Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating To Amend Its Rules Regarding How the System Handles Market Orders in Series With No Bid or No Offer, 60921-60924 [2018-25733]
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Federal Register / Vol. 83, No. 228 / Tuesday, November 27, 2018 / Notices
SECURITIES AND EXCHANGE
COMMISSION
Submission for OMB Review;
Comment Request
Upon Written Request, Copies Available
From: Securities and Exchange
Commission, Office of FOIA Services,
100 F Street NE, Washington, DC
20549–2736.
amozie on DSK3GDR082PROD with NOTICES1
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17:45 Nov 26, 2018
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this notice.
Dated: November 20, 2018.
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–25720 Filed 11–26–18; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–84631; File No. SR–
CboeBZX–2018–082]
Self-Regulatory Organizations; Cboe
BZX Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of a
Proposed Rule Change Relating To
Amend Its Rules Regarding How the
System Handles Market Orders in
Series With No Bid or No Offer
November 20, 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 November
16, 2018, Cboe BZX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘BZX’’) filed with the
Securities and Exchange Commission
(the ‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the Exchange. The Exchange filed the
proposal as a ‘‘non-controversial’’
proposed rule change pursuant to
Section 19(b)(3)(A)(iii) of the Act 3 and
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A)(iii).
Rule 19b–4(f)(6) thereunder.4 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
Cboe BZX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘BZX Options’’)
proposes to amend its Rules regarding
how the System handles Market Orders
in series with no bid or no offer.
(additions are italicized; deletions are
[bracketed])
*
*
*
*
*
Rules of Cboe BZX Exchange, Inc.
*
*
*
*
Rule 21.17. Additional Price Protection
Mechanisms and Risk Controls
The System’s acceptance and execution of
orders and quotes are subject to the price
protection mechanisms and risk controls in
Rule 21.16, this Rule 21.17 and as otherwise
set forth in the Rules. All numeric values
established by the Exchange pursuant to this
Rule will be maintained by the Exchange in
publicly available specifications and/or
published in a Regulatory Circular. Unless
otherwise specified the price protections set
forth in this Rule, including the numeric
values established by the Exchange, may not
be disabled or adjusted. The Exchange may
share any of a User’s risk settings with the
Clearing Member that clears transactions on
behalf of the User.
(a)–(d) No change.
(e) Market Orders in No-Bid (Offer) Series.
(1) If the System receives a sell Market
Order in a series after it is open for trading
with an NBB of zero:
(A) if the NBO in the series is less than or
equal to $0.50, then the System converts the
Market Order to a Limit Order with a limit
price equal to the minimum trading
increment applicable to the series and enters
the order into the BZX Options Book with a
timestamp based on the time it enters the
Book. If the order has a Time-in-Force of GTC
or GTD that expires on a subsequent day, the
order remains on the Book as a Limit Order
until it executes, expires, or the User cancels
it.
(B) if the NBO in the series is greater than
$0.50, then the System cancels or rejects the
market order.
(2) If the System receives a buy market
order in a series after it is open for trading
with an NBO of zero, the System cancels or
rejects the market order.
*
*
*
*
*
The text of the proposed rule change
is also available on the Exchange’s
website (https://www.cboe.com/
AboutCBOE/
CBOELegalRegulatoryHome.aspx), at
the Exchange’s Office of the Secretary,
and at the Commission’s Public
Reference Room.
2 17
PO 00000
Frm 00101
Fmt 4703
Sfmt 4703
*
4 17
CFR 240.19b–4(f)(6).
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Federal Register / Vol. 83, No. 228 / Tuesday, November 27, 2018 / Notices
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
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A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
In 2016, the Exchange’s parent
company, Cboe Global Markets, Inc.
(formerly named CBOE Holdings, Inc.)
(‘‘Cboe Global’’), which is the parent
company of Cboe Exchange, Inc. (‘‘Cboe
Options’’) and Cboe C2 Exchange, Inc.,
acquired the Exchange, Cboe EDGA
Exchange, Inc. (‘‘EDGA’’), Cboe EDGX
Exchange, Inc. (‘‘EDGX or EDGX
Options’’), and Cboe BYX Exchange,
Inc. (‘‘BYX’’ and, together with C2, Cboe
Options, EDGX, EDGA, and BZX, the
‘‘Cboe Affiliated Exchanges’’). The Cboe
Affiliated Exchanges are working to
align certain system functionality,
retaining only intended differences
between the Cboe Affiliated Exchanges,
in the context of a technology migration.
Thus, the proposals set forth below are
intended to add certain functionality to
the Exchange’s System that is more
similar to functionality offered by Cboe
Options in order to ultimately provide
a consistent technology offering for
market participants who interact with
the Cboe Affiliated Exchanges. Although
the Exchange intentionally offers certain
features that differ from those offered by
its affiliates and will continue to do so,
the Exchange believes that offering
similar functionality to the extent
practicable will reduce potential
confusion for Users.
The Exchange proposes to amend its
Rules regarding how the System handles
a market order when there is no bid or
offer, as applicable, against which the
order may execute. A market order is an
order to buy or sell at the best price
available at the time of execution.5
Currently, based on this definition, if
the System receives a sell market order
when there are no bids against which
the order may execute, the System
5 See
Rule 21.1(d)(5).
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17:45 Nov 26, 2018
Jkt 247001
cancels the order. Similarly, if the
System receives a buy market order
when there are no offers against which
the order may execute, the System
cancels the order. The proposed rule
change first codifies this handling of a
buy market order when there national
best offer (‘‘NBO’’) is zero, which is
consistent with current functionality.6
As noted above, this handling is
consistent with the definition of a
market order.7 It provides protection for
these orders to prevent execution at
potentially erroneous prices when a buy
order is submitted in a series with no
offer.
The Exchange also proposes to amend
how the System handles sell Market
Orders submitted in a series with no
bid. Currently, if the System receives a
Market Order to sell in a no-bid series,
the System cancels or rejects the order.
Pursuant to the proposed rule change, if
the System receives a Market Order to
sell in an option series with an NBB of
zero:
(1) If the NBO in the series is less than
or equal to $0.50, then the System
converts the Market Order to a limit
order with a limit price equal to the
minimum trading increment applicable
to the series and enters the order into
the BZX Options Book with a timestamp
based on the time it enters the Book. If
the order has a Time-in-Force of GTC or
GTD that expires on a subsequent day,
the order remains on the Book as a Limit
Order until it executes, expires, or the
User cancels it.
(2) if the NBO in the series is greater
than $0.50, then the System cancels the
Market Order.8
The proposed handling of sell Market
Orders in no-bid series when the NBO
in the series is greater than $0.50 is
consistent with current functionality.
The proposed rule change serves as a
protection feature for investors in
certain situations, such as when a series
is no-bid because the last bid traded just
prior to entry of the sell Market Order.
The purpose of this threshold is to limit
the automatic booking of Market Orders
to sell at minimum increments to only
those for true zero-bid options, as
options in no-bid series with an offer of
greater than $0.50 are less likely to be
worthless.
For example, if the System receives a
sell Market Order in a no-bid series with
a minimum increment of $0.01 and the
NBO is $0.01, the System will convert
the order to a Limit Order with a price
6 See
proposed Rule 21.17(e)(2).
proposed rule change is also consistent
with Cboe Options functionality and C2 Rule
6.14(a)(1).
8 See proposed Rule 21.17(e)(1).
7 The
PO 00000
Frm 00102
Fmt 4703
Sfmt 4703
of $0.01 and enter it on the BZX Options
Book. Because the order will have a
timestamp based on that time of Book
entry, it will have priority behind any
other Limit Orders to sell at $0.01 that
were already resting on the Book. At
that point, even if the series is no-bid
because, for example, the last bid just
traded and the limit order trades at
$0.01, the next bid entered after the
trade would not be higher than $0.01. If
the order has a Time-in-Force of GTC or
GTD that expires on a subsequent day,
the order remains on the Book until it
executes, expires, or the User cancels.9
However, if the System receives a sell
Market Order in a no-bid series with a
minimum increment of $0.01 and the
NBO is $1.20 (because, for example, the
last bid of $1.00 just traded and a new
bid has not yet populated the
disseminated quote), the System will
cancel or reject the order. Cancellation
prevents an anomalous execution price,
since the next bid entered in that series
is likely to be much higher than $0.01.
It would be unfair to the User to let is
Market Order trade as a limit order for
$0.01 because, for example, the firm
submitted the order during the brief
time when there were no disseminated
bids in a series trading significantly
higher than the minimum increment.
The Exchange believes the threshold
of $0.50 is reasonable. The Exchange
notes that this threshold the same as the
threshold in the Cboe Options rule,10
and is less than the current width for
the Market Order NBBO width
protection, pursuant to which the
System will reject or cancel back to the
User a Market Order submitted to the
System when the NBBO width is greater
than 100% of the midpoint of the
NBBO, subject to a $5 minimum and
$10 maximum.11 Notwithstanding this
provision, the proposed rule change
would allow for the potential execution
of sell Market Orders in no-bid series
9 This functionality is consistent with the purpose
of a GTC or GTD that expires on a subsequent
trading day, which is to remain on the Book and
available for execution until the User cancels it or
until the time specified by the User. The Exchange
notes that market orders with any other Time-inForce would no longer be on the Book if they did
not execute during the trading day.
10 See Cboe Options Rule 6.13(b)(vi).
11 See Rule 21.17(a); see also Exchange Notice,
BZX and EDGX Options Exchanges Feature Pack
2—Update (December 14, 2017), available at https://
markets.cboe.com/resources/release_notes/2017/
Update-2-Cboe-BZX-and-EDGX-OptionsExchanges-Feature-Pack-2.pdf, for current settings.
Pursuant to this protection, if the NBBO for a series
was $0.00—$0.50, the width of the NBBO (0.50) is
greater than 100% of the midpoint (0.25); however,
pursuant to the minimum, a market order would be
accepted pursuant to this protection because the
width is less than the 5.00 minimum. The proposed
rule change provides additional price protection for
market orders in no-bid series.
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Federal Register / Vol. 83, No. 228 / Tuesday, November 27, 2018 / Notices
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with offers less than or equal to $0.50.
If the threshold in the proposed rule
change was higher, there would be
increased risk of having a Market Order
trade a minimum increment in a series
that is not truly no-bid. The proposed
rule change is substantially the same as
Cboe Options Rule 6.13(b)(vi).
2. Statutory Basis
The Exchange believes the proposed
rule change is consistent with the
Securities Exchange Act of 1934 (the
‘‘Act’’) and the rules and regulations
thereunder applicable to the Exchange
and, in particular, the requirements of
Section 6(b) of the Act.12 Specifically,
the Exchange believes the proposed rule
change is consistent with the Section
6(b)(5) 13 requirements that the rules of
an exchange be designed to prevent
fraudulent and manipulative acts and
practices, to promote just and equitable
principles of trade, to foster cooperation
and coordination with persons engaged
in regulating, clearing, settling,
processing information with respect to,
and facilitating transactions in
securities, to remove impediments to
and perfect the mechanism of a free and
open market and a national market
system, and, in general, to protect
investors and the public interest.
Additionally, the Exchange believes the
proposed rule change is consistent with
the Section 6(b)(5) 14 requirement that
the rules of an exchange not be designed
to permit unfair discrimination between
customers, issuers, brokers, or dealers.
In particular, the Exchange believes
the proposed rule change regarding the
handling of sell Market Orders in no-bid
series assists with the maintenance of
fair and orderly markets and protects
investors and the public interest,
because it provides for automated
handling of orders in series that are
likely truly no-bid, ultimately resulting
in more efficient executions of these
orders. Additionally, the proposed rule
change prevents executions of sell
Market Orders in no-bid series with
higher offers at potentially extreme
prices in series that are not truly no-bid.
The Exchange believes this threshold
appropriately reflects the interests of
investors, as options in no-bid series
with offers higher than $0.50 are less
likely to be worthless than no-bid series
with offers no higher than $0.50, and
cancelling the orders will prevent
execution of these orders at unfavorable
prices. The Exchange also believes the
$0.50 threshold promotes fair and
orderly markets, because sell Market
12 15
13 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
14 Id.
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17:45 Nov 26, 2018
Jkt 247001
Orders in no-bid series with offers of
$0.50 or less are likely to be individuals
seeking to close out a worthless
position, for which the proposed
automatic handling is appropriate. The
proposed change is also substantially
the same as Cboe Options Rule
6.13(b)(vi).
The proposed handling of buy Market
Orders in no-offer series benefits
investors, because it codifies current
order handling and thus provides
investors with more transparency in the
Rules with respect to how the System
will handle these orders. The proposed
change is also substantially the same as
C2 Rule 6.14(a)(1).
When Cboe Options migrates to the
same technology as that of the Exchange
and other Cboe Affiliated Exchanges,
Users of the Exchange and other Cboe
Affiliated Exchanges will have access to
similar functionality on all Cboe
Affiliated Exchanges and similar
language can be incorporated into the
rules of all Cboe Affiliated Exchanges.
As such, the proposed rule change
would foster cooperation and
coordination with persons engaged in
facilitating transactions in securities and
would remove impediments to and
perfect the mechanism of a free and
open market and a national market
system.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. The
Exchange does not believe the proposed
rule changes will impose any burden on
intramarket competition, because it will
apply in the same manner to all buy or
sell Market Orders submitted in no-offer
or no-bid series, respectively.
Additionally, the proposed rule change
has no impact on sell Market Orders
submitted in no-bid series with an offer
of more than $0.50 or on buy Market
Orders submitted in no-offer series,
which orders will continue to be
handled in the same manner as they are
today (i.e. they will be cancelled or
rejected). The Exchange does not believe
the proposed rule change will impose
any burden on intermarket competition,
as it will provide sell Market Orders in
true no-bid series with additional
execution opportunities (either on the
Exchange or at away markets pursuant
to linkage rules) while providing an
additional protection measure for sell
Market Orders in no-bid series that may
not be truly no-bid. As noted above, the
proposed rule change has no impact on
the handling of all other sell Market
PO 00000
Frm 00103
Fmt 4703
Sfmt 4703
60923
Orders in no-bid series or on buy Market
Orders in no-offer series. The Exchange
believes this price protection will allow
Members to sell Market Orders with
reduced fear of inadvertent exposure to
excessive risk, which will benefit
investors through increased liquidity for
the execution of their orders.
The proposed rule change related to
the handling of buy Market Orders is
consistent with current Exchange
functionality and will have no impact
on how those orders will handled, and
it is substantially the same as C2 Rule
6.14(a)(1). The proposed rule change
related to the handling of sell Market
Orders is substantially the same as Cboe
Options Rule 6.13(b)(vi).15
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
The Exchange neither solicited nor
received comments on the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
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 16 and
subparagraph (f)(6) of Rule 19b–4
thereunder.17
A proposed rule change filed under
Rule 19b–4(f)(6) 18 normally does not
become operative prior to 30 days after
the date of the filing. However, Rule
19b–4(f)(6)(iii) 19 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
15 The Exchange notes other options exchanges
have similar rules that convert sell market orders
in no-bid series to limit orders with a price of a
minimum increment if the offer in the series is
below a certain threshold (the thresholds differ in
those rules). See, e.g., Miami International
Securities Exchange, LLC (‘‘MIAX’’) Rule 519(a)(1);
and NASDAQ ISE, LLC (‘‘ISE’’) Rule 713(b).
16 15 U.S.C. 78s(b)(3)(A)(iii).
17 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.
18 17 CFR 240.19b–4(f)(6).
19 17 CFR 240.19b–4(f)(6)(iii).
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60924
Federal Register / Vol. 83, No. 228 / Tuesday, November 27, 2018 / Notices
Commission to waive the 30-day
operative delay so that the proposed
rule change may become effective and
operative on November 29, 2018. The
Exchange states that waiver of the
operative delay will provide Users with
additional flexibility to manage and
display their orders and provide
additional control over their executions
on the Exchange as soon as possible.
The Exchange further states that waiver
of the operative delay will allow the
Exchange to continue to strive towards
a complete technology integration of the
Cboe Affiliated Exchanges, with gradual
roll-outs of new functionality to ensure
the stability of the System. The
Exchange notes that the proposed rule
change is generally intended to codify
and to add certain system functionality
to the Exchange’s System in order to
provide a consistent technology offering
for the Cboe Affiliated Exchanges. The
Exchange further notes that a consistent
technology offering will simplify the
technology implementation changes and
maintenance by Trading Permit Holders
of the Exchange that are also
participants on Cboe Affiliated
Exchanges. The Commission believes
that waiver of the 30-day operative
delay 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 on November 29, 2018.20
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.
amozie on DSK3GDR082PROD with NOTICES1
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:
Jkt 247001
Paper Comments
[Release No. 34–84635; File No. SR–NYSE–
2018–56]
• 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–2018–082. 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–2018–082 and
should be submitted on or before
December 18,2018.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.21
Eduardo A. Aleman,
Assistant Secretary.
BILLING CODE 8011–01–P
20 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).
17:45 Nov 26, 2018
SECURITIES AND EXCHANGE
COMMISSION
[FR Doc. 2018–25733 Filed 11–26–18; 8:45 am]
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
VerDate Sep<11>2014
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
CboeBZX–2018–082 on the subject line.
Self-Regulatory Organizations; New
York Stock Exchange LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Amend
Article II, Section 2.03(h)(ii) and Article
VI of Its Operating Agreement
November 20, 2018.
Pursuant to Section 19(b)(1)1 of the
Securities Exchange Act of 1934
(‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that on November
14, 2018, New York Stock Exchange
LLC (‘‘NYSE’’ or ‘‘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 Commission is publishing this
notice to solicit comments on the
proposed rule change from interested
persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to agreement
[sic] to harmonize certain provisions
with similar provisions in the governing
documents of the Exchange’s national
securities exchange affiliates and parent
companies, as well as make clarifying,
technical and conforming changes. The
proposed rule change is available on the
Exchange’s website at www.nyse.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
self-regulatory organization 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 those 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.
1 15
U.S.C.78s(b)(1).
U.S.C. 78a.
3 17 CFR 240.19b–4.
2 15
21 17
PO 00000
CFR 200.30–3(a)(12).
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]]>Agencies
[Federal Register Volume 83, Number 228 (Tuesday, November 27, 2018)]
[Notices]
[Pages 60921-60924]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-25733]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-84631; File No. SR-CboeBZX-2018-082]
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change Relating
To Amend Its Rules Regarding How the System Handles Market Orders in
Series With No Bid or No Offer
November 20, 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 November 16, 2018, Cboe BZX Exchange, Inc. (the ``Exchange'' or
``BZX'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I and II
below, which Items have been prepared by the Exchange. The Exchange
filed the proposal as a ``non-controversial'' proposed rule change
pursuant to Section 19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-
4(f)(6) thereunder.\4\ The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
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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)(iii).
\4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Cboe BZX Exchange, Inc. (the ``Exchange'' or ``BZX Options'')
proposes to amend its Rules regarding how the System handles Market
Orders in series with no bid or no offer.
(additions are italicized; deletions are [bracketed])
* * * * *
Rules of Cboe BZX Exchange, Inc.
* * * * *
Rule 21.17. Additional Price Protection Mechanisms and Risk Controls
The System's acceptance and execution of orders and quotes are
subject to the price protection mechanisms and risk controls in Rule
21.16, this Rule 21.17 and as otherwise set forth in the Rules. All
numeric values established by the Exchange pursuant to this Rule
will be maintained by the Exchange in publicly available
specifications and/or published in a Regulatory Circular. Unless
otherwise specified the price protections set forth in this Rule,
including the numeric values established by the Exchange, may not be
disabled or adjusted. The Exchange may share any of a User's risk
settings with the Clearing Member that clears transactions on behalf
of the User.
(a)-(d) No change.
(e) Market Orders in No-Bid (Offer) Series.
(1) If the System receives a sell Market Order in a series after
it is open for trading with an NBB of zero:
(A) if the NBO in the series is less than or equal to $0.50,
then the System converts the Market Order to a Limit Order with a
limit price equal to the minimum trading increment applicable to the
series and enters the order into the BZX Options Book with a
timestamp based on the time it enters the Book. If the order has a
Time-in-Force of GTC or GTD that expires on a subsequent day, the
order remains on the Book as a Limit Order until it executes,
expires, or the User cancels it.
(B) if the NBO in the series is greater than $0.50, then the
System cancels or rejects the market order.
(2) If the System receives a buy market order in a series after
it is open for trading with an NBO of zero, the System cancels or
rejects the market order.
* * * * *
The text of the proposed rule change is also available on the
Exchange's website (https://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx), at the Exchange's Office of the
Secretary, and at the Commission's Public Reference Room.
[[Page 60922]]
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
In 2016, the Exchange's parent company, Cboe Global Markets, Inc.
(formerly named CBOE Holdings, Inc.) (``Cboe Global''), which is the
parent company of Cboe Exchange, Inc. (``Cboe Options'') and Cboe C2
Exchange, Inc., acquired the Exchange, Cboe EDGA Exchange, Inc.
(``EDGA''), Cboe EDGX Exchange, Inc. (``EDGX or EDGX Options''), and
Cboe BYX Exchange, Inc. (``BYX'' and, together with C2, Cboe Options,
EDGX, EDGA, and BZX, the ``Cboe Affiliated Exchanges''). The Cboe
Affiliated Exchanges are working to align certain system functionality,
retaining only intended differences between the Cboe Affiliated
Exchanges, in the context of a technology migration. Thus, the
proposals set forth below are intended to add certain functionality to
the Exchange's System that is more similar to functionality offered by
Cboe Options in order to ultimately provide a consistent technology
offering for market participants who interact with the Cboe Affiliated
Exchanges. Although the Exchange intentionally offers certain features
that differ from those offered by its affiliates and will continue to
do so, the Exchange believes that offering similar functionality to the
extent practicable will reduce potential confusion for Users.
The Exchange proposes to amend its Rules regarding how the System
handles a market order when there is no bid or offer, as applicable,
against which the order may execute. A market order is an order to buy
or sell at the best price available at the time of execution.\5\
Currently, based on this definition, if the System receives a sell
market order when there are no bids against which the order may
execute, the System cancels the order. Similarly, if the System
receives a buy market order when there are no offers against which the
order may execute, the System cancels the order. The proposed rule
change first codifies this handling of a buy market order when there
national best offer (``NBO'') is zero, which is consistent with current
functionality.\6\ As noted above, this handling is consistent with the
definition of a market order.\7\ It provides protection for these
orders to prevent execution at potentially erroneous prices when a buy
order is submitted in a series with no offer.
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\5\ See Rule 21.1(d)(5).
\6\ See proposed Rule 21.17(e)(2).
\7\ The proposed rule change is also consistent with Cboe
Options functionality and C2 Rule 6.14(a)(1).
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The Exchange also proposes to amend how the System handles sell
Market Orders submitted in a series with no bid. Currently, if the
System receives a Market Order to sell in a no-bid series, the System
cancels or rejects the order. Pursuant to the proposed rule change, if
the System receives a Market Order to sell in an option series with an
NBB of zero:
(1) If the NBO in the series is less than or equal to $0.50, then
the System converts the Market Order to a limit order with a limit
price equal to the minimum trading increment applicable to the series
and enters the order into the BZX Options Book with a timestamp based
on the time it enters the Book. If the order has a Time-in-Force of GTC
or GTD that expires on a subsequent day, the order remains on the Book
as a Limit Order until it executes, expires, or the User cancels it.
(2) if the NBO in the series is greater than $0.50, then the System
cancels the Market Order.\8\
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\8\ See proposed Rule 21.17(e)(1).
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The proposed handling of sell Market Orders in no-bid series when
the NBO in the series is greater than $0.50 is consistent with current
functionality.
The proposed rule change serves as a protection feature for
investors in certain situations, such as when a series is no-bid
because the last bid traded just prior to entry of the sell Market
Order. The purpose of this threshold is to limit the automatic booking
of Market Orders to sell at minimum increments to only those for true
zero-bid options, as options in no-bid series with an offer of greater
than $0.50 are less likely to be worthless.
For example, if the System receives a sell Market Order in a no-bid
series with a minimum increment of $0.01 and the NBO is $0.01, the
System will convert the order to a Limit Order with a price of $0.01
and enter it on the BZX Options Book. Because the order will have a
timestamp based on that time of Book entry, it will have priority
behind any other Limit Orders to sell at $0.01 that were already
resting on the Book. At that point, even if the series is no-bid
because, for example, the last bid just traded and the limit order
trades at $0.01, the next bid entered after the trade would not be
higher than $0.01. If the order has a Time-in-Force of GTC or GTD that
expires on a subsequent day, the order remains on the Book until it
executes, expires, or the User cancels.\9\
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\9\ This functionality is consistent with the purpose of a GTC
or GTD that expires on a subsequent trading day, which is to remain
on the Book and available for execution until the User cancels it or
until the time specified by the User. The Exchange notes that market
orders with any other Time-in-Force would no longer be on the Book
if they did not execute during the trading day.
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However, if the System receives a sell Market Order in a no-bid
series with a minimum increment of $0.01 and the NBO is $1.20 (because,
for example, the last bid of $1.00 just traded and a new bid has not
yet populated the disseminated quote), the System will cancel or reject
the order. Cancellation prevents an anomalous execution price, since
the next bid entered in that series is likely to be much higher than
$0.01. It would be unfair to the User to let is Market Order trade as a
limit order for $0.01 because, for example, the firm submitted the
order during the brief time when there were no disseminated bids in a
series trading significantly higher than the minimum increment.
The Exchange believes the threshold of $0.50 is reasonable. The
Exchange notes that this threshold the same as the threshold in the
Cboe Options rule,\10\ and is less than the current width for the
Market Order NBBO width protection, pursuant to which the System will
reject or cancel back to the User a Market Order submitted to the
System when the NBBO width is greater than 100% of the midpoint of the
NBBO, subject to a $5 minimum and $10 maximum.\11\ Notwithstanding this
provision, the proposed rule change would allow for the potential
execution of sell Market Orders in no-bid series
[[Page 60923]]
with offers less than or equal to $0.50. If the threshold in the
proposed rule change was higher, there would be increased risk of
having a Market Order trade a minimum increment in a series that is not
truly no-bid. The proposed rule change is substantially the same as
Cboe Options Rule 6.13(b)(vi).
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\10\ See Cboe Options Rule 6.13(b)(vi).
\11\ See Rule 21.17(a); see also Exchange Notice, BZX and EDGX
Options Exchanges Feature Pack 2--Update (December 14, 2017),
available at https://markets.cboe.com/resources/release_notes/2017/Update-2-Cboe-BZX-and-EDGX-Options-Exchanges-Feature-Pack-2.pdf, for
current settings. Pursuant to this protection, if the NBBO for a
series was $0.00--$0.50, the width of the NBBO (0.50) is greater
than 100% of the midpoint (0.25); however, pursuant to the minimum,
a market order would be accepted pursuant to this protection because
the width is less than the 5.00 minimum. The proposed rule change
provides additional price protection for market orders in no-bid
series.
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2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Securities Exchange Act of 1934 (the ``Act'') and the rules and
regulations thereunder applicable to the Exchange and, in particular,
the requirements of Section 6(b) of the Act.\12\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \13\ requirements that the rules of an exchange be
designed to prevent fraudulent and manipulative acts and practices, to
promote just and equitable principles of trade, to foster cooperation
and coordination with persons engaged in regulating, clearing,
settling, processing information with respect to, and facilitating
transactions in securities, to remove impediments to and perfect the
mechanism of a free and open market and a national market system, and,
in general, to protect investors and the public interest. Additionally,
the Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \14\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
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\12\ 15 U.S.C. 78f(b).
\13\ 15 U.S.C. 78f(b)(5).
\14\ Id.
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In particular, the Exchange believes the proposed rule change
regarding the handling of sell Market Orders in no-bid series assists
with the maintenance of fair and orderly markets and protects investors
and the public interest, because it provides for automated handling of
orders in series that are likely truly no-bid, ultimately resulting in
more efficient executions of these orders. Additionally, the proposed
rule change prevents executions of sell Market Orders in no-bid series
with higher offers at potentially extreme prices in series that are not
truly no-bid. The Exchange believes this threshold appropriately
reflects the interests of investors, as options in no-bid series with
offers higher than $0.50 are less likely to be worthless than no-bid
series with offers no higher than $0.50, and cancelling the orders will
prevent execution of these orders at unfavorable prices. The Exchange
also believes the $0.50 threshold promotes fair and orderly markets,
because sell Market Orders in no-bid series with offers of $0.50 or
less are likely to be individuals seeking to close out a worthless
position, for which the proposed automatic handling is appropriate. The
proposed change is also substantially the same as Cboe Options Rule
6.13(b)(vi).
The proposed handling of buy Market Orders in no-offer series
benefits investors, because it codifies current order handling and thus
provides investors with more transparency in the Rules with respect to
how the System will handle these orders. The proposed change is also
substantially the same as C2 Rule 6.14(a)(1).
When Cboe Options migrates to the same technology as that of the
Exchange and other Cboe Affiliated Exchanges, Users of the Exchange and
other Cboe Affiliated Exchanges will have access to similar
functionality on all Cboe Affiliated Exchanges and similar language can
be incorporated into the rules of all Cboe Affiliated Exchanges. As
such, the proposed rule change would foster cooperation and
coordination with persons engaged in facilitating transactions in
securities and would remove impediments to and perfect the mechanism of
a free and open market and a national market system.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The Exchange does not
believe the proposed rule changes will impose any burden on intramarket
competition, because it will apply in the same manner to all buy or
sell Market Orders submitted in no-offer or no-bid series,
respectively. Additionally, the proposed rule change has no impact on
sell Market Orders submitted in no-bid series with an offer of more
than $0.50 or on buy Market Orders submitted in no-offer series, which
orders will continue to be handled in the same manner as they are today
(i.e. they will be cancelled or rejected). The Exchange does not
believe the proposed rule change will impose any burden on intermarket
competition, as it will provide sell Market Orders in true no-bid
series with additional execution opportunities (either on the Exchange
or at away markets pursuant to linkage rules) while providing an
additional protection measure for sell Market Orders in no-bid series
that may not be truly no-bid. As noted above, the proposed rule change
has no impact on the handling of all other sell Market Orders in no-bid
series or on buy Market Orders in no-offer series. The Exchange
believes this price protection will allow Members to sell Market Orders
with reduced fear of inadvertent exposure to excessive risk, which will
benefit investors through increased liquidity for the execution of
their orders.
The proposed rule change related to the handling of buy Market
Orders is consistent with current Exchange functionality and will have
no impact on how those orders will handled, and it is substantially the
same as C2 Rule 6.14(a)(1). The proposed rule change related to the
handling of sell Market Orders is substantially the same as Cboe
Options Rule 6.13(b)(vi).\15\
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\15\ The Exchange notes other options exchanges have similar
rules that convert sell market orders in no-bid series to limit
orders with a price of a minimum increment if the offer in the
series is below a certain threshold (the thresholds differ in those
rules). See, e.g., Miami International Securities Exchange, LLC
(``MIAX'') Rule 519(a)(1); and NASDAQ ISE, LLC (``ISE'') Rule
713(b).
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C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received comments on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
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 \16\ and
subparagraph (f)(6) of Rule 19b-4 thereunder.\17\
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\16\ 15 U.S.C. 78s(b)(3)(A)(iii).
\17\ 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) \18\ normally
does not become operative prior to 30 days after the date of the
filing. However, Rule 19b-4(f)(6)(iii) \19\ 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
[[Page 60924]]
Commission to waive the 30-day operative delay so that the proposed
rule change may become effective and operative on November 29, 2018.
The Exchange states that waiver of the operative delay will provide
Users with additional flexibility to manage and display their orders
and provide additional control over their executions on the Exchange as
soon as possible. The Exchange further states that waiver of the
operative delay will allow the Exchange to continue to strive towards a
complete technology integration of the Cboe Affiliated Exchanges, with
gradual roll-outs of new functionality to ensure the stability of the
System. The Exchange notes that the proposed rule change is generally
intended to codify and to add certain system functionality to the
Exchange's System in order to provide a consistent technology offering
for the Cboe Affiliated Exchanges. The Exchange further notes that a
consistent technology offering will simplify the technology
implementation changes and maintenance by Trading Permit Holders of the
Exchange that are also participants on Cboe Affiliated Exchanges. The
Commission believes that waiver of the 30-day operative delay 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 on November 29,
2018.\20\
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\18\ 17 CFR 240.19b-4(f)(6).
\19\ 17 CFR 240.19b-4(f)(6)(iii).
\20\ 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-2018-082 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-2018-082. 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-2018-082 and should be submitted
on or before December 18, 2018.
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\21\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\21\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-25733 Filed 11-26-18; 8:45 am]
BILLING CODE 8011-01-P
