Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating To Update Its Price Adjust Process To Allow for the Process To Apply to Bulk Messages, 28113-28117 [2019-12658]

Download as PDF Federal Register / Vol. 84, No. 116 / Monday, June 17, 2019 / Notices 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. 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. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the proposed rule change does not (i) significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate if consistent with the protection of investors and the public interest, the proposed rule change has become effective pursuant to Section 19(b)(3)(A) of the Act 23 and Rule 19b–4(f)(6) thereunder.24 A proposed rule change filed under Rule 19b–4(f)(6) 25 normally does not become operative for 30 days after the date of filing. However, pursuant to Rule 19b–4(f)(6)(iii) 26 the Commission may designate a shorter time if such action is consistent with the protection of investors and the public interest. The Exchange has asked the Commission to waive the 30-day operative delay. The Commission believes that waiving the 30-day operative delay is consistent with the protection of investors and the public interest as it will allow the Exchange to offer two order types that are substantially similar to order types that are currently available on Cboe Options. Thus, as represented by the Exchange, the proposed rule change does not introduce any new functionality or present any novel issues. For this reason, the Commission designates the proposed rule change to be operative on June 20, 2019, the day before the Exchange would like to implement MOC and LOC orders.27 At any time within 60 days of the filing of the proposed rule change, the 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: 23 15 U.S.C. 78s(b)(3)(A). CFR 240.19b–4(f)(6). In addition, Rule 19b– 4(f)(6)(iii) requires a self-regulatory organization to give the Commission written notice of its intent to file the proposed rule change 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. 25 17 CFR 240.19b–4(f)(6). 26 17 CFR 240.19b–4(f)(6)(iii). 27 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). khammond on DSKBBV9HB2PROD with NOTICES 24 17 VerDate Sep<11>2014 16:34 Jun 14, 2019 Jkt 247001 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– CboeBZX–2019–050 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–CboeBZX–2019–050. 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–CboeBZX–2019–050 and PO 00000 Frm 00114 Fmt 4703 Sfmt 4703 28113 should be submitted on or before July 8, 2019. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.28 Eduardo A. Aleman, Deputy Secretary. [FR Doc. 2019–12657 Filed 6–14–19; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–86082; File No. SR– CboeEDGX–2019–034] Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating To Update Its Price Adjust Process To Allow for the Process To Apply to Bulk Messages June 11, 2019. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the ‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on June 4, 2019, Cboe EDGX Exchange, Inc. (the ‘‘Exchange’’ or ‘‘EDGX’’) filed with the Securities and Exchange Commission (the ‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been prepared by the Exchange. The Exchange filed the proposal as a ‘‘non-controversial’’ proposed rule change pursuant to Section 19(b)(3)(A)(iii) of the Act 3 and Rule 19b–4(f)(6) thereunder.4 The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change Cboe EDGX Exchange, Inc. (the ‘‘Exchange’’ or ‘‘EDGX Options’’) proposes to update its Price Adjust process to allow for the process to apply to bulk messages. The text of the proposed rule change is provided in Exhibit 5. The text of the proposed rule change is also available on the Exchange’s website (https://markets.cboe.com/us/ options/regulation/rule_filings/edgx/), at the Exchange’s Office of the Secretary, and at the Commission’s Public Reference Room. 28 17 CFR 200.30–3(a)(12). 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). 1 15 E:\FR\FM\17JNN1.SGM 17JNN1 28114 Federal Register / Vol. 84, No. 116 / Monday, June 17, 2019 / Notices II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange proposes to amend its rules to allow for the Price Adjust process to apply to bulk messages and make corresponding changes where applicable. The Exchange is proposing these amendments in order to provide Users that submit bulk messages with functionality that is currently available to them for orders. In December 2018, the Exchange adopted bulk messaging functionality, in which a User may enter, modify or cancel up to an Exchange-specified number of bids and offers in a single message. A User may submit a bulk message through a bulk port.5 The System 6 handles bulk message bids and offers in the same manner as it handles an order, or quote if submitted by a Market Maker, unless the Rules specify otherwise. Currently, Rule 21.1(i)(1) subjects orders to the Price Adjust process.7 Pursuant to the Price Adjust process, if an order (that is not an allor-none (‘‘AON’’) order 8), at the time of entry, would lock or cross a Protected Quotation of another options exchange or the Exchange (subjecting it to the Price Adjust process), the System ranks 9 and displays the order at one minimum price variation below (above) 5 See Rule 21.1(j)(3). ‘‘System’’ is the automated system for order execution and trade reporting owned and operated by the Exchange. See Rule 21.1(a). 7 The Exchange notes that market orders will not be subject to the price adjust process given that they execute immediately at the best price, therefore, they will not lock or cross the market. 8 An AON order is either a market or a limit order to be executed in their entirety or not at all. See Rule 21.1(d)(4). 9 In the EDGX Rules, the term ‘‘rank’’ means that an order will be prioritized and eligible for execution at its ranked price for purposes of allocation if an execution were to occur at that price. For an AON order ‘‘ranked’’ at a price, it would be prioritized last at that price. khammond on DSKBBV9HB2PROD with NOTICES 6 The VerDate Sep<11>2014 16:34 Jun 14, 2019 Jkt 247001 the current NBO (NBB). If a non-AON order is subject to the Price Adjust process by locking or crossing the offer (bid) of a AON order resting on the EDGX Options Book at or better than the Exchange’s best offer (bid), the System ranks the resting AON order at one minimum price variation above (below) the bid (offer) of the non-AON order. Additionally, the System ranks an AON orders that cross a Protected Offer (Bid) of another options exchange or a sell (buy) AON order resting on the EDGX Options Book at or better than the Exchange’s best offer (bid), at a price equal to the Protected Offer (Bid) or the offer (bid) of the resting AON order, respectively. AON orders that lock or cross a Protected Offer (Bid) of the Exchange are ranked by the System at a price one minimum price variation below (above) the Protected Offer (Bid). The Price Adjust process applies to orders (subject to the User’s instructions or the Rules) that do not execute upon entry and go to rest in the EDGX Options Book (for example, because an order is not marketable upon entry, is not eligible to route, etc.). It ensures these orders rest at executable prices in accordance with linkage rules.10 Current Rule 21.1(i)(4) states that the Price Adjust process does not apply to bulk messages.11 Furthermore, current Rule 21.1(j)(3)(A) provides for additional handling provisions regarding bulk messages submitted through bulk quoting ports. Specifically, Rule 21.1(j)(3)(A)(iv) provides that the System will cancel or reject a Post Only bulk message bid (offer) with a price that locks or crosses the Exchange best offer (bid) or ABO (ABB).12 The Exchange notes that bulk messages that include a Post Only instruction do not remove liquidity from the Exchange or route away to other exchanges.13 Current Rule 21.1(j)(3)(A)(iv) is consistent with how the System handles 10 See Chapter XXVII of the Rules. See also Options Order Protection and Locked/Crossed Market Plan (the ‘‘Linkage Plan’’). 11 Specifically, the individual bids (offers) submitted within a single bulk message. Therefore, as proposed, the Price Adjust process or a Cancel Back designation, as applicable, applies to all bulk message bids and offers within a single message. 12 The ABBO means the best bid (offer) disseminated by other exchanges. 13 See Rule 21.1(d)(8), which defines ‘‘Post Only Orders’’ as orders that are to be ranked and executed on the Exchange pursuant to Rule 21.8 (Order Display and Book Processing) or cancelled, as appropriate, without routing away to another options exchange except that the order will not remove liquidity from the EDGX Options Book. A Post Only Order that is not subject to the Price Adjust process that would lock or cross a Protected Quotation of another options exchange or the Exchange will be cancelled. Users may designate bulk messages as Post Only. PO 00000 Frm 00115 Fmt 4703 Sfmt 4703 a Post Only order not subject to the Price Adjust process that locks or crosses the opposite side Exchange best bid or offer (‘‘BBO’’) or if displaying the order on the EDGX Options Book would create a violation of linkage Rule 27.3 (Locked and Crossed Markets). Additionally, current Rule 21.1(j)(3)(A)(v) provides that the System executes a Book Only bulk message bid (offer) that locks or crosses the ABO (ABB) against offers (bids) resting in the EDGX Options Book at prices the same as or better than the ABO (ABB) and then cancels the unexecuted portion of that bid (offer). Book Only orders do not route away to other exchanges.14 Current Rule 21.1(j)(3)(A)(v) is consistent with how the System handles Book Only orders not subject to the Price Adjust process.15 The Exchange also notes that pursuant to Rule 21.1(j)(3)(a)(ii), a Market Maker with an appointment in a class may designate a bulk message for that class as Post Only or Book Only, and other Users (i.e., nonMarket Makers or Market Makers without an appointment in a class) must designate a bulk message for that class as Post Only.16 The Exchange now proposes to amend Rule 21.1(i)(1) to subject bulk messages to the Price Adjust process. Specifically, the proposed rule change will subject a User’s bulk messages to the Price Adjust process, which will apply to all bulk message bids and offers within a single message, unless a User designates a bulk message as Cancel Back (as described below), which will also apply to all bulk message bids and offers within a single message. As such, the Exchange also proposes to delete subparagraph (i)(4) which disallows bulk messages from the Price Adjust process. The Exchange notes that Users have noted the regularity with which their bulk message bids and offers are rejected because Price Adjust does not apply to them. As a result, some Users find this inefficient when submitting bulk messages. The Exchange believes that allowing bulk message bids and offers to be subject to the Price Adjust process will provide market participants with 14 See Rule 21.1(d)(7), which defines ‘‘Book Only Orders’’ as orders that are to be ranked and executed on the Exchange pursuant to Rule 21.8 (Order Display and Book Processing) or cancelled, as appropriate, without routing away to another options exchange. A Book Only Order will be subject to the Price Adjust process unless a User has entered instructions not to use such process. Users may designate bulk messages as Book Only. 15 See supra note 10. 16 Pursuant to the current Rules, a bulk message must be designated as Post Only or Book Only. Additionally, because bulk messages must include bids and offers and may not be market orders, all bulk messages are limit orders. See Rules 16.1(a)(4) and 21.1(d)(5). E:\FR\FM\17JNN1.SGM 17JNN1 Federal Register / Vol. 84, No. 116 / Monday, June 17, 2019 / Notices khammond on DSKBBV9HB2PROD with NOTICES additional opportunities for execution and price improvement, as well as additional flexibility and control over their submission of bulk messages. The Exchange notes that the System currently will not allow a User to submit bulk messages as AON orders. Moreover, the Exchange notes that AON orders are not displayed on the Book,17 therefore, they do not contribute to displayed liquidity, which is inconsistent with the primary purpose of bulk message functionality to encourage liquidity and trading through quoting behavior on the Exchange. The Exchange also notes that an AON order’s size contingency (executed in its entirety or not at all) provides it with few opportunities for execution, which is also inconsistent with the purpose of bulk messages. The Exchange now proposes to explicitly state in Rule 21.1(d)(4) that a User may not designate bulk messages as AON orders.18 Additionally, the Exchange proposes to explicitly state under Rule 21.1(i)(1) that a User may enter instructions for an order (including bulk messages) not to be subject to the Price Adjust process. The ability for Users not to subject orders to the Price Adjust process (and Cancel Back) currently exists for a User’s orders, including Book Only and Post Only orders,19 that are not otherwise subject to limitations under the Rules. The Exchange is now proposing to make this election explicit under the Price Adjust provision and applicable to a User’s orders and bulk messages. The proposed opt-out election is based on the corresponding Price Adjust process under Rule 6.12 of the Exchange’s affiliated exchange, Cboe C2 Exchange, Inc. (‘‘C2’’).20 In line with this proposed change, the Exchange now proposes to codify the existing Cancel Back instruction (proposed Rule 21.1(l)) that is substantially similar to that of C2’s Cancel Back provision under C2 Rule 6.10(c) for Users that do not wish for their orders or bulk messages to be subject to the Price Adjust process. As proposed, a Cancel Back order is an order (including bulk messages) a User designates to not be subject to the Price Adjust Process pursuant to Rule 21.1(i) that the System cancels or rejects (immediately at the time the System receives the order or upon return to the System after being 17 The Exchange notes that it does not disseminate bids or offers of AON orders to OPRA, as the prices of AON orders are not included in the BBO for a series. 18 See Rule 21.1(d)(4). 19 See Rule 21.1(d)(7)–(8). 20 The Exchange notes that C2 is simultaneously proposing to include bulk messages in its Price Adjust and Cancel Back processes. VerDate Sep<11>2014 16:34 Jun 14, 2019 Jkt 247001 routed away) if displaying the order on the Book would create a violation of Rule 27.3 (Locked and Crossed Markets), or if the order cannot otherwise be executed or displayed in the EDGX Options Book at its limit price. As stated, a Cancel Back designation for a bulk message applies to all bulk message bids and offers within a single message. The System executes a Book Only—Cancel Back order against resting orders, and cancels or rejects a Post Only—Cancel Back order, that locks or crosses the opposite side of the BBO. The Exchange notes that pursuant to the Book Only instruction, an order or bulk message may not route away to another Exchange. Therefore, if an incoming Book Only order or bulk message bid or offer designated as Cancel Back locked or crossed an away market (i.e. the ABBO), the System would execute it to the extent it could against contra-side interest on the Exchange at prices the same as or better than the ABBO in accordance with the linkage rules.21 The System would then cancel it to prevent a violation of Rule 27.3 of the intermarket linkage rules. The Exchange also notes that pursuant to the Post Only instruction, an order or bulk message may not remove liquidity from the Book or route away to another Exchange. Therefore, if a Post Only order or bulk message bid or offer designated as Cancel Back locked or crossed the best contra-side interest on the Exchange (i.e. the BBO) or the ABBO, the System would cancel it to prevent it from executing against resting interest on the Exchange and to prevent a violation of Rule 27.3 of the intermarket linkage rules. Pursuant to the proposed rule change described above, all bulk message bids and offers would now be subject to the Price Adjust process, if not otherwise designated as Cancel Back, if they lock or cross a Protected Quotation of another options exchange or the Exchange, and rest in the EDGX Options Book pursuant to the process, thus avoiding display of a locked or crossed market in accordance with the linkage rules.22 Therefore, the Exchange now proposes to remove Rules 21.1(j)(3)(A)(iv) and 21.1(j)(3)(A)(v) (and amend the subsequent lettering as a result) because Post Only and Book Only bulk messages will now be included in the Price Adjust process, the handling of which would now be consistent with the current order handing of Post Only and Book Only 21 See supra note 10. 22 Id. PO 00000 Frm 00116 Fmt 4703 Sfmt 4703 28115 orders under the Price Adjust process.23 The Exchange also notes that all bulk message bids and offers designated as Cancel Back pursuant to proposed Rule 21.1(l), and thus designated to not be subject to the Price Adjust process, would be handled in the same manner as they are today pursuant to current subparagraphs (j)(3)(A)(iv) and (j)(3)(A)(v) (which the Exchange proposes to delete).24 The Exchange notes that allowing bulk message bids and offers to be subject to a repricing process is consistent with the handling of similar order (and quote) types on other exchanges.25 A similar repricing (display-price sliding) process for bulk messages currently exists under Rule 21.1(h)(1) of the Exchange’s affiliated exchange, Cboe BZX Exchange, Inc. (‘‘BZX Options’’). The Exchange also notes that other exchanges subject orders (quotes), including quotes similar to Post Only and Book Only bulk messages, to a repricing process like the Price Adjust process. For example, NYSE Arca, Inc. (‘‘Arca’’) recently adopted order types called the Market Maker Add Liquidity Only quotation (‘‘MMALO’’), which like a Post Only instruction may not remove liquidity from the Exchange, and the Market Maker Repricing quotation (‘‘MMRP’’).26 Pursuant to Arca’s repricing process, if these quotes would not be able to trade upon entry (for example, because the MMALO would take liquidity or display at a price that locks or crosses any interest on the Exchange or the NBBO), it would be displayed at one minimum price variation below (above) such sell (buy) interest. 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.27 Specifically, the Exchange believes the proposed rule change is consistent with the Section 23 Id. 24 Given that the proposed rule change will subject bulk messages to the Price Adjust process, and allow for a User to opt-out of the Price Adjust process and, instead, designate their bulk message bids and offers as Cancel Back, these provisions are no longer necessary. 25 See Securities Exchange Act Release No. 84737 (December 6, 2018), 83 FR 63919 (December 12, 2018) (SR–NYSEArca–2018–74) (Order Approving a Proposed Rule Change, as Modified by Amendment No. 1, to Amend Rules 6.62–O and 6.37A–O to Add New Order Types and Quotation Designations). See also BZX Options Rule 21.1(h)(1). 26 See Arca Rule 6.37A–O(a)(3)(A) and Rule 6.37A–O(a)(3)(C). 27 15 U.S.C. 78f(b). E:\FR\FM\17JNN1.SGM 17JNN1 khammond on DSKBBV9HB2PROD with NOTICES 28116 Federal Register / Vol. 84, No. 116 / Monday, June 17, 2019 / Notices 6(b)(5) 28 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) 29 requirement that the rules of an exchange not be designed to permit unfair discrimination between customers, issuers, brokers, or dealers. In particular, the Exchange believes that the proposed rule change subjecting bulk messages to the Price Adjust process will remove impediments to and perfect the mechanism of a free and open market because it provides Users with the flexibility to apply to bulk messages the same functionality they may apply to their orders. The Exchange believes that repricing individual bids and offers within a single bulk message for Users (that do not opt-out of the Price Adjust process), as opposed to automatically rejecting messages that lock or cross protected quotes when posted to the EDGX Options Book, will permit Users to use bulk messages to respond to continuously changing market conditions in a more efficient manner, as well as provide additional opportunity for execution and price improvement. The proposed repricing of bulk messages prevents the display of a locked or crossed market and is consistent with the Linkage Plan,30 thereby perfecting the mechanism of a free and open market and national market system and protecting investors. The Exchange also believes that by subjecting bulk message bids and offers to the Price Adjust process instead of cancelling or rejecting them under certain circumstances, will give Users greater flexibility and control over the circumstances under which their orders are able to interact with contra sideinterest on the Exchange. The Exchange believes this may increase the opportunities for execution at multiple price points and encourage the provision of more liquidity to the market, and therefore believes that it is reasonably designed to facilitate the mechanism of price discovery. 28 15 The Exchange notes that the options markets are quote driven markets and thus dependent on liquidity providers, which are most commonly registered market makers but also other Users, such as professional traders, for liquidity and price discovery. The Exchange believes that subjecting bulk messages to the Price Adjust process will provide liquidity providers with greater flexibility with respect to their submission of bulk messages, the primary purpose of which is to provide liquidity to the market. The Exchange believes that the reduction in the number of rejected bulk message bids and offers will promote efficacy in bulk messaging and may encourage the provision of more liquidity. This may result in more trading opportunities and tighter spreads and contribute to price discovery. As a result, this proposed change intends to improve overall market quality and enhance competition on the Exchange to the benefit of all investors. The Exchange believes that allowing for a User to enter instructions for an order or bulk message not to be subject to the Price Adjust process under Rule 21.1(i)(1), and rather designate an order or bulk message as Cancel Back under proposed Rule 21.1(l), serves to remove impediments to and perfect the mechanism of a free and open market and a national market system because this change provides Users with additional flexibility regarding how they want the System to handle their orders and bulk messages. The Exchange also notes that permitting Users to elect that their orders and/or bulk messages not be subject to the Price Adjust process, and instead treated as Cancel Back orders, is an additional way to ensure compliance with the linkage rules,31 thereby protecting investors and the public interest. Additionally, this change is consistent with the Price Adjust and Cancel Back processes language under Rule 6.10 and Rule 6.12 of the Exchange’s affiliated exchange, C2.32 The Exchange believes that mirroring the corresponding C2 rule language will provide better understanding for Users participating across the affiliated exchanges. Lastly, by amending Rule 21.1(d)(4) for AON orders to state that such orders may not be bulk messages, a System functionality currently in place, the Exchange believes the proposed rule change will remove impediments to the mechanism of a free and open market and protect investors by providing investors with rules that accurately U.S.C. 78f(b)(5). 29 Id. 30 See 31 Id. supra note 10. VerDate Sep<11>2014 16:34 Jun 14, 2019 32 See Jkt 247001 PO 00000 also supra note 20. Frm 00117 Fmt 4703 Sfmt 4703 reflect functionality currently unavailable for bulk messages. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The Exchange does not believe the proposed rule change will impose any burden on intramarket competition that is not necessary or appropriate in furtherance of the purposes of the Act, as the proposed application of the Price Adjust process and opt-out instructions to bulk messages, along with the Cancel Back process to both orders and bulk messages, will be available to all applicable Users (e.g. Market Makers may submit Book Only bulk messages, therefore, the option to apply the Price Adjust process to Book Only bulk messages is available to all Market Makers). While bulk messages will by default be subject to the Price Adjust process, all Users may opt-out of that process for bulk messages by designating their bulk messages (and orders) as Cancel Back, thus, allowing Users the choice to continue to have their bulk messages be handled in the same manner they are today. The Exchange also notes that the Price Adjust process (including opt-out instructions) are already available to all Users for orders, including Post Only and Book Only orders, and will apply to bulk messages in the same manner as they apply to orders. The Exchange does not believe the proposed rule change will impose any burden on intermarket competition that is not necessary or appropriate in furtherance of the purposes of the Act, because it will provide Users with bulk message repricing functionality and optout provisions that are similar to other order and quote repricing and opt-out provisions available on other exchanges. The Exchange believes the proposed functionality will permit the Exchange to operate on an even playing field relative to other exchanges that have similar functionality. As discussed above, the options markets are quote driven markets and thus dependent on various Users as liquidity providers and for price discovery. The Exchange believes the proposed amendment to subject bulk messages to the Price Adjust process will provide liquidity providers with additional flexibility and control over interactions of their individual bids and offers within a bulk message with contra-side liquidity, as well as additional opportunity for execution at E:\FR\FM\17JNN1.SGM 17JNN1 Federal Register / Vol. 84, No. 116 / Monday, June 17, 2019 / Notices multiple price points and price improvement. This may encourage the provision of more liquidity, which may result in more trading opportunities and tighter spreads, and contribute to price discovery. This may improve overall market quality and enhance competition on the Exchange, to the benefit of all investors. Electronic Comments C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others Paper Comments 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 33 and Rule 19b–4(f)(6) 34 thereunder.35 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: khammond on DSKBBV9HB2PROD with NOTICES 33 15 U.S.C. 78s(b)(3)(A). 34 17 CFR 240.19b–4(f)(6). 35 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. VerDate Sep<11>2014 16:34 Jun 14, 2019 Jkt 247001 • 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–2019–034 on the subject line. • 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–2019–034. 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–2019–034 and should be submitted on or before July 8, 2019. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.36 Eduardo A. Aleman, Deputy Secretary. [FR Doc. 2019–12658 Filed 6–14–19; 8:45 am] SECURITIES AND EXCHANGE COMMISSION [Release No. 34–86087; File No. SR– NASDAQ–2019–050] Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Delay Implementation of the MIDP Routing Option June 11, 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 June 3, 2019, The Nasdaq Stock Market LLC (‘‘Nasdaq’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to delay implementation of the MIDP routing option until the third quarter of 2019. The text of the proposed rule change is available on the Exchange’s website at https://nasdaq.cchwallstreet.com, at the principal office of the Exchange, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange is proposing to delay implementation of the MIDP routing option until the third quarter of 2019. BILLING CODE 8011–01–P 1 15 36 17 PO 00000 CFR 200.30–3(a)(12). Frm 00118 Fmt 4703 Sfmt 4703 28117 2 17 E:\FR\FM\17JNN1.SGM U.S.C. 78s(b)(1). CFR 240.19b–4. 17JNN1

Agencies

[Federal Register Volume 84, Number 116 (Monday, June 17, 2019)]
[Notices]
[Pages 28113-28117]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-12658]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-86082; File No. SR-CboeEDGX-2019-034]


Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice 
of Filing and Immediate Effectiveness of a Proposed Rule Change 
Relating To Update Its Price Adjust Process To Allow for the Process To 
Apply to Bulk Messages

June 11, 2019.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on June 4, 2019, Cboe EDGX Exchange, Inc. (the ``Exchange'' or 
``EDGX'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I and II 
below, which Items have been prepared by the Exchange. The Exchange 
filed the proposal as a ``non-controversial'' proposed rule change 
pursuant to Section 19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-
4(f)(6) thereunder.\4\ The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \4\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Cboe EDGX Exchange, Inc. (the ``Exchange'' or ``EDGX Options'') 
proposes to update its Price Adjust process to allow for the process to 
apply to bulk messages. The text of the proposed rule change is 
provided in Exhibit 5.
    The text of the proposed rule change is also available on the 
Exchange's website (https://markets.cboe.com/us/options/regulation/rule_filings/edgx/), at the Exchange's Office of the Secretary, and at 
the Commission's Public Reference Room.

[[Page 28114]]

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

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

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

1. Purpose
    The Exchange proposes to amend its rules to allow for the Price 
Adjust process to apply to bulk messages and make corresponding changes 
where applicable. The Exchange is proposing these amendments in order 
to provide Users that submit bulk messages with functionality that is 
currently available to them for orders.
    In December 2018, the Exchange adopted bulk messaging 
functionality, in which a User may enter, modify or cancel up to an 
Exchange-specified number of bids and offers in a single message. A 
User may submit a bulk message through a bulk port.\5\ The System \6\ 
handles bulk message bids and offers in the same manner as it handles 
an order, or quote if submitted by a Market Maker, unless the Rules 
specify otherwise. Currently, Rule 21.1(i)(1) subjects orders to the 
Price Adjust process.\7\ Pursuant to the Price Adjust process, if an 
order (that is not an all-or-none (``AON'') order \8\), at the time of 
entry, would lock or cross a Protected Quotation of another options 
exchange or the Exchange (subjecting it to the Price Adjust process), 
the System ranks \9\ and displays the order at one minimum price 
variation below (above) the current NBO (NBB). If a non-AON order is 
subject to the Price Adjust process by locking or crossing the offer 
(bid) of a AON order resting on the EDGX Options Book at or better than 
the Exchange's best offer (bid), the System ranks the resting AON order 
at one minimum price variation above (below) the bid (offer) of the 
non-AON order. Additionally, the System ranks an AON orders that cross 
a Protected Offer (Bid) of another options exchange or a sell (buy) AON 
order resting on the EDGX Options Book at or better than the Exchange's 
best offer (bid), at a price equal to the Protected Offer (Bid) or the 
offer (bid) of the resting AON order, respectively. AON orders that 
lock or cross a Protected Offer (Bid) of the Exchange are ranked by the 
System at a price one minimum price variation below (above) the 
Protected Offer (Bid). The Price Adjust process applies to orders 
(subject to the User's instructions or the Rules) that do not execute 
upon entry and go to rest in the EDGX Options Book (for example, 
because an order is not marketable upon entry, is not eligible to 
route, etc.). It ensures these orders rest at executable prices in 
accordance with linkage rules.\10\ Current Rule 21.1(i)(4) states that 
the Price Adjust process does not apply to bulk messages.\11\
---------------------------------------------------------------------------

    \5\ See Rule 21.1(j)(3).
    \6\ The ``System'' is the automated system for order execution 
and trade reporting owned and operated by the Exchange. See Rule 
21.1(a).
    \7\ The Exchange notes that market orders will not be subject to 
the price adjust process given that they execute immediately at the 
best price, therefore, they will not lock or cross the market.
    \8\ An AON order is either a market or a limit order to be 
executed in their entirety or not at all. See Rule 21.1(d)(4).
    \9\ In the EDGX Rules, the term ``rank'' means that an order 
will be prioritized and eligible for execution at its ranked price 
for purposes of allocation if an execution were to occur at that 
price. For an AON order ``ranked'' at a price, it would be 
prioritized last at that price.
    \10\ See Chapter XXVII of the Rules. See also Options Order 
Protection and Locked/Crossed Market Plan (the ``Linkage Plan'').
    \11\ Specifically, the individual bids (offers) submitted within 
a single bulk message. Therefore, as proposed, the Price Adjust 
process or a Cancel Back designation, as applicable, applies to all 
bulk message bids and offers within a single message.
---------------------------------------------------------------------------

    Furthermore, current Rule 21.1(j)(3)(A) provides for additional 
handling provisions regarding bulk messages submitted through bulk 
quoting ports. Specifically, Rule 21.1(j)(3)(A)(iv) provides that the 
System will cancel or reject a Post Only bulk message bid (offer) with 
a price that locks or crosses the Exchange best offer (bid) or ABO 
(ABB).\12\ The Exchange notes that bulk messages that include a Post 
Only instruction do not remove liquidity from the Exchange or route 
away to other exchanges.\13\ Current Rule 21.1(j)(3)(A)(iv) is 
consistent with how the System handles a Post Only order not subject to 
the Price Adjust process that locks or crosses the opposite side 
Exchange best bid or offer (``BBO'') or if displaying the order on the 
EDGX Options Book would create a violation of linkage Rule 27.3 (Locked 
and Crossed Markets). Additionally, current Rule 21.1(j)(3)(A)(v) 
provides that the System executes a Book Only bulk message bid (offer) 
that locks or crosses the ABO (ABB) against offers (bids) resting in 
the EDGX Options Book at prices the same as or better than the ABO 
(ABB) and then cancels the unexecuted portion of that bid (offer). Book 
Only orders do not route away to other exchanges.\14\ Current Rule 
21.1(j)(3)(A)(v) is consistent with how the System handles Book Only 
orders not subject to the Price Adjust process.\15\ The Exchange also 
notes that pursuant to Rule 21.1(j)(3)(a)(ii), a Market Maker with an 
appointment in a class may designate a bulk message for that class as 
Post Only or Book Only, and other Users (i.e., non-Market Makers or 
Market Makers without an appointment in a class) must designate a bulk 
message for that class as Post Only.\16\
---------------------------------------------------------------------------

    \12\ The ABBO means the best bid (offer) disseminated by other 
exchanges.
    \13\ See Rule 21.1(d)(8), which defines ``Post Only Orders'' as 
orders that are to be ranked and executed on the Exchange pursuant 
to Rule 21.8 (Order Display and Book Processing) or cancelled, as 
appropriate, without routing away to another options exchange except 
that the order will not remove liquidity from the EDGX Options Book. 
A Post Only Order that is not subject to the Price Adjust process 
that would lock or cross a Protected Quotation of another options 
exchange or the Exchange will be cancelled. Users may designate bulk 
messages as Post Only.
    \14\ See Rule 21.1(d)(7), which defines ``Book Only Orders'' as 
orders that are to be ranked and executed on the Exchange pursuant 
to Rule 21.8 (Order Display and Book Processing) or cancelled, as 
appropriate, without routing away to another options exchange. A 
Book Only Order will be subject to the Price Adjust process unless a 
User has entered instructions not to use such process. Users may 
designate bulk messages as Book Only.
    \15\ See supra note 10.
    \16\ Pursuant to the current Rules, a bulk message must be 
designated as Post Only or Book Only. Additionally, because bulk 
messages must include bids and offers and may not be market orders, 
all bulk messages are limit orders. See Rules 16.1(a)(4) and 
21.1(d)(5).
---------------------------------------------------------------------------

    The Exchange now proposes to amend Rule 21.1(i)(1) to subject bulk 
messages to the Price Adjust process. Specifically, the proposed rule 
change will subject a User's bulk messages to the Price Adjust process, 
which will apply to all bulk message bids and offers within a single 
message, unless a User designates a bulk message as Cancel Back (as 
described below), which will also apply to all bulk message bids and 
offers within a single message. As such, the Exchange also proposes to 
delete subparagraph (i)(4) which disallows bulk messages from the Price 
Adjust process. The Exchange notes that Users have noted the regularity 
with which their bulk message bids and offers are rejected because 
Price Adjust does not apply to them. As a result, some Users find this 
inefficient when submitting bulk messages. The Exchange believes that 
allowing bulk message bids and offers to be subject to the Price Adjust 
process will provide market participants with

[[Page 28115]]

additional opportunities for execution and price improvement, as well 
as additional flexibility and control over their submission of bulk 
messages. The Exchange notes that the System currently will not allow a 
User to submit bulk messages as AON orders. Moreover, the Exchange 
notes that AON orders are not displayed on the Book,\17\ therefore, 
they do not contribute to displayed liquidity, which is inconsistent 
with the primary purpose of bulk message functionality to encourage 
liquidity and trading through quoting behavior on the Exchange. The 
Exchange also notes that an AON order's size contingency (executed in 
its entirety or not at all) provides it with few opportunities for 
execution, which is also inconsistent with the purpose of bulk 
messages. The Exchange now proposes to explicitly state in Rule 
21.1(d)(4) that a User may not designate bulk messages as AON 
orders.\18\
---------------------------------------------------------------------------

    \17\ The Exchange notes that it does not disseminate bids or 
offers of AON orders to OPRA, as the prices of AON orders are not 
included in the BBO for a series.
    \18\ See Rule 21.1(d)(4).
---------------------------------------------------------------------------

    Additionally, the Exchange proposes to explicitly state under Rule 
21.1(i)(1) that a User may enter instructions for an order (including 
bulk messages) not to be subject to the Price Adjust process. The 
ability for Users not to subject orders to the Price Adjust process 
(and Cancel Back) currently exists for a User's orders, including Book 
Only and Post Only orders,\19\ that are not otherwise subject to 
limitations under the Rules. The Exchange is now proposing to make this 
election explicit under the Price Adjust provision and applicable to a 
User's orders and bulk messages. The proposed opt-out election is based 
on the corresponding Price Adjust process under Rule 6.12 of the 
Exchange's affiliated exchange, Cboe C2 Exchange, Inc. (``C2'').\20\ In 
line with this proposed change, the Exchange now proposes to codify the 
existing Cancel Back instruction (proposed Rule 21.1(l)) that is 
substantially similar to that of C2's Cancel Back provision under C2 
Rule 6.10(c) for Users that do not wish for their orders or bulk 
messages to be subject to the Price Adjust process. As proposed, a 
Cancel Back order is an order (including bulk messages) a User 
designates to not be subject to the Price Adjust Process pursuant to 
Rule 21.1(i) that the System cancels or rejects (immediately at the 
time the System receives the order or upon return to the System after 
being routed away) if displaying the order on the Book would create a 
violation of Rule 27.3 (Locked and Crossed Markets), or if the order 
cannot otherwise be executed or displayed in the EDGX Options Book at 
its limit price. As stated, a Cancel Back designation for a bulk 
message applies to all bulk message bids and offers within a single 
message. The System executes a Book Only--Cancel Back order against 
resting orders, and cancels or rejects a Post Only--Cancel Back order, 
that locks or crosses the opposite side of the BBO. The Exchange notes 
that pursuant to the Book Only instruction, an order or bulk message 
may not route away to another Exchange. Therefore, if an incoming Book 
Only order or bulk message bid or offer designated as Cancel Back 
locked or crossed an away market (i.e. the ABBO), the System would 
execute it to the extent it could against contra-side interest on the 
Exchange at prices the same as or better than the ABBO in accordance 
with the linkage rules.\21\ The System would then cancel it to prevent 
a violation of Rule 27.3 of the intermarket linkage rules. The Exchange 
also notes that pursuant to the Post Only instruction, an order or bulk 
message may not remove liquidity from the Book or route away to another 
Exchange. Therefore, if a Post Only order or bulk message bid or offer 
designated as Cancel Back locked or crossed the best contra-side 
interest on the Exchange (i.e. the BBO) or the ABBO, the System would 
cancel it to prevent it from executing against resting interest on the 
Exchange and to prevent a violation of Rule 27.3 of the intermarket 
linkage rules.
---------------------------------------------------------------------------

    \19\ See Rule 21.1(d)(7)-(8).
    \20\ The Exchange notes that C2 is simultaneously proposing to 
include bulk messages in its Price Adjust and Cancel Back processes.
    \21\ See supra note 10.
---------------------------------------------------------------------------

    Pursuant to the proposed rule change described above, all bulk 
message bids and offers would now be subject to the Price Adjust 
process, if not otherwise designated as Cancel Back, if they lock or 
cross a Protected Quotation of another options exchange or the 
Exchange, and rest in the EDGX Options Book pursuant to the process, 
thus avoiding display of a locked or crossed market in accordance with 
the linkage rules.\22\ Therefore, the Exchange now proposes to remove 
Rules 21.1(j)(3)(A)(iv) and 21.1(j)(3)(A)(v) (and amend the subsequent 
lettering as a result) because Post Only and Book Only bulk messages 
will now be included in the Price Adjust process, the handling of which 
would now be consistent with the current order handing of Post Only and 
Book Only orders under the Price Adjust process.\23\ The Exchange also 
notes that all bulk message bids and offers designated as Cancel Back 
pursuant to proposed Rule 21.1(l), and thus designated to not be 
subject to the Price Adjust process, would be handled in the same 
manner as they are today pursuant to current subparagraphs 
(j)(3)(A)(iv) and (j)(3)(A)(v) (which the Exchange proposes to 
delete).\24\
---------------------------------------------------------------------------

    \22\ Id.
    \23\ Id.
    \24\ Given that the proposed rule change will subject bulk 
messages to the Price Adjust process, and allow for a User to opt-
out of the Price Adjust process and, instead, designate their bulk 
message bids and offers as Cancel Back, these provisions are no 
longer necessary.
---------------------------------------------------------------------------

    The Exchange notes that allowing bulk message bids and offers to be 
subject to a repricing process is consistent with the handling of 
similar order (and quote) types on other exchanges.\25\ A similar 
repricing (display-price sliding) process for bulk messages currently 
exists under Rule 21.1(h)(1) of the Exchange's affiliated exchange, 
Cboe BZX Exchange, Inc. (``BZX Options''). The Exchange also notes that 
other exchanges subject orders (quotes), including quotes similar to 
Post Only and Book Only bulk messages, to a repricing process like the 
Price Adjust process. For example, NYSE Arca, Inc. (``Arca'') recently 
adopted order types called the Market Maker Add Liquidity Only 
quotation (``MMALO''), which like a Post Only instruction may not 
remove liquidity from the Exchange, and the Market Maker Repricing 
quotation (``MMRP'').\26\ Pursuant to Arca's repricing process, if 
these quotes would not be able to trade upon entry (for example, 
because the MMALO would take liquidity or display at a price that locks 
or crosses any interest on the Exchange or the NBBO), it would be 
displayed at one minimum price variation below (above) such sell (buy) 
interest.
---------------------------------------------------------------------------

    \25\ See Securities Exchange Act Release No. 84737 (December 6, 
2018), 83 FR 63919 (December 12, 2018) (SR-NYSEArca-2018-74) (Order 
Approving a Proposed Rule Change, as Modified by Amendment No. 1, to 
Amend Rules 6.62-O and 6.37A-O to Add New Order Types and Quotation 
Designations). See also BZX Options Rule 21.1(h)(1).
    \26\ See Arca Rule 6.37A-O(a)(3)(A) and Rule 6.37A-O(a)(3)(C).
---------------------------------------------------------------------------

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.\27\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section

[[Page 28116]]

6(b)(5) \28\ 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) \29\ requirement that the rules of an exchange not be designed 
to permit unfair discrimination between customers, issuers, brokers, or 
dealers.
---------------------------------------------------------------------------

    \27\ 15 U.S.C. 78f(b).
    \28\ 15 U.S.C. 78f(b)(5).
    \29\ Id.
---------------------------------------------------------------------------

    In particular, the Exchange believes that the proposed rule change 
subjecting bulk messages to the Price Adjust process will remove 
impediments to and perfect the mechanism of a free and open market 
because it provides Users with the flexibility to apply to bulk 
messages the same functionality they may apply to their orders. The 
Exchange believes that repricing individual bids and offers within a 
single bulk message for Users (that do not opt-out of the Price Adjust 
process), as opposed to automatically rejecting messages that lock or 
cross protected quotes when posted to the EDGX Options Book, will 
permit Users to use bulk messages to respond to continuously changing 
market conditions in a more efficient manner, as well as provide 
additional opportunity for execution and price improvement. The 
proposed repricing of bulk messages prevents the display of a locked or 
crossed market and is consistent with the Linkage Plan,\30\ thereby 
perfecting the mechanism of a free and open market and national market 
system and protecting investors.
---------------------------------------------------------------------------

    \30\ See supra note 10.
---------------------------------------------------------------------------

    The Exchange also believes that by subjecting bulk message bids and 
offers to the Price Adjust process instead of cancelling or rejecting 
them under certain circumstances, will give Users greater flexibility 
and control over the circumstances under which their orders are able to 
interact with contra side-interest on the Exchange. The Exchange 
believes this may increase the opportunities for execution at multiple 
price points and encourage the provision of more liquidity to the 
market, and therefore believes that it is reasonably designed to 
facilitate the mechanism of price discovery.
    The Exchange notes that the options markets are quote driven 
markets and thus dependent on liquidity providers, which are most 
commonly registered market makers but also other Users, such as 
professional traders, for liquidity and price discovery. The Exchange 
believes that subjecting bulk messages to the Price Adjust process will 
provide liquidity providers with greater flexibility with respect to 
their submission of bulk messages, the primary purpose of which is to 
provide liquidity to the market. The Exchange believes that the 
reduction in the number of rejected bulk message bids and offers will 
promote efficacy in bulk messaging and may encourage the provision of 
more liquidity. This may result in more trading opportunities and 
tighter spreads and contribute to price discovery. As a result, this 
proposed change intends to improve overall market quality and enhance 
competition on the Exchange to the benefit of all investors.
    The Exchange believes that allowing for a User to enter 
instructions for an order or bulk message not to be subject to the 
Price Adjust process under Rule 21.1(i)(1), and rather designate an 
order or bulk message as Cancel Back under proposed Rule 21.1(l), 
serves to remove impediments to and perfect the mechanism of a free and 
open market and a national market system because this change provides 
Users with additional flexibility regarding how they want the System to 
handle their orders and bulk messages. The Exchange also notes that 
permitting Users to elect that their orders and/or bulk messages not be 
subject to the Price Adjust process, and instead treated as Cancel Back 
orders, is an additional way to ensure compliance with the linkage 
rules,\31\ thereby protecting investors and the public interest. 
Additionally, this change is consistent with the Price Adjust and 
Cancel Back processes language under Rule 6.10 and Rule 6.12 of the 
Exchange's affiliated exchange, C2.\32\ The Exchange believes that 
mirroring the corresponding C2 rule language will provide better 
understanding for Users participating across the affiliated exchanges.
---------------------------------------------------------------------------

    \31\ Id.
    \32\ See also supra note 20.
---------------------------------------------------------------------------

    Lastly, by amending Rule 21.1(d)(4) for AON orders to state that 
such orders may not be bulk messages, a System functionality currently 
in place, the Exchange believes the proposed rule change will remove 
impediments to the mechanism of a free and open market and protect 
investors by providing investors with rules that accurately reflect 
functionality currently unavailable for bulk messages.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The Exchange does not 
believe the proposed rule change will impose any burden on intramarket 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act, as the proposed application of the Price Adjust 
process and opt-out instructions to bulk messages, along with the 
Cancel Back process to both orders and bulk messages, will be available 
to all applicable Users (e.g. Market Makers may submit Book Only bulk 
messages, therefore, the option to apply the Price Adjust process to 
Book Only bulk messages is available to all Market Makers). While bulk 
messages will by default be subject to the Price Adjust process, all 
Users may opt-out of that process for bulk messages by designating 
their bulk messages (and orders) as Cancel Back, thus, allowing Users 
the choice to continue to have their bulk messages be handled in the 
same manner they are today. The Exchange also notes that the Price 
Adjust process (including opt-out instructions) are already available 
to all Users for orders, including Post Only and Book Only orders, and 
will apply to bulk messages in the same manner as they apply to orders.
    The Exchange does not believe the proposed rule change will impose 
any burden on intermarket competition that is not necessary or 
appropriate in furtherance of the purposes of the Act, because it will 
provide Users with bulk message repricing functionality and opt-out 
provisions that are similar to other order and quote repricing and opt-
out provisions available on other exchanges. The Exchange believes the 
proposed functionality will permit the Exchange to operate on an even 
playing field relative to other exchanges that have similar 
functionality.
    As discussed above, the options markets are quote driven markets 
and thus dependent on various Users as liquidity providers and for 
price discovery. The Exchange believes the proposed amendment to 
subject bulk messages to the Price Adjust process will provide 
liquidity providers with additional flexibility and control over 
interactions of their individual bids and offers within a bulk message 
with contra-side liquidity, as well as additional opportunity for 
execution at

[[Page 28117]]

multiple price points and price improvement. This may encourage the 
provision of more liquidity, which may result in more trading 
opportunities and tighter spreads, and contribute to price discovery. 
This may improve overall market quality and enhance competition on the 
Exchange, to the benefit of all investors.

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 \33\ and 
Rule 19b-4(f)(6) \34\ thereunder.\35\
---------------------------------------------------------------------------

    \33\ 15 U.S.C. 78s(b)(3)(A).
    \34\ 17 CFR 240.19b-4(f)(6).
    \35\ 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.
---------------------------------------------------------------------------

    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 [email protected]. Please include 
File Number SR-CboeEDGX-2019-034 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-2019-034. 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-2019-034 and should be 
submitted on or before July 8, 2019.
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    \36\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\36\
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-12658 Filed 6-14-19; 8:45 am]
BILLING CODE 8011-01-P
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