Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating to Qualified Contingent Cross Orders (“QCC Orders”) With More Than One Option Leg (“Complex QCC Orders”), 26482-26486 [2019-11800]
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Federal Register / Vol. 84, No. 109 / Thursday, June 6, 2019 / Notices
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–85973; File No. 013–00121]
Initial Form ATS–N Filing; Notice of
Extension of Commission Review
Period
khammond on DSKBBV9HB2PROD with NOTICES
May 31, 2019.
On February 8, 2019, SIGMA X2 filed
an initial Form ATS–N (‘‘Form ATS–
N’’) with the Securities and Exchange
Commission (‘‘Commission’’). Pursuant
to Rule 304 under the Securities and
Exchange Act of 1934 (‘‘Act’’), the
Commission may, after notice and an
opportunity for hearing, declare an
initial Form ATS–N ineffective no later
than 120 days from the date of filing
with the Commission, or, if applicable,
the extended review period. June 8,
2019 is 120 calendar days from the date
of filing. Pursuant to Rule
304(a)(1)(iv)(B), the Commission may
extend the initial Form ATS–N review
period for up to an additional 120
calendar days if the initial Form ATS–
N is unusually lengthy or raises novel
or complex issues that require
additional time for review.
SIGMA X2 was operating pursuant to
an initial operation report on Form ATS
on file with the Commission as of
January 7, 2019.1 SIGMA X2 filed an
initial Form ATS–N on February 8,
2019. During the initial 120 calendar
day review period, the Commission staff
has been reviewing the disclosures on
SIGMA X2’s initial Form ATS–N. In
addition, the staff has been engaged in
ongoing discussions with SIGMA X2
about its disclosures and manner of
operations, as well as the requirements
of Form ATS–N, to facilitate complete
and comprehensible disclosures that
reflect the complexities of those
operations.
Form ATS–N requires NMS Stock
ATSs to file with the Commission, and
disclose to the public for the first time,
certain information, including
descriptions by the NMS Stock ATSs of
their fees, the trading activities by their
broker-dealer operators and their
affiliates in the NMS Stock ATSs, their
use of market data, their written
standards for granting access to trading
on the NMS Stock ATSs, and their
written safeguards and procedures for
protecting their subscribers’ confidential
trading information required by revised
Rule 301(b)(10) of Regulation ATS. The
initial Form ATS–N disclosures and
1 An NMS Stock ATS (as defined in Rule 300(k)
of Regulation ATS) that was operating pursuant to
an initial operation report on Form ATS on file with
the Commission as of January 7, 2019 is a ‘‘Legacy
NMS Stock ATS.’’ 17 CFR 242.301(b)(2)(viii).
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discussions with Commission staff have
revealed complexities about the
operations of Legacy NMS Stock ATSs
including, among other things, matching
functionalities, means of order entry,
order interaction and execution
procedures, conditional order processes,
segmentation of orders, and
counterparty selection protocols. The
Commission staff needs additional time
to review novel and complex issues
such as these, which Commission staff
has discussed with SIGMA X2.
Extending the initial Form ATS–N
Commission review period for an
additional 120 calendar days will
provide Commission staff an
opportunity to continue its review of the
initial Form ATS–N disclosures and
discussions with SIGMA X2.
In the conversations between SIGMA
X2 and Commission staff about the
initial Form ATS–N disclosures and the
ATS operations, Commission staff and
SIGMA X2 have discussed a potential
amendment to update SIGMA X2’s
disclosures regarding the complexities
of its operations. Extending the review
period will enable the NMS Stock ATS
to amend its disclosures, if appropriate,
and allow Commission staff to conduct
a thorough review of amendments to the
initial disclosures provided on the
initial Form ATS–N.
For the reasons given above, the
Commission is extending the review
period of the initial Form ATS–N
submitted by SIGMA X2. Accordingly,
pursuant to Rule 304(a)(1)(iv)(B),
October 6, 2019 is the date by which the
Commission may declare the initial
Form ATS–N submitted by SIGMA X2
ineffective.
By the Commission.
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019–11829 Filed 6–5–19; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–85989; File No. SR–
CboeEDGX–2019–032]
Self-Regulatory Organizations; Cboe
EDGX Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of a
Proposed Rule Change Relating to
Qualified Contingent Cross Orders
(‘‘QCC Orders’’) With More Than One
Option Leg (‘‘Complex QCC Orders’’)
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
Frm 00086
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Cboe EDGX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘EDGX’’) proposes to
permit qualified contingent cross orders
(‘‘QCC Orders’’) with more than one
option leg (‘‘Complex QCC Orders’’).
The text of the proposed rule change is
provided below and in Exhibit 1.
(additions are italicized; deletions are
[bracketed])
*
*
*
Fmt 4703
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*
*
Rules of Cboe EDGX Exchange, Inc.
*
*
*
*
*
Rule 21.1. Definitions
The following definitions apply to
Chapter XXI for the trading of options
listed on EDGX Options.
(a)–(c) No change.
(d) The term ‘‘Order Type’’ shall mean
the unique processing prescribed for
designated orders, subject to the
restrictions set forth in paragraph (j)
below with respect to orders and bulk
messages submitted through bulk ports,
that are eligible for entry into the
System, and shall include:
(1)–(9) No change.
(10) A ‘‘Qualified Contingent Cross
Order’’ or ‘‘QCC Order’’ is comprised of
an originating order to buy or sell at
least 1,000 standard option contracts (or
10,000 mini-option contracts) that is
identified as being part of a qualified
contingent trade, as that term is defined
in subparagraph (A) below, coupled
with a contra-side order or orders
totaling an equal number of contracts. If
a QCC Order has more than one option
leg (a ‘‘Complex QCC Order’’), each
option leg must have at least 1,000
standard option contracts (or 10,000
mini-option contracts). See Rule 21.20
1 15
May 31, 2019.
PO 00000
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on May 22,
2019, Cboe EDGX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘EDGX’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared by the Exchange. The
Exchange filed the 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.
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
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Federal Register / Vol. 84, No. 109 / Thursday, June 6, 2019 / Notices
for a definition of a QCC with Stock
Order. For purposes of this order type:
(A) No change.
(B) [Qualified Contingent Cross]QCC
Orders with one option leg may execute
automatically on entry without
exposure [provided]if the execution: (i)
is not at the same price as a Priority
Customer Order resting in the EDGX
Options Book; and (ii) is at or between
the NBBO. Rule 22.12, related to
exposure of orders on EDGX Options,
does not apply to [Qualified Contingent
Cross]QCC Orders (including Complex
QCC Orders).
(C) Complex QCC Orders may execute
automatically on entry without exposure
if: (i) each option leg executes at a price
that complies with Rule 21.20(c)(1)(C),
provided that no option leg executes at
the same price as a Priority Customer
Order in the Simple Book; (ii) each
option leg executes at a price at or
between the NBBO for the applicable
series; and (iii) the execution price is
better than the price of any complex
order resting in the COB, unless the
Complex QCC Order is a Priority
Customer Order and the resting complex
order is a non-Priority Customer Order,
in which case the execution price may
be the same as or better than the price
of the resting complex order.
([C]D) [Qualified Contingent
Cross]QCC Orders (including Complex
QCC Orders) will be cancelled if they
cannot be executed.
([D]E) [Qualified Contingent
Cross]QCC Orders with one option leg
may only be entered in the standard
increments applicable to the options
class under Rule 21.5, and Complex
QCC Orders may be entered in the
increments applicable to complex
orders set forth in Rule 21.20(c)(1).
([E]F) Users may not submit bulk
messages as [Qualified Contingent
Cross]QCC Orders.
*
*
*
*
*
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Rule 21.5. Minimum Increments
(a)–(c) No change.
(d) Complex Orders. The minimum
increment for bids and offers on
complex orders is set forth in Rule
21.20(c)(1).
*
*
*
*
*
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.
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II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
In 2016, the Exchange’s parent
company, Cboe Global Markets, Inc.
(‘‘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 Exchange proposes to make QCC
Order functionality available for
complex orders (‘‘Complex QCC
Orders’’). A QCC order is comprised of
an originating order to buy or sell at
least 1,000 contracts 5 that is identified
5 The proposed rule change also provides that a
QCC Order consisting of mini-option contracts
would need to be comprised of at least 10,000 minioption contracts, which is the equivalent of 1,000
standard option contracts, as mini-option contracts
PO 00000
Frm 00087
Fmt 4703
Sfmt 4703
26483
as being part of a QCT,6 coupled with
a contra-side order or orders totaling an
equal number of contracts. QCC orders
may execute without exposure provided
the execution (1) is not at the same price
as a public customer order resting in the
electronic book and (2) is at or between
the national best bid or offer (‘‘NBBO’’).7
QCC orders will be cancelled if they
cannot be executed.8 QCC Orders may
only be entered in the standard
increments applicable to the options
class under Rule 21.5. A QCT may
consist of one or more components, and
thus may include multiple option legs.
The proposed Complex QCC Order
functionality facilitates the execution of
the option component (which option
component is a ‘‘Qualified Contingent
Cross Order’’ or ‘‘QCC Order’’) 9 of
qualified contingent trades (‘‘QCTs’’)
when the option component consists of
more than one option leg.10 The
proposed rule change requires each leg
of a Complex QCC Order to consist of
at least 1,000 standard option contracts
(or 10,000 mini-option contracts).11 This
is consistent with the current
requirement that a QCC order must
are 1/10th the size of standard option contracts. See
proposed Rule 21.1(d)(10); see also Cboe Options
Rule 6.53(u) and Nasdaq ISE LLC (‘‘ISE’’) Rule 504,
Supplementary Material .13(e). 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 minioptions).
6 See Rule 21.1(d)(10). A ‘‘qualified contingent
trade’’ is a transaction consisting of two or more
component orders, executed as agent or principal,
where: (1) At least one component is an NMS stock,
as defined in Rule 600 of Regulation NMS under the
Exchange Act; (2) all components are effected with
a product or price contingency that either has been
agreed to by all the respective counterparties or
arranged for by a broker-dealer as principal or
agent; (3) the execution of one component is
contingent upon the execution of all other
components at or near the same time; (4) the
specific relationship between the component orders
(e.g., the spread between the prices of the
component orders) is determined by the time the
contingent order is placed; (5) the component
orders bear a derivative relationship to one another,
represent different classes of shares of the same
issuer, or involve the securities of participants in
mergers or with intentions to merge that have been
announced or cancelled; and (6) the transaction is
fully hedged (without regard to any prior existing
position) as a result of other components of the
contingent trade. The proposed rule change amends
Rule 21.1(d)(10) to add a cross-reference to the
proposed definition of a QCC with Stock Order in
Rule 21.20.
7 See Rule 21.1(d)(10).
8 Id.
9 The proposed rule change amends Rule
21.1(d)(10) to provide that a Qualified Contingent
Cross Order may also be referred to in the Rules as
a QCC Order.
10 See also Cboe Options Rule 6.53(u) and
Regulatory Circular RG13–102 (July 19, 2013); ISE
Rule 721(d); and Miami International Securities
Exchange LLC (‘‘MIAX’’) Rule 515(h)(4) (which
rules describe similar complex QCC order
functionality).
11 See proposed Rule 21.1(d)(10).
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consist of at least 1,000 standard option
contracts (or 10,000 mini-option
contracts).
Complex QCC Orders will execute in
a similar manner as QCC Orders
currently execute. A QCC Order (with
one option leg) may only execute
automatically upon entry if the
execution is not at the same price as a
priority customer order resting in the
EDGX Options Book, and is at or
between the NBBO. The proposed rule
change mirrors these execution price
requirements for simple QCC Orders by
providing that a Complex QCC Order
may execute automatically on entry
without exposure if: (1) Each option leg
executes at a price that complies with
Rule 21.20(c)(1)(C),12 provided that no
option leg executes at the same price as
a Priority Customer Order in the Simple
Book; (2) each option leg executes at a
price at or between the NBBO for the
applicable series; and (3) the execution
price is better than the price of any
complex order resting in the complex
order book (‘‘COB’’), unless the
Complex QCC Order is a priority order
customer [sic] and the resting complex
order is a non-priority customer order,
in which case the execution price may
be the same as or better than the price
of the resting complex order.13 Complex
QCC Orders will be cancelled if they
cannot be executed.14 The purpose of
these requirements is to ensure that
priority customer orders on the COB in
the same complex strategy and the
Simple Book in the individual option
series are protected.
The proposed rule change provides
that Complex QCC Orders may be
entered in the increments applicable to
complex orders set forth in Rule
21.20(c)(1).15 Rule 21.20(c)(1) permits
the entry of legs of a complex order in
$0.01 increments (regardless of the
standard trading increment applicable
to the options class of each leg). The
nature of the pricing of a complex order,
whether it is a QCC Order or otherwise,
is such that the pricing is based on the
relative price of one option versus
another (as opposed to the outright price
12 Rule 21.20(c)(1)(C) states a complex order will
not be executed at a net price that would cause any
component of the complex strategy to be executed
(i) at a net price of zero; or (ii) ahead of a Priority
Customer Order on the Simple Book without
improving the best bid or offer (BBO) of at least one
component of the complex strategy.
13 See proposed Rule 21.1(d)(10)(C).
14 See proposed Rule 21.1(d)(10)(D).
15 See proposed Rule 21.1(d)(10)(E); see also Cboe
Options Rule 6.53(u) and Regulatory Circular
RG13–102 (July 19, 2013); ISE Rule 721(d); and
MIAX Rule 515(h)(4). The proposed rule change
also amends Rule 21.5 to provide that the minimum
increment for bids and offers on complex orders is
set forth in Rule 21.20(c)(1).
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Jkt 247001
of a single option). For this reason, the
standard increment of trading of the
individual option legs of a complex
order (whether a QCC Order or
otherwise) is less relevant to the pricing
of the complex order. While there are
differences between Complex QCC
Orders and other complex orders, this
rationale applies to both. The Exchange
therefore believes that, as the legs of
non-QCC complex orders can be entered
in $0.01 increments (regardless of the
standard trading increment applicable
to the options class of each leg), and a
QCC Order with multiple legs is a form
of a complex order, QCC Orders with
multiple legs should also be able to be
entered in $0.01 increments. This
change would put the trading of
Complex QCC Orders on the same
footing as the trading of other types of
complex orders.
The Exchange requires an Options
Member that submits a QCC Order to
provide certain information to the
Exchange regarding the execution of the
stock component, including the stock
price, quantity, and execution time, and
will require this same information from
Options Members with respect to
Complex QCC Orders.16
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
16 See EDGX Regulatory Circular 17–002 (March
3, 2017). The Exchange intends to issue an updated
Regulatory Circular to notify market participants
that these reporting requirements will apply to
Complex QCC Orders.
17 15 U.S.C. 78f(b).
18 15 U.S.C. 78f(b)(5).
19 Id.
PO 00000
Frm 00088
Fmt 4703
Sfmt 4703
to permit unfair discrimination between
customers, issuers, brokers, or dealers.
In particular, the Exchange believes
the proposed rule change will promote
just and equitable principles of trade
because it will provide Users with
optional functionality to facilitate a QCT
with multiple option components,
similar to functionality currently
available to facilitate a QCT with one
option component, which may provide
for increased opportunities for the
execution of complex orders. Complex
QCC Orders will execute in a similar
manner to QCC Orders. As described
above, the proposed pricing
requirements for Complex QCC Orders
align with the current pricing
requirements for QCC Orders and are
consistent with current principles of
customer priority. The proposed rule
change will protect investors, because it
will protect priority customer complex
orders in the same strategy, and will
prevent a component of a Complex QCC
Order from being executed at the same
price as a priority customer order in any
component on the Simple Book.20
Therefore, the proposed pricing
requirements establish a limited
exception to the general principle of
exposure and retain the general
principle of customer priority in the
options markets in accordance with
prior Securities and Exchange
Commission (‘‘Commission’’) approvals
of QCC Order functionality.21
Furthermore, not only must a Complex
QCC Order be part of a QCT by
satisfying each of the six underlying
requirements of the QCT exemption, the
requirements that a Complex QCC Order
be for a minimum size of 1,000 contracts
per leg provides another limit to its use
by ensuring only transactions of
significant size may avail themselves of
this order type.22
As the Commission noted in its order
approving the original QCT exemption,
the parties to a contingent trade are
focused on the spread or ratio between
the transaction prices for each of the
component instruments (i.e., the net
price of the entire contingent trade),
rather than on the absolute price of any
single component.23 Pursuant to the
20 See Securities Exchange Act Release No. 34–
81891 (October 17, 2017), 82 FR 49058, 49066
(October 23, 2017) (SR–BatsEDGX–2017–29) (order
granting approval of proposed rule change to adopt
rules governing the trading of complex orders on
the Exchange).
21 See supra note 15; see also Securities Exchange
Act Release No. 34–81131 (July 12, 2017), 82 FR
32900, 32903 (July 18, 2017) (SR–MIAX–2017–19)
(order approving complex QCC order functionality).
22 See id.
23 Securities Exchange Act Release No. 54389
(August 31, 2006), 71 FR 52829 (September 7, 2006)
(‘‘QCT Exemption’’).
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requirements of the QCT Exemption, the
spread or ratio between the relevant
instruments must be determined at the
time the order is placed, and this spread
or ratio stands regardless of the market
prices of the individual orders at their
times of execution. The Commission
further noted ‘‘the difficulty of
maintaining a hedge, and the risk of
falling out of hedge, could dissuade
participants from engaging in contingent
trades, or at least raise the cost of such
trades.’’ 24 Thus, the Commission found
that, if each stock leg of a QCT were
required to meet the trade-through
provision of Rule 611 of Regulation
NMS, such trades could become too
risky and costly to be employed
successfully and noted that the
elimination or reduction of this trading
strategy potentially could remove
liquidity from the market. This is also
true for Complex QCC Orders, and thus
the Exchange believes its proposal is
consistent with the QCT Exemption.
The proposed rule change will also
provide Users who enter Complex QCC
Orders with the same trading increment
as those who enter other types of
complex orders. This change would put
the trading of Complex QCC Orders on
the same footing as the trading of other
types of complex orders.
The proposed clarification to state
that the minimum size requirement for
QCC Orders applies to the
corresponding number of mini-option
contracts (i.e., 10,000 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 the 1,000 standard option
contracts minimum size of a QCC Order
(or each leg of a Complex QCC Order)
is consistent with 10,000 mini-option
contracts is consistent with this
definition of mini-options. This
provides transparency to investors that
QCC Order functionality is available for
mini-options as well as standard
options. The proposed clarification also
promotes just and equitable principles
of trade, because the minimum size
requirement applies in the same manner
to an equivalent number of contracts in
a standard option and a mini-option.
The proposed rule change will
remove impediments to and perfect the
mechanism of a free and open market
and a national market system, and
24 Id.
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promote competition, which benefits
investors, as other options exchange
provide similar complex QCC order
functionality.25
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
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 Complex QCC Order
functionality is optional and available to
all Users. Complex QCC Orders of all
Users will be subject to the same
requirements and will execute in the
same manner pursuant to the proposed
rule change. 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 other
options exchange provide similar
functionality.26
25 See, e.g., Cboe Options Rule 6.53(u) and
Regulatory Circular RG13–102; ISE Rules 504,
Supplementary Material .13(e) and 721(d); and
MIAX Rule 515(h)(4).
26 See id.
PO 00000
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26485
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:
A. Significantly affect the protection
of investors or the public interest;
B. impose any significant burden on
competition; and
C. 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 27 and Rule 19b–4(f)(6) 28
thereunder. 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 will 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–2019–032 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–2019–032. This
file number should be included on the
subject line if email is used. To help the
Commission process and review your
27 15
28 17
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U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6).
06JNN1
26486
Federal Register / Vol. 84, No. 109 / Thursday, June 6, 2019 / Notices
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–2019–032 and
should be submitted on or before June
27, 2019.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.29
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019–11800 Filed 6–5–19; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–85983; File No. 013–00078]
Initial Form ATS–N Filing; Notice of
Extension of Commission Review
Period
khammond on DSKBBV9HB2PROD with NOTICES
May 31, 2019.
On February 8, 2019, Liquidnet H2O
ATS filed an initial Form ATS–N
(‘‘Form ATS–N’’) with the Securities
and Exchange Commission
(‘‘Commission’’). Pursuant to Rule 304
under the Securities and Exchange Act
of 1934 (‘‘Act’’), the Commission may,
after notice and an opportunity for
hearing, declare an initial Form ATS–N
ineffective no later than 120 days from
the date of filing with the Commission,
or, if applicable, the extended review
29 17
CFR 200.30–3(a)(12).
VerDate Sep<11>2014
16:11 Jun 05, 2019
Jkt 247001
period. June 8, 2019 is 120 calendar
days from the date of filing. Pursuant to
Rule 304(a)(1)(iv)(B), the Commission
may extend the initial Form ATS–N
review period for up to an additional
120 calendar days if the initial Form
ATS–N is unusually lengthy or raises
novel or complex issues that require
additional time for review.
Liquidnet H2O ATS was operating
pursuant to an initial operation report
on Form ATS on file with the
Commission as of January 7, 2019.1
Liquidnet H2O ATS filed an initial
Form ATS–N on February 8, 2019.
During the initial 120 calendar day
review period, the Commission staff has
been reviewing the disclosures on
Liquidnet H2O ATS’s initial Form ATS–
N. In addition, the staff has been
engaged in ongoing discussions with
Liquidnet H2O ATS about its
disclosures and manner of operations,
as well as the requirements of Form
ATS–N, to facilitate complete and
comprehensible disclosures that reflect
the complexities of those operations.
Form ATS–N requires NMS Stock
ATSs to file with the Commission, and
disclose to the public for the first time,
certain information, including
descriptions by the NMS Stock ATSs of
their fees, the trading activities by their
broker-dealer operators and their
affiliates in the NMS Stock ATSs, their
use of market data, their written
standards for granting access to trading
on the NMS Stock ATSs, and their
written safeguards and procedures for
protecting their subscribers’ confidential
trading information required by revised
Rule 301(b)(10) of Regulation ATS. The
initial Form ATS–N disclosures and
discussions with Commission staff have
revealed complexities about the
operations of Legacy NMS Stock ATSs
including, among other things, matching
functionalities, means of order entry,
order interaction and execution
procedures, conditional order processes,
segmentation of orders, and
counterparty selection protocols. The
Commission staff needs additional time
to review novel and complex issues
such as these, which Commission staff
has discussed with Liquidnet H2O ATS.
Extending the initial Form ATS–N
Commission review period for an
additional 120 calendar days will
provide Commission staff an
opportunity to continue its review of the
initial Form ATS–N disclosures and
discussions with Liquidnet H2O ATS.
1 An NMS Stock ATS (as defined in Rule 300(k)
of Regulation ATS) that was operating pursuant to
an initial operation report on Form ATS on file with
the Commission as of January 7, 2019 is a ‘‘Legacy
NMS Stock ATS.’’ 17 CFR 242.301(b)(2)(viii).
PO 00000
Frm 00090
Fmt 4703
Sfmt 4703
In the conversations between
Liquidnet H2O ATS and Commission
staff about the initial Form ATS–N
disclosures and the ATS operations,
Commission staff and Liquidnet H2O
ATS have discussed a potential
amendment to update Liquidnet H2O
ATS’s disclosures regarding the
complexities of its operations.
Extending the review period will enable
the NMS Stock ATS to amend its
disclosures, if appropriate, and allow
Commission staff to conduct a thorough
review of amendments to the initial
disclosures provided on the initial Form
ATS–N.
For the reasons given above, the
Commission is extending the review
period of the initial Form ATS–N
submitted by Liquidnet H2O ATS.
Accordingly, pursuant to Rule
304(a)(1)(iv)(B), October 6, 2019 is the
date by which the Commission may
declare the initial Form ATS–N
submitted by Liquidnet H2O ATS
ineffective.
By the Commission.
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019–11841 Filed 6–5–19; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–85981; File No. SR–FINRA–
2019–016]
Self-Regulatory Organizations;
Financial Industry Regulatory
Authority, Inc.; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Extend the
Implementation of FINRA Rule 4240
(Margin Requirements for Credit
Default Swaps)
May 31, 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 May 21,
2019, the Financial Industry Regulatory
Authority, Inc. (‘‘FINRA’’) filed with the
Securities and Exchange Commission
(‘‘SEC’’ or ‘‘Commission’’) the proposed
rule change as described in Items I, II,
and III below, which Items have been
prepared by FINRA. FINRA has
designated the proposed rule change as
constituting a ‘‘non-controversial’’ rule
change under paragraph (f)(6) of Rule
19b–4 under the Act,3 which renders
the proposal effective upon receipt of
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 17 CFR 240.19b–4(f)(6).
2 17
E:\FR\FM\06JNN1.SGM
06JNN1
]]>Agencies
[Federal Register Volume 84, Number 109 (Thursday, June 6, 2019)]
[Notices]
[Pages 26482-26486]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-11800]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-85989; File No. SR-CboeEDGX-2019-032]
Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice
of Filing and Immediate Effectiveness of a Proposed Rule Change
Relating to Qualified Contingent Cross Orders (``QCC Orders'') With
More Than One Option Leg (``Complex QCC Orders'')
May 31, 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 May 22, 2019, Cboe EDGX Exchange, Inc. (the ``Exchange'' or
``EDGX'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the Exchange. The
Exchange filed the 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 Substance
of the Proposed Rule Change
Cboe EDGX Exchange, Inc. (the ``Exchange'' or ``EDGX'') proposes to
permit qualified contingent cross orders (``QCC Orders'') with more
than one option leg (``Complex QCC Orders''). 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 21.1. Definitions
The following definitions apply to Chapter XXI for the trading of
options listed on EDGX Options.
(a)-(c) No change.
(d) The term ``Order Type'' shall mean the unique processing
prescribed for designated orders, subject to the restrictions set forth
in paragraph (j) below with respect to orders and bulk messages
submitted through bulk ports, that are eligible for entry into the
System, and shall include:
(1)-(9) No change.
(10) A ``Qualified Contingent Cross Order'' or ``QCC Order'' is
comprised of an originating order to buy or sell at least 1,000
standard option contracts (or 10,000 mini-option contracts) that is
identified as being part of a qualified contingent trade, as that term
is defined in subparagraph (A) below, coupled with a contra-side order
or orders totaling an equal number of contracts. If a QCC Order has
more than one option leg (a ``Complex QCC Order''), each option leg
must have at least 1,000 standard option contracts (or 10,000 mini-
option contracts). See Rule 21.20
[[Page 26483]]
for a definition of a QCC with Stock Order. For purposes of this order
type:
(A) No change.
(B) [Qualified Contingent Cross]QCC Orders with one option leg may
execute automatically on entry without exposure [provided]if the
execution: (i) is not at the same price as a Priority Customer Order
resting in the EDGX Options Book; and (ii) is at or between the NBBO.
Rule 22.12, related to exposure of orders on EDGX Options, does not
apply to [Qualified Contingent Cross]QCC Orders (including Complex QCC
Orders).
(C) Complex QCC Orders may execute automatically on entry without
exposure if: (i) each option leg executes at a price that complies with
Rule 21.20(c)(1)(C), provided that no option leg executes at the same
price as a Priority Customer Order in the Simple Book; (ii) each option
leg executes at a price at or between the NBBO for the applicable
series; and (iii) the execution price is better than the price of any
complex order resting in the COB, unless the Complex QCC Order is a
Priority Customer Order and the resting complex order is a non-Priority
Customer Order, in which case the execution price may be the same as or
better than the price of the resting complex order.
([C]D) [Qualified Contingent Cross]QCC Orders (including Complex
QCC Orders) will be cancelled if they cannot be executed.
([D]E) [Qualified Contingent Cross]QCC Orders with one option leg
may only be entered in the standard increments applicable to the
options class under Rule 21.5, and Complex QCC Orders may be entered in
the increments applicable to complex orders set forth in Rule
21.20(c)(1).
([E]F) Users may not submit bulk messages as [Qualified Contingent
Cross]QCC Orders.
* * * * *
Rule 21.5. Minimum Increments
(a)-(c) No change.
(d) Complex Orders. The minimum increment for bids and offers on
complex orders is set forth in Rule 21.20(c)(1).
* * * * *
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
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 Exchange proposes to make QCC Order functionality available for
complex orders (``Complex QCC Orders''). A QCC order is comprised of an
originating order to buy or sell at least 1,000 contracts \5\ that is
identified as being part of a QCT,\6\ coupled with a contra-side order
or orders totaling an equal number of contracts. QCC orders may execute
without exposure provided the execution (1) is not at the same price as
a public customer order resting in the electronic book and (2) is at or
between the national best bid or offer (``NBBO'').\7\ QCC orders will
be cancelled if they cannot be executed.\8\ QCC Orders may only be
entered in the standard increments applicable to the options class
under Rule 21.5. A QCT may consist of one or more components, and thus
may include multiple option legs.
---------------------------------------------------------------------------
\5\ The proposed rule change also provides that a QCC Order
consisting of mini-option contracts would need to be comprised of at
least 10,000 mini-option contracts, which is the equivalent of 1,000
standard option contracts, as mini-option contracts are 1/10th the
size of standard option contracts. See proposed Rule 21.1(d)(10);
see also Cboe Options Rule 6.53(u) and Nasdaq ISE LLC (``ISE'') Rule
504, Supplementary Material .13(e). 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).
\6\ See Rule 21.1(d)(10). A ``qualified contingent trade'' is a
transaction consisting of two or more component orders, executed as
agent or principal, where: (1) At least one component is an NMS
stock, as defined in Rule 600 of Regulation NMS under the Exchange
Act; (2) all components are effected with a product or price
contingency that either has been agreed to by all the respective
counterparties or arranged for by a broker-dealer as principal or
agent; (3) the execution of one component is contingent upon the
execution of all other components at or near the same time; (4) the
specific relationship between the component orders (e.g., the spread
between the prices of the component orders) is determined by the
time the contingent order is placed; (5) the component orders bear a
derivative relationship to one another, represent different classes
of shares of the same issuer, or involve the securities of
participants in mergers or with intentions to merge that have been
announced or cancelled; and (6) the transaction is fully hedged
(without regard to any prior existing position) as a result of other
components of the contingent trade. The proposed rule change amends
Rule 21.1(d)(10) to add a cross-reference to the proposed definition
of a QCC with Stock Order in Rule 21.20.
\7\ See Rule 21.1(d)(10).
\8\ Id.
---------------------------------------------------------------------------
The proposed Complex QCC Order functionality facilitates the
execution of the option component (which option component is a
``Qualified Contingent Cross Order'' or ``QCC Order'') \9\ of qualified
contingent trades (``QCTs'') when the option component consists of more
than one option leg.\10\ The proposed rule change requires each leg of
a Complex QCC Order to consist of at least 1,000 standard option
contracts (or 10,000 mini-option contracts).\11\ This is consistent
with the current requirement that a QCC order must
[[Page 26484]]
consist of at least 1,000 standard option contracts (or 10,000 mini-
option contracts).
---------------------------------------------------------------------------
\9\ The proposed rule change amends Rule 21.1(d)(10) to provide
that a Qualified Contingent Cross Order may also be referred to in
the Rules as a QCC Order.
\10\ See also Cboe Options Rule 6.53(u) and Regulatory Circular
RG13-102 (July 19, 2013); ISE Rule 721(d); and Miami International
Securities Exchange LLC (``MIAX'') Rule 515(h)(4) (which rules
describe similar complex QCC order functionality).
\11\ See proposed Rule 21.1(d)(10).
---------------------------------------------------------------------------
Complex QCC Orders will execute in a similar manner as QCC Orders
currently execute. A QCC Order (with one option leg) may only execute
automatically upon entry if the execution is not at the same price as a
priority customer order resting in the EDGX Options Book, and is at or
between the NBBO. The proposed rule change mirrors these execution
price requirements for simple QCC Orders by providing that a Complex
QCC Order may execute automatically on entry without exposure if: (1)
Each option leg executes at a price that complies with Rule
21.20(c)(1)(C),\12\ provided that no option leg executes at the same
price as a Priority Customer Order in the Simple Book; (2) each option
leg executes at a price at or between the NBBO for the applicable
series; and (3) the execution price is better than the price of any
complex order resting in the complex order book (``COB''), unless the
Complex QCC Order is a priority order customer [sic] and the resting
complex order is a non-priority customer order, in which case the
execution price may be the same as or better than the price of the
resting complex order.\13\ Complex QCC Orders will be cancelled if they
cannot be executed.\14\ The purpose of these requirements is to ensure
that priority customer orders on the COB in the same complex strategy
and the Simple Book in the individual option series are protected.
---------------------------------------------------------------------------
\12\ Rule 21.20(c)(1)(C) states a complex order will not be
executed at a net price that would cause any component of the
complex strategy to be executed (i) at a net price of zero; or (ii)
ahead of a Priority Customer Order on the Simple Book without
improving the best bid or offer (BBO) of at least one component of
the complex strategy.
\13\ See proposed Rule 21.1(d)(10)(C).
\14\ See proposed Rule 21.1(d)(10)(D).
---------------------------------------------------------------------------
The proposed rule change provides that Complex QCC Orders may be
entered in the increments applicable to complex orders set forth in
Rule 21.20(c)(1).\15\ Rule 21.20(c)(1) permits the entry of legs of a
complex order in $0.01 increments (regardless of the standard trading
increment applicable to the options class of each leg). The nature of
the pricing of a complex order, whether it is a QCC Order or otherwise,
is such that the pricing is based on the relative price of one option
versus another (as opposed to the outright price of a single option).
For this reason, the standard increment of trading of the individual
option legs of a complex order (whether a QCC Order or otherwise) is
less relevant to the pricing of the complex order. While there are
differences between Complex QCC Orders and other complex orders, this
rationale applies to both. The Exchange therefore believes that, as the
legs of non-QCC complex orders can be entered in $0.01 increments
(regardless of the standard trading increment applicable to the options
class of each leg), and a QCC Order with multiple legs is a form of a
complex order, QCC Orders with multiple legs should also be able to be
entered in $0.01 increments. This change would put the trading of
Complex QCC Orders on the same footing as the trading of other types of
complex orders.
---------------------------------------------------------------------------
\15\ See proposed Rule 21.1(d)(10)(E); see also Cboe Options
Rule 6.53(u) and Regulatory Circular RG13-102 (July 19, 2013); ISE
Rule 721(d); and MIAX Rule 515(h)(4). The proposed rule change also
amends Rule 21.5 to provide that the minimum increment for bids and
offers on complex orders is set forth in Rule 21.20(c)(1).
---------------------------------------------------------------------------
The Exchange requires an Options Member that submits a QCC Order to
provide certain information to the Exchange regarding the execution of
the stock component, including the stock price, quantity, and execution
time, and will require this same information from Options Members with
respect to Complex QCC Orders.\16\
---------------------------------------------------------------------------
\16\ See EDGX Regulatory Circular 17-002 (March 3, 2017). The
Exchange intends to issue an updated Regulatory Circular to notify
market participants that these reporting requirements will apply to
Complex QCC Orders.
---------------------------------------------------------------------------
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 Exchange believes the proposed rule change will
promote just and equitable principles of trade because it will provide
Users with optional functionality to facilitate a QCT with multiple
option components, similar to functionality currently available to
facilitate a QCT with one option component, which may provide for
increased opportunities for the execution of complex orders. Complex
QCC Orders will execute in a similar manner to QCC Orders. As described
above, the proposed pricing requirements for Complex QCC Orders align
with the current pricing requirements for QCC Orders and are consistent
with current principles of customer priority. The proposed rule change
will protect investors, because it will protect priority customer
complex orders in the same strategy, and will prevent a component of a
Complex QCC Order from being executed at the same price as a priority
customer order in any component on the Simple Book.\20\ Therefore, the
proposed pricing requirements establish a limited exception to the
general principle of exposure and retain the general principle of
customer priority in the options markets in accordance with prior
Securities and Exchange Commission (``Commission'') approvals of QCC
Order functionality.\21\ Furthermore, not only must a Complex QCC Order
be part of a QCT by satisfying each of the six underlying requirements
of the QCT exemption, the requirements that a Complex QCC Order be for
a minimum size of 1,000 contracts per leg provides another limit to its
use by ensuring only transactions of significant size may avail
themselves of this order type.\22\
---------------------------------------------------------------------------
\20\ See Securities Exchange Act Release No. 34-81891 (October
17, 2017), 82 FR 49058, 49066 (October 23, 2017) (SR-BatsEDGX-2017-
29) (order granting approval of proposed rule change to adopt rules
governing the trading of complex orders on the Exchange).
\21\ See supra note 15; see also Securities Exchange Act Release
No. 34-81131 (July 12, 2017), 82 FR 32900, 32903 (July 18, 2017)
(SR-MIAX-2017-19) (order approving complex QCC order functionality).
\22\ See id.
---------------------------------------------------------------------------
As the Commission noted in its order approving the original QCT
exemption, the parties to a contingent trade are focused on the spread
or ratio between the transaction prices for each of the component
instruments (i.e., the net price of the entire contingent trade),
rather than on the absolute price of any single component.\23\ Pursuant
to the
[[Page 26485]]
requirements of the QCT Exemption, the spread or ratio between the
relevant instruments must be determined at the time the order is
placed, and this spread or ratio stands regardless of the market prices
of the individual orders at their times of execution. The Commission
further noted ``the difficulty of maintaining a hedge, and the risk of
falling out of hedge, could dissuade participants from engaging in
contingent trades, or at least raise the cost of such trades.'' \24\
Thus, the Commission found that, if each stock leg of a QCT were
required to meet the trade-through provision of Rule 611 of Regulation
NMS, such trades could become too risky and costly to be employed
successfully and noted that the elimination or reduction of this
trading strategy potentially could remove liquidity from the market.
This is also true for Complex QCC Orders, and thus the Exchange
believes its proposal is consistent with the QCT Exemption.
---------------------------------------------------------------------------
\23\ Securities Exchange Act Release No. 54389 (August 31,
2006), 71 FR 52829 (September 7, 2006) (``QCT Exemption'').
\24\ Id.
---------------------------------------------------------------------------
The proposed rule change will also provide Users who enter Complex
QCC Orders with the same trading increment as those who enter other
types of complex orders. This change would put the trading of Complex
QCC Orders on the same footing as the trading of other types of complex
orders.
The proposed clarification to state that the minimum size
requirement for QCC Orders applies to the corresponding number of mini-
option contracts (i.e., 10,000 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 the 1,000 standard option
contracts minimum size of a QCC Order (or each leg of a Complex QCC
Order) is consistent with 10,000 mini-option contracts is consistent
with this definition of mini-options. This provides transparency to
investors that QCC Order functionality is available for mini-options as
well as standard options. The proposed clarification also promotes just
and equitable principles of trade, because the minimum size requirement
applies in the same manner to an equivalent number of contracts in a
standard option and a mini-option.
The proposed rule change will remove impediments to and perfect the
mechanism of a free and open market and a national market system, and
promote competition, which benefits investors, as other options
exchange provide similar complex QCC order functionality.\25\
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\25\ See, e.g., Cboe Options Rule 6.53(u) and Regulatory
Circular RG13-102; ISE Rules 504, Supplementary Material .13(e) and
721(d); and MIAX Rule 515(h)(4).
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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 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 Complex QCC Order functionality is optional and available to
all Users. Complex QCC Orders of all Users will be subject to the same
requirements and will execute in the same manner pursuant to the
proposed rule change. 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 other options
exchange provide similar functionality.\26\
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\26\ See id.
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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:
A. Significantly affect the protection of investors or the public
interest;
B. impose any significant burden on competition; and
C. 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 \27\ and
Rule 19b-4(f)(6) \28\ thereunder. 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 will institute proceedings to determine whether the proposed
rule change should be approved or disapproved.
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\27\ 15 U.S.C. 78s(b)(3)(A).
\28\ 17 CFR 240.19b-4(f)(6).
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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-2019-032 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-2019-032. This
file number should be included on the subject line if email is used. To
help the Commission process and review your
[[Page 26486]]
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-2019-032 and should be submitted on or before June 27, 2019.
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\29\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\29\
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-11800 Filed 6-5-19; 8:45 am]
BILLING CODE 8011-01-P
