Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating to Directed Market Makers and Primary Market Makers, 62928-62930 [2018-26512]
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62928
Federal Register / Vol. 83, No. 234 / Thursday, December 6, 2018 / Notices
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
Contracts for a period of at least one
year following the Substitution Date.
For the Commission, by the Division of
Investment Management, under delegated
authority.
Eduardo A. Aleman,
Assistant Secretary.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
[FR Doc. 2018–26384 Filed 12–4–18; 8:45 am]
BILLING CODE 8011–01–P
1. Purpose
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–84697; File No. SR–
CboeEDGX–2018–057]
Self-Regulatory Organizations; Cboe
EDGX Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of a
Proposed Rule Change Relating to
Directed Market Makers and Primary
Market Makers
November 30, 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
27, 2018, Cboe EDGX Exchange, Inc.
(‘‘Exchange’’ or ‘‘EDGX’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the Exchange. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
khammond on DSK30JT082PROD with NOTICES
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend its
rules relating to Directed Market Makers
and Primary Market Makers.
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
1 15
2 17
U.S.C. 78s(b)(1).
CFR 240.19b–4.
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The Exchange proposes to amend its
rules related to Directed Market Makers
and Primary Market Makers.
Particularly, the Exchange proposes to
(1) rename ‘‘Directed Market Makers’’
and ‘‘Primary Market Makers’’, (2)
clarify the applicable participation
entitlements when a market
participation is both a Directed Market
Maker and Primary Market Maker, and
(3) amend the definition of small size
orders.
The Exchange first proposes to update
the names of ‘‘Directed Market Makers’’
and ‘‘Primary Market Makers’’.
Specifically, the Exchange proposes to
replace all references to ‘‘Directed
Market Makers’’ to ‘‘Preferred Market
Makers’’ (or ‘‘PMMs’’) and make a
corresponding change to replace
references to ‘‘Directed Orders’’ to
‘‘Preferred Orders.’’ The Exchange also
proposes to replace all references to
‘‘Primary Market Makers’’ to
‘‘Designated Primary Market Makers’’
(or ‘‘DPMs’’). The Exchange notes the
proposed name changes conforms its
terminology with respect to these types
of Market Makers to the terminology
used by its affiliated exchange, Cboe
Options, for similar market
participants.3 The Exchange notes that
Directed Market Makers and Primary
Market Makers will be referred to herein
as ‘‘PMMs’’ and ‘‘DPMs’’, respectively.
Next, the Exchange proposes to
provide in the rules which participation
entitlement applies in the event an
order is preferred to a DPM (i.e., the
DPM is also the PMM) and both PMM
and DPM participation entitlements are
in effect. Although not explicitly
specified in the rules, currently, if a
DPM is also the PMM, the PMM
entitlements apply. The Exchange
proposes to expressly provide under
Rule 21.18(h)(1) that, going forward, if
the DPM is also a PMM with respect to
an incoming order, that PMM/DPM will
be treated as a DPM and the DPM
participation entitlements under
paragraph (g) of Rule 21.8 will apply to
that order. The Exchange believes that
the proposed rule change is appropriate
given a DPM’s heightened quoting
3 See e.g., Cboe Exchange, Inc.’s (‘‘Cboe Options’’)
Rules 8.13 and 8.80.
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obligations.4 Put another way, the
Exchange believes that a DPM that is
preferred on an order should not be
subject to a potentially lesser
entitlement just because that DPM
happened to also be preferred.5
Moreover, the Exchange believes that it
is appropriate to provide the DPM
entitlements when the DPM is also
designated as a PMM as the obligations
that the DPM has to the market are not
diminished when it receives a Preferred
Order.
The Exchange lastly proposes to
amend the definition of a small size
order. More specifically, Rule 21.8(g)(2)
provides that small size orders are
allocated in full to the DPM if the DPM
has a priority quote at the NBBO. The
rule also provides that small size orders
are defined as five (5) or fewer contracts.
The Exchange proposes to provide that
in order to qualify as a small size order,
the incoming order must be a size of five
or fewer contracts (i.e., the size of the
original order determines whether the
definition is met, not the number of
contracts remaining after customer
orders have been satisfied). The
Exchange notes that a similar preference
is given for small orders on Cboe
Options as well as other exchanges and
that such preference is based on the
original size of the order.6
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.7 Specifically,
the Exchange believes the proposed rule
change is consistent with the Section
6(b)(5) 8 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,
4 See
EDGX Options Rule 22.2.
example, if a DPM is preferred on a small
size order (i.e., 5 or less contracts), that DPM should
receive the small size order entitlement, which is
a 100% allocation, notwithstanding the fact that
DPM was also preferred on that order (i.e., it would
otherwise receive 60% or 40% allocation under
Rule 21.8(f)(1)). The Exchange notes that its affiliate
exchange, Cboe Options, as well as other exchanges
similarly apply the small order preference
allocation where a DPM is also preferred on an
order. See Cboe Options Regulatory Circular RG15–
011. See also, Nasdaq ISE Rule 713, Supplementary
Material to Rule 713 .03(c)(iii).
6 See Cboe Options Rule 6.45(a)(ii)(C). See also,
NYSE Arca Rule 6.76A–O(a)(B).
7 15 U.S.C. 78f(b).
8 15 U.S.C. 78f(b)(5).
5 For
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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) 9 requirement that
the rules of an exchange not be designed
to permit unfair discrimination between
customers, issuers, brokers, or dealers.
First, the Exchange believes its
proposal to rename Directed Market
Makers and Primary Market Makers
standardizes the naming conventions
used for similar market participants
(i.e., Market Makers) across affiliated
exchanges (i.e., Cboe Options and
EDGX), thereby making the rules easier
to read and reducing potential
confusion. Similarly, the Exchange
believes explicitly stating in the rules
which participation entitlements a
Market Maker will receive when it’s
both a DPM and PMM with respect to
a particular order alleviates confusion
and provides clarity in the rules.
Providing clarity and reducing
confusion in the rules removes
impediments to and perfects the
mechanism of a free and open market
and a national market system, and, in
general, protects investors and the
public interest.
The Exchange also believes the
proposal to apply the DPM participation
entitlements to an order that is preferred
to a DPM is appropriate given DPMs’
heightened quoting obligations.10 The
regular allocation entitlements for
DPMs, including the small size order
entitlement, are designed to balance the
obligations that the DPM has to the
market with corresponding benefits. The
Exchange believes that it is appropriate
to provide DPM entitlements when the
DPM is also a PMM as the obligations
that the DPM has to the market are not
diminished when it receives a Preferred
Order. The proposed rule change also
applies equally to similarly situated
market participants. Moreover, the
proposed change is consistent with
other Exchanges’ rules, including the
Exchange’s affiliate, Cboe Options.11
The Exchange lastly believes the
proposal to use the size of the original
order to determine whether an order
meets the small size order definition for
purposes of the small size order
entitlement is reasonable as it better
achieves the purpose of the
9 Id.
10 See
EDGX Options Rule 22.2.
Cboe Options Regulatory Circular RG15–
011. See also, Nasdaq ISE Rule 713, Supplementary
Material to Rule 713 .03(c)(iii).
participation entitlement, which is to
provide a benefit to DPMs when an
order involves a small number of
contracts in exchange for their
heightened quoting obligations. The
Exchange does not believe the DPM
should receive that same benefit where
the order involves a small number of
contracts only as a result of prior
executions. For example, without the
proposed rule change, a DPM may
receive full allocation on an order that
was originally 1,000 contracts because
995 contracts were first executed by
Customers. The Exchange no longer
wishes to allow such orders to qualify
for the small size order entitlement. The
Exchange notes the proposed rule
change applies to all DPMs uniformly.
As noted above, the proposed change
also conforms to how small orders are
determined on its affiliated exchange,
Cboe Options and other Exchanges (i.e.,
determined by the size of the original
order).12
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. Particularly,
the Exchange notes that the proposed
changes apply equally to similarly
situated market participants. Moreover,
the proposed changes provide greater
clarity in the rules and greater
harmonization between the Exchange
and its affiliated exchange, Cboe
Options. Moreover, the proposed
changes only apply to EDGX. To the
extent that the proposed changes may
make the Exchange a more attractive
trading venue for market participants on
other exchanges, such market
participants may elect to become
Exchange market participants.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
The Exchange neither solicited nor
received comments on the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule
change does not: (i) Significantly affect
the protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days from the date on
11 See
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12 See Cboe Options Rule 6.45(a)(ii)(C). See also,
NYSE Arca Rule 6.76A–O(a)(B).
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62929
which it was filed, or such shorter time
as the Commission may designate, it has
become effective pursuant to Section
19(b)(3)(A)(iii) of the Act 13 and
subparagraph (f)(6) of Rule 19b–4
thereunder.14
A proposed rule change filed under
Rule 19b–4(f)(6) 15 normally does not
become operative prior to 30 days after
the date of the filing. However, Rule
19b–4(f)(6)(iii) 16 permits the
Commission to designate a shorter time
if such action is consistent with the
protection of investors and the public
interest. The Exchange has asked the
Commission to waive the 30-day
operative delay so that the proposal may
become operative immediately upon
filing. The Exchange notes that the
proposed changes relating to (i) which
participation entitlement applies when
a DPM is also a PMM and (ii)
determining whether an order qualifies
for a small order size entitlement based
on original order size will be available
for implementation starting November
29, 2018. The Exchange states that the
waiver of the operative delay would
allow the proposed changes to be
implemented as soon as it’s available.
The Exchange further states that the
implementation of conforming and
clarifying changes would also
immediately reduce confusion and
provide further harmonization across
affiliated exchanges. 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
designates the proposed rule change as
operative upon filing.17
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is: (i) Necessary or appropriate in
the public interest; (ii) for the protection
of investors; or (iii) otherwise in
furtherance of the purposes of the Act.
If the Commission takes such action, the
Commission shall institute proceedings
13 15
U.S.C. 78s(b)(3)(A)(iii).
CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6)(iii) requires a self-regulatory organization to
give the Commission written notice of its intent to
file the proposed rule change, along with a brief
description and 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. The
Exchange has satisfied this requirement.
15 17 CFR 240.19b–4(f)(6).
16 17 CFR 240.19b–4(f)(6)(iii).
17 For purposes only of waiving the 30-day
operative delay, the Commission has also
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
14 17
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Federal Register / Vol. 83, No. 234 / Thursday, December 6, 2018 / Notices
to determine whether the proposed rule
should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
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–
CboeEDGX–2018–057 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–2018–057. 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–CboeEDGX–2018–057 and
should be submitted on or before
December 27, 2018.
18 17
CFR 200.30–3(a)(12).
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For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.18
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–26512 Filed 12–4–18; 8:45 am]
BILLING CODE 8011–01–P
compute a deduction for market risk on
some or all its positions instead of the
provisions of paragraphs (c)(2)(vi) and
(c)(2)(vii) of Rule 15c3–1.4
By the Commission.
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–26404 Filed 12–4–18; 8:45 am]
SECURITIES AND EXCHANGE
COMMISSION
BILLING CODE 8011–01–P
[Securities Exchange Act of 1934; Release
No. 84689/November 29, 2018]
SECURITIES AND EXCHANGE
COMMISSION
Order Regarding Alternative Net
Capital Computation for BofAML
Securities, Inc.
[Release No. 34–84698; File No. SR–CBOE–
2018–073]
BofAML Securities, Inc.
(‘‘BofAMLS’’), a broker-dealer registered
with the Securities and Exchange
Commission (‘‘Commission’’), has
submitted an application to the
Commission for authorization to use the
market risk standards of Appendix E of
Rule 15c3–1 to the Securities Exchange
Act of 1934 (‘‘Exchange Act’’).1
Based on a review of the application
that BofAMLS submitted, including an
assessment of the firm’s financial
position, the adequacy of the firm’s
internal risk management controls, and
the statistical models the firm will use
for internal risk management and
regulatory capital purposes, the
Commission has determined that the
application meets the requirements of
paragraphs (a), (b), (d)(1)(i)–(iv), and
(d)(2) of Appendix E.2 The Commission
also has determined that Bank of
America Corporation, BofAMLS’s
ultimate holding company, is in
compliance with the terms of its
undertakings, as provided to the
Commission under Appendix E.
Using the market-risk standards of
Appendix E of Rule 15c3–1 should help
BofAMLS align its supervisory risk
management practices and regulatory
capital requirements more closely, and
would adequately capture the material
risks. As a result, this also should help
to ensure that integrity of the risk
measurement, monitoring and
management process. The Commission,
therefore, finds that approval of the
application is necessary or appropriate
in the public interest or for the
protection of investors.
Accordingly, IT IS ORDERED, under
paragraph (a)(7) of Rule 15c3–1 3 to the
Exchange Act, that BofAMLS may
calculate net capital using the market
risk standards of Appendix E to
17 CFR 240.15c3–1e.
17 CFR 240.15c3–1e(a); 17 CFR 240.15c3–
1e(b); 17 CFR 240.15c3–1e(d)(i)–(iv); 17 CFR
240.15c3–1e(d)(2).
3 See 17 CFR 240.15c3–1(a)(7).
Self-Regulatory Organizations; Cboe
Exchange, Inc.; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Amend Rule 5.8,
Long-Term Equity Options Series
(LEAPS)
November 30, 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
23, 2018, Cboe Exchange, Inc.
(‘‘Exchange’’ or ‘‘Cboe Options’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I and II below, which Items have
been prepared by the Exchange. The
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 Exchange, Inc. (the ‘‘Exchange’’
or ‘‘Cboe Options’’) proposes to amend
Rule 5.8, Long-Term Equity Options
Series (LEAPS). The text of the
proposed rule change is provided
below.
(additions are italicized; deletions are
[bracketed])
*
*
*
*
*
Rules of Cboe Exchange, Inc.
*
*
*
*
*
Rule 5.8. Long-Term Equity Option
Series (LEAPS)
(a) Notwithstanding conflicting
language in Exchange Rule 5.5, the
Exchange may list long-term equity
option series (LEAPS) that expire from
12 to 180 months from the time they are
listed. There may be up to ten
additional expiration months for
1 See
2 See
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4 See 17 CFR 240.15c3–1(c)(2)(vi); 17 CFR
240.15c3–1(c)(2)(vii).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
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Agencies
[Federal Register Volume 83, Number 234 (Thursday, December 6, 2018)]
[Notices]
[Pages 62928-62930]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-26512]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-84697; File No. SR-CboeEDGX-2018-057]
Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice
of Filing and Immediate Effectiveness of a Proposed Rule Change
Relating to Directed Market Makers and Primary Market Makers
November 30, 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 27, 2018, Cboe EDGX Exchange, Inc. (``Exchange'' or
``EDGX'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I and
II below, which Items have been prepared by the Exchange. The
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
The Exchange proposes to amend its rules relating to Directed
Market Makers and Primary Market Makers.
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 Exchange proposes to amend its rules related to Directed Market
Makers and Primary Market Makers. Particularly, the Exchange proposes
to (1) rename ``Directed Market Makers'' and ``Primary Market Makers'',
(2) clarify the applicable participation entitlements when a market
participation is both a Directed Market Maker and Primary Market Maker,
and (3) amend the definition of small size orders.
The Exchange first proposes to update the names of ``Directed
Market Makers'' and ``Primary Market Makers''. Specifically, the
Exchange proposes to replace all references to ``Directed Market
Makers'' to ``Preferred Market Makers'' (or ``PMMs'') and make a
corresponding change to replace references to ``Directed Orders'' to
``Preferred Orders.'' The Exchange also proposes to replace all
references to ``Primary Market Makers'' to ``Designated Primary Market
Makers'' (or ``DPMs''). The Exchange notes the proposed name changes
conforms its terminology with respect to these types of Market Makers
to the terminology used by its affiliated exchange, Cboe Options, for
similar market participants.\3\ The Exchange notes that Directed Market
Makers and Primary Market Makers will be referred to herein as ``PMMs''
and ``DPMs'', respectively.
---------------------------------------------------------------------------
\3\ See e.g., Cboe Exchange, Inc.'s (``Cboe Options'') Rules
8.13 and 8.80.
---------------------------------------------------------------------------
Next, the Exchange proposes to provide in the rules which
participation entitlement applies in the event an order is preferred to
a DPM (i.e., the DPM is also the PMM) and both PMM and DPM
participation entitlements are in effect. Although not explicitly
specified in the rules, currently, if a DPM is also the PMM, the PMM
entitlements apply. The Exchange proposes to expressly provide under
Rule 21.18(h)(1) that, going forward, if the DPM is also a PMM with
respect to an incoming order, that PMM/DPM will be treated as a DPM and
the DPM participation entitlements under paragraph (g) of Rule 21.8
will apply to that order. The Exchange believes that the proposed rule
change is appropriate given a DPM's heightened quoting obligations.\4\
Put another way, the Exchange believes that a DPM that is preferred on
an order should not be subject to a potentially lesser entitlement just
because that DPM happened to also be preferred.\5\ Moreover, the
Exchange believes that it is appropriate to provide the DPM
entitlements when the DPM is also designated as a PMM as the
obligations that the DPM has to the market are not diminished when it
receives a Preferred Order.
---------------------------------------------------------------------------
\4\ See EDGX Options Rule 22.2.
\5\ For example, if a DPM is preferred on a small size order
(i.e., 5 or less contracts), that DPM should receive the small size
order entitlement, which is a 100% allocation, notwithstanding the
fact that DPM was also preferred on that order (i.e., it would
otherwise receive 60% or 40% allocation under Rule 21.8(f)(1)). The
Exchange notes that its affiliate exchange, Cboe Options, as well as
other exchanges similarly apply the small order preference
allocation where a DPM is also preferred on an order. See Cboe
Options Regulatory Circular RG15-011. See also, Nasdaq ISE Rule 713,
Supplementary Material to Rule 713 .03(c)(iii).
---------------------------------------------------------------------------
The Exchange lastly proposes to amend the definition of a small
size order. More specifically, Rule 21.8(g)(2) provides that small size
orders are allocated in full to the DPM if the DPM has a priority quote
at the NBBO. The rule also provides that small size orders are defined
as five (5) or fewer contracts. The Exchange proposes to provide that
in order to qualify as a small size order, the incoming order must be a
size of five or fewer contracts (i.e., the size of the original order
determines whether the definition is met, not the number of contracts
remaining after customer orders have been satisfied). The Exchange
notes that a similar preference is given for small orders on Cboe
Options as well as other exchanges and that such preference is based on
the original size of the order.\6\
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\6\ See Cboe Options Rule 6.45(a)(ii)(C). See also, NYSE Arca
Rule 6.76A-O(a)(B).
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2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Securities Exchange Act of 1934 (the ``Act'') and the rules and
regulations thereunder applicable to the Exchange and, in particular,
the requirements of Section 6(b) of the Act.\7\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \8\ 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,
[[Page 62929]]
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) \9\ requirement that the rules
of an exchange not be designed to permit unfair discrimination between
customers, issuers, brokers, or dealers.
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\7\ 15 U.S.C. 78f(b).
\8\ 15 U.S.C. 78f(b)(5).
\9\ Id.
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First, the Exchange believes its proposal to rename Directed Market
Makers and Primary Market Makers standardizes the naming conventions
used for similar market participants (i.e., Market Makers) across
affiliated exchanges (i.e., Cboe Options and EDGX), thereby making the
rules easier to read and reducing potential confusion. Similarly, the
Exchange believes explicitly stating in the rules which participation
entitlements a Market Maker will receive when it's both a DPM and PMM
with respect to a particular order alleviates confusion and provides
clarity in the rules. Providing clarity and reducing confusion in the
rules removes impediments to and perfects the mechanism of a free and
open market and a national market system, and, in general, protects
investors and the public interest.
The Exchange also believes the proposal to apply the DPM
participation entitlements to an order that is preferred to a DPM is
appropriate given DPMs' heightened quoting obligations.\10\ The regular
allocation entitlements for DPMs, including the small size order
entitlement, are designed to balance the obligations that the DPM has
to the market with corresponding benefits. The Exchange believes that
it is appropriate to provide DPM entitlements when the DPM is also a
PMM as the obligations that the DPM has to the market are not
diminished when it receives a Preferred Order. The proposed rule change
also applies equally to similarly situated market participants.
Moreover, the proposed change is consistent with other Exchanges'
rules, including the Exchange's affiliate, Cboe Options.\11\
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\10\ See EDGX Options Rule 22.2.
\11\ See Cboe Options Regulatory Circular RG15-011. See also,
Nasdaq ISE Rule 713, Supplementary Material to Rule 713 .03(c)(iii).
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The Exchange lastly believes the proposal to use the size of the
original order to determine whether an order meets the small size order
definition for purposes of the small size order entitlement is
reasonable as it better achieves the purpose of the participation
entitlement, which is to provide a benefit to DPMs when an order
involves a small number of contracts in exchange for their heightened
quoting obligations. The Exchange does not believe the DPM should
receive that same benefit where the order involves a small number of
contracts only as a result of prior executions. For example, without
the proposed rule change, a DPM may receive full allocation on an order
that was originally 1,000 contracts because 995 contracts were first
executed by Customers. The Exchange no longer wishes to allow such
orders to qualify for the small size order entitlement. The Exchange
notes the proposed rule change applies to all DPMs uniformly. As noted
above, the proposed change also conforms to how small orders are
determined on its affiliated exchange, Cboe Options and other Exchanges
(i.e., determined by the size of the original order).\12\
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\12\ See Cboe Options Rule 6.45(a)(ii)(C). See also, NYSE Arca
Rule 6.76A-O(a)(B).
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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. Particularly, the Exchange
notes that the proposed changes apply equally to similarly situated
market participants. Moreover, the proposed changes provide greater
clarity in the rules and greater harmonization between the Exchange and
its affiliated exchange, Cboe Options. Moreover, the proposed changes
only apply to EDGX. To the extent that the proposed changes may make
the Exchange a more attractive trading venue for market participants on
other exchanges, such market participants may elect to become Exchange
market participants.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received comments on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A)(iii) of the Act \13\ and
subparagraph (f)(6) of Rule 19b-4 thereunder.\14\
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\13\ 15 U.S.C. 78s(b)(3)(A)(iii).
\14\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change, along
with a brief description and 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. The Exchange has satisfied this requirement.
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A proposed rule change filed under Rule 19b-4(f)(6) \15\ normally
does not become operative prior to 30 days after the date of the
filing. However, Rule 19b-4(f)(6)(iii) \16\ permits the Commission to
designate a shorter time if such action is consistent with the
protection of investors and the public interest. The Exchange has asked
the Commission to waive the 30-day operative delay so that the proposal
may become operative immediately upon filing. The Exchange notes that
the proposed changes relating to (i) which participation entitlement
applies when a DPM is also a PMM and (ii) determining whether an order
qualifies for a small order size entitlement based on original order
size will be available for implementation starting November 29, 2018.
The Exchange states that the waiver of the operative delay would allow
the proposed changes to be implemented as soon as it's available. The
Exchange further states that the implementation of conforming and
clarifying changes would also immediately reduce confusion and provide
further harmonization across affiliated exchanges. 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 designates the
proposed rule change as operative upon filing.\17\
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\15\ 17 CFR 240.19b-4(f)(6).
\16\ 17 CFR 240.19b-4(f)(6)(iii).
\17\ For purposes only of waiving the 30-day operative delay,
the Commission has also considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is: (i)
Necessary or appropriate in the public interest; (ii) for the
protection of investors; or (iii) otherwise in furtherance of the
purposes of the Act. If the Commission takes such action, the
Commission shall institute proceedings
[[Page 62930]]
to determine whether the proposed rule should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-CboeEDGX-2018-057 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-2018-057. 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-CboeEDGX-2018-057 and should be
submitted on or before December 27, 2018.
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\18\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\18\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-26512 Filed 12-4-18; 8:45 am]
BILLING CODE 8011-01-P