Self-Regulatory Organizations; Cboe BYX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Paragraph (c)(5) of Exchange Rule 11.9 Describing the Operation of Minimum Quantity Orders, 13534-13537 [2018-06299]

Download as PDF 13534 Federal Register / Vol. 83, No. 61 / Thursday, March 29, 2018 / Notices The United States Postal Service® hereby gives notice that, pursuant to 39 U.S.C. 3642 and 3632(b)(3), on March 23, 2018, it filed with the Postal Regulatory Commission a USPS Request to Add Priority Mail Contract 426 to Competitive Product List. Documents are available at www.prc.gov, Docket Nos. MC2018–134, CP2018–190. SUPPLEMENTARY INFORMATION: Elizabeth Reed, Attorney, Corporate and Postal Business Law. [FR Doc. 2018–06265 Filed 3–28–18; 8:45 am] BILLING CODE 7710–12–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–82941; File No. SR– CboeBYX–2018–003] Self-Regulatory Organizations; Cboe BYX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Paragraph (c)(5) of Exchange Rule 11.9 Describing the Operation of Minimum Quantity Orders March 23, 2018. sradovich on DSK3GMQ082PROD with NOTICES 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 16, 2018, Cboe BYX Exchange, Inc. (‘‘BYX’’ or the ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I, II, and III 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. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange filed a proposal to amend paragraph (c)(5) of Exchange Rule 11.9 describing the operation of Minimum Quantity Orders.5 The text of the proposed rule change is available at the Exchange’s website at www.markets.cboe.com, at the principal 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). 5 See Exchange Rule 11.9(c)(5) for a complete description of the operation of Minimum Quantity Orders. VerDate Sep<11>2014 19:09 Mar 28, 2018 Jkt 244001 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 The Exchange proposes to amend paragraph (c)(5) of Exchange Rule 11.9 describing the operation of Minimum Quantity Orders by removing language that provided for the re-pricing of incoming Minimum Quantity Orders to avoid an internally crossed book. As a result of this change, the Exchange proposes to specify within the rule when a Minimum Quantity Order would not be eligible to trade to prevent executions from occurring that may be inconsistent with intra-market price priority or that would cause a nondisplayed order to trade ahead of a displayed order. In sum, a Minimum Quantity Order is a non-displayed order that enables a User 6 to specify a minimum share amount at which the order will execute.7 A Minimum Quantity Order will not execute unless the volume of contra-side liquidity available to execute against the order meets or exceeds the designated minimum size. By default, a Minimum Quantity Order will execute upon entry against a single order or multiple aggregated orders simultaneously. The Exchange recently amended the operation of Minimum Quantity Orders to permit a User to alternatively specify the order not execute against multiple aggregated orders simultaneously and that the minimum quantity condition be 6 The term ‘‘User’’ is defined as ‘‘any Member or Sponsored Participant who is authorized to obtain access to the System pursuant to Rule 11.3.’’ See Exchange Rule 1.5(cc). 7 The Exchange will only honor a specified minimum quantity on BYX Only Orders that are non-displayed or Immediate-Or-Cancel and will disregard a minimum quantity on any other order. See Exchange Rule 11.9(c)(5). PO 00000 Frm 00066 Fmt 4703 Sfmt 4703 satisfied by each individual order resting on the BYX Book.8 The Exchange also recently amended the operation of Minimum Quantity Orders to re-price incoming Minimum Quantity Orders where that order may cross an order posted on the BYX Book.9 Specifically, where there is insufficient size to satisfy an incoming order’s minimum quantity condition and that incoming order, if posted at its limit price, would cross an order(s), whether displayed or non-displayed, resting on the BYX Book, the order with the minimum quantity condition would be re-priced to and ranked at the locking price. This functionality has not yet been implemented 10 and the Exchange now proposes to amend paragraph (c)(5) of Rule 11.9 to remove this re-pricing requirement. As a result of the above change, the Exchange proposes to amend paragraph (c)(5) of Rule 11.9 to describe when a Minimum Quantity Order will not be eligible to trade to prevent executions from occurring that may be inconsistent with intra-market price priority or would result in a non-displayed order trading ahead of a same-priced, sameside displayed order.11 The Exchange would not permit a Minimum Quantity Order that crosses other displayed or non-displayed orders on the BYX Book to trade at prices that are worse than the price of such contra-side orders. The Exchange would also not permit a resting Minimum Quantity Order to trade at a price equal to a contra-side displayed order. This proposal is based on recently adopted NYSE Arca, Inc. (‘‘NYSE Arca’’) Rule 7.31–E(i)(3)(C).12 8 See Securities Exchange Act Release No. 81806 (October 3, 2017), 82 FR 47047 (October 10, 2017) (SR–BatsBYX–2017–24). This functionality is pending deployment and the implementation date will be announced via a trading notice. 9 Id. 10 See supra note 8. Exchange Rule 11.9(c)(5) does not require re-pricing where the Minimum Quantity Order is resting on the BYX Book. As such, an internally crossed book may occur where the incoming order is of insufficient size to satisfy the resting order’s minimum quantity condition and that incoming order, if posted at its limit price, would cross that order with a minimum quantity condition resting on the BYX Book. 11 Exchange Rule 11.12(a) states that orders on the BYX Book are ranked and maintained by the Exchange according to price-time priority. Exchange Rule 11.12(a) further prohibits a nondisplayed order from trading ahead of a same-side, same-priced displayed order. This proposed rule change adds language to Exchange Rule 11.9(c)(5) to clarify this priority scheme during an internally crossed market. 12 See Securities Exchange Act Release No. 82504 (January 16, 2018), 83 FR 3038 (January 22, 2018) (SR–NYSEArca–2018–01) (Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Rule 7.31–E Relating to Mid-Point Liquidity Orders and the Minimum Trade Size Modifier and Rule 7.36–E To Add a Definition of ‘‘Aggressing Order’’). E:\FR\FM\29MRN1.SGM 29MRN1 Federal Register / Vol. 83, No. 61 / Thursday, March 29, 2018 / Notices sradovich on DSK3GMQ082PROD with NOTICES Paragraph (c)(5) of Rule 11.9 would state that a Minimum Quantity Order to buy (sell) that is ranked in the BYX Book will not be eligible to trade: (i) At a price equal to or above (below) any sell (buy) orders that are displayed and that have a ranked price equal to or below (above) the price of such Minimum Quantity Order; or (ii) at a price above (below) any sell (buy) order that is non-displayed and has a ranked price below (above) the price of such Minimum Quantity Order.13 However, a Minimum Quantity Order that crosses an order on BYX Book may execute at a price less aggressive than its ranked price against an incoming order so long as such execution is consistent with the above restrictions. The following examples describe the proposed operation of a Minimum Quantity Order during an internally crossed market. This first example addresses intra-market priority amongst a Minimum Quantity Order and other non-displayed orders in an internally crossed market as well as when an execution may occur at prices less aggressive than the resting order’s ranked price. Assume the NBBO is $10.10 by $10.16. A non-displayed order to sell 50 shares at $10.12 is resting on the BYX Book (‘‘Order A’’). A non-displayed order to sell 25 shares at $10.11 is also resting on the BYX Book (‘‘Order B’’). The Exchange receives a Mid-Point Peg 14 order to buy at $10.14 with a minimum quantity condition to execute against a single order of 100 shares (‘‘Order C’’). Because Order C’s minimum quantity condition cannot be met, Order C will not trade with Orders A or B and will be posted and ranked on the BYX Book at $10.13, the midpoint of the NBBO. The Exchange now has a non-displayed order crossing both non-displayed orders on the BYX Book. If the Exchange then receives a non-displayed order to sell for 100 shares at $10.11 (‘‘Order D’’),15 although Order D would be marketable against Order C at $10.13, it would not trade at $10.13 because it is above the price of all resting sell orders. Order D will instead execute against Order C at $10.11, receiving price improvement relative to the midpoint of the NBBO. This second example addresses intramarket priority amongst displayed 13 A Minimum Quantity Order to buy (sell) may execute at a price above (below) any sell (buy) order that is Non-Displayed and has a ranked price below (above) the price of such Minimum Quantity Order if that Non-Displayed order itself included a minimum quantity condition that prevented it from executing. See infra note 16. 14 See Exchange Rule 11.9(c)(9). 15 On NYSE Arca, Order D will be posted to the NYSE Arca book at $10.11 and not execute against Order C at $10.13. See supra note 12. VerDate Sep<11>2014 19:09 Mar 28, 2018 Jkt 244001 orders, Minimum Quantity Orders and other non-displayed orders. The Exchange notes that the below behavior is not unique to an internally crossed market as the Exchange’s priority rule, 11.12(a), currently prohibits nondisplayed orders, including Minimum Quantity Orders, from trading ahead of same-priced, same-side displayed orders. Assume the NBBO is $10.00 by $10.04. A non-displayed order to buy 500 shares at $10.00 is resting on the BYX Book (‘‘Order A’’). A displayed order to buy 100 shares at $10.00 is then entered and posted to the BYX Book (‘‘Order B’’). The Exchange receives a non-displayed order to sell 600 shares at $10.00 with a minimum quantity condition to execute against a single order of 500 shares (‘‘Order C’’). Although Order A satisfies Order C’s minimum quantity condition and has time priority ahead of Order B, no execution occurs because Order B is a displayed order and has execution priority over Order A, a non-displayed order. Order C does not execute against Order B because Order B does not satisfy Order C’s minimum quantity condition. Order C is then posted to the BYX Book at $10.00, non-displayed. The Exchange also proposes two clarifying changes to paragraph (c)(5) of Exchange Rule 11.9. The rule currently states that a Minimum Quantity Order cedes execution priority when it would lock an order against which it would otherwise execute if it were not for the minimum execution size restriction.16 The Exchange now proposes to add additional language to the rule to clarify when a resting non-displayed order may cede execution priority to a subsequent arriving same-side order. As amended, paragraph (h) of Rule 11.6 would state that if a resting non-displayed sell (buy) order did not meet the minimum quantity condition of a same-priced resting Minimum Quantity Order to buy (sell), a subsequently arriving sell (buy) order that meets the minimum quantity condition will trade ahead of such resting non-displayed sell (buy) order at that price. For example, assume the NBBO is $10.00 by $10.10 and no orders are resting on the BYX Book. A nondisplayed order to buy 700 shares at $10.10 with a minimum quantity condition to execute against a single order of 500 shares is resting on the BYX Book (Order A). A non-displayed order to sell 100 shares at $10.10 is then entered and posted to the BYX Book (Order B). Order B does not execute against Order A because Order B does not satisfy Order A’s single minimum quantity condition of 500 shares. As a result, Order B is posted to the BYX Book at $10.10, creating an internally locked book. An order to sell 500 shares at $10.10 is then entered and executes against Order A at $10.10 for 500 shares because the incoming order is of sufficient size to satisfy Order A’s minimum quantity condition of 500 shares. This clarification is also based on recently adopted NYSE Arca Rule 7.31–E(i)(3)(E)(ii).17 Lastly, the Exchange proposes to clarify that an incoming Minimum Quantity Order would be canceled where, if posted, it would cross the displayed price of an order on the BYX Book.18 Conversely, an incoming Minimum Quantity Order would be posted to the BYX Book where it would not cross the displayed price of a resting contra-side order. For example, an order to buy at $11.00 with a minimum quantity condition of 500 shares is entered (Order A) and there is a displayed order resting on the BYX Book to sell 200 shares at $10.99 (Order B). Oder A would be cancelled because it crosses the displayed price of Order B and Order B does not contain sufficient size to satisfy Order A’s minimum quantity condition of 500 shares. However, should Order A be priced at $10.99, it would not be cancelled and would be posted to the BYX Book, resulting in an internally locked market. Order A would not be executable at that price because it is priced equal to a contra-side displayed order. An internally crossed market may subsequently occur should an order to sell priced more aggressively than Order A be entered but not be of sufficient size to satisfy Order A’s minimum quantity condition of 500 shares (e.g., an order to sell 100 shares at $10.98) and posted to the BYX Book. 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) of the Act 19 in general, and furthers the objectives of Section 6(b)(5) of the Act 20 in particular, in that it is designed to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in facilitating transactions in securities, to remove impediments to and perfect the 17 Supra 16 The Exchange proposes to amend this provision to clarify that a Minimum Quantity Order would cede execution priority when it would also cross an order against which it would otherwise execute if it were not for the minimum execution size restriction. PO 00000 Frm 00067 Fmt 4703 Sfmt 4703 13535 note 12. Minimum Quantity Order will be repriced in accordance with Exchange Rule 11.9(g)(4) where it would cross a protected quote displayed on an away market center. 19 15 U.S.C. 78f(b). 20 15 U.S.C. 78f(b)(5). 18 A E:\FR\FM\29MRN1.SGM 29MRN1 sradovich on DSK3GMQ082PROD with NOTICES 13536 Federal Register / Vol. 83, No. 61 / Thursday, March 29, 2018 / Notices mechanism of a free and open market and a national market system and, in general, to protect investors and the public interest. The proposed rule change removes impediments to and perfects the mechanism of a free and open market and a national market system because it would ensure that Minimum Quantity Orders do not trade through displayed orders or violate intra-market price priority. Specifically, the proposed rule change would protect displayed orders by preventing a Minimum Quantity Order from executing where it is locked by a contraside Displayed order. The proposed rule change protects intra-market price priority by preventing a resting Minimum Quantity Order from executing where it is crossed by either a displayed or non-displayed order on the BYX Book. The proposed clarifications remove impediments to and perfect the mechanism of a free and open market and a national market system because they provide additional specificity regarding the operation of a Minimum Quantity Order, thereby avoiding potential investor confusion. In particular, the Exchange believes it is reasonable for a resting non-displayed order to cede execution priority to a subsequent arriving same-side order where that order is of sufficient size to satisfy a resting contra-side order’s minimum quantity condition because doing so facilitates executions in accordance with the terms and conditions of each order. The proposed rule change is also substantially similar to a proposed rule change recently submitted by NYSE Arca for immediate effectiveness and published by the Commission.21 The only differences between the proposed rule change and that of NYSE Arca is that: (i) NYSE Arca does not cancel a minimum quantity order that would cross a displayed order on the NYSE Arca book; and (ii) NYSE Arca will not execute resting orders at prices less aggressive than their limit prices in crossed markets. The Exchange believes that these differences are immaterial because they are designed to reduce the occurrences of internally crossed markets and facilitate executions that may not otherwise occur. These differences will also continue to ensure that executions occur in accordance with intra-market price priority on the Exchange while accounting for the differences in functionality and order types. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change will result in any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act, as amended. On the contrary, the proposed rule change is not designed to address any competitive issues because it is intended to provide clarity regarding the operation of Minimum Quantity Orders and when such orders are eligible to trade and not trade through displayed orders or violate intra-market price priority. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No 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: (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 22 and paragraph (f)(6) of Rule 19b– 4 thereunder,23 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. 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 22 15 21 See supra notes 12 and 15. VerDate Sep<11>2014 19:09 Mar 28, 2018 23 17 Jkt 244001 PO 00000 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– CboeBYX–2018–003 on the subject line. Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549–1090. All submissions should refer to File Number SR–CboeBYX–2018–003. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s internet website (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for website viewing and printing in the Commission’s Public Reference Room, 100 F Street NE, Washington, DC 20549 on official business days between the hours of 10:00 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–CboeBYX–2018–003, and should be submitted on or before April 19, 2018. U.S.C. 78s(b)(3)(A). CFR 240.19b–4. Frm 00068 Fmt 4703 Sfmt 4703 E:\FR\FM\29MRN1.SGM 29MRN1 Federal Register / Vol. 83, No. 61 / Thursday, March 29, 2018 / Notices For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.24 Brent J. Fields, Secretary. [FR Doc. 2018–06299 Filed 3–28–18; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–82939; File No. SR– NYSEArca–2017–139] Self-Regulatory Organizations; NYSE Arca, Inc.; Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change To List and Trade the Shares of the ProShares Bitcoin ETF and the ProShares Short Bitcoin ETF Under NYSE Arca Rule 8.200–E, Commentary .02 March 23, 2018. On December 4, 2017, NYSE Arca, Inc. (‘‘NYSE Arca’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change to list and trade the shares (‘‘Shares’’) of the ProShares Bitcoin ETF and the ProShares Short Bitcoin ETF (each a ‘‘Fund’’ and, collectively, ‘‘Funds’’) issued by the ProShares Trust II (‘‘Trust’’) under NYSE Arca Rule 8.200–E, Commentary .02. The proposed rule change was published for comment in the Federal Register on December 26, 2017.3 The Commission has received one comment letter on the proposed rule change.4 On January 30, 2018, pursuant to Section 19(b)(2) of the Act,5 the Commission designated a longer period within which to approve the proposed rule change, disapprove the proposed rule change, or institute proceedings to determine whether to disapprove the proposed rule change.6 This order 24 17 CFR 200.30–3(a)(12). U.S.C.78s(b)(1). 2 17 CFR 240.19b–4. 3 See Securities Exchange Act Release No. 82350 (Dec. 19, 2017), 82 FR 61100 (Dec. 26, 2017) (‘‘Notice’’). 4 See Letter from Abe Kohen, AK Financial Engineering Consultants, LLC (Dec. 27, 2017) (‘‘Kohen Letter’’). All comments on the proposed rule change are available on the Commission’s website at: https://www.sec.gov/comments/srnysearca-2017-139/nysearca2017139.htm. 5 15 U.S.C. 78s(b)(2). 6 See Securities Exchange Act Release No. 82602 (Jan. 30, 2018), 83 FR 4941 (Feb. 2, 2018). The Commission designated March 26, 2018, as the date by which it should approve, disapprove, or institute proceedings to determine whether to disapprove the proposed rule change. sradovich on DSK3GMQ082PROD with NOTICES 1 15 VerDate Sep<11>2014 19:09 Mar 28, 2018 Jkt 244001 institutes proceedings under Section 19(b)(2)(B) of the Act 7 to determine whether to approve or disapprove the proposed rule change. I. Summary of the Proposal 8 and Comments Received The Exchange proposes to list and trade the Shares under NYSE Arca Rule 8.200–E, Commentary .02, which governs the listing and trading of Trust Issued Receipts on the Exchange.9 Each Fund will be a series of the Trust, and the Trust and the Funds will be managed and controlled by ProShare Capital Management LLC (‘‘Sponsor’’). Brown Brothers Harriman & Co. will be the custodian and administrator for the Trust. SEI Investments Distribution Co. will serve as the distributor of the Shares (‘‘Distributor’’). The Trust will offer Shares of the Funds for sale through the Distributor in ‘‘Creation Units.’’ 10 According to the Exchange, the ProShares Bitcoin ETF’s investment objective will be to seek results (before fees and expenses) that, both for a single day and over time, correspond to the performance of lead month bitcoin futures contracts 11 listed and traded on either the Cboe Futures Exchange (‘‘CFE’’) or the Chicago Mercantile Exchange (‘‘CME’’) (‘‘Benchmark Futures Contract’’). This Fund generally intends to invest substantially all of its assets in the Benchmark Futures Contracts, but may invest in other U.S. 7 15 U.S.C. 78s(b)(2)(B). Commission notes that additional information regarding the Trust, the Shares, and the Funds, including investment strategies, calculation of net asset value (‘‘NAV’’) and indicative fund value, creation and redemption procedures, and additional background information about bitcoins, the bitcoin network, and bitcoin futures contracts, among other things, can be found in the Notice (see supra note 3) and the registration statement filed with the Commission on Form S–1 (File No. 333– 220680) under the Securities Act of 1933 (‘‘Registration Statement’’), as applicable. 9 See NYSE Arca Rule 8.200–E, Commentary .02. NYSE Arca Rule 8.200–E permits the listing and trading of ‘‘Trust Issued Receipts,’’ defined as a security (1) that is used by the trust which holds specific securities deposited with the trust; (2) that, when aggregated in some specified minimum number, may be surrendered to the trust by the beneficial owner to receive the securities; and (3) that pay beneficial owners dividends and other distributions on the deposited securities, if any are declared and paid to the trustee by an issuer of the deposited securities. Commentary .02 applies to Trust Issued Receipts that invest in any combination of investments, including cash; securities; options on securities and indices; futures contracts; options on futures contracts; forward contracts; equity caps, collars, and floors; and swap agreements. 10 See Notice, supra note 3, at 61101. 11 According to the Exchange, lead month futures contracts are the monthly contracts with the earliest expiration date. See Notice, supra note 3, at 61101, n.6. See also Notice and Registration Statement, supra notes 3 and 8. 8 The PO 00000 Frm 00069 Fmt 4703 Sfmt 4703 13537 exchange listed bitcoin futures contracts, if available (together with Benchmark Futures Contracts, collectively, ‘‘Bitcoin Futures Contracts’’).12 In addition, the Exchange states that the ProShares Short Bitcoin ETF’s investment objective will be to seek results, for a single day, that correspond (before fees and expenses) to the inverse of the daily performance of the Benchmark Futures Contract. This Fund generally intends to invest substantially all of its assets through short positions in Benchmark Futures Contracts, but may invest through short positions in Bitcoin Futures Contracts, if available.13 Further, the Exchange states that, in the event position, price, or accountability limits are reached with respect to Bitcoin Futures Contracts, each Fund may invest in listed options on Bitcoin Futures Contracts (should such listed options become available) and OTC swap agreements referencing Bitcoin Futures Contracts (collectively, ‘‘Financial Instruments’’).14 The Commission has received one comment letter, which expresses concerns about the proposed rule change.15 The commenter refers to the proposal as a ‘‘house of cards’’ and expresses concern that the Funds’ attempt to replicate the bitcoin futures markets, which are related to underlying cryptocurrencies that trade on unregulated exchanges, will lead to losses for retail investors, and that the inclusion of an inverse Fund will add to the risk.16 II. Proceedings To Determine Whether to Approve or Disapprove SR– NYSEArca–2017–139 and Grounds for Disapproval Under Consideration The Commission is instituting proceedings pursuant to Section 19(b)(2)(B) of the Act 17 to determine whether the proposed rule change should be approved or disapproved. Institution of such proceedings is appropriate at this time in view of the legal and policy issues raised by the proposed rule change. Institution of proceedings does not indicate that the Commission has reached any conclusions with respect to any of the issues involved. Rather, as described below, the Commission seeks and encourages interested persons to 12 See Notice, supra note 3, at 61101. id. 14 See id. at 61102. 15 See supra note 4 and accompanying text. 16 See Kohen Letter, supra note 4. 17 15 U.S.C. 78s(b)(2)(B). 13 See E:\FR\FM\29MRN1.SGM 29MRN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 83, Number 61 (Thursday, March 29, 2018)]
[Notices]
[Pages 13534-13537]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-06299]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82941; File No. SR-CboeBYX-2018-003]


Self-Regulatory Organizations; Cboe BYX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
Paragraph (c)(5) of Exchange Rule 11.9 Describing the Operation of 
Minimum Quantity Orders

March 23, 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 March 16, 2018, Cboe BYX Exchange, Inc. (``BYX'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III 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.
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    \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).
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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 amend paragraph (c)(5) of Exchange 
Rule 11.9 describing the operation of Minimum Quantity Orders.\5\
---------------------------------------------------------------------------

    \5\ See Exchange Rule 11.9(c)(5) for a complete description of 
the operation of Minimum Quantity Orders.
---------------------------------------------------------------------------

    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
    The Exchange proposes to amend paragraph (c)(5) of Exchange Rule 
11.9 describing the operation of Minimum Quantity Orders by removing 
language that provided for the re-pricing of incoming Minimum Quantity 
Orders to avoid an internally crossed book. As a result of this change, 
the Exchange proposes to specify within the rule when a Minimum 
Quantity Order would not be eligible to trade to prevent executions 
from occurring that may be inconsistent with intra-market price 
priority or that would cause a non-displayed order to trade ahead of a 
displayed order.
    In sum, a Minimum Quantity Order is a non-displayed order that 
enables a User \6\ to specify a minimum share amount at which the order 
will execute.\7\ A Minimum Quantity Order will not execute unless the 
volume of contra-side liquidity available to execute against the order 
meets or exceeds the designated minimum size. By default, a Minimum 
Quantity Order will execute upon entry against a single order or 
multiple aggregated orders simultaneously. The Exchange recently 
amended the operation of Minimum Quantity Orders to permit a User to 
alternatively specify the order not execute against multiple aggregated 
orders simultaneously and that the minimum quantity condition be 
satisfied by each individual order resting on the BYX Book.\8\
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    \6\ The term ``User'' is defined as ``any Member or Sponsored 
Participant who is authorized to obtain access to the System 
pursuant to Rule 11.3.'' See Exchange Rule 1.5(cc).
    \7\ The Exchange will only honor a specified minimum quantity on 
BYX Only Orders that are non-displayed or Immediate-Or-Cancel and 
will disregard a minimum quantity on any other order. See Exchange 
Rule 11.9(c)(5).
    \8\ See Securities Exchange Act Release No. 81806 (October 3, 
2017), 82 FR 47047 (October 10, 2017) (SR-BatsBYX-2017-24). This 
functionality is pending deployment and the implementation date will 
be announced via a trading notice.
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    The Exchange also recently amended the operation of Minimum 
Quantity Orders to re-price incoming Minimum Quantity Orders where that 
order may cross an order posted on the BYX Book.\9\ Specifically, where 
there is insufficient size to satisfy an incoming order's minimum 
quantity condition and that incoming order, if posted at its limit 
price, would cross an order(s), whether displayed or non-displayed, 
resting on the BYX Book, the order with the minimum quantity condition 
would be re-priced to and ranked at the locking price. This 
functionality has not yet been implemented \10\ and the Exchange now 
proposes to amend paragraph (c)(5) of Rule 11.9 to remove this re-
pricing requirement.
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    \9\ Id.
    \10\ See supra note 8. Exchange Rule 11.9(c)(5) does not require 
re-pricing where the Minimum Quantity Order is resting on the BYX 
Book. As such, an internally crossed book may occur where the 
incoming order is of insufficient size to satisfy the resting 
order's minimum quantity condition and that incoming order, if 
posted at its limit price, would cross that order with a minimum 
quantity condition resting on the BYX Book.
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    As a result of the above change, the Exchange proposes to amend 
paragraph (c)(5) of Rule 11.9 to describe when a Minimum Quantity Order 
will not be eligible to trade to prevent executions from occurring that 
may be inconsistent with intra-market price priority or would result in 
a non-displayed order trading ahead of a same-priced, same-side 
displayed order.\11\ The Exchange would not permit a Minimum Quantity 
Order that crosses other displayed or non-displayed orders on the BYX 
Book to trade at prices that are worse than the price of such contra-
side orders. The Exchange would also not permit a resting Minimum 
Quantity Order to trade at a price equal to a contra-side displayed 
order. This proposal is based on recently adopted NYSE Arca, Inc. 
(``NYSE Arca'') Rule 7.31-E(i)(3)(C).\12\
---------------------------------------------------------------------------

    \11\ Exchange Rule 11.12(a) states that orders on the BYX Book 
are ranked and maintained by the Exchange according to price-time 
priority. Exchange Rule 11.12(a) further prohibits a non-displayed 
order from trading ahead of a same-side, same-priced displayed 
order. This proposed rule change adds language to Exchange Rule 
11.9(c)(5) to clarify this priority scheme during an internally 
crossed market.
    \12\ See Securities Exchange Act Release No. 82504 (January 16, 
2018), 83 FR 3038 (January 22, 2018) (SR-NYSEArca-2018-01) (Notice 
of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend Rule 7.31-E Relating to Mid-Point Liquidity Orders and the 
Minimum Trade Size Modifier and Rule 7.36-E To Add a Definition of 
``Aggressing Order'').

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[[Page 13535]]

    Paragraph (c)(5) of Rule 11.9 would state that a Minimum Quantity 
Order to buy (sell) that is ranked in the BYX Book will not be eligible 
to trade: (i) At a price equal to or above (below) any sell (buy) 
orders that are displayed and that have a ranked price equal to or 
below (above) the price of such Minimum Quantity Order; or (ii) at a 
price above (below) any sell (buy) order that is non-displayed and has 
a ranked price below (above) the price of such Minimum Quantity 
Order.\13\ However, a Minimum Quantity Order that crosses an order on 
BYX Book may execute at a price less aggressive than its ranked price 
against an incoming order so long as such execution is consistent with 
the above restrictions.
---------------------------------------------------------------------------

    \13\ A Minimum Quantity Order to buy (sell) may execute at a 
price above (below) any sell (buy) order that is Non-Displayed and 
has a ranked price below (above) the price of such Minimum Quantity 
Order if that Non-Displayed order itself included a minimum quantity 
condition that prevented it from executing. See infra note 16.
---------------------------------------------------------------------------

    The following examples describe the proposed operation of a Minimum 
Quantity Order during an internally crossed market. This first example 
addresses intra-market priority amongst a Minimum Quantity Order and 
other non-displayed orders in an internally crossed market as well as 
when an execution may occur at prices less aggressive than the resting 
order's ranked price. Assume the NBBO is $10.10 by $10.16. A non-
displayed order to sell 50 shares at $10.12 is resting on the BYX Book 
(``Order A''). A non-displayed order to sell 25 shares at $10.11 is 
also resting on the BYX Book (``Order B''). The Exchange receives a 
Mid-Point Peg \14\ order to buy at $10.14 with a minimum quantity 
condition to execute against a single order of 100 shares (``Order 
C''). Because Order C's minimum quantity condition cannot be met, Order 
C will not trade with Orders A or B and will be posted and ranked on 
the BYX Book at $10.13, the midpoint of the NBBO. The Exchange now has 
a non-displayed order crossing both non-displayed orders on the BYX 
Book. If the Exchange then receives a non-displayed order to sell for 
100 shares at $10.11 (``Order D''),\15\ although Order D would be 
marketable against Order C at $10.13, it would not trade at $10.13 
because it is above the price of all resting sell orders. Order D will 
instead execute against Order C at $10.11, receiving price improvement 
relative to the midpoint of the NBBO.
---------------------------------------------------------------------------

    \14\ See Exchange Rule 11.9(c)(9).
    \15\ On NYSE Arca, Order D will be posted to the NYSE Arca book 
at $10.11 and not execute against Order C at $10.13. See supra note 
12.
---------------------------------------------------------------------------

    This second example addresses intra-market priority amongst 
displayed orders, Minimum Quantity Orders and other non-displayed 
orders. The Exchange notes that the below behavior is not unique to an 
internally crossed market as the Exchange's priority rule, 11.12(a), 
currently prohibits non-displayed orders, including Minimum Quantity 
Orders, from trading ahead of same-priced, same-side displayed orders. 
Assume the NBBO is $10.00 by $10.04. A non-displayed order to buy 500 
shares at $10.00 is resting on the BYX Book (``Order A''). A displayed 
order to buy 100 shares at $10.00 is then entered and posted to the BYX 
Book (``Order B''). The Exchange receives a non-displayed order to sell 
600 shares at $10.00 with a minimum quantity condition to execute 
against a single order of 500 shares (``Order C''). Although Order A 
satisfies Order C's minimum quantity condition and has time priority 
ahead of Order B, no execution occurs because Order B is a displayed 
order and has execution priority over Order A, a non-displayed order. 
Order C does not execute against Order B because Order B does not 
satisfy Order C's minimum quantity condition. Order C is then posted to 
the BYX Book at $10.00, non-displayed.
    The Exchange also proposes two clarifying changes to paragraph 
(c)(5) of Exchange Rule 11.9. The rule currently states that a Minimum 
Quantity Order cedes execution priority when it would lock an order 
against which it would otherwise execute if it were not for the minimum 
execution size restriction.\16\ The Exchange now proposes to add 
additional language to the rule to clarify when a resting non-displayed 
order may cede execution priority to a subsequent arriving same-side 
order. As amended, paragraph (h) of Rule 11.6 would state that if a 
resting non-displayed sell (buy) order did not meet the minimum 
quantity condition of a same-priced resting Minimum Quantity Order to 
buy (sell), a subsequently arriving sell (buy) order that meets the 
minimum quantity condition will trade ahead of such resting non-
displayed sell (buy) order at that price. For example, assume the NBBO 
is $10.00 by $10.10 and no orders are resting on the BYX Book. A non-
displayed order to buy 700 shares at $10.10 with a minimum quantity 
condition to execute against a single order of 500 shares is resting on 
the BYX Book (Order A). A non-displayed order to sell 100 shares at 
$10.10 is then entered and posted to the BYX Book (Order B). Order B 
does not execute against Order A because Order B does not satisfy Order 
A's single minimum quantity condition of 500 shares. As a result, Order 
B is posted to the BYX Book at $10.10, creating an internally locked 
book. An order to sell 500 shares at $10.10 is then entered and 
executes against Order A at $10.10 for 500 shares because the incoming 
order is of sufficient size to satisfy Order A's minimum quantity 
condition of 500 shares. This clarification is also based on recently 
adopted NYSE Arca Rule 7.31-E(i)(3)(E)(ii).\17\
---------------------------------------------------------------------------

    \16\ The Exchange proposes to amend this provision to clarify 
that a Minimum Quantity Order would cede execution priority when it 
would also cross an order against which it would otherwise execute 
if it were not for the minimum execution size restriction.
    \17\ Supra note 12.
---------------------------------------------------------------------------

    Lastly, the Exchange proposes to clarify that an incoming Minimum 
Quantity Order would be canceled where, if posted, it would cross the 
displayed price of an order on the BYX Book.\18\ Conversely, an 
incoming Minimum Quantity Order would be posted to the BYX Book where 
it would not cross the displayed price of a resting contra-side order. 
For example, an order to buy at $11.00 with a minimum quantity 
condition of 500 shares is entered (Order A) and there is a displayed 
order resting on the BYX Book to sell 200 shares at $10.99 (Order B). 
Oder A would be cancelled because it crosses the displayed price of 
Order B and Order B does not contain sufficient size to satisfy Order 
A's minimum quantity condition of 500 shares. However, should Order A 
be priced at $10.99, it would not be cancelled and would be posted to 
the BYX Book, resulting in an internally locked market. Order A would 
not be executable at that price because it is priced equal to a contra-
side displayed order. An internally crossed market may subsequently 
occur should an order to sell priced more aggressively than Order A be 
entered but not be of sufficient size to satisfy Order A's minimum 
quantity condition of 500 shares (e.g., an order to sell 100 shares at 
$10.98) and posted to the BYX Book.
---------------------------------------------------------------------------

    \18\ A Minimum Quantity Order will be repriced in accordance 
with Exchange Rule 11.9(g)(4) where it would cross a protected quote 
displayed on an away market center.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \19\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \20\ in particular, in that it is designed to 
promote just and equitable principles of trade, to foster cooperation 
and coordination with persons engaged in facilitating transactions in 
securities, to remove impediments to and perfect the

[[Page 13536]]

mechanism of a free and open market and a national market system and, 
in general, to protect investors and the public interest. The proposed 
rule change removes impediments to and perfects the mechanism of a free 
and open market and a national market system because it would ensure 
that Minimum Quantity Orders do not trade through displayed orders or 
violate intra-market price priority. Specifically, the proposed rule 
change would protect displayed orders by preventing a Minimum Quantity 
Order from executing where it is locked by a contra-side Displayed 
order. The proposed rule change protects intra-market price priority by 
preventing a resting Minimum Quantity Order from executing where it is 
crossed by either a displayed or non-displayed order on the BYX Book. 
The proposed clarifications remove impediments to and perfect the 
mechanism of a free and open market and a national market system 
because they provide additional specificity regarding the operation of 
a Minimum Quantity Order, thereby avoiding potential investor 
confusion. In particular, the Exchange believes it is reasonable for a 
resting non-displayed order to cede execution priority to a subsequent 
arriving same-side order where that order is of sufficient size to 
satisfy a resting contra-side order's minimum quantity condition 
because doing so facilitates executions in accordance with the terms 
and conditions of each order. The proposed rule change is also 
substantially similar to a proposed rule change recently submitted by 
NYSE Arca for immediate effectiveness and published by the 
Commission.\21\ The only differences between the proposed rule change 
and that of NYSE Arca is that: (i) NYSE Arca does not cancel a minimum 
quantity order that would cross a displayed order on the NYSE Arca 
book; and (ii) NYSE Arca will not execute resting orders at prices less 
aggressive than their limit prices in crossed markets. The Exchange 
believes that these differences are immaterial because they are 
designed to reduce the occurrences of internally crossed markets and 
facilitate executions that may not otherwise occur. These differences 
will also continue to ensure that executions occur in accordance with 
intra-market price priority on the Exchange while accounting for the 
differences in functionality and order types.
---------------------------------------------------------------------------

    \19\ 15 U.S.C. 78f(b).
    \20\ 15 U.S.C. 78f(b)(5).
    \21\ See supra notes 12 and 15.
---------------------------------------------------------------------------

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

    The Exchange does not believe that the proposed rule change will 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act, as amended. On 
the contrary, the proposed rule change is not designed to address any 
competitive issues because it is intended to provide clarity regarding 
the operation of Minimum Quantity Orders and when such orders are 
eligible to trade and not trade through displayed orders or violate 
intra-market price priority.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No 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: (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 \22\ and 
paragraph (f)(6) of Rule 19b-4 thereunder,\23\ 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.
---------------------------------------------------------------------------

    \22\ 15 U.S.C. 78s(b)(3)(A).
    \23\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

    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-CboeBYX-2018-003 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-CboeBYX-2018-003. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (https://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549 on official business days between the hours of 10:00 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-CboeBYX-2018-003, and should be 
submitted on or before April 19, 2018.


[[Page 13537]]


    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
---------------------------------------------------------------------------

    \24\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Brent J. Fields,
Secretary.
[FR Doc. 2018-06299 Filed 3-28-18; 8:45 am]
 BILLING CODE 8011-01-P

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