Self-Regulatory Organizations; Cboe EDGA Exchange, Inc.; Notice of Filing of a Proposed Rule Change To Amend EDGA Rule 11.8(e), Which Describes the Handling of MidPoint Discretionary Orders Entered on the Exchange, 13957-13961 [2020-04901]

Download as PDF Federal Register / Vol. 85, No. 47 / Tuesday, March 10, 2020 / Notices that rebuttal by April 14, 2020. The Commission asks that commenters address the sufficiency of the Exchange’s statements in support of the proposal which are set forth in the Notice,33 in addition to any other comments they may wish to submit about the proposed rule change. Comments may be submitted by any of the following methods: khammond on DSKJM1Z7X2PROD with NOTICES 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– NASDAQ–2019–091 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–NASDAQ–2019–091. 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 such filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–NASDAQ–2019–091 and should be submitted on or before March 31, 2020. Rebuttal comments should be submitted by April 14, 2020. Notice, supra note 3. CFR 200.30–3(a)(57). For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.34 J. Matthew DeLesDernier, Assistant Secretary. [FR Doc. 2020–04790 Filed 3–9–20; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–88323; File No. SRCboeEDGA–2020–005] Self-Regulatory Organizations; Cboe EDGA Exchange, Inc.; Notice of Filing of a Proposed Rule Change To Amend EDGA Rule 11.8(e), Which Describes the Handling of MidPoint Discretionary Orders Entered on the Exchange March 5, 2020. 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 February 28, 2020, Cboe EDGA Exchange, Inc. (the ‘‘Exchange’’) filed with the Securities and Exchange Commission (the ‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been prepared by the 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 Cboe EDGA Exchange, Inc. (‘‘EDGA’’ or the ‘‘Exchange’’) is filing with the Securities and Exchange Commission (the ‘‘Commission’’) a proposed rule change to amend EDGA Rule 11.8(e), 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/ equities/regulation/rule_filings/edga/), 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 33 See 1 15 34 17 2 17 VerDate Sep<11>2014 17:20 Mar 09, 2020 Jkt 250001 PO 00000 U.S.C. 78s(b)(1). CFR 240.19b–4. Frm 00101 Fmt 4703 13957 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 to buy that is pegged to the national best bid (‘‘NBB’’), with discretion to execute at prices up to and including the midpoint of the national best bid or offer (‘‘NBBO’’), or a limit order to sell that is pegged to the national best offer (‘‘NBO’’), with discretion to execute at prices down to and including the midpoint of the NBBO.3 The purpose of the proposed rule change is to amend EDGA Rule 11.8(e) 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 EDGA 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 3 See EDGA Rule 11.8(e). EDGA Rule 11.6(j)(2). 5 See IEX Rule 11.190(b)(10). Discretionary Peg Orders on IEX are posted at the less aggressive of 4 See Continued Sfmt 4703 E:\FR\FM\10MRN1.SGM 10MRN1 13958 Federal Register / Vol. 85, No. 47 / Tuesday, March 10, 2020 / Notices khammond on DSKJM1Z7X2PROD with NOTICES 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 the EDGA 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 EDGA 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 EDGA one MPV less aggressive than the primary quote or the order’s limit price. 6 An MDO defaults to a Displayed instruction unless the User includes a Non-Displayed instruction on the order. See EDGA Rule 11.8(e)(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. VerDate Sep<11>2014 17:20 Mar 09, 2020 Jkt 250001 Rule 11.8(e). In addition, the Exchange proposes to make conforming changes to language currently included in EDGA Rule 11.8(e). First, the MDO definition would be amended to 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 EDGA Book at its limit price. This change would replace references to circumstances where an MDO is posted to the EDGA 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 EDGA Rule 11.8(e)(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(e)(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 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 EDGA Rule 11.8(e)(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 EDGA Book is crossed by another market. The current version of the rule references the EDGA 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 PO 00000 Frm 00102 Fmt 4703 Sfmt 4703 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 EDGA.9 As proposed, a ‘‘QDP Active Period’’ would be enabled or refreshed for buy (sell) MDOs if the best bid (offer) displayed on the EDGA 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 7 Proposed changes related to the introduction of the QDP instruction are reflected in proposed subparagraph (10) under EDGA Rule 11.8(e). 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 EDGA 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. E:\FR\FM\10MRN1.SGM 10MRN1 Federal Register / Vol. 85, No. 47 / Tuesday, March 10, 2020 / Notices khammond on DSKJM1Z7X2PROD with NOTICES displayed on the EDGA 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 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 EDGA 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 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 12 The Exchange also proposes to amend EDGA Rule 11.8(e)(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 EDGA Rule 11.8(e)(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 EDGA Book. VerDate Sep<11>2014 20:29 Mar 09, 2020 Jkt 250001 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 EDGA 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 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 EDGA Best Bid below one round lot would be disabled after two milliseconds, and Order 4 would PO 00000 Frm 00103 Fmt 4703 Sfmt 4703 13959 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 EDGA 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 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 EDGA 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 E:\FR\FM\10MRN1.SGM 10MRN1 khammond on DSKJM1Z7X2PROD with NOTICES 13960 Federal Register / Vol. 85, No. 47 / Tuesday, March 10, 2020 / Notices 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 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 EDGA 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 EDGA 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 VerDate Sep<11>2014 17:20 Mar 09, 2020 Jkt 250001 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, 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 EDGA 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 15 15 U.S.C. 78f(b). U.S.C. 78f(b)(5). 17 The Exchange notes that technical changes proposed to EDGA Rule 11.8(e), 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. 16 15 PO 00000 Frm 00104 Fmt 4703 Sfmt 4703 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. 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 18 See E:\FR\FM\10MRN1.SGM supra note 6. 10MRN1 Federal Register / Vol. 85, No. 47 / Tuesday, March 10, 2020 / Notices 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. khammond on DSKJM1Z7X2PROD with NOTICES 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 VerDate Sep<11>2014 17:20 Mar 09, 2020 Jkt 250001 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 rule-comments@ sec.gov. Please include File Number SR– CboeEDGA–2020–005 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–CboeEDGA–2020–005. 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 PO 00000 Frm 00105 Fmt 4703 Sfmt 4703 13961 to make available publicly. All submissions should refer to File Number SR–CboeEDGA–2020–005, and should be submitted on or before March 31,2020. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.19 J. Matthew DeLesDernier, Assistant Secretary. [FR Doc. 2020–04901 Filed 3–9–20; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–88319; File Nos. SR–NYSE– 2019–46, SR–NYSENAT–2019–19, SR– NYSEArca–2019–61, SR–NYSEAMER–2019– 34] Self-Regulatory Organizations; New York Stock Exchange LLC; NYSE National, Inc.; NYSE Arca, Inc.; NYSE American LLC; Notice of Designation of Longer Period for Commission Action on Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change, as Modified by Amendment No. 1, To Amend the Exchanges’ Co-Location Services To Offer Co-Location Users Access to the NMS Network March 4, 2020. On August 22, 2019, New York Stock Exchange LLC, NYSE National, Inc., and NYSE Arca, Inc. each filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change to amend their co-location fee schedules to offer co-location Users access to the ‘‘NMS Network’’—an alternate, dedicated network providing connectivity to data feeds for the National Market System Plans for which Securities Industry Automation Corporation (‘‘SIAC’’) is engaged as the exclusive securities information processor (‘‘SIP’’)—and establish associated fees. NYSE American LLC filed with the Commission a substantively identical filing on August 23, 2019.3 The proposed rule changes were published for comment in the Federal Register on September 10, 19 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 The New York Stock Exchange LLC, NYSE National, Inc., NYSE Arca, Inc., and NYSE American, LLC are collectively referred to herein as ‘‘NYSE’’ or the ‘‘Exchanges.’’ 1 15 E:\FR\FM\10MRN1.SGM 10MRN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 85, Number 47 (Tuesday, March 10, 2020)]
[Notices]
[Pages 13957-13961]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-04901]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88323; File No. SR-CboeEDGA-2020-005]


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

March 5, 2020.
    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 February 28, 2020, Cboe EDGA Exchange, Inc. (the ``Exchange'') 
filed with the Securities and Exchange Commission (the ``Commission'') 
the proposed rule change as described in Items I and II below, which 
Items have been prepared by the Exchange. The Commission is publishing 
this notice to solicit comments on the proposed rule change from 
interested persons.
---------------------------------------------------------------------------

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

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

    Cboe EDGA Exchange, Inc. (``EDGA'' or the ``Exchange'') is filing 
with the Securities and Exchange Commission (the ``Commission'') a 
proposed rule change to amend EDGA Rule 11.8(e), 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/equities/regulation/rule_filings/edga/), 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 to buy 
that is pegged to the national best bid (``NBB''), with discretion to 
execute at prices up to and including the midpoint of the national best 
bid or offer (``NBBO''), or a limit order to sell that is pegged to the 
national best offer (``NBO''), with discretion to execute at prices 
down to and including the midpoint of the NBBO.\3\ The purpose of the 
proposed rule change is to amend EDGA Rule 11.8(e) 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 EDGA 
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 EDGA Rule 11.8(e).
    \4\ See EDGA 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\

[[Page 13958]]

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 
EDGA 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 EDGA 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 EDGA Rule 
11.8(e)(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 EDGA Rule 11.8(e). In addition, the 
Exchange proposes to make conforming changes to language currently 
included in EDGA Rule 11.8(e). First, the MDO definition would be 
amended to 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 EDGA Book at its limit 
price. This change would replace references to circumstances where an 
MDO is posted to the EDGA 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 
EDGA Rule 11.8(e)(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(e)(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 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 
EDGA Rule 11.8(e)(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 EDGA Book is crossed by another market. The current 
version of the rule references the EDGA 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 EDGA.\9\ As proposed, a ``QDP Active Period'' 
would be enabled or refreshed for buy (sell) MDOs if the best bid 
(offer) displayed on the EDGA 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 EDGA 
Rule 11.8(e).
    \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 EDGA 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

[[Page 13959]]

displayed on the EDGA 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 
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 EDGA 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 EDGA Rule 11.8(e)(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 EDGA Rule 11.8(e)(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 EDGA 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 EDGA 
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 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 EDGA 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 EDGA 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 EDGA 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

[[Page 13960]]

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 EDGA 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 
EDGA 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.
---------------------------------------------------------------------------

    \15\ 15 U.S.C. 78f(b).
    \16\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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, 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 EDGA 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\
---------------------------------------------------------------------------

    \17\ The Exchange notes that technical changes proposed to EDGA 
Rule 11.8(e), 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.
---------------------------------------------------------------------------

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

[[Page 13961]]

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-CboeEDGA-2020-005 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-CboeEDGA-2020-005. 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-CboeEDGA-2020-005, and should be 
submitted on or before March 31, 2020.
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    \19\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-04901 Filed 3-9-20; 8:45 am]
BILLING CODE 8011-01-P

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