Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Introduce Equities Purge Ports To (1) Establish Purge Ports for Equities Trading and Amend the Interpretations and Policies to Rule 11.10, Order Execution, To Reflect the Proposed Purge Ports, and (2) Modify the Fee Schedule Applicable to the Exchange's Equities Platform (“BZX Equities”) To Identify and To Set Fees for Purge Ports, 52588-52591 [2018-22535]
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Federal Register / Vol. 83, No. 201 / Wednesday, October 17, 2018 / Notices
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–NYSEAMER–2018–45, and
should be submitted on or before
November 7, 2018.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.17
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–22532 Filed 10–16–18; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–84406; File No. SR–
CboeBZX–2018–074]
Self-Regulatory Organizations; Cboe
BZX Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of a
Proposed Rule Change To Introduce
Equities Purge Ports To (1) Establish
Purge Ports for Equities Trading and
Amend the Interpretations and Policies
to Rule 11.10, Order Execution, To
Reflect the Proposed Purge Ports, and
(2) Modify the Fee Schedule Applicable
to the Exchange’s Equities Platform
(‘‘BZX Equities’’) To Identify and To Set
Fees for Purge Ports
daltland on DSKBBV9HB2PROD with NOTICES
October 11, 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
September 28, 2018, Cboe BZX
Exchange, Inc. (‘‘Exchange’’ or ‘‘BZX’’)
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.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange is proposing to (1)
establish Purge Ports for equities trading
and amend the Interpretations and
Policies to Rule 11.13, Order Execution
and Routing, to reflect the proposed
Purge Ports, and (2) modify the fee
schedule applicable to the Exchange’s
equities platform (‘‘BZX Equities’’) to
identify and to set fees for Purge Ports.
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 purpose of the proposed rule
change is to offer Users 5 an additional
tool to manage risk and exercise
additional control over their quotations
in equity securities (i.e., ‘‘Purge Ports’’).
Specifically, the Exchange proposes to:
3 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6)(iii).
5 A ‘‘User’’ is any Member or Sponsored
Participant who is authorized to obtain access to the
System pursuant to Rule 11.3. See Rule 1.5(cc).
4 17
17 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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(1) Establish Purge Ports for equities
trading and amend the Interpretations
and Policies to Rule 11.13, Order
Execution and Routing, to reflect the
proposed Purge Ports, and (2) modify
the fee schedule applicable to BZX
Equities to identify and to set fees for
Purge Ports.
Purge Ports are already available on
the Exchange’s affiliated options
markets—i.e., the Exchange’s options
trading platform (‘‘BZX Options’’), the
options trading platform of Cboe EDGX
Exchange, Inc. (‘‘EDGX Options’’), and
Cboe C2 Exchange, Inc. (‘‘C2’’).6 Based
on the successful experience with Purge
Ports for options, and in response to
demand for similar functionality for
equities trading, the Exchange has
determined to offer Purge Ports on BZX
Equities. The Exchange believes that the
proposed Purge Port functionality will
provide an effective tool for Users to
manage their risk associated with
equities trading.
Background
A logical port represents a port
established by the Exchange within the
Exchange’s system for trading and
billing purposes. Each logical port
established is specific to a Member or
non-Member and grants that Member or
non-Member the ability to accomplish a
specific function, such as order entry,
order cancellation, or data receipt. In
addition, logical ports enable Users to
access information such as execution
reports, execution report messages,
auction notifications, and
administrative data through a single
feed.
Purge Ports
The Exchange now proposes to amend
the Interpretations and Policies to Rule
11.13, Order Execution and Routing, to
identify Purge Ports, a new type of
logical port that would enable Users to
cancel all open orders, or a subset
thereof, across multiple logical ports
through a single cancel message. The
Exchange also proposes to amend the
BZX Equities fee schedule to adopt fees
for Purge Ports.
The proposed ports are designed to
assist Users, including Market Makers,7
in the management of, and risk control
over, their quotes, particularly if the
firm is quoting a large number of
6 See Securities Exchange Act Release Nos. 79956
(February 3, 2017), 82 FR 10102 (February 9, 2017)
(SR–BatsBZX–2017–05); 79957 (February 3, 2017),
82 FR 10070 (February 9, 2017) (SR–BatsEDGX–
2017–07); 83201 (May 9, 2018), 83 FR 22546 (May
15, 2018) (SR–C2–2018–006).
7 A ‘‘Market Maker’’ is a Member that acts as a
Market Maker pursuant to Chapter XI. See Rule
1.5(l).
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securities. For example, if a Market
Maker detects market indications that
may influence the direction or bias of
his or her quotes, the Market Maker may
use the proposed Purge Port(s) to reduce
uncertainty and to manage risk by
purging all quotes in a number of
securities. This would allow the firm to
seamlessly avoid unintended
executions, while continuing to evaluate
the direction of the market. While Purge
Ports will be available to all Users, the
Exchange anticipates they will be used
primarily by Market Makers or firms
that conduct similar business activity
and are therefore exposed to a large
amount of risk across a number
securities.
Users may currently cancel orders
through their existing logical ports. In
addition, the Exchange offers risk
functionality pursuant to Interpretation
and Policies .01 to Rule 11.13 that
permits Users to block new orders from
being submitted, to cancel all open
orders, or to both block new orders and
cancel all open orders. In addition to the
current risk functionality, which is
being retained, the Exchange now
proposes to expand the ability of Users
to cancel orders through the proposed
Purge Ports, which would enable them
to cancel all open orders, or a subset
thereof, across multiple logical ports
through a single cancel message. The
mass cancel request may be limited to
a subset of orders by identifying the
range of orders to be purged. Users may
also request via a Purge Port that the
Exchange block all or a subset of new
orders submitted, and the block will
remain in effect until the User requests
that the Exchange remove the block.
The Exchange proposes to amend the
Interpretations and Policies to Rule
11.13, Order Execution and Routing, to
reflect the proposed Purge Port
functionality. As described above,
Interpretation and Policies .01 to Rule
11.13 currently states that the Exchange
offers risk functionality that permits
Users to block new orders submitted, to
cancel all open orders, or to both block
new orders and cancel all open orders.
The Exchange proposes to move this
language to Interpretations and Policies
.02(a) to Rule 11.13,8 and add additional
language to describe the flexibility
provided using the proposed Purge
Ports. Specifically, as proposed,
Interpretations and Policies .02(b) to
Rule 11.13 will state that a ‘‘Purge Port’’
is a dedicated port that permits a User
to simultaneously cancel all or a subset
of its orders in one or more symbols
8 The
Exchange also proposes to make a nonsubstantive change that deletes the introductory
clause of this sentence.
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19:46 Oct 16, 2018
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across multiple logical ports by
requesting the Exchange to effect such
cancellation. The proposed rule will
also provide that a User initiating such
a request may also request that the
Exchange block all or a subset of its new
inbound orders in one or more symbols
across multiple logical ports. The block
will remain in effect until the User
requests the Exchange remove the block.
In addition, the Exchange proposes to
modify the Logical Port Fees section of
the BZX Equities fee schedule to adopt
a fee for Purge Ports of $650 per port/
per month, which would compensate
the Exchange for the investment that it
has made in making Purge Ports
available to firms that believe they
would benefit from a dedicated purge
mechanism. Only firms that request
Purge Ports would be subject to the
proposed fees, and other firms can
continue to operate in exactly the same
manner as they do today without
dedicated Purge Ports.
2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
the requirements of the Act and the
rules and regulations thereunder that
are applicable to a national securities
exchange, and, in particular, with the
requirements of Section 6(b) of the Act.9
Specifically, the proposed rule change is
consistent with Sections 6(b)(4) and
6(b)(5) of the Act,10 because it is
designed to provide for the equitable
allocation of reasonable dues, fees and
other charges among its members and
other persons using its facilities, and 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 mechanism of a free and open
market and a national market system
and, in general, to protect investors and
the public interest.
The Exchange believes that the
proposed rule change would promote
just and equitable principles of trade
and remove impediments to and perfect
the mechanism of a free and open
market because offering Users,
including Market Makers, designated
Purge Ports would enhance their ability
to manage quotes, quote traffic, and
their quoting obligations,11 which
would, in turn, improve their risk
controls to the benefit of all market
participants. The Exchange believes that
the Purge Ports would foster
cooperation and coordination with
9 15
U.S.C. 78f(b).
10 15 U.S.C. 78f(b)(4) and (5).
11 See Rule 11.8(d).
PO 00000
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52589
persons engaged in facilitating
transactions in securities because
designating Purge Ports for purge
messages (including blocking
subsequent order entry) may encourage
better use of such dedicated ports. This
may, concurrent with the logical ports
that carry quote and other information
necessary for market making activities,
enable more efficient, as well as fair and
reasonable, use of Market Makers’
resources. Although dedicated Purge
Ports are a new innovation for equities
exchanges, similar connectivity and
functionality is offered by options
exchanges, including the Exchange’s
own affiliated options exchanges.12 The
Exchange believes that proper risk
management, including the ability to
efficiently cancel multiple orders at
once, is similarly important to firms that
trade in the equities market, including
Market Makers that have heightened
quoting obligations that are not
applicable to other market participants.
The proposed rule change will not
relieve Market Makers of their
continuous quoting obligations under
Rule 11.8(d) or firm quote obligations
under Regulation NMS Rule 602.13
Specifically, any interest that is
executable against a User’s or Market
Maker’s quotes and orders that is
received by the Exchange prior to the
time of the removal of quotes request
will automatically execute at that price,
up to the quote’s size. Market Makers
that purge their quotes will not be
relieved of the obligation to provide
continuous two-sided quotes on a daily
basis, nor will it prohibit the Exchange
from taking disciplinary action against a
Market Maker for failing to meet their
continuous quoting obligation each
trading day.
Dedicated Purge Ports, which were
originally introduced for options
trading, are a new feature in the equities
market, and the Exchange is the first
equities exchange to offer this
functionality to Users. The Exchange
has incurred additional infrastructure
and technology costs in offering the
proposed Purge Ports, including costs
associated with the purchase of new
hardware to support these dedicated
ports, and software development,
testing, and certification work
associated with the risk management
functionality made available through
such ports. The Exchange also has
continuing costs associated with
maintenance and monitoring of the
proposed ports. The Exchange believes
12 See supra note 7. See also e.g. Nasdaq ISE, LLC,
Schedule of Fees, V. Connectivity Fees, C. Ports and
Other Services, SQF Purge Port Fee.
13 17 CFR 242.602.
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that its proposed fees should facilitate
the ability of the Exchange to recoup
some costs associated with Purge Ports
as well as provide, maintain, and
improve Purge Ports.14 The proposed
fees therefore directly support the
introduction of new and innovative risk
management features to the market.
The Exchange believes the proposed
fee for Purge Ports is equitable and
reasonable. The Exchange currently
charges $550 per port/per month for
logical ports.15 The Exchange believes it
is equitable and reasonable to charge
$650 per month for the proposed Purge
Ports as such ports were specially
developed to allow for the sending of a
single message to cancel multiple
orders, thereby assisting firms in
effectively managing risk. In addition,
Purge Port requests may cancel orders
submitted over numerous ports and
contain added functionality to purge
only a subset of these orders. Effective
risk management is important both for
individual market participants that
choose to utilize risk features provided
by the Exchange, as well as for the
market in general. As a result, the
Exchange believes that it is appropriate
to charge fees that compensate for the
development of such functionality as
doing so aids in the maintenance of a
fair and orderly market.
The Exchange also believes that
offering such functionality at the
Exchange level promotes robust risk
management across the industry, and
thereby facilitates investor protection.
Some market participants, and, in
particular, the larger firms could build
similar risk functionality on their
trading systems that permit the flexible
cancellation of orders entered on the
Exchange. Offering Exchange level
protections ensures that such
functionality is widely available to all
firms, including smaller firms that may
otherwise not be willing to incur the
costs and development work necessary
to support their own customized mass
cancel functionality.
Although the Exchange is the first
exchange to develop and offer dedicated
Purge Ports for equities trading, the
proposed rate is lower than that charged
by options exchanges for similar
functionality, including the fees charged
by the Exchange’s affiliated options
exchanges for Options Purge Ports,
which are billed at a rate of $750 per
14 Purge Ports will be fee liable on a monthly
basis (and not only when such ports are active),
which will help the Exchange to recoup the cost of
these ports.
15 The fee for Multicast PITCH Spin Server ports
provides access to a set of primary ports (A or C
feed) and the fee for Multicast PITCH GRP Ports
provides access to a primary port (A or C feed).
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month, and fees charged by unaffiliated
options exchanges, such as ISE, which
charges a fee of $1,100 per month for
SQF Purge Ports. The Exchange operates
in a highly competitive market in which
exchanges offer connectivity and related
services as a means to facilitate the
trading activities of Members and other
participants. As the proposed Purge
Ports provide voluntary risk
management functionality, excessive
fees would simply serve to reduce
demand for this optional product.
The Exchange also believes that the
proposed amendments to its fee
schedule are not unfairly discriminatory
because they will apply uniformly to all
Members that choose to use dedicated
Purge Ports. The proposed Purge Ports
are completely voluntary and, as they
relate solely to optional risk
management functionality, no Member
is required or under any regulatory
obligation to utilize them. The Exchange
believes that adopting separate fees for
these ports ensures that the associated
costs are borne exclusively by Members
that determine to use them based on
their business needs, including Market
Makers or similarly situated market
participants that enter orders
simultaneously in a number of
securities. All Members that voluntarily
select this service option will be
charged the same amount for the same
services. All Members have the option
to select any connectivity option, and
there is no differentiation among
Members with regard to the fees charged
for the services offered by the Exchange.
(B) Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change would impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. To the
contrary, the Exchange believes the
proposed rule change will enhance
competition because it will enable the
Exchange to innovate and offer similar
equities Purge Port functionality to that
offered on options markets today, at a
competitive price.16 The proposed
Purge Ports are completely voluntary
and will be made available to all
Members on an equal basis. While the
Exchange believes that the proposed
Purge Ports provide a valuable service,
Members can choose to purchase, or not
purchase, these ports based on their
business needs. No Member is required
or under any regulatory obligation to
utilize Purge Ports. Furthermore, fees for
Purge Ports, and connectivity in general,
are constrained by the robust
16 See
PO 00000
supra note 13.
Frm 00215
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Sfmt 4703
competition for order flow among
exchanges and non-exchange markets.
Members may opt to disfavor the
Exchange’s pricing if they believe that
alternatives offer them better value. As
a result, excessive fees for connectivity,
including Purge Port fees, would serve
to impair the Exchange’s ability to
compete for order flow rather than
burdening competition. Accordingly,
the Exchange believes that the proposed
rule change is designed to offer
appropriate risk management
functionality to firms that trade on the
Exchange without imposing an
unnecessary or inappropriate burden on
competition.
(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: (i) Significantly affect
the protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days from the date on
which it was filed, or such shorter time
as the Commission may designate, it has
become effective pursuant to Section
19(b)(3)(A)(iii) of the Act 17 and
subparagraph (f)(6) of Rule 19b–4
thereunder.18
A proposed rule change filed under
Rule 19b–4(f)(6) 19 normally does not
become operative prior to 30 days after
the date of the filing. However, Rule
19b–4(f)(6)(iii) 20 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 proposed
rule change may become effective and
operative immediately upon filing. The
Exchange noted that its affiliated
options exchanges provide Purge Ports
and that they have been successful for
options. The Exchange noted that there
is a demand for Purge Ports for equities
17 15
U.S.C. 78s(b)(3)(A)(iii).
CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6)(iii) requires a self-regulatory organization to
give the Commission written notice of its intent to
file the proposed rule change, along with a brief
description and text of the proposed rule change,
at least five business days prior to the date of filing
of the proposed rule change, or such shorter time
as designated by the Commission. The Exchange
has satisfied this requirement.
19 17 CFR 240.19b–4(f)(6).
20 17 CFR 240.19b–4(f)(6)(iii).
18 17
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and that it believes that the Purge Ports
will provide an effective risk
management tool for Users trading
equities. The Commission believes that
Purge Ports may be a helpful tool for
managing the risk associated with
trading equities, and notes that this can
be important both for individual market
participants and the market in general.
Accordingly, the Commission believes
that permitting this feature to be
operative upon filing is consistent with
the protection of investors and the
public interest. Therefore, the
Commission hereby waives the 30-day
operative delay and designates the
proposed rule change as operative upon
filing.21
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.
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–CboeBZX–2018–074 and
should be submitted on or before
November 7, 2018.
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:
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.22
Eduardo A. Aleman,
Assistant Secretary.
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–
CboeBZX–2018–074 on the subject line.
SECURITIES AND EXCHANGE
COMMISSION
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–CboeBZX–2018–074. 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
21 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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[FR Doc. 2018–22535 Filed 10–16–18; 8:45 am]
BILLING CODE 8011–01–P
[Release No. 34–84401; File No. SR–
CboeBZX–2018–075]
Self-Regulatory Organizations; Cboe
BZX Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of a
Proposed Rule Change Related to Fees
on Cboe BZX Exchange, Inc.
October 11, 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 October
1, 2018, Cboe BZX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘BZX’’) 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 the proposed rule change as
one establishing or changing a member
due, fee, or other charge imposed by the
Exchange under Section 19(b)(3)(A)(ii)
of the Act 3 and Rule 19b–4(f)(2)
thereunder,4 which renders the
proposed rule change 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 add
certain fees related to the listing and
trading of options that overlie the
Russell 2000 Index (‘‘RUT options’’).
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 the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
On September 27, 2018, the
Exchange’s equity options platform
(‘‘BZX Options’’) received approval
from the Commission to list and trade
RUT options.5 The Exchange intends to
begin listing RUT options for trading on
October 1, 2018. Accordingly, the
Exchange proposes to amend its Fees
Schedule for BZX Options to add: (i) An
Index License Surcharge Fee to all NonCustomer transactions in RUT options;
(ii) Fee codes for RUT options that add
or remove liquidity on the Exchange;
and (iii) Fee codes for RUT options that
are routed away from the Exchange,
effective October 1, 2018.
3 15
22 17
CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
PO 00000
Frm 00216
Fmt 4703
Sfmt 4703
52591
U.S.C. 78s(b)(3)(A)(ii).
CFR 240.19b–4(f)(2).
5 See Securities Exchange Act Release No. 84298
(September 27, 2018) (SR–CboeBZX–2018–058).
4 17
E:\FR\FM\17OCN1.SGM
17OCN1
]]>Agencies
[Federal Register Volume 83, Number 201 (Wednesday, October 17, 2018)]
[Notices]
[Pages 52588-52591]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-22535]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-84406; File No. SR-CboeBZX-2018-074]
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To
Introduce Equities Purge Ports To (1) Establish Purge Ports for
Equities Trading and Amend the Interpretations and Policies to Rule
11.10, Order Execution, To Reflect the Proposed Purge Ports, and (2)
Modify the Fee Schedule Applicable to the Exchange's Equities Platform
(``BZX Equities'') To Identify and To Set Fees for Purge Ports
October 11, 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 September 28, 2018, Cboe BZX Exchange, Inc. (``Exchange'' or
``BZX'') 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.
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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 is proposing to (1) establish Purge Ports for equities
trading and amend the Interpretations and Policies to Rule 11.13, Order
Execution and Routing, to reflect the proposed Purge Ports, and (2)
modify the fee schedule applicable to the Exchange's equities platform
(``BZX Equities'') to identify and to set fees for Purge Ports.
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 purpose of the proposed rule change is to offer Users \5\ an
additional tool to manage risk and exercise additional control over
their quotations in equity securities (i.e., ``Purge Ports'').
Specifically, the Exchange proposes to: (1) Establish Purge Ports for
equities trading and amend the Interpretations and Policies to Rule
11.13, Order Execution and Routing, to reflect the proposed Purge
Ports, and (2) modify the fee schedule applicable to BZX Equities to
identify and to set fees for Purge Ports.
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\5\ A ``User'' is any Member or Sponsored Participant who is
authorized to obtain access to the System pursuant to Rule 11.3. See
Rule 1.5(cc).
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Purge Ports are already available on the Exchange's affiliated
options markets--i.e., the Exchange's options trading platform (``BZX
Options''), the options trading platform of Cboe EDGX Exchange, Inc.
(``EDGX Options''), and Cboe C2 Exchange, Inc. (``C2'').\6\ Based on
the successful experience with Purge Ports for options, and in response
to demand for similar functionality for equities trading, the Exchange
has determined to offer Purge Ports on BZX Equities. The Exchange
believes that the proposed Purge Port functionality will provide an
effective tool for Users to manage their risk associated with equities
trading.
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\6\ See Securities Exchange Act Release Nos. 79956 (February 3,
2017), 82 FR 10102 (February 9, 2017) (SR-BatsBZX-2017-05); 79957
(February 3, 2017), 82 FR 10070 (February 9, 2017) (SR-BatsEDGX-
2017-07); 83201 (May 9, 2018), 83 FR 22546 (May 15, 2018) (SR-C2-
2018-006).
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Background
A logical port represents a port established by the Exchange within
the Exchange's system for trading and billing purposes. Each logical
port established is specific to a Member or non-Member and grants that
Member or non-Member the ability to accomplish a specific function,
such as order entry, order cancellation, or data receipt. In addition,
logical ports enable Users to access information such as execution
reports, execution report messages, auction notifications, and
administrative data through a single feed.
Purge Ports
The Exchange now proposes to amend the Interpretations and Policies
to Rule 11.13, Order Execution and Routing, to identify Purge Ports, a
new type of logical port that would enable Users to cancel all open
orders, or a subset thereof, across multiple logical ports through a
single cancel message. The Exchange also proposes to amend the BZX
Equities fee schedule to adopt fees for Purge Ports.
The proposed ports are designed to assist Users, including Market
Makers,\7\ in the management of, and risk control over, their quotes,
particularly if the firm is quoting a large number of
[[Page 52589]]
securities. For example, if a Market Maker detects market indications
that may influence the direction or bias of his or her quotes, the
Market Maker may use the proposed Purge Port(s) to reduce uncertainty
and to manage risk by purging all quotes in a number of securities.
This would allow the firm to seamlessly avoid unintended executions,
while continuing to evaluate the direction of the market. While Purge
Ports will be available to all Users, the Exchange anticipates they
will be used primarily by Market Makers or firms that conduct similar
business activity and are therefore exposed to a large amount of risk
across a number securities.
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\7\ A ``Market Maker'' is a Member that acts as a Market Maker
pursuant to Chapter XI. See Rule 1.5(l).
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Users may currently cancel orders through their existing logical
ports. In addition, the Exchange offers risk functionality pursuant to
Interpretation and Policies .01 to Rule 11.13 that permits Users to
block new orders from being submitted, to cancel all open orders, or to
both block new orders and cancel all open orders. In addition to the
current risk functionality, which is being retained, the Exchange now
proposes to expand the ability of Users to cancel orders through the
proposed Purge Ports, which would enable them to cancel all open
orders, or a subset thereof, across multiple logical ports through a
single cancel message. The mass cancel request may be limited to a
subset of orders by identifying the range of orders to be purged. Users
may also request via a Purge Port that the Exchange block all or a
subset of new orders submitted, and the block will remain in effect
until the User requests that the Exchange remove the block.
The Exchange proposes to amend the Interpretations and Policies to
Rule 11.13, Order Execution and Routing, to reflect the proposed Purge
Port functionality. As described above, Interpretation and Policies .01
to Rule 11.13 currently states that the Exchange offers risk
functionality that permits Users to block new orders submitted, to
cancel all open orders, or to both block new orders and cancel all open
orders. The Exchange proposes to move this language to Interpretations
and Policies .02(a) to Rule 11.13,\8\ and add additional language to
describe the flexibility provided using the proposed Purge Ports.
Specifically, as proposed, Interpretations and Policies .02(b) to Rule
11.13 will state that a ``Purge Port'' is a dedicated port that permits
a User to simultaneously cancel all or a subset of its orders in one or
more symbols across multiple logical ports by requesting the Exchange
to effect such cancellation. The proposed rule will also provide that a
User initiating such a request may also request that the Exchange block
all or a subset of its new inbound orders in one or more symbols across
multiple logical ports. The block will remain in effect until the User
requests the Exchange remove the block.
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\8\ The Exchange also proposes to make a non-substantive change
that deletes the introductory clause of this sentence.
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In addition, the Exchange proposes to modify the Logical Port Fees
section of the BZX Equities fee schedule to adopt a fee for Purge Ports
of $650 per port/per month, which would compensate the Exchange for the
investment that it has made in making Purge Ports available to firms
that believe they would benefit from a dedicated purge mechanism. Only
firms that request Purge Ports would be subject to the proposed fees,
and other firms can continue to operate in exactly the same manner as
they do today without dedicated Purge Ports.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the requirements of the Act and the rules and regulations
thereunder that are applicable to a national securities exchange, and,
in particular, with the requirements of Section 6(b) of the Act.\9\
Specifically, the proposed rule change is consistent with Sections
6(b)(4) and 6(b)(5) of the Act,\10\ because it is designed to provide
for the equitable allocation of reasonable dues, fees and other charges
among its members and other persons using its facilities, and 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
mechanism of a free and open market and a national market system and,
in general, to protect investors and the public interest.
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\9\ 15 U.S.C. 78f(b).
\10\ 15 U.S.C. 78f(b)(4) and (5).
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The Exchange believes that the proposed rule change would promote
just and equitable principles of trade and remove impediments to and
perfect the mechanism of a free and open market because offering Users,
including Market Makers, designated Purge Ports would enhance their
ability to manage quotes, quote traffic, and their quoting
obligations,\11\ which would, in turn, improve their risk controls to
the benefit of all market participants. The Exchange believes that the
Purge Ports would foster cooperation and coordination with persons
engaged in facilitating transactions in securities because designating
Purge Ports for purge messages (including blocking subsequent order
entry) may encourage better use of such dedicated ports. This may,
concurrent with the logical ports that carry quote and other
information necessary for market making activities, enable more
efficient, as well as fair and reasonable, use of Market Makers'
resources. Although dedicated Purge Ports are a new innovation for
equities exchanges, similar connectivity and functionality is offered
by options exchanges, including the Exchange's own affiliated options
exchanges.\12\ The Exchange believes that proper risk management,
including the ability to efficiently cancel multiple orders at once, is
similarly important to firms that trade in the equities market,
including Market Makers that have heightened quoting obligations that
are not applicable to other market participants.
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\11\ See Rule 11.8(d).
\12\ See supra note 7. See also e.g. Nasdaq ISE, LLC, Schedule
of Fees, V. Connectivity Fees, C. Ports and Other Services, SQF
Purge Port Fee.
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The proposed rule change will not relieve Market Makers of their
continuous quoting obligations under Rule 11.8(d) or firm quote
obligations under Regulation NMS Rule 602.\13\ Specifically, any
interest that is executable against a User's or Market Maker's quotes
and orders that is received by the Exchange prior to the time of the
removal of quotes request will automatically execute at that price, up
to the quote's size. Market Makers that purge their quotes will not be
relieved of the obligation to provide continuous two-sided quotes on a
daily basis, nor will it prohibit the Exchange from taking disciplinary
action against a Market Maker for failing to meet their continuous
quoting obligation each trading day.
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\13\ 17 CFR 242.602.
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Dedicated Purge Ports, which were originally introduced for options
trading, are a new feature in the equities market, and the Exchange is
the first equities exchange to offer this functionality to Users. The
Exchange has incurred additional infrastructure and technology costs in
offering the proposed Purge Ports, including costs associated with the
purchase of new hardware to support these dedicated ports, and software
development, testing, and certification work associated with the risk
management functionality made available through such ports. The
Exchange also has continuing costs associated with maintenance and
monitoring of the proposed ports. The Exchange believes
[[Page 52590]]
that its proposed fees should facilitate the ability of the Exchange to
recoup some costs associated with Purge Ports as well as provide,
maintain, and improve Purge Ports.\14\ The proposed fees therefore
directly support the introduction of new and innovative risk management
features to the market.
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\14\ Purge Ports will be fee liable on a monthly basis (and not
only when such ports are active), which will help the Exchange to
recoup the cost of these ports.
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The Exchange believes the proposed fee for Purge Ports is equitable
and reasonable. The Exchange currently charges $550 per port/per month
for logical ports.\15\ The Exchange believes it is equitable and
reasonable to charge $650 per month for the proposed Purge Ports as
such ports were specially developed to allow for the sending of a
single message to cancel multiple orders, thereby assisting firms in
effectively managing risk. In addition, Purge Port requests may cancel
orders submitted over numerous ports and contain added functionality to
purge only a subset of these orders. Effective risk management is
important both for individual market participants that choose to
utilize risk features provided by the Exchange, as well as for the
market in general. As a result, the Exchange believes that it is
appropriate to charge fees that compensate for the development of such
functionality as doing so aids in the maintenance of a fair and orderly
market.
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\15\ The fee for Multicast PITCH Spin Server ports provides
access to a set of primary ports (A or C feed) and the fee for
Multicast PITCH GRP Ports provides access to a primary port (A or C
feed).
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The Exchange also believes that offering such functionality at the
Exchange level promotes robust risk management across the industry, and
thereby facilitates investor protection. Some market participants, and,
in particular, the larger firms could build similar risk functionality
on their trading systems that permit the flexible cancellation of
orders entered on the Exchange. Offering Exchange level protections
ensures that such functionality is widely available to all firms,
including smaller firms that may otherwise not be willing to incur the
costs and development work necessary to support their own customized
mass cancel functionality.
Although the Exchange is the first exchange to develop and offer
dedicated Purge Ports for equities trading, the proposed rate is lower
than that charged by options exchanges for similar functionality,
including the fees charged by the Exchange's affiliated options
exchanges for Options Purge Ports, which are billed at a rate of $750
per month, and fees charged by unaffiliated options exchanges, such as
ISE, which charges a fee of $1,100 per month for SQF Purge Ports. The
Exchange operates in a highly competitive market in which exchanges
offer connectivity and related services as a means to facilitate the
trading activities of Members and other participants. As the proposed
Purge Ports provide voluntary risk management functionality, excessive
fees would simply serve to reduce demand for this optional product.
The Exchange also believes that the proposed amendments to its fee
schedule are not unfairly discriminatory because they will apply
uniformly to all Members that choose to use dedicated Purge Ports. The
proposed Purge Ports are completely voluntary and, as they relate
solely to optional risk management functionality, no Member is required
or under any regulatory obligation to utilize them. The Exchange
believes that adopting separate fees for these ports ensures that the
associated costs are borne exclusively by Members that determine to use
them based on their business needs, including Market Makers or
similarly situated market participants that enter orders simultaneously
in a number of securities. All Members that voluntarily select this
service option will be charged the same amount for the same services.
All Members have the option to select any connectivity option, and
there is no differentiation among Members with regard to the fees
charged for the services offered by the Exchange.
(B) Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change would
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. To the contrary, the
Exchange believes the proposed rule change will enhance competition
because it will enable the Exchange to innovate and offer similar
equities Purge Port functionality to that offered on options markets
today, at a competitive price.\16\ The proposed Purge Ports are
completely voluntary and will be made available to all Members on an
equal basis. While the Exchange believes that the proposed Purge Ports
provide a valuable service, Members can choose to purchase, or not
purchase, these ports based on their business needs. No Member is
required or under any regulatory obligation to utilize Purge Ports.
Furthermore, fees for Purge Ports, and connectivity in general, are
constrained by the robust competition for order flow among exchanges
and non-exchange markets. Members may opt to disfavor the Exchange's
pricing if they believe that alternatives offer them better value. As a
result, excessive fees for connectivity, including Purge Port fees,
would serve to impair the Exchange's ability to compete for order flow
rather than burdening competition. Accordingly, the Exchange believes
that the proposed rule change is designed to offer appropriate risk
management functionality to firms that trade on the Exchange without
imposing an unnecessary or inappropriate burden on competition.
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\16\ See supra note 13.
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(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: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A)(iii) of the Act \17\ and
subparagraph (f)(6) of Rule 19b-4 thereunder.\18\
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\17\ 15 U.S.C. 78s(b)(3)(A)(iii).
\18\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change, along
with a brief description and text of the proposed rule change, at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
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A proposed rule change filed under Rule 19b-4(f)(6) \19\ normally
does not become operative prior to 30 days after the date of the
filing. However, Rule 19b-4(f)(6)(iii) \20\ 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 proposed
rule change may become effective and operative immediately upon filing.
The Exchange noted that its affiliated options exchanges provide Purge
Ports and that they have been successful for options. The Exchange
noted that there is a demand for Purge Ports for equities
[[Page 52591]]
and that it believes that the Purge Ports will provide an effective
risk management tool for Users trading equities. The Commission
believes that Purge Ports may be a helpful tool for managing the risk
associated with trading equities, and notes that this can be important
both for individual market participants and the market in general.
Accordingly, the Commission believes that permitting this feature to be
operative upon filing is consistent with the protection of investors
and the public interest. Therefore, the Commission hereby waives the
30-day operative delay and designates the proposed rule change as
operative upon filing.\21\
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\19\ 17 CFR 240.19b-4(f)(6).
\20\ 17 CFR 240.19b-4(f)(6)(iii).
\21\ 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: (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:
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-CboeBZX-2018-074 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-CboeBZX-2018-074. 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-CboeBZX-2018-074 and should be submitted
on or before November 7, 2018.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\22\
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\22\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-22535 Filed 10-16-18; 8:45 am]
BILLING CODE 8011-01-P
