Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the Rules Related to the Designated Primary Market-Maker (“DPM”) Participation Entitlements, 12301-12304 [2019-06179]

Download as PDF Federal Register / Vol. 84, No. 62 / Monday, April 1, 2019 / Notices disproportionate to the mistake that was made. Applicants’ Conditions The Applicants agree that any order of the Commission granting the requested relief will be subject to the following conditions: 1. The Contributor will be prohibited from discussing the business of the Advisers with any ‘‘government entity’’ client or prospective client for which the Official is an ‘‘official,’’ each as defined in rule 206(4)–5(f) until June 7, 2019. 2. The Contributor will receive a written notification of this condition and will provide a quarterly certification of compliance until June 7, 2019. Copies of the certifications will be maintained and preserved in an easily accessible place for a period of not less than five years, the first two years in an appropriate office of the Advisers, and be available for inspection by the staff of the Commission. 3. The Advisers will conduct testing reasonably designed to prevent violations of the conditions of the Order and maintain records regarding such testing, which will be maintained and preserved in an easily accessible place for a period of not less than five years, the first two years in an appropriate office of the Advisers, and be available for inspection by the staff of the Commission. For the Commission, by the Division of Investment Management, under delegated authority. Eduardo A. Aleman, Deputy Secretary. [FR Doc. 2019–06158 Filed 3–29–19; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–85414; File No. SR– CboeEDGX–2019–011] Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the Rules Related to the Designated Primary Market-Maker (‘‘DPM’’) Participation Entitlements March 26, 2019. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on March 15, 2019, Cboe EDGX Exchange, Inc. (‘‘Exchange’’ or ‘‘EDGX’’) filed with the 1 15 2 17 U.S.C. 78s(b)(1). CFR 240.19b–4. VerDate Sep<11>2014 17:22 Mar 29, 2019 Jkt 247001 Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of the Substance of the Proposed Rule Change Cboe EDGX Exchange, Inc. (the ‘‘Exchange’’ or ‘‘EDGX’’) proposes to amend the Rules related to the Designated Primary Market-Maker (‘‘DPM’’) participation entitlements. The text of the proposed rule change is provided below and in Exhibit 1. (additions are italicized; deletions are [bracketed]) * * * * * Rules of Cboe EDGX Exchange, Inc. * * * * * Rule 21.8. Order Display and Book Processing (a)–(c) No change. (d) Additional Priority Overlays Applicable to the Pro-Rata Allocation Method. In connection with the allocation methodology set forth in paragraph (c) above, the Exchange may apply, on a class-by-class basis, one or more of the following designated market participant overlay priorities in a sequence determined by the Exchange. The Exchange will issue a notice to Options Members which will specify which classes of options are initially subject to these additional priority overlays and will provide such Options Members with reasonable advance notice of any changes to the application of such overlays. (1)–(2) No change. (3) Designated Primary Market Maker. The Exchange may determine to grant Designated Primary Market Makers (‘‘DPMs’’) the DPM participation entitlement[s] and/or the DPM small order entitlement pursuant to the provisions of paragraph (g) below. As indicated in such paragraph, neither the DPM participation entitlement nor the DPM small order entitlement may [only] be in effect [when] in a class unless the Customer Overlay is also in effect. (e)–(f) No change. (g) Designated Primary Market Maker [Participation] Entitlements. A DPM may be appointed by the Exchange in option classes in accordance with Rule 22.2. [The] Neither the DPM participation entitlement[s] nor DPM small order entitlement may [shall not] be in effect in a class unless the Customer Overlay is also in effect. [and] When in effect, the DPM participation entitlement[s] and/or DPM small order entitlement shall only apply to any remaining balance after Priority Customer Orders have been satisfied. The DPM [participation] entitlements are as follows: (1) DPM Participation Entitlement. For each incoming order, if the DPM has a PO 00000 Frm 00112 Fmt 4703 Sfmt 4703 12301 priority quote at the NBBO, its participation entitlement is equal to the greater of (i) the proportion of the total size at the best price represented by the size of its quote, or (ii) sixty percent (60%) of the contracts to be allocated if there is only one (1) other Market Maker quotation or non-Customer order at the NBBO and forty percent (40%) if there are two (2) or more other Market Maker quotes and/or non-Customer orders at the NBBO. (2) DPM Small Order Entitlement. Small size orders will be allocated in full to the DPM if the DPM has a priority quote at the NBBO. The Exchange will review this provision quarterly and will maintain the small order size at a level that will not allow small size orders executed by DPMs to account for more than 40% of the volume executed on the Exchange. Small size orders are defined as incoming orders of five (5) or fewer contracts. (h) Conditions of Participation Entitlements. In allocating the participation entitlements set forth in this Rule 21.8 to the PMM and the DPM, the following shall apply: (1) In a class of options where [both] the PMM participation entitlement, [and] the DPM participation entitlement[s], and the DPM small order entitlement are in effect and an Options Member has preferred an order to a PMM: (A) if the PMM’s priority quote is at the NBBO, the PMM’s participation entitlement will supersede the DPM’s participation entitlement[s], and the DPM small order entitlement, for an order preferred to such PMM; (B) if the PMM’s priority quote is not at the NBBO, the DPM’s participation entitlement or DPM small order entitlement, as applicable, will apply to that order, provided the DPM’s priority quote is at the NBBO; (C) if an order is preferred to the DPM (i.e., the DPM is also the PMM), the DPM receives the DPM participation entitlement or DPM small order entitlement, as applicable, provided the DPM/PMM’s priority quote is at the NBBO; and (D) if neither the PMM’s nor the DPM’s priority quote is at the NBBO then executed contracts will be allocated in accordance with the pro-rata allocation methodology as described in paragraphs (c) and (e) above without regard to any participation entitlement. (2) If an incoming order has not been preferred to a PMM by an Options Member, then the DPM[’s] participation entitlement or DPM small order entitlement, as applicable, will apply to that order, provided the DPM’s priority quote is at the NBBO. (3) The participation entitlements shall not be in effect unless the Customer Overlay is also in effect and the participation entitlements shall only apply to any remaining balance after Priority Customer Orders have been satisfied. (4) Neither the DPM nor the PMM may be allocated a total quantity greater than the quantity they are quoting at the execution price. If the DPM’s or the PMM’s allocation of an order pursuant to its participation entitlement is greater than its pro-rata share of priority quotes at the best price at the time E:\FR\FM\01APN1.SGM 01APN1 12302 Federal Register / Vol. 84, No. 62 / Monday, April 1, 2019 / Notices that the participation entitlement is granted, neither the DPM nor the PMM shall receive any further allocation of that order. (5) In establishing the counterparties to a particular trade, the participation entitlements must first be counted against the DPM’s highest priority bids and offers or the PMM’s highest priority bids or offers. (6) These participation entitlements only apply to the allocation of executions among competing Market Maker priority quotes existing on the EDGX Options Book at the time the order is received by the Exchange. No market participant is allocated any portion of an execution unless it has an existing interest at the execution price. Moreover, no market participant can execute a greater number of contracts than is associated with its interest at a given price. Accordingly, the DPM participation entitlement, the DPM small order entitlement, and the PMM participation entitlement[s] contained in this Rule are not guarantees. * * * * * 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. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The proposed rule change amends the Designated Primary Market-Maker (‘‘DPM’’) participation entitlements in Rule 21.8(d) and (g). Pursuant to Rule 21.8(d), the Exchange currently may determine to grant DPMs participation entitlements as set forth in Rule 21.8(g). The DPM participation entitlement currently consists of two parts: • For each incoming order, if the DPM has a priority quote at the national best bid or offer (‘‘NBBO’’), its participation entitlement is equal to the greater of (i) the proportion of the total size at the best price represented by the VerDate Sep<11>2014 17:22 Mar 29, 2019 Jkt 247001 size of its quote or (ii) 60% of the contracts to be allocated if there is only on other Market Maker quotation or non-Customer order at the NBBO and 40% if there are two or more other Market Maker quotes and/or nonCustomer orders at the NBBO (the ‘‘DPM participation entitlement’’). • Small size orders will be allocated in full to the DPM if the DPM has a priority quote at the NBBO (the ‘‘DPM small order entitlement’’).3 If the Exchange grants DPMs participation entitlements in a class, then both the DPM participation entitlement and the DPM small order entitlement apply. Therefore, if a DPM is to receive a participation entitlement for an incoming order, it will receive the DPM participation entitlement if the order has more than five contracts or the DPM small order entitlement if the order has five or fewer contracts. The proposed changes to Rule 21.8(d) and (g) provide that the Exchange may grant DPMs either the DPM participation entitlement, the DPM small order entitlement, or both in a class.4 This flexibility will permit the Exchange to apply the market model it deems most appropriate to each class. For example, the Exchange may believe a DPM in a class should receive the DPM participation entitlement but not the DPM small order entitlement. For classes in which the Exchange grants both entitlements to a DPM, there will be no change, as the DPM will continue to receive the DPM participation entitlement or the DPM small order entitlement, depending on the size of the order.5 For classes in which the Exchange grants the DPM priority 3 Small size orders are defined as incoming orders of five or fewer contracts. The Exchange will review this provision quarterly and will maintain the small order size at a level that will not allow small size orders executed by DPMs to account for more than 40% of the volume executed on the Exchange. 4 The proposed rule change makes corresponding changes to Rule 21.8(h) to reflect the separation of the two DPM entitlements. The Exchange will announce this determination to Options Members by Exchange Notice or technical specifications on its public website, and will provide Options Members with sufficient advanced notice of any determination it makes. 5 The Exchange has no current plans to change the allocation algorithm for any currently listed classes. However, it may determine to apply the DPM participation entitlement but not the DPM small order entitlement to a class it intends to list for trading in the future. The Exchange plans to begin listing XSP options on April 8, 2019, and intends to apply the DPM participation entitlement (and Customer Overlay) but not the DPM small order entitlement to that class. As noted in footnote 2, the Exchange will announce any such determination to Options Members by Exchange Notice or technical specifications on its public website, and will provide Options Members with sufficient advanced notice of any determination it makes. PO 00000 Frm 00113 Fmt 4703 Sfmt 4703 entitlement but not the DPM small order entitlement, the DPM would have the opportunity to receive the DPM participation entitlement on small size orders (i.e., 60% or 40%) rather than the entire size of the small size order (after Priority Customer Orders were satisfied).6 Additionally, the Exchange may not apply either DPM entitlement to a class unless the Customer Overlay is also in effect (and thus both entitlements will apply to any remaining balance after Priority Customer Orders have been satisfied).7 The Exchange will continue to review the DPM small order entitlement quarterly and will maintain the small order size at a level that will not allow small size orders executed by DPMs to account for more than 40% of the volume executed on the Exchange. The proposed rule change is based on the rules of another options exchange.8 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.9 Specifically, the Exchange believes the proposed rule change is consistent with the Section 6(b)(5) 10 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) 11 requirement that 6 Other participants would have an opportunity to trade against the remaining size of these small size orders in those classes. 7 See Rule 21.8(g) and (h)(3). 8 See Cboe Exchange, Inc. (‘‘Cboe Options’’) Rule 6.45(a)(ii)(B) and (a)(ii)(c) (which permits Cboe Options to apply the DPM participation entitlement and/or the small order preference to a class). Cboe Options applies the DPM participation entitlement but not the small order preference to certain classes, while it applies both the DPM participation entitlement and the small order preference to other classes. See Cboe Options Operational Settings (RTH Session), at https://www.cboe.org/publish/ opsettingsrth/operational-settings-for-rth.pdf (electronic allocation and priority for simple orders and quotes). 9 15 U.S.C. 78f(b). 10 15 U.S.C. 78f(b)(5). 11 Id. E:\FR\FM\01APN1.SGM 01APN1 Federal Register / Vol. 84, No. 62 / Monday, April 1, 2019 / Notices the rules of an exchange not be designed to permit unfair discrimination between customers, issuers, brokers, or dealers. In particular, the proposed rule change will benefit investors and promote just and equitable principles of trade, as it provides the Exchange with flexibility to establish a more appropriate market model for a class that may exhibit different trading characteristics than other classes. The proposed rule change does not modify the amount of contracts to which a DPM may be entitled or the criteria that must be met for a DPM to receive an entitlement; it merely provides the Exchange with flexibility regarding which entitlements it may grant to DPMs. For classes in which the Exchange grants both entitlements to a DPM, there will be no change, as the DPM may continue to receive the DPM participation entitlement or the DPM small order entitlement, depending on the size of the order. If the Exchange determines to not apply the DPM small order entitlement, but does apply the DPM participation entitlement, to a class, DPMs will still be entitled to a significant participation right of 40% or 60%, as applicable, of small orders, which will continue to provide an appropriate balance with their corresponding obligations. The proposed rule change will continue to protect Priority Customers, because the Exchange may not grant either DPM entitlement unless the Customer Overlay is also in effect, and the entitlements will apply to the contracts remaining after Priority Customer Orders have been satisfied. The proposed rule change will remove impediments to and perfect the mechanism of a free and open market and a national market system, because the rules of another options exchange provide similar flexibility.12 As noted above, the Exchange has no current plans to change the allocation algorithm for any currently listed classes. However, the Exchange plans to begin listing XSP options on April 8, 2019, and intends to apply the DPM participation entitlement (and Customer Overlay) but not the DPM small order entitlement to that class. The Exchange will announce any such determination to Options Members by Exchange Notice or technical specifications on its public website, and will provide Options Members with sufficient advanced notice of any determination it makes. 12 See Cboe Exchange, Inc. (‘‘Cboe Options’’) Rule 6.45(a)(ii)(B) and (a)(ii)(C) (which permits Cboe Options to apply the DPM participation entitlement and/or the small order preference to a class). VerDate Sep<11>2014 17:22 Mar 29, 2019 Jkt 247001 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 proposed rule change will not impose any burden on intramarket competition that is not necessary or appropriate in furtherance of the purposes of the Act, because the proposed rule change will apply in the same manner to all DPMs. The proposed rule change does not modify the amount of contracts to which a DPM may be entitled or the criteria that must be met for a DPM to receive an entitlement; it merely provides the Exchange with flexibility regarding which entitlements it may grant to DPMs. For classes in which the Exchange grants both entitlements to a DPM, there will be no change, as the DPM may continue to receive the DPM participation entitlement or the DPM small order entitlement, depending on the size of the order. If the Exchange determines to not apply the DPM small order entitlement, but does apply the DPM participation entitlement, to a class, DPMs will still be entitled to a significant participation right of 40% or 60%, as applicable, of small orders, which will continue to provide an appropriate balance with their corresponding obligations. The proposed rule change will not impose any burden on intermarket competition that is not necessary or appropriate in furtherance of the purposes of the Act, because the rules of another options exchange provide similar flexibility.13 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 13 See Cboe Exchange, Inc. (‘‘Cboe Options’’) Rule 6.45(a)(ii)(B) and (C) (which permits Cboe Options to apply the DPM participation entitlement and/or the small order preference to a class). PO 00000 Frm 00114 Fmt 4703 Sfmt 4703 12303 19(b)(3)(A)(iii) of the Act 14 and subparagraph (f)(6) of Rule 19b–4 thereunder.15 A proposed rule change filed under Rule 19b–4(f)(6) 16 normally does not become operative prior to 30 days after the date of the filing. However, Rule 19b–4(f)(6)(iii) 17 permits the Commission to designate a shorter time if such action is consistent with the protection of investors and the public interest. The Exchange has asked the Commission to waive the 30-day operative delay so that the proposed rule change may become effective and operative immediately upon filing. The Exchange notes that it plans to begin listing XSP options on April 8, 2019, and intends to apply the DPM participation entitlement (and Customer Overlay), but not the DPM small order entitlement to that class. The Exchange states that waiver of the operative delay would permit the Exchange to apply the market model it believes is most appropriate for XSP options on its planned launch date. The Exchange also states that the proposed rule change will benefit investors that are members of both EDGX Options and its affiliated exchange Cboe Options to have corresponding rules regarding participation entitlements, as it may reduce confusion. The Commission believes that waiver of the 30-day operative delay is consistent with the protection of investors and the public interest. Therefore, the Commission hereby waives the 30-day operative delay and designates the proposed rule change as operative upon filing.18 At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is: (i) Necessary or appropriate in the public interest; (ii) for the protection of investors; or (iii) otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved. 14 15 U.S.C. 78s(b)(3)(A)(iii). CFR 240.19b–4(f)(6). In addition, Rule 19b– 4(f)(6)(iii) requires a self-regulatory organization to give the Commission written notice of its intent to file the proposed rule change, along with a brief description and 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. 16 17 CFR 240.19b–4(f)(6). 17 17 CFR 240.19b–4(f)(6)(iii). 18 For purposes only of waiving the 30-day operative delay, the Commission has also considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 15 17 E:\FR\FM\01APN1.SGM 01APN1 12304 Federal Register / Vol. 84, No. 62 / Monday, April 1, 2019 / Notices 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: • 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–2019–011 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–2019–011. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s internet website (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for website viewing and printing in the Commission’s Public Reference Room, 100 F Street NE, Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–CboeEDGX–2019–011 and should be submitted on or before April 22, 2019. 17:22 Mar 29, 2019 [FR Doc. 2019–06179 Filed 3–29–19; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION Electronic Comments VerDate Sep<11>2014 For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.19 Eduardo A. Aleman, Deputy Secretary. Jkt 247001 [Release No. 34–85417; File No. SR– NYSEArca–2019–02] Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Designation of a Longer Period for Commission Action on a Proposed Rule Change Relating to the Listing and Trading of the Shares of the ProShares UltraPro 3x Natural Gas ETF and ProShares UltraPro 3x Short Natural Gas ETF Under NYSE Arca Rule 8.200–E March 26, 2019. On January 28, 2019, NYSE Arca, Inc. (‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change to list and trade shares of the ProShares UltraPro 3x Natural Gas ETF and ProShares UltraPro 3x Short Natural Gas ETF under NYSE Arca Rule 8.200–E. The proposed rule change was published for comment in the Federal Register on February 15, 2019.3 The Commission has received no comment letters on the proposed rule change. Section 19(b)(2) of the Act 4 provides that within 45 days of the publication of notice of the filing of a proposed rule change, or within such longer period up to 90 days as the Commission may designate if it finds such longer period to be appropriate and publishes its reasons for so finding, or as to which the self-regulatory organization consents, the Commission shall either approve the proposed rule change, disapprove the proposed rule change, or institute proceedings to determine whether the proposed rule change should be disapproved. The 45th day after publication of the notice for this proposed rule change is April 1, 2019. The Commission is extending this 45day time period. The Commission finds it appropriate to designate a longer period within CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 See Securities Exchange Act Release No. 85088 (February 11, 2019), 84 FR 4573. 4 15 U.S.C. 78s(b)(2). which to take action on the proposed rule change so that it has sufficient time to consider the proposed rule change. Accordingly, the Commission, pursuant to Section 19(b)(2) of the Act,5 designates May 16, 2019 as the date by which the Commission shall either approve or disapprove, or institute proceedings to determine whether to disapprove, the proposed rule change (File No. SR–NYSEArca–2019–02). For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.6 Eduardo A. Aleman, Deputy Secretary. [FR Doc. 2019–06178 Filed 3–29–19; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–85425; File No. SR– NYSEAMER–2019–07] Self-Regulatory Organizations; NYSE American LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Clarify Statements Made in a Recent Filing In Regards to the Six-Month Lookback Period for New Issues Added to the Penny Pilot on a Quarterly Basis March 26, 2019. Pursuant to Section 19(b)(1) 1 of the Securities Exchange Act of 1934 (the ‘‘Act’’) 2 and Rule 19b–4 thereunder,3 notice is hereby given that on March 22, 2019, NYSE American LLC (‘‘NYSE American’’ or the ‘‘Exchange’’) 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 self-regulatory organization. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to clarify statements made in a recent filing in regards to the six-month lookback period for new issues added to the Penny Pilot on a quarterly basis. The proposed rule change is available on the Exchange’s website at www.nyse.com, at the principal office of the Exchange, and 19 17 1 15 PO 00000 Frm 00115 Fmt 4703 Sfmt 4703 5 Id. 6 17 CFR 200.30–3(a)(31). U.S.C. 78s(b)(1). 2 15 U.S.C. 78a. 3 17 CFR 240.19b–4. 1 15 E:\FR\FM\01APN1.SGM 01APN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 84, Number 62 (Monday, April 1, 2019)]
[Notices]
[Pages 12301-12304]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-06179]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-85414; File No. SR-CboeEDGX-2019-011]


Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice 
of Filing and Immediate Effectiveness of a Proposed Rule Change To 
Amend the Rules Related to the Designated Primary Market-Maker 
(``DPM'') Participation Entitlements

March 26, 2019.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on March 15, 2019, Cboe EDGX Exchange, Inc. (``Exchange'' or ``EDGX'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I and II below, which Items 
have been prepared by the Exchange. The Commission is publishing this 
notice to solicit comments on the proposed rule change from interested 
persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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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 Rules related to the Designated Primary Market-Maker 
(``DPM'') participation entitlements. The text of the proposed rule 
change is provided below and in Exhibit 1.
(additions are italicized; deletions are [bracketed])
* * * * *

Rules of Cboe EDGX Exchange, Inc.

* * * * *

Rule 21.8. Order Display and Book Processing

    (a)-(c) No change.
    (d) Additional Priority Overlays Applicable to the Pro-Rata 
Allocation Method. In connection with the allocation methodology set 
forth in paragraph (c) above, the Exchange may apply, on a class-by-
class basis, one or more of the following designated market 
participant overlay priorities in a sequence determined by the 
Exchange. The Exchange will issue a notice to Options Members which 
will specify which classes of options are initially subject to these 
additional priority overlays and will provide such Options Members 
with reasonable advance notice of any changes to the application of 
such overlays.
    (1)-(2) No change.
    (3) Designated Primary Market Maker. The Exchange may determine 
to grant Designated Primary Market Makers (``DPMs'') the DPM 
participation entitlement[s] and/or the DPM small order entitlement 
pursuant to the provisions of paragraph (g) below. As indicated in 
such paragraph, neither the DPM participation entitlement nor the 
DPM small order entitlement may [only] be in effect [when] in a 
class unless the Customer Overlay is also in effect.
    (e)-(f) No change.
    (g) Designated Primary Market Maker [Participation] 
Entitlements. A DPM may be appointed by the Exchange in option 
classes in accordance with Rule 22.2. [The] Neither the DPM 
participation entitlement[s] nor DPM small order entitlement may 
[shall not] be in effect in a class unless the Customer Overlay is 
also in effect. [and] When in effect, the DPM participation 
entitlement[s] and/or DPM small order entitlement shall only apply 
to any remaining balance after Priority Customer Orders have been 
satisfied. The DPM [participation] entitlements are as follows:
    (1) DPM Participation Entitlement. For each incoming order, if 
the DPM has a priority quote at the NBBO, its participation 
entitlement is equal to the greater of (i) the proportion of the 
total size at the best price represented by the size of its quote, 
or (ii) sixty percent (60%) of the contracts to be allocated if 
there is only one (1) other Market Maker quotation or non-Customer 
order at the NBBO and forty percent (40%) if there are two (2) or 
more other Market Maker quotes and/or non-Customer orders at the 
NBBO.
    (2) DPM Small Order Entitlement. Small size orders will be 
allocated in full to the DPM if the DPM has a priority quote at the 
NBBO. The Exchange will review this provision quarterly and will 
maintain the small order size at a level that will not allow small 
size orders executed by DPMs to account for more than 40% of the 
volume executed on the Exchange. Small size orders are defined as 
incoming orders of five (5) or fewer contracts.
    (h) Conditions of Participation Entitlements. In allocating the 
participation entitlements set forth in this Rule 21.8 to the PMM 
and the DPM, the following shall apply:
    (1) In a class of options where [both] the PMM participation 
entitlement, [and] the DPM participation entitlement[s], and the DPM 
small order entitlement are in effect and an Options Member has 
preferred an order to a PMM:
    (A) if the PMM's priority quote is at the NBBO, the PMM's 
participation entitlement will supersede the DPM's participation 
entitlement[s], and the DPM small order entitlement, for an order 
preferred to such PMM;
    (B) if the PMM's priority quote is not at the NBBO, the DPM's 
participation entitlement or DPM small order entitlement, as 
applicable, will apply to that order, provided the DPM's priority 
quote is at the NBBO;
    (C) if an order is preferred to the DPM (i.e., the DPM is also 
the PMM), the DPM receives the DPM participation entitlement or DPM 
small order entitlement, as applicable, provided the DPM/PMM's 
priority quote is at the NBBO; and
    (D) if neither the PMM's nor the DPM's priority quote is at the 
NBBO then executed contracts will be allocated in accordance with 
the pro-rata allocation methodology as described in paragraphs (c) 
and (e) above without regard to any participation entitlement.
    (2) If an incoming order has not been preferred to a PMM by an 
Options Member, then the DPM['s] participation entitlement or DPM 
small order entitlement, as applicable, will apply to that order, 
provided the DPM's priority quote is at the NBBO.
    (3) The participation entitlements shall not be in effect unless 
the Customer Overlay is also in effect and the participation 
entitlements shall only apply to any remaining balance after 
Priority Customer Orders have been satisfied.
    (4) Neither the DPM nor the PMM may be allocated a total 
quantity greater than the quantity they are quoting at the execution 
price. If the DPM's or the PMM's allocation of an order pursuant to 
its participation entitlement is greater than its pro-rata share of 
priority quotes at the best price at the time

[[Page 12302]]

that the participation entitlement is granted, neither the DPM nor 
the PMM shall receive any further allocation of that order.
    (5) In establishing the counterparties to a particular trade, 
the participation entitlements must first be counted against the 
DPM's highest priority bids and offers or the PMM's highest priority 
bids or offers.
    (6) These participation entitlements only apply to the 
allocation of executions among competing Market Maker priority 
quotes existing on the EDGX Options Book at the time the order is 
received by the Exchange. No market participant is allocated any 
portion of an execution unless it has an existing interest at the 
execution price. Moreover, no market participant can execute a 
greater number of contracts than is associated with its interest at 
a given price. Accordingly, the DPM participation entitlement, the 
DPM small order entitlement, and the PMM participation 
entitlement[s] contained in this Rule are not guarantees.
* * * * *

    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.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The proposed rule change amends the Designated Primary Market-Maker 
(``DPM'') participation entitlements in Rule 21.8(d) and (g). Pursuant 
to Rule 21.8(d), the Exchange currently may determine to grant DPMs 
participation entitlements as set forth in Rule 21.8(g). The DPM 
participation entitlement currently consists of two parts:
     For each incoming order, if the DPM has a priority quote 
at the national best bid or offer (``NBBO''), its participation 
entitlement is equal to the greater of (i) the proportion of the total 
size at the best price represented by the size of its quote or (ii) 60% 
of the contracts to be allocated if there is only on other Market Maker 
quotation or non-Customer order at the NBBO and 40% if there are two or 
more other Market Maker quotes and/or non-Customer orders at the NBBO 
(the ``DPM participation entitlement'').
     Small size orders will be allocated in full to the DPM if 
the DPM has a priority quote at the NBBO (the ``DPM small order 
entitlement'').\3\
---------------------------------------------------------------------------

    \3\ Small size orders are defined as incoming orders of five or 
fewer contracts. The Exchange will review this provision quarterly 
and will maintain the small order size at a level that will not 
allow small size orders executed by DPMs to account for more than 
40% of the volume executed on the Exchange.
---------------------------------------------------------------------------

    If the Exchange grants DPMs participation entitlements in a class, 
then both the DPM participation entitlement and the DPM small order 
entitlement apply. Therefore, if a DPM is to receive a participation 
entitlement for an incoming order, it will receive the DPM 
participation entitlement if the order has more than five contracts or 
the DPM small order entitlement if the order has five or fewer 
contracts.
    The proposed changes to Rule 21.8(d) and (g) provide that the 
Exchange may grant DPMs either the DPM participation entitlement, the 
DPM small order entitlement, or both in a class.\4\ This flexibility 
will permit the Exchange to apply the market model it deems most 
appropriate to each class. For example, the Exchange may believe a DPM 
in a class should receive the DPM participation entitlement but not the 
DPM small order entitlement. For classes in which the Exchange grants 
both entitlements to a DPM, there will be no change, as the DPM will 
continue to receive the DPM participation entitlement or the DPM small 
order entitlement, depending on the size of the order.\5\ For classes 
in which the Exchange grants the DPM priority entitlement but not the 
DPM small order entitlement, the DPM would have the opportunity to 
receive the DPM participation entitlement on small size orders (i.e., 
60% or 40%) rather than the entire size of the small size order (after 
Priority Customer Orders were satisfied).\6\ Additionally, the Exchange 
may not apply either DPM entitlement to a class unless the Customer 
Overlay is also in effect (and thus both entitlements will apply to any 
remaining balance after Priority Customer Orders have been 
satisfied).\7\ The Exchange will continue to review the DPM small order 
entitlement quarterly and will maintain the small order size at a level 
that will not allow small size orders executed by DPMs to account for 
more than 40% of the volume executed on the Exchange. The proposed rule 
change is based on the rules of another options exchange.\8\
---------------------------------------------------------------------------

    \4\ The proposed rule change makes corresponding changes to Rule 
21.8(h) to reflect the separation of the two DPM entitlements. The 
Exchange will announce this determination to Options Members by 
Exchange Notice or technical specifications on its public website, 
and will provide Options Members with sufficient advanced notice of 
any determination it makes.
    \5\ The Exchange has no current plans to change the allocation 
algorithm for any currently listed classes. However, it may 
determine to apply the DPM participation entitlement but not the DPM 
small order entitlement to a class it intends to list for trading in 
the future. The Exchange plans to begin listing XSP options on April 
8, 2019, and intends to apply the DPM participation entitlement (and 
Customer Overlay) but not the DPM small order entitlement to that 
class. As noted in footnote 2, the Exchange will announce any such 
determination to Options Members by Exchange Notice or technical 
specifications on its public website, and will provide Options 
Members with sufficient advanced notice of any determination it 
makes.
    \6\ Other participants would have an opportunity to trade 
against the remaining size of these small size orders in those 
classes.
    \7\ See Rule 21.8(g) and (h)(3).
    \8\ See Cboe Exchange, Inc. (``Cboe Options'') Rule 
6.45(a)(ii)(B) and (a)(ii)(c) (which permits Cboe Options to apply 
the DPM participation entitlement and/or the small order preference 
to a class). Cboe Options applies the DPM participation entitlement 
but not the small order preference to certain classes, while it 
applies both the DPM participation entitlement and the small order 
preference to other classes. See Cboe Options Operational Settings 
(RTH Session), at https://www.cboe.org/publish/opsettingsrth/operational-settings-for-rth.pdf (electronic allocation and priority 
for simple orders and quotes).
---------------------------------------------------------------------------

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.\9\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \10\ 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) \11\ requirement that

[[Page 12303]]

the rules of an exchange not be designed to permit unfair 
discrimination between customers, issuers, brokers, or dealers.
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
    \11\ Id.
---------------------------------------------------------------------------

    In particular, the proposed rule change will benefit investors and 
promote just and equitable principles of trade, as it provides the 
Exchange with flexibility to establish a more appropriate market model 
for a class that may exhibit different trading characteristics than 
other classes. The proposed rule change does not modify the amount of 
contracts to which a DPM may be entitled or the criteria that must be 
met for a DPM to receive an entitlement; it merely provides the 
Exchange with flexibility regarding which entitlements it may grant to 
DPMs. For classes in which the Exchange grants both entitlements to a 
DPM, there will be no change, as the DPM may continue to receive the 
DPM participation entitlement or the DPM small order entitlement, 
depending on the size of the order. If the Exchange determines to not 
apply the DPM small order entitlement, but does apply the DPM 
participation entitlement, to a class, DPMs will still be entitled to a 
significant participation right of 40% or 60%, as applicable, of small 
orders, which will continue to provide an appropriate balance with 
their corresponding obligations.
    The proposed rule change will continue to protect Priority 
Customers, because the Exchange may not grant either DPM entitlement 
unless the Customer Overlay is also in effect, and the entitlements 
will apply to the contracts remaining after Priority Customer Orders 
have been satisfied. The proposed rule change will remove impediments 
to and perfect the mechanism of a free and open market and a national 
market system, because the rules of another options exchange provide 
similar flexibility.\12\
---------------------------------------------------------------------------

    \12\ See Cboe Exchange, Inc. (``Cboe Options'') Rule 
6.45(a)(ii)(B) and (a)(ii)(C) (which permits Cboe Options to apply 
the DPM participation entitlement and/or the small order preference 
to a class).
---------------------------------------------------------------------------

    As noted above, the Exchange has no current plans to change the 
allocation algorithm for any currently listed classes. However, the 
Exchange plans to begin listing XSP options on April 8, 2019, and 
intends to apply the DPM participation entitlement (and Customer 
Overlay) but not the DPM small order entitlement to that class. The 
Exchange will announce any such determination to Options Members by 
Exchange Notice or technical specifications on its public website, and 
will provide Options Members with sufficient advanced notice of any 
determination it makes.

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 proposed rule change 
will not impose any burden on intramarket competition that is not 
necessary or appropriate in furtherance of the purposes of the Act, 
because the proposed rule change will apply in the same manner to all 
DPMs. The proposed rule change does not modify the amount of contracts 
to which a DPM may be entitled or the criteria that must be met for a 
DPM to receive an entitlement; it merely provides the Exchange with 
flexibility regarding which entitlements it may grant to DPMs. For 
classes in which the Exchange grants both entitlements to a DPM, there 
will be no change, as the DPM may continue to receive the DPM 
participation entitlement or the DPM small order entitlement, depending 
on the size of the order. If the Exchange determines to not apply the 
DPM small order entitlement, but does apply the DPM participation 
entitlement, to a class, DPMs will still be entitled to a significant 
participation right of 40% or 60%, as applicable, of small orders, 
which will continue to provide an appropriate balance with their 
corresponding obligations. The proposed rule change will not impose any 
burden on intermarket competition that is not necessary or appropriate 
in furtherance of the purposes of the Act, because the rules of another 
options exchange provide similar flexibility.\13\
---------------------------------------------------------------------------

    \13\ See Cboe Exchange, Inc. (``Cboe Options'') Rule 
6.45(a)(ii)(B) and (C) (which permits Cboe Options to apply the DPM 
participation entitlement and/or the small order preference to a 
class).
---------------------------------------------------------------------------

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange neither solicited nor received comments on the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A)(iii) of the Act \14\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\15\
---------------------------------------------------------------------------

    \14\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \15\ 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.
---------------------------------------------------------------------------

    A proposed rule change filed under Rule 19b-4(f)(6) \16\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, Rule 19b-4(f)(6)(iii) \17\ permits the Commission to 
designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay so that the proposed 
rule change may become effective and operative immediately upon filing. 
The Exchange notes that it plans to begin listing XSP options on April 
8, 2019, and intends to apply the DPM participation entitlement (and 
Customer Overlay), but not the DPM small order entitlement to that 
class. The Exchange states that waiver of the operative delay would 
permit the Exchange to apply the market model it believes is most 
appropriate for XSP options on its planned launch date. The Exchange 
also states that the proposed rule change will benefit investors that 
are members of both EDGX Options and its affiliated exchange Cboe 
Options to have corresponding rules regarding participation 
entitlements, as it may reduce confusion. The Commission believes that 
waiver of the 30-day operative delay is consistent with the protection 
of investors and the public interest. Therefore, the Commission hereby 
waives the 30-day operative delay and designates the proposed rule 
change as operative upon filing.\18\
---------------------------------------------------------------------------

    \16\ 17 CFR 240.19b-4(f)(6).
    \17\ 17 CFR 240.19b-4(f)(6)(iii).
    \18\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
---------------------------------------------------------------------------

    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is: (i) 
Necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) otherwise in furtherance of the 
purposes of the Act. If the Commission takes such action, the 
Commission shall institute proceedings to determine whether the 
proposed rule should be approved or disapproved.

[[Page 12304]]

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-CboeEDGX-2019-011 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-2019-011. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (https://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-CboeEDGX-2019-011 and should be 
submitted on or before April 22, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
---------------------------------------------------------------------------

    \19\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-06179 Filed 3-29-19; 8:45 am]
 BILLING CODE 8011-01-P

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