Self-Regulatory Organizations; Cboe EDGA Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating To Eliminate the Liquidity Swap Component of the Discretionary Range Instruction, 62933-62936 [2018-26399]
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Federal Register / Vol. 83, No. 234 / Thursday, December 6, 2018 / Notices
Filing Date: The application was filed
on October 29, 2018.
Applicant’s Address: c/o Morgan
Stanley Investment Management Inc.,
522 Fifth Avenue, New York, New York
10036.
(202) 551–6821; SEC, Division of
Investment Management, Chief
Counsel’s Office, 100 F Street NE,
Washington, DC 20549–8010.
Active Assets Prime Trust [File No.
811–09713]
Summary: Applicant seeks an order
declaring that it has ceased to be an
investment company. On January 31,
2018, applicant made liquidating
distributions to its shareholders based
on net asset value. Expenses of $13,717
incurred in connection with the
liquidation were paid by the applicant.
Filing Date: The application was filed
on October 29, 2018.
Applicant’s Address: c/o Morgan
Stanley Investment Management Inc.,
522 Fifth Avenue, New York, New York
10036.
TCW Alternative Funds [File No. 811–
23025]
Summary: Applicant seeks an order
declaring that it has ceased to be an
investment company. On October 5,
2018, applicant made liquidating
distributions to its shareholders based
on net asset value. Expenses of $45,000
incurred in connection with the
liquidation were paid by the applicant’s
investment adviser.
Filing Dates: The application was
filed on October 30, 2018, and amended
on November 20, 2018.
Applicant’s Address: 865 South
Figueroa Street, Suite 1800, Los
Angeles, California 90017.
Thai Fund, Inc. [File No. 811–05348]
Summary: Applicant, a closed-end
investment company, seeks an order
declaring that it has ceased to be an
investment company. On January 26,
2018, applicant made liquidating
distributions to its shareholders based
on net asset value. Expenses of $55,300
incurred in connection with the
liquidation were paid by the applicant.
Filing Dates: The application was
filed on October 29, 2018, and amended
on November 20, 2018.
Applicant’s Address: c/o Morgan
Stanley Investment Management Inc.,
522 Fifth Avenue, New York, New York
10036.
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Turkish Investment Fund, Inc. [File No.
811–05921]
Summary: Applicant, a closed-end
investment company, seeks an order
declaring that it has ceased to be an
investment company. On December 29,
2017, applicant made liquidating
distributions to its shareholders based
on net asset value. Expenses of $93,000
incurred in connection with the
liquidation were paid by the applicant.
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20:35 Dec 04, 2018
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Van Eck Emerging Markets Multi-Asset
Income Fund [File No. 811–22854]
Summary: Applicant, a closed-end
investment company, seeks an order
declaring that it has ceased to be an
investment company. Applicant has
never made a public offering of its
securities and does not propose to make
a public offering or engage in business
of any kind.
Filing Dates: The application was
filed on October 26, 2018, and amended
on November 19, 2018.
Applicant’s Address: 666 Third
Avenue, 9th Floor, New York, New York
10017.
Van Eck Coastland Online Consumer
Finance Fund [File No. 811–23224]
Summary: Applicant, a closed-end
investment company, seeks an order
declaring that it has ceased to be an
investment company. Applicant has
never made a public offering of its
securities and does not propose to make
a public offering or engage in business
of any kind.
Filing Dates: The application was
filed on November 1, 2018, and
amended on November 19, 2018.
Applicant’s Address: 666 Third
Avenue, 9th Floor, New York, New York
10017.
For the Commission, by the Division of
Investment Management, pursuant to
delegated authority.
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–26487 Filed 12–4–18; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–84683; File No. SR–
CboeEDGA–2018–019]
Self-Regulatory Organizations; Cboe
EDGA Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of a
Proposed Rule Change Relating To
Eliminate the Liquidity Swap
Component of the Discretionary Range
Instruction
November 29, 2018.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
1 15
2 17
PO 00000
U.S.C. 78s(b)(1).
CFR 240.19b–4.
Frm 00101
Fmt 4703
notice is hereby given that on November
23, 2018, Cboe EDGA Exchange, Inc.
(the ‘‘Exchange’’ or ‘‘EDGA’’) filed with
the Securities and Exchange
Commission (the ‘‘Commission’’) the
proposed rule change as described in
Items I and II, which Items have been
prepared by the Exchange. The
Exchange filed the proposal as a ‘‘noncontroversial’’ 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.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Cboe EDGA Exchange, Inc. (‘‘EDGA’’
or the ‘‘Exchange’’) is filing with the
Securities and Exchange Commission
(the ‘‘Commission’’) a proposed rule
change to eliminate the liquidity swap
component of the Discretionary Range
instruction in connection with the
recent introduction of a ‘‘high inverted’’
fee model.
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
The purpose of the proposed rule
change is to eliminate the liquidity
swap component of the Discretionary
Range instruction in connection with
the introduction of a ‘‘high inverted’’ fee
model, as discussed in more detail
3 15
4 17
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62933
E:\FR\FM\06DEN1.SGM
U.S.C. 78s(b)(3)(A)(iii).
CFR 240.19b–4(f)(6).
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Federal Register / Vol. 83, No. 234 / Thursday, December 6, 2018 / Notices
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below.5 All other functionality offered
by the Discretionary Range instruction
would remain unchanged.
Discretionary Range is an instruction
the User 6 may attach to an order to buy
(sell) a stated amount of a security at a
specified, displayed or non-displayed
ranked price with discretion to execute
up (down) to another specified, nondisplayed price.7 Because the
Discretionary Range instruction
indicates a willingness by the entering
User to trade at prices more aggressive
than the order’s ranked price, orders
entered with this instruction also
liquidity swap with certain incoming
orders. Specifically, Rule 11.6(d)
provides that a resting order with a
Discretionary Range instruction would
remove liquidity against: (1) An
incoming Post Only order at its
displayed or non-displayed ranked price
that does not remove liquidity on entry
pursuant to Rule 11.6(n)(4), and (2) an
incoming order with a time-in-force
(‘‘TIF’’) other than Immediate-or-Cancel
(‘‘IOC’’) or Fill-or-Kill (‘‘FOK’’) that is
priced within its discretionary range.
All other orders follow normal handling
for the execution of an incoming order
and remove liquidity when trading with
a resting order with a Discretionary
Range instruction.8
The Exchange proposes that a resting
order with a Discretionary Range
instruction would no longer perform a
liquidity swap against any incoming
orders, such that the incoming order
would always act as the taker of
liquidity, and the resting order with a
Discretionary Range instruction would
act as the maker of liquidity. As
incoming Post Only orders always
remove liquidity on entry in an inverted
market where it is economically
beneficial to remove liquidity,9 this
change would chiefly impact the
execution of Discretionary Range orders
against incoming orders with a TIF
5 A liquidity swap occurs when a resting order
that is posted to the EDGA Book becomes the
remover rather than the adder of liquidity for fee
purposes.
6 The term ‘‘User’’ means any Member or
Sponsored Participant who is authorized to obtain
access to the System pursuant to Rule 11.3. See
Rule 1.5(ee).
7 See Rule 11.6(d). An order with a Discretionary
Range instruction resting on the EDGA Book will
execute at its least aggressive price when matched
for execution against an incoming order that also
contains a Discretionary Range instruction, as
permitted by the terms of both the incoming and
resting order. Id.
8 For example, an incoming order that executes at
the ranked price of the Discretionary Range order,
or an IOC or FOK order that executes at a price
within the discretionary range would execute as the
liquidity remover. Id.
9 See Rule 11.6(n)(4).
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other than IOC or FOK priced within the
discretionary range.
EDGA has operated with an
‘‘inverted’’ fee schedule whereby orders
that remove liquidity are provided a
rebate and orders that add liquidity pay
a fee.10 On November 1, 2018, the
Exchange filed an immediately effective
change to its fee schedule to introduce
a ‘‘high inverted’’ market model that
increased both the rebate provided to
orders that remove liquidity and the fee
paid by orders that add liquidity.11 With
the recent changes to the fee schedule,
an order that removes liquidity is
provided a base rebate of $0.0024 per
share, and an order that adds liquidity
pays a base fee of $0.0030 per share.12
Under the current order handling, an
order that executes immediately on
entry, which would ordinarily be paid
a rebate of $0.0024 per share based on
the new high inverted fee structure,
could instead end up adding liquidity
and paying a fee of up to $0.0030 per
share—i.e., a swing of $0.0054 per
share—if the incoming order liquidity
swaps when trading with a posted order
that contains a Discretionary Range
instruction. For example, assume the
national best bid and offer is $10.00 ×
$10.05, and there is an order to buy on
the EDGA Book priced at $10.00 with
discretion to pay up to $10.03. If the
Exchange were to receive an incoming
Day order to sell at $10.02, the incoming
order would be posted to the EDGA
Book and then trade with the
Discretionary Range order at $10.02 as
the adder of liquidity, paying a fee of
$0.0030 per share instead of receiving
the expected rebate of $0.0024 per
share.
Although likely to be a rare
occurrence, the Exchange believes that
paying a $0.0030 per share fee in this
scenario may be contrary to the
expectations of Users that enter an order
that trades on entry, who may instead
expect to receive a $0.0024 per share
rebate for sending marketable order flow
to EDGA. The Exchange therefore
proposes to eliminate the liquidity swap
component of the Discretionary Range
instruction. As proposed, an order
entered with a Discretionary Range
instruction would never perform a
liquidity swap with an incoming order.
Since an order entered with a
Discretionary Range instruction would
not liquidity swap with an incoming
10 See Cboe EDGA U.S. Equities Exchange Fee
Schedule.
11 See Securities Exchange Act Release No. 84599
(November 15, 2018), 83 FR 58795 (November 21,
2018) (SR–CboeEDGA–2018–017).
12 Members also have the opportunity to qualify
for a lower fee or higher rebate based on volume
executed on EDGA.
PO 00000
Frm 00102
Fmt 4703
Sfmt 4703
order under any circumstances, the
Exchange proposes to reflect this change
by providing that any contra-side order
that executes against a resting order
with a Discretionary Range instruction
at its displayed or non-displayed ranked
price, or a price in the discretionary
range, will remove liquidity against the
order with a Discretionary Range
instruction.
In addition, the Exchange proposes to
describe in Rule 11.6(d) how the
Exchange would handle orders entered
with a Discretionary Range instruction
in the event that it changes its fees such
that an incoming order with a Post Only
instruction does not always remove
liquidity on entry. As previously
discussed, the Exchange is amending
the Discretionary Range instruction
such that orders entered with a
Discretionary Range instruction would
not liquidity swap with incoming
orders, including orders entered with a
Post Only instruction. Instead, the
Exchange proposes that where an
incoming order with a Post Only
instruction does not remove liquidity on
entry pursuant to Rule 11.6(n)(4) against
a resting order with a Discretionary
Range instruction, the discretionary
range of the resting order with a
Discretionary Range instruction would
be shortened to equal the limit price of
the incoming contra-side order with a
Post Only instruction. While under an
inverted fee schedule incoming orders
with a Post Only instruction remove
liquidity on entry, this language would
be relevant if the Exchange were to
move to a different market model (e.g.,
maker/taker). In such an event, the
Discretionary Range instruction would
behave in a manner similar to recently
adopted MidPoint Discretionary Orders
(‘‘MDO’’) on its affiliate Cboe EDGX
Exchange, Inc. (‘‘EDGX’’).13 Like the
proposed handling for EDGA orders
entered with a Discretionary Range
instruction, MDOs on EDGX are not
willing to perform a liquidity swap, and
would instead have their discretionary
range shortened if an order with a Post
Only instruction were to be posted
within the discretionary range.
2. Statutory Basis
The Exchange believes the proposed
rule change is consistent with the
requirements of Section 6(b) of the
Act,14 in general, and Section 6(b)(5) of
13 See Securities Exchange Act Release No. 84327
(October 1, 2018), 83 FR 50416 (October 5, 2018)
(SR–CboeEDGX–2018–041). The Exchange also
offers MDOs on EDGA that follow the handling
described in this filing for orders entered with a
Discretionary Range instruction. See Rule 11.8(e).
14 15 U.S.C. 78f(b).
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Federal Register / Vol. 83, No. 234 / Thursday, December 6, 2018 / Notices
the Act,15 in particular, in that it is
designed to remove impediments to and
perfect the mechanism of a free and
open market and a national market
system, to promote just and equitable
principles of trade, and, in general, to
protect investors and the public interest
and not to permit unfair discrimination
between customers, issuers, brokers, or
dealers.
The Exchange offers a Discretionary
Range instruction that allows Users to
specify a non-displayed discretionary
price in addition to a displayed or nondisplayed ranked price. As part of this
instruction, an order entered with a
discretionary price would liquidity
swap in certain scenarios described in
Rule 11.6(d), including when trading
within the order’s discretionary range
against an incoming order that is
entered with a TIF other than IOC or
FOK. The Exchange believes that this
result is undesirable under an inverted
fee structure since the order that is
negatively impacted by the swap from a
rebate to a fee is the incoming order,
and not the resting order that has opted
into this handling by including a
Discretionary Range instruction.
Furthermore, this issue would be
exacerbated under the new high
inverted fee structure since the
difference between the base fee for
adding liquidity and base rebate for
removing liquidity is now $0.0054 per
share. The Exchange therefore believes
that eliminating the possibility of this
liquidity swap is consistent with the
public interest and the protection of
investors.
With this change no resting orders on
EDGA would liquidity swap with an
incoming order, thereby ensuring that
the incoming order would be the taker
of liquidity, and paid the applicable
rebate rather than charged an
unexpected fee. Although certain other
order instructions offered by the
Exchange (e.g., Super Aggressive and
Non-Displayed Swap) 16 contain a
liquidity swap component, those order
instructions do not liquidity swap under
an inverted fee structure where a Post
Only order would always remove
liquidity on entry. The Exchange
believes that amending its order
handling, as proposed, to ensure a
similar result in cases that involve the
Discretionary Range instruction would
promote just and equitable principles of
trade.
Finally, the Exchange believes that
the proposed operation of the
Discretionary Range instruction where
an order with a Post Only instruction
15 15
U.S.C. 78f(b)(5).
Rule 11.6(n)(2), (n)(7).
16 See
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20:35 Dec 04, 2018
posts in the discretionary range is
consistent with the protection of
investors and the public interest. While
the Exchange currently operates under
an inverted fee schedule where an
incoming order with a Post Only
instruction would remove liquidity on
entry, the Exchange believes that it
would be appropriate to shorten the
discretion of a resting order with a
Discretionary Range instruction if
necessary due to an incoming order
with a Post Only instruction posting at
a price within the discretionary range,
which would be possible, for example,
in the event the Exchange were to
introduce a maker/taker market model.
Shortening the order’s discretionary
range in such circumstances is intended
to avoid the discretionary range
extending past the contra-side order’s
limit price, which could create a price
priority issue should a later order be
entered and be eligible to execute
against the resting order within its
discretionary range but at a price that
extends beyond the contra-side order
with a Post Only instruction. As
mentioned in the purpose section of this
proposed rule change, similar behavior
is already implemented for MDOs on
EDGX.17
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change would impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. The
proposed rule change is designed to
eliminate the possibility that a liquidity
swap could cause an incoming order
that was expecting to receive a rebate as
a remover of liquidity to instead pay a
fee. The Exchange believes that the
proposed handling accords with the
expectation of its Users when sending
order flow to EDGA, which operates
under an inverted fee model that
generally incentivizes marketable order
flow that removes liquidity on entry.
The Exchange therefore believes that the
proposed rule change would promote a
fair and competitive market in securities
traded on EDGA.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No comments were solicited or
received on the proposed rule change.
17 See
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note 13 supra.
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62935
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) of the Act 18 and Rule 19b–
4(f)(6) thereunder.19
A proposed rule change filed
pursuant to Rule 19b–4(f)(6) under the
Act 20 normally does not become
operative for 30 days after the date of its
filing. However, Rule 19b–4(f)(6)(iii) 21
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
requested that the Commission waive
the 30-day operative delay so that the
proposed rule change may become
operative upon filing. Waiver of the
operative delay would allow the
Exchange to immediately amend its
rules to change its handling of orders
entered with a Discretionary Range
instruction so that such orders, when
resting, no longer may liquidity swap
with incoming orders with which they
execute. The Exchange believes that
eliminating this potential for a liquidity
swap would be more consistent with the
expectation of Exchange participants
who submit orders that trade on entry
and, in light of the Exchange’s inverted
fee structure, may expect to receive a
rebate for such executions instead of
incurring a fee due to a liquidity swap.
The Exchange also believes that waiver
of the operative delay will reduce the
possibility that Exchange participants
are inadvertently disadvantaged by a
recent Exchange fee schedule change
introducing higher fees and rebates. For
these reasons, the Commission believes
that waiver of the 30-day operative
delay is consistent with the protection
of investors and the public interest.
Accordingly, the Commission hereby
waives the operative delay and
18 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6). As required under Rule
19b–4(f)(6)(iii), the Exchange provided the
Commission with written notice of its intent to file
the proposed rule change, along with a brief
description and the 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.
20 17 CFR 240.19b–4(f)(6).
21 17 CFR 240.19b–4(f)(6)(iii).
19 17
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Federal Register / Vol. 83, No. 234 / Thursday, December 6, 2018 / Notices
designates the proposed rule change
operative upon filing.22
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 necessary or appropriate in the
public interest, for the protection of
investors, or 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
change 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:
khammond on DSK30JT082PROD with 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–
CboeEDGA–2018–019 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–CboeEDGA–2018–019. 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,
22 For purposes only of waiving the 30-day
operative delay, the Commission also has
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
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20:35 Dec 04, 2018
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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–CboeEDGA–2018–019, and
should be submitted on or before
December 26, 2018.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.23
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–26399 Filed 12–4–18; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–84684; File No. SR–
NASDAQ–2018–098]
Self-Regulatory Organizations; The
Nasdaq Stock Market LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Relocate
the Exchange’s Pricing Schedule
November 29, 2018.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on November
19, 2018, The Nasdaq Stock Market LLC
(‘‘Nasdaq’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘SEC’’ or ‘‘Commission’’) the proposed
rule change as described in Items I and
II, below, which Items have been
prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to (a) relocate
its current Rule 7000 Series (‘‘Equities
Pricing’’), entitled ‘‘Charges for
Membership, Services, and Equipment,’’
and The Nasdaq Options Market LLC’s
(‘‘NOM’’) rules at Chapter XV (‘‘Options
Pricing’’; together, ‘‘Equities and
Options Pricing’’) to the Exchange’s
rulebook’s (‘‘Rulebook’’) shell
23 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
PO 00000
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Fmt 4703
Sfmt 4703
structure; 3 (b) make conforming crossreference changes throughout the
Rulebook; and (c) amend the Equity 4’s
title in the shell structure.
The text of the proposed rule change
is available on the Exchange’s website at
https://nasdaq.cchwallstreet.com, at the
principal office of the Exchange, and at
the Commission’s Public Reference
Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to (a) relocate
the Equities and Options Pricing rules,
currently under the Equities Rule 7000
Series and Options Chapter XV of the
NOM rules, into the Rulebook’s shell
structure, respectively, under Equity 7
and Options 7 (both named ‘‘Pricing
Schedule’’); (b) make conforming crossreference changes throughout the
Rulebook; and (c) amend the Equity 4’s
title, ‘‘Equity Listing Rules,’’ in the shell
structure, as detailed below.
(a) Relocation of the Pricing Rules
The Exchange, as part of its continued
effort to promote efficiency and the
conformity of its processes with those of
the Affiliated Exchanges,4 and the goal
of harmonizing and uniformizing its
rules, proposes to relocate the Equities
Pricing rules, currently under the Rule
7000 Series, into Equity 7, Pricing
Schedule, of the shell structure.
Specifically, the Exchange will add the
word ‘‘Section’’ and renumber the
3 In 2017, the Exchange added a shell structure to
its Rulebook with the purpose of improving
efficiency and readability and to align its rules
closer to those of its five sister exchanges, The
Nasdaq Stock Market LLC; Nasdaq PHLX LLC;
Nasdaq ISE, LLC; Nasdaq GEMX, LLC; and Nasdaq
MRX, LLC (‘‘Affiliated Exchanges’’). See Securities
Exchange Act Release No. 82174 (November 29,
2017), 82 FR 57492 (December 5, 2017) (SR–BX–
2017–054).
4 See footnote 3.
E:\FR\FM\06DEN1.SGM
06DEN1
]]>Agencies
[Federal Register Volume 83, Number 234 (Thursday, December 6, 2018)]
[Notices]
[Pages 62933-62936]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-26399]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-84683; File No. SR-CboeEDGA-2018-019]
Self-Regulatory Organizations; Cboe EDGA Exchange, Inc.; Notice
of Filing and Immediate Effectiveness of a Proposed Rule Change
Relating To Eliminate the Liquidity Swap Component of the Discretionary
Range Instruction
November 29, 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 23, 2018, Cboe EDGA Exchange, Inc. (the ``Exchange''
or ``EDGA'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I and
II, 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 EDGA Exchange, Inc. (``EDGA'' or the ``Exchange'') is filing
with the Securities and Exchange Commission (the ``Commission'') a
proposed rule change to eliminate the liquidity swap component of the
Discretionary Range instruction in connection with the recent
introduction of a ``high inverted'' fee model.
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
The purpose of the proposed rule change is to eliminate the
liquidity swap component of the Discretionary Range instruction in
connection with the introduction of a ``high inverted'' fee model, as
discussed in more detail
[[Page 62934]]
below.\5\ All other functionality offered by the Discretionary Range
instruction would remain unchanged.
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\5\ A liquidity swap occurs when a resting order that is posted
to the EDGA Book becomes the remover rather than the adder of
liquidity for fee purposes.
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Discretionary Range is an instruction the User \6\ may attach to an
order to buy (sell) a stated amount of a security at a specified,
displayed or non-displayed ranked price with discretion to execute up
(down) to another specified, non-displayed price.\7\ Because the
Discretionary Range instruction indicates a willingness by the entering
User to trade at prices more aggressive than the order's ranked price,
orders entered with this instruction also liquidity swap with certain
incoming orders. Specifically, Rule 11.6(d) provides that a resting
order with a Discretionary Range instruction would remove liquidity
against: (1) An incoming Post Only order at its displayed or non-
displayed ranked price that does not remove liquidity on entry pursuant
to Rule 11.6(n)(4), and (2) an incoming order with a time-in-force
(``TIF'') other than Immediate-or-Cancel (``IOC'') or Fill-or-Kill
(``FOK'') that is priced within its discretionary range. All other
orders follow normal handling for the execution of an incoming order
and remove liquidity when trading with a resting order with a
Discretionary Range instruction.\8\
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\6\ The term ``User'' means any Member or Sponsored Participant
who is authorized to obtain access to the System pursuant to Rule
11.3. See Rule 1.5(ee).
\7\ See Rule 11.6(d). An order with a Discretionary Range
instruction resting on the EDGA Book will execute at its least
aggressive price when matched for execution against an incoming
order that also contains a Discretionary Range instruction, as
permitted by the terms of both the incoming and resting order. Id.
\8\ For example, an incoming order that executes at the ranked
price of the Discretionary Range order, or an IOC or FOK order that
executes at a price within the discretionary range would execute as
the liquidity remover. Id.
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The Exchange proposes that a resting order with a Discretionary
Range instruction would no longer perform a liquidity swap against any
incoming orders, such that the incoming order would always act as the
taker of liquidity, and the resting order with a Discretionary Range
instruction would act as the maker of liquidity. As incoming Post Only
orders always remove liquidity on entry in an inverted market where it
is economically beneficial to remove liquidity,\9\ this change would
chiefly impact the execution of Discretionary Range orders against
incoming orders with a TIF other than IOC or FOK priced within the
discretionary range.
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\9\ See Rule 11.6(n)(4).
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EDGA has operated with an ``inverted'' fee schedule whereby orders
that remove liquidity are provided a rebate and orders that add
liquidity pay a fee.\10\ On November 1, 2018, the Exchange filed an
immediately effective change to its fee schedule to introduce a ``high
inverted'' market model that increased both the rebate provided to
orders that remove liquidity and the fee paid by orders that add
liquidity.\11\ With the recent changes to the fee schedule, an order
that removes liquidity is provided a base rebate of $0.0024 per share,
and an order that adds liquidity pays a base fee of $0.0030 per
share.\12\
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\10\ See Cboe EDGA U.S. Equities Exchange Fee Schedule.
\11\ See Securities Exchange Act Release No. 84599 (November 15,
2018), 83 FR 58795 (November 21, 2018) (SR-CboeEDGA-2018-017).
\12\ Members also have the opportunity to qualify for a lower
fee or higher rebate based on volume executed on EDGA.
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Under the current order handling, an order that executes
immediately on entry, which would ordinarily be paid a rebate of
$0.0024 per share based on the new high inverted fee structure, could
instead end up adding liquidity and paying a fee of up to $0.0030 per
share--i.e., a swing of $0.0054 per share--if the incoming order
liquidity swaps when trading with a posted order that contains a
Discretionary Range instruction. For example, assume the national best
bid and offer is $10.00 x $10.05, and there is an order to buy on the
EDGA Book priced at $10.00 with discretion to pay up to $10.03. If the
Exchange were to receive an incoming Day order to sell at $10.02, the
incoming order would be posted to the EDGA Book and then trade with the
Discretionary Range order at $10.02 as the adder of liquidity, paying a
fee of $0.0030 per share instead of receiving the expected rebate of
$0.0024 per share.
Although likely to be a rare occurrence, the Exchange believes that
paying a $0.0030 per share fee in this scenario may be contrary to the
expectations of Users that enter an order that trades on entry, who may
instead expect to receive a $0.0024 per share rebate for sending
marketable order flow to EDGA. The Exchange therefore proposes to
eliminate the liquidity swap component of the Discretionary Range
instruction. As proposed, an order entered with a Discretionary Range
instruction would never perform a liquidity swap with an incoming
order. Since an order entered with a Discretionary Range instruction
would not liquidity swap with an incoming order under any
circumstances, the Exchange proposes to reflect this change by
providing that any contra-side order that executes against a resting
order with a Discretionary Range instruction at its displayed or non-
displayed ranked price, or a price in the discretionary range, will
remove liquidity against the order with a Discretionary Range
instruction.
In addition, the Exchange proposes to describe in Rule 11.6(d) how
the Exchange would handle orders entered with a Discretionary Range
instruction in the event that it changes its fees such that an incoming
order with a Post Only instruction does not always remove liquidity on
entry. As previously discussed, the Exchange is amending the
Discretionary Range instruction such that orders entered with a
Discretionary Range instruction would not liquidity swap with incoming
orders, including orders entered with a Post Only instruction. Instead,
the Exchange proposes that where an incoming order with a Post Only
instruction does not remove liquidity on entry pursuant to Rule
11.6(n)(4) against a resting order with a Discretionary Range
instruction, the discretionary range of the resting order with a
Discretionary Range instruction would be shortened to equal the limit
price of the incoming contra-side order with a Post Only instruction.
While under an inverted fee schedule incoming orders with a Post Only
instruction remove liquidity on entry, this language would be relevant
if the Exchange were to move to a different market model (e.g., maker/
taker). In such an event, the Discretionary Range instruction would
behave in a manner similar to recently adopted MidPoint Discretionary
Orders (``MDO'') on its affiliate Cboe EDGX Exchange, Inc.
(``EDGX'').\13\ Like the proposed handling for EDGA orders entered with
a Discretionary Range instruction, MDOs on EDGX are not willing to
perform a liquidity swap, and would instead have their discretionary
range shortened if an order with a Post Only instruction were to be
posted within the discretionary range.
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\13\ See Securities Exchange Act Release No. 84327 (October 1,
2018), 83 FR 50416 (October 5, 2018) (SR-CboeEDGX-2018-041). The
Exchange also offers MDOs on EDGA that follow the handling described
in this filing for orders entered with a Discretionary Range
instruction. See Rule 11.8(e).
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2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the requirements of Section 6(b) of the Act,\14\ in general, and
Section 6(b)(5) of
[[Page 62935]]
the Act,\15\ in particular, in that it is designed to remove
impediments to and perfect the mechanism of a free and open market and
a national market system, to promote just and equitable principles of
trade, and, in general, to protect investors and the public interest
and not to permit unfair discrimination between customers, issuers,
brokers, or dealers.
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\14\ 15 U.S.C. 78f(b).
\15\ 15 U.S.C. 78f(b)(5).
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The Exchange offers a Discretionary Range instruction that allows
Users to specify a non-displayed discretionary price in addition to a
displayed or non-displayed ranked price. As part of this instruction,
an order entered with a discretionary price would liquidity swap in
certain scenarios described in Rule 11.6(d), including when trading
within the order's discretionary range against an incoming order that
is entered with a TIF other than IOC or FOK. The Exchange believes that
this result is undesirable under an inverted fee structure since the
order that is negatively impacted by the swap from a rebate to a fee is
the incoming order, and not the resting order that has opted into this
handling by including a Discretionary Range instruction. Furthermore,
this issue would be exacerbated under the new high inverted fee
structure since the difference between the base fee for adding
liquidity and base rebate for removing liquidity is now $0.0054 per
share. The Exchange therefore believes that eliminating the possibility
of this liquidity swap is consistent with the public interest and the
protection of investors.
With this change no resting orders on EDGA would liquidity swap
with an incoming order, thereby ensuring that the incoming order would
be the taker of liquidity, and paid the applicable rebate rather than
charged an unexpected fee. Although certain other order instructions
offered by the Exchange (e.g., Super Aggressive and Non-Displayed Swap)
\16\ contain a liquidity swap component, those order instructions do
not liquidity swap under an inverted fee structure where a Post Only
order would always remove liquidity on entry. The Exchange believes
that amending its order handling, as proposed, to ensure a similar
result in cases that involve the Discretionary Range instruction would
promote just and equitable principles of trade.
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\16\ See Rule 11.6(n)(2), (n)(7).
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Finally, the Exchange believes that the proposed operation of the
Discretionary Range instruction where an order with a Post Only
instruction posts in the discretionary range is consistent with the
protection of investors and the public interest. While the Exchange
currently operates under an inverted fee schedule where an incoming
order with a Post Only instruction would remove liquidity on entry, the
Exchange believes that it would be appropriate to shorten the
discretion of a resting order with a Discretionary Range instruction if
necessary due to an incoming order with a Post Only instruction posting
at a price within the discretionary range, which would be possible, for
example, in the event the Exchange were to introduce a maker/taker
market model. Shortening the order's discretionary range in such
circumstances is intended to avoid the discretionary range extending
past the contra-side order's limit price, which could create a price
priority issue should a later order be entered and be eligible to
execute against the resting order within its discretionary range but at
a price that extends beyond the contra-side order with a Post Only
instruction. As mentioned in the purpose section of this proposed rule
change, similar behavior is already implemented for MDOs on EDGX.\17\
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\17\ See note 13 supra.
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change would
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The proposed rule change is
designed to eliminate the possibility that a liquidity swap could cause
an incoming order that was expecting to receive a rebate as a remover
of liquidity to instead pay a fee. The Exchange believes that the
proposed handling accords with the expectation of its Users when
sending order flow to EDGA, which operates under an inverted fee model
that generally incentivizes marketable order flow that removes
liquidity on entry. The Exchange therefore believes that the proposed
rule change would promote a fair and competitive market in securities
traded on EDGA.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No comments were solicited or received on the proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A) of the Act \18\ and Rule 19b-
4(f)(6) thereunder.\19\
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\18\ 15 U.S.C. 78s(b)(3)(A).
\19\ 17 CFR 240.19b-4(f)(6). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written
notice of its intent to file the proposed rule change, along with a
brief description and the text of the proposed rule change, at least
five business days prior to the date of filing of the proposed rule
change, or such shorter time as designated by the Commission.
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A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the
Act \20\ normally does not become operative for 30 days after the date
of its filing. However, Rule 19b-4(f)(6)(iii) \21\ 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 requested that the Commission waive the 30-day operative delay so
that the proposed rule change may become operative upon filing. Waiver
of the operative delay would allow the Exchange to immediately amend
its rules to change its handling of orders entered with a Discretionary
Range instruction so that such orders, when resting, no longer may
liquidity swap with incoming orders with which they execute. The
Exchange believes that eliminating this potential for a liquidity swap
would be more consistent with the expectation of Exchange participants
who submit orders that trade on entry and, in light of the Exchange's
inverted fee structure, may expect to receive a rebate for such
executions instead of incurring a fee due to a liquidity swap. The
Exchange also believes that waiver of the operative delay will reduce
the possibility that Exchange participants are inadvertently
disadvantaged by a recent Exchange fee schedule change introducing
higher fees and rebates. For these reasons, the Commission believes
that waiver of the 30-day operative delay is consistent with the
protection of investors and the public interest. Accordingly, the
Commission hereby waives the operative delay and
[[Page 62936]]
designates the proposed rule change operative upon filing.\22\
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\20\ 17 CFR 240.19b-4(f)(6).
\21\ 17 CFR 240.19b-4(f)(6)(iii).
\22\ For purposes only of waiving the 30-day operative delay,
the Commission also has 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 necessary or
appropriate in the public interest, for the protection of investors, or
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 change 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-CboeEDGA-2018-019 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-CboeEDGA-2018-019. 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-CboeEDGA-2018-019, and should be
submitted on or before December 26, 2018.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\23\
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\23\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-26399 Filed 12-4-18; 8:45 am]
BILLING CODE 8011-01-P
