations and Policies section of Rule 11.25
would continue to apply should the proposed Contingent Instruction be
approved. These existing rules describe how Periodic Auctions are
processed consistent with certain other regulatory obligations,
including obligations related to member conduct, or otherwise to ensure
transparent handling in certain specified circumstances and provide
transparency to members and investors with respect to how the Exchange
processes Periodic Auctions consistent with relevant obligations under
the Exchange Act, or as otherwise necessary or appropriate to maintain
a fair and orderly market on the Exchange. The proposed amendments to
existing Interpretations and Policies .04 of Rule 11.25 continue to
promote just and equitable principles of trade and are consistent with
the protection of investors and the public interest because the
amendments provide notice of additional behavior (i.e., a pattern or
practice of failing to respond to confirmation requests) that would be
deemed conduct inconsistent with just and equitable principles of
[[Page 27416]]
trade while also recognizing that there may be legitimate business
reasons for why a User of a Periodic Auction Order may engage in the
conduct described in proposed Interpretations and Policies .04. Indeed,
allowing for Users to provide sufficient evidence of legitimate
business reasons for certain conduct in question further promotes just
and equitable principles of trade by clarifying that not all conduct as
described in proposed Interpretations and Policies .04 to Rule 11.25
would result in a User violating an Exchange Rule. Further, the
proposed addition of the ``legitimate business reason'' language is
consistent with the protection of investors and the public interest
because conduct in question that does not have a legitimate business
reason will continue to be deemed conduct inconsistent with just and
equitable principles of trade, and only conduct where the Exchange
determines there is sufficient evidence of a legitimate business reason
may be permitted.
The Exchange also proposes to introduce subparagraphs .05--.07 to
the Interpretations and Policies section associated with Rule 11.25.
The proposed subparagraphs will describe the automated scoring
measurements that the Exchange will introduce as part of its proposed
Contingent Instruction. The scoring measurements promote just and
equitable principles of trade and are consistent with the protection of
investors and the public interest because the proposed measurements
serve to deter senders of PAOCs from initiating a Periodic Auction and
then subsequently failing to respond to confirmation requests from the
Exchange in an attempt to discover information about available contra-
side liquidity. First, the Exchange proposes to introduce subparagraph
.05, which will describe the use case for the scoring measurement and
the components that comprise the scoring measurement. A User's scoring
measurement shall have two purposes: first, to determine the priority
in which a confirmation request is sent to a User when multiple PAOCs
match with a contra-side Periodic Auction Order; and second, the
determine whether a User is prohibited from submitting additional
orders containing a Contingent Instruction for the remainder of a
trading day in a given symbol. The following components will make up
the scoring measurement: (i) confirmation response rate; (ii)
confirmation response size; and (iii) confirmation response price. All
scoring measurements will be tracked and calculated automatically by
the System at the MPID level.
The Exchange believes that tracking confirmation response rate,
confirmation response size, and confirmation response price promotes
just and equitable principles of trade and is consistent with the
protection of investors and the public interest because it encourages
Users of PAOCs to respond to confirmation requests within a timely
manner (e.g., before the expiration of the Periodic Auction Period) at
a price that is marketable and for a size that is equal to or greater
than the original matched quantity. While a User is free to respond to
a confirmation request with any price and any size, its score will be
higher should it respond with a size that is at least equal to its
matched quantity (as compared to a User who responds with a size that
is less than its matched quantity). Similarly, a User's score will be
higher should it respond with a price that is higher than (for buy
Confirmation Orders) or lower than (for sell Confirmation Orders) the
less aggressive of the Periodic Auction Book Price at the time the
confirmation request was sent to the User or the NBBO midpoint at the
time the Confirmation Order is received (as compared to a User who
responds with prices that are lower (higher) than the less aggressive
of the Periodic Auction Book Price at the time the confirmation request
was sent to the User or the NBBO midpoint at the time the Confirmation
Order is received).
Providing a higher score for Users that respond to confirmation
requests with orders that are competitively-priced and orders with a
size that is equal to or greater than the original matched quantity is
also not unfairly discriminatory. Senders of PAOCs that respond to
confirmation requests with Confirmation Orders that are competitively
priced and contain sufficient size to execute against the matched size
of the contra-side orders should benefit from higher scores because
these market participants are providing liquidity that would support
the quality of price discovery, offer additional cost savings, deepen
the Exchange's liquidity pool, and generally improve market quality for
all investors participating in Periodic Auctions. Rewarding those
participants that are routinely providing marketable Confirmation
Orders may encourage other market participants utilizing PAOCs to
respond with more competitively priced and sufficiently sized orders to
earn the ability to receive a confirmation request prior to other
senders of PAOCs, thus enhancing Periodic Auctions generally. Use of
the Contingent Instruction is strictly optional, and is not required
for any User. The Exchange will also publicize the components that make
up the scoring measurements on its website and will not make any
changes to either the components or the weightings of each component as
part of the total scoring measurement without advance notice to Users.
While optional, the proposed Contingent Instruction is available to all
Users, and all Users will be subject to the same scoring measurements
regardless of the frequency with which they submit a PAOC or the size
or price of PAOCs submitted to the Exchange. All scoring measurements
occur at the System-level and all Users will have a perfect score until
a User has received 10 confirmation requests in a given symbol. The
Exchange also believes that applying the scoring measurement on a
symbol-by-symbol level as opposed to cumulatively is not unfairly
discriminatory as Users may have different strategies across different
symbols and therefore volume in individual symbols can vary widely. As
such, the Exchange believes it is appropriate to not attribute a User's
performance in one symbol that has a limited number of Periodic
Auctions throughout the trading day to other symbols that may have a
much higher volume of Periodic Auctions and vice versa.
Next, the Exchange proposes to introduce subparagraph .06 to the
Interpretations and Policies section of Rule 11.25, which would
describe the scoring-based confirmation request priority. As described
in the Purpose section, one of the use cases of the scoring measurement
is to determine the order in which confirmation requests are sent to
senders of PAOCs if multiple PAOCs can match with a contra-side
Periodic Auction Order. If there are multiple Users within the same
scoring band that can match with a contra-side Periodic Auction Order,
size/time priority will be used to determine the order in which
confirmation requests are sent to Users. The Exchange proposes to make
the scoring bands publicly available on the Exchange's website and any
changes to the scoring bands shall be communicated at least 30 days in
advance by a Trade Desk Notice.
The Exchange believes that scoring bands promote just and equitable
principles of trade and are consistent with the protection of investors
and the public interest because the scoring bands will encourage Users
to respond to confirmation requests: i) in a timely manner; and ii) at
sizes and prices that align with the size of the PAOC and the
[[Page 27417]]
Periodic Auction Book Price or NBBO midpoint. Attaining a higher score
based on the scoring measurement components described above will allow
a User to be ranked higher in terms of how quickly the User is sent a
confirmation request when a PAOC matches with a contra-side Periodic
Auction Order and initiates a Periodic Auction. For example, if there
are three scoring bands, all Users in band one would be sent
confirmation requests before any User in band two is sent a
confirmation request, and all Users in band two would be sent
confirmation requests before any User in band three is sent a
confirmation request. If there are multiple Users within each band that
have matched with the contra-side Periodic Auction Order, the Exchange
will then utilize size/time priority to determine the order in which
confirmation requests are sent to those Users.
The proposed scoring bands are also not unfairly discriminatory.
While the scoring bands are used to segment Users that submit PAOCs to
determine the order in which confirmation requests are allocated, the
Exchange believes this segmentation is consistent with Section 6(b)(5)
of the Act, as it does not permit unfair discrimination. All Users will
be aware of the applicable scoring bands as the Exchange will publish
the scoring bands on its website. Further, the Exchange will not make
any changes to its scoring bands without providing at least 30 days'
notice to Users. Additionally, all Users ultimately can control which
scoring band to which they fall based on their response rate, size, and
price. A User who chooses not to respond to a confirmation request, or
who chooses to respond with a size or price that is not marketable,
will have a lower score and thus, could potentially be in a lower
scoring band, than a User who responds in a timely manner with a
marketable Confirmation Order. Users are not scored against one
another, but rather only each User's own responses. The Exchange
further believes that it is not unfairly discriminatory to allocate
confirmation requests within each scoring band based on size/time
priority if there are multiple Users within the same scoring band that
match with a contra-side Periodic Auction Order. Given that Periodic
Auctions were established to provide intraday price-forming auctions to
Users seeking to execute large volumes, the decision to prioritize
larger orders within a scoring band may ultimately contribute to
greater depth in Periodic Auctions as Users would submit larger orders
knowing that confirmation request priority is determined, in part, by
the size of their orders.
Finally, the Exchange proposes to introduce subparagraph .07 to the
Interpretations and Policies section of Rule 11.25. Subparagraph .07
would describe the scoring-based automated lock-out applicable to Users
that submit PAOCs. The Exchange believes that the scoring-based
automated lock-out promotes just and equitable principles of trade and
is consistent with the protection of investors and the public interest
because the lock-out would serve to minimize the chance that a User
would utilize PAOCs to initiate Periodic Auctions and then fail to
participate in the Periodic Auction. To this point, a User that submits
PAOCs shall be prohibited from submitting additional PAOCs in a given
symbol if the User's intraday score at the MPID level falls below the
lock-out threshold determined by the Exchange. The lock-out shall apply
for the remainder of the trading day and is applicable only in the
symbol(s) where the User's score is below the applicable lock-out
threshold. The applicable lock-out threshold shall be made publicly
available on the Exchange's website and any changes to the lock-out
threshold shall be communicated at least 30 days in advance by the
Trade Desk Notice.
The Exchange does not believe that the lock-out restriction is
unfairly discriminatory because it applies only at the individual
symbol level and does not prohibit a User from submitting other order
types on the Exchange. A locked-out User is only prohibited from
submitting additional PAOCs to the Exchange. As PAOCs are entirely
optional, Users would be free to continue to trade on the Exchange
utilizing other order types and would be permitted to participate in
Periodic Auctions using a Periodic Auction Order that does not contain
a Contingent Instruction. Additionally, the lock-out threshold would
apply to all Users of PAOCs equally, in that all Users would be aware
of the lock-out threshold and would be subject to the same scoring
measurements to determine whether the threshold has been reached.
In total, the Exchange believes that the proposed scoring
measurements and proposed scoring-based automated lock-out promote just
and equitable principles of trade and are not unfairly discriminatory
because they provide an additional mechanism for the Exchange to
dissuade Users from attempting to gain an advantage over others by
submitting PAOCs without an intent to execute in the Periodic Auction.
The proposed scoring measurements and automated lock-out would provide
additional protections to investors than those already found in the
Exchange's Interpretation and Policy .04 to Rule 11.25. Currently, a
User that initiates a Periodic Auction and then immediately cancels its
Periodic Auction Order is subject only to the following limitation:
``[a] pattern or practice of submitting orders for the purpose of
disrupting or manipulating Periodic Auctions, including entering and
immediately cancelling Periodic Auction Orders, will be deemed conduct
inconsistent with just and equitable principles of trade.'' \29\ The
Exchange views the failure of the sender of a PAOC to respond to a
confirmation request as no different than the behavior of the User who
initiates a Periodic Auction and then cancels its Periodic Auction
Order prior to the end of the Periodic Auction Period. However, the
Exchange believes it will be furthering just and equitable principles
of trade by requiring senders of PAOCs to be subject to the proposed
scoring measurements and proposed scoring-based automated lock-out as
these requirements are based on similar requirements that exist on off-
exchange venues and are reasonably designed to encourage senders of
PAOCs to respond to confirmation requests in a reasonable amount of
time with firm orders that will execute at the end of the Periodic
Auction Period.
---------------------------------------------------------------------------
\29\ See Rule 11.25, Interpretations and Policy .04.
---------------------------------------------------------------------------
Further, the proposed scoring measurements and proposed scoring-
based automated lock-out are not unfairly discriminatory as they will
apply to all senders of PAOCs equally. Applying more stringent
requirements to senders of PAOCs as compared to those market
participants who choose not to submit PAOCs is also not unfairly
discriminatory. The proposed Contingent Instruction is completely
voluntary and Users are not required to utilize the Contingent
Instruction in order to participate in Periodic Auctions. All Users
shall have equal access to the applicable scoring measurements and
scoring-based automated lock-out threshold on a publicly available
Exchange website, and may choose whether to submit PAOCs as part of
their broader investing strategy. A User is free to determine whether
the proposed scoring measurements and proposed scoring-based automated
lock-out are incompatible with its trading strategy and, if so, is not
required to utilize the Contingent Instruction on its Periodic Auction
Only Orders nor participate in Periodic Auctions. The Exchange
[[Page 27418]]
proposes to offer the Contingent Instruction simply to provide a
regulated, transparent venue as an additional option to which Users may
submit non-firm orders and would not require any User to utilize the
proposed functionality.
II. Compliance With Other Regulatory Requirements
As discussed in more detail below, the Exchange believes that
Periodic Auctions continue to be consistent with other regulatory
requirements, including the Order Protection Rule, the LULD Plan, and
Rule 602 of Regulation NMS (i.e., the ``Quote Rule'').
First, with respect to compliance with the Order Protection Rule,
the Exchange will continue to provide auction collars designed to limit
trades to prices that are within the Protected NBBO. As discussed in
the Periodic Auction Approval Order, the Order Protection Rule applies
to transactions executed during Regular Trading Hours. Although opening
and closing auctions are generally exempt from these requirements,\30\
there are currently no exceptions that would apply to Periodic Auctions
that perform a similar role in facilitating price discovery. The
Exchange does not execute Periodic Auctions at prices that are
inconsistent with the requirements of that rule and this proposal would
not change the current behavior of Periodic Auctions. Generally, the
Order Protection Rule requires trading centers to establish, maintain,
and enforce written policies and procedures that are reasonably
designed to prevent trade-throughs on that trading center of protected
quotations in NMS stocks, unless an exception applies. A ``trade-
through'' is defined in Rule 600(b)(81) of Regulation NMS as the
purchase or sale of an NMS stock during regular trading hours, either
as principal or agent, at a price that is lower than a protected bid or
higher than a protected offer. The relevant auction collars will
continue to be applied at the time of execution, and therefore will
prevent trades from occurring at prices that would constitute a trade-
through at the time the Periodic Auction is processed, consistent with
the requirements of the Order Protection Rule.
---------------------------------------------------------------------------
\30\ Rule 611(b)(3) of Regulation NMS provides an exception to
the requirements of the Order Protection Rule where the transaction
that constituted the trade-through was a single-priced opening,
reopening, or closing transaction by the trading center.
---------------------------------------------------------------------------
Similarly, with respect to compliance with the LULD Plan, the
Exchange's auction collars will continue to limit trades to prices that
are within the LULD Price Bands established pursuant to that national
market system plan. As is the case with the Exchange's utilization of
the Protected NBBO in setting applicable auction collars, the LULD
Price Bands will continue to be used as an additional collar on
Periodic Auctions, and would ensure that all transactions that result
from a Periodic Auction would be executed within the applicable LULD
Price Bands at the time the Periodic Auction is processed. The Exchange
does not execute Periodic Auctions at prices that are inconsistent with
the LULD Plan and the proposal would not change how the Exchange
executes Periodic Auctions.
The Exchange also believes that the proposed rule change is
consistent with the Quote Rule. Generally, the firm quote provisions of
the Quote Rule require each responsible broker or dealer to execute an
order presented to it, other than an odd lot order, at a price at least
as favorable as its published bid or published offer, in any amount up
to its published quotation size. The proposed Contingent Instruction
applicable to a Periodic Auction Only Order would at all times be non-
displayed, and therefore would not trigger the firm quote requirements
of the Quote Rule. That is, there would be no ``published bid'' or
``published offer'' displayed to market participants that would be
required to be ``firm'' under the Quote Rule.
Similarly, the proposal does not amend how Periodic Auctions
function alongside trading on the Continuous Book and therefore would
not result in violations of the Quote Rule. Continuous Book Orders
entered to trade with the Exchange's published quotation will continue
to be able to do so in the same manner that they do today,
notwithstanding the occurrence of Periodic Auctions conducted
throughout the course of the trading day. The Exchange has designed its
system for trading Periodic Auctions to minimize unnecessary latency,
and does not believe that the introduction of PAOCs to the existing
Periodic Auction functionality would impair the ability of the Exchange
to execute incoming orders entered on the Continuous Book against its
published bids or offers. The proposed Contingent Instruction will not
extend the length of the Periodic Auction Period. The Exchange will
continue to monitor system performance and latency after the
introduction of PAOCs and related functionality to ensure that it is
able to process both Periodic Auctions and Continuous Book Orders
efficiently and without undue latency.
In addition, the Exchange would continue to handle events processed
by the matching engine in sequence, and a Continuous Book Order that is
included in the Exchange's published bid or offer would continue to
trade with incoming Continuous Book Orders unless the Periodic Auction
is processed prior to the matching engine's receipt of the incoming
Continuous Book Order. Such executions would not run afoul of the firm
quote requirements of the Quote Rule as Rule 602(b)(3) of Regulation
NMS contains an explicit exemption from these requirements for broker-
dealers that are in the process of effecting a transaction in that
security at the time the incoming order is ``presented'' to the broker-
dealer for potential execution.
Finally, the Exchange's published quotations would continue to be
considered ``automated quotations'' as defined in Rule 600(b)(4) of
Regulation NMS. As discussed with respect to compliance with the Quote
Rule, the Exchange has designed its system for trading Periodic
Auctions to minimize unnecessary latency, and therefore does not
believe that the introduction of any functionality related to the
proposed Contingent Instruction would impair the ability of the
Exchange to execute incoming orders entered on the Continuous Book
against its published bids or offers. In this regard, the Exchange
represents that any additional latency on the Continuous Book that may
result from the proposed introduction of functionality related to the
proposed Contingent Instruction would not be material from the
perspective of compliance with the Order Protection Rule. Under
Regulation NMS, an ``automated'' quotation is one that, among other
things, can be executed ``immediately and automatically'' against an
incoming immediate-or-cancel order. Although the Commission's recent
guidance related to automated quotations has focused on the
introduction of intentional delay mechanisms or ``speed bumps,'' \31\
which present different and more complex issues under Regulation NMS,
the Exchange believes that its proposed enhancement to Periodic
Auctions would not frustrate the purposes of the Order Protection Rule
by ``impairing fair and efficient access'' to the Exchange's
quotations. In this regard, the Exchange notes that it has engaged in
substantial testing of its Periodic Auction product containing the
proposed functionality related to
[[Page 27419]]
Contingent Instructions and, based on that testing, believes that any
additional latency that may be experienced on the Continuous Book as a
result of the proposal would be minimal and de minis from the
perspective of the Order Protection Rule.\32\
---------------------------------------------------------------------------
\31\ See Securities Exchange Act Release No. 78102 (June 17,
2016), 81 FR 40785 (June 23, 2017) (File No. S7-03-16) (``Commission
Interpretation'').
\32\ Although the Commission refused to enumerate a numeric
latency threshold for an intentional delay that is sufficiently de
minimis for the purposes of the Order Protection Rule, the Staff of
the Division of Trading and Markets has issued guidance stating the
Staff's belief that delays of less than one millisecond would
qualify as de minimis. See Staff Guidance on Automated Quotations
under Regulation NMS (June 17, 2016), available at https://www.sec.gov/divisions/marketreg/automated-quotations-under-regulation-nms.htm. While the Exchange's proposal would not
introduce an intentional delay, the Exchange's testing indicates
that any additional latency that may result from the proposed
introduction of the Contingent Instruction within Periodic Auctions
would be well within this threshold.
---------------------------------------------------------------------------
III. Conclusion
Chairman Atkins has expressed the importance of innovation by
stating, ``. . . we are getting back to our roots of promoting, rather
than stifling, innovation. The markets innovate, and the SEC should not
be in the business of telling them to stand still.'' \33\ The proposed
Contingent Instruction is a prime example of a place where the
Commission can promote, rather than stifle, innovation. The proposed
Contingent Instruction, while novel to the Exchange and to the
Commission in a proposed rulemaking, is not, in fact, a novel concept
in the equities markets. For years, market participants have been able
to utilize a non-binding order instruction to post block-size liquidity
across multiple off-exchange venues at the same time. This order
instruction is particularly useful when sourcing block-size liquidity
because it allows for large, non-binding orders to be entered in a non-
displayed capacity across multiple venues yet only execute on a single
venue when a match is received and the market participant confirms its
intent to trade. Once a non-binding order instruction is confirmed on
one venue, the market participant is able to modify or cancel its
remaining non-binding order instructions across the remaining venues.
This non-binding characteristic of the order is attractive to market
participants because it allows for market participants to post
liquidity on multiple venues in search of the most favorable execution.
The Exchange's proposed PAOC would simply provide an additional
regulated, transparent venue to which market participants could direct
non-binding order flow in search of block-size liquidity and does not
seek to introduce functionality with which market participants are not
already familiar.
---------------------------------------------------------------------------
\33\ See ``Prepared Remarks Before SEC Speaks,'' (May 19, 2025),
available at: https://www.sec.gov/newsroom/speeches-statements/atkins-prepared-remarks-sec-speaks-051925.
---------------------------------------------------------------------------
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. Rather, the proposed rule
change is designed to increase competition by introducing an additional
mechanism for equities market participants seeking to execute bulk-size
liquidity during the course of the trading day on a national securities
exchange. Indeed, the proposed introduction of the Contingent
Instruction is a pro-competitive means of seeking to attract liquidity
back to a regulated, transparent venue. The proposal, which seeks to
introduce the Contingent Instruction as part of its existing Periodic
Auction process, would allow competition, rather than regulatory
intervention designed to limit competition and innovation, to improve
market quality for thinly-traded and other securities.
The introduction of PAOCs is designed to provide an on-exchange
opportunity for investors sourcing liquidity during the trading day
using a non-binding instruction, and, in particular, those that are
actively placing non-binding instructions across multiple venues in an
attempt to source the most favorable execution. Providing an additional
mechanism for non-binding orders to be executed would promote
competition between venues that seek to execute this order flow, and
provide market participants and investors with greater choice with
respect to how they choose to source liquidity. The equities industry
is fiercely competitive as the Exchange must compete with other
equities exchanges and off-exchange venues for order flow. The proposal
is both evidence of this competition, and would further enable the
Exchange to compete effectively in this market.
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-2026-014 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-2026-014. 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 filing 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-2026-014 and should be submitted
on or before June 4, 2026.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\34\
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\34\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2026-09596 Filed 5-13-26; 8:45 am]
BILLING CODE 8011-01-P