Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the Bats Auction Mechanism (“BAM”), 9183-9189 [2019-04561]
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Federal Register / Vol. 84, No. 49 / Wednesday, March 13, 2019 / Notices
handling processes. The nonsubstantive changes to Rule 7.18–E and
subparagraphs (B) and (D) of Rule 7.35–
E(h)(3) would have no an impact on
competition because they do not amend
or alter the operation of either rule.
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
NYSEARCA–2019–08 on the subject
line.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
No written comments were solicited
or received with respect to the proposed
rule change.
All submissions should refer to File
Number SR–NYSEARCA–2019–08. 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 this
filing will also 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–NYSEARCA–2019–08, and
should be submitted on or before April
3, 2019.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The Exchange has filed the proposed
rule change pursuant to Section
19(b)(3)(A)(iii) of the Act 39 and Rule
19b–4(f)(6) thereunder.40 Because the
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
prior to 30 days from the date on which
it was filed, or such shorter time as the
Commission may designate, if
consistent with the protection of
investors and the public interest, the
proposed rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act and Rule 19b–4(f)(6)(iii)
thereunder.
At any time within 60 days of the
filing of such 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
under Section 19(b)(2)(B) 41 of the Act to
determine whether the proposed rule
change should be approved or
disapproved.
IV. Solicitation of Comments
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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:
Paper Comments
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.42
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019–04555 Filed 3–12–19; 8:45 am]
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–85267; File No. SR–
CboeEDGX–2019–007]
Self-Regulatory Organizations; Cboe
EDGX Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of a
Proposed Rule Change To Amend the
Bats Auction Mechanism (‘‘BAM’’)
March 7, 2019.
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 March 5,
2019, 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 and II
below, which Items have been prepared
by the Exchange. The Exchange filed the
proposal as a ‘‘non-controversial’’
proposed rule change pursuant to
Section 19(b)(3)(A)(iii) of the Act 3 and
Rule 19b–4(f)(6) thereunder.4 The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of the Substance
of the Proposed Rule Change
Cboe EDGX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘EDGX’’) proposes to
amend the Bats Auction Mechanism
(‘‘BAM’’). The text of the proposed rule
change is provided in Exhibit 5.
The text of the proposed rule change
is also available on the Exchange’s
website (https://markets.cboe.com/us/
options/regulation/rule_filings/edgx/),
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.
1 15
39 15
U.S.C. 78s(b)(3)(A)(iii).
40 17 CFR 240.19b–4(f)(6).
41 15 U.S.C. 78s(b)(2)(B).
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U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A)(iii).
4 17 CFR 240.19b–4(f)(6).
2 17
42 17
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A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
In 2016, the Exchange’s parent
company, Cboe Global Markets, Inc.
(‘‘Cboe Global’’), which is the parent
company of Cboe Exchange, Inc. (‘‘Cboe
Options’’) and Cboe C2 Exchange, Inc.
(‘‘C2’’), 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, the Exchange, EDGA, and BZX,
the ‘‘Cboe Affiliated Exchanges’’). The
Cboe Affiliated Exchanges are working
to align certain system functionality,
retaining only intended differences
between the Cboe Affiliated Exchanges,
in the context of a technology migration.
Cboe Options intends to migrate its
technology to the same trading platform
used by the Exchange, C2, and BZX
Options in the fourth quarter of 2019.
The proposal set forth below is intended
to add certain functionality to the
Exchange’s System that is available on
Cboe Options in order to ultimately
provide a consistent technology offering
for market participants who interact
with the Cboe Affiliated Exchanges.
Although the Exchange intentionally
offers certain features that differ from
those offered by its affiliates and will
continue to do so, the Exchange believes
that offering similar functionality to the
extent practicable will reduce potential
confusion for Users.
The proposed rule change amends
Rule 21.19 related to BAM, which the
proposed rule change renames as the
Automated Improvement Mechanism
(‘‘AIM’’). This is the name of the
corresponding price improvement
auction mechanism on Cboe Options,
and the proposed rule change will refer
to the Exchange’s auction process as
AIM.5
The proposed rule change will permit
the Initiating Order to consist of one or
more solicited orders. This will
accommodate multiple contra-parties
and increase the opportunities for
customer orders to be submitted into an
AIM Auction with the potential for
price improvement, since the Initiating
Order must stop the full size of the
Agency Order. This has no impact on
the execution of the Agency Order,
which may already trade against
multiple contra-parties depending on
the final auction price, as set forth in
5 See Cboe Options Rule 6.74A. The proposed
rule change also replaces the reference to BAM with
AIM in Rule 22.12(c).
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proposed paragraph (e). This proposed
change is consistent with Cboe Options
AIM functionality.6
The proposed rule change adopts a
Sweep and AIM order, which is the
submission of two orders for crossing in
an AIM Auction with a stop price that
does not need to be within the BBO and
where the Exchange sweeps all
Protected Quotes, as defined in Rule
27.1, by routing one or more ISOs, as
necessary, to execute against the full
displayed size of any Protected Quote
with a price better than the stop price,
as well as sweep all interest in the
EDGX Options Book with a price better
than the stop price simultaneously with
the commencement of the AIM Auction.
Any execution(s) resulting from these
sweeps accrue to the Agency Order.7
This proposed order is consistent with
the current BAM ISO functionality,8
except the Exchange will route the ISOs
on behalf of the User rather than
requiring the User to route the ISOs
itself. Additionally, the proposed rule
change is consistent with Cboe Options
functionality.9 This proposed order type
will provide Users with an additional,
efficient method to initiate an AIM
while preventing trade-throughs.
The proposed rule change clarifies
that if an Initiating Member submits an
AIM Sweep or Sweep and AIM order,
the stop price may be inferior to the
Initial NBBO, but is still subject to the
price improvement requirement in
proposed subparagraph (b)(1)(A). In
other words, while AIM Sweep and
Sweep and AIM orders permit an
Initiating Member to stop an Agency
Order at a price inferior to the NBBO at
the time it submits the Agency Order to
an AIM Auction, the Initiating Member
must still comply with the priceimprovement requirement for smallersized orders if the width of the NBBO
is $0.01. For example, if an Initiating
Member submits an Agency Order to
buy for 20 contracts as a Sweep and
AIM with a stop price of 1.01 when the
NBBO is 1.00 × 1.01, the System rejects
the Agency Order (and the Initiating
Order). Note if the Initiating Member
instead submitted an AIM Sweep, the
Exchange initiates an AIM, because the
Initiating Member is responsible for
submitting the ISO and the System
6 See Cboe Options Regulatory Circular RG17–074
(May 19, 2017); see also NASDAQ ISE, LLC (‘‘ISE’’)
Rule 723(b).
7 In other words, any contracts executed at an
away exchange would count as execution against
the Agency Order (and thus reduce the size of the
Agency Order available for execution during an
AIM Auction). This is consistent with how ISOs
work for all order types.
8 See current Rule 21.19(b)(6) and proposed Rule
21.19(b)(3)(A); see also Cboe Options Rule 6.53(q).
9 See Cboe Options Rule 6.53(r).
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cannot confirm that the NBBO width
will ultimately be $0.01. However, the
Initiating Member is still responsible for
complying with the price-improvement
requirement for smaller-sized orders if
the width of the resulting NBBO
following execution of the ISO is $0.01.
Proposed Rule 21.19(e)(1) provides
that the Initiating Order allocation
percentage is based on the number of
contracts remaining of the Agency Order
after execution against Priority
Customer orders rather than the initial
size of the Agency Order. This ensures
the size used to determine the allocation
percentage for the Initiating Order will
be based on the same number of
contracts that would otherwise be
available to other contra-side interest.
The proposed rule change is the same as
the rules of other options exchanges.10
Additionally, pursuant to current
Rule 21.19(b)(1)(A), the Initiating
Member may receive an allocation up to
50% of the Agency Order if there
interest from one other User at the stop
price or 40% of the Agency Order if
there is interest from two or more other
Users at the stop price. Pursuant to
proposed Rule 21.19(e)(1)(B), the
Initiating Order may receive an
allocation up to the greater of one
contract or such percentage. If the
Agency Order is small, it is possible that
the Initiating Order may receive no
contracts due to rounding. For example,
if the Agency Order is for two contracts,
and at the end of the AIM Auction there
is a Priority Customer order for one
contract at the final auction price and
two other participants at the final
auction price, allocation would be as
follows (based on the proposed change
above that the allocation percentage is
based on the number of contracts
remaining after execution against
Priority Customer orders), the Initiating
Order would receive zero contracts
(40% of the one remaining contract after
execution against the Priority Customer
order contract, which is 0.4 that gets
rounded down to zero), and the
remaining contra-interest would receive
the final contract. This proposed change
will ensure that the Initiating Order will
receive at least a partial execution in an
AIM Auction of a small order, and thus
continue to incentive Options Members
to submit customer orders into AIM
auctions for potential price
improvement. This is also consistent
with current AIM priority, which
provides that the Initiating Order has
priority over non-Priority Customer
10 See, e.g., ISE Rule 723(d)(2) and MIAX Rule
515A, Interpretation and Policy .11.
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orders. This proposed change is the
same as other options exchanges.11
Additionally, the proposed Sweep
and AIM order described above
provides that the paired orders
submitted as a Sweep and AIM order
may not both be for the accounts of
Priority Customers.12 Unlike an AIM
ISO (for which the Initiating Member
sends an ISO),13 the Exchange sends the
ISO for a Sweep and AIM order and
then receives the fill report for the ISO
during the AIM Auction period, so it
knows by the end of the AIM Auction
how much of the Agency Order is left
for execution against contra-interest on
the Exchange. If both orders were for
Priority Customers, they would
immediately cross pursuant to
paragraph (f) (as described below), prior
to the Exchange receiving information
regarding the size of any executions on
away exchanges (and thus prior to
knowing the NBBO that price of the
immediate cross should have traded
through). Not permitting pairs of
Priority Customer orders to be
submitted as Sweep and AIM orders
ensures that the Agency Order is not
oversubscribed, which can be prevented
if there is an AIM Auction period, and
that the immediate cross occurs at a
price at or better than the NBBO. Users
can submit these pairs of orders through
the AIM Auction process. The Exchange
believes there is minimal demand to
submit pairs of Priority Customer orders
as Sweep and AIM orders.
Current Rule 21.19(c)(2) (and
proposed paragraph (f)) provides that
the System does not initiate a Customerto-Customer AIM Immediate Cross if
there is a resting Priority Customer
order on the same side and at the same
price as the Agency Order, and instead
cancels the Agency Order and Initiating
Order. However, current subparagraph
(c)(3) will initiate an AIM Auction if the
resting Priority Customer order is on the
opposite side and at the same price as
the Agency Order. Pursuant to the
proposed rule change, the System will
also cancel the Agency Order and
Initiating Order in this situation rather
than initiate the auction process. The
11 See, e.g., Cboe Options Rule 6.74A(b)(3)(F); and
Miami International Securities Exchange, LLC
(‘‘MIAX’’) Rule 515A(a)(2)(iii)(H).
12 See proposed Rule 21.19(b)(3)(B).
13 Users are responsible for sending the ISO order
for an AIM ISO, and thus the Exchange does not
need to wait for a fill report for the ISO. Because
it is a User’s responsibility to send the ISO, and
thus account for any executions resulting from that
ISO at away exchanges (and the resulting NBBO),
the proposed rule change does not prohibit pairs of
Priority Customer orders to be submitted as an AIM
ISO. However, the Exchange believes there is
minimal demand for use of this order type for pairs
of Priority Customer orders.
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Exchange believes it is appropriate to
cancel in this situation, as that will
ensure the Agency Order will not trade
at the same price as a resting Priority
Customer. This is consistent with the
provision in proposed subparagraph
(f)(1), which states a Customer-toCustomer AIM Immediate Cross may not
occur at the same price as any Priority
Customer resting on the EDGX Options
Book. This is the same as Cboe Options
functionality.14
The proposed rule change also makes
various clarifications in, and
nonsubstantive changes to, Rule 21.19,
including the following:
• The definition of ‘‘Initiating
Member’’ moves from current paragraph
(a) to the introductory paragraph, where
the first reference to the submitting
Options Member is first used.
• The restriction that a solicited order
cannot be for the account of any Options
Market Maker registered in the
applicable series on the Exchange
moves from current paragraph (a)(6) to
the introductory paragraph.
• The provision that all options
traded on the Exchange are eligible for
AIM moves from current paragraph (a)
to proposed subparagraph (a)(1).
• The requirement that the Initiating
Member mark the Agency Order for AIM
processing moves from current
paragraph (b)(1)(A), which relates to the
Auction process, to proposed
subparagraph (a)(2), as this is a
requirement to initiate an Auction
rather than being a part of the Auction
process.
• Proposed paragraph (a)(3) states
there is no minimum size for Agency
Orders, and that the Initiating Order
must be for the same size as the Agency
Order. This is consistent with current
functionality, as the current rule states
Agency Orders may have size smaller
than and greater than 50 contracts, and
states the Initiating Member must stop
the entire Agency Order.15
• Proposed paragraph (a)(4) states the
minimum increment for the Agency
Order and Initiating Order is $0.01. This
is consistent with current subparagraph
(a)(1), except the proposed rule change
eliminates Exchange flexibility to
change the increment, as the Exchange
does not intend to increase the
minimum increment.
• The provision that states an
Initiating Member may not submit an
Agency Order if the NBBO is crossed
moves from current subparagraph (a)(5)
to proposed subparagraph (a)(6). The
14 See Cboe Options Rule 6.74A, Interpretation
and Policy .08.
15 See current Rule 21.19(a)(1); see also Cboe
Options Rule 6.74A, Interpretation and Policy .03.
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9185
proposed rule change adds this does not
apply in the case of an AIM ISO or
Sweep and AIM order, consistent with
the definitions of those two terms.
• Proposed subparagraph (a)(5) states
an Initiating Member may not designate
an Agency Order or Initiating Order as
Post Only. This is consistent with
current functionality, and the proposed
rule change is merely clarifying this in
the Rules. The Exchange believes this is
appropriate, as the purpose of a Post
Only order is to not execute upon entry
and instead rest in the EDGX Options
Book, while the purpose of an AIM
Auction is to receive an execution
following the auction but prior to
entering the EDGX Options Book.
• The provisions that require the stop
price be at least $0.01 better than the
NBBO if the Agency Order is for less
than 50 option contracts, and at or better
than the NBBO in all other situations (if
the Agency Order is for 50 contracts or
more, or the NBO width is greater than
$0.01) moves from current subparagraph
(a)(1) to proposed subparagraph (b)(1),
as proposed paragraph (b) contains all
provisions regarding the price of the
Agency and Initiating Orders.16 The
proposed rule change makes no
substantive change to these price
requirements.
• The provisions that require the stop
price be at least $0.01 better than an
order (including a Priority Customer
order) at the EDGX BBO on the same
side as the Agency Order or at or better
than a non-Priority Customer order at
the EDGX BBO on the same side as the
Agency Order if the Agency Order is a
Priority Customer order (and the
Priority Customer overlay applies)
moves from current paragraph (a)(2) to
proposed paragraph (b)(2), as proposed
paragraph (b) contains all provisions
regarding the price of the Agency and
Initiating Orders. The proposed rule
change makes no substantive change to
these price requirements.
• The provisions that state an Agency
Order must satisfy all of the eligibility
and price requirements are moved from
various locations in the rule, including
current subparagraphs (a)(4) and (a)(5),
to proposed paragraphs (a) and (b). This
also clarifies which requirements must
be met in order for an Agency Order to
be accepted and initiate an AIM
Auction.
16 The proposed rule change clarifies the size
requirements for mini-option contracts, which are
1⁄10th the size of standard option contracts. This is
consistent with current functionality and is merely
adding detail to the rule. See Rule 19.6,
Interpretation and Policy .07 (which permits the
listing of mini-options); see also Cboe Options Rule
6.74A(a)(3).
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• The proposed rule change
simplifies current subparagraph
(b)(1)(A) (and proposed subparagraph
(b)(4)) regarding the instructions an
Initiating Member must specify
regarding the prices at which it is
willing to trade with the Agency Order.
The proposed rule change makes no
substantive changes to these provisions.
• The provision regarding the
submission of ISOs to BAM moves from
current subparagraph (b)(6) to proposed
subparagraph (b)(3)(A). These orders are
renamed as AIM Sweep orders or AIM
ISO orders. This is consistent with an
AIM Sweep Order in Cboe Options Rule
6.53(q), as well as current functionality.
The proposed rule change merely adds
detail regarding how these orders work
(substantively the same as the Cboe
Options definition of an AIM Sweep
Order). The functionality for these
orders is not changing.
• The provision regarding concurrent
AIM Auctions moves from current
subparagraph (a)(3) and Interpretation
and Policy .04 to proposed
subparagraph (c)(1). The proposed rule
change makes no substantive changes to
the provisions regarding concurrent
AIM Auctions.
• The provision that does not permit
the Agency Order to be modified or
cancelled after the Initiating Member
submits the Agency Order to an AIM
Auction moves from current
subparagraph (b)(1)(A) to proposed
paragraph (c)(4).
• Proposed subparagraph (c)(5)
clarifies that an AIM response may only
participate in the AIM Auction with the
Auction ID specified in the response.
This is consistent with the requirement
that a response identify the Auction to
which it is being submitted and
consistent with current functionality.
The proposed rule change is merely
adding this detail to the rule.
• The provision that states AIM
responses will not be visible to Auction
participants or disseminated to OPRA
moves from current subparagraph
(b)(1)(F) to proposed subparagraph
(c)(5)(H).
• Current subparagraph (b)(1)(L) is
deleted and replaced by proposed
subparagraph (c)(5)(B), which states
AIM responses that cross the Initial
NBBO are capped at the Initial NBO on
the same side as the Agency Order and
$0.01 better than the EDGX BBO on the
same side as the Agency Order if the
EDGX BBO is represented by a Priority
Customer on the EDGX Options Book
(unless the Agency Order is an AIM ISO
or Sweep and AIM). The System will
execute AIM responses, if possible, at
the most aggressive permissible price
not outside the NBBO. This is consistent
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with current subparagraph (L), except
clarifies that the System does accept
AIM responses that cross the Initial
NBBO (the current provision states
responses cannot cross the NBBO, so the
proposed rule change clarifies such
responses would not be rejected) but
capped and executed within the Initial
NBBO (which is consistent with the
current provision that states these
responses will execute at the most
aggressive permissible price).
• The provisions that state an AIM
response is capped at the size of the
Agency Order moves from current
subparagraph (b)(1)(H) and (I) to
proposed subparagraph (c)(5)(D).
• The provision that states AIM
responses may be aggregated clarifies
that these are aggregated by User by
EFID. This is consistent with current
functionality and is adding this detail to
the Rule regarding how the System
aggregates this interest.
• The provision that states AIM
responses may not be designated as FOK
or IOC moves form current
subparagraph (b)(1)(K) to proposed
subparagraph (c)(5)(G).
• The provision that states AIM
responses may be modified or cancelled
during an Auction moves from current
subparagraph (b)(1)(J) to proposed
subparagraph (c)(5)(I).
• Pursuant to proposed subparagraph
(e)(6), the System cancels or rejects any
unexecuted AIM response (or
unexecuted portions) at the conclusion
of the AIM Auction. This is consistent
with current subparagraph (b)(5).
However, currently, the System
immediately rejects AIM responses if
they are not executable based on the
price of the Auction. The Exchange
believes it is appropriate to cancel all
unexecuted AIM responses, regardless
of whether they are marketable, at the
same time at the conclusion of the
Auction. This has no impact on the
allocation of an AIM Auction, as
responses that are not marketable at the
beginning of an AIM Auction will also
be unmarketable at the conclusion of an
AIM Auction and be cancelled. The
proposed rule change merely changes
the time at which these unmarketable
responses are cancelled.
• Proposed paragraph (c)(5) specifies
when the System will reject AIM
responses if they do not meet the
specified criteria and are obviously
wrong (such as being in the wrong
increment or on the wrong side). This is
consistent with current functionality,
and the proposed rule change is adding
this detail to the rule.
• Current subparagraph (b)(2)(B),
which is proposed subparagraph
(d)(1)(B), is clarified to state that the
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Auction will conclude upon receipt of
a Priority Customer order on the same
side as the Agency Order if the price of
the Priority Customer order is at or
better than the stop price. This is
consistent with current functionality, as
in both cases it would otherwise cause
a Priority Customer Order to be posted
on the EDGX Options Book with a price
better than the stop price. The proposed
rule change is adding this detail to the
rule.
• The provisions regarding allocation
when an Initiating Member selects Last
Priority moves from current
subparagraph (b)(1)(B) to proposed
subparagraph (e)(5). Proposed paragraph
(e) contains all provisions related to the
allocation of the Agency Order. The
proposed rule change makes no
substantive changes to the application
of Last Priority. The proposed rule
change deletes current subparagraph
(b)(1)(B)(ii), which states Last Priority
will not be applied if both the Initiating
Order and the Agency Order are Priority
Customer orders. Because paired orders
with a Priority Customer on both sides
(Agency and Initiating) are immediately
crossed pursuant to current paragraph
(c) and proposed paragraph (f), Last
Priority would never apply since there
is no allocation order for such
immediate crosses. Therefore, current
subparagraph (b)(1)(B)(ii) is
unnecessary.
• The proposed rule change moves all
provisions regarding allocation of the
Agency Order (including from current
subparagraphs (b)(1)(A) and (B) and
(b)(4)(B)) to proposed paragraph (e). The
proposed rule change sets forth the
exact order in which the Agency Order
will be allocated to contra-side interest
when there is no price improvement,
when there is price improvement with
a single-price submission, and when
there is price improvement with automatch. Except as discussed above, the
proposed rule change makes no
substantive changes to the order in
which the Agency Order is allocated to
contra-side interest. The Exchange
believes this clarifies the allocation and
priority provisions at the end of an AIM
Auction.
• The proposed rule change adds
detail regarding when the nondisplayed
portions of Reserve Orders will trade
against the Agency Order. Specifically,
proposed subparagraphs (e)(2) and (3)
provides that the nondisplayed Reserve
Quantity will trade against the Agency
Order at each price level better than the
final auction price, after all displayed
quantity at each price level (and after
the Initiating Order if auto-match was
selected). This is consistent with Rule
21.8(l), which provides that displayed
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orders have priority over nondisplayed
orders, and that customer nondisplayed
orders trade ahead of non-customer
nondisplayed orders (if the Customer
Overlay has been applied). This is
consistent with current priority
principles and functionality, and the
proposed rule change is adding this
detail to the Rules. The Exchange
believes this is appropriate, as it ensures
all interest (including nondisplayed
interest) at a better price than the final
auction price will trade against the
Agency order (and thus provide
maximum opportunity for price
improvement), while encouraging the
submission of displayed orders, as
nondisplayed interest at the final
auction price will not trade, as
remaining interest at the final auction
price will trade against the Initiating
Order. The one exception to this is, as
provided in proposed subparagraph
(e)(5), if the Initiating Member selects
last priority, any nondisplayed interest
at the final auction price will trade
ahead of the Initiating Order, which is
consistent with the Initiating Member’s
intentions by submitting the request for
last priority.
The proposed rule change makes
certain rule language plain English,
updates cross-references as necessary,
and inserts defined terms as
appropriate.
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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.17 Specifically,
the Exchange believes the proposed rule
change is consistent with the Section
6(b)(5) 18 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) 19 requirement that
the rules of an exchange not be designed
17 15
18 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
19 Id.
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to permit unfair discrimination between
customers, issuers, brokers, or dealers.
In particular, the proposed rule
change to permit the Initiating Order to
be comprised of multiple contra-party
orders will benefit investors, because it
may increase the opportunity for
customers to have orders participate in
an AIM auction. As a result, this would
increase opportunities for price
improvement, because this will increase
the liquidity available for the Initiating
Order, which is consistent with the
purpose of AIM Auctions. The Exchange
believes that this will be beneficial to
participants because allowing multiple
contra-parties should foster competition
for filling the Initiating Order and
thereby result in potentially better
prices, as opposed to only allowing one
contra-party and, thereby requiring that
contra-party to do a larger size order
which could result in a worse price for
the trade. The proposed rule change is
also based on rules of other options
exchanges.20
The proposed Sweep and AIM order
type is similar to current AIM ISO
functionality, except the Exchange will
route the ISO orders on behalf of the
Initiating Member rather than require
the Initiating Member to separately
route ISO orders. This will benefit
investors and remove impediments to
and perfect the mechanism of a free and
open market and a national market
system, as it will provide Users with an
additional, efficient method to initiate
an AIM while preventing tradethroughs. The proposed rule change is
also based on the rules of another
options exchange.21
The proposed rule change to provide
that the Initiating Order will be
allocated the greater of one contract or
the specified percentage will ensure that
the Initiating Order will receive at least
a partial execution in an AIM Auction
of a small order. This will incentive
Options Members to continue submit
customer orders into AIM auctions for
potential price improvement, which
ultimately benefits investors. This
proposed change is the same as other
options exchanges.22
The proposed rule change to provide
that the Initiating Order’s percentage
allocation will be based on the number
of contracts remaining after the Agency
Order executes against Public Customer
orders will promote just and equitable
principles of trade, as it ensures the size
used to determine the allocation
20 See,
e.g., Cboe Options Rule 6.74A and
Regulatory Circular RG17–074 (May 19, 2017); and
ISE Rule 723(b).
21 See, e.g., Cboe Options Rule 6.53(r).
22 See, e.g., Cboe Options Rule 6.74A(b)(3)(F); and
MIAX Rule 515A(a)(2)(iii)(H).
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9187
percentage for the Initiating Order will
be based on the same number of
contracts that would otherwise be
available to other contra-side interest. It
is also the same as other options
exchanges.23
The proposed rule change to not
immediately cross a pair of orders for
customer accounts at the same price as
any Priority Customer order resting on
the EDGX Options Book, and to cancel
an Agency Order if there is a Priority
Customer order resting on the opposite
side of the market at the same price (as
currently occurs if there is a Priority
Customer order resting on the same side
of the market at the same price), will
protect customer orders that enter the
EDGX Options Book. This proposed rule
change is the same as the rules of
another options exchange.24 The
Exchange believes it promotes just and
equitable principles of trade to limit
immediate crosses without auctions
only when there are no Priority
Customer orders resting on the Book, as
that is consistent will protect Priority
Customer orders on the book, which
may then have opportunities to trade
against Agency Orders. The Exchange
similarly believes it will protect
investors by rejecting Sweep and AIM
orders with pairs of orders for customer
accounts, as this will ensure customers
will receive better prices at least as good
as the Initial NBBO and not
oversubscribe the Agency Order. The
Exchange does believes there is minimal
demand for use of Sweep and AIM
orders for pairs of Priority Customer
orders.
The proposed clarifications and
nonsubstantive changes will benefit
investors, as they provide additional
detail and transparency to the rules
regarding the AIM Auction process,
including the AIM eligibility
requirements, AIM response parameters,
and allocation of the Agency Order
following an AIM Auction. This
includes the proposed clarification that
an Initiating Member may not designate
an Agency Order or Initiating Order as
Post Only. This clarification protects
investors, because provides
transparency regarding functionality
that is not available on BAM today. The
Exchange believes this is appropriate, as
the purpose of a Post Only order is to
not execute upon entry and instead rest
in the EDGX Options Book, while the
23 See, e.g., ISE Rule 723(d)(2); and MIAX Rule
515A, Interpretation and Policy .11. While this
functionality is not specified in Cboe Options Rule
6.74A, it is the Exchange’s understanding this
proposed rule change is consistent with Cboe
Options functionality.
24 See Cboe Options Rule 6.74A, Interpretation
and Policy .08.
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Federal Register / Vol. 84, No. 49 / Wednesday, March 13, 2019 / Notices
purpose of submitting orders to an AIM
Auction is to receive an execution
following the auction and not to have
those orders enter the EDGX Options
Book. Pursuant to current and proposed
Rule 21.19, an Agency Order will fully
execute against contra-side interest
(possibly including the Initiating Order,
which must be for the same size as the
Agency Order, and thus there cannot be
remaining contracts in an Agency Order
to enter the EDGX Options Book if there
is an execution following a BAM/AIM
Auction). This proposed clarification is
not changing current functionality, and
the Post Only designation is not
available to any Initiating Member for
Agency Orders and Initiating Orders.
The proposed clarification that
provides an AIM response that crosses
the Initial NBBO is capped at the Initial
NBBO on the same side as the Agency
Order and $0.01 better than the EDGX
BBO on the same side as the Agency
Order if the EDGX BBO is represented
by a Priority Customer on the EDGX
Options Book (unless the Agency Order
is an AIM ISO or Sweep and AIM), and
that an AIM response will execute, if
possible, at the most aggressive
permissible price not outside the Initial
NBBO protects investors, because it
adds detail to the rules regarding
current functionality. Current Rule
21.19 may imply the System may not
accept responses that cross the Initial
NBBO. However, because responses are
a source of liquidity and potential price
improvement, the Exchange believes it
is appropriate to instead accept these
responses and cap them at the Initial
NBBO. This promotes just and equitable
principles of trade, because it is
consistent with the requirement that the
stop price (which is the minimum price
at which the Agency Order may
execute) must be at or better than the
Initial NBBO, and will ensure the
execution price does not cross the Initial
NBBO in accordance with linkage rules.
This proposed clarification is not
changing current functionality, and this
functionality applies in the same
manner to the responses of all Users.
The proposed clarification to state
that the stop price requirements that
apply to Agency Orders for less than 50
standard option contracts and to Agency
Orders for 50 standard option contracts
or more similarly apply to the
corresponding number of mini-option
contracts (i.e., 500 mini-option
contracts) protects investors, because it
is consistent with current functionality.
Rule 19.6, Interpretation and Policy .07
permits the listing of mini-options,
which is an option with a 10 share
deliverable of the underlying security
rather than 100 share deliverable of the
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17:45 Mar 12, 2019
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underlying security (which is the
standard deliverable for a standard
option contract). The proposed change
to state that 50 standard option
contracts is consistent with 500 minioption contracts is consistent with this
definition of mini-options. This
provides transparency to investors that
AIM functionality and the potential for
price improvement is available to
Agency Orders for mini-options as well
as standard options. The proposed
clarification also promotes fair and
equitable principles of trade, because
the volume restrictions apply in the
same manner to an equivalent number
of contracts in a standard option and a
mini-option. This proposed clarification
does not impose any significant burden
on competition, as it applies in the same
manner to all Agency Orders and is also
the same as Cboe Options Rule
6.74A(a)(3).
Additionally, these proposed changes
reorganize Rule 21.19 so that all
provisions related to the same part of
the auction process and located in the
same part of the rule. These proposed
changes have no impact on how the
AIM Auction will work, as they are
consistent with current functionality.
The proposed rule change is generally
intended to align system functionality
currently offered by the Exchange with
Cboe Options functionality in order to
provide a consistent technology offering
for the Cboe Affiliated Exchanges. 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 Exchange
believes this consistency will promote a
fair and orderly national options market
system. When Cboe Options migrates to
the same technology as that of the
Exchange and other Cboe Affiliated
Exchanges, Users of the Exchange and
other Cboe Affiliated Exchanges will
have access to similar functionality on
all Cboe Affiliated Exchanges. As such,
the proposed rule change would foster
cooperation and coordination with
persons engaged in facilitating
transactions in securities and would
remove impediments to and perfect the
mechanism of a free and open market
and a national market system.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. The
Exchange does not believe the proposed
rule change will impose any burden on
PO 00000
Frm 00115
Fmt 4703
Sfmt 4703
intramarket competition, as the
proposed rule change will apply in the
same manner to all orders submitted to
an AIM Auction. With respect to the
proposed changes that limit the
Immediate Customer-to-Customer AIM
crosses, those changes will apply in the
same manner to all pairs of customer
orders submitted in those
circumstances. The Exchange does not
believe the proposed rule change will
impose any burden on intermarket
competition, because the proposed
changes, as described above and below,
are based on rules for similar price
improvement auction mechanisms at
other options exchanges.
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) of the Act 25 and Rule 19b–
4(f)(6) thereunder.26
A proposed rule change filed
pursuant to Rule 19b–4(f)(6) under the
Act 27 normally does not become
operative for 30 days after the date of its
filing. However, Rule 19b–4(f)(6)(iii) 28
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. The Exchange states
that waiver of the operative delay would
allow the Exchange to continue towards
a complete technology integration of the
Cboe Affiliated Exchanges. According to
the Exchange, a consistent technology
offering will simplify the technology
implementation, changes, and
25 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6)(iii) requires a self-regulatory organization to
give the Commission written notice of its intent to
file the proposed rule change, along with a brief
description and text of the proposed rule change,
at least five business days prior to the date of filing
of the proposed rule change, or such shorter time
as designated by the Commission. The Exchange
has satisfied this requirement.
27 17 CFR 240.19b–4(f)(6).
28 17 CFR 240.19b–4(f)(6)(iii).
26 17
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maintenance by Options Members of the
Exchange that are also participants on
Cboe Affiliated Exchanges. The
Exchange notes that it intends to
implement the proposed rule change on
March 21, 2019. The Commission
believes that waiver of the 30-day
operative delay is consistent with the
protection of investors and the public
interest. Therefore, the Commission
hereby waives the operative delay and
designates the proposal as operative
upon filing.29
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.
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
a.m. and 3 p.m. Copies of such 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–2019–007, and should be
submitted on or before April 3, 2019.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.30
Eduardo A. Aleman,
Deputy Secretary.
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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–2019–007 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–2019–007. 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
29 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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[FR Doc. 2019–04561 Filed 3–12–19; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release Nos. 33–10611; 34–85271; File No.
265–28]
Investor Advisory Committee Meeting
Securities and Exchange
Commission.
ACTION: Notice of meeting of Securities
and Exchange Commission Dodd-Frank
Investor Advisory Committee.
AGENCY:
The Securities and Exchange
Commission Investor Advisory
Committee, established pursuant to
Section 911 of the Dodd-Frank Wall
Street Reform and Consumer Protection
Act of 2010, is providing notice that it
will hold a public meeting. The public
is invited to submit written statements
to the Committee.
DATES: The meeting will be held on
Thursday, March 28, 2019 from 9:00
a.m. until 3:15 p.m. (ET). Written
statements should be received on or
before March 28, 2019.
ADDRESSES: The meeting will be held in
Multi-Purpose Room LL–006 at the
Commission’s headquarters, 100 F
SUMMARY:
30 17
PO 00000
CFR 200.30–3(a)(12).
Frm 00116
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9189
Street NE, Washington, DC 20549. The
meeting will be webcast on the
Commission’s website at www.sec.gov.
Written statements may be submitted by
any of the following methods:
Electronic Statements
• Use the Commission’s internet
submission form (https://www.sec.gov/
rules/other.shtml); or
• Send an email message to rulescomments@sec.gov. Please include File
No. 265–28 on the subject line; or
Paper Statements
• Send paper statements to Brent J.
Fields, Secretary, Securities and
Exchange Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File No.
265–28. This file number should be
included on the subject line if email is
used. To help us process and review
your statement more efficiently, please
use only one method.
Statements also will be available for
website viewing and printing in the
Commission’s Public Reference Room,
100 F Street NE, Room 1503,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. All statements
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.
FOR FURTHER INFORMATION CONTACT:
Marc Oorloff Sharma, Chief Counsel,
Office of the Investor Advocate, at (202)
551–3302, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549.
SUPPLEMENTARY INFORMATION: The
meeting will be open to the public,
except during that portion of the
meeting reserved for an administrative
work session during lunch. Persons
needing special accommodations to take
part because of a disability should
notify the contact person listed in the
section above entitled FOR FURTHER
INFORMATION CONTACT.
The agenda for the meeting includes:
Welcome remarks; a discussion
regarding stock exchanges and,
specifically, investor protection under
the modern exchange regulatory
structure; a discussion regarding
disclosures on human capital (which
may include a recommendation from
the Investor as Owner subcommittee); a
discussion regarding trends in
investment research and potential
regulatory implications; subcommittee
reports; and a nonpublic administrative
work session during lunch.
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]]>Agencies
[Federal Register Volume 84, Number 49 (Wednesday, March 13, 2019)]
[Notices]
[Pages 9183-9189]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-04561]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-85267; File No. SR-CboeEDGX-2019-007]
Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice
of Filing and Immediate Effectiveness of a Proposed Rule Change To
Amend the Bats Auction Mechanism (``BAM'')
March 7, 2019.
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 March 5, 2019, 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 and II
below, which Items have been prepared by the Exchange. The Exchange
filed the proposal as a ``non-controversial'' proposed rule change
pursuant to Section 19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-
4(f)(6) thereunder.\4\ The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\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).
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of the
Substance of the Proposed Rule Change
Cboe EDGX Exchange, Inc. (the ``Exchange'' or ``EDGX'') proposes to
amend the Bats Auction Mechanism (``BAM''). The text of the proposed
rule change is provided in Exhibit 5.
The text of the proposed rule change is also available on the
Exchange's website (https://markets.cboe.com/us/options/regulation/rule_filings/edgx/), 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.
[[Page 9184]]
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.
(``Cboe Global''), which is the parent company of Cboe Exchange, Inc.
(``Cboe Options'') and Cboe C2 Exchange, Inc. (``C2''), 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, the Exchange, EDGA, and BZX, the ``Cboe
Affiliated Exchanges''). The Cboe Affiliated Exchanges are working to
align certain system functionality, retaining only intended differences
between the Cboe Affiliated Exchanges, in the context of a technology
migration. Cboe Options intends to migrate its technology to the same
trading platform used by the Exchange, C2, and BZX Options in the
fourth quarter of 2019. The proposal set forth below is intended to add
certain functionality to the Exchange's System that is available on
Cboe Options in order to ultimately provide a consistent technology
offering for market participants who interact with the Cboe Affiliated
Exchanges. Although the Exchange intentionally offers certain features
that differ from those offered by its affiliates and will continue to
do so, the Exchange believes that offering similar functionality to the
extent practicable will reduce potential confusion for Users.
The proposed rule change amends Rule 21.19 related to BAM, which
the proposed rule change renames as the Automated Improvement Mechanism
(``AIM''). This is the name of the corresponding price improvement
auction mechanism on Cboe Options, and the proposed rule change will
refer to the Exchange's auction process as AIM.\5\
---------------------------------------------------------------------------
\5\ See Cboe Options Rule 6.74A. The proposed rule change also
replaces the reference to BAM with AIM in Rule 22.12(c).
---------------------------------------------------------------------------
The proposed rule change will permit the Initiating Order to
consist of one or more solicited orders. This will accommodate multiple
contra-parties and increase the opportunities for customer orders to be
submitted into an AIM Auction with the potential for price improvement,
since the Initiating Order must stop the full size of the Agency Order.
This has no impact on the execution of the Agency Order, which may
already trade against multiple contra-parties depending on the final
auction price, as set forth in proposed paragraph (e). This proposed
change is consistent with Cboe Options AIM functionality.\6\
---------------------------------------------------------------------------
\6\ See Cboe Options Regulatory Circular RG17-074 (May 19,
2017); see also NASDAQ ISE, LLC (``ISE'') Rule 723(b).
---------------------------------------------------------------------------
The proposed rule change adopts a Sweep and AIM order, which is the
submission of two orders for crossing in an AIM Auction with a stop
price that does not need to be within the BBO and where the Exchange
sweeps all Protected Quotes, as defined in Rule 27.1, by routing one or
more ISOs, as necessary, to execute against the full displayed size of
any Protected Quote with a price better than the stop price, as well as
sweep all interest in the EDGX Options Book with a price better than
the stop price simultaneously with the commencement of the AIM Auction.
Any execution(s) resulting from these sweeps accrue to the Agency
Order.\7\ This proposed order is consistent with the current BAM ISO
functionality,\8\ except the Exchange will route the ISOs on behalf of
the User rather than requiring the User to route the ISOs itself.
Additionally, the proposed rule change is consistent with Cboe Options
functionality.\9\ This proposed order type will provide Users with an
additional, efficient method to initiate an AIM while preventing trade-
throughs.
---------------------------------------------------------------------------
\7\ In other words, any contracts executed at an away exchange
would count as execution against the Agency Order (and thus reduce
the size of the Agency Order available for execution during an AIM
Auction). This is consistent with how ISOs work for all order types.
\8\ See current Rule 21.19(b)(6) and proposed Rule
21.19(b)(3)(A); see also Cboe Options Rule 6.53(q).
\9\ See Cboe Options Rule 6.53(r).
---------------------------------------------------------------------------
The proposed rule change clarifies that if an Initiating Member
submits an AIM Sweep or Sweep and AIM order, the stop price may be
inferior to the Initial NBBO, but is still subject to the price
improvement requirement in proposed subparagraph (b)(1)(A). In other
words, while AIM Sweep and Sweep and AIM orders permit an Initiating
Member to stop an Agency Order at a price inferior to the NBBO at the
time it submits the Agency Order to an AIM Auction, the Initiating
Member must still comply with the price-improvement requirement for
smaller-sized orders if the width of the NBBO is $0.01. For example, if
an Initiating Member submits an Agency Order to buy for 20 contracts as
a Sweep and AIM with a stop price of 1.01 when the NBBO is 1.00 x 1.01,
the System rejects the Agency Order (and the Initiating Order). Note if
the Initiating Member instead submitted an AIM Sweep, the Exchange
initiates an AIM, because the Initiating Member is responsible for
submitting the ISO and the System cannot confirm that the NBBO width
will ultimately be $0.01. However, the Initiating Member is still
responsible for complying with the price-improvement requirement for
smaller-sized orders if the width of the resulting NBBO following
execution of the ISO is $0.01.
Proposed Rule 21.19(e)(1) provides that the Initiating Order
allocation percentage is based on the number of contracts remaining of
the Agency Order after execution against Priority Customer orders
rather than the initial size of the Agency Order. This ensures the size
used to determine the allocation percentage for the Initiating Order
will be based on the same number of contracts that would otherwise be
available to other contra-side interest. The proposed rule change is
the same as the rules of other options exchanges.\10\
---------------------------------------------------------------------------
\10\ See, e.g., ISE Rule 723(d)(2) and MIAX Rule 515A,
Interpretation and Policy .11.
---------------------------------------------------------------------------
Additionally, pursuant to current Rule 21.19(b)(1)(A), the
Initiating Member may receive an allocation up to 50% of the Agency
Order if there interest from one other User at the stop price or 40% of
the Agency Order if there is interest from two or more other Users at
the stop price. Pursuant to proposed Rule 21.19(e)(1)(B), the
Initiating Order may receive an allocation up to the greater of one
contract or such percentage. If the Agency Order is small, it is
possible that the Initiating Order may receive no contracts due to
rounding. For example, if the Agency Order is for two contracts, and at
the end of the AIM Auction there is a Priority Customer order for one
contract at the final auction price and two other participants at the
final auction price, allocation would be as follows (based on the
proposed change above that the allocation percentage is based on the
number of contracts remaining after execution against Priority Customer
orders), the Initiating Order would receive zero contracts (40% of the
one remaining contract after execution against the Priority Customer
order contract, which is 0.4 that gets rounded down to zero), and the
remaining contra-interest would receive the final contract. This
proposed change will ensure that the Initiating Order will receive at
least a partial execution in an AIM Auction of a small order, and thus
continue to incentive Options Members to submit customer orders into
AIM auctions for potential price improvement. This is also consistent
with current AIM priority, which provides that the Initiating Order has
priority over non-Priority Customer
[[Page 9185]]
orders. This proposed change is the same as other options
exchanges.\11\
---------------------------------------------------------------------------
\11\ See, e.g., Cboe Options Rule 6.74A(b)(3)(F); and Miami
International Securities Exchange, LLC (``MIAX'') Rule
515A(a)(2)(iii)(H).
---------------------------------------------------------------------------
Additionally, the proposed Sweep and AIM order described above
provides that the paired orders submitted as a Sweep and AIM order may
not both be for the accounts of Priority Customers.\12\ Unlike an AIM
ISO (for which the Initiating Member sends an ISO),\13\ the Exchange
sends the ISO for a Sweep and AIM order and then receives the fill
report for the ISO during the AIM Auction period, so it knows by the
end of the AIM Auction how much of the Agency Order is left for
execution against contra-interest on the Exchange. If both orders were
for Priority Customers, they would immediately cross pursuant to
paragraph (f) (as described below), prior to the Exchange receiving
information regarding the size of any executions on away exchanges (and
thus prior to knowing the NBBO that price of the immediate cross should
have traded through). Not permitting pairs of Priority Customer orders
to be submitted as Sweep and AIM orders ensures that the Agency Order
is not oversubscribed, which can be prevented if there is an AIM
Auction period, and that the immediate cross occurs at a price at or
better than the NBBO. Users can submit these pairs of orders through
the AIM Auction process. The Exchange believes there is minimal demand
to submit pairs of Priority Customer orders as Sweep and AIM orders.
---------------------------------------------------------------------------
\12\ See proposed Rule 21.19(b)(3)(B).
\13\ Users are responsible for sending the ISO order for an AIM
ISO, and thus the Exchange does not need to wait for a fill report
for the ISO. Because it is a User's responsibility to send the ISO,
and thus account for any executions resulting from that ISO at away
exchanges (and the resulting NBBO), the proposed rule change does
not prohibit pairs of Priority Customer orders to be submitted as an
AIM ISO. However, the Exchange believes there is minimal demand for
use of this order type for pairs of Priority Customer orders.
---------------------------------------------------------------------------
Current Rule 21.19(c)(2) (and proposed paragraph (f)) provides that
the System does not initiate a Customer-to-Customer AIM Immediate Cross
if there is a resting Priority Customer order on the same side and at
the same price as the Agency Order, and instead cancels the Agency
Order and Initiating Order. However, current subparagraph (c)(3) will
initiate an AIM Auction if the resting Priority Customer order is on
the opposite side and at the same price as the Agency Order. Pursuant
to the proposed rule change, the System will also cancel the Agency
Order and Initiating Order in this situation rather than initiate the
auction process. The Exchange believes it is appropriate to cancel in
this situation, as that will ensure the Agency Order will not trade at
the same price as a resting Priority Customer. This is consistent with
the provision in proposed subparagraph (f)(1), which states a Customer-
to-Customer AIM Immediate Cross may not occur at the same price as any
Priority Customer resting on the EDGX Options Book. This is the same as
Cboe Options functionality.\14\
---------------------------------------------------------------------------
\14\ See Cboe Options Rule 6.74A, Interpretation and Policy .08.
---------------------------------------------------------------------------
The proposed rule change also makes various clarifications in, and
nonsubstantive changes to, Rule 21.19, including the following:
The definition of ``Initiating Member'' moves from current
paragraph (a) to the introductory paragraph, where the first reference
to the submitting Options Member is first used.
The restriction that a solicited order cannot be for the
account of any Options Market Maker registered in the applicable series
on the Exchange moves from current paragraph (a)(6) to the introductory
paragraph.
The provision that all options traded on the Exchange are
eligible for AIM moves from current paragraph (a) to proposed
subparagraph (a)(1).
The requirement that the Initiating Member mark the Agency
Order for AIM processing moves from current paragraph (b)(1)(A), which
relates to the Auction process, to proposed subparagraph (a)(2), as
this is a requirement to initiate an Auction rather than being a part
of the Auction process.
Proposed paragraph (a)(3) states there is no minimum size
for Agency Orders, and that the Initiating Order must be for the same
size as the Agency Order. This is consistent with current
functionality, as the current rule states Agency Orders may have size
smaller than and greater than 50 contracts, and states the Initiating
Member must stop the entire Agency Order.\15\
---------------------------------------------------------------------------
\15\ See current Rule 21.19(a)(1); see also Cboe Options Rule
6.74A, Interpretation and Policy .03.
---------------------------------------------------------------------------
Proposed paragraph (a)(4) states the minimum increment for
the Agency Order and Initiating Order is $0.01. This is consistent with
current subparagraph (a)(1), except the proposed rule change eliminates
Exchange flexibility to change the increment, as the Exchange does not
intend to increase the minimum increment.
The provision that states an Initiating Member may not
submit an Agency Order if the NBBO is crossed moves from current
subparagraph (a)(5) to proposed subparagraph (a)(6). The proposed rule
change adds this does not apply in the case of an AIM ISO or Sweep and
AIM order, consistent with the definitions of those two terms.
Proposed subparagraph (a)(5) states an Initiating Member
may not designate an Agency Order or Initiating Order as Post Only.
This is consistent with current functionality, and the proposed rule
change is merely clarifying this in the Rules. The Exchange believes
this is appropriate, as the purpose of a Post Only order is to not
execute upon entry and instead rest in the EDGX Options Book, while the
purpose of an AIM Auction is to receive an execution following the
auction but prior to entering the EDGX Options Book.
The provisions that require the stop price be at least
$0.01 better than the NBBO if the Agency Order is for less than 50
option contracts, and at or better than the NBBO in all other
situations (if the Agency Order is for 50 contracts or more, or the NBO
width is greater than $0.01) moves from current subparagraph (a)(1) to
proposed subparagraph (b)(1), as proposed paragraph (b) contains all
provisions regarding the price of the Agency and Initiating Orders.\16\
The proposed rule change makes no substantive change to these price
requirements.
---------------------------------------------------------------------------
\16\ The proposed rule change clarifies the size requirements
for mini-option contracts, which are \1/10\th the size of standard
option contracts. This is consistent with current functionality and
is merely adding detail to the rule. See Rule 19.6, Interpretation
and Policy .07 (which permits the listing of mini-options); see also
Cboe Options Rule 6.74A(a)(3).
---------------------------------------------------------------------------
The provisions that require the stop price be at least
$0.01 better than an order (including a Priority Customer order) at the
EDGX BBO on the same side as the Agency Order or at or better than a
non-Priority Customer order at the EDGX BBO on the same side as the
Agency Order if the Agency Order is a Priority Customer order (and the
Priority Customer overlay applies) moves from current paragraph (a)(2)
to proposed paragraph (b)(2), as proposed paragraph (b) contains all
provisions regarding the price of the Agency and Initiating Orders. The
proposed rule change makes no substantive change to these price
requirements.
The provisions that state an Agency Order must satisfy all
of the eligibility and price requirements are moved from various
locations in the rule, including current subparagraphs (a)(4) and
(a)(5), to proposed paragraphs (a) and (b). This also clarifies which
requirements must be met in order for an Agency Order to be accepted
and initiate an AIM Auction.
[[Page 9186]]
The proposed rule change simplifies current subparagraph
(b)(1)(A) (and proposed subparagraph (b)(4)) regarding the instructions
an Initiating Member must specify regarding the prices at which it is
willing to trade with the Agency Order. The proposed rule change makes
no substantive changes to these provisions.
The provision regarding the submission of ISOs to BAM
moves from current subparagraph (b)(6) to proposed subparagraph
(b)(3)(A). These orders are renamed as AIM Sweep orders or AIM ISO
orders. This is consistent with an AIM Sweep Order in Cboe Options Rule
6.53(q), as well as current functionality. The proposed rule change
merely adds detail regarding how these orders work (substantively the
same as the Cboe Options definition of an AIM Sweep Order). The
functionality for these orders is not changing.
The provision regarding concurrent AIM Auctions moves from
current subparagraph (a)(3) and Interpretation and Policy .04 to
proposed subparagraph (c)(1). The proposed rule change makes no
substantive changes to the provisions regarding concurrent AIM
Auctions.
The provision that does not permit the Agency Order to be
modified or cancelled after the Initiating Member submits the Agency
Order to an AIM Auction moves from current subparagraph (b)(1)(A) to
proposed paragraph (c)(4).
Proposed subparagraph (c)(5) clarifies that an AIM
response may only participate in the AIM Auction with the Auction ID
specified in the response. This is consistent with the requirement that
a response identify the Auction to which it is being submitted and
consistent with current functionality. The proposed rule change is
merely adding this detail to the rule.
The provision that states AIM responses will not be
visible to Auction participants or disseminated to OPRA moves from
current subparagraph (b)(1)(F) to proposed subparagraph (c)(5)(H).
Current subparagraph (b)(1)(L) is deleted and replaced by
proposed subparagraph (c)(5)(B), which states AIM responses that cross
the Initial NBBO are capped at the Initial NBO on the same side as the
Agency Order and $0.01 better than the EDGX BBO on the same side as the
Agency Order if the EDGX BBO is represented by a Priority Customer on
the EDGX Options Book (unless the Agency Order is an AIM ISO or Sweep
and AIM). The System will execute AIM responses, if possible, at the
most aggressive permissible price not outside the NBBO. This is
consistent with current subparagraph (L), except clarifies that the
System does accept AIM responses that cross the Initial NBBO (the
current provision states responses cannot cross the NBBO, so the
proposed rule change clarifies such responses would not be rejected)
but capped and executed within the Initial NBBO (which is consistent
with the current provision that states these responses will execute at
the most aggressive permissible price).
The provisions that state an AIM response is capped at the
size of the Agency Order moves from current subparagraph (b)(1)(H) and
(I) to proposed subparagraph (c)(5)(D).
The provision that states AIM responses may be aggregated
clarifies that these are aggregated by User by EFID. This is consistent
with current functionality and is adding this detail to the Rule
regarding how the System aggregates this interest.
The provision that states AIM responses may not be
designated as FOK or IOC moves form current subparagraph (b)(1)(K) to
proposed subparagraph (c)(5)(G).
The provision that states AIM responses may be modified or
cancelled during an Auction moves from current subparagraph (b)(1)(J)
to proposed subparagraph (c)(5)(I).
Pursuant to proposed subparagraph (e)(6), the System
cancels or rejects any unexecuted AIM response (or unexecuted portions)
at the conclusion of the AIM Auction. This is consistent with current
subparagraph (b)(5). However, currently, the System immediately rejects
AIM responses if they are not executable based on the price of the
Auction. The Exchange believes it is appropriate to cancel all
unexecuted AIM responses, regardless of whether they are marketable, at
the same time at the conclusion of the Auction. This has no impact on
the allocation of an AIM Auction, as responses that are not marketable
at the beginning of an AIM Auction will also be unmarketable at the
conclusion of an AIM Auction and be cancelled. The proposed rule change
merely changes the time at which these unmarketable responses are
cancelled.
Proposed paragraph (c)(5) specifies when the System will
reject AIM responses if they do not meet the specified criteria and are
obviously wrong (such as being in the wrong increment or on the wrong
side). This is consistent with current functionality, and the proposed
rule change is adding this detail to the rule.
Current subparagraph (b)(2)(B), which is proposed
subparagraph (d)(1)(B), is clarified to state that the Auction will
conclude upon receipt of a Priority Customer order on the same side as
the Agency Order if the price of the Priority Customer order is at or
better than the stop price. This is consistent with current
functionality, as in both cases it would otherwise cause a Priority
Customer Order to be posted on the EDGX Options Book with a price
better than the stop price. The proposed rule change is adding this
detail to the rule.
The provisions regarding allocation when an Initiating
Member selects Last Priority moves from current subparagraph (b)(1)(B)
to proposed subparagraph (e)(5). Proposed paragraph (e) contains all
provisions related to the allocation of the Agency Order. The proposed
rule change makes no substantive changes to the application of Last
Priority. The proposed rule change deletes current subparagraph
(b)(1)(B)(ii), which states Last Priority will not be applied if both
the Initiating Order and the Agency Order are Priority Customer orders.
Because paired orders with a Priority Customer on both sides (Agency
and Initiating) are immediately crossed pursuant to current paragraph
(c) and proposed paragraph (f), Last Priority would never apply since
there is no allocation order for such immediate crosses. Therefore,
current subparagraph (b)(1)(B)(ii) is unnecessary.
The proposed rule change moves all provisions regarding
allocation of the Agency Order (including from current subparagraphs
(b)(1)(A) and (B) and (b)(4)(B)) to proposed paragraph (e). The
proposed rule change sets forth the exact order in which the Agency
Order will be allocated to contra-side interest when there is no price
improvement, when there is price improvement with a single-price
submission, and when there is price improvement with auto-match. Except
as discussed above, the proposed rule change makes no substantive
changes to the order in which the Agency Order is allocated to contra-
side interest. The Exchange believes this clarifies the allocation and
priority provisions at the end of an AIM Auction.
The proposed rule change adds detail regarding when the
nondisplayed portions of Reserve Orders will trade against the Agency
Order. Specifically, proposed subparagraphs (e)(2) and (3) provides
that the nondisplayed Reserve Quantity will trade against the Agency
Order at each price level better than the final auction price, after
all displayed quantity at each price level (and after the Initiating
Order if auto-match was selected). This is consistent with Rule
21.8(l), which provides that displayed
[[Page 9187]]
orders have priority over nondisplayed orders, and that customer
nondisplayed orders trade ahead of non-customer nondisplayed orders (if
the Customer Overlay has been applied). This is consistent with current
priority principles and functionality, and the proposed rule change is
adding this detail to the Rules. The Exchange believes this is
appropriate, as it ensures all interest (including nondisplayed
interest) at a better price than the final auction price will trade
against the Agency order (and thus provide maximum opportunity for
price improvement), while encouraging the submission of displayed
orders, as nondisplayed interest at the final auction price will not
trade, as remaining interest at the final auction price will trade
against the Initiating Order. The one exception to this is, as provided
in proposed subparagraph (e)(5), if the Initiating Member selects last
priority, any nondisplayed interest at the final auction price will
trade ahead of the Initiating Order, which is consistent with the
Initiating Member's intentions by submitting the request for last
priority.
The proposed rule change makes certain rule language plain English,
updates cross-references as necessary, and inserts defined terms as
appropriate.
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.\17\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \18\ 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) \19\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
---------------------------------------------------------------------------
\17\ 15 U.S.C. 78f(b).
\18\ 15 U.S.C. 78f(b)(5).
\19\ Id.
---------------------------------------------------------------------------
In particular, the proposed rule change to permit the Initiating
Order to be comprised of multiple contra-party orders will benefit
investors, because it may increase the opportunity for customers to
have orders participate in an AIM auction. As a result, this would
increase opportunities for price improvement, because this will
increase the liquidity available for the Initiating Order, which is
consistent with the purpose of AIM Auctions. The Exchange believes that
this will be beneficial to participants because allowing multiple
contra-parties should foster competition for filling the Initiating
Order and thereby result in potentially better prices, as opposed to
only allowing one contra-party and, thereby requiring that contra-party
to do a larger size order which could result in a worse price for the
trade. The proposed rule change is also based on rules of other options
exchanges.\20\
---------------------------------------------------------------------------
\20\ See, e.g., Cboe Options Rule 6.74A and Regulatory Circular
RG17-074 (May 19, 2017); and ISE Rule 723(b).
---------------------------------------------------------------------------
The proposed Sweep and AIM order type is similar to current AIM ISO
functionality, except the Exchange will route the ISO orders on behalf
of the Initiating Member rather than require the Initiating Member to
separately route ISO orders. This will benefit investors and remove
impediments to and perfect the mechanism of a free and open market and
a national market system, as it will provide Users with an additional,
efficient method to initiate an AIM while preventing trade-throughs.
The proposed rule change is also based on the rules of another options
exchange.\21\
---------------------------------------------------------------------------
\21\ See, e.g., Cboe Options Rule 6.53(r).
---------------------------------------------------------------------------
The proposed rule change to provide that the Initiating Order will
be allocated the greater of one contract or the specified percentage
will ensure that the Initiating Order will receive at least a partial
execution in an AIM Auction of a small order. This will incentive
Options Members to continue submit customer orders into AIM auctions
for potential price improvement, which ultimately benefits investors.
This proposed change is the same as other options exchanges.\22\
---------------------------------------------------------------------------
\22\ See, e.g., Cboe Options Rule 6.74A(b)(3)(F); and MIAX Rule
515A(a)(2)(iii)(H).
---------------------------------------------------------------------------
The proposed rule change to provide that the Initiating Order's
percentage allocation will be based on the number of contracts
remaining after the Agency Order executes against Public Customer
orders will promote just and equitable principles of trade, as it
ensures the size used to determine the allocation percentage for the
Initiating Order will be based on the same number of contracts that
would otherwise be available to other contra-side interest. It is also
the same as other options exchanges.\23\
---------------------------------------------------------------------------
\23\ See, e.g., ISE Rule 723(d)(2); and MIAX Rule 515A,
Interpretation and Policy .11. While this functionality is not
specified in Cboe Options Rule 6.74A, it is the Exchange's
understanding this proposed rule change is consistent with Cboe
Options functionality.
---------------------------------------------------------------------------
The proposed rule change to not immediately cross a pair of orders
for customer accounts at the same price as any Priority Customer order
resting on the EDGX Options Book, and to cancel an Agency Order if
there is a Priority Customer order resting on the opposite side of the
market at the same price (as currently occurs if there is a Priority
Customer order resting on the same side of the market at the same
price), will protect customer orders that enter the EDGX Options Book.
This proposed rule change is the same as the rules of another options
exchange.\24\ The Exchange believes it promotes just and equitable
principles of trade to limit immediate crosses without auctions only
when there are no Priority Customer orders resting on the Book, as that
is consistent will protect Priority Customer orders on the book, which
may then have opportunities to trade against Agency Orders. The
Exchange similarly believes it will protect investors by rejecting
Sweep and AIM orders with pairs of orders for customer accounts, as
this will ensure customers will receive better prices at least as good
as the Initial NBBO and not oversubscribe the Agency Order. The
Exchange does believes there is minimal demand for use of Sweep and AIM
orders for pairs of Priority Customer orders.
---------------------------------------------------------------------------
\24\ See Cboe Options Rule 6.74A, Interpretation and Policy .08.
---------------------------------------------------------------------------
The proposed clarifications and nonsubstantive changes will benefit
investors, as they provide additional detail and transparency to the
rules regarding the AIM Auction process, including the AIM eligibility
requirements, AIM response parameters, and allocation of the Agency
Order following an AIM Auction. This includes the proposed
clarification that an Initiating Member may not designate an Agency
Order or Initiating Order as Post Only. This clarification protects
investors, because provides transparency regarding functionality that
is not available on BAM today. The Exchange believes this is
appropriate, as the purpose of a Post Only order is to not execute upon
entry and instead rest in the EDGX Options Book, while the
[[Page 9188]]
purpose of submitting orders to an AIM Auction is to receive an
execution following the auction and not to have those orders enter the
EDGX Options Book. Pursuant to current and proposed Rule 21.19, an
Agency Order will fully execute against contra-side interest (possibly
including the Initiating Order, which must be for the same size as the
Agency Order, and thus there cannot be remaining contracts in an Agency
Order to enter the EDGX Options Book if there is an execution following
a BAM/AIM Auction). This proposed clarification is not changing current
functionality, and the Post Only designation is not available to any
Initiating Member for Agency Orders and Initiating Orders.
The proposed clarification that provides an AIM response that
crosses the Initial NBBO is capped at the Initial NBBO on the same side
as the Agency Order and $0.01 better than the EDGX BBO on the same side
as the Agency Order if the EDGX BBO is represented by a Priority
Customer on the EDGX Options Book (unless the Agency Order is an AIM
ISO or Sweep and AIM), and that an AIM response will execute, if
possible, at the most aggressive permissible price not outside the
Initial NBBO protects investors, because it adds detail to the rules
regarding current functionality. Current Rule 21.19 may imply the
System may not accept responses that cross the Initial NBBO. However,
because responses are a source of liquidity and potential price
improvement, the Exchange believes it is appropriate to instead accept
these responses and cap them at the Initial NBBO. This promotes just
and equitable principles of trade, because it is consistent with the
requirement that the stop price (which is the minimum price at which
the Agency Order may execute) must be at or better than the Initial
NBBO, and will ensure the execution price does not cross the Initial
NBBO in accordance with linkage rules. This proposed clarification is
not changing current functionality, and this functionality applies in
the same manner to the responses of all Users.
The proposed clarification to state that the stop price
requirements that apply to Agency Orders for less than 50 standard
option contracts and to Agency Orders for 50 standard option contracts
or more similarly apply to the corresponding number of mini-option
contracts (i.e., 500 mini-option contracts) protects investors, because
it is consistent with current functionality. Rule 19.6, Interpretation
and Policy .07 permits the listing of mini-options, which is an option
with a 10 share deliverable of the underlying security rather than 100
share deliverable of the underlying security (which is the standard
deliverable for a standard option contract). The proposed change to
state that 50 standard option contracts is consistent with 500 mini-
option contracts is consistent with this definition of mini-options.
This provides transparency to investors that AIM functionality and the
potential for price improvement is available to Agency Orders for mini-
options as well as standard options. The proposed clarification also
promotes fair and equitable principles of trade, because the volume
restrictions apply in the same manner to an equivalent number of
contracts in a standard option and a mini-option. This proposed
clarification does not impose any significant burden on competition, as
it applies in the same manner to all Agency Orders and is also the same
as Cboe Options Rule 6.74A(a)(3).
Additionally, these proposed changes reorganize Rule 21.19 so that
all provisions related to the same part of the auction process and
located in the same part of the rule. These proposed changes have no
impact on how the AIM Auction will work, as they are consistent with
current functionality.
The proposed rule change is generally intended to align system
functionality currently offered by the Exchange with Cboe Options
functionality in order to provide a consistent technology offering for
the Cboe Affiliated Exchanges. 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 Exchange believes this consistency will
promote a fair and orderly national options market system. When Cboe
Options migrates to the same technology as that of the Exchange and
other Cboe Affiliated Exchanges, Users of the Exchange and other Cboe
Affiliated Exchanges will have access to similar functionality on all
Cboe Affiliated Exchanges. As such, the proposed rule change would
foster cooperation and coordination with persons engaged in
facilitating transactions in securities and would remove impediments to
and perfect the mechanism of a free and open market and a national
market system.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The Exchange does not
believe the proposed rule change will impose any burden on intramarket
competition, as the proposed rule change will apply in the same manner
to all orders submitted to an AIM Auction. With respect to the proposed
changes that limit the Immediate Customer-to-Customer AIM crosses,
those changes will apply in the same manner to all pairs of customer
orders submitted in those circumstances. The Exchange does not believe
the proposed rule change will impose any burden on intermarket
competition, because the proposed changes, as described above and
below, are based on rules for similar price improvement auction
mechanisms at other options exchanges.
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) of the Act \25\ and Rule 19b-
4(f)(6) thereunder.\26\
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\25\ 15 U.S.C. 78s(b)(3)(A).
\26\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change, along
with a brief description and text of the proposed rule change, at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
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A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the
Act \27\ normally does not become operative for 30 days after the date
of its filing. However, Rule 19b-4(f)(6)(iii) \28\ 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. The
Exchange states that waiver of the operative delay would allow the
Exchange to continue towards a complete technology integration of the
Cboe Affiliated Exchanges. According to the Exchange, a consistent
technology offering will simplify the technology implementation,
changes, and
[[Page 9189]]
maintenance by Options Members of the Exchange that are also
participants on Cboe Affiliated Exchanges. The Exchange notes that it
intends to implement the proposed rule change on March 21, 2019. The
Commission believes that waiver of the 30-day operative delay is
consistent with the protection of investors and the public interest.
Therefore, the Commission hereby waives the operative delay and
designates the proposal as operative upon filing.\29\
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\27\ 17 CFR 240.19b-4(f)(6).
\28\ 17 CFR 240.19b-4(f)(6)(iii).
\29\ 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 rule-comments@sec.gov. Please include
File Number SR-CboeEDGX-2019-007 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-2019-007. 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 a.m. and 3 p.m.
Copies of such 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-2019-007, and should be submitted on or before April 3, 2019.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\30\
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\30\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-04561 Filed 3-12-19; 8:45 am]
BILLING CODE 8011-01-P
