Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice of Filing of a Proposed Rule Change To Amend EDGX Rule 11.8(g), Which Describes the Handling of Midpoint Discretionary Orders Entered on the Exchange, 13193-13198 [2020-04575]

Download as PDF Federal Register / Vol. 85, No. 45 / Friday, March 6, 2020 / Notices agreement from the market dominant or the competitive product list, or the modification of an existing product currently appearing on the market dominant or the competitive product list. Section II identifies the docket number(s) associated with each Postal Service request, the title of each Postal Service request, the request’s acceptance date, and the authority cited by the Postal Service for each request. For each request, the Commission appoints an officer of the Commission to represent the interests of the general public in the proceeding, pursuant to 39 U.S.C. 505 (Public Representative). Section II also establishes comment deadline(s) pertaining to each request. The public portions of the Postal Service’s request(s) can be accessed via the Commission’s website (https:// www.prc.gov). Non-public portions of the Postal Service’s request(s), if any, can be accessed through compliance with the requirements of 39 CFR 3007.301.1 The Commission invites comments on whether the Postal Service’s request(s) in the captioned docket(s) are consistent with the policies of title 39. For request(s) that the Postal Service states concern market dominant product(s), applicable statutory and regulatory requirements include 39 U.S.C. 3622, 39 U.S.C. 3642, 39 CFR part 3010, and 39 CFR part 3020, subpart B. For request(s) that the Postal Service states concern competitive product(s), applicable statutory and regulatory requirements include 39 U.S.C. 3632, 39 U.S.C. 3633, 39 U.S.C. 3642, 39 CFR part 3015, and 39 CFR part 3020, subpart B. Comment deadline(s) for each request appear in section II. lotter on DSKBCFDHB2PROD with NOTICES II. Docketed Proceeding(s) 1 See Docket No. RM2018–3, Order Adopting Final Rules Relating to Non-Public Information, June 27, 2018, Attachment A at 19–22 (Order No. 4679). 18:31 Mar 05, 2020 Erica A. Barker, Secretary. [FR Doc. 2020–04601 Filed 3–5–20; 8:45 am] BILLING CODE 7710–FW–P POSTAL SERVICE Board of Governors; Sunshine Act Meeting February 27, 2020, at 2:30 p.m. PLACE: Washington, DC. STATUS: Closed. ITEMS CONSIDERED: 1. Administrative Issues. 2. Strategic Issues. On February 27, 2020, a majority of the members of the Board of Governors of the United States Postal Service voted unanimously to hold and to close to public observation a special meeting in Washington, DC. The Board determined that no earlier public notice was practicable. GENERAL COUNSEL CERTIFICATION: The General Counsel of the United States Postal Service has certified that the meeting may be closed under the Government in the Sunshine Act. CONTACT PERSON FOR MORE INFORMATION: Michael J. Elston, Secretary of the Board, U.S. Postal Service, 475 L’Enfant Plaza SW, Washington, DC 20260–1000. Telephone: (202) 268–4800. TIME AND DATE: Michael J. Elston, Secretary. [FR Doc. 2020–04785 Filed 3–4–20; 4:15 pm] Jkt 250001 SECURITIES AND EXCHANGE COMMISSION 2 p.m. on Wednesday, March 11, 2020. PLACE: The meeting will be held at the Commission’s headquarters, 100 F Street NE, Washington, DC 20549. STATUS: This meeting will be closed to the public. MATTERS TO BE CONSIDERED: Commissioners, Counsel to the Commissioners, the Secretary to the Commission, and recording secretaries will attend the closed meeting. Certain staff members who have an interest in the matters also may be present. In the event that the time, date, or location of this meeting changes, an announcement of the change, along with TIME AND DATE: PO 00000 Frm 00065 Fmt 4703 the new time, date, and/or place of the meeting will be posted on the Commission’s website at https:// www.sec.gov. The General Counsel of the Commission, or his designee, has certified that, in his opinion, one or more of the exemptions set forth in 5 U.S.C. 552b(c)(3), (5), (6), (7), (8), 9(B) and (10) and 17 CFR 200.402(a)(3), (a)(5), (a)(6), (a)(7), (a)(8), (a)(9)(ii) and (a)(10), permit consideration of the scheduled matters at the closed meeting. The subject matters of the closed meeting will consist of the following topics: Institution and settlement of injunctive actions; Institution and settlement of administrative proceedings; Resolution of litigation claims; and Other matters relating to enforcement proceedings. At times, changes in Commission priorities require alterations in the scheduling of meeting agenda items that may consist of adjudicatory, examination, litigation, or regulatory matters. CONTACT PERSON FOR MORE INFORMATION: For further information; please contact Vanessa A. Countryman from the Office of the Secretary at (202) 551–5400. Dated: March 4, 2020. Vanessa A. Countryman, Secretary. [FR Doc. 2020–04752 Filed 3–4–20; 4:15 pm] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–88309; File No. SR– CboeEDGX–2020–010] BILLING CODE 7710–12–P Sunshine Act Meetings 1. Docket No(s).: CP2020–100; Filing Title: Notice of United States Postal Service of Filing a Functionally Equivalent Global Expedited Package Services 7 Negotiated Service Agreement and Application for NonPublic Treatment of Materials Filed Under Seal; Filing Acceptance Date: March 2, 2020; Filing Authority: 39 CFR 3015.5; Public Representative: Christopher C. Mohr; Comments Due: March 10, 2020. VerDate Sep<11>2014 This Notice will be published in the Federal Register. 13193 Sfmt 4703 Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice of Filing of a Proposed Rule Change To Amend EDGX Rule 11.8(g), Which Describes the Handling of Midpoint Discretionary Orders Entered on the Exchange March 2, 2020. 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 February 19, 2020, Cboe EDGX Exchange, Inc. (the ‘‘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 1 15 2 17 U.S.C. 78s(b)(1). CFR 240.19b–4. E:\FR\FM\06MRN1.SGM 06MRN1 13194 Federal Register / Vol. 85, No. 45 / Friday, March 6, 2020 / Notices 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. (‘‘EDGX’’ or the ‘‘Exchange’’) is filing with the Securities and Exchange Commission (the ‘‘Commission’’) a proposed rule change to amend EDGX Rule 11.8(g), which describes the handling of Midpoint Discretionary Orders entered on the Exchange. The text of the proposed rule change is provided in Exhibit 5. The text of the proposed rule change is also available on the Exchange’s website (https://markets.cboe.com/us/ options/regulation/rule_filings/edgx/), at the Exchange’s Office of the Secretary, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. lotter on DSKBCFDHB2PROD with NOTICES A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose A Midpoint Discretionary Order (‘‘MDO’’) is a Limit Order that is executable at the national best bid (‘‘NBB’’) for an order to buy or the national best offer (‘‘NBO’’) for an order to sell while resting on the EDGX Book, with discretion to execute at prices to and including the midpoint of the national best bid or offer (‘‘NBBO’’).3 The purpose of the proposed rule change is to amend EDGX Rule 11.8(g) to introduce two optional instructions that Users would be able to include on MDOs entered on the Exchange. First, the Exchange would allow Users to enter MDOs with an offset to the NBBO, similar to orders entered with a Primary Peg Instruction today.4 Second, the Exchange would allow Users to enter MDOs that include a Quote Depletion 3 See 4 See EDGX Rule 11.8(g). EDGX Rule 11.6(j)(2). VerDate Sep<11>2014 18:31 Mar 05, 2020 Jkt 250001 Protection (‘‘QDP’’) instruction that would disable discretion for a limited period in certain circumstances where the best bid or offer displayed on the EDGX Book is executed or cancelled below one round lot. The Exchange believes that both of these features would enhance the usefulness of MDOs to members and investors, and would allow the exchange to better compete with other national securities exchanges that currently offer order types that include similar features. Offset Instruction As explained, MDOs are pegged to the same side of the NBBO, with discretion to execute at prices to and including the midpoint of the NBBO. An MDO is therefore similar to an order entered with both a Primary Peg instruction and an instruction to exercise discretion to the NBBO midpoint. It is also similar to certain order types offered by other national securities exchanges, including Discretionary Peg Orders offered by the Investors Exchange LLC (‘‘IEX’’).5 Today, Users can include an offset on orders entered on the Exchange that include a Primary Peg instruction, which allows them to specify that the order be pegged to a price above or below the NBB or NBO to which the order is pegged. Specifically, pursuant to Rule 11.6(j)(2), which defines the Primary Peg instruction, a User may, but is not required to, select an offset equal to or greater than one Minimum Price Variation (‘‘MPV’’) above or below the applicable NBB or NBO. Although an offset is generally available to Users that enter an order with the Primary Peg instruction, it is not available for an MDO that is similarly pegged to the same side of the NBBO—i.e., pegged to NBB for buy orders, or NBO for sell orders. The Exchange now proposes to extend the flexibility to include an offset instruction to MDOs, thus increasing the usefulness of this order type. As proposed, MDOs entered with an offset would function in the same manner as currently implemented for Primary Peg orders entered with an offset pursuant to Rule 11.6(j)(2), thereby ensuring a familiar and consistent experience for Users. First, a User entering an MDO would be able to select an offset equal to or greater than one MPV above or below the NBB or NBO that the order is pegged to (‘‘Offset Amount’’). Second, the Offset Amount for an MDO that is to be displayed on 5 See IEX Rule 11.190(b)(10). Discretionary Peg Orders on IEX are posted at the less aggressive of one MPV less aggressive than the primary quote or the order’s limit price. PO 00000 Frm 00066 Fmt 4703 Sfmt 4703 the EDGX Book would need to result in the price of such order being inferior to or equal to the inside quote on the same side of the market.6 Although the Exchange expects that some Users may continue to want MDOs that are ranked at the same side of the NBBO without any offset, certain other Users may find the offset functionality useful as it would allow them to specify more or less aggressive pegged prices for MDOs resting on the EDGX Book. The Exchange is therefore proposing to introduce the offset functionality as an optional feature that can be included at the preference of the User entering an MDO for trading on the Exchange. The proposed changes related to the offset instruction are included in proposed subparagraph (9) under EDGX Rule 11.8(g). In addition, the Exchange proposes to make conforming changes to language currently included in EDGX Rule 11.8(g). First, rather than explaining that an MDO is ‘‘executable at’’ the applicable NBB or NBO, the rule would instead provide that an MDO is ‘‘pegged to’’ the NBB or NBO, ‘‘with or without an offset.’’ Second, language that describes when an MDO is executable at its limit price would be amended to state that an MDO to buy (sell) with a limit price that is less (higher) than its pegged price, including any offset, is posted to the EDGX Book at its limit price. This change would replace references to circumstances where an MDO is posted to the EDGX Book at its limit price due to such limit price being less aggressive than the prevailing NBB or NBO, as the applicable NBB or NBO is not the relevant pegged price for MDOs entered with an offset. Third, the Exchange would amend language contained in EDGX Rule 11.8(g)(6) and (8), which deal with limit up-limit down (‘‘LULD’’) and locked/crossed market handling, respectively, to account for the fact that an MDO entered with an offset would not be posted at the NBB or NBO. Specifically, the Exchange would amend EDGA Rule 11.8(g)(6) to reference handling in situations where the applicable LULD price band is at or through the ‘‘the order’s pegged price’’ rather than ‘‘an existing Protected Bid’’ or ‘‘an existing Protected Offer.’’ With the introduction of an offset, the 6 An MDO defaults to a Displayed instruction unless the User includes a Non-Displayed instruction on the order. See EDGX Rule 11.8(g)(4). Similar to the current handling of orders entered with a Primary Peg instruction, the Exchange is not proposing to accept displayed MDOs with an aggressive offset at this time. Such orders would add functionality to the Exchange that would effectively set the NBBO through a pegged order, and the Exchange believes that this could potentially add complexity to its System. E:\FR\FM\06MRN1.SGM 06MRN1 Federal Register / Vol. 85, No. 45 / Friday, March 6, 2020 / Notices Exchange’s LULD handling would only apply when the LULD price band is at or through the pegged price of the MDO, which could be different from the price of an existing Protected Bid or Offer. Similarly, the Exchange would amend EDGX Rule 11.8(g)(8) to provide that an MDO’s pegged price would be adjusted to the current NBO (for bids) or NBB (for offers), when ‘‘an MDO posted on’’ the EDGX Book is crossed by another market. The current version of the rule references the EDGX Book being crossed by another market since the MDO would be posted at the best price available on the Exchange (i.e., the applicable NBB or NBO). With the introduction of an offset, however, an MDO may be more or less aggressive than the NBB or NBO, and this handling would apply when the posted MDO is itself crossed by another market. Each of these changes are meant to reflect the proposed operation of MDOs that are entered with an offset, as previously described, and would not otherwise impact the handling of MDOs entered on the Exchange. lotter on DSKBCFDHB2PROD with NOTICES Quote Depletion Protection The Exchange also proposes to introduce an optional instruction that Users would be able to include on an MDO to limit the order’s ability to exercise discretion in certain circumstances: ‘‘Quote Depletion Protection’’ or ‘‘QDP.’’ 7 Similar to crumbling quote features offered for Discretionary Peg Orders entered on IEX, QDP would restrict the exercise of discretion on MDOs entered with this instruction in circumstances where applicable market conditions indicate that it may be less desirable to execute within an order’s discretionary range.8 The QDP feature would do this by tracking significant executions or cancellations of orders that constitute the best bid or offer on EDGX.9 As proposed, a ‘‘QDP Active Period’’ would be enabled or refreshed for buy (sell) 7 Proposed changes related to the introduction of the QDP instruction are reflected in proposed subparagraph (10) under EDGX Rule 11.8(g). 8 A Discretionary Peg order resting on IEX is only eligible to trade at its resting price during periods of ‘‘quote instability.’’ See IEX Rule 11.190(b)(10). In turn, IEX Rule 11.190(g) describes IEX’s quote instability calculation, which uses a proprietary mathematical formula ‘‘to assess the probability of an imminent change to the current Protected NBB to a lower price or Protected NBO to a higher price.’’ 9 The Exchange would look to the terms of any replacement order to determine if an order modified by a cancel/replace message pursuant to EDGA Rule 11.10(e) qualifies as a cancellation that would trigger a QDP Active Period. For example, a cancel/ replace message that increases the size of an order would not trigger a QDP Active Period, notwithstanding that the message cancels the order before replacing it with greater size. VerDate Sep<11>2014 18:31 Mar 05, 2020 Jkt 250001 MDOs if the best bid (offer) displayed on the EDGX Book is either: (A) Executed below one round lot; or (B) at the national best bid (offer) and cancelled below one round lot.10 During this QDP Active Period, an MDO entered with a QDP instruction would not exercise discretion for a limited period of time. Instead, such an order would be only be executable at its ranked price.11 Once activated, the QDP Active Period would remain in place to prevent the execution of MDOs within their discretionary ranges for a specified period. Specifically, the Exchange proposes that when a QDP Active Period is initially enabled, or refreshed by a subsequent execution or cancellation of the best bid (offer) then displayed on the EDGX Book, it would remain enabled for a configurable period of up to five milliseconds. The Exchange would determine the duration of the QDP Active Period, and would publish this value in a circular distributed to members. As the Exchange gains experience with the proposed QDP functionality, it may revise the chosen duration to better reflect the needs of members and investors using the this instruction. Such changes would be made with the goal of facilitating the protection provided by the QDP instruction, while at the same time not unduly limiting the ability of orders entered with this instruction to exercise discretion and execute at more aggressive prices within the order’s discretionary range. Finally, since the QDP instruction is designed to protect resting MDOs based on the execution or cancellation of the best bids and offers displayed on the EDGX Book, the Exchange anticipates that Users may prefer to utilize the QDP instruction along with an offset instruction that results in the MDO being posted at a price that is inferior to the applicable NBB or NBO (with discretion to the midpoint). The Exchange also believes that given the less aggressive offset, and the fact that these orders are seeking additional protection, there may be less incentive for Users to include a Displayed 10 Rule 611 of Regulation NMS generally limits executions to prices that are at or better than the protected best bid or offer. However, there are circumstances, such as the use of intermarket sweep orders, where an order may be executed at an inferior price. In these circumstances, an execution of the EDGX BBO below one round lot would trigger a QDP Active Period even though that quotation is inferior to the NBBO. 11 An MDOs ranked price is the order’s displayed or non-displayed pegged price, which may or may not include an offset, as proposed, or the order’s limit price if that limit price is less aggressive than the applicable pegged price. PO 00000 Frm 00067 Fmt 4703 Sfmt 4703 13195 instruction. As a result, unless the User chooses otherwise, an MDO to buy (sell) entered with a QDP instruction would default to a Non-Displayed instruction and would include an Offset Amount equal to one Minimum Price Variation below (above) the NBB (NBO).12 This implementation is similar to the implementation of Discretionary Peg Orders on IEX but would permit Users to change these default instructions based on their specific needs.13 Examples. The examples below illustrate the proposed operation of the QDP instruction: 14 Example 1: QDP Active Period = 2 milliseconds NBBO: $10.00 × $10.01 Order 1: Buy 100 shares @ $10.00 Displayed Order 2: Buy 200 shares @ $10.01— MDO with QDP, Hidden, Offset= ¥$0.01 Order 3: Sell 1 shares @ $10.00 IOC— Time = 12:00:00:000 Order 4: Sell 100 shares @ $10.00 Midpoint Pegged IOC—Time = 12:00:00:001 Order 2, which is an MDO to buy, is ranked at $9.99 non-displayed with discretion to the midpoint price of $10.005. When Order 3 is entered it will trade a single share with Order 1 at $10.00, triggering a QDP Active Period for Order 2 because of the execution of the EDGX Best Bid below one round lot. This restricts the ability for Order 2 to exercise discretion for two milliseconds, and prevents the execution of Order 4 within Order 2’s discretionary range. As a result, the Order 4 would be cancelled without an execution. Example 2: QDP Active Period = 2 milliseconds NBBO: $10.00 × $10.01 Order 1: Buy 100 shares @ $10.00 Displayed Order 2: Buy 200 shares @ $10.01— MDO with QDP, Hidden, Offset= ¥$0.01 Order 3: Sell 200 shares @ $9.99 ISO IOC—Time = 12:00:00:000 This example is the same as Example 1, except that Order 3 is an ISO IOC for 12 The Exchange also proposes to amend EDGX Rule 11.8(g)(4) to reflect the fact that MDOs entered with a QDP instruction would default to NonDisplayed. MDOs that are not entered with the QDP instruction would continue to default to a Displayed instruction, as currently provided in EDGX Rule 11.8(g)(4). 13 As previously discussed, Discretionary Peg Orders on IEX are posted at the less aggressive of one MPV less aggressive than the primary quote or the order’s limit price. See supra note 5. Such orders are also Non-Displayed. See IEX Rule 11.190(a)(3). 14 For purposes of these examples, orders are reflected in the order in which they are received, and only the identified orders are present on the EDGX Book. E:\FR\FM\06MRN1.SGM 06MRN1 lotter on DSKBCFDHB2PROD with NOTICES 13196 Federal Register / Vol. 85, No. 45 / Friday, March 6, 2020 / Notices 200 shares that is priced equal to the non-displayed ranked price of Order 2, and there is no Order 4. Order 3 would trade 100 shares with Order 1 at $10.00, triggering a QDP Active Period. However, the triggering of a QDP Active Period would not prevent the execution of an MDO at its ranked price. As a result, Order 3 would trade its remaining 100 shares with Order 2 at $9.99. Example 3: QDP Active Period = 2 milliseconds NBBO: $10.00 × $10.01 Order 1: Buy 100 shares @ $10.00 Displayed Order 2: Buy 200 shares @ $10.01— MDO with QDP, Hidden, Offset= ¥$0.01 Order 3: Sell 100 share @ $10.00 IOC— Time = 12:00:00:000 Order 4: Sell 100 shares @ $10.00 Midpoint Pegged IOC—Time = 12:00:00:003 This example is the same as Example 1, except that Order 3 is for 100 shares and Order 4 is entered after the QDP Active Period has concluded. In this example, Order 3 would trade 100 shares with Order 1 at $10.00, triggering a QDP Active Period. The QDP Active Period triggered by the execution of the EDGX Best Bid below one round lot would be disabled after two milliseconds, and Order 4 would execute 100 shares against Order 2 at $10.005. Example 4: QDP Active Period = 2 milliseconds NBBO: $10.00 × $10.01 Order 1: Buy 100 shares @ $10.00 Displayed Order 2: Buy 200 shares @ $10.01— MDO with QDP, Hidden, Offset= ¥$0.01 Order 3: Sell 200 shares @ $10.00 IOC—Time = 12:00:00:000 Order 2, which is an MDO to buy, is ranked at $9.99 non-displayed with discretion to the midpoint price of $10.005. When Order 3 is entered it would first trade 100 shares with Order 1 at $10.00. A QDP Active Period is then immediately enabled for Order 2 because of the execution of the EDGX Best Bid below one round lot. This restricts the ability for Order 2 to exercise discretion for two milliseconds, and prevents the execution of the remaining 100 shares of Order 3 within Order 2’s discretionary range. As a result, the remaining quantity of Order 3 would be cancelled. Example 5: QDP Active Period = 2 milliseconds NBBO: $10.00 × $10.01 Order 1: Buy 100 shares @ $10.00 Displayed VerDate Sep<11>2014 18:31 Mar 05, 2020 Jkt 250001 Order 2: Buy 200 shares @ $10.01— MDO with QDP, Hidden, Offset= ¥$0.01 Order 1: Full Cancel—Time = 12:00:00:000 Order 3: Sell 200 shares @ $10.00 IOC—Time = 12:00:00:001 This example is the same as Example 4, except that Order 1 is cancelled one millisecond before the receipt of Order 3. Because Order 1, which establishes the EDGX Best Bid, is priced at the NBB, a QDP Active period would be immediately enabled following its cancellation. This restricts the ability for Order 2 to exercise discretion for two milliseconds, and prevents the execution of Order 3 within Order 2’s discretionary range. As a result, Order 3 would be cancelled without an execution. Example 6: QDP Active Period = 2 milliseconds NBBO: $10.00 × $10.01 Order 1: Sell 100 shares @ $10.01 Displayed Order 2: Buy 200 shares @ $10.01— MDO with QDP, Hidden, Offset= ¥$0.01 Order 1: Full Cancel—Time = 12:00:00:000 Order 3: Sell 200 shares @ $10.00 IOC— Time = 12:00:00:001 This example is the same as Example 5, except that Order 1 is an offer priced at the NBO rather than a bid at the NBB. A QDP Active Period for an MDO would only enabled by an execution or cancellation of an order on the same side of the market. Thus, Order 2, which is an MDO to buy, would not be impacted by the cancellation of Order 1, which is an order to sell. As a result, Order 3 would execute 200 shares with Order 2 at $10.00. Example 7: QDP Active Period = 2 milliseconds NBBO: $10.00 × $10.01 Order 1: Buy 100 shares @ $9.99 Displayed Order 2: Buy 200 shares @ $10.01— MDO with QDP, Hidden, Offset = ¥$0.01 Order 1: Full Cancel—Time = 12:00:00:000 Order 3: Sell 200 shares @ $10.00 IOC— Time = 12:00:00:001 This example is the same as Example 5, except that Order 1 is entered at a price that is inferior to the NBB. Because Order 1 is not at the NBB, its cancellation does not trigger a QDP Active Period. As a result, Order 3 would trade 200 shares with Order 2 at $10.00. Example 8: QDP Active Period = 2 milliseconds NBBO: $10.00 × $10.01 PO 00000 Frm 00068 Fmt 4703 Sfmt 4703 Order 1: Buy 100 shares @ $9.99 Displayed Order 2: Buy 100 shares @ 10.00 Displayed Order 3: Buy 100 shares @ $10.01— MDO with QDP, Hidden, Offset = ¥$0.02 Order 4: Sell 100 shares @ $10.00 IOC— Time = 12:00:00:000 Order 5: Sell 100 shares @ $9.99 ISO IOC—Time = 12:00:00:001 Order 6: Sell 100 shares @ $10.00 ISO IOC—Time = 12:00:00:002 Order 3, which is an MDO to buy, is ranked at $9.98 non-displayed with discretion to the midpoint price of $10.005. When Order 4 is entered it would trade 100 shares with Order 2 at $10.00. A QDP Active Period is then immediately enabled for Order 3 because of the execution of the EDGX Best Bid below one round lot. This restricts the ability for Order 3 to exercise discretion for two milliseconds. When Order 5 is entered it would trade 100 shares with Order 1, which is now the EDGX Best Bid, at $9.99, refreshing the QDP Active Period and extending it until 12:00:00:003. When Order 6 is entered it would be cancelled without an execution as Order 3 would still be subject to the extended QDP Active Period. 2. Statutory Basis The Exchange believes the proposed rule change is consistent with the requirements of Section 6(b) of the Act,15 in general, and Section 6(b)(5) of the Act,16 in particular, in that it is designed to remove impediments to and perfect the mechanism of a free and open market and a national market system, to promote just and equitable principles of trade, and, in general, to protect investors and the public interest and not to permit unfair discrimination between customers, issuers, brokers, or dealers. The two proposed changes would increase the usefulness of MDOs offered by the Exchange, and would allow the Exchange to better compete with order types on other national securities exchanges that offer similar features to their members. Offset Instruction for MDOs The Exchange believes that it is consistent with the protection of investors and the public interest to introduce an offset instruction that Users could choose to include on their MDOs.17 With this proposed change, 15 15 U.S.C. 78f(b). U.S.C. 78f(b)(5). 17 The Exchange notes that technical changes proposed to EDGX Rule 11.8(g), including paragraphs (6) and (8) thereunder merely reflect 16 15 E:\FR\FM\06MRN1.SGM 06MRN1 Federal Register / Vol. 85, No. 45 / Friday, March 6, 2020 / Notices lotter on DSKBCFDHB2PROD with NOTICES MDOs would behave similarly to orders entered with a Primary Peg instruction today in that such orders could be entered with an offset that results in the order being pegged to a price that is more or less aggressive than the applicable NBB or NBO on the same side of the market (i.e., NBB for buy orders and NBO for sell orders). This change would make MDOs a more flexible tool for members and investors. Further, the introduction of the offset instruction on MDOs would be similar to and competitive with features offered on other national securities exchanges that offer similar order types. For example, Discretionary Peg Orders offered on IEX are pegged one MPV less aggressive than the applicable NBB or NBO when posted to the order book, with discretion to the midpoint of the NBBO (subject to the order’s limit price). Introducing an offset instruction for MDOs offered on EDGX would allow members and investors that trade on the Exchange to utilize similar functionality. Such functionality could be used for a number of purposes, including to mitigate risk by posting an order at a price that is lower (higher) than the prevailing NBB (NBO). At the same time, the offset instruction would be offered on a purely voluntary basis, and with flexibility for Users to choose the amount of any offset, thereby maintaining flexibility to continue using the current offering, which pegs MDOs to the applicable NBB or NBO without an offset, and to choose different offsets based on a User’s specific needs. As is the case for orders entered with a Primary Peg instruction and an offset, displayed MDOs would not be accepted with an offset that results in such orders being posted at a price that is better than the applicable NBB or NBO. Users that wish to enter an MDO with an aggressive offset would be required to enter such orders with a non-displayed instruction, thereby ensuring that such orders would not be eligible to set a new NBBO, which the Exchange believes may unnecessarily increase the complexity of its System.18 Quote Depletion Protection The Exchange also believes that it is consistent with the protection of investors and the public interest to introduce the QDP instruction to provide additional protection to Users that enter MDOs with this instruction. language changes that are necessary since an MDO would be allowed with an offset. The Exchange believes that these changes would promote just and equitable principles of trade as they would ensure that MDO handling remains transparent with the introduction of the offset instruction. 18 See supra note 6. VerDate Sep<11>2014 18:31 Mar 05, 2020 Jkt 250001 13197 Similar to Discretionary Peg Orders offered by IEX, the QDP instruction would provide Users with protective features that would limit the order’s ability to exercise discretion in certain circumstances that may be indicative of a quotation that is moving against the resting MDO—i.e., a buy quotation that is moving to a lower price for MDOs to buy, or a sell quotation that is moving to a higher price for MDOs to sell. The specific trigger for enabling a QDP Active Period, or refreshing a QDP Active Period that has already been enabled, would be based on the execution or cancellation of the best bid or offer displayed by the Exchange on the same side of the market. Any trade that results in such bid or offer being executed below one round lot would trigger a QDP Active Period. A cancellation of the Exchange’s best bid or offer below one round lot, however, would only trigger a QDP Active period if such best bid or offer quotation is also at the NBBO. The Exchange believes that a cancellation of orders displayed at the Exchange’s best bid or offer, but not at the NBBO, may not be indicative of an quotation that is about to transition to a less aggressive price, and is therefore proposing to limit the triggering of a QDP Active Period to instances where that quotation is at the best price available in the market. When a QDP Active Period is enabled or refreshed, the MDO would forgo discretion for a limited period but would remain executable at its displayed or non-displayed ranked price. Thus, the QDP instruction may provide additional comfort to Users entering MDOs that would allow them to utilize discretion, and thereby provide potential price improvement opportunities to incoming orders, while at the same time limiting the exercise of discretion in circumstances where an execution within the order’s discretionary range may be undesirable. The Exchange therefore believes that the introduction of the QDP instruction would remove impediments to and perfect the mechanism of a free and open market and a national market system. Further, while the QDP instruction would be available to all Users, use of this instruction would be voluntary, meaning that Users could choose to use this instruction, or not, based on their specific needs. contrary, the proposal is a competitive response to similar features available on other markets, such as IEX, and would therefore facilitate increased competition between exchange markets. As with other national securities exchanges, the Exchange must continually assess and improve its offerings to compete with other exchanges and off-exchange venues. The proposed rule change is indicative of this competition. Further, the Exchange does not believe that the proposed rule change would implicate any competitive concerns with respect to its Users. Both instructions proposed to be introduced for MDOs with this filing would be available to all Users on an equal and non-discriminatory basis. Rather than impede competition, the proposed rule change would provide additional tools for members and investors to facilitate their trading goals. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change would impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. To the • 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–2020–010 on the subject line. PO 00000 Frm 00069 Fmt 4703 Sfmt 4703 C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No comments were solicited or received on the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 45 days of the date of publication of this notice in the Federal Register or within such longer period up to 90 days (i) as the Commission may designate if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the self-regulatory organization consents, the Commission will: (A) By order approve or disapprove the proposed rule change, or (B) institute proceedings to determine whether the proposed rule change should be 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 E:\FR\FM\06MRN1.SGM 06MRN1 13198 Federal Register / Vol. 85, No. 45 / Friday, March 6, 2020 / Notices 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–2020–010. 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–2020–010, and should be submitted on or before March 27, 2020. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.19 J. Matthew DeLesDernier, Assistant Secretary. [FR Doc. 2020–04575 Filed 3–5–20; 8:45 am] lotter on DSKBCFDHB2PROD with NOTICES BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–88310; File No. SR–OCC– 2020–001] Self-Regulatory Organizations; The Options Clearing Corporation; Order Approving Proposed Rule Change To Modify the Fees for Exercise Notices Submitted After the Deadlines and To Change the Deadline for Submitting a Late Exercise Notice on NonExpiration Dates March 2, 2020. I. Introduction On January 14, 2020, the Options Clearing Corporation (‘‘OCC’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change SR–OCC–2020– 001 (‘‘Proposed Rule Change’’) pursuant to Section 19(b) of the Securities Exchange Act of 1934 (‘‘Exchange Act’’) 1 and Rule 19b–4 2 thereunder to modify the fee imposed for submitting a late exercise notice and change the deadline by which such a notice must be submitted on non-expiration dates.3 The Proposed Rule Change was published for public comment in the Federal Register on January 30, 2020.4 The Commission has received no comments regarding the Proposed Rule Change. This order approves the Proposed Rule Change. II. Background OCC’s rules require Clearing Members to submit option exercise notices within the timeframes prescribed by OCC. OCC’s rules provide for an exception process to accommodate exercise notices submitted outside of such timeframes solely for the purpose of correcting a bona fide error on the part of a Clearing Member or customer.5 OCC’s process for accommodating late exercise notices includes, among other things, a late filing fee and a final deadline by which any such notice must be received by OCC. OCC proposes to amend its Rules 801 and 805 to modify the fees for exercise notices submitted after the deadlines by which all option exercise notices must be submitted and to change the deadline for submitting a 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 See Notice of Filing infra note 4, at 85 FR 5491. 4 Securities Exchange Act Release No. 88030 (Jan. 24, 2020), 85 FR 5491 (Jan. 30, 2020) (SR–OCC– 2020–001) (‘‘Notice of Filing’’). 5 See OCC Rules 801 and 805, available at https:// www.theocc.com/components/docs/legal/rules_ and_bylaws/occ_rules.pdf. 2 17 19 17 CFR 200.30–3(a)(12). VerDate Sep<11>2014 18:31 Mar 05, 2020 Jkt 250001 PO 00000 Frm 00070 Fmt 4703 Sfmt 4703 late exercise notice on non-expiration dates.6 OCC’s Rule 801 governs the exercise of an options on days other than the option’s expiration date. OCC’s Rule 805 governs the exercise of an option on the option’s expiration date. Under OCC’s Rule 801(d), the filing of a late exercise notice by a Clearing Member may be deemed a violation of OCC’s procedures and may subject the Clearing Member to disciplinary action. Additionally, under OCC’s Rule 801(d) and Rule 805(g), a Clearing Member submitting a late exercise notice is liable to OCC for a $75,000 fee per line item listed on a late exercise notice.7 OCC observed that the Clearing Members submitting late exercise notices in 2017 and 2019 captured dividends on the securities underlying the late exercised options, thereby securing the financial gains associated with such captured dividends.8 Further, OCC observed that the amount of dividends captured ranged from $93,600 to $436,800.9 OCC has previously stated that the late exercise fee is intended as an incentive for Clearing Members to be especially diligent in processing exercise notices and to improve back office procedures while at the same time preserving their ability to correct bona fide operational errors.10 On November 9, 2017, OCC discussed late exercise notices submitted in 2017 at its OCC Roundtable, an OCCsponsored advisory group comprised of representatives from OCC’s participant exchanges, a cross-section of OCC Clearing Members, and OCC staff.11 The OCC Roundtable participants noted the dollar amount at issue in connection with late exercises received in 2017, which reflected the amount of dividends received by the person submitting the late exercise as a result of receiving the underlying shares. As a result of these discussions, Roundtable participants agreed that an increase in the late exercise fee from the current $75,000 fee per line item to $250,000 fee per line item would be appropriate and in a range to incentivize Clearing 6 OCC did not propose to change deadlines related to the late exercise of options on an option’s expiration date. 7 A line item is an exercise instruction which includes the account, series, and quantity to be exercised. 8 See Notice of Filing, 85 FR at 5492. 9 See Notice of Filing, 85 FR at 5492, n. 10. OCC also stated that the amount of late exercises notices received since 2017 was significantly more than the preceding seven years. See Notice of Filing, 85 FR at 5492. 10 See Securities Exchange Act Release No. 57584 (Mar. 31, 2008), 73 FR 18844 (Apr. 7, 2008) (SR– OCC–2007–016); Notice of Filing, 85 FR at 5492. 11 See Notice of Filing, 85 FR at 5492. E:\FR\FM\06MRN1.SGM 06MRN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 85, Number 45 (Friday, March 6, 2020)]
[Notices]
[Pages 13193-13198]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-04575]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88309; File No. SR-CboeEDGX-2020-010]


Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice 
of Filing of a Proposed Rule Change To Amend EDGX Rule 11.8(g), Which 
Describes the Handling of Midpoint Discretionary Orders Entered on the 
Exchange

March 2, 2020.
    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 February 19, 2020, Cboe EDGX Exchange, Inc. (the ``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

[[Page 13194]]

comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

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

    Cboe EDGX Exchange, Inc. (``EDGX'' or the ``Exchange'') is filing 
with the Securities and Exchange Commission (the ``Commission'') a 
proposed rule change to amend EDGX Rule 11.8(g), which describes the 
handling of Midpoint Discretionary Orders entered on the Exchange. The 
text of the proposed rule change is provided in Exhibit 5.
    The text of the proposed rule change is also available on the 
Exchange's website (https://markets.cboe.com/us/options/regulation/rule_filings/edgx/), at the Exchange's Office of the Secretary, and at 
the Commission's Public Reference Room.

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

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

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

1. Purpose
    A Midpoint Discretionary Order (``MDO'') is a Limit Order that is 
executable at the national best bid (``NBB'') for an order to buy or 
the national best offer (``NBO'') for an order to sell while resting on 
the EDGX Book, with discretion to execute at prices to and including 
the midpoint of the national best bid or offer (``NBBO'').\3\ The 
purpose of the proposed rule change is to amend EDGX Rule 11.8(g) to 
introduce two optional instructions that Users would be able to include 
on MDOs entered on the Exchange. First, the Exchange would allow Users 
to enter MDOs with an offset to the NBBO, similar to orders entered 
with a Primary Peg Instruction today.\4\ Second, the Exchange would 
allow Users to enter MDOs that include a Quote Depletion Protection 
(``QDP'') instruction that would disable discretion for a limited 
period in certain circumstances where the best bid or offer displayed 
on the EDGX Book is executed or cancelled below one round lot. The 
Exchange believes that both of these features would enhance the 
usefulness of MDOs to members and investors, and would allow the 
exchange to better compete with other national securities exchanges 
that currently offer order types that include similar features.
---------------------------------------------------------------------------

    \3\ See EDGX Rule 11.8(g).
    \4\ See EDGX Rule 11.6(j)(2).
---------------------------------------------------------------------------

Offset Instruction
    As explained, MDOs are pegged to the same side of the NBBO, with 
discretion to execute at prices to and including the midpoint of the 
NBBO. An MDO is therefore similar to an order entered with both a 
Primary Peg instruction and an instruction to exercise discretion to 
the NBBO midpoint. It is also similar to certain order types offered by 
other national securities exchanges, including Discretionary Peg Orders 
offered by the Investors Exchange LLC (``IEX'').\5\ Today, Users can 
include an offset on orders entered on the Exchange that include a 
Primary Peg instruction, which allows them to specify that the order be 
pegged to a price above or below the NBB or NBO to which the order is 
pegged. Specifically, pursuant to Rule 11.6(j)(2), which defines the 
Primary Peg instruction, a User may, but is not required to, select an 
offset equal to or greater than one Minimum Price Variation (``MPV'') 
above or below the applicable NBB or NBO. Although an offset is 
generally available to Users that enter an order with the Primary Peg 
instruction, it is not available for an MDO that is similarly pegged to 
the same side of the NBBO--i.e., pegged to NBB for buy orders, or NBO 
for sell orders. The Exchange now proposes to extend the flexibility to 
include an offset instruction to MDOs, thus increasing the usefulness 
of this order type.
---------------------------------------------------------------------------

    \5\ See IEX Rule 11.190(b)(10). Discretionary Peg Orders on IEX 
are posted at the less aggressive of one MPV less aggressive than 
the primary quote or the order's limit price.
---------------------------------------------------------------------------

    As proposed, MDOs entered with an offset would function in the same 
manner as currently implemented for Primary Peg orders entered with an 
offset pursuant to Rule 11.6(j)(2), thereby ensuring a familiar and 
consistent experience for Users. First, a User entering an MDO would be 
able to select an offset equal to or greater than one MPV above or 
below the NBB or NBO that the order is pegged to (``Offset Amount''). 
Second, the Offset Amount for an MDO that is to be displayed on the 
EDGX Book would need to result in the price of such order being 
inferior to or equal to the inside quote on the same side of the 
market.\6\ Although the Exchange expects that some Users may continue 
to want MDOs that are ranked at the same side of the NBBO without any 
offset, certain other Users may find the offset functionality useful as 
it would allow them to specify more or less aggressive pegged prices 
for MDOs resting on the EDGX Book. The Exchange is therefore proposing 
to introduce the offset functionality as an optional feature that can 
be included at the preference of the User entering an MDO for trading 
on the Exchange.
---------------------------------------------------------------------------

    \6\ An MDO defaults to a Displayed instruction unless the User 
includes a Non-Displayed instruction on the order. See EDGX Rule 
11.8(g)(4). Similar to the current handling of orders entered with a 
Primary Peg instruction, the Exchange is not proposing to accept 
displayed MDOs with an aggressive offset at this time. Such orders 
would add functionality to the Exchange that would effectively set 
the NBBO through a pegged order, and the Exchange believes that this 
could potentially add complexity to its System.
---------------------------------------------------------------------------

    The proposed changes related to the offset instruction are included 
in proposed subparagraph (9) under EDGX Rule 11.8(g). In addition, the 
Exchange proposes to make conforming changes to language currently 
included in EDGX Rule 11.8(g). First, rather than explaining that an 
MDO is ``executable at'' the applicable NBB or NBO, the rule would 
instead provide that an MDO is ``pegged to'' the NBB or NBO, ``with or 
without an offset.'' Second, language that describes when an MDO is 
executable at its limit price would be amended to state that an MDO to 
buy (sell) with a limit price that is less (higher) than its pegged 
price, including any offset, is posted to the EDGX Book at its limit 
price. This change would replace references to circumstances where an 
MDO is posted to the EDGX Book at its limit price due to such limit 
price being less aggressive than the prevailing NBB or NBO, as the 
applicable NBB or NBO is not the relevant pegged price for MDOs entered 
with an offset. Third, the Exchange would amend language contained in 
EDGX Rule 11.8(g)(6) and (8), which deal with limit up-limit down 
(``LULD'') and locked/crossed market handling, respectively, to account 
for the fact that an MDO entered with an offset would not be posted at 
the NBB or NBO. Specifically, the Exchange would amend EDGA Rule 
11.8(g)(6) to reference handling in situations where the applicable 
LULD price band is at or through the ``the order's pegged price'' 
rather than ``an existing Protected Bid'' or ``an existing Protected 
Offer.'' With the introduction of an offset, the

[[Page 13195]]

Exchange's LULD handling would only apply when the LULD price band is 
at or through the pegged price of the MDO, which could be different 
from the price of an existing Protected Bid or Offer. Similarly, the 
Exchange would amend EDGX Rule 11.8(g)(8) to provide that an MDO's 
pegged price would be adjusted to the current NBO (for bids) or NBB 
(for offers), when ``an MDO posted on'' the EDGX Book is crossed by 
another market. The current version of the rule references the EDGX 
Book being crossed by another market since the MDO would be posted at 
the best price available on the Exchange (i.e., the applicable NBB or 
NBO). With the introduction of an offset, however, an MDO may be more 
or less aggressive than the NBB or NBO, and this handling would apply 
when the posted MDO is itself crossed by another market. Each of these 
changes are meant to reflect the proposed operation of MDOs that are 
entered with an offset, as previously described, and would not 
otherwise impact the handling of MDOs entered on the Exchange.
Quote Depletion Protection
    The Exchange also proposes to introduce an optional instruction 
that Users would be able to include on an MDO to limit the order's 
ability to exercise discretion in certain circumstances: ``Quote 
Depletion Protection'' or ``QDP.'' \7\ Similar to crumbling quote 
features offered for Discretionary Peg Orders entered on IEX, QDP would 
restrict the exercise of discretion on MDOs entered with this 
instruction in circumstances where applicable market conditions 
indicate that it may be less desirable to execute within an order's 
discretionary range.\8\ The QDP feature would do this by tracking 
significant executions or cancellations of orders that constitute the 
best bid or offer on EDGX.\9\ As proposed, a ``QDP Active Period'' 
would be enabled or refreshed for buy (sell) MDOs if the best bid 
(offer) displayed on the EDGX Book is either: (A) Executed below one 
round lot; or (B) at the national best bid (offer) and cancelled below 
one round lot.\10\ During this QDP Active Period, an MDO entered with a 
QDP instruction would not exercise discretion for a limited period of 
time. Instead, such an order would be only be executable at its ranked 
price.\11\
---------------------------------------------------------------------------

    \7\ Proposed changes related to the introduction of the QDP 
instruction are reflected in proposed subparagraph (10) under EDGX 
Rule 11.8(g).
    \8\ A Discretionary Peg order resting on IEX is only eligible to 
trade at its resting price during periods of ``quote instability.'' 
See IEX Rule 11.190(b)(10). In turn, IEX Rule 11.190(g) describes 
IEX's quote instability calculation, which uses a proprietary 
mathematical formula ``to assess the probability of an imminent 
change to the current Protected NBB to a lower price or Protected 
NBO to a higher price.''
    \9\ The Exchange would look to the terms of any replacement 
order to determine if an order modified by a cancel/replace message 
pursuant to EDGA Rule 11.10(e) qualifies as a cancellation that 
would trigger a QDP Active Period. For example, a cancel/replace 
message that increases the size of an order would not trigger a QDP 
Active Period, notwithstanding that the message cancels the order 
before replacing it with greater size.
    \10\ Rule 611 of Regulation NMS generally limits executions to 
prices that are at or better than the protected best bid or offer. 
However, there are circumstances, such as the use of intermarket 
sweep orders, where an order may be executed at an inferior price. 
In these circumstances, an execution of the EDGX BBO below one round 
lot would trigger a QDP Active Period even though that quotation is 
inferior to the NBBO.
    \11\ An MDOs ranked price is the order's displayed or non-
displayed pegged price, which may or may not include an offset, as 
proposed, or the order's limit price if that limit price is less 
aggressive than the applicable pegged price.
---------------------------------------------------------------------------

    Once activated, the QDP Active Period would remain in place to 
prevent the execution of MDOs within their discretionary ranges for a 
specified period. Specifically, the Exchange proposes that when a QDP 
Active Period is initially enabled, or refreshed by a subsequent 
execution or cancellation of the best bid (offer) then displayed on the 
EDGX Book, it would remain enabled for a configurable period of up to 
five milliseconds. The Exchange would determine the duration of the QDP 
Active Period, and would publish this value in a circular distributed 
to members. As the Exchange gains experience with the proposed QDP 
functionality, it may revise the chosen duration to better reflect the 
needs of members and investors using the this instruction. Such changes 
would be made with the goal of facilitating the protection provided by 
the QDP instruction, while at the same time not unduly limiting the 
ability of orders entered with this instruction to exercise discretion 
and execute at more aggressive prices within the order's discretionary 
range.
    Finally, since the QDP instruction is designed to protect resting 
MDOs based on the execution or cancellation of the best bids and offers 
displayed on the EDGX Book, the Exchange anticipates that Users may 
prefer to utilize the QDP instruction along with an offset instruction 
that results in the MDO being posted at a price that is inferior to the 
applicable NBB or NBO (with discretion to the midpoint). The Exchange 
also believes that given the less aggressive offset, and the fact that 
these orders are seeking additional protection, there may be less 
incentive for Users to include a Displayed instruction. As a result, 
unless the User chooses otherwise, an MDO to buy (sell) entered with a 
QDP instruction would default to a Non-Displayed instruction and would 
include an Offset Amount equal to one Minimum Price Variation below 
(above) the NBB (NBO).\12\ This implementation is similar to the 
implementation of Discretionary Peg Orders on IEX but would permit 
Users to change these default instructions based on their specific 
needs.\13\
---------------------------------------------------------------------------

    \12\ The Exchange also proposes to amend EDGX Rule 11.8(g)(4) to 
reflect the fact that MDOs entered with a QDP instruction would 
default to Non-Displayed. MDOs that are not entered with the QDP 
instruction would continue to default to a Displayed instruction, as 
currently provided in EDGX Rule 11.8(g)(4).
    \13\ As previously discussed, Discretionary Peg Orders on IEX 
are posted at the less aggressive of one MPV less aggressive than 
the primary quote or the order's limit price. See supra note 5. Such 
orders are also Non-Displayed. See IEX Rule 11.190(a)(3).
---------------------------------------------------------------------------

    Examples. The examples below illustrate the proposed operation of 
the QDP instruction: \14\
---------------------------------------------------------------------------

    \14\ For purposes of these examples, orders are reflected in the 
order in which they are received, and only the identified orders are 
present on the EDGX Book.
---------------------------------------------------------------------------

    Example 1:

QDP Active Period = 2 milliseconds
NBBO: $10.00 x $10.01
Order 1: Buy 100 shares @ $10.00 Displayed
Order 2: Buy 200 shares @ $10.01--MDO with QDP, Hidden, Offset= -$0.01
Order 3: Sell 1 shares @ $10.00 IOC--Time = 12:00:00:000
Order 4: Sell 100 shares @ $10.00 Midpoint Pegged IOC--Time = 
12:00:00:001

    Order 2, which is an MDO to buy, is ranked at $9.99 non-displayed 
with discretion to the midpoint price of $10.005. When Order 3 is 
entered it will trade a single share with Order 1 at $10.00, triggering 
a QDP Active Period for Order 2 because of the execution of the EDGX 
Best Bid below one round lot. This restricts the ability for Order 2 to 
exercise discretion for two milliseconds, and prevents the execution of 
Order 4 within Order 2's discretionary range. As a result, the Order 4 
would be cancelled without an execution.

    Example 2:

QDP Active Period = 2 milliseconds
NBBO: $10.00 x $10.01
Order 1: Buy 100 shares @ $10.00 Displayed
Order 2: Buy 200 shares @ $10.01--MDO with QDP, Hidden, Offset= -$0.01
Order 3: Sell 200 shares @ $9.99 ISO IOC--Time = 12:00:00:000

    This example is the same as Example 1, except that Order 3 is an 
ISO IOC for

[[Page 13196]]

200 shares that is priced equal to the non-displayed ranked price of 
Order 2, and there is no Order 4. Order 3 would trade 100 shares with 
Order 1 at $10.00, triggering a QDP Active Period. However, the 
triggering of a QDP Active Period would not prevent the execution of an 
MDO at its ranked price. As a result, Order 3 would trade its remaining 
100 shares with Order 2 at $9.99.

    Example 3:

QDP Active Period = 2 milliseconds
NBBO: $10.00 x $10.01
Order 1: Buy 100 shares @ $10.00 Displayed
Order 2: Buy 200 shares @ $10.01--MDO with QDP, Hidden, Offset= -$0.01
Order 3: Sell 100 share @ $10.00 IOC--Time = 12:00:00:000
Order 4: Sell 100 shares @ $10.00 Midpoint Pegged IOC--Time = 
12:00:00:003
    This example is the same as Example 1, except that Order 3 is for 
100 shares and Order 4 is entered after the QDP Active Period has 
concluded. In this example, Order 3 would trade 100 shares with Order 1 
at $10.00, triggering a QDP Active Period. The QDP Active Period 
triggered by the execution of the EDGX Best Bid below one round lot 
would be disabled after two milliseconds, and Order 4 would execute 100 
shares against Order 2 at $10.005.

    Example 4:

QDP Active Period = 2 milliseconds
NBBO: $10.00 x $10.01
Order 1: Buy 100 shares @ $10.00 Displayed
Order 2: Buy 200 shares @ $10.01--MDO with QDP, Hidden, Offset= -$0.01
Order 3: Sell 200 shares @ $10.00 IOC--Time = 12:00:00:000
    Order 2, which is an MDO to buy, is ranked at $9.99 non-displayed 
with discretion to the midpoint price of $10.005. When Order 3 is 
entered it would first trade 100 shares with Order 1 at $10.00. A QDP 
Active Period is then immediately enabled for Order 2 because of the 
execution of the EDGX Best Bid below one round lot. This restricts the 
ability for Order 2 to exercise discretion for two milliseconds, and 
prevents the execution of the remaining 100 shares of Order 3 within 
Order 2's discretionary range. As a result, the remaining quantity of 
Order 3 would be cancelled.

    Example 5:

QDP Active Period = 2 milliseconds
NBBO: $10.00 x $10.01
Order 1: Buy 100 shares @ $10.00 Displayed
Order 2: Buy 200 shares @ $10.01--MDO with QDP, Hidden, Offset= -$0.01
Order 1: Full Cancel--Time = 12:00:00:000
Order 3: Sell 200 shares @ $10.00 IOC--Time = 12:00:00:001
    This example is the same as Example 4, except that Order 1 is 
cancelled one millisecond before the receipt of Order 3. Because Order 
1, which establishes the EDGX Best Bid, is priced at the NBB, a QDP 
Active period would be immediately enabled following its cancellation. 
This restricts the ability for Order 2 to exercise discretion for two 
milliseconds, and prevents the execution of Order 3 within Order 2's 
discretionary range. As a result, Order 3 would be cancelled without an 
execution.

    Example 6:

QDP Active Period = 2 milliseconds
NBBO: $10.00 x $10.01
Order 1: Sell 100 shares @ $10.01 Displayed
Order 2: Buy 200 shares @ $10.01--MDO with QDP, Hidden, Offset= -$0.01
Order 1: Full Cancel--Time = 12:00:00:000
Order 3: Sell 200 shares @ $10.00 IOC--Time = 12:00:00:001
    This example is the same as Example 5, except that Order 1 is an 
offer priced at the NBO rather than a bid at the NBB. A QDP Active 
Period for an MDO would only enabled by an execution or cancellation of 
an order on the same side of the market. Thus, Order 2, which is an MDO 
to buy, would not be impacted by the cancellation of Order 1, which is 
an order to sell. As a result, Order 3 would execute 200 shares with 
Order 2 at $10.00.
    Example 7:

QDP Active Period = 2 milliseconds
NBBO: $10.00 x $10.01
Order 1: Buy 100 shares @ $9.99 Displayed
Order 2: Buy 200 shares @ $10.01--MDO with QDP, Hidden, Offset = -$0.01
Order 1: Full Cancel--Time = 12:00:00:000
Order 3: Sell 200 shares @ $10.00 IOC--Time = 12:00:00:001

    This example is the same as Example 5, except that Order 1 is 
entered at a price that is inferior to the NBB. Because Order 1 is not 
at the NBB, its cancellation does not trigger a QDP Active Period. As a 
result, Order 3 would trade 200 shares with Order 2 at $10.00.
    Example 8:

QDP Active Period = 2 milliseconds
NBBO: $10.00 x $10.01
Order 1: Buy 100 shares @ $9.99 Displayed
Order 2: Buy 100 shares @ 10.00 Displayed
Order 3: Buy 100 shares @ $10.01--MDO with QDP, Hidden, Offset = -$0.02
Order 4: Sell 100 shares @ $10.00 IOC--Time = 12:00:00:000
Order 5: Sell 100 shares @ $9.99 ISO IOC--Time = 12:00:00:001
Order 6: Sell 100 shares @ $10.00 ISO IOC--Time = 12:00:00:002

    Order 3, which is an MDO to buy, is ranked at $9.98 non-displayed 
with discretion to the midpoint price of $10.005. When Order 4 is 
entered it would trade 100 shares with Order 2 at $10.00. A QDP Active 
Period is then immediately enabled for Order 3 because of the execution 
of the EDGX Best Bid below one round lot. This restricts the ability 
for Order 3 to exercise discretion for two milliseconds. When Order 5 
is entered it would trade 100 shares with Order 1, which is now the 
EDGX Best Bid, at $9.99, refreshing the QDP Active Period and extending 
it until 12:00:00:003. When Order 6 is entered it would be cancelled 
without an execution as Order 3 would still be subject to the extended 
QDP Active Period.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the requirements of Section 6(b) of the Act,\15\ in general, and 
Section 6(b)(5) of the Act,\16\ in particular, in that it is designed 
to remove impediments to and perfect the mechanism of a free and open 
market and a national market system, to promote just and equitable 
principles of trade, and, in general, to protect investors and the 
public interest and not to permit unfair discrimination between 
customers, issuers, brokers, or dealers. The two proposed changes would 
increase the usefulness of MDOs offered by the Exchange, and would 
allow the Exchange to better compete with order types on other national 
securities exchanges that offer similar features to their members.
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    \15\ 15 U.S.C. 78f(b).
    \16\ 15 U.S.C. 78f(b)(5).
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Offset Instruction for MDOs
    The Exchange believes that it is consistent with the protection of 
investors and the public interest to introduce an offset instruction 
that Users could choose to include on their MDOs.\17\ With this 
proposed change,

[[Page 13197]]

MDOs would behave similarly to orders entered with a Primary Peg 
instruction today in that such orders could be entered with an offset 
that results in the order being pegged to a price that is more or less 
aggressive than the applicable NBB or NBO on the same side of the 
market (i.e., NBB for buy orders and NBO for sell orders). This change 
would make MDOs a more flexible tool for members and investors. 
Further, the introduction of the offset instruction on MDOs would be 
similar to and competitive with features offered on other national 
securities exchanges that offer similar order types. For example, 
Discretionary Peg Orders offered on IEX are pegged one MPV less 
aggressive than the applicable NBB or NBO when posted to the order 
book, with discretion to the midpoint of the NBBO (subject to the 
order's limit price). Introducing an offset instruction for MDOs 
offered on EDGX would allow members and investors that trade on the 
Exchange to utilize similar functionality. Such functionality could be 
used for a number of purposes, including to mitigate risk by posting an 
order at a price that is lower (higher) than the prevailing NBB (NBO). 
At the same time, the offset instruction would be offered on a purely 
voluntary basis, and with flexibility for Users to choose the amount of 
any offset, thereby maintaining flexibility to continue using the 
current offering, which pegs MDOs to the applicable NBB or NBO without 
an offset, and to choose different offsets based on a User's specific 
needs. As is the case for orders entered with a Primary Peg instruction 
and an offset, displayed MDOs would not be accepted with an offset that 
results in such orders being posted at a price that is better than the 
applicable NBB or NBO. Users that wish to enter an MDO with an 
aggressive offset would be required to enter such orders with a non-
displayed instruction, thereby ensuring that such orders would not be 
eligible to set a new NBBO, which the Exchange believes may 
unnecessarily increase the complexity of its System.\18\
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    \17\ The Exchange notes that technical changes proposed to EDGX 
Rule 11.8(g), including paragraphs (6) and (8) thereunder merely 
reflect language changes that are necessary since an MDO would be 
allowed with an offset. The Exchange believes that these changes 
would promote just and equitable principles of trade as they would 
ensure that MDO handling remains transparent with the introduction 
of the offset instruction.
    \18\ See supra note 6.
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Quote Depletion Protection
    The Exchange also believes that it is consistent with the 
protection of investors and the public interest to introduce the QDP 
instruction to provide additional protection to Users that enter MDOs 
with this instruction. Similar to Discretionary Peg Orders offered by 
IEX, the QDP instruction would provide Users with protective features 
that would limit the order's ability to exercise discretion in certain 
circumstances that may be indicative of a quotation that is moving 
against the resting MDO--i.e., a buy quotation that is moving to a 
lower price for MDOs to buy, or a sell quotation that is moving to a 
higher price for MDOs to sell. The specific trigger for enabling a QDP 
Active Period, or refreshing a QDP Active Period that has already been 
enabled, would be based on the execution or cancellation of the best 
bid or offer displayed by the Exchange on the same side of the market. 
Any trade that results in such bid or offer being executed below one 
round lot would trigger a QDP Active Period. A cancellation of the 
Exchange's best bid or offer below one round lot, however, would only 
trigger a QDP Active period if such best bid or offer quotation is also 
at the NBBO. The Exchange believes that a cancellation of orders 
displayed at the Exchange's best bid or offer, but not at the NBBO, may 
not be indicative of an quotation that is about to transition to a less 
aggressive price, and is therefore proposing to limit the triggering of 
a QDP Active Period to instances where that quotation is at the best 
price available in the market. When a QDP Active Period is enabled or 
refreshed, the MDO would forgo discretion for a limited period but 
would remain executable at its displayed or non-displayed ranked price. 
Thus, the QDP instruction may provide additional comfort to Users 
entering MDOs that would allow them to utilize discretion, and thereby 
provide potential price improvement opportunities to incoming orders, 
while at the same time limiting the exercise of discretion in 
circumstances where an execution within the order's discretionary range 
may be undesirable. The Exchange therefore believes that the 
introduction of the QDP instruction would remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system. Further, while the QDP instruction would be available to all 
Users, use of this instruction would be voluntary, meaning that Users 
could choose to use this instruction, or not, based on their specific 
needs.

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

    The Exchange does not believe that the proposed rule change would 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. To the contrary, the 
proposal is a competitive response to similar features available on 
other markets, such as IEX, and would therefore facilitate increased 
competition between exchange markets. As with other national securities 
exchanges, the Exchange must continually assess and improve its 
offerings to compete with other exchanges and off-exchange venues. The 
proposed rule change is indicative of this competition. Further, the 
Exchange does not believe that the proposed rule change would implicate 
any competitive concerns with respect to its Users. Both instructions 
proposed to be introduced for MDOs with this filing would be available 
to all Users on an equal and non-discriminatory basis. Rather than 
impede competition, the proposed rule change would provide additional 
tools for members and investors to facilitate their trading goals.

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

    No comments were solicited or received on the proposed rule change.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove the proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be 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-2020-010 on the subject line.

[[Page 13198]]

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-2020-010. 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-2020-010, and should be 
submitted on or before March 27, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-04575 Filed 3-5-20; 8:45 am]
BILLING CODE 8011-01-P

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