Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Adopt Risk Controls and Modify Rules 21.1, 21.10, and 21.17 in Connection With Technology Migration of Cboe Exchanges, 1058-1062 [2018-00160]
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Federal Register / Vol. 83, No. 6 / Tuesday, January 9, 2018 / Notices
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become
effective pursuant to Section
19(b)(3)(A)(ii) of the Act.17
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: (i) Necessary or appropriate in
the public interest; (ii) for the protection
of investors; or (iii) 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:
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
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–Phlx–2017–108, and should
be submitted on or before January 30,
2018.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.18
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–00214 Filed 1–8–18; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
Phlx–2017–108 on the subject line.
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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–Phlx–2017–108. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
17 15
U.S.C. 78s(b)(3)(A)(ii).
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[Release No. 34–82437; File No. SR–
CboeEDGX–2017–009]
Self-Regulatory Organizations; Cboe
EDGX Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of a
Proposed Rule Change To Adopt Risk
Controls and Modify Rules 21.1, 21.10,
and 21.17 in Connection With
Technology Migration of Cboe
Exchanges
January 3, 2018.
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 December
21, 2017, Cboe EDGX Exchange, Inc.
(the ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the Exchange. The Exchange has
designated this proposal as a ‘‘noncontroversial’’ proposed rule change
pursuant to Section 19(b)(3)(A) of the
Act 3 and Rule 19b–4(f)(6)(iii)
thereunder,4 which renders it effective
upon filing with the Commission. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
18 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A).
4 17 CFR 240.19b–4(f)(6)(iii).
1 15
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I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange filed a proposal to
update Rule 21.1, Rule 21.10, and Rule
21.17 to make modifications to the
Exchange’s rules and functionality
applicable to the Exchange’s options
platform (‘‘EDGX Options’’) in
preparation for the technology migration
of the Exchange’s affiliated options
exchanges onto the same technology as
the Exchange.
The text of the proposed rule change
is available at the Exchange’s website at
www.markets.cboe.com, at the principal
office of the Exchange, 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 parts of such
statements.
(A) Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
In 2016, the Exchange and its
affiliates Cboe BYX Exchange, Inc.
(‘‘BYX’’), Cboe EDGA Exchange, Inc.
(‘‘EDGA’’), and Cboe BZX Exchange,
Inc. (‘‘BZX’’) received approval to affect
a merger (the ‘‘Merger’’) of the
Exchange’s then-current indirect parent
company, Bats Global Markets, Inc.,
with Cboe Global Markets f/k/a CBOE
Holdings, Inc. (‘‘Cboe’’), the direct
parent of Cboe Exchange, Inc. (‘‘Cboe
Options’’) and Cboe C2 Exchange, Inc.
(‘‘C2 Options’’, and together with the
Exchange, BZX, and Cboe Options the
‘‘Cboe Affiliated Exchanges’’).5 The
Cboe Affiliated Exchanges are working
to align certain system functionality,
retaining only intended differences
between the Cboe Affiliated Exchanges,
5 See Securities Exchange Act Release No. 79585
(December 16, 2016), 81 FR 93988 (December 22,
2016) (SR–BatsBZX–2016–68; SR–BatsBYX–2016–
29; SR–BatsEDGA–2016–24; SR–BatsEDGX–2016–
60). The Exchange notes that BYX and EDGA are
also affiliated exchanges but do not operate options
platforms and thus the integration described in this
proposal is inapplicable to such exchanges.
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in the context of a technology migration.
Thus, the proposals set forth below are
intended to add certain functionality to
the Exchange’s System 6 that is more
similar to functionality offered by Cboe
Options and C2 Options in order to
ultimately provide a consistent
technology offering for market
participants who interact with the Cboe
Affiliated Exchanges. Although the
Exchange intentionally offers certain
features that differ from those offered by
its affiliates and will continue to do so,
the Exchange believes that offering
similar functionality to the extent
practicable will reduce potential
confusion for Users.
The Exchange is proposing to adopt
periodic but relatively minor changes to
functionality in order to reduce risk in
connection with the technology
migration described above; this proposal
is related to two such proposed changes.
First, the Exchange proposes to adopt
certain risk functionality in Rule 21.17,
which is based on functionality on Cboe
Options, C2 Options and/or the
Exchange’s functionality applicable to
complex orders. The Exchange notes
that it also proposes to make a related
change to Rule 21.1 to eliminate
functionality that overlaps with the
proposed risk functionality. Second, the
Exchange proposes to modify Rule 21.10
to allow it to provide additional
information on transaction reports.
Risk Controls
The Exchange currently provides
certain controls to Users 7 of EDGX
Options pursuant to Rule 21.16, which
describes the Exchange’s ‘‘Risk Monitor
Mechanism,’’ and Rule 21.20, which
describes the Exchange’s functionality
for complex orders. In addition, the
Exchange provides a variety of optional
risk controls to all Exchange Users
pursuant to Interpretation and Policy
.01 to Rule 11.10, including various
controls related to the price of an order.8
The Exchange proposes to adopt various
risk controls currently offered by Cboe
Options, C2 Options, and/or the
Exchange with respect to complex
orders and to codify such risk controls
in Rule 21.17.
Rule 21.17 currently permits the
Exchange to share a User’s risk settings
with the Clearing Member that clears
transactions on behalf of the User,
which is a provision that the Exchange
does not propose to modify. Rule 21.17
does not currently describe any
applicable risk settings. As noted above,
though certain risk settings offered for
Users of EDGX Options are codified in
Rule 21.16, other optional risk settings
offered by the Exchange are more
generally described in Interpretation
and Policy .01 to Rule 11.10 and have
been described in other filings
previously made by the Exchange.9 The
Exchange proposes to provide more
specificity in proposed Rule 21.17
regarding the risk settings the Exchange
proposes to implement for EDGX
Options, which is consistent with the
approach taken by Cboe Options and C2
Options.
As a general matter, the Exchange
proposes to adopt various numeric
values that would apply to the risk
settings offered by the Exchange.
Consistent with other rules of the
Exchange,10 the Exchange proposes to
maintain all numeric values established
by the Exchange pursuant to Rule 21.17
in publicly available specifications and/
or published in a Regulatory Circular.
Further, as a general matter, the
proposed risk settings would be applied
to all orders and quotes received by
EDGX Options rather than optionally
configured and enabled by Users. Thus,
proposed Rule 21.17 would explicitly
state that unless otherwise specified, the
price protections in the Rule, including
the numeric values established by the
Exchange, may not be disabled or
adjusted. Below are descriptions of the
specific risk settings proposed by the
Exchange.
The first risk control the Exchange
proposes to adopt is the Market Order
NBBO Width Protection. As proposed, if
a User submits a Market Order 11 to the
System when the NBBO 12 width is
greater than x% of the midpoint of the
NBBO, subject to minimum and
maximum dollar values established by
the Exchange, the System will reject or
cancel back to the User the Market
9 See
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6 The
‘‘System’’ is the automated trading system
used by EDGX Options for the trading of options
contracts. See Rule 16.1(a)(59).
7 The term ‘‘User’’ means any Options Member or
Sponsored Participant who is authorized to obtain
access to the Exchange’s System (as defined below)
pursuant to Rule 11.3. See Rule 16.1(a)(63).
8 See Rule 11.10, Interpretation and Policy .01;
see also Securities Exchange Act Release No. 67266
(June 26, 2012), 77 FR 39300 (July 2, 2012) (SR–
EDGX–2012–21) (Notice of Filing and Immediate
Effectiveness of Proposed Rule Change Relating to
New Market Access Risk Management Service).
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id.
e.g., Interpretation and Policies .04(c)(1),
.04(e), .04(f) and .06 to Rule 21.20, which refer to
various risk control values offered by the Exchange
with respect to complex orders that are
communicated to members of the Exchange via
specifications and/or Regulatory Circular.
11 See Rule 21.1(d)(5).
12 As defined in Rule 16.1(a)(29), the term ‘‘NBB’’
means the national best bid, the term ‘‘NBO’’ means
the national best offer, and the term ‘‘NBBO’’ means
the national best bid or offer as calculated by EDGX
Options based on market information received by
EDGX Options from OPRA.
10 See,
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1059
Order. The Exchange proposes to
establish ‘‘x’’ and the minimum and
maximum values on a class-by-class
basis. The proposed Market Order
NBBO Width Protection is based on and
similar to the Market-Width Parameter
set forth in C2 Options Rule 6.17(a)(1).13
In particular, similar to C2 Options Rule
6.17(a)(1), the Exchange would reject or
cancel Market Orders when the width of
the NBBO is greater than an acceptable
range and would establish the numeric
values that would ultimately determine
acceptable quote widths on a class-byclass basis. However, in contrast to C2
Options Rule 6.17(a)(1), the Exchange
does not propose to set forth specific
boundaries for quote widths within the
proposed rule. The Exchange believes
that it needs flexibility to modify
acceptable quote widths based on
experience with the risk control and
Users would always have access to the
applicable settings in the Exchange’s
publicly available specifications and/or
as published in a Regulatory Circular.
The Exchange notes that the Nasdaq
Options Market (‘‘NOM’’) has a similar
quote width protection in place for
market orders that does not specify the
applicable limits within the rule.14 The
Exchange notes that it does not
currently have an NBBO width
protection in place for Market Orders,
and thus this protection is an additive
control to protect against erroneous
executions.
The second risk control the Exchange
proposes to adopt is the Limit Order Fat
Finger Check. As proposed, if a User
submits a buy (sell) limit order to the
System with a price that is more than a
buffer amount established by the
Exchange above (below) the NBO (NBB),
or, in the case of an order received prior
to 9:30 a.m., above (below) the midpoint
of the NBBO at the close of the market
on the previous trading day, the System
will reject or cancel back to the User the
limit order. The proposed Limit Order
Fat Finger Check is based on and similar
to certain Limit Order Price Parameters
set forth in C2 Options Rule 6.17(b). In
particular, similar to C2 Options Rule
6.17(b)(1) and (b)(2), the Exchange
would reject or cancel limit orders that
13 The Exchange notes that identical or similar
rules regarding risk controls offered by C2 Options
are also provided in the rules of Cboe Options and
on other options exchanges. However, the Exchange
has focused on the Rules of C2 Options as well as
the Exchange’s own rules applicable to complex
orders for purposes of this proposal.
14 See NOM Chapter VI, Section 6(c), which
describes the NOM Market Order Spread Protection
and states that ‘‘System Orders that are Market
Orders will be rejected if the best of the NBBO and
the internal market BBO (the ‘‘Reference BBO’’) is
wider than a preset threshold at the time the order
is received by the System.’’
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are more than an acceptable difference
from the applicable reference price and
would distinguish the applicable
reference price depending on whether
an order was received prior to market
open or during the trading day.
However, in contrast to C2 Options Rule
6.17(b), which states that the acceptable
tick distance shall be no less than two
minimum increment ticks for simple
orders, the Exchange does not propose
to set forth specific boundaries for the
acceptable difference within the
proposed rule. As is true for the Market
Order NBBO Width Protection
described above, the Exchange believes
that it needs flexibility to modify the
acceptable price range based on
experience with the risk control and
Users would always have access to the
applicable settings in the Exchange’s
publicly available specifications and/or
as published in a Regulatory Circular.
The Exchange notes that the BOX
Options Exchange (‘‘BOX’’) has a similar
price protection in place for limit orders
that does specify potential percentages
in the Rule but also permits BOX to
modify such percentages via
Information Circular without
establishing outer boundaries.15 The
Exchange notes that it currently applies
mandatory fat finger protection to
complex orders received by the
Exchange pursuant to Interpretation and
Policy .06 to Rule 21.20. The Exchange
also notes that it currently offers price
protections analogous to the proposed
Limit Order Fat Finger Check for orders
other than complex orders (i.e., ‘‘simple
orders’’), however, as noted above such
price protections are optional.
The third risk control the Exchange
proposes to adopt is the Buy Order Put
Check. As proposed, if a User enters a
buy limit order for a put with a price
that is higher than or equal to the strike
price of the option, the System will
reject or cancel back to the User the
limit order. Similarly, if a User enters a
buy Market Order for a put that would
execute at (or the remaining portion
would execute at) a price higher than or
equal to the strike price of the option,
the System will reject or cancel back to
the User the Market Order (or remaining
portion). The Exchange does not
propose to apply this check to adjusted
15 See BOX Rule 7290, which describes the Price
Protection for Limit Orders and Quotes and states
that ‘‘[t]he price parameter is set by either the
Exchange or the Participant on an underlying
security basis and is a percentage of the NBBO on
the opposite side of the incoming order or quote.
Unless determined otherwise by the Exchange and
announced to Participants via Informational
Circular, the specified percentage shall be: 100% for
the contra-side NBB or NBO priced at or below
$0.25; and 50% for the contraside NBB or NBO
priced above $0.25.’’
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options. The proposed Buy Order Put
Check is based on and substantively
identical to the Put Strike Price Value
Check set forth in C2 Options Rule
6.17(d)(1)(A). The Exchange notes that it
does not currently have an analogous
risk control in place, and thus, this
protection is an additive control to
protect against erroneous executions.
The fourth and final risk control the
Exchange proposes to adopt is the DrillThrough Price Protection. As proposed,
the Drill-Through Price Protection
feature is a price protection mechanism
applicable to all orders under which a
buy (sell) order will not be executed at
a price that is higher (lower) than the
NBO (NBB) at the time of order entry
plus (minus) a buffer amount
established by the Exchange (the ‘‘DrillThrough Price’’). If a buy (sell) order
would execute or post to the EDGX
Options Book at a price higher (lower)
than the Drill-Through Price, the System
will instead post the order to the EDGX
Options Book at the Drill-Through Price,
unless the terms of the order instruct
otherwise. Any order (or unexecuted
portion thereof) will rest in the EDGX
Options Book (based on the time at
which it enters the book for priority
purposes) for a time period in
milliseconds that may not exceed three
seconds with a price equal to the DrillThrough Price. If the order (or
unexecuted portion thereof) does not
execute during that time period, the
System will cancel it. While similar to
and based on C2 Options Rule
6.17(a)(2), the proposed Rule is more
directly based on Interpretation and
Policy .04, to Exchange Rule 21.20,
which describes Drill-Through Price
Protection applicable to complex orders
on EDGX Options. The proposed DrillThrough Price Protection is identical to
Interpretation and Policy .04 to Rule
21.20 with the exceptions of necessary
differences between language related to
simple orders and complex orders and
that in contrast to a User being able to
modify the protection to a more or less
restrictive control, which is available for
the control on the Exchange for complex
orders, the Exchange proposes to apply
standard Drill-Through Price Protection
to all orders and such protection cannot
be modified.
In connection with the changes
described above, the Exchange proposes
to remove a portion of the definition of
a [sic] Market Orders to remove a risk
protection currently in place that
overlaps with various risk controls
described above. Market Orders are
currently defined in in Rule 21.1(d)(5)
as ‘‘orders to buy or sell at the best price
available at the time of execution.’’ Rule
21.1(d)(5) further states that ‘‘[a]ny
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portion of a Market Order that would
execute at a price more than $0.50 or 5
percent worse than the NBBO at the
time the order initially reaches EDGX
Options, whichever is greater, will be
cancelled.’’ The Exchange proposes to
remove this price protection for Market
Orders because it is no longer necessary
in light of the proposed risk controls
described above (other than the Limit
Order Fat Finger Check, which is
inapplicable to Market Orders). In
particular, the Drill-Through Price
Protection provides a control with
respect to the execution prices of Market
Orders and would be duplicative of the
existing control.
Details in Transaction Reports
The Exchange also proposes to modify
Rule 21.10, Anonymity, to allow it to
provide additional information on
transaction reports. Current Rule
21.10(a) states that ‘‘[t]he intra-day
transaction reports produced by the
System will indicate the details of the
transactions, and shall not reveal contra
party identities.’’ The Exchange notes
that this provision is consistent with
Rule 11.13(d) of its cash equities trading
platform (‘‘EDGX Equities’’) but is not a
common provision in the rules of other
options exchanges, including Cboe
Options or C2 Options, which do not
have such a provision. The Exchange
currently provides details regarding
contra-parties on various end of day and
end of month reports for clearing
purposes, and this information is
similarly readily available through the
Options Clearing Corporation (‘‘OCC’’)
for clearing purposes.
The Exchange proposes to remove the
restriction on providing contra party
identities and to specifically state that
aggregated and individual transaction
reports produced by the System will
indicate the details of a User’s
transactions, including the contra
party’s MPID, capacity, and clearing
firm account number.
Current paragraph (c) of Rule 21.10
contains four exceptions to the general
rule of anonymity, providing that the
‘‘Exchange shall reveal a User’s identity
in the following circumstances: (1) For
regulatory purposes or to comply with
an order of an arbitrator or court; (2) if
both Users to the transaction consent;
(3) if a User is acting as either a Market
Maker or sending Orders on behalf of a
Priority Customer; or (4) unless
otherwise instructed by a User, the
Exchange will reveal to a User, no later
than the end of the day on the date an
anonymous trade was executed, when
the User’s Order has been decremented
by another Order submitted by that
same User.’’ The Exchange proposes to
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retain only the first exception, regarding
regulatory purposes or to comply with
an order of an arbitrator or court, as the
other exceptions are no longer necessary
to the extent the Exchange will provide
information on individual and aggregate
transaction reports produced by the
System.
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act 16 in general, and furthers the
objectives of Section 6(b)(5) of the Act 17
in particular, in that it is designed to
promote just and equitable principles of
trade, 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. In
particular, consistent rules and
functionality between the Exchange and
its affiliated exchanges will reduce
complexity and help avoid potential
confusion by the Users of the Exchange
that are also participants on other Cboe
Affiliated Exchanges.18
The Exchange believes the proposed
amendment will reduce complexity and
increase the understanding of the
Exchange’s operations for all Users of
the Exchange. In particular, by adopting
certain mandatory risk controls, the
Exchange’s functionality will be more
similar to that of Cboe Options and C2
Options. In turn, when Cboe Options
and C2 Options are migrated to the same
technology as that of the Exchange,
Users of the Exchange and other Cboe
Affiliated Exchanges will have access to
similar functionality on all Cboe
Affiliated Exchanges. As such, the
proposed rule change would foster
cooperation and coordination with
persons engaged in facilitating
transactions in securities and would
remove impediments to and perfect the
mechanism of a free and open market
and a national market system.
The Exchange further believes that the
proposed price protection mechanisms
and risk controls will protect investors
and the public interest and maintain fair
and orderly markets by mitigating
potential risks associated with market
participants entering orders and quotes
at unintended prices, and risks
associated with orders and quotes
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16 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
18 The Exchange notes that its affiliate, BZX, also
intends to adopt changes that are substantively
identical to the changes set forth in this proposal.
In addition, as Cboe Options and C2 Options
migrate to the same technology platform as the
Exchange, Cboe Options and C2 Options intend to
modify rules and functionality to be consistent with
the Exchange and BZX, unless the retention of
differences is intended.
17 15
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trading at prices that are extreme and
potentially erroneous, which may likely
have resulted from human or
operational error. While the Exchange
has previously offered many risk
controls under Interpretation and Policy
.01 to Rule 11.10 and other filings
previously made by the Exchange,19 the
Exchange believes that Users will
benefit from the additional specificity
provided under the proposed rules,
particularly because, in contrast to
optional risk control functionality, the
proposed rules provide that each
proposed risk control will be applied to
all orders received by EDGX Options.
Although the Exchange’s proposed price
protection mechanisms and risk
controls are similar to and based on
existing rules of C2 Options or the
Exchange, the Exchange notes that it has
not proposed to establish outer
boundaries or limits to the levels at
which the mechanisms can be set. The
Exchange believes this is reasonable and
is necessary to afford the Exchange the
flexibility to establish and modify the
default parameters in order to protect
investors and the public interest and
maintain a fair and orderly market. The
Exchange again notes that the applicable
specified levels will always be available
in the Exchange’s publicly available
specifications and/or as published in a
Regulatory Circular. The Exchange also
notes that this approach is consistent
with certain rules of other options
exchanges, which similarly offer risk
controls that can be modified without
regard to a rule based limitation.20
The Exchange believes the proposed
changes to Rule 21.10 that will permit
the Exchange to provide additional
detail in transaction reports is
consistent with the rules of other
options exchanges that do not contain
explicit restrictions on providing such
information. The proposed changes are
similarly consistent with a variety of
current Exchange and options industry
practices, including the fact that
clearing information available through
OCC already provides contra-party
information, as well as the ability of a
User on the Exchange to disclose their
identity when quoting.21 Based on the
foregoing, the Exchange believes the
proposed changes to Rule 21.10 are
consistent with Section 6(b)(5) of the
Act 22 in particular, in that they are
designed to foster cooperation and
coordination with persons engaged in
19 See
supra, note 7.
supra, notes 13 and 14.
21 See, e.g., Rule 21.1(c)(1), defining ‘‘Attributable
Orders’’ as orders that are designated for display
(price and size) including the User’s market
participant identifier (‘‘MPID’’).
22 15 U.S.C. 78f(b)(5).
20 See
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1061
clearing, settling, processing
information with respect to, and
facilitating transactions in securities.
(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. The
Exchange notes that the proposal will
further promote consistency between
the Exchange and its affiliated
exchanges, and is part of a larger
technology integration that will
ultimately reduce complexity for Users
of the Exchange that are also
participants on other Cboe Affiliated
Exchanges. The Exchange does not
believe that the proposed changes will
have any direct impact on competition.
Thus, the Exchange does not believe
that the proposal creates any significant
impact on competition.
(C) Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants or Others
The Exchange has not solicited, and
does not intend to solicit, comments on
this proposed rule change. The
Exchange has not received any written
comments from members or other
interested parties.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule
change does not: (A) Significantly affect
the protection of investors or the public
interest; (B) impose any significant
burden on competition; and (C) by its
terms, 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 23 and paragraph (f)(6) of Rule 19b–
4 thereunder,24 the Exchange has
designated this rule filing as noncontroversial. The Exchange has given
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.
A proposed rule change filed under
Rule 19b–4(f)(6) 25 normally does not
become operative prior to 30 days after
23 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4.
25 17 CFR 240.19b–4(f)(6).
24 17
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1062
Federal Register / Vol. 83, No. 6 / Tuesday, January 9, 2018 / Notices
the date of the filing. However, Rule
19b–4(f)(6)(iii) 26 permits the
Commission to designate a shorter time
if such action is consistent with the
protection of investors and the public
interest. The Exchange has asked the
Commission to waive the 30-day
operative delay so that the proposal may
become operative immediately upon
filing. The Exchange notes that the
proposal will promote consistency
between the Exchange and its affiliated
exchanges, and is part of a larger
technology integration that will
ultimately reduce complexity for Users
of the Exchange that are also
participants on other Cboe Affiliated
Exchanges. The Exchange further notes
that allowing the Exchange to move
forward with the proposed changes
without an operative delay will ensure
that the technology integration can
continue with periodic but measured
changes rather than implementing
several changes at once. Furthermore,
the Exchange states that the
implementation of the risk controls will
help to avoid potentially erroneous
executions. The Commission believes
that waiver of the 30-day operative
delay is consistent with the protection
of investors and the public interest.
Accordingly, the Commission hereby
waives the operative delay and
designates the proposed rule change as
operative upon filing.27
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: (1) Necessary or appropriate in
the public interest; (2) for the protection
of investors; or (3) 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.
sradovich on DSK3GMQ082PROD with NOTICES
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 rule-comments@
sec.gov. Please include File Number SR–
CboeEDGX–2017–009 on the subject
line.
Paper Comments
• Send paper comments in triplicate
to Brent J. Fields, Secretary, Securities
and Exchange Commission, 100 F Street
NE, Washington, DC 20549–1090.
All submissions should refer to File
Number SR–CboeEDGX–2017–009. This
file number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
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–2017–009 and
should be submitted on or before
January 30, 2018.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.28
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–00160 Filed 1–8–18; 8:45 am]
BILLING CODE 8011–01–P
26 17
CFR 240.19b–4(f)(6)(iii).
purposes only of waiving the 30-day
operative delay, the Commission has also
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
27 For
VerDate Sep<11>2014
15:58 Jan 08, 2018
Jkt 244001
28 17
PO 00000
CFR 200.30–3(a)(12).
Frm 00050
Fmt 4703
Sfmt 4703
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–82439; File No. SR–
NASDAQ–2017–128]
Self-Regulatory Organizations; The
Nasdaq Stock Market LLC; Notice of
Filing of Proposed Rule Change To
List and Trade the Shares of the
Western Asset Total Return ETF
January 3, 2018.
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 December
20, 2017, The Nasdaq Stock Market LLC
(‘‘Nasdaq’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘SEC’’ or ‘‘Commission’’) the proposed
rule change as described in Items I and
II 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.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to list and
trade the shares of the Western Asset
Total Return ETF (the ‘‘Fund’’), a series
of Legg Mason ETF Investment Trust
(the ‘‘Trust’’) under Nasdaq Rule 5735
(‘‘Managed Fund Shares’’).3 The shares
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 The Commission approved Nasdaq Rule 5735 in
Securities Exchange Act Release No. 57962 (June
13, 2008), 73 FR 35175 (June 20, 2008) (SR–
NASDAQ–2008–039). There are already multiple
actively-managed funds listed on the Exchange.
See, e.g., Securities Exchange Act Release Nos.
80946 (June 15, 2017), 82 FR 28126 (June 20, 2017)
(SR–NASDAQ–2017–039) (order approving listing
and trading of Guggenheim Limited Duration ETF);
78592 (August 16, 2016), 81 FR 56729 (August 22,
2016) (SR–NASDAQ–2016–061) (order approving
listing and trading of First Trust Equity Market
Neutral ETF); 78443 (July 29, 2016), 81 FR 51517
(August 4, 2016) (SR–NASDAQ–2016–064) (order
approving listing and trading of First Trust Strategic
Mortgage REIT ETF); 71913 (April 9, 2014), 79 FR
21333 (April 15, 2014) (SR–NASDAQ–2014–019)
(order approving listing and trading of First Trust
Managed Municipal ETF); 69464 (April 26, 2013),
78 FR 25774 (May 2, 2013) (SR–NASDAQ–2013–
036) (order approving listing and trading of First
Trust Senior Loan Fund); 66489 (February 29,
2012), 77 FR 13379 (March 6, 2012) (SR–NASDAQ–
2012–004) (order approving listing and trading of
WisdomTree Emerging Markets Corporate Bond
Fund); see also filings for similar ETFs listed on
other national securities exchanges: Securities
Exchange Act Release Nos. 80657 (May 11, 2017)
82 FR 22702 (May 17, 2017) (SR–NYSE Arca–2017–
09) (order approving listing and trading of Janus
Short Duration Income ETF); 79683 (December 23,
2016), 81 FR 96539 (December 30, 2016) (SR–
NYSEArca–2016–82) (order approving listing and
trading of JPMorgan Diversified Event Driven ETF);
77904 (May 25, 2016), 81 FR 35101 (SR–NYSE
Arca–2016–17) (order approving listing and trading
of JPMorgan Diversified Alternative ETF); 68870
2 17
E:\FR\FM\09JAN1.SGM
09JAN1
]]>Agencies
[Federal Register Volume 83, Number 6 (Tuesday, January 9, 2018)]
[Notices]
[Pages 1058-1062]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-00160]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-82437; File No. SR-CboeEDGX-2017-009]
Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice
of Filing and Immediate Effectiveness of a Proposed Rule Change To
Adopt Risk Controls and Modify Rules 21.1, 21.10, and 21.17 in
Connection With Technology Migration of Cboe Exchanges
January 3, 2018.
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 December 21, 2017, Cboe EDGX Exchange, Inc. (the ``Exchange'')
filed with the Securities and Exchange Commission (``Commission'') the
proposed rule change as described in Items I and II below, which Items
have been prepared by the Exchange. The Exchange has designated this
proposal as a ``non-controversial'' proposed rule change pursuant to
Section 19(b)(3)(A) of the Act \3\ and Rule 19b-4(f)(6)(iii)
thereunder,\4\ which renders it effective upon filing with the
Commission. 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).
\4\ 17 CFR 240.19b-4(f)(6)(iii).
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange filed a proposal to update Rule 21.1, Rule 21.10, and
Rule 21.17 to make modifications to the Exchange's rules and
functionality applicable to the Exchange's options platform (``EDGX
Options'') in preparation for the technology migration of the
Exchange's affiliated options exchanges onto the same technology as the
Exchange.
The text of the proposed rule change is available at the Exchange's
website at www.markets.cboe.com, at the principal office of the
Exchange, 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 parts of such
statements.
(A) Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
In 2016, the Exchange and its affiliates Cboe BYX Exchange, Inc.
(``BYX''), Cboe EDGA Exchange, Inc. (``EDGA''), and Cboe BZX Exchange,
Inc. (``BZX'') received approval to affect a merger (the ``Merger'') of
the Exchange's then-current indirect parent company, Bats Global
Markets, Inc., with Cboe Global Markets f/k/a CBOE Holdings, Inc.
(``Cboe''), the direct parent of Cboe Exchange, Inc. (``Cboe Options'')
and Cboe C2 Exchange, Inc. (``C2 Options'', and together with the
Exchange, BZX, and Cboe Options the ``Cboe Affiliated Exchanges'').\5\
The Cboe Affiliated Exchanges are working to align certain system
functionality, retaining only intended differences between the Cboe
Affiliated Exchanges,
[[Page 1059]]
in the context of a technology migration. Thus, the proposals set forth
below are intended to add certain functionality to the Exchange's
System \6\ that is more similar to functionality offered by Cboe
Options and C2 Options in order to ultimately provide a consistent
technology offering for market participants who interact with the Cboe
Affiliated Exchanges. Although the Exchange intentionally offers
certain features that differ from those offered by its affiliates and
will continue to do so, the Exchange believes that offering similar
functionality to the extent practicable will reduce potential confusion
for Users.
---------------------------------------------------------------------------
\5\ See Securities Exchange Act Release No. 79585 (December 16,
2016), 81 FR 93988 (December 22, 2016) (SR-BatsBZX-2016-68; SR-
BatsBYX-2016-29; SR-BatsEDGA-2016-24; SR-BatsEDGX-2016-60). The
Exchange notes that BYX and EDGA are also affiliated exchanges but
do not operate options platforms and thus the integration described
in this proposal is inapplicable to such exchanges.
\6\ The ``System'' is the automated trading system used by EDGX
Options for the trading of options contracts. See Rule 16.1(a)(59).
---------------------------------------------------------------------------
The Exchange is proposing to adopt periodic but relatively minor
changes to functionality in order to reduce risk in connection with the
technology migration described above; this proposal is related to two
such proposed changes. First, the Exchange proposes to adopt certain
risk functionality in Rule 21.17, which is based on functionality on
Cboe Options, C2 Options and/or the Exchange's functionality applicable
to complex orders. The Exchange notes that it also proposes to make a
related change to Rule 21.1 to eliminate functionality that overlaps
with the proposed risk functionality. Second, the Exchange proposes to
modify Rule 21.10 to allow it to provide additional information on
transaction reports.
Risk Controls
The Exchange currently provides certain controls to Users \7\ of
EDGX Options pursuant to Rule 21.16, which describes the Exchange's
``Risk Monitor Mechanism,'' and Rule 21.20, which describes the
Exchange's functionality for complex orders. In addition, the Exchange
provides a variety of optional risk controls to all Exchange Users
pursuant to Interpretation and Policy .01 to Rule 11.10, including
various controls related to the price of an order.\8\ The Exchange
proposes to adopt various risk controls currently offered by Cboe
Options, C2 Options, and/or the Exchange with respect to complex orders
and to codify such risk controls in Rule 21.17.
---------------------------------------------------------------------------
\7\ The term ``User'' means any Options Member or Sponsored
Participant who is authorized to obtain access to the Exchange's
System (as defined below) pursuant to Rule 11.3. See Rule
16.1(a)(63).
\8\ See Rule 11.10, Interpretation and Policy .01; see also
Securities Exchange Act Release No. 67266 (June 26, 2012), 77 FR
39300 (July 2, 2012) (SR-EDGX-2012-21) (Notice of Filing and
Immediate Effectiveness of Proposed Rule Change Relating to New
Market Access Risk Management Service).
---------------------------------------------------------------------------
Rule 21.17 currently permits the Exchange to share a User's risk
settings with the Clearing Member that clears transactions on behalf of
the User, which is a provision that the Exchange does not propose to
modify. Rule 21.17 does not currently describe any applicable risk
settings. As noted above, though certain risk settings offered for
Users of EDGX Options are codified in Rule 21.16, other optional risk
settings offered by the Exchange are more generally described in
Interpretation and Policy .01 to Rule 11.10 and have been described in
other filings previously made by the Exchange.\9\ The Exchange proposes
to provide more specificity in proposed Rule 21.17 regarding the risk
settings the Exchange proposes to implement for EDGX Options, which is
consistent with the approach taken by Cboe Options and C2 Options.
---------------------------------------------------------------------------
\9\ See id.
---------------------------------------------------------------------------
As a general matter, the Exchange proposes to adopt various numeric
values that would apply to the risk settings offered by the Exchange.
Consistent with other rules of the Exchange,\10\ the Exchange proposes
to maintain all numeric values established by the Exchange pursuant to
Rule 21.17 in publicly available specifications and/or published in a
Regulatory Circular. Further, as a general matter, the proposed risk
settings would be applied to all orders and quotes received by EDGX
Options rather than optionally configured and enabled by Users. Thus,
proposed Rule 21.17 would explicitly state that unless otherwise
specified, the price protections in the Rule, including the numeric
values established by the Exchange, may not be disabled or adjusted.
Below are descriptions of the specific risk settings proposed by the
Exchange.
---------------------------------------------------------------------------
\10\ See, e.g., Interpretation and Policies .04(c)(1), .04(e),
.04(f) and .06 to Rule 21.20, which refer to various risk control
values offered by the Exchange with respect to complex orders that
are communicated to members of the Exchange via specifications and/
or Regulatory Circular.
---------------------------------------------------------------------------
The first risk control the Exchange proposes to adopt is the Market
Order NBBO Width Protection. As proposed, if a User submits a Market
Order \11\ to the System when the NBBO \12\ width is greater than x% of
the midpoint of the NBBO, subject to minimum and maximum dollar values
established by the Exchange, the System will reject or cancel back to
the User the Market Order. The Exchange proposes to establish ``x'' and
the minimum and maximum values on a class-by-class basis. The proposed
Market Order NBBO Width Protection is based on and similar to the
Market-Width Parameter set forth in C2 Options Rule 6.17(a)(1).\13\ In
particular, similar to C2 Options Rule 6.17(a)(1), the Exchange would
reject or cancel Market Orders when the width of the NBBO is greater
than an acceptable range and would establish the numeric values that
would ultimately determine acceptable quote widths on a class-by-class
basis. However, in contrast to C2 Options Rule 6.17(a)(1), the Exchange
does not propose to set forth specific boundaries for quote widths
within the proposed rule. The Exchange believes that it needs
flexibility to modify acceptable quote widths based on experience with
the risk control and Users would always have access to the applicable
settings in the Exchange's publicly available specifications and/or as
published in a Regulatory Circular. The Exchange notes that the Nasdaq
Options Market (``NOM'') has a similar quote width protection in place
for market orders that does not specify the applicable limits within
the rule.\14\ The Exchange notes that it does not currently have an
NBBO width protection in place for Market Orders, and thus this
protection is an additive control to protect against erroneous
executions.
---------------------------------------------------------------------------
\11\ See Rule 21.1(d)(5).
\12\ As defined in Rule 16.1(a)(29), the term ``NBB'' means the
national best bid, the term ``NBO'' means the national best offer,
and the term ``NBBO'' means the national best bid or offer as
calculated by EDGX Options based on market information received by
EDGX Options from OPRA.
\13\ The Exchange notes that identical or similar rules
regarding risk controls offered by C2 Options are also provided in
the rules of Cboe Options and on other options exchanges. However,
the Exchange has focused on the Rules of C2 Options as well as the
Exchange's own rules applicable to complex orders for purposes of
this proposal.
\14\ See NOM Chapter VI, Section 6(c), which describes the NOM
Market Order Spread Protection and states that ``System Orders that
are Market Orders will be rejected if the best of the NBBO and the
internal market BBO (the ``Reference BBO'') is wider than a preset
threshold at the time the order is received by the System.''
---------------------------------------------------------------------------
The second risk control the Exchange proposes to adopt is the Limit
Order Fat Finger Check. As proposed, if a User submits a buy (sell)
limit order to the System with a price that is more than a buffer
amount established by the Exchange above (below) the NBO (NBB), or, in
the case of an order received prior to 9:30 a.m., above (below) the
midpoint of the NBBO at the close of the market on the previous trading
day, the System will reject or cancel back to the User the limit order.
The proposed Limit Order Fat Finger Check is based on and similar to
certain Limit Order Price Parameters set forth in C2 Options Rule
6.17(b). In particular, similar to C2 Options Rule 6.17(b)(1) and
(b)(2), the Exchange would reject or cancel limit orders that
[[Page 1060]]
are more than an acceptable difference from the applicable reference
price and would distinguish the applicable reference price depending on
whether an order was received prior to market open or during the
trading day. However, in contrast to C2 Options Rule 6.17(b), which
states that the acceptable tick distance shall be no less than two
minimum increment ticks for simple orders, the Exchange does not
propose to set forth specific boundaries for the acceptable difference
within the proposed rule. As is true for the Market Order NBBO Width
Protection described above, the Exchange believes that it needs
flexibility to modify the acceptable price range based on experience
with the risk control and Users would always have access to the
applicable settings in the Exchange's publicly available specifications
and/or as published in a Regulatory Circular. The Exchange notes that
the BOX Options Exchange (``BOX'') has a similar price protection in
place for limit orders that does specify potential percentages in the
Rule but also permits BOX to modify such percentages via Information
Circular without establishing outer boundaries.\15\ The Exchange notes
that it currently applies mandatory fat finger protection to complex
orders received by the Exchange pursuant to Interpretation and Policy
.06 to Rule 21.20. The Exchange also notes that it currently offers
price protections analogous to the proposed Limit Order Fat Finger
Check for orders other than complex orders (i.e., ``simple orders''),
however, as noted above such price protections are optional.
---------------------------------------------------------------------------
\15\ See BOX Rule 7290, which describes the Price Protection for
Limit Orders and Quotes and states that ``[t]he price parameter is
set by either the Exchange or the Participant on an underlying
security basis and is a percentage of the NBBO on the opposite side
of the incoming order or quote. Unless determined otherwise by the
Exchange and announced to Participants via Informational Circular,
the specified percentage shall be: 100% for the contra-side NBB or
NBO priced at or below $0.25; and 50% for the contraside NBB or NBO
priced above $0.25.''
---------------------------------------------------------------------------
The third risk control the Exchange proposes to adopt is the Buy
Order Put Check. As proposed, if a User enters a buy limit order for a
put with a price that is higher than or equal to the strike price of
the option, the System will reject or cancel back to the User the limit
order. Similarly, if a User enters a buy Market Order for a put that
would execute at (or the remaining portion would execute at) a price
higher than or equal to the strike price of the option, the System will
reject or cancel back to the User the Market Order (or remaining
portion). The Exchange does not propose to apply this check to adjusted
options. The proposed Buy Order Put Check is based on and substantively
identical to the Put Strike Price Value Check set forth in C2 Options
Rule 6.17(d)(1)(A). The Exchange notes that it does not currently have
an analogous risk control in place, and thus, this protection is an
additive control to protect against erroneous executions.
The fourth and final risk control the Exchange proposes to adopt is
the Drill-Through Price Protection. As proposed, the Drill-Through
Price Protection feature is a price protection mechanism applicable to
all orders under which a buy (sell) order will not be executed at a
price that is higher (lower) than the NBO (NBB) at the time of order
entry plus (minus) a buffer amount established by the Exchange (the
``Drill-Through Price''). If a buy (sell) order would execute or post
to the EDGX Options Book at a price higher (lower) than the Drill-
Through Price, the System will instead post the order to the EDGX
Options Book at the Drill-Through Price, unless the terms of the order
instruct otherwise. Any order (or unexecuted portion thereof) will rest
in the EDGX Options Book (based on the time at which it enters the book
for priority purposes) for a time period in milliseconds that may not
exceed three seconds with a price equal to the Drill-Through Price. If
the order (or unexecuted portion thereof) does not execute during that
time period, the System will cancel it. While similar to and based on
C2 Options Rule 6.17(a)(2), the proposed Rule is more directly based on
Interpretation and Policy .04, to Exchange Rule 21.20, which describes
Drill-Through Price Protection applicable to complex orders on EDGX
Options. The proposed Drill-Through Price Protection is identical to
Interpretation and Policy .04 to Rule 21.20 with the exceptions of
necessary differences between language related to simple orders and
complex orders and that in contrast to a User being able to modify the
protection to a more or less restrictive control, which is available
for the control on the Exchange for complex orders, the Exchange
proposes to apply standard Drill-Through Price Protection to all orders
and such protection cannot be modified.
In connection with the changes described above, the Exchange
proposes to remove a portion of the definition of a [sic] Market Orders
to remove a risk protection currently in place that overlaps with
various risk controls described above. Market Orders are currently
defined in in Rule 21.1(d)(5) as ``orders to buy or sell at the best
price available at the time of execution.'' Rule 21.1(d)(5) further
states that ``[a]ny portion of a Market Order that would execute at a
price more than $0.50 or 5 percent worse than the NBBO at the time the
order initially reaches EDGX Options, whichever is greater, will be
cancelled.'' The Exchange proposes to remove this price protection for
Market Orders because it is no longer necessary in light of the
proposed risk controls described above (other than the Limit Order Fat
Finger Check, which is inapplicable to Market Orders). In particular,
the Drill-Through Price Protection provides a control with respect to
the execution prices of Market Orders and would be duplicative of the
existing control.
Details in Transaction Reports
The Exchange also proposes to modify Rule 21.10, Anonymity, to
allow it to provide additional information on transaction reports.
Current Rule 21.10(a) states that ``[t]he intra-day transaction reports
produced by the System will indicate the details of the transactions,
and shall not reveal contra party identities.'' The Exchange notes that
this provision is consistent with Rule 11.13(d) of its cash equities
trading platform (``EDGX Equities'') but is not a common provision in
the rules of other options exchanges, including Cboe Options or C2
Options, which do not have such a provision. The Exchange currently
provides details regarding contra-parties on various end of day and end
of month reports for clearing purposes, and this information is
similarly readily available through the Options Clearing Corporation
(``OCC'') for clearing purposes.
The Exchange proposes to remove the restriction on providing contra
party identities and to specifically state that aggregated and
individual transaction reports produced by the System will indicate the
details of a User's transactions, including the contra party's MPID,
capacity, and clearing firm account number.
Current paragraph (c) of Rule 21.10 contains four exceptions to the
general rule of anonymity, providing that the ``Exchange shall reveal a
User's identity in the following circumstances: (1) For regulatory
purposes or to comply with an order of an arbitrator or court; (2) if
both Users to the transaction consent; (3) if a User is acting as
either a Market Maker or sending Orders on behalf of a Priority
Customer; or (4) unless otherwise instructed by a User, the Exchange
will reveal to a User, no later than the end of the day on the date an
anonymous trade was executed, when the User's Order has been
decremented by another Order submitted by that same User.'' The
Exchange proposes to
[[Page 1061]]
retain only the first exception, regarding regulatory purposes or to
comply with an order of an arbitrator or court, as the other exceptions
are no longer necessary to the extent the Exchange will provide
information on individual and aggregate transaction reports produced by
the System.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act \16\ in general, and furthers the objectives of Section
6(b)(5) of the Act \17\ in particular, in that it is designed to
promote just and equitable principles of trade, 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. In particular, consistent rules and functionality between the
Exchange and its affiliated exchanges will reduce complexity and help
avoid potential confusion by the Users of the Exchange that are also
participants on other Cboe Affiliated Exchanges.\18\
---------------------------------------------------------------------------
\16\ 15 U.S.C. 78f(b).
\17\ 15 U.S.C. 78f(b)(5).
\18\ The Exchange notes that its affiliate, BZX, also intends to
adopt changes that are substantively identical to the changes set
forth in this proposal. In addition, as Cboe Options and C2 Options
migrate to the same technology platform as the Exchange, Cboe
Options and C2 Options intend to modify rules and functionality to
be consistent with the Exchange and BZX, unless the retention of
differences is intended.
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The Exchange believes the proposed amendment will reduce complexity
and increase the understanding of the Exchange's operations for all
Users of the Exchange. In particular, by adopting certain mandatory
risk controls, the Exchange's functionality will be more similar to
that of Cboe Options and C2 Options. In turn, when Cboe Options and C2
Options are migrated to the same technology as that of the Exchange,
Users of the Exchange and other Cboe Affiliated Exchanges will have
access to similar functionality on all Cboe Affiliated Exchanges. As
such, the proposed rule change would foster cooperation and
coordination with persons engaged in facilitating transactions in
securities and would remove impediments to and perfect the mechanism of
a free and open market and a national market system.
The Exchange further believes that the proposed price protection
mechanisms and risk controls will protect investors and the public
interest and maintain fair and orderly markets by mitigating potential
risks associated with market participants entering orders and quotes at
unintended prices, and risks associated with orders and quotes trading
at prices that are extreme and potentially erroneous, which may likely
have resulted from human or operational error. While the Exchange has
previously offered many risk controls under Interpretation and Policy
.01 to Rule 11.10 and other filings previously made by the
Exchange,\19\ the Exchange believes that Users will benefit from the
additional specificity provided under the proposed rules, particularly
because, in contrast to optional risk control functionality, the
proposed rules provide that each proposed risk control will be applied
to all orders received by EDGX Options. Although the Exchange's
proposed price protection mechanisms and risk controls are similar to
and based on existing rules of C2 Options or the Exchange, the Exchange
notes that it has not proposed to establish outer boundaries or limits
to the levels at which the mechanisms can be set. The Exchange believes
this is reasonable and is necessary to afford the Exchange the
flexibility to establish and modify the default parameters in order to
protect investors and the public interest and maintain a fair and
orderly market. The Exchange again notes that the applicable specified
levels will always be available in the Exchange's publicly available
specifications and/or as published in a Regulatory Circular. The
Exchange also notes that this approach is consistent with certain rules
of other options exchanges, which similarly offer risk controls that
can be modified without regard to a rule based limitation.\20\
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\19\ See supra, note 7.
\20\ See supra, notes 13 and 14.
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The Exchange believes the proposed changes to Rule 21.10 that will
permit the Exchange to provide additional detail in transaction reports
is consistent with the rules of other options exchanges that do not
contain explicit restrictions on providing such information. The
proposed changes are similarly consistent with a variety of current
Exchange and options industry practices, including the fact that
clearing information available through OCC already provides contra-
party information, as well as the ability of a User on the Exchange to
disclose their identity when quoting.\21\ Based on the foregoing, the
Exchange believes the proposed changes to Rule 21.10 are consistent
with Section 6(b)(5) of the Act \22\ in particular, in that they are
designed to foster cooperation and coordination with persons engaged in
clearing, settling, processing information with respect to, and
facilitating transactions in securities.
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\21\ See, e.g., Rule 21.1(c)(1), defining ``Attributable
Orders'' as orders that are designated for display (price and size)
including the User's market participant identifier (``MPID'').
\22\ 15 U.S.C. 78f(b)(5).
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(B) Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The Exchange notes that the
proposal will further promote consistency between the Exchange and its
affiliated exchanges, and is part of a larger technology integration
that will ultimately reduce complexity for Users of the Exchange that
are also participants on other Cboe Affiliated Exchanges. The Exchange
does not believe that the proposed changes will have any direct impact
on competition. Thus, the Exchange does not believe that the proposal
creates any significant impact on competition.
(C) Self-Regulatory Organization's Statement on Comments on the
Proposed Rule Change Received From Members, Participants or Others
The Exchange has not solicited, and does not intend to solicit,
comments on this proposed rule change. The Exchange has not received
any written comments from members or other interested parties.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (A)
Significantly affect the protection of investors or the public
interest; (B) impose any significant burden on competition; and (C) by
its terms, 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 \23\ and
paragraph (f)(6) of Rule 19b-4 thereunder,\24\ the Exchange has
designated this rule filing as non-controversial. The Exchange has
given 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.
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\23\ 15 U.S.C. 78s(b)(3)(A).
\24\ 17 CFR 240.19b-4.
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A proposed rule change filed under Rule 19b-4(f)(6) \25\ normally
does not become operative prior to 30 days after
[[Page 1062]]
the date of the filing. However, Rule 19b-4(f)(6)(iii) \26\ permits the
Commission to designate a shorter time if such action is consistent
with the protection of investors and the public interest. The Exchange
has asked the Commission to waive the 30-day operative delay so that
the proposal may become operative immediately upon filing. The Exchange
notes that the proposal will promote consistency between the Exchange
and its affiliated exchanges, and is part of a larger technology
integration that will ultimately reduce complexity for Users of the
Exchange that are also participants on other Cboe Affiliated Exchanges.
The Exchange further notes that allowing the Exchange to move forward
with the proposed changes without an operative delay will ensure that
the technology integration can continue with periodic but measured
changes rather than implementing several changes at once. Furthermore,
the Exchange states that the implementation of the risk controls will
help to avoid potentially erroneous executions. The Commission believes
that waiver of the 30-day operative delay is consistent with the
protection of investors and the public interest. Accordingly, the
Commission hereby waives the operative delay and designates the
proposed rule change as operative upon filing.\27\
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\25\ 17 CFR 240.19b-4(f)(6).
\26\ 17 CFR 240.19b-4(f)(6)(iii).
\27\ For purposes only of waiving the 30-day operative delay,
the Commission has also considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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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: (1)
Necessary or appropriate in the public interest; (2) for the protection
of investors; or (3) 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 (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-CboeEDGX-2017-009 on the subject line.
Paper Comments
Send paper comments in triplicate to Brent J. Fields,
Secretary, Securities and Exchange Commission, 100 F Street NE,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-CboeEDGX-2017-009. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal 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-2017-009 and should be
submitted on or before January 30, 2018.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\28\
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\28\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-00160 Filed 1-8-18; 8:45 am]
BILLING CODE 8011-01-P
