Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend EDGX Rules To Clarify the Handling of Orders That Contain Both a Post Only Instruction and Certain Other Order Handling Instructions Maintained To Facilitate Compliance With Rule 610(d) of Regulation NMS
| Published date | 10 April 2019 |
| Citation | 84 FR 14427 |
| Record Number | 2019-07051 |
| Section | Notices |
| Court | Securities And Exchange Commission |
Federal Register, Volume 84 Issue 69 (Wednesday, April 10, 2019)
[Federal Register Volume 84, Number 69 (Wednesday, April 10, 2019)]
[Notices]
[Pages 14427-14429]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-07051]
[[Page 14427]]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-85515; File No. SR-CboeEDGX-2019-014]
Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice
of Filing and Immediate Effectiveness of a Proposed Rule Change To
Amend EDGX Rules To Clarify the Handling of Orders That Contain Both a
Post Only Instruction and Certain Other Order Handling Instructions
Maintained To Facilitate Compliance With Rule 610(d) of Regulation NMS
April 4, 2019.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on March 25, 2019, Cboe EDGX Exchange, Inc. (the ``Exchange'' or
``EDGX'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I and II
below, which Items have been prepared by the Exchange. The Exchange
filed the proposal as a ``non-controversial'' proposed rule change
pursuant to Section 19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-
4(f)(6) thereunder.\4\ The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A)(iii).
\4\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Cboe EDGX Exchange, Inc. (``EDGX'' or the ``Exchange'') is filing
with the Securities and Exchange Commission (the ``Commission'') a
proposed rule change to amend EDGX rules to clarify the handling of
orders that contain both a Post Only instruction and certain other
order handling instructions maintained to facilitate compliance with
Rule 610(d) of Regulation NMS. The text of the proposed rule change is
attached as Exhibit 5.
The text of the proposed rule change is also available on the
Exchange's website (http://markets.cboe.com/us/options/regulation/rule_filings/edgx/), at the Exchange's Office of the Secretary, and at
the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of the proposed rule change is to amend EDGX rules to
clarify the handling of orders that contain both a Post Only
instruction and certain other order handling instructions maintained to
facilitate compliance with Rule 610(d) of Regulation NMS (the ``Locked
and Crossed Markets Rule''). An order entered with a Post Only
instruction does not remove liquidity, except when the order is an
order to buy or sell a security priced below $1.00, or when executing
as the taker of liquidity would be economically beneficial to the firm
entering the order--i.e., if the value of such execution when removing
liquidity equals or exceeds the value of such execution if the order
instead posted to the EDGX Book and subsequently provided liquidity,
including the applicable fees charged or rebates provided.\5\ Today,
the Exchange's rules state that this handling applies to Post Only
orders entered with Price Adjust \6\ or Display-Price Sliding \7\
instruction, which are re-pricing instructions used for compliance with
the Locked and Crossed Markets Rule. Thus, an executable order entered
with a Post Only instruction is eligible to remove liquidity in the
circumstances described in EDGX Rule 11.6(n)(4) instead of having its
ranked price or display price adjusted pursuant to those order handling
instructions.
---------------------------------------------------------------------------
\5\ See EDGX Rule 11.6(n)(4). To determine at the time of a
potential execution whether the value of such execution when
removing liquidity equals or exceeds the value of such execution if
the order instead posted to the EDGX Book and subsequently provided
liquidity, the Exchange will use the highest possible rebate paid
and highest possible fee charged for such executions on the
Exchange.
\6\ ``Price Adjust'' is an order instruction requiring that
where an order would be a Locking Quotation of an external market or
Crossing Quotation if displayed by the System on the EDGX Book at
the time of entry, the order will be displayed and ranked at a price
that is one Minimum Price Variation lower (higher) than the Locking
Price for orders to buy (sell). See EDGX Rule 11.6(l)(1)(A).
\7\ ``Display-Price Sliding'' is an order instruction requiring
that where an order would be a Locking Quotation or Crossing
Quotation of an external market if displayed by the System on the
EDGX Book at the time of entry, will be ranked at the Locking Price
in the EDGX Book and displayed by the System at one Minimum Price
Variation lower (higher) than the Locking Price for orders to buy
(sell). See EDGX Rule 11.6(l)(1)(B).
---------------------------------------------------------------------------
However, the Exchange also offers a ``Cancel Back'' instruction
that is not covered by EDGX Rule 11.6(n)(4). An order entered with a
Cancel Back instruction is immediately cancelled instead of re-priced
when displaying the order at its limit price would create a violation
of the Locked and Crossed Markets Rule.\8\ All orders must include a
Price Adjust, Display-Price Sliding, or Cancel Back instruction,\9\ and
orders entered with a Post Only instruction are handled in the same
manner regardless of which of these three additional instructions is
applied. The Exchange therefore proposes to amend EDGX Rule 11.6(n)(4)
to eliminate references to Display-Price Sliding and Price Adjust,
similar to the current rules in place on its affiliated equities
exchanges, Cboe BZX Exchange, Inc. (``BZX'') and Cboe BYX Exchange,
Inc. (``BYX'').\10\ The Exchange believes that removing the references
to these two instructions in the rule would reduce potential confusion
as the order handling described in the rule today applies to all orders
entered with a Post Only instruction, and not a specific subset of
those orders. No changes to the Exchange's trading or other systems are
contemplated by this proposed change, which is instead designed to
increase transparency around the Exchange's current operation.
---------------------------------------------------------------------------
\8\ ``Cancel Back'' is an instruction the User may attach to an
order instructing the System to immediately cancel the order when,
if displayed by the System on the EDGX Book at the time of entry, or
upon return to the System after being routed away, would create a
violation of Rule 610(d) of Regulation NMS or Rule 201 of Regulation
SHO, or the order cannot otherwise be executed or posted by the
System to the EDGX Book at its limit price. See EDGX Rule 11.6(b).
\9\ Display-Price Sliding is applied as the default handling
unless Price Adjust or Cancel Back is elected [sic] See EDGX Rule
11.8(b)(10).
\10\ See BZX Rule 11.9(c)(6) and BYX Rule 11.9(c)(6).
---------------------------------------------------------------------------
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the requirements of Section 6(b) of the Act,\11\ in general, and
Section 6(b)(5) of
[[Page 14428]]
the Act,\12\ in particular, in that it is designed to remove
impediments to and perfect the mechanism of a free and open market and
a national market system, to promote just and equitable principles of
trade, and, in general, to protect investors and the public interest
and not to permit unfair discrimination between customers, issuers,
brokers, or dealers.
---------------------------------------------------------------------------
\11\ 15 U.S.C. 78f(b).
\12\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
Specifically, the Exchange believes that the proposed rule change
is consistent with the public interest and the protection of investors
as it would avoid potential confusion about how an order is handled if
entered with both a Post Only and Cancel Back instruction. Today, the
Exchange's rules provide that an order entered into the EDGX Book with
a Post Only instruction would remove liquidity in certain
circumstances, such as when economically beneficial for the order. In
addition, the rules specify that this handling applies to orders
entered with a Price Adjust or Display-Price Sliding instruction. The
rules, however, are silent as to the handling applied if an order with
a Post Only instruction contains a Cancel Back instruction. The
Exchange's order handling is, in fact, the same regardless of which of
these instructions are chosen by the member. As such, the Exchange
believes that it is appropriate to amend EDGX Rule 11.6(n)(4) to
eliminate references to the Price Adjust or Display-Price Sliding
instruction, thereby making clear that this handling applies to all
orders entered with a Post Only instruction and not only those that
also contain Price Adjust or Display-Price Sliding instructions.
The Exchange believes that this order handling, which mirrors that
in place on the Exchange's affiliated equities markets (i.e., BZX and
BYX) is appropriate regardless of whether an order entered with a Post
Only instruction also contains a Display-Price Sliding, Price Adjust,
or Cancel Back instruction. Specifically, the Exchange believes that it
is consistent with just and equitable principles of trade to permit an
order entered with a Post Only instruction to remove liquidity when the
order is an order to buy or sell a security priced below $1.00, or when
executing as the taker of liquidity would be economically beneficial to
the firm entering the order. This handling is designed to ensure that
orders entered with a Post Only instruction are eligible to trade in
certain circumstances where the entering firm may have an interest in
securing an execution on entry--i.e., as the taker of liquidity--
notwithstanding the member's use of the Post Only instruction. Although
the Exchange's rules currently mention order handling for the Display-
Price Sliding and Price Adjust instructions specifically, this
functionality should be applied equally to any order entered with a
Post Only instruction. Thus, amending the rule as proposed would
provide additional transparency into a feature offered by the Exchange
that is potentially beneficial to members that utilize the Post Only
instruction.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change would
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. Rather, the proposed rule
change would remove ambiguity in the EDGX rules describing the Post
Only instruction by amending those rules consistent with rules
currently in place for the Exchange's affiliates, BZX and BYX. No
change to the Exchange's order handling is contemplated by this
proposed rule change, which would merely clarify the current handling
for certain orders entered with a Post Only instruction. The Exchange
therefore believes that the proposed rule change would increase
transparency around the operation of the Exchange to the benefit of
members and investors, without imposing any significant burden on
competition.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received on the proposed rule
change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A) of the Act \13\ and Rule 19b-
4(f)(6) thereunder.\14\
---------------------------------------------------------------------------
\13\ 15 U.S.C. 78s(b)(3)(A).
\14\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change, along
with a brief description and text of the proposed rule change, at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
---------------------------------------------------------------------------
At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule should be approved or 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 (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-CboeEDGX-2019-014 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-CboeEDGX-2019-014. 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 (http://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal
[[Page 14429]]
office of the Exchange. All comments received will be posted without
change. Persons submitting comments are cautioned that we do not redact
or edit personal identifying information from comment submissions. You
should submit only information that you wish to make available
publicly. All submissions should refer to File Number SR-CboeEDGX-2019-
014, and should be submitted on or before May 1, 2019.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\15\
---------------------------------------------------------------------------
\15\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-07051 Filed 4-9-19; 8:45 am]
BILLING CODE 8011-01-P
