Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice of Filing of a Proposed Rule Change Relating To Adopt Complex Reserve Order Functionality, 60911-60916 [2018-25883]
Download as PDF
<![CDATA[
Federal Register / Vol. 83, No. 228 / Tuesday, November 27, 2018 / Notices
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–
NASDAQ–2018–093 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.
amozie on DSK3GDR082PROD with NOTICES1
All submissions should refer to File
Number SR–NASDAQ–2018–093. 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 the Commission does not
edit personal identifying information
from submissions. You should submit
only information that you wish to make
available publicly. All submissions
should refer to File Number SR–
NASDAQ–2018–093 and should be
submitted on or before December 18,
2018.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.13
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–25740 Filed 11–26–18; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–84642; File No. SR–
CboeEDGX–2018–049]
Self-Regulatory Organizations; Cboe
EDGX Exchange, Inc.; Notice of Filing
of a Proposed Rule Change Relating
To Adopt Complex Reserve Order
Functionality
November 21, 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
8, 2018, Cboe EDGX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘EDGX’’) filed with the
Securities and Exchange Commission
(the ‘‘Commission’’) the proposed rule
change as described in Items I, 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
Cboe EDGX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘EDGX’’) proposes to
adopt Complex Reserve Order
functionality.
(additions are italic; deletions are
[bracketed])
*
*
*
*
*
Rules of Cboe EDGX Exchange, Inc.
*
*
CFR 200.30–3(a)(12).
VerDate Sep<11>2014
17:45 Nov 26, 2018
2 17
Jkt 247001
*
*
Rule 21.20. Complex Orders
(a) No change.
(b) Availability of Types of Complex
Orders. The Exchange will determine
and communicate to Members via
specifications and/or a Regulatory
Circular listing when the complex order
types, among the complex order types
set forth in this Rule, are available for
use on the Exchange. The complex order
types that may be submitted are limit
orders and market orders, and orders
with a Time in Force of GTD, IOC, DAY,
GTC, or OPG as such terms are defined
in Rule 21.1(f).The System also accepts
the following instructions for complex
orders[ will also be accepted by the
Exchange]:
(1)–(3) No change.
(4) (Reserved)
(5) (Reserved)
(6) Complex Reserve Order. A
‘‘Complex Reserve Order’’ is a complex
limit order with both a portion of the
quantity displayed (‘‘Display Quantity’’)
1 15
13 17
*
PO 00000
U.S.C. 78s(b)(1).
CFR 240.19b–4.
Frm 00091
Fmt 4703
Sfmt 4703
60911
and a reserve portion of the quantity
(‘‘Reserve Quantity’’) not displayed.
Both the Display Quantity and Reserve
Quantity of a Complex Reserve Order
are available for potential execution
pursuant to paragraphs (c) and (d)
below. When entering a Complex
Reserve Order, a User must instruct the
Exchange as to the quantity of the
Complex Reserve Order to be initially
displayed by the System (‘‘Max Floor’’).
If the Display Quantity of a Complex
Reserve Order is fully executed, the
System will, in accordance with the
User’s instruction, replenish the Display
Quantity from the Reserve Quantity
using one of the below replenishment
instructions. If the remainder of a
Complex Reserve Order is less than the
replenishment amount, the System will
display the entire remainder of the
Complex Reserve Order. The System
creates a new timestamp for both the
Display Quantity and Reserve Quantity
of the Complex Reserve Order each time
it is replenished from reserve.
(A) Random Replenishment. An
instruction that a User may attach to a
Complex Reserve Order where the
System randomly replenishes the
Display Quantity for the Complex
Reserve Order with a number of
contracts not outside a replenishment
range, which equals the Max Floor plus
and minus a replenishment value
established by the User when entering a
Complex Reserve Order with a Random
Replenishment instruction.
(B) Fixed Replenishment. For any
Complex Reserve Order for which a User
does not select Random Replenishment,
the System will replenish the Display
Quantity of the Complex Reserve Order
with the number of contracts equal to
the Max Floor (or the entire remainder
of the Complex Reserve Order if it is less
than the replenishment amount).
(c) Trading of Complex Orders. The
Exchange will determine and
communicate to Members via
specifications and/or Regulatory
Circular which complex order origin
codes (i.e., non-broker-dealer customers,
broker-dealers that are not Market
Makers on an options exchange, and/or
Market Makers on an options exchange)
are eligible for entry onto the COB.
Complex orders will be subject to all
other Exchange Rules that pertain to
orders submitted to the Exchange
generally, unless otherwise provided in
this Rule.
(1) No change.
(2) Execution of Complex Orders.
(A)–(E) No change.
(F) Legging. Complex orders up to a
maximum number of legs (determined
by the Exchange on a class-by-class
basis as either two, three, or four legs
E:\FR\FM\27NON1.SGM
27NON1
amozie on DSK3GDR082PROD with NOTICES1
60912
Federal Register / Vol. 83, No. 228 / Tuesday, November 27, 2018 / Notices
and communicated to Members via
specifications and/or Regulatory
Circular) may be automatically executed
against bids and offers on the Simple
Book (both displayed and nondisplayed
orders) for the individual legs of the
complex order (‘‘Legging’’), provided
the complex order can be executed in
full or in a permissible ratio by such
bids and offers. Complex orders with
two option legs where both legs are
buying or both legs are selling and both
legs are calls or both legs are puts may
only trade against other complex orders
on the COB and will not be permitted
to leg into the Simple Book.
Notwithstanding the foregoing, all two
leg COA-eligible Customer complex
orders will be allowed to leg into the
Simple Book without restriction.
Complex orders with three or four
option legs where all legs are buying or
all legs are selling may only trade
against other complex orders on the
COB and will not leg into the Simple
Book, regardless of whether the option
leg is a call or a put. The entire quantity
of a Complex Reserve Order (both the
Display Quantity and Reserve Quantity)
Legs into the Simple Book at the same
time, and any quantity that does not
execute pursuant to paragraph (c) or (d)
after Legging will rest in the COB in
accordance with the Complex Reserve
Order instruction.
(G) No change.
(3) Complex Order Priority.
(A) No change.
(B) Complex orders will be
automatically executed against bids and
offers on the COB in price priority. Bids
and offers at the same price on the COB
will be executed in time priority.
Displayed complex orders resting on the
COB have priority over nondisplayed
portions of Complex Reserve Orders
resting on the COB. If there are Priority
Customer Orders in the Simple Book at
the same price as orders resting on the
COB against which an incoming
complex order will execute, the order
will first Leg into the Simple Book to
execute against the Priority Customer
Orders (both displayed and
nondisplayed orders) before executing
against complex orders in the COB.
Complex orders that leg into the Simple
Book (as described in subparagraph
(c)(2)(F) above) will be executed in
accordance with Rule 21.8.
(4)–(6) No change.
(d) COA Process. All option classes
will be eligible to participate in a COA.
Upon evaluation as set forth in
subparagraph (c)(5) above, the Exchange
may determine to automatically submit
a COA-eligible order into a COA.
(1) No change.
VerDate Sep<11>2014
17:45 Nov 26, 2018
Jkt 247001
(2) Commencement of COA. Upon
receipt of a COA-eligible order, the
Exchange will begin the COA process by
sending a COA auction message. The
COA auction message will be sent to all
subscribers to the Exchange’s data feeds
that deliver COA auction messages. The
COA auction message will identify the
COA auction ID, instrument ID (i.e.,
complex strategy), origin code, quantity,
and side of the market of the COAeligible order. If the COA-eligible order
is a Complex Reserve Order, the COA
auction message only identifies the
Display Quantity; however, the entire
quantity (both the Display Quantity and
Reserve Quantity) may execute
following the COA pursuant to
subparagraph (7) below. The Exchange
may also determine to include the price
in COA auction messages and if it does
so it will announce such determination
in published specifications and/or a
Regulatory Circular to Members. The
price included in the COA auction
message will be the limit order price,
unless the COA is initiated by a
complex market order, in which case
such price will be the SBBO, subject to
any applicable price protections.
(3) No change.
(4) COA Response. Members may
submit a response to the COA auction
message (a ‘‘COA Response’’) during the
Response Time Interval. COA Responses
can be submitted by a Member with any
origin code, including Priority
Customer. COA Responses may be
submitted in $0.01 increments and must
specify the price, size, side of the
market (i.e., a response to a buy COA as
a sell or a response to a sell COA as a
buy) and COA auction ID for the COA
to which the response is targeted. COA
Responses may be larger than the COAeligible order. Multiple COA Responses
from the same Member may be
submitted during the Response Time
Interval. COA Responses represent nonfirm interest that can be modified or
withdrawn at any time prior to the end
of the Response Time Interval, though
any modification to a COA Response
other than a decrease of size will result
in a new timestamp and a loss of
priority. COA Responses will not be
displayed by the Exchange. At the end
of the Response Time Interval, COA
Responses are firm (i.e., guaranteed at
their price and size). Any COA
Responses not executed in full will
expire at the end of the COA. Any COA
Responses not executable based on the
price of the COA will be cancelled
immediately.
(5)–(6) No change.
(7) Allocation at the Conclusion of a
COA. Orders executed in a COA will be
PO 00000
Frm 00092
Fmt 4703
Sfmt 4703
allocated first in price priority based on
their original limit price as follows:
(A) Priority Customer Orders (both
displayed and nondisplayed Priority
Customer Orders) resting on the Simple
Book;
(B) COA Responses and unrelated
orders on the COB (displayed complex
orders have priority over nondisplayed
portions of Complex Reserve Orders) in
time priority;
(C) No change.
(8)–(9) No change.
Interpretations and Policies:
.01–.06 No change.
*
*
*
*
*
The text of the proposed rule change
is also available on the Exchange’s
website (https://www.cboe.com/
AboutCBOE/CBOELegal
RegulatoryHome.aspx), at the
Exchange’s Office of the Secretary, and
at the Commission’s Public Reference
Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
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 BZX
Exchange, Inc. (‘‘BZX or BZX 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 the technology
migration of Cboe Options to the same
trading platform as the Exchange. Thus,
the proposed rule change is intended to
E:\FR\FM\27NON1.SGM
27NON1
Federal Register / Vol. 83, No. 228 / Tuesday, November 27, 2018 / Notices
amozie on DSK3GDR082PROD with NOTICES1
add certain functionality to the
Exchange’s System that is currently
offered by Cboe Options 3 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.
Currently, one of the Order Types in
the Rules for simple orders is a Reserve
Order.4 When implemented, simple
Reserve Orders will permit Users to
enter orders with both displayed and
nondisplayed amounts. Reserve Orders
will provide Users with additional
flexibility to manage and display their
orders and additional control over their
executions on the Exchange.
The Exchange proposes to adopt
Complex Reserve Order functionality.5
Complex Reserve Orders would
generally function in the same manner
as simple Reserve Orders, as currently
described in the definition of Reserve
Orders in Rule 21.1(d)(1).6 Specifically,
a ‘‘Complex Reserve Order’’ is a
complex limit order with both a portion
of the quantity displayed (‘‘Display
Quantity’’) and a reserve portion of the
quantity (‘‘Reserve Quantity’’) not
displayed. Both the Display Quantity
and Reserve Quantity of a Complex
Reserve Order are available for
execution pursuant to Rule 21.20(c) and
(d).7 When entering a Complex Reserve
3 Cboe Options currently offers reserve
functionality for complex orders. See Cboe Options
Regulatory Circular RG11–016 (January 27, 2011);
see also Cboe Options Rule 6.53 (which permits
Cboe Options to determine which orders types are
available for which Exchange systems).
4 See Rule 21.1(d)(1). This rule is currently
effective but not yet operative. See SR–CboeEDGX–
2018–051 (November 5, 2018). The Exchange
intends to implement simple Reserve Order
functionality on November 29, 2018.
5 See proposed Rule 21.20(b)(6). The Exchange
recently proposed to amend its Rules to adopt Post
Only complex order functionality. See Securities
Exchange Act Release No. 34–84393 (October 10,
2018), 83 FR 52264 (October 16, 2018) (SR–
CboeEDGX–2018–043). The proposed rule text is
based on the currently effective rule text (the
proposed reserved subparagraphs (b)(4) and 5)
accommodate proposed rule text the Exchange
intends to include in an amendment to that rule
filing). If SR–CboeEDGX–2018–043 is approved by
the Securities and Exchange Commission (the
‘‘Commission’’) prior to the date the Commission
acts on this rule filing, the Exchange will amend
this rule filing to update the proposed rule text to
reflect the rule text as amended by that filing.
6 See supra note 4.
7 Pursuant to Rule 21.20(c) and (d), complex
orders (including the Display and Reserve
Quantities of Complex Reserve Orders) may execute
during the COB opening process, against incoming
complex orders, simple orders in the Simple Book
VerDate Sep<11>2014
17:45 Nov 26, 2018
Jkt 247001
Order, a User must instruct the
Exchange as to the quantity of the
Complex Reserve Order to be initially
displayed by the System (‘‘Max Floor’’).
If the Display Quantity of a Complex
Reserve Order is fully executed, the
System will, in accordance with the
User’s instruction, replenish the Display
Quantity from the Reserve Quantity
using one of the below replenishment
instructions. If the remainder of a
Complex Reserve Order is less than the
replenishment amount, the System will
display the entire remainder of the
Complex Reserve Order. The System
creates a new timestamp for both the
Display Quantity and Reserve Quantity
of the Complex Reserve Order each time
it is replenished from reserve.
A User may determine that a Complex
Reserve Order it submits should be
subject to ‘‘Random Replenishment’’ or
‘‘Fixed Replenishment.’’ If a Complex
Reserve Order has a Random
Replenishment instruction, the System
randomly replenishes the Display
Quantity for the Complex Reserve Order
with a number of contracts not outside
a replenishment range, which equals the
Max Floor plus and minus a
replenishment value established by the
User when entering a Complex Reserve
Order with a Random Replenishment
instruction. For any Complex Reserve
Order for which a User does not select
Random Replenishment, the System
will replenish the Display Quantity of
the Complex Reserve Order with the
number of contracts equal to the Max
Floor (or the entire remainder of the
Complex Reserve Order if it is less than
the replenishment amount).
Current Rule 21.20(d)(2) provides that
upon receipt of a COA-eligible order,8
the Exchange will begin the complex
order auction (‘‘COA’’) process by
sending a COA auction message to all
subscribers to the Exchange’s data feeds
that deliver COA auction messages. A
COA auction message identifies the
COA auction ID, instrument ID (i.e.
complex strategy), origin code, quantity,
and side of the market of the COAeligible order. The proposed rule change
provides that if the COA-eligible order
is a Complex Reserve Order, the COA
auction message only identifies the
Display Quantity; however, the entire
quantity (both the Display Quantity and
Reserve Quantity) may execute
following the COA pursuant to Rule
21.20(d)(7).9 The Exchange believes this
(via Legging), or following a COA (if the complex
order is COA-eligible pursuant to Rule 21.20(b)(2)).
Complex Reserve Orders will be COA-eligible,
subject to a User’s instructions.
8 See Rule 21.20(b)(2) for the definition of a COAeligible order.
9 See proposed Rule 21.20(d)(2).
PO 00000
Frm 00093
Fmt 4703
Sfmt 4703
60913
is consistent with the purpose of a
Reserve Order. If a User submits a
Reserve Order (simple or complex), the
User does so to only have a certain
specified size publicly displayed. If the
entire quantity of a Complex Reserve
Order was auctioned in a COA, the
entire size of the Complex Reserve
Order would be publicly displayed,10
rather than the Display Quantity the
User indicated it wanted publicly
visible. Therefore, the Exchange
believes it is appropriate to include only
the Display Quantity of a Complex
Reserve Order in a COA message.11
Proposed Rule 21.20(c)(2)(F) states the
entire quantity of a Complex Reserve
Order (both the Display Quantity and
Reserve Quantity) will Leg into the
Simple Book at the same time, and any
quantity that does not execute pursuant
to Rule 21.20(c) or (d) after Legging will
rest in the COB in accordance with the
proposed Complex Reserve Order
instruction. As stated in the definition
of a Reserve Order and the proposed
definition of a Complex Reserve Order,
both the Displayed Quantity and
Reserve Quantity are eligible for
execution against incoming orders. The
Exchange believes it is appropriate to
similarly make both the Displayed
Quantity and Reserve Quantity eligible
for execution against orders and quotes
in the Simple Book as well. This will
maximize the size of resting orders and
quotes on the Simple Book that may
execute when these orders Leg into the
Simple Book, as well as provide the
entire quantity of a Complex Reserve
Order with an opportunity to execute
against orders in the Simple Book. A
Complex Reserve Order may Leg into
the Simple Book after a COA, following
submission to the System (if not COAeligible), or following evaluation when
resting in the COB.12 If any portion of
a Complex Reserve Order does not
execute in those circumstances, the
remaining quantity will enter the COB
with a Display Quantity and Reserve
Quantity with amounts determined in
10 See current Rule 21.20(d)(2) (COA auction
messages identify, among other things, the quantity
of the COA-eligible order).
11 Making both the Display Quantity and Reserve
Quantity available for execution at the end of a
COA is consistent with the definition of the Reserve
Order instruction for simple orders, which provides
that both portions are available for potential
execution against incoming orders. See Rule
21.1(d)(1). The proposed rule change provides the
entire quantity of a Complex Reserve Order that
initiates a COA with an opportunity to execute
following a COA.
12 See Rule 21.20(c)(2)(G) (describing the initial
evaluation process), (c)(5) (describing the
evaluation process after a complex order is resting
in the COB), and (d)(5) (describing the processing
of COA-eligible orders).
E:\FR\FM\27NON1.SGM
27NON1
60914
Federal Register / Vol. 83, No. 228 / Tuesday, November 27, 2018 / Notices
accordance with proposed Rule
21.20(b)(6).
The proposed rule change also
amends Rule 21.20(d)(4) to clarify that
COA Responses may be larger than the
COA-eligible order (in response to
which the COA Response is submitted).
Neither the System nor the Rules limit
the size of COA Responses to the size of
the COA-eligible order, and the
Exchange believes this proposed change
will provide Users with additional
clarity. Because COA Responses are not
limited to the size of COA-eligible
orders, if a Complex Reserve Order
initiates a COA, COA Responses with
size larger than the Display Quantity of
the Complex Reserve Order will have
the opportunity to execute against the
entire size of the Complex Reserve
Order.
Processing and execution of Complex
Reserve Orders will generally occur in
the same manner as other complex
orders in accordance with current Rule
21.20(c) and (d). Proposed Rule
21.20(c)(3)(B) and (d)(7)(B) states that
displayed complex orders resting on the
COB have priority over nondisplayed
portions of Complex Reserve Orders
resting on the COB. This is consistent
with the current handling of simple
Reserve Orders.13 The proposed rule
change also clarifies in 21.20(c)(2)(F),
(c)(3)(B), and (d)(7)(A) that both
displayed and nondisplayed Priority
Customer bids and offers on the Simple
Book 14 for the individual leg
components of the complex order trade
before complex orders (both displayed
and nondisplayed orders) resting on the
COB and COA Responses, if applicable,
at the same price when a complex order
Legs into the Simple Book. This is
consistent with current functionality
and current Rules. Specifically, Rule
21.20(c)(3)(B) states that complex orders
that leg into the Simple Book will be
executed in accordance with Rule 21.8,
which provides that resting orders and
quotes are prioritized according to price
13 See
Rule 21.1(d)(1) and supra note 4.
Customer orders on the Simple Book
have first priority pursuant to the Customer
Overlay. See Rule 21.8(d). Because, pursuant to
current Rule 21.20(c)(3)(A), a complex order must
improve the price of the BBO of a component of a
complex strategy by at least $0.01 if it consists of
a Priority Customer Order, if the execution price of
a complex order is the same as the SBBO that
consists of Priority Customer Orders, the order will
first Leg into the Simple Book pursuant to Rule
21.20(c)(2)(F). The proposed rule change to Rule
21.20(c)(3)(A) clarifies this order of priority.
Specifically, the proposed rule change states if there
are Priority Customer Orders in the Simple Book at
the same price as orders resting on the COB against
which an incoming complex order will execute, the
order will first Leg into the Simple Book to execute
against the Priority Customer Orders (both
displayed and nondisplayed orders) before
executing against complex orders in the COB.
amozie on DSK3GDR082PROD with NOTICES1
14 Priority
VerDate Sep<11>2014
17:45 Nov 26, 2018
Jkt 247001
and there [sic] are allocated in a pro-rata
fashion (subject to priority overlays,
such as Priority Customer Overlays and
Entitlements), and that displayed orders
have priority over nondisplayed orders.
Therefore, if a complex order Legs in to
the Simple Book, it would execute
against displayed and then
nondisplayed resting interest in the
Simple Book at the applicable price
before executing against other complex
orders. The proposed rule change adds
clarity to the priority of resting orders
when a complex order Legs into the
Simple Book, as well as describes how
complex reserve orders will be
prioritized.
If a complex order Legs into the
Simple Book, the execution priority of
contra-side interest will be as follows:
• Displayed Priority Customer simple
orders
• Nondisplayed portions of Priority
Customer simple orders
• Displayed complex orders and COA
Responses, if applicable
• Nondisplayed portions of Complex
Reserve Orders
• Displayed non-Priority Customer
simple orders
• Nondisplayed portions of non-Priority
Customer simple orders
The Exchange believes this is
reasonable, as it ensures protection of
the leg markets while ensuring system
stability. This priority order results in
nondisplayed orders on the Simple
Book ahead of displayed complex orders
on the COB. While the Exchange
generally prioritizes displayed orders
over nondisplayed orders to encourage
Users to submit displayed liquidity,
executing complex orders first against
displayed Priority Customer simple
orders, second against displayed
complex orders and COA responses,
third against displayed non-Priority
Customer simple orders, fourth against
nondisplayed portions Priority
Customer simple orders, fifth against
nondisplayed portions of Complex
Reserve Orders, and sixth against
nondisplayed portions of non-Priority
Customer simple orders would
significantly increase the complexity of
the proposed functionality. The Simple
Book and COB are entirely separate
functioning books, and moving a
complex order back and forth between
the two books increases systematic risk
related to Legging. Additionally, this
would increase the execution time for
complex orders that are able to Leg,
which may harm Users. The Exchange
believes the need to ensure system
stability and efficient executions in
connection with offering the proposed
functionality to Users outweighs any
PO 00000
Frm 00094
Fmt 4703
Sfmt 4703
potential benefits of prioritizing all
displayed interest ahead of
nondisplayed interest in this context.
The proposed rule change also makes
a nonsubstantive change to the
introductory sentence to the list of
complex order types in Rule 21.20(b) to
eliminate the use of passive voice in
that sentence.
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.15 Specifically,
the Exchange believes the proposed rule
change is consistent with the Section
6(b)(5) 16 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) 17 requirement that
the rules of an exchange not be designed
to permit unfair discrimination between
customers, issuers, brokers, or dealers.
In particular, the proposed rule
change will remove impediments to and
perfect the mechanism of a free and
open national market system, as well as
benefit investors by providing Users
with additional flexibility to manage
and display their complex orders and
additional control over their executions
on the Exchange. This may encourage
market participants to bring additional
liquidity to the market, which benefits
all investors.
The Exchange notes that Reserve
Order functionality is not new or unique
and is already available in a similar
capacity for simple orders. While the
Reserve Order functionality is not
currently available for complex orders,
the Exchange has Reserve Order
functionality in its Rules for simple
orders, which functions substantially in
the same manner as the proposed
Complex Reserve Order functionality.18
15 15
16 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
17 Id.
18 As noted above, Reserve Order functionality for
simple orders is described in Rules that are
currently effective but not yet operative.
E:\FR\FM\27NON1.SGM
27NON1
amozie on DSK3GDR082PROD with NOTICES1
Federal Register / Vol. 83, No. 228 / Tuesday, November 27, 2018 / Notices
The purpose of a Complex Reserve
Order is the same as the purpose of a
simple Reserve Order.
The proposed rule change to only
include the Displayed Quantity of a
Complex Reserve Order in a COA
message protects investors, as it is
consistent with the purpose of a
Complex Reserve Order and the
intention of a User that submits a
Complex Reserve Order, which is to
only have a certain specified size
publicly displayed. This provides
Complex Reserve Orders with the
potential for price improvement in a
manner consistent with the objective of
a Reserve Order. Therefore, the
Exchange believes it is appropriate to
only include the Display Quantity of a
Complex Reserve Order in a COA
message.
The Exchange believes the proposed
rule change regarding how Complex
Reserve Orders Leg into the Simple
Book will benefit investors. The
proposed rule change is consistent with
the definition of a Reserve Order, which
states that the entire quantity is eligible
for potential execution against incoming
orders, and thus provides the entire
quantity of a Reserve Order with an
opportunity to execute against orders
and quotes in the Simple Book.
Additionally, this will maximize the
size of resting orders and quotes on the
Simple Book that may execute when
Complex Reserve Orders Leg into the
Simple Book. Therefore, the Exchange
believes the proposed rule change may
increase execution opportunities for
both Complex Reserve Orders and
simple orders and quotes resting on the
Simple Book.
The Exchange believes the proposed
rule change related to the priority of
Complex Reserve Orders promotes just
and equitable principles of trade, as it
is consistent with current priority in the
Simple Book that provides displayed
orders have priority over nondisplayed
orders. The proposed rule change that
displayed portions of complex orders
resting on the COB have priority over
nondisplayed portions of Complex
Reserve Orders resting on the COB is
reasonable, because it is consistent with
the current handling of simple Reserve
Orders, as discussed above.
Additionally, the proposed rule change
to clarify that displayed and
nondisplayed Priority Customer orders
and quotes resting on the Simple Book
have priority over all displayed and
nondisplayed orders resting on the COB
when a complex order Legs into the
Simple Book is consistent with current
functionality and current Rules
describing how complex orders Leg into
the Simple Book. This additional clarity
VerDate Sep<11>2014
17:45 Nov 26, 2018
Jkt 247001
regarding the order in which resting
orders and quotes on the Simple Book
will trade when a complex order Legs
into the Simple Book benefits investors,
as it provides more detail regarding the
priority of executions on the Exchange.
The Exchange also believes the
proposed priority ensures system
stability and efficient executions
outweighs [sic]. The Exchange notes it
is not novel for nondisplayed interest to
trade ahead of displayed interest.19
The proposed rule change is generally
intended to add certain system
functionality to the Exchange’s System
in order to provide a consistent
technology offering for the Cboe
Affiliated Exchanges, as Cboe Options
currently offers (and intends to offer
following its migration to the same
technology platform as the Exchange)
complex reserve order functionality. A
consistent technology offering, in turn,
will simplify the technology
implementation, changes, and
maintenance by Users of the Exchange
that are also participants on Cboe
Affiliated Exchanges. The proposed rule
change will provide Users with
additional flexibility to manage and
display their orders and control their
executions on the Exchange. This may
encourage market participants to bring
additional liquidity to the market,
which benefits all investors.
Additionally, this will provide Users
with greater harmonization between the
order handling instructions available
among the Cboe Affiliated Exchanges.
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 believes the proposed rule
change will not burden intramarket
competition because the Reserve Order
instruction on complex orders will be
available to all market participants.
Additionally, use of the Reserve Order
instruction on complex orders is
voluntary. The Exchange also believes
the proposed rule change will not
impose any burden on intermarket
competition because this relates to an
instruction on orders that are submitted
to the Exchange and how the Exchange’s
System will handle and execute them.
Additionally, nothing prevents other
options exchanges that offer complex
orders from adopting a Reserve Order
functionality for complex orders. The
Exchange also believes the proposed
rule change will promote competition,
19 See
PO 00000
supra note 15 [sic].
Frm 00095
Fmt 4703
Sfmt 4703
60915
as Complex Reserve Orders will provide
Users with additional flexibility to
manage and display their complex
orders and additional control over their
executions on the Exchange. This may
encourage market participants to bring
additional liquidity to the market,
which benefits all investors.
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
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period
up to 90 days (i) as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding or (ii) as to which
the Exchange consents, the Commission
will:
A. By order approve or disapprove
such proposed rule change, or
B. institute proceedings to determine
whether the proposed rule change
should be 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 rule-comments@
sec.gov. Please include File Number SR–
CboeEDGX–2018–049 on the subject
line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–CboeEDGX–2018–049. 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
E:\FR\FM\27NON1.SGM
27NON1
60916
Federal Register / Vol. 83, No. 228 / Tuesday, November 27, 2018 / Notices
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549 on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–CboeEDGX–2018–049, and
should be submitted on or before
December 18, 2018.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.20
Brent J. Fields,
Secretary.
[FR Doc. 2018–25883 Filed 11–26–18; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–84643; File No. SR–C2–
2018–022]
Self-Regulatory Organizations; Cboe
C2 Exchange, Inc.; Notice of Filing of
a Proposed Rule Change Relating To
Adopt Complex Reserve Order
Functionality
amozie on DSK3GDR082PROD with NOTICES1
November 21, 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
8, 2018, Cboe C2 Exchange, Inc. (the
‘‘Exchange’’ or ‘‘C2’’) filed with the
Securities and Exchange Commission
(the ‘‘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
20 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
VerDate Sep<11>2014
17:45 Nov 26, 2018
Jkt 247001
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 C2 Exchange, Inc. (the
‘‘Exchange’’ or ‘‘C2’’) proposes to adopt
Complex Reserve Order functionality.
(additions are italic; deletions are
[bracketed])
*
*
*
*
*
Rules of Cboe C2 Exchange, Inc.
*
*
*
*
*
Rule 6.13. Complex Orders
Trading of complex orders is subject
to all other Rules applicable to trading
of orders, unless otherwise provided in
this Rule 6.13.
(a) No change.
(b) Types of Complex Orders. The
Exchange determines which Times-inForce of Day, GTC, GTD, IOC, or OPG
are available for complex orders
(including for eligibility to enter the
COB and initiate a COA). The Exchange
determines which Capacities (i.e., nonbroker-dealer customers, broker-dealers
that are not Market-Makers on an
options exchange, or Market-Makers on
an options exchange) are eligible for
entry onto the COB. Complex orders are
Book Only and may be market or limit
orders. Users may designate complex
orders as Attributable or NonAttributable. The System also accepts
the following instructions for complex
orders:
(1)–(3) No change.
(4) (Reserved)
(5) (Reserved)
(6) Complex Reserve Orders. A
‘‘Complex Reserve Order’’ is a complex
limit order with both a portion of the
quantity displayed (‘‘Display Quantity’’)
and a reserve portion of the quantity
(‘‘Reserve Quantity’’) not displayed.
Both the Display Quantity and Reserve
Quantity of the Complex Reserve Order
are available for potential execution
pursuant to paragraphs (c) through (e)
below. When entering a Complex
Reserve Order, a User must instruct the
Exchange as to the quantity of the
Complex Reserve Order to be initially
displayed by the System (‘‘Max Floor’’).
If the Display Quantity of a Complex
Reserve Order is fully executed, the
System will, in accordance with the
User’s instruction, replenish the Display
Quantity from the Reserve Quantity
using one of the below replenishment
instructions. If the remainder of a
Complex Reserve Order is less than the
replenishment amount, the System will
display the entire remainder of the
Complex Reserve Order. The System
PO 00000
Frm 00096
Fmt 4703
Sfmt 4703
creates a new timestamp for both the
Display Quantity and Reserve Quantity
of the Complex Reserve Order each time
it is replenished from reserve.
(A) Random Replenishment. An
instruction that a User may attach to a
Complex Reserve Order where the
System randomly replenishes the
Display Quantity for the Complex
Reserve Order with a number of
contracts not outside a replenishment
range, which equals the Max Floor plus
and minus a replenishment value
established by the User when entering a
Complex Reserve Order with a Random
Replenishment instruction.
(B) Fixed Replenishment. For any
Complex Reserve Order for which a User
does not select Random Replenishment,
the System will replenish the Display
Quantity of the Complex Reserve Order
with the number of contracts equal to
the Max Floor (or the entire remainder
of the Complex Reserve Order if it is less
than the replenishment amount).
(c) No change.
(d) Complex Order Auctions (COAs).
(1) Commencement of COA. Upon
receipt of a COA-eligible order, the
System initiates the COA process by
sending a COA auction message to all
subscribers to the Exchange’s data feeds
that deliver COA auction messages. A
COA auction message identifies the
COA auction ID, instrument ID (i.e.,
complex strategy), Capacity, quantity,
and side of the market of the COAeligible order. If the COA-eligible order
is a Complex Reserve Order, the COA
auction message only identifies the
Display Quantity; however, the entire
quantity (both the Display Quantity and
Reserve Quantity) may execute
following the COA pursuant to
subparagraph (5) below. The Exchange
may also determine to include the price
in COA auction messages, which will be
the limit order price or the SBO (SBB)
(if initiated by a buy (sell) market
complex order), or the drill-through
price if the order is subject to the drillthrough protection in Rule 6.14(b).
(2)–(3) No change.
(4) COA Responses. The System
accepts a COA Response(s) with any
Capacity in $0.01 increments during the
Response Time Interval.
(A) No change.
(B) COA Responses may be larger
than the COA-eligible order. The System
aggregates the size of COA Responses
submitted at the same price for an EFID,
and caps the size of the aggregated COA
Responses at the size of the COAeligible order (including Display
Quantity and Reserve Quantity if the
COA-eligible order is a Complex Reserve
Order).
(C)–(D) No change.
E:\FR\FM\27NON1.SGM
27NON1
]]>Agencies
[Federal Register Volume 83, Number 228 (Tuesday, November 27, 2018)]
[Notices]
[Pages 60911-60916]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-25883]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-84642; File No. SR-CboeEDGX-2018-049]
Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice
of Filing of a Proposed Rule Change Relating To Adopt Complex Reserve
Order Functionality
November 21, 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 8, 2018, Cboe EDGX Exchange, Inc. (the ``Exchange'' or
``EDGX'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I, 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.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Cboe EDGX Exchange, Inc. (the ``Exchange'' or ``EDGX'') proposes to
adopt Complex Reserve Order functionality.
(additions are italic; deletions are [bracketed])
* * * * *
Rules of Cboe EDGX Exchange, Inc.
* * * * *
Rule 21.20. Complex Orders
(a) No change.
(b) Availability of Types of Complex Orders. The Exchange will
determine and communicate to Members via specifications and/or a
Regulatory Circular listing when the complex order types, among the
complex order types set forth in this Rule, are available for use on
the Exchange. The complex order types that may be submitted are limit
orders and market orders, and orders with a Time in Force of GTD, IOC,
DAY, GTC, or OPG as such terms are defined in Rule 21.1(f).The System
also accepts the following instructions for complex orders[ will also
be accepted by the Exchange]:
(1)-(3) No change.
(4) (Reserved)
(5) (Reserved)
(6) Complex Reserve Order. A ``Complex Reserve Order'' is a complex
limit order with both a portion of the quantity displayed (``Display
Quantity'') and a reserve portion of the quantity (``Reserve
Quantity'') not displayed. Both the Display Quantity and Reserve
Quantity of a Complex Reserve Order are available for potential
execution pursuant to paragraphs (c) and (d) below. When entering a
Complex Reserve Order, a User must instruct the Exchange as to the
quantity of the Complex Reserve Order to be initially displayed by the
System (``Max Floor''). If the Display Quantity of a Complex Reserve
Order is fully executed, the System will, in accordance with the User's
instruction, replenish the Display Quantity from the Reserve Quantity
using one of the below replenishment instructions. If the remainder of
a Complex Reserve Order is less than the replenishment amount, the
System will display the entire remainder of the Complex Reserve Order.
The System creates a new timestamp for both the Display Quantity and
Reserve Quantity of the Complex Reserve Order each time it is
replenished from reserve.
(A) Random Replenishment. An instruction that a User may attach to
a Complex Reserve Order where the System randomly replenishes the
Display Quantity for the Complex Reserve Order with a number of
contracts not outside a replenishment range, which equals the Max Floor
plus and minus a replenishment value established by the User when
entering a Complex Reserve Order with a Random Replenishment
instruction.
(B) Fixed Replenishment. For any Complex Reserve Order for which a
User does not select Random Replenishment, the System will replenish
the Display Quantity of the Complex Reserve Order with the number of
contracts equal to the Max Floor (or the entire remainder of the
Complex Reserve Order if it is less than the replenishment amount).
(c) Trading of Complex Orders. The Exchange will determine and
communicate to Members via specifications and/or Regulatory Circular
which complex order origin codes (i.e., non-broker-dealer customers,
broker-dealers that are not Market Makers on an options exchange, and/
or Market Makers on an options exchange) are eligible for entry onto
the COB. Complex orders will be subject to all other Exchange Rules
that pertain to orders submitted to the Exchange generally, unless
otherwise provided in this Rule.
(1) No change.
(2) Execution of Complex Orders.
(A)-(E) No change.
(F) Legging. Complex orders up to a maximum number of legs
(determined by the Exchange on a class-by-class basis as either two,
three, or four legs
[[Page 60912]]
and communicated to Members via specifications and/or Regulatory
Circular) may be automatically executed against bids and offers on the
Simple Book (both displayed and nondisplayed orders) for the individual
legs of the complex order (``Legging''), provided the complex order can
be executed in full or in a permissible ratio by such bids and offers.
Complex orders with two option legs where both legs are buying or both
legs are selling and both legs are calls or both legs are puts may only
trade against other complex orders on the COB and will not be permitted
to leg into the Simple Book. Notwithstanding the foregoing, all two leg
COA-eligible Customer complex orders will be allowed to leg into the
Simple Book without restriction. Complex orders with three or four
option legs where all legs are buying or all legs are selling may only
trade against other complex orders on the COB and will not leg into the
Simple Book, regardless of whether the option leg is a call or a put.
The entire quantity of a Complex Reserve Order (both the Display
Quantity and Reserve Quantity) Legs into the Simple Book at the same
time, and any quantity that does not execute pursuant to paragraph (c)
or (d) after Legging will rest in the COB in accordance with the
Complex Reserve Order instruction.
(G) No change.
(3) Complex Order Priority.
(A) No change.
(B) Complex orders will be automatically executed against bids and
offers on the COB in price priority. Bids and offers at the same price
on the COB will be executed in time priority. Displayed complex orders
resting on the COB have priority over nondisplayed portions of Complex
Reserve Orders resting on the COB. If there are Priority Customer
Orders in the Simple Book at the same price as orders resting on the
COB against which an incoming complex order will execute, the order
will first Leg into the Simple Book to execute against the Priority
Customer Orders (both displayed and nondisplayed orders) before
executing against complex orders in the COB. Complex orders that leg
into the Simple Book (as described in subparagraph (c)(2)(F) above)
will be executed in accordance with Rule 21.8.
(4)-(6) No change.
(d) COA Process. All option classes will be eligible to participate
in a COA. Upon evaluation as set forth in subparagraph (c)(5) above,
the Exchange may determine to automatically submit a COA-eligible order
into a COA.
(1) No change.
(2) Commencement of COA. Upon receipt of a COA-eligible order, the
Exchange will begin the COA process by sending a COA auction message.
The COA auction message will be sent to all subscribers to the
Exchange's data feeds that deliver COA auction messages. The COA
auction message will identify the COA auction ID, instrument ID (i.e.,
complex strategy), origin code, quantity, and side of the market of the
COA-eligible order. If the COA-eligible order is a Complex Reserve
Order, the COA auction message only identifies the Display Quantity;
however, the entire quantity (both the Display Quantity and Reserve
Quantity) may execute following the COA pursuant to subparagraph (7)
below. The Exchange may also determine to include the price in COA
auction messages and if it does so it will announce such determination
in published specifications and/or a Regulatory Circular to Members.
The price included in the COA auction message will be the limit order
price, unless the COA is initiated by a complex market order, in which
case such price will be the SBBO, subject to any applicable price
protections.
(3) No change.
(4) COA Response. Members may submit a response to the COA auction
message (a ``COA Response'') during the Response Time Interval. COA
Responses can be submitted by a Member with any origin code, including
Priority Customer. COA Responses may be submitted in $0.01 increments
and must specify the price, size, side of the market (i.e., a response
to a buy COA as a sell or a response to a sell COA as a buy) and COA
auction ID for the COA to which the response is targeted. COA Responses
may be larger than the COA-eligible order. Multiple COA Responses from
the same Member may be submitted during the Response Time Interval. COA
Responses represent non-firm interest that can be modified or withdrawn
at any time prior to the end of the Response Time Interval, though any
modification to a COA Response other than a decrease of size will
result in a new timestamp and a loss of priority. COA Responses will
not be displayed by the Exchange. At the end of the Response Time
Interval, COA Responses are firm (i.e., guaranteed at their price and
size). Any COA Responses not executed in full will expire at the end of
the COA. Any COA Responses not executable based on the price of the COA
will be cancelled immediately.
(5)-(6) No change.
(7) Allocation at the Conclusion of a COA. Orders executed in a COA
will be allocated first in price priority based on their original limit
price as follows:
(A) Priority Customer Orders (both displayed and nondisplayed
Priority Customer Orders) resting on the Simple Book;
(B) COA Responses and unrelated orders on the COB (displayed
complex orders have priority over nondisplayed portions of Complex
Reserve Orders) in time priority;
(C) No change.
(8)-(9) No change.
Interpretations and Policies:
.01-.06 No change.
* * * * *
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.
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 BZX Exchange, Inc. (``BZX or BZX 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 the technology migration of Cboe Options to the same trading
platform as the Exchange. Thus, the proposed rule change is intended to
[[Page 60913]]
add certain functionality to the Exchange's System that is currently
offered by Cboe Options \3\ 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.
---------------------------------------------------------------------------
\3\ Cboe Options currently offers reserve functionality for
complex orders. See Cboe Options Regulatory Circular RG11-016
(January 27, 2011); see also Cboe Options Rule 6.53 (which permits
Cboe Options to determine which orders types are available for which
Exchange systems).
---------------------------------------------------------------------------
Currently, one of the Order Types in the Rules for simple orders is
a Reserve Order.\4\ When implemented, simple Reserve Orders will permit
Users to enter orders with both displayed and nondisplayed amounts.
Reserve Orders will provide Users with additional flexibility to manage
and display their orders and additional control over their executions
on the Exchange.
---------------------------------------------------------------------------
\4\ See Rule 21.1(d)(1). This rule is currently effective but
not yet operative. See SR-CboeEDGX-2018-051 (November 5, 2018). The
Exchange intends to implement simple Reserve Order functionality on
November 29, 2018.
---------------------------------------------------------------------------
The Exchange proposes to adopt Complex Reserve Order
functionality.\5\ Complex Reserve Orders would generally function in
the same manner as simple Reserve Orders, as currently described in the
definition of Reserve Orders in Rule 21.1(d)(1).\6\ Specifically, a
``Complex Reserve Order'' is a complex limit order with both a portion
of the quantity displayed (``Display Quantity'') and a reserve portion
of the quantity (``Reserve Quantity'') not displayed. Both the Display
Quantity and Reserve Quantity of a Complex Reserve Order are available
for execution pursuant to Rule 21.20(c) and (d).\7\ When entering a
Complex Reserve Order, a User must instruct the Exchange as to the
quantity of the Complex Reserve Order to be initially displayed by the
System (``Max Floor''). If the Display Quantity of a Complex Reserve
Order is fully executed, the System will, in accordance with the User's
instruction, replenish the Display Quantity from the Reserve Quantity
using one of the below replenishment instructions. If the remainder of
a Complex Reserve Order is less than the replenishment amount, the
System will display the entire remainder of the Complex Reserve Order.
The System creates a new timestamp for both the Display Quantity and
Reserve Quantity of the Complex Reserve Order each time it is
replenished from reserve.
---------------------------------------------------------------------------
\5\ See proposed Rule 21.20(b)(6). The Exchange recently
proposed to amend its Rules to adopt Post Only complex order
functionality. See Securities Exchange Act Release No. 34-84393
(October 10, 2018), 83 FR 52264 (October 16, 2018) (SR-CboeEDGX-
2018-043). The proposed rule text is based on the currently
effective rule text (the proposed reserved subparagraphs (b)(4) and
5) accommodate proposed rule text the Exchange intends to include in
an amendment to that rule filing). If SR-CboeEDGX-2018-043 is
approved by the Securities and Exchange Commission (the
``Commission'') prior to the date the Commission acts on this rule
filing, the Exchange will amend this rule filing to update the
proposed rule text to reflect the rule text as amended by that
filing.
\6\ See supra note 4.
\7\ Pursuant to Rule 21.20(c) and (d), complex orders (including
the Display and Reserve Quantities of Complex Reserve Orders) may
execute during the COB opening process, against incoming complex
orders, simple orders in the Simple Book (via Legging), or following
a COA (if the complex order is COA-eligible pursuant to Rule
21.20(b)(2)). Complex Reserve Orders will be COA-eligible, subject
to a User's instructions.
---------------------------------------------------------------------------
A User may determine that a Complex Reserve Order it submits should
be subject to ``Random Replenishment'' or ``Fixed Replenishment.'' If a
Complex Reserve Order has a Random Replenishment instruction, the
System randomly replenishes the Display Quantity for the Complex
Reserve Order with a number of contracts not outside a replenishment
range, which equals the Max Floor plus and minus a replenishment value
established by the User when entering a Complex Reserve Order with a
Random Replenishment instruction. For any Complex Reserve Order for
which a User does not select Random Replenishment, the System will
replenish the Display Quantity of the Complex Reserve Order with the
number of contracts equal to the Max Floor (or the entire remainder of
the Complex Reserve Order if it is less than the replenishment amount).
Current Rule 21.20(d)(2) provides that upon receipt of a COA-
eligible order,\8\ the Exchange will begin the complex order auction
(``COA'') process by sending a COA auction message to all subscribers
to the Exchange's data feeds that deliver COA auction messages. A COA
auction message identifies the COA auction ID, instrument ID (i.e.
complex strategy), origin code, quantity, and side of the market of the
COA-eligible order. The proposed rule change provides that if the COA-
eligible order is a Complex Reserve Order, the COA auction message only
identifies the Display Quantity; however, the entire quantity (both the
Display Quantity and Reserve Quantity) may execute following the COA
pursuant to Rule 21.20(d)(7).\9\ The Exchange believes this is
consistent with the purpose of a Reserve Order. If a User submits a
Reserve Order (simple or complex), the User does so to only have a
certain specified size publicly displayed. If the entire quantity of a
Complex Reserve Order was auctioned in a COA, the entire size of the
Complex Reserve Order would be publicly displayed,\10\ rather than the
Display Quantity the User indicated it wanted publicly visible.
Therefore, the Exchange believes it is appropriate to include only the
Display Quantity of a Complex Reserve Order in a COA message.\11\
---------------------------------------------------------------------------
\8\ See Rule 21.20(b)(2) for the definition of a COA-eligible
order.
\9\ See proposed Rule 21.20(d)(2).
\10\ See current Rule 21.20(d)(2) (COA auction messages
identify, among other things, the quantity of the COA-eligible
order).
\11\ Making both the Display Quantity and Reserve Quantity
available for execution at the end of a COA is consistent with the
definition of the Reserve Order instruction for simple orders, which
provides that both portions are available for potential execution
against incoming orders. See Rule 21.1(d)(1). The proposed rule
change provides the entire quantity of a Complex Reserve Order that
initiates a COA with an opportunity to execute following a COA.
---------------------------------------------------------------------------
Proposed Rule 21.20(c)(2)(F) states the entire quantity of a
Complex Reserve Order (both the Display Quantity and Reserve Quantity)
will Leg into the Simple Book at the same time, and any quantity that
does not execute pursuant to Rule 21.20(c) or (d) after Legging will
rest in the COB in accordance with the proposed Complex Reserve Order
instruction. As stated in the definition of a Reserve Order and the
proposed definition of a Complex Reserve Order, both the Displayed
Quantity and Reserve Quantity are eligible for execution against
incoming orders. The Exchange believes it is appropriate to similarly
make both the Displayed Quantity and Reserve Quantity eligible for
execution against orders and quotes in the Simple Book as well. This
will maximize the size of resting orders and quotes on the Simple Book
that may execute when these orders Leg into the Simple Book, as well as
provide the entire quantity of a Complex Reserve Order with an
opportunity to execute against orders in the Simple Book. A Complex
Reserve Order may Leg into the Simple Book after a COA, following
submission to the System (if not COA-eligible), or following evaluation
when resting in the COB.\12\ If any portion of a Complex Reserve Order
does not execute in those circumstances, the remaining quantity will
enter the COB with a Display Quantity and Reserve Quantity with amounts
determined in
[[Page 60914]]
accordance with proposed Rule 21.20(b)(6).
---------------------------------------------------------------------------
\12\ See Rule 21.20(c)(2)(G) (describing the initial evaluation
process), (c)(5) (describing the evaluation process after a complex
order is resting in the COB), and (d)(5) (describing the processing
of COA-eligible orders).
---------------------------------------------------------------------------
The proposed rule change also amends Rule 21.20(d)(4) to clarify
that COA Responses may be larger than the COA-eligible order (in
response to which the COA Response is submitted). Neither the System
nor the Rules limit the size of COA Responses to the size of the COA-
eligible order, and the Exchange believes this proposed change will
provide Users with additional clarity. Because COA Responses are not
limited to the size of COA-eligible orders, if a Complex Reserve Order
initiates a COA, COA Responses with size larger than the Display
Quantity of the Complex Reserve Order will have the opportunity to
execute against the entire size of the Complex Reserve Order.
Processing and execution of Complex Reserve Orders will generally
occur in the same manner as other complex orders in accordance with
current Rule 21.20(c) and (d). Proposed Rule 21.20(c)(3)(B) and
(d)(7)(B) states that displayed complex orders resting on the COB have
priority over nondisplayed portions of Complex Reserve Orders resting
on the COB. This is consistent with the current handling of simple
Reserve Orders.\13\ The proposed rule change also clarifies in
21.20(c)(2)(F), (c)(3)(B), and (d)(7)(A) that both displayed and
nondisplayed Priority Customer bids and offers on the Simple Book \14\
for the individual leg components of the complex order trade before
complex orders (both displayed and nondisplayed orders) resting on the
COB and COA Responses, if applicable, at the same price when a complex
order Legs into the Simple Book. This is consistent with current
functionality and current Rules. Specifically, Rule 21.20(c)(3)(B)
states that complex orders that leg into the Simple Book will be
executed in accordance with Rule 21.8, which provides that resting
orders and quotes are prioritized according to price and there [sic]
are allocated in a pro-rata fashion (subject to priority overlays, such
as Priority Customer Overlays and Entitlements), and that displayed
orders have priority over nondisplayed orders. Therefore, if a complex
order Legs in to the Simple Book, it would execute against displayed
and then nondisplayed resting interest in the Simple Book at the
applicable price before executing against other complex orders. The
proposed rule change adds clarity to the priority of resting orders
when a complex order Legs into the Simple Book, as well as describes
how complex reserve orders will be prioritized.
---------------------------------------------------------------------------
\13\ See Rule 21.1(d)(1) and supra note 4.
\14\ Priority Customer orders on the Simple Book have first
priority pursuant to the Customer Overlay. See Rule 21.8(d).
Because, pursuant to current Rule 21.20(c)(3)(A), a complex order
must improve the price of the BBO of a component of a complex
strategy by at least $0.01 if it consists of a Priority Customer
Order, if the execution price of a complex order is the same as the
SBBO that consists of Priority Customer Orders, the order will first
Leg into the Simple Book pursuant to Rule 21.20(c)(2)(F). The
proposed rule change to Rule 21.20(c)(3)(A) clarifies this order of
priority. Specifically, the proposed rule change states if there are
Priority Customer Orders in the Simple Book at the same price as
orders resting on the COB against which an incoming complex order
will execute, the order will first Leg into the Simple Book to
execute against the Priority Customer Orders (both displayed and
nondisplayed orders) before executing against complex orders in the
COB.
---------------------------------------------------------------------------
If a complex order Legs into the Simple Book, the execution
priority of contra-side interest will be as follows:
Displayed Priority Customer simple orders
Nondisplayed portions of Priority Customer simple orders
Displayed complex orders and COA Responses, if applicable
Nondisplayed portions of Complex Reserve Orders
Displayed non-Priority Customer simple orders
Nondisplayed portions of non-Priority Customer simple orders
The Exchange believes this is reasonable, as it ensures protection of
the leg markets while ensuring system stability. This priority order
results in nondisplayed orders on the Simple Book ahead of displayed
complex orders on the COB. While the Exchange generally prioritizes
displayed orders over nondisplayed orders to encourage Users to submit
displayed liquidity, executing complex orders first against displayed
Priority Customer simple orders, second against displayed complex
orders and COA responses, third against displayed non-Priority Customer
simple orders, fourth against nondisplayed portions Priority Customer
simple orders, fifth against nondisplayed portions of Complex Reserve
Orders, and sixth against nondisplayed portions of non-Priority
Customer simple orders would significantly increase the complexity of
the proposed functionality. The Simple Book and COB are entirely
separate functioning books, and moving a complex order back and forth
between the two books increases systematic risk related to Legging.
Additionally, this would increase the execution time for complex orders
that are able to Leg, which may harm Users. The Exchange believes the
need to ensure system stability and efficient executions in connection
with offering the proposed functionality to Users outweighs any
potential benefits of prioritizing all displayed interest ahead of
nondisplayed interest in this context.
The proposed rule change also makes a nonsubstantive change to the
introductory sentence to the list of complex order types in Rule
21.20(b) to eliminate the use of passive voice in that sentence.
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.\15\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \16\ 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) \17\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
---------------------------------------------------------------------------
\15\ 15 U.S.C. 78f(b).
\16\ 15 U.S.C. 78f(b)(5).
\17\ Id.
---------------------------------------------------------------------------
In particular, the proposed rule change will remove impediments to
and perfect the mechanism of a free and open national market system, as
well as benefit investors by providing Users with additional
flexibility to manage and display their complex orders and additional
control over their executions on the Exchange. This may encourage
market participants to bring additional liquidity to the market, which
benefits all investors.
The Exchange notes that Reserve Order functionality is not new or
unique and is already available in a similar capacity for simple
orders. While the Reserve Order functionality is not currently
available for complex orders, the Exchange has Reserve Order
functionality in its Rules for simple orders, which functions
substantially in the same manner as the proposed Complex Reserve Order
functionality.\18\
[[Page 60915]]
The purpose of a Complex Reserve Order is the same as the purpose of a
simple Reserve Order.
---------------------------------------------------------------------------
\18\ As noted above, Reserve Order functionality for simple
orders is described in Rules that are currently effective but not
yet operative.
---------------------------------------------------------------------------
The proposed rule change to only include the Displayed Quantity of
a Complex Reserve Order in a COA message protects investors, as it is
consistent with the purpose of a Complex Reserve Order and the
intention of a User that submits a Complex Reserve Order, which is to
only have a certain specified size publicly displayed. This provides
Complex Reserve Orders with the potential for price improvement in a
manner consistent with the objective of a Reserve Order. Therefore, the
Exchange believes it is appropriate to only include the Display
Quantity of a Complex Reserve Order in a COA message.
The Exchange believes the proposed rule change regarding how
Complex Reserve Orders Leg into the Simple Book will benefit investors.
The proposed rule change is consistent with the definition of a Reserve
Order, which states that the entire quantity is eligible for potential
execution against incoming orders, and thus provides the entire
quantity of a Reserve Order with an opportunity to execute against
orders and quotes in the Simple Book. Additionally, this will maximize
the size of resting orders and quotes on the Simple Book that may
execute when Complex Reserve Orders Leg into the Simple Book.
Therefore, the Exchange believes the proposed rule change may increase
execution opportunities for both Complex Reserve Orders and simple
orders and quotes resting on the Simple Book.
The Exchange believes the proposed rule change related to the
priority of Complex Reserve Orders promotes just and equitable
principles of trade, as it is consistent with current priority in the
Simple Book that provides displayed orders have priority over
nondisplayed orders. The proposed rule change that displayed portions
of complex orders resting on the COB have priority over nondisplayed
portions of Complex Reserve Orders resting on the COB is reasonable,
because it is consistent with the current handling of simple Reserve
Orders, as discussed above. Additionally, the proposed rule change to
clarify that displayed and nondisplayed Priority Customer orders and
quotes resting on the Simple Book have priority over all displayed and
nondisplayed orders resting on the COB when a complex order Legs into
the Simple Book is consistent with current functionality and current
Rules describing how complex orders Leg into the Simple Book. This
additional clarity regarding the order in which resting orders and
quotes on the Simple Book will trade when a complex order Legs into the
Simple Book benefits investors, as it provides more detail regarding
the priority of executions on the Exchange. The Exchange also believes
the proposed priority ensures system stability and efficient executions
outweighs [sic]. The Exchange notes it is not novel for nondisplayed
interest to trade ahead of displayed interest.\19\
---------------------------------------------------------------------------
\19\ See supra note 15 [sic].
---------------------------------------------------------------------------
The proposed rule change is generally intended to add certain
system functionality to the Exchange's System in order to provide a
consistent technology offering for the Cboe Affiliated Exchanges, as
Cboe Options currently offers (and intends to offer following its
migration to the same technology platform as the Exchange) complex
reserve order functionality. A consistent technology offering, in turn,
will simplify the technology implementation, changes, and maintenance
by Users of the Exchange that are also participants on Cboe Affiliated
Exchanges. The proposed rule change will provide Users with additional
flexibility to manage and display their orders and control their
executions on the Exchange. This may encourage market participants to
bring additional liquidity to the market, which benefits all investors.
Additionally, this will provide Users with greater harmonization
between the order handling instructions available among the Cboe
Affiliated Exchanges.
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 believes the
proposed rule change will not burden intramarket competition because
the Reserve Order instruction on complex orders will be available to
all market participants. Additionally, use of the Reserve Order
instruction on complex orders is voluntary. The Exchange also believes
the proposed rule change will not impose any burden on intermarket
competition because this relates to an instruction on orders that are
submitted to the Exchange and how the Exchange's System will handle and
execute them. Additionally, nothing prevents other options exchanges
that offer complex orders from adopting a Reserve Order functionality
for complex orders. The Exchange also believes the proposed rule change
will promote competition, as Complex Reserve Orders will provide Users
with additional flexibility to manage and display their complex orders
and additional control over their executions on the Exchange. This may
encourage market participants to bring additional liquidity to the
market, which benefits all investors.
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
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the Exchange consents, the Commission will:
A. By order approve or disapprove such proposed rule change, or
B. institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-CboeEDGX-2018-049 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-CboeEDGX-2018-049. 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
[[Page 60916]]
amendments, all written statements with respect to the proposed rule
change that are filed with the Commission, and all written
communications relating to the proposed rule change between the
Commission and any person, other than those that may be withheld from
the public in accordance with the provisions of 5 U.S.C. 552, will be
available for website viewing and printing in the Commission's Public
Reference Room, 100 F Street NE, Washington, DC 20549 on official
business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of
the filing also will be available for inspection and copying at the
principal office of the Exchange. All comments received will be posted
without change. Persons submitting comments are cautioned that we do
not redact or edit personal identifying information from comment
submissions. You should submit only information that you wish to make
available publicly. All submissions should refer to File Number SR-
CboeEDGX-2018-049, and should be submitted on or before December 18,
2018.
---------------------------------------------------------------------------
\20\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\20\
Brent J. Fields,
Secretary.
[FR Doc. 2018-25883 Filed 11-26-18; 8:45 am]
BILLING CODE 8011-01-P
