Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing of a Proposed Rule Change To Amend Rule 11.28(a) To Extend the MOC Cut-Off Time, 52092-52099 [2022-18097]
Download as PDF
<![CDATA[
52092
Federal Register / Vol. 87, No. 163 / Wednesday, August 24, 2022 / Notices
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–CboeEDGA–2022–011 and
should be submitted on or before
September 14, 2022.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.35
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2022–18189 Filed 8–23–22; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
[Release No. 34–95529; File No. SR–
CboeBZX–2022–038]
Self-Regulatory Organizations; Cboe
BZX Exchange, Inc.; Notice of Filing of
a Proposed Rule Change To Amend
Rule 11.28(a) To Extend the MOC CutOff Time
August 17, 2022.
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 August 5,
2022, Cboe BZX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘BZX’’) filed with the
Securities and Exchange Commission
(the ‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III 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.
jspears on DSK121TN23PROD with NOTICES
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Cboe BZX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘BZX’’) proposes to
amend Rule 11.28(a) to extend the MOC
Cut-Off Time from 3:35 p.m. Eastern
Time to 3:49 p.m. Eastern Time. 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/bzx/), at
the Exchange’s Office of the Secretary,
and at the Commission’s Public
Reference Room.
35 17
CFR 200.30–3(a)(12), (59).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
VerDate Sep<11>2014
19:09 Aug 23, 2022
Jkt 256001
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.
1. Purpose
Exchange Rule 11.28 (Cboe Market
Close, a Closing Match Process for NonBZX-Listed Securities) provides
Members an optional closing match
process for non-BZX-Listed securities,
known as Cboe Market Close (‘‘CMC’’).
Currently, per Rule 11.28(a) (Order
Entry) Members 3 may enter, cancel, or
replace Market-on-Close (‘‘MOC’’)
orders designated for participation in
CMC beginning at 6:00 a.m. Eastern
Time 4 up to 3:35 p.m. (‘‘MOC Cut-Off
Time’’). The Exchange now proposes to
move the MOC Cut-Off Time from 3:35
p.m. to 3:49 p.m. The Exchange is not
proposing to make any other changes to
the CMC process.
By way of background, on May 5,
2017, the Exchange filed a proposed
rule change to adopt CMC, a match
process for MOC orders in non-BZX
listed securities and on December 1,
2017, filed Amendment No. 1 5 to that
proposal (the ‘‘Original Proposal’’).6 On
3 The term ‘‘Member’’ shall mean any registered
broker or dealer that has been admitted to
membership in the Exchange. A Member will have
the status of a ‘‘member’’ of the Exchange as that
term is defined in Section 3(a)(3) of the Act.
Membership may be granted to a sole proprietor,
partnership, corporation, limited liability company
or other organization which is a registered broker
or dealer pursuant to Section 15 of the Act, and
which has been approved by the Exchange. See
Rule 1.5(n), definition of ‘‘Member’’.
4 All times noted throughout are in Eastern Time.
5 The only change in Amendment No. 1 was to
rename the proposed closing match process as Cboe
Market Close. Per the Commission, because
Amendment No. 1 was a technical amendment and
did not materially alter the substance of the
proposed rule change or raise unique or novel
regulatory issues, Amendment No. 1 was not
subject to notice and comment.
6 See Securities Exchange Act Release No. 34–
80683 (May 16, 2017), 82 FR 23320 (May 22, 2017)
(SR–Bats–BZX–2017–34) (Notice of Filing of a
Proposed Rule Change to Introduce Bats Market
Close, a Closing Match Process for Non-BZX Listed
Securities Under New Exchange Rule 11.28).
PO 00000
Frm 00133
Fmt 4703
Sfmt 4703
January 17, 2018, the Commission,
acting through authority delegated to
the Division of Trading and Markets,7
approved the Original Proposal
(‘‘Approval Order’’).8 On January 31,
2018, NYSE Group, Inc. (‘‘NYSE’’) and
the Nasdaq Stock Market LLC
(‘‘Nasdaq’’) filed petitions for review of
the Approval Order (‘‘Petitions for
Review’’). Pursuant to Commission Rule
of Practice 431(e),9 the Approval Order
was stayed by the filing with the
Commission of a notice of intention to
petition for review.10 On March 1, 2018,
pursuant to Commission Rule of
Practice 431, the Commission issued a
scheduling order granting the Petitions
of Review of the Approval Order, and
provided until March 22, 2018, for any
party or other person to file a written
statement in support of, or in opposition
to, the Approval Order.11 On April 12,
2018, NYSE and Nasdaq submitted
written statements opposing the
Approval Order and BZX submitted a
statement in support of the Approval
Order.12 On October 4, 2018, BZX filed
Amendment No. 2 13 to the Original
Proposal.
The Commission conducted a de novo
review of the CMC proposal and
associated public record, including
7 17
CFR 200.30–3(a)(12).
Securities Exchange Act Release No. 34–
82522 (January 17, 2018), 83 FR 3205 (January 23,
2018) (SR–Bats–BZX–2017–34) (Notice of Filing of
Amendment No. 1 and Order Granting Approval of
a Proposed Rule Change, as Modified by
Amendment No. 1, To Introduce Cboe Market
Close, a Closing Match Process for Non-BZX Listed
Securities Under New Exchange Rule 11.28).
9 17 CFR 201.431(e).
10 See Letter to Christopher Solgan, Assistant
General Counsel, Cboe Global Markets, Inc. (Jan. 24,
2018) (providing notice of receipt of notices of
intention to petition for review of delegated action
and stay of order), available at: https://www.sec.gov/
rules/sro/batsbzx/2018/sr-batsbzx-2017-34-letterfrom-secretary-to-cboe.pdf.
11 See Securities Exchange Act Release No. 82794,
83 FR 9561 (Mar. 6, 2018). On March 16, 2018, the
Office of the Secretary, acting by delegated
authority, issued an order on behalf of the
Commission granting a motion for an extension of
time to file statements on or before April 12, 2018.
See Securities Exchange Act Release No. 82896, 83
FR 12633 (Mar. 22, 2018)
12 See Statement of NYSE Group, Inc., in
Opposition to the Division’s Order Approving a
Rule to Introduce Cboe Market Close (‘‘NYSE
Statement’’); Statement of the Nasdaq Stock Market
LLC in Opposition to Order Granting Approval of
a Proposed Rule Change, as Modified by
Amendment No. 1, to Introduce Cboe Market Close
(‘‘Nasdaq Statement’’); and Statement of Cboe BZX
Exchange, Inc., in support of Commission Staff’s
Approval Order (‘‘BZX Statement’’), available at:
https://www.sec.gov/comments/sr-batsbzx-2017-34/
batsbzx201734.htm.
13 See Securities Exchange Act Release No. 34–
84670 (November 28, 2018), 83 FR 62646
(December 4, 2018) (SR–BatsBZX–2017–34)
(‘‘Notice of Filing of Amendment No. 2 to Proposed
Rule Change to Introduce Cboe Market Close, a
Closing Match Process for Non-BZX Listed
Securities Under New Exchange Rule 11.28’’).
8 See
E:\FR\FM\24AUN1.SGM
24AUN1
Federal Register / Vol. 87, No. 163 / Wednesday, August 24, 2022 / Notices
jspears on DSK121TN23PROD with NOTICES
Amendment No. 2, the Petitions for
Review, and all comments and
statements submitted by certain
exchanges, issuers, and other market
participants,14 to determine whether the
proposal was consistent with the
requirements of the Act and the rules
and regulations issued thereunder that
are applicable to a national securities
exchange.15 The Commission noted that
under Rule 700(b)(3) of the
Commission’s Rule of Practice, the
‘‘burden to demonstrate that a proposed
rule change is consistent with the
Exchange Act and the rules and
regulations issued thereunder . . . is on
the self-regulatory organization that
proposed the rule change.’’ 16
Importantly, after reviewing the entire
record, the Commission concluded that
BZX met its burden to show that the
proposed rule change was consistent
with the Act, and pursuant to its
January 21, 2020, order, set aside the
Approval Order and approved BZX’s
CMC proposal, as amended (‘‘Final
Approval Order’’).17 Notably, the
Commission stated that the record
‘‘demonstrate[d] that Cboe Market Close
should introduce and promote
competitive forces among national
securities exchanges for the execution of
MOC orders’’ 18 and that ‘‘the record
demonstrate[d] that Cboe Market Close
should not disrupt the closing auction
price discovery process nor should it
materially increase the risk of
manipulation of official closing
prices’’.19 For the reasons discussed
more fully below, the Exchange believes
that when applying the Commission’s
analysis in the Final Approval Order to
the current proposal, such review would
similarly conclude that this proposal is
consistent with the Act and should be
approved.
Since the Original Proposal various
exchanges have extended the MOC cutoff times for their closing auctions,
moving them closer to 4:00 p.m.20
14 See ‘‘Statements on File No. SR–BatsBZX–
2017–34’’, available at: https://www.sec.gov/
comments/sr-batsbzx-2017-34/batsbzx201734.htm.
15 See Securities Exchange Act Release No. 34–
88008 (January 21, 2020), 85 FR 4726 (January 27,
2020) (SR–BatsBZX–2017–34) (‘‘Order Setting
Aside Action by Delegated Authority and
Approving a Proposed Rule Change, as Modified by
Amendments No. 1 and 2, To Introduce Cboe
Market Close, a Closing Match Process for Non-BZX
Listed Securities Under New Exchange Rule
11.28’’).
16 Id.
17 Id.
18 Id.
19 Id.
20 See Securities Exchange Act Release No. 34–
84454 (October 19, 2018), 83 FR 53923 (October 25,
2018) (SR–Nasdaq–2018–068) (Order approving a
rule change by NYSE) (The Commission approved
a rule change by Nasdaq to move the cut-off times
VerDate Sep<11>2014
19:09 Aug 23, 2022
Jkt 256001
Additionally, closing price match
services offered by off-exchange venues
have grown in popularity,21 including
alternative trading systems (‘‘ATS’’) that
offer a MOC cut-off time as close as 30seconds before the primary exchanges’
cut-off times, as well as MOC cut-off
times aligned with those of NYSE,
NYSE Arca, and Nasdaq.22 As the
market structure for closing auctions
and closing price match offerings has
continued to evolve, and in response to
customer feedback and to better
compete with off-exchange venues, the
Exchange is proposing this rule change
to align CMC’s MOC Cut-Off time more
closely with the other exchanges and
off-exchange venues.
The Exchange notes that Members
have requested a MOC Cut-Off Time
that is closer to the end of Regular
Trading Hours 23 so that they may retain
control of their trading for a longer
period and be better able to manage
their trading at the close.24 Generally
for the entry of MOC and LOC orders from 3:50 p.m.
to 3:55 p.m.); see also Securities Exchange Act
Release No. 34–85021 (January 31, 2019) (SR–
NYSE–2018–58) (Order approving a rule change by
Nasdaq) (The Commission approved a rule change
by the NYSE to amend Rule 123C to extend the cutoff times for order entry and cancellation for
participation in the closing auction, from 3:45 p.m.
to 3:50 p.m.).
21 See infra, ‘‘Price Discovery and
Fragmentation’’, which describes the growth of offexchange closing volume.
22 For example, JP Morgan Securities’ ATS, JPB–
X, offers Close Price Match. This functionality
utilizes a conditional order process to match orders
and crosses them at the security’s official closing
prices, as determined by the closing auction at the
primary exchange for a security. The Close Price
Match time for an NMS stock is currently 30seconds before the MOC cut-off time for that stock’s
primary exchange. Additionally, Instinet, LLC’s
ATS, CBX provides for three MOC Crossing
Sessions, which consist of: a cross for securities
where the primary listing exchange is the Nasdaq
(‘‘Nasdaq Cross’’), a cross for securities where the
primary listing exchange is the NYSE Arca (‘‘Arca
Cross’’), and a cross for securities where the
primary listing exchange is the NYSE (‘‘NYSE
Cross’’). Subscribers may submit orders for the
MOC Crosses at any time between 7:30 a.m. and the
relevant crossing session’s crossing time. See Form
ATS–N, JPB–X, available at: https://www.sec.gov/
Archives/edgar//data/782124/000/xslATS-N_X01/
primary_doc.xml; see also Form ATS–N, Instinet,
LLC’s ATS, CBX, available at: https://www.sec.gov/
Archives/edgar/data/310607/000031060722000009/
xslATS-N_X01/primary_doc.xml.
23 The term ‘‘Regular Trading Hours’’ means the
time between 9:30 a.m. and 4:00 p.m. Eastern Time.
See Rule 1.2(w), definition of, ‘‘Regular Trading
Hours.’’
24 The Exchange notes that part of its rationale for
extending CMC’s MOC Cut-Off Time is
substantively identical to that of other exchanges
moving their cut-off times later, namely, NYSE and
Nasdaq. See Securities Exchange Act Release No.
34–83988 (August 29, 2018), 86 FR 18580
(September 5, 2018) (SR–Nasdaq–2018–068)
(‘‘Specifically, the Exchange believes that extending
the cutoff times for submitting on close orders will
allow market participants to retain control over
their orders for a longer period of time, and thereby
assist those market participants in managing their
PO 00000
Frm 00134
Fmt 4703
Sfmt 4703
52093
speaking, notional trading and trading
volatility are typically at their highest
towards the end of Regular Trading
Hours. Accordingly, market participants
often prefer to trade as close to 4:00 p.m.
as possible, because doing so can
provide them with more time to seek
better priced liquidity for their orders in
a variety of ways, including but not
limited to, finding contra-side liquidity
in the marketplace and trading directly
against such interest, or guaranteeing a
customer order at a price better than the
national best bid or offer by committing
capital to an order and filling it in a
principal capacity, as well as continuing
to trade orders algorithmically into the
close, thus reducing the size of their
outstanding orders that they may decide
to commit to CMC or the primary
auctions.
Additionally, Members have
indicated that extending the MOC CutOff Time to 3:49 p.m. will help to make
CMC a more comparable alternative to
NYSE and Nasdaq, which have MOC
cut-off times of 3:50 p.m.25 and 3:55
p.m.,26 respectively. For reasons
discussed directly above, cut-off times
closer to 4:00 p.m. are beneficial to
market participants, and by extending
CMC’s MOC Cut-Off Time to 3:49 p.m.,
CMC will be better positioned to serve
as a viable option for market
participants to consider when deciding
which venues to route their MOC
orders, thus enhancing intermarket
competition.
The Exchange also notes that today’s
market participants, including users of
CMC,27 are technologically equipped 28
trading at the close.’’); see also Securities Exchange
Act Release No. 34–84804 (December 12, 2018), 83
FR 64910 (December 18, 2018) (SR–NYSE–2018–58)
(‘‘The Exchange believes that extending the cut-off
times for entry and cancellation of MOC and LOC
Orders, cancellation of CO orders, as well as when
the Exchange would begin disseminating Order
Imbalance Information for the close would . . .
allow market participants to retain control over
their orders for a longer period of time, and thereby
assist those market participants in managing their
trading at the close.’’).
25 See NYSE Rule 73.5(a)(8), Closing Auction
Imbalance Freeze Time.
26 See Nasdaq Rule 4702(b)(11)(A), Market On
Close Order.
27 Users of CMC are mainly broker-dealers that
trade electronically, utilizing a variety of automated
trading tools such as algorithmic strategies and
routing protocols.
28 The Exchange notes that today’s equities
markets involve the widespread use of automated
trading algorithms and routing solutions, as well
market connectivity options with speeds often
measured in microseconds. In this regard, a MOC
Cut-Off Time of 3:49 p.m. should not present any
operational or technological issues, in terms of
timing, for Members desiring to reroute any
unmatched CMC MOC orders to the primary
exchanges. Should Members need additional time
to decide whether to send their CMC MOC orders
to other exchanges, Members may still cancel their
E:\FR\FM\24AUN1.SGM
Continued
24AUN1
52094
Federal Register / Vol. 87, No. 163 / Wednesday, August 24, 2022 / Notices
to handle a 3:49 p.m. MOC Cut-Off time.
As a general mater, today’s market
participants, including CMC users, rely
on electronic smart order routers, order
management systems, and trading
algorithms, which make routing and
trading decisions on an automated basis,
in times typically measured in
microseconds. In this regard, the
Exchange believes that if a CMC user
receives a message that their MOC order
was not matched in CMC,29 such CMC
user will have more than enough time
to reroute their MOC order to the
primary exchange. Importantly, the
Exchange discussed the proposed
change with both current CMC users
and potential new CMC users to gauge
whether a MOC Cut-Off Time oneminute closer to the NYSE cut-off time,
and six-minutes closer to the Nasdaq
cut-off time, would present operational
or technological challenges, and
confirmed that CMC users can in fact
manage the proposed change.
jspears on DSK121TN23PROD with NOTICES
2. Statutory Basis
The Exchange believes the proposed
rule change is consistent with the Act
and the rules and regulations
thereunder applicable to the Exchange
and, in particular, the requirements of
Section 6(b) of the Act.30 Specifically,
the Exchange believes the proposed rule
change is consistent with the Section
6(b)(5) 31 requirements that the rules of
CMC MOC orders any time prior to 3:49 p.m. or
may voluntarily choose to not participate in CMC.
See generally ‘‘Staff Report on Algorithmic Trading
in U.S. Capital Markets’’ (August 5, 2020), available
at https://www.sec.gov/tm/reports-andpublications/special-studies/algo_trading_
report_2020. (‘‘Over the past decade, the ‘manual
handling of institutional orders is increasingly rare
and has been replaced by sophisticated institutional
order execution algorithms and smart order routing
systems’ ’’) (‘‘The secondary market for U.S.-listed
equity securities that has developed within this
structure is now primarily automated. The process
of trading has changed dramatically primarily as a
result of developments in technologies for
generating, routing, and executing orders, as well as
by the requirement imposed by law and
regulation.’’) (‘‘Modern equity markets are
connected in part by the data flowing between
market centers. An enormous volume of data is
available to market participants. In recent years,
there has been an exponential growth in the amount
of market data that is available, the speed with
which it is disseminated, and the computer power
used to analyze and react to price movements.’’)
29 The CMC Closing Match Process—i.e., the
matching of all buy and sell MOC orders entered
into the System by time priority at the MOC CutOff Time, the electronic notification to Members of
any unmatched MOC orders, and the dissemination
by the Exchange of the total size of all buy and sell
orders matched via CMC via the Cboe Auction
Feed—generally occurs within microseconds. As
such, a MOC Cut-Off Time one-minute prior to the
primary exchanges’ cut-off times is a sufficient
period of time for Members to reroute their
unmatched MOC orders to the primary exchanges,
should they choose to do so.
30 15 U.S.C. 78f(b).
31 15 U.S.C. 78f(b)(5).
VerDate Sep<11>2014
19:09 Aug 23, 2022
Jkt 256001
an exchange be designed to prevent
fraudulent and manipulative acts and
practices, to promote just and equitable
principles of trade, to foster cooperation
and coordination with persons engaged
in regulating, clearing, settling,
processing information with respect to,
and facilitating transactions in
securities, to remove impediments to
and perfect the mechanism of a free and
open market and a national market
system, and, in general, to protect
investors and the public interest.
Additionally, the Exchange believes the
proposed rule change is consistent with
the Section 6(b)(5) 32 requirement that
the rules of an exchange not be designed
to permit unfair discrimination between
customers, issuers, brokers, or dealers.
In particular, the Exchange believes
that moving the MOC Cut-Off Time to
3:49 p.m. would remove impediments to
and perfect the mechanism of a free and
open market and a national market
system because it would allow Members
to retain control over their orders for a
longer period, thereby assisting market
participants in managing their trading at
the close. As discussed more fully
above, market participants may prefer to
trade as close to 4:00 p.m. as possible,
because doing so can provide them with
more time to seek better priced liquidity
for their orders in a variety of ways, as
well as give them more time to
determine the size of their outstanding
orders that they may decide to commit
to CMC or the primary auctions.
Additionally, the Exchange believes
that a MOC Cut-Off Time fifteenminutes (15) prior to NYSE’s cut-off
time, and twenty-five-minutes (25) prior
to Nasdaq’s cut-off time, is no longer
necessary. Rather, the Exchange notes
that today’s market participants are
technologically equipped 33 to handle a
3:49 p.m. MOC Cut-Off time. As
discussed above, today’s market
participants rely on electronic smart
order routers, order management
systems, and trading algorithms, which
make routing and trading decision on an
automated basis, in times often
measured in microseconds. As such,
Members are technologically equipped
to efficiently respond to CMC’s
publication of matched shares and
should they so choose, reroute any
unmatched MOC orders to the
respective primary closing auction. As
noted above, the Exchange discussed
the extension of the MOC Cut-Off Time
with CMC users and confirmed that the
proposed MOC Cut-Off Time will not
32 Id.
33 Supra
PO 00000
note 28.
Frm 00135
Fmt 4703
Sfmt 4703
present them with any operational or
technological issues.
Furthermore, the Exchange believes
that the extension of cut-off times by the
primary exchanges since CMC’s
proposal, as well as the growth of offexchange venues 34 with cut-off times in
such close proximity to the end of
Regular Trading Hours is indicative of
Members’ desires for such offerings.
Logically, such a change in market
structure would not have occurred if
Members did not already possess the
operational and technological
wherewithal to effectively manage the
multitude of cut-off times offered by the
exchanges and off-exchange venues.
Moreover, the Exchange believes that
the proposed rule change will remove
impediments to and perfect the
mechanism of a free and open market
and a national market system because
extending the MOC Cut-Off Time to 3:49
p.m. would more closely align the CMC
MOC Cut-Off Time to the cut-off times
in place for the other exchanges.35 For
the reasons discussed more fully above,
the primary exchanges’ cut-off times are
beneficial to market participants
because of their proximity to 4:00 p.m.
By moving the MOC Cut-Off Time closer
to the other exchanges’ cut-off times,
CMC can become a comparable
alternative for Members to route their
unpriced MOC orders. Importantly,
even with a MOC Cut-Off Time closer to
the primary exchanges’ cut-off times,
CMC removes any perceived impact on
the primary listing markets’ close by
publishing the number of matched order
shares, by security, in advance of the
primary markets’ cut-off time. The total
matched shares would still be
disseminated by the Exchange free of
charge via the Cboe Auction Feed, albeit
at the new proposed MOC Cut-Off Time
of 3:49 p.m. Because of the speeds and
widespread use of market technology,
this information can still be used by the
primary markets’ closing processes, and
as discussed above, CMC users will still
have ample time 36 to reroute any MOC
orders not matched via CMC to reach
the primary market to be included in
their closing auction process.
Additionally, the proposed rule
change would more closely align CMC’s
MOC Cut-Off Time with that of offexchange venues that offer cut-off times
aligned with those currently offered by
the primary exchanges, and as little as
34 Supra
note 22.
noted above, NYSE’s cut-off time is 3:50
p.m., and Nasdaq’s cut-off time is 3:55 p.m. NYSE
Arca’s cut-off time for MOC orders id 3:59 p.m. See
‘‘Trading Information—Closing Auctions’’, available
at: https://www.nyse.com/market/nyse-arca/
trading-info.
36 Supra note 28.
35 As
E:\FR\FM\24AUN1.SGM
24AUN1
Federal Register / Vol. 87, No. 163 / Wednesday, August 24, 2022 / Notices
Price Discovery 38
The Exchange believes that the
proposed rule change is consistent with
the Section 6(b)(5) requirements.39 As
previously noted by the Exchange,40
CMC accepts and matches only
unpriced MOC orders. By matching only
unpriced MOC orders, and not LimitOn-Close (‘‘LOC’’) orders and executing
those matched MOC orders that
naturally pair off with each other and
effectively cancel each other out, CMC
is designed to avoid impacting price
discovery. While the proposed rule
change would have CMC accept MOC
orders up to 3:49 p.m., such extension
will not change this underlying
37 Supra
note 22.
part of this proposed rule change the
Exchange is addressing several questions
considered by the Commission in connection with
the Exchange’s Original Proposal, including price
discovery and fragmentation, market complexity
and operational risk, and manipulation.
Importantly, in considering these questions, the
Commission found that based on CMC’s design and
the record before the Commission, that the proposal
was consistent with Section 6(b)(5) of the Act.
Supra note 15.
jspears on DSK121TN23PROD with NOTICES
38 As
VerDate Sep<11>2014
19:09 Aug 23, 2022
Jkt 256001
functionality. As previously noted by
the Exchange,41 matched MOC orders
are merely recipients of price formation
and do not directly contribute to the
price formation process. Indeed, in its
Final Approval Order for CMC, even the
Commission noted that unpriced,
paired-off MOC orders do not directly
contribute to setting the official closing
price of securities on the primary listing
exchanges but, rather, are inherently the
recipients of price formation
information.42
Moreover, the Exchange believes that
even if extending the MOC Cut-Off Time
to 3:49 p.m. reduces the number of MOC
orders routed to a security’s primary
listing market, CMC is designed to
remove any perceived adverse impact
on the primary listing markets’ close
because the total matched shares would
still be disseminated by the Exchange
free of charge via the Cboe Auction Feed
prior to the primary exchanges’ cut-off
times. Additionally, because of the
technological capabilities of today’s
market participants discussed more
fully above, this information can still be
Another matter addressed by the
Commission in their review of the
Initial Proposal was fragmentation, and
whether CMC would fragment the
markets beyond what currently occurs
through off-exchange close price
matching venues.45 Importantly, as
illustrated in the chart below, an
analysis by the Exchange shows that the
closing auction volume on both NYSE
and Nasdaq has increased since the
launch of CMC on March 6, 2022. As
such, the Exchange believes that the
initial fragmentation concerns raised by
commenters during the Initial Proposal
have not materialized, and that merely
extending the MOC Cut-Off Time, while
leaving all other CMC functionality
intact, will not result in increased
market fragmentation.
39 The Exchange notes that the Commission, in its
Final Approval Order, carefully analyzed and
considered CMC and its potential effects, if any, on
the primary listing exchanges’ closing auctions,
including their price discovery functions.
Importantly, the Commission found that, based on
CMC’s design, CMC should not disrupt the price
discovery process in the closing auctions of the
primary listing exchanges. Supra note 15.
40 See Letter from Joanne Moffic-Silver, Executive
Vice President, General Counsel, and Corporate
Secretary, Bats Global Markets, Inc. (August 2,
2017), available at: https://www.sec.gov//batsbzx2017-34/batsbzx201734-2162452-157801.pdf; see
also Letter from Joanne Moffic-Silver (October 11,
2017), available at: https://www.sec.gov/comments/
sr-batsbzx-2017-34/batsbzx201734-2634580161229.pdf.
41 Id.
42 Supra note 15.
43 Supra note 28.
44 Supra note 38.
45 Supra note 15.
PO 00000
Frm 00136
Fmt 4703
Sfmt 4725
incorporated by the primary markets’
closing processes, and CMC users will
still have ample time 43 to reroute any
MOC orders not matched via CMC to the
primary markets to be included in their
closing auction processes.
Fragmentation 44
E:\FR\FM\24AUN1.SGM
24AUN1
EN24AU22.000</GPH>
30-seconds prior to market close.37 As
such, the Exchange believes that the
proposed rule change is supported by
both ample precedent as well as current
market structure, and should not
present any new or novel issues that
market participants must consider when
managing their trading and determining
which exchange or off-exchange venue
to route their MOC orders.
52095
52096
Federal Register / Vol. 87, No. 163 / Wednesday, August 24, 2022 / Notices
jspears on DSK121TN23PROD with NOTICES
Rank
1
2
3
4
5
6
7
8
9
...............................................................
...............................................................
...............................................................
...............................................................
...............................................................
...............................................................
...............................................................
...............................................................
...............................................................
19:09 Aug 23, 2022
Jkt 256001
BILLING CODE 8011–01–P
Symbol
Primary exchange
AAPL .......................................................
T ..............................................................
BAC ........................................................
INTC .......................................................
MSFT ......................................................
F ..............................................................
PFE .........................................................
CSCO .....................................................
CMCSA ...................................................
Nasdaq ...................................................
NYSE ......................................................
NYSE ......................................................
Nasdaq ...................................................
Nasdaq ...................................................
NYSE ......................................................
NYSE ......................................................
Nasdaq ...................................................
Nasdaq ...................................................
46 The Exchange conducted an analysis of offexchange/Trade Reporting Facility (‘‘TRF’’) closing
volume that occurs after market close, 4:00 p.m.
Eastern Time, where the price is equal to the
closing price and for which such trades are reported
VerDate Sep<11>2014
studied the top ten most actively traded
securities during the same time period
and found that a significant portion of
the total closing volume is executed offexchange, following the dissemination
of the official closing price.
with a Prior Reference Price (‘‘PRP’’) trade reporting
modifier. The TRF is a trade reporting facility
where FINRA members may report trades in
Nasdaq-listed and other exchange-listed securities,
that were executed otherwise than on an exchange.
PO 00000
Frm 00137
Fmt 4703
Sfmt 4703
TRF close %
inc. PRP 47
9
6
10
5
7
9
5
5
7
The first two charts represent TRF executed volume
at the close with the ‘‘PRP’’ flag that equals the
closing auction price, divided by total on exchange
auction volume.
E:\FR\FM\24AUN1.SGM
24AUN1
EN24AU22.002</GPH>
first two charts below, a growing
proportion of trading volume at the
close occurs on off-exchange venues,
where the TRF close volume, as a
percent of Exchange close volume, has
risen steadily since January 2019.46 In
the third chart the Exchange also
EN24AU22.001</GPH>
The Exchange also notes that even if
the proposed rule change results in
fewer MOC orders participating in the
primary exchanges’ closing auctions,
that the fragmentation of MOC orders
already occurs in today’s markets on offexchange venues. As illustrated in the
Federal Register / Vol. 87, No. 163 / Wednesday, August 24, 2022 / Notices
Rank
Symbol
Primary exchange
10 .............................................................
WFC ........................................................
NYSE ......................................................
52097
TRF close %
inc. PRP 47
9
Source: Internal Exchange Data.
BILLING CODE 8011–01–C
Accordingly, theExchange believes
that approving this proposal will allow
the Exchange to compete on a more
equal playing field with off-exchange
venues for closing volume already being
executed away from the primary listing
venues. In better competing with offexchange venues, CMC can help
increase transparency, reliability, and
price discovery by encouraging market
participants that would otherwise seek
to match MOC orders off-exchange to redirect their MOC orders to BZX, a
public exchange. Moreover, by
attracting such order flow, CMC can
help to increase the amount of volume
at the close executed on systems subject
to the resiliency requirements of
Regulation SCI.48
Market Complexity and Operational
Risk 49
The Exchange believes that the
proposed rule change is simple and
straightforward, and as such will not
significantly increase market complexity
or operational risk. The Exchange seeks
only to extend the MOC Cut-Off Time to
3:49 p.m., leaving all other aspects of
the CMC process intact. Members will
47 As
defined above, ‘‘PRP’’.
Letter from Joanne Moffic-Silver, Executive
Vice President, General Counsel, and Corporate
Secretary, Bats Global Markets, Inc., a Cboe
Company (Oct. 11, 2017) (‘‘The Proposal is further
consistent with the Commission’s assertion that
closing auctions are critical SCI systems . . . [CMC]
would provide a much needed, seamless, and easy
way for the industry to address the single point of
failure risk that exists for closing auctions today,
especially when a primary listing market is
experiencing system issues and lacks full
operational capability. As Bats previously asserted,
in the event of a system’s disruption at the primary
listing market, [CMC] could provide an alternative
pool of liquidity to which market participants could
send MOC orders for execution at the official
closing price. Therefore, it promotes just and
equitable principles of trade and competition
among national securities exchanges. [CMC] would
also remove impediments to and perfect the
mechanism of a free and open market and a
national market system by providing a mechanism
for market participants to execute their orders at the
official closing price should a system disruption on
the primary listing market prevent them from
entering orders.’’); (‘‘Furthermore, [CMC] would
operate on the Exchange’s reliable SCI systems . . .
significant MOC liquidity is conducted today by offexchange venues. These venues are not SCI systems
and, therefore, not subject to Regulation SCI’s
enhanced resiliency requirements. [CMC] could
attract MOC orders from these off-exchange venues
and its reliable SCI system, furthering the
Commission’s presumed desire for liquidity at the
close to be conducted on SCI systems.’’)
49 Supra note 38.
jspears on DSK121TN23PROD with NOTICES
48 See
VerDate Sep<11>2014
19:09 Aug 23, 2022
Jkt 256001
not have to consider new operational
requirements of monitoring and
consuming a new data feed or consider
the utilization of a new order type or
implementation of new Exchange code.
Rather, Members may continue to
monitor the same data feed as they do
today, the Cboe Auction Feed, and
simply look for the publication of the
CMC information at the new proposed
MOC Cut-Off Time.
Additionally, as discussed more fully
above, the Exchange discussed this
proposal with current CMC users prior
to submitting this proposal and learned
that CMC users are technologically
equipped to manage a MOC Cut-Off
Time closer to the primary exchanges’
cut-off times, and that they can respond
to CMC’s publication of matched shares
and quickly reroute any unmatched
MOC orders to the respective primary
closing auction. Moreover, CMC is a
voluntary offering, and Members may
freely decide whether to participate.
Furthermore, as noted throughout,
both off-exchange venues and other
exchanges already offer MOC cut-off
times that are closer in time to the end
of Regular Trading Hours. Specifically,
as mentioned above, in 2018 Nasdaq
received approval to move the cut-off
times for the entry of MOC and LimitOn-Close (‘‘LOC’’) orders from 3:50 to
3:55 p.m.50 Similarly, in 2018 the NYSE
received approval from the SEC to
extend their cut-off times for order entry
and cancellation for participation their
closing auction, from 3:45 p.m. to 3:50
p.m.51 NYSE also offers discretionaryorders, which unlike MOC/LOC orders
that are subject to NYSE’s 3:50 p.m. cutoff, may be entered for participation in
the closing auction until 3:59:50.52
Additionally, market participants may
50 Supra
note 20.
51 Id.
52 See NYSE Rule 7.31 (c)(2)(C); see also ‘‘The
Floor Broker’s Modern Trading Tool’’, available at:
https://www.nyse.com/article/trading/d-order
(‘‘While D Orders are available for use throughout
the trading day, most executions occur in the
closing auction, where they’re known as Closing D
Orders. At 3:55 p.m., Closing D Order interest
eligible to participate in the closing auction is
added to the order imbalance feed at their
discretionary price range. Closing D Orders can also
be submitted, modified or cancelled up to 3:59:50
p.m. These distinct features of Closing D Orders are
designed to facilitate the Floor Broker’s traditional
agency role on behalf of larger institutional interest,
allowing Floor Brokers to work in conjunction with
their customer to find larger liquidity
opportunities.’’).
PO 00000
Frm 00138
Fmt 4703
Sfmt 4703
enter MOC orders for participation in
NYSE Arca’s closing auction up to 3:59
p.m..53 Finally, various off-exchange
venues offer closing match processes
with cut-off times aligned with those of
the primary exchanges, and even as
close to 30-seconds before market close,
4:00 p.m.54
Accordingly, the Exchange believes
that market participants are well
accustomed to managing the various
cut-off times in today’s marketplace,
and in incorporating these timelines
into their trading decisions. The number
of exchanges and off-exchange venues
with extended cut-off times indicates
that market participants find value in
their ability to retain control of their
trading heading into the end of Regular
Trading Hours, and the exchanges and
off-exchange venues have responded to
such demand. Certainly, market
participants would not desire cut-off
times closer to the end of Regular
Trading Hours if they could not
technologically and operationally
manage their trading accordingly.
Therefore, the extension of CMC’s MOC
Cut-Off Time should not present market
participants with any novel operational
or technological complexities.
Manipulation 55
The Exchange does not expect that the
proposed extension of the MOC Cut-Off
Time to 3:49 p.m. will result in an
increase of manipulative activity due to
information asymmetries, or raise any
unique manipulation concerns relative
to how CMC exists today with a current
MOC Cut-Time of 3:35 p.m.
Specifically, any information CMC
participants may be able to glean from
their paired-off MOC orders, or from
their unmatched MOC orders, is still
limited in nature. For instance, any
information that CMC participants may
learn from receiving unmatched MOC
order messages is still limited in nature
because the CMC participant would still
only know the unexecuted size of its
own order.56 Moreover, even if a
53 See ‘‘Closing Auction Timeline’’, available at:
https://www.nyse.com/markets/nyse-arca/tradinginfo.
54 Supra note 22.
55 Supra note 38.
56 The Exchange notes that in its Final Approval
Order, even the Commission noted that, ‘‘In
particular, a market participant would only be able
to determine the direction of the imbalance and
E:\FR\FM\24AUN1.SGM
Continued
24AUN1
52098
Federal Register / Vol. 87, No. 163 / Wednesday, August 24, 2022 / Notices
jspears on DSK121TN23PROD with NOTICES
Member chose to participate in CMC
only to gather information about the
direction of an imbalance and use such
information to manipulate the closing
price, the Member’s orders were still
eligible for execution. Thus, in addition
to any such information being of limited
use, the Member’s actions still do not
provide them with free information
unavailable to other market participants
because the Member’s orders were
eligible to for execution, subjecting the
Member to economic risk.
Furthermore, as with the current MOC
Cut-Off Time, the proposed extension
does not present any information
asymmetries that do not already exist in
today’s markets, as the very nature of
trading creates short term asymmetries
of information to those who are parties
to a trade.57 Indeed, as noted by the
Commission, any party to a trade gains
valuable insight regarding the depth of
the market when an order is executed or
partially executed.58 Additionally,
NYSE imbalance information is already
disseminated to NYSE floor brokers,
who are permitted to share with their
customers specific data from the
imbalance feed.59 Even in this case,
though, the Commission stated that the
value of such information is limited
because the imbalance information does
not represent overall supply and
demand for a security, is subject to
change, and is only one relevant piece
of information.60 Similarly, because any
information gleaned by a CMC
participant is limited only to the
unexecuted size of their order, and
relative to the depth of only the BZX
pool of liquidity, the Exchange believes
that the proposed extension of the MOC
Cut-Off Time does not create an
increased risk of manipulative trading
activity.
While this proposal would result in
the total shares for buy and sell orders
in CMC being disseminated closer in
time to the primary exchanges’ cut-off
would have difficulty determining the magnitude of
any imbalance, as it would only know the
unexecuted size of its own order. In addition, the
information would only be with regard to the pool
of liquidity on BZX and would provide no insight
into imbalances on the primary listing exchange,
competing auctions, ATSs, or other off-exchange
matching services which, as described above, can
represent a significant portion of trading volume at
the close.’’ Supra note 15.
57 The Exchange further notes that in its approval
order, even the Commission noted that, ‘‘Further,
the Commission believes information asymmetries
as those described by commenters exist today and
are inherent in trading, including with respect to
closing auctions. For example, any party to a trade
gains valuable insight regarding the depth of the
market when an order is executed or partially
executed.’’ Id.
58 Id.
59 Id.
60 Id.
VerDate Sep<11>2014
19:09 Aug 23, 2022
Jkt 256001
times, this change does not suddenly
make the value of such information
more valuable or useful in terms of
enhancing opportunities for gaming and
manipulating the official closing price.
The proposed MOC Cut-off Time is oneminute prior to NYSE’s cut-off time of
3:50 p.m., and six-minutes prior to
Nasdaq’s cut-off time of 3:55 p.m. As
noted above, today’s markets are marked
by technological solutions which
typically operate in durations of
microseconds. In this context, the
separation between the CMC MOC CutOff Time and that of NYSE’s and
Nasdaq’s is a substantial duration of
time, during which much can change in
the marketplace, thus limiting the value
of information, if any, that can be
gleaned from CMC’s dissemination of
matched shares at 3:49 p.m. Moreover,
there are currently controls and
processes in place to monitor for
manipulative trading activity, such as
the supervisory responsibilities and
capabilities of exchanges and the
expansive cross market surveillance
conducted by FINRA. Following
approval of this proposal, the Exchange,
FINRA and others will continue to
surveil for potential manipulative
activity and when appropriate, bring
enforcement actions against market
participants engaged in manipulative
trading activity.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. Rather, the
proposed rule change seeks merely to
extend the MOC Cut-Off Time from 3:35
p.m. to 3:49 p.m., enabling all Members
to manage their trading for a longer
period. The Exchange is not proposing
to make any other changes to the CMC
process. Moreover, CMC is a voluntary
closing match process, and Members are
not required to participate in the CMC.
Additionally, the proposed rule change
applies to equally to all Members.
Importantly, based on feedback from
CMC users, the proposed MOC Cut-Off
Time will not prevent CMC’s current
user’s from participating in CMC, as
CMC’s current users are technologically
equipped to manage a 3:49 p.m. MOC
Cut-Off Time, and should they choose to
do so, reroute MOC orders not matched
in CMC to the primary exchanges’
closing auctions.
Furthermore, the Exchange does not
believe that the proposed rule change
will impose any burden on intramarket
competition that is not necessary or
appropriate in furtherance of the
PO 00000
Frm 00139
Fmt 4703
Sfmt 4703
purposes of the Act. As noted above, the
proposed rule change more closely
aligns the CMC MOC Cut-Off Time to
the cut-off times of other exchanges,
while still providing CMC participants
with an opportunity to reroute any of
their unpaired MOC orders to the
primary exchanges. In this regard, the
proposed rule change may make CMC a
more viable alternative to the primary
auctions and should therefore promote
competition amongst the exchanges.
Additionally, the proposed MOC CutOff Time may also enable the Exchange
to more effectively compete with offexchange venues that have cut-off times
much closer in time to the market close
and comprise a growing percentage of
closing volume.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
The Exchange neither solicited nor
received comments on the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
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 Exchange consents, the Commission
will:
A. by order approve or disapprove
such 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–
CboeBZX–2022–038 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.
E:\FR\FM\24AUN1.SGM
24AUN1
Federal Register / Vol. 87, No. 163 / Wednesday, August 24, 2022 / Notices
All submissions should refer to File
Number SR–CboeBZX–2022–038. This
file number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549 on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–CboeBZX–2022–038 and
should be submitted on or before
September 14, 2022.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.61
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2022–18097 Filed 8–23–22; 8:45 am]
jspears on DSK121TN23PROD with NOTICES
BILLING CODE 8011–01–P
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on August 9,
2022, Cboe BZX Exchange, Inc.
(‘‘Exchange’’ or ‘‘BZX’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the Exchange. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Cboe BZX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘BZX’’) is filing with the
Securities and Exchange Commission
(‘‘Commission’’) a proposed rule change
to Exchange Rule 11.22(f) to introduce
a new data product to be known as the
Short Volume Report. 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/bzx/), 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.
SECURITIES AND EXCHANGE
COMMISSION
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
[Release No. 34–95546; File No. SR–
CboeBZX–2022–044]
1. Purpose
Self-Regulatory Organizations; Cboe
BZX Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of a
Proposed Rule Change To Introduce a
New Data Product To Be Known as the
Short Volume Report
August 18, 2022.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
The Exchange seeks to amend Rule
11.22 to adopt paragraph 11.22(f), which
introduces a new data product, the
Short Volume Report. A description of
each market data product offered by the
Exchange is provided in Exchange Rule
11.22 and proposed Rule 11.22(f)
provides that the Short Volume Report
is an end-of-day report that summarizes
certain equity trading activity on the
1 15
61 17
CFR 200.30–3(a)(12).
VerDate Sep<11>2014
19:09 Aug 23, 2022
2 17
Jkt 256001
PO 00000
U.S.C. 78s(b)(1).
CFR 240.19b–4.
Frm 00140
Fmt 4703
52099
Exchange, and includes trade date,3
total volume,4 sell short volume,5 and
sell short exempt volume,6 by symbol.7
The Short Volume Report will be
available for purchase to both BZX
Members (‘‘Members’’) 8 as well as nonMembers.9
The Exchange notes that the data
fields included in the Short Volume
Report are essentially identical to the
fields included by the New York Stock
Exchange LLC (‘‘NYSE’’) in their Daily
Short Volume file.10 Specifically, the
NYSE Daily Short Volume file also
includes trade date,11 symbol,12 short
exempt volume,13 short volume,14 and
total volume.15 The proposed Short
Volume Report is also similar to
Nasdaq’s Daily Short Sale Volume file 16
3 ‘‘Trade
date’’ is the date of the trading activity.
volume’’ is the total share volume of all
order executions.
5 ‘‘Sell Short volume’’ is the total share volume
of all short order executions, (Sell Short + Sell
Short Exempt).
6 ‘‘Short exempt volume’’ is the total share
volume of all short exempt order executions.
7 Symbol refers to the Cboe formatted symbol in
which the trading activity occurred. See https://
cdn.cboe.com/resources/membership/US_
Symbology_Reference.pdf.
8 The term ‘‘Member’’ shall mean any registered
broker or dealer that has been admitted to
membership in the Exchange. A Member will have
the status of a ‘‘member’’ of the Exchange as that
term is defined in Section 3(a)(3) of the Act.
Membership may be granted to a sole proprietor,
partnership, corporation, limited liability company
or other organization which is a registered broker
or dealer pursuant to Section 15 of the Act, and
which has been approved by the Exchange. See
Exchange Rule 1.5(n), definition of ‘‘Member’’.
9 The Exchange intends to submit a separate filing
to establish fees for the Short Volume Report.
10 See NYSE Daily Short Volume Client
Specification, available at: https://www.nyse.com/
publicdocs/nyse/data/Daily_Short_Volume_Client_
Spec_v1.3.pdf. The NYSE Daily Short Volume
includes trade date, symbol, short exempt volume,
short volume, and total volume. Unlike NYSE, the
proposed Short Volume Report will not include the
trading exchange, as the proposed report includes
short sale volume only for transactions executed on
BZX. Additionally, NYSE’s Daily Short Volume file
specifies that short volume is comprised of the sum
of, (sell short volume + sell short exempt volume
+ sell short with slide). While the Exchange does
not specifically flag sell short with slide
transactions, such transactions are recognized
simply as sell short or sell short exempt and are
thus included in the Exchange’s sell short and sell
short exempt volume.
11 NYSE ‘‘Trade date’’ is the date of trading
session activity.
12 NYSE ‘‘Symbol’’ is defined in the NYSE
Symbology Specification, available at: https://
www.nyse.com/publicdocs//data/Daily_Short_
Volume_Client_Spec_v1.3.pdf.
13 NYSE ‘‘Short Exempt Volume’’ is the total
share volume of all Short Exempt order executions.
14 NYSE ‘‘Short Volume’’ is the total share
volume of all short order executions, (Sell Short +
Sell Short Exempt + Sell Short with Slide).
15 NYSE ‘‘Total Volume’’ is the total share volume
of all order executions.
16 See Specifications for Daily Short Sale Volume
file, available at: https://www.nasdaqtrader.com/
4 ‘‘Total
Continued
Sfmt 4703
E:\FR\FM\24AUN1.SGM
24AUN1
]]>Agencies
[Federal Register Volume 87, Number 163 (Wednesday, August 24, 2022)]
[Notices]
[Pages 52092-52099]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-18097]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-95529; File No. SR-CboeBZX-2022-038]
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of
Filing of a Proposed Rule Change To Amend Rule 11.28(a) To Extend the
MOC Cut-Off Time
August 17, 2022.
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 August 5, 2022, Cboe BZX Exchange, Inc. (the ``Exchange'' or
``BZX'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I, II,
and III 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 BZX Exchange, Inc. (the ``Exchange'' or ``BZX'') proposes to
amend Rule 11.28(a) to extend the MOC Cut-Off Time from 3:35 p.m.
Eastern Time to 3:49 p.m. Eastern Time. 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/bzx/), 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
Exchange Rule 11.28 (Cboe Market Close, a Closing Match Process for
Non-BZX-Listed Securities) provides Members an optional closing match
process for non-BZX-Listed securities, known as Cboe Market Close
(``CMC''). Currently, per Rule 11.28(a) (Order Entry) Members \3\ may
enter, cancel, or replace Market-on-Close (``MOC'') orders designated
for participation in CMC beginning at 6:00 a.m. Eastern Time \4\ up to
3:35 p.m. (``MOC Cut-Off Time''). The Exchange now proposes to move the
MOC Cut-Off Time from 3:35 p.m. to 3:49 p.m. The Exchange is not
proposing to make any other changes to the CMC process.
---------------------------------------------------------------------------
\3\ The term ``Member'' shall mean any registered broker or
dealer that has been admitted to membership in the Exchange. A
Member will have the status of a ``member'' of the Exchange as that
term is defined in Section 3(a)(3) of the Act. Membership may be
granted to a sole proprietor, partnership, corporation, limited
liability company or other organization which is a registered broker
or dealer pursuant to Section 15 of the Act, and which has been
approved by the Exchange. See Rule 1.5(n), definition of ``Member''.
\4\ All times noted throughout are in Eastern Time.
---------------------------------------------------------------------------
By way of background, on May 5, 2017, the Exchange filed a proposed
rule change to adopt CMC, a match process for MOC orders in non-BZX
listed securities and on December 1, 2017, filed Amendment No. 1 \5\ to
that proposal (the ``Original Proposal'').\6\ On January 17, 2018, the
Commission, acting through authority delegated to the Division of
Trading and Markets,\7\ approved the Original Proposal (``Approval
Order'').\8\ On January 31, 2018, NYSE Group, Inc. (``NYSE'') and the
Nasdaq Stock Market LLC (``Nasdaq'') filed petitions for review of the
Approval Order (``Petitions for Review''). Pursuant to Commission Rule
of Practice 431(e),\9\ the Approval Order was stayed by the filing with
the Commission of a notice of intention to petition for review.\10\ On
March 1, 2018, pursuant to Commission Rule of Practice 431, the
Commission issued a scheduling order granting the Petitions of Review
of the Approval Order, and provided until March 22, 2018, for any party
or other person to file a written statement in support of, or in
opposition to, the Approval Order.\11\ On April 12, 2018, NYSE and
Nasdaq submitted written statements opposing the Approval Order and BZX
submitted a statement in support of the Approval Order.\12\ On October
4, 2018, BZX filed Amendment No. 2 \13\ to the Original Proposal.
---------------------------------------------------------------------------
\5\ The only change in Amendment No. 1 was to rename the
proposed closing match process as Cboe Market Close. Per the
Commission, because Amendment No. 1 was a technical amendment and
did not materially alter the substance of the proposed rule change
or raise unique or novel regulatory issues, Amendment No. 1 was not
subject to notice and comment.
\6\ See Securities Exchange Act Release No. 34-80683 (May 16,
2017), 82 FR 23320 (May 22, 2017) (SR-Bats-BZX-2017-34) (Notice of
Filing of a Proposed Rule Change to Introduce Bats Market Close, a
Closing Match Process for Non-BZX Listed Securities Under New
Exchange Rule 11.28).
\7\ 17 CFR 200.30-3(a)(12).
\8\ See Securities Exchange Act Release No. 34-82522 (January
17, 2018), 83 FR 3205 (January 23, 2018) (SR-Bats-BZX-2017-34)
(Notice of Filing of Amendment No. 1 and Order Granting Approval of
a Proposed Rule Change, as Modified by Amendment No. 1, To Introduce
Cboe Market Close, a Closing Match Process for Non-BZX Listed
Securities Under New Exchange Rule 11.28).
\9\ 17 CFR 201.431(e).
\10\ See Letter to Christopher Solgan, Assistant General
Counsel, Cboe Global Markets, Inc. (Jan. 24, 2018) (providing notice
of receipt of notices of intention to petition for review of
delegated action and stay of order), available at: https://www.sec.gov/rules/sro/batsbzx/2018/sr-batsbzx-2017-34-letter-from-secretary-to-cboe.pdf.
\11\ See Securities Exchange Act Release No. 82794, 83 FR 9561
(Mar. 6, 2018). On March 16, 2018, the Office of the Secretary,
acting by delegated authority, issued an order on behalf of the
Commission granting a motion for an extension of time to file
statements on or before April 12, 2018. See Securities Exchange Act
Release No. 82896, 83 FR 12633 (Mar. 22, 2018)
\12\ See Statement of NYSE Group, Inc., in Opposition to the
Division's Order Approving a Rule to Introduce Cboe Market Close
(``NYSE Statement''); Statement of the Nasdaq Stock Market LLC in
Opposition to Order Granting Approval of a Proposed Rule Change, as
Modified by Amendment No. 1, to Introduce Cboe Market Close
(``Nasdaq Statement''); and Statement of Cboe BZX Exchange, Inc., in
support of Commission Staff's Approval Order (``BZX Statement''),
available at: https://www.sec.gov/comments/sr-batsbzx-2017-34/batsbzx201734.htm.
\13\ See Securities Exchange Act Release No. 34-84670 (November
28, 2018), 83 FR 62646 (December 4, 2018) (SR-BatsBZX-2017-34)
(``Notice of Filing of Amendment No. 2 to Proposed Rule Change to
Introduce Cboe Market Close, a Closing Match Process for Non-BZX
Listed Securities Under New Exchange Rule 11.28'').
---------------------------------------------------------------------------
The Commission conducted a de novo review of the CMC proposal and
associated public record, including
[[Page 52093]]
Amendment No. 2, the Petitions for Review, and all comments and
statements submitted by certain exchanges, issuers, and other market
participants,\14\ to determine whether the proposal was consistent with
the requirements of the Act and the rules and regulations issued
thereunder that are applicable to a national securities exchange.\15\
The Commission noted that under Rule 700(b)(3) of the Commission's Rule
of Practice, the ``burden to demonstrate that a proposed rule change is
consistent with the Exchange Act and the rules and regulations issued
thereunder . . . is on the self-regulatory organization that proposed
the rule change.'' \16\
---------------------------------------------------------------------------
\14\ See ``Statements on File No. SR-BatsBZX-2017-34'',
available at: https://www.sec.gov/comments/sr-batsbzx-2017-34/batsbzx201734.htm.
\15\ See Securities Exchange Act Release No. 34-88008 (January
21, 2020), 85 FR 4726 (January 27, 2020) (SR-BatsBZX-2017-34)
(``Order Setting Aside Action by Delegated Authority and Approving a
Proposed Rule Change, as Modified by Amendments No. 1 and 2, To
Introduce Cboe Market Close, a Closing Match Process for Non-BZX
Listed Securities Under New Exchange Rule 11.28'').
\16\ Id.
---------------------------------------------------------------------------
Importantly, after reviewing the entire record, the Commission
concluded that BZX met its burden to show that the proposed rule change
was consistent with the Act, and pursuant to its January 21, 2020,
order, set aside the Approval Order and approved BZX's CMC proposal, as
amended (``Final Approval Order'').\17\ Notably, the Commission stated
that the record ``demonstrate[d] that Cboe Market Close should
introduce and promote competitive forces among national securities
exchanges for the execution of MOC orders'' \18\ and that ``the record
demonstrate[d] that Cboe Market Close should not disrupt the closing
auction price discovery process nor should it materially increase the
risk of manipulation of official closing prices''.\19\ For the reasons
discussed more fully below, the Exchange believes that when applying
the Commission's analysis in the Final Approval Order to the current
proposal, such review would similarly conclude that this proposal is
consistent with the Act and should be approved.
---------------------------------------------------------------------------
\17\ Id.
\18\ Id.
\19\ Id.
---------------------------------------------------------------------------
Since the Original Proposal various exchanges have extended the MOC
cut-off times for their closing auctions, moving them closer to 4:00
p.m.\20\ Additionally, closing price match services offered by off-
exchange venues have grown in popularity,\21\ including alternative
trading systems (``ATS'') that offer a MOC cut-off time as close as 30-
seconds before the primary exchanges' cut-off times, as well as MOC
cut-off times aligned with those of NYSE, NYSE Arca, and Nasdaq.\22\ As
the market structure for closing auctions and closing price match
offerings has continued to evolve, and in response to customer feedback
and to better compete with off-exchange venues, the Exchange is
proposing this rule change to align CMC's MOC Cut-Off time more closely
with the other exchanges and off-exchange venues.
---------------------------------------------------------------------------
\20\ See Securities Exchange Act Release No. 34-84454 (October
19, 2018), 83 FR 53923 (October 25, 2018) (SR-Nasdaq-2018-068)
(Order approving a rule change by NYSE) (The Commission approved a
rule change by Nasdaq to move the cut-off times for the entry of MOC
and LOC orders from 3:50 p.m. to 3:55 p.m.); see also Securities
Exchange Act Release No. 34-85021 (January 31, 2019) (SR-NYSE-2018-
58) (Order approving a rule change by Nasdaq) (The Commission
approved a rule change by the NYSE to amend Rule 123C to extend the
cut-off times for order entry and cancellation for participation in
the closing auction, from 3:45 p.m. to 3:50 p.m.).
\21\ See infra, ``Price Discovery and Fragmentation'', which
describes the growth of off-exchange closing volume.
\22\ For example, JP Morgan Securities' ATS, JPB-X, offers Close
Price Match. This functionality utilizes a conditional order process
to match orders and crosses them at the security's official closing
prices, as determined by the closing auction at the primary exchange
for a security. The Close Price Match time for an NMS stock is
currently 30-seconds before the MOC cut-off time for that stock's
primary exchange. Additionally, Instinet, LLC's ATS, CBX provides
for three MOC Crossing Sessions, which consist of: a cross for
securities where the primary listing exchange is the Nasdaq
(``Nasdaq Cross''), a cross for securities where the primary listing
exchange is the NYSE Arca (``Arca Cross''), and a cross for
securities where the primary listing exchange is the NYSE (``NYSE
Cross''). Subscribers may submit orders for the MOC Crosses at any
time between 7:30 a.m. and the relevant crossing session's crossing
time. See Form ATS-N, JPB-X, available at: https://www.sec.gov/Archives/edgar//data/782124/000/xslATS-N_X01/primary_doc.xml; see
also Form ATS-N, Instinet, LLC's ATS, CBX, available at: https://www.sec.gov/Archives/edgar/data/310607/000031060722000009/xslATS-N_X01/primary_doc.xml.
---------------------------------------------------------------------------
The Exchange notes that Members have requested a MOC Cut-Off Time
that is closer to the end of Regular Trading Hours \23\ so that they
may retain control of their trading for a longer period and be better
able to manage their trading at the close.\24\ Generally speaking,
notional trading and trading volatility are typically at their highest
towards the end of Regular Trading Hours. Accordingly, market
participants often prefer to trade as close to 4:00 p.m. as possible,
because doing so can provide them with more time to seek better priced
liquidity for their orders in a variety of ways, including but not
limited to, finding contra-side liquidity in the marketplace and
trading directly against such interest, or guaranteeing a customer
order at a price better than the national best bid or offer by
committing capital to an order and filling it in a principal capacity,
as well as continuing to trade orders algorithmically into the close,
thus reducing the size of their outstanding orders that they may decide
to commit to CMC or the primary auctions.
---------------------------------------------------------------------------
\23\ The term ``Regular Trading Hours'' means the time between
9:30 a.m. and 4:00 p.m. Eastern Time. See Rule 1.2(w), definition
of, ``Regular Trading Hours.''
\24\ The Exchange notes that part of its rationale for extending
CMC's MOC Cut-Off Time is substantively identical to that of other
exchanges moving their cut-off times later, namely, NYSE and Nasdaq.
See Securities Exchange Act Release No. 34-83988 (August 29, 2018),
86 FR 18580 (September 5, 2018) (SR-Nasdaq-2018-068)
(``Specifically, the Exchange believes that extending the cutoff
times for submitting on close orders will allow market participants
to retain control over their orders for a longer period of time, and
thereby assist those market participants in managing their trading
at the close.''); see also Securities Exchange Act Release No. 34-
84804 (December 12, 2018), 83 FR 64910 (December 18, 2018) (SR-NYSE-
2018-58) (``The Exchange believes that extending the cut-off times
for entry and cancellation of MOC and LOC Orders, cancellation of CO
orders, as well as when the Exchange would begin disseminating Order
Imbalance Information for the close would . . . allow market
participants to retain control over their orders for a longer period
of time, and thereby assist those market participants in managing
their trading at the close.'').
---------------------------------------------------------------------------
Additionally, Members have indicated that extending the MOC Cut-Off
Time to 3:49 p.m. will help to make CMC a more comparable alternative
to NYSE and Nasdaq, which have MOC cut-off times of 3:50 p.m.\25\ and
3:55 p.m.,\26\ respectively. For reasons discussed directly above, cut-
off times closer to 4:00 p.m. are beneficial to market participants,
and by extending CMC's MOC Cut-Off Time to 3:49 p.m., CMC will be
better positioned to serve as a viable option for market participants
to consider when deciding which venues to route their MOC orders, thus
enhancing intermarket competition.
---------------------------------------------------------------------------
\25\ See NYSE Rule 73.5(a)(8), Closing Auction Imbalance Freeze
Time.
\26\ See Nasdaq Rule 4702(b)(11)(A), Market On Close Order.
---------------------------------------------------------------------------
The Exchange also notes that today's market participants, including
users of CMC,\27\ are technologically equipped \28\
[[Page 52094]]
to handle a 3:49 p.m. MOC Cut-Off time. As a general mater, today's
market participants, including CMC users, rely on electronic smart
order routers, order management systems, and trading algorithms, which
make routing and trading decisions on an automated basis, in times
typically measured in microseconds. In this regard, the Exchange
believes that if a CMC user receives a message that their MOC order was
not matched in CMC,\29\ such CMC user will have more than enough time
to reroute their MOC order to the primary exchange. Importantly, the
Exchange discussed the proposed change with both current CMC users and
potential new CMC users to gauge whether a MOC Cut-Off Time one-minute
closer to the NYSE cut-off time, and six-minutes closer to the Nasdaq
cut-off time, would present operational or technological challenges,
and confirmed that CMC users can in fact manage the proposed change.
---------------------------------------------------------------------------
\27\ Users of CMC are mainly broker-dealers that trade
electronically, utilizing a variety of automated trading tools such
as algorithmic strategies and routing protocols.
\28\ The Exchange notes that today's equities markets involve
the widespread use of automated trading algorithms and routing
solutions, as well market connectivity options with speeds often
measured in microseconds. In this regard, a MOC Cut-Off Time of 3:49
p.m. should not present any operational or technological issues, in
terms of timing, for Members desiring to reroute any unmatched CMC
MOC orders to the primary exchanges. Should Members need additional
time to decide whether to send their CMC MOC orders to other
exchanges, Members may still cancel their CMC MOC orders any time
prior to 3:49 p.m. or may voluntarily choose to not participate in
CMC. See generally ``Staff Report on Algorithmic Trading in U.S.
Capital Markets'' (August 5, 2020), available at https://www.sec.gov/tm/reports-and-publications/special-studies/algo_trading_report_2020. (``Over the past decade, the `manual
handling of institutional orders is increasingly rare and has been
replaced by sophisticated institutional order execution algorithms
and smart order routing systems' '') (``The secondary market for
U.S.-listed equity securities that has developed within this
structure is now primarily automated. The process of trading has
changed dramatically primarily as a result of developments in
technologies for generating, routing, and executing orders, as well
as by the requirement imposed by law and regulation.'') (``Modern
equity markets are connected in part by the data flowing between
market centers. An enormous volume of data is available to market
participants. In recent years, there has been an exponential growth
in the amount of market data that is available, the speed with which
it is disseminated, and the computer power used to analyze and react
to price movements.'')
\29\ The CMC Closing Match Process--i.e., the matching of all
buy and sell MOC orders entered into the System by time priority at
the MOC Cut-Off Time, the electronic notification to Members of any
unmatched MOC orders, and the dissemination by the Exchange of the
total size of all buy and sell orders matched via CMC via the Cboe
Auction Feed--generally occurs within microseconds. As such, a MOC
Cut-Off Time one-minute prior to the primary exchanges' cut-off
times is a sufficient period of time for Members to reroute their
unmatched MOC orders to the primary exchanges, should they choose to
do so.
---------------------------------------------------------------------------
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Act and the rules and regulations thereunder applicable to the
Exchange and, in particular, the requirements of Section 6(b) of the
Act.\30\ Specifically, the Exchange believes the proposed rule change
is consistent with the Section 6(b)(5) \31\ requirements that the rules
of an exchange be designed to prevent fraudulent and manipulative acts
and practices, to promote just and equitable principles of trade, to
foster cooperation and coordination with persons engaged in regulating,
clearing, settling, processing information with respect to, and
facilitating transactions in securities, to remove impediments to and
perfect the mechanism of a free and open market and a national market
system, and, in general, to protect investors and the public interest.
Additionally, the Exchange believes the proposed rule change is
consistent with the Section 6(b)(5) \32\ requirement that the rules of
an exchange not be designed to permit unfair discrimination between
customers, issuers, brokers, or dealers.
---------------------------------------------------------------------------
\30\ 15 U.S.C. 78f(b).
\31\ 15 U.S.C. 78f(b)(5).
\32\ Id.
---------------------------------------------------------------------------
In particular, the Exchange believes that moving the MOC Cut-Off
Time to 3:49 p.m. would remove impediments to and perfect the mechanism
of a free and open market and a national market system because it would
allow Members to retain control over their orders for a longer period,
thereby assisting market participants in managing their trading at the
close. As discussed more fully above, market participants may prefer to
trade as close to 4:00 p.m. as possible, because doing so can provide
them with more time to seek better priced liquidity for their orders in
a variety of ways, as well as give them more time to determine the size
of their outstanding orders that they may decide to commit to CMC or
the primary auctions.
Additionally, the Exchange believes that a MOC Cut-Off Time
fifteen-minutes (15) prior to NYSE's cut-off time, and twenty-five-
minutes (25) prior to Nasdaq's cut-off time, is no longer necessary.
Rather, the Exchange notes that today's market participants are
technologically equipped \33\ to handle a 3:49 p.m. MOC Cut-Off time.
As discussed above, today's market participants rely on electronic
smart order routers, order management systems, and trading algorithms,
which make routing and trading decision on an automated basis, in times
often measured in microseconds. As such, Members are technologically
equipped to efficiently respond to CMC's publication of matched shares
and should they so choose, reroute any unmatched MOC orders to the
respective primary closing auction. As noted above, the Exchange
discussed the extension of the MOC Cut-Off Time with CMC users and
confirmed that the proposed MOC Cut-Off Time will not present them with
any operational or technological issues.
---------------------------------------------------------------------------
\33\ Supra note 28.
---------------------------------------------------------------------------
Furthermore, the Exchange believes that the extension of cut-off
times by the primary exchanges since CMC's proposal, as well as the
growth of off-exchange venues \34\ with cut-off times in such close
proximity to the end of Regular Trading Hours is indicative of Members'
desires for such offerings. Logically, such a change in market
structure would not have occurred if Members did not already possess
the operational and technological wherewithal to effectively manage the
multitude of cut-off times offered by the exchanges and off-exchange
venues.
---------------------------------------------------------------------------
\34\ Supra note 22.
---------------------------------------------------------------------------
Moreover, the Exchange believes that the proposed rule change will
remove impediments to and perfect the mechanism of a free and open
market and a national market system because extending the MOC Cut-Off
Time to 3:49 p.m. would more closely align the CMC MOC Cut-Off Time to
the cut-off times in place for the other exchanges.\35\ For the reasons
discussed more fully above, the primary exchanges' cut-off times are
beneficial to market participants because of their proximity to 4:00
p.m. By moving the MOC Cut-Off Time closer to the other exchanges' cut-
off times, CMC can become a comparable alternative for Members to route
their unpriced MOC orders. Importantly, even with a MOC Cut-Off Time
closer to the primary exchanges' cut-off times, CMC removes any
perceived impact on the primary listing markets' close by publishing
the number of matched order shares, by security, in advance of the
primary markets' cut-off time. The total matched shares would still be
disseminated by the Exchange free of charge via the Cboe Auction Feed,
albeit at the new proposed MOC Cut-Off Time of 3:49 p.m. Because of the
speeds and widespread use of market technology, this information can
still be used by the primary markets' closing processes, and as
discussed above, CMC users will still have ample time \36\ to reroute
any MOC orders not matched via CMC to reach the primary market to be
included in their closing auction process.
---------------------------------------------------------------------------
\35\ As noted above, NYSE's cut-off time is 3:50 p.m., and
Nasdaq's cut-off time is 3:55 p.m. NYSE Arca's cut-off time for MOC
orders id 3:59 p.m. See ``Trading Information--Closing Auctions'',
available at: https://www.nyse.com/market/nyse-arca/trading-info.
\36\ Supra note 28.
---------------------------------------------------------------------------
Additionally, the proposed rule change would more closely align
CMC's MOC Cut-Off Time with that of off-exchange venues that offer cut-
off times aligned with those currently offered by the primary
exchanges, and as little as
[[Page 52095]]
30-seconds prior to market close.\37\ As such, the Exchange believes
that the proposed rule change is supported by both ample precedent as
well as current market structure, and should not present any new or
novel issues that market participants must consider when managing their
trading and determining which exchange or off-exchange venue to route
their MOC orders.
---------------------------------------------------------------------------
\37\ Supra note 22.
---------------------------------------------------------------------------
Price Discovery \38\
---------------------------------------------------------------------------
\38\ As part of this proposed rule change the Exchange is
addressing several questions considered by the Commission in
connection with the Exchange's Original Proposal, including price
discovery and fragmentation, market complexity and operational risk,
and manipulation. Importantly, in considering these questions, the
Commission found that based on CMC's design and the record before
the Commission, that the proposal was consistent with Section
6(b)(5) of the Act. Supra note 15.
---------------------------------------------------------------------------
The Exchange believes that the proposed rule change is consistent
with the Section 6(b)(5) requirements.\39\ As previously noted by the
Exchange,\40\ CMC accepts and matches only unpriced MOC orders. By
matching only unpriced MOC orders, and not Limit-On-Close (``LOC'')
orders and executing those matched MOC orders that naturally pair off
with each other and effectively cancel each other out, CMC is designed
to avoid impacting price discovery. While the proposed rule change
would have CMC accept MOC orders up to 3:49 p.m., such extension will
not change this underlying functionality. As previously noted by the
Exchange,\41\ matched MOC orders are merely recipients of price
formation and do not directly contribute to the price formation
process. Indeed, in its Final Approval Order for CMC, even the
Commission noted that unpriced, paired-off MOC orders do not directly
contribute to setting the official closing price of securities on the
primary listing exchanges but, rather, are inherently the recipients of
price formation information.\42\
---------------------------------------------------------------------------
\39\ The Exchange notes that the Commission, in its Final
Approval Order, carefully analyzed and considered CMC and its
potential effects, if any, on the primary listing exchanges' closing
auctions, including their price discovery functions. Importantly,
the Commission found that, based on CMC's design, CMC should not
disrupt the price discovery process in the closing auctions of the
primary listing exchanges. Supra note 15.
\40\ See Letter from Joanne Moffic-Silver, Executive Vice
President, General Counsel, and Corporate Secretary, Bats Global
Markets, Inc. (August 2, 2017), available at: https://www.sec.gov//batsbzx-2017-34/batsbzx201734-2162452-157801.pdf; see also Letter
from Joanne Moffic-Silver (October 11, 2017), available at: https://www.sec.gov/comments/sr-batsbzx-2017-34/batsbzx201734-2634580-161229.pdf.
\41\ Id.
\42\ Supra note 15.
---------------------------------------------------------------------------
Moreover, the Exchange believes that even if extending the MOC Cut-
Off Time to 3:49 p.m. reduces the number of MOC orders routed to a
security's primary listing market, CMC is designed to remove any
perceived adverse impact on the primary listing markets' close because
the total matched shares would still be disseminated by the Exchange
free of charge via the Cboe Auction Feed prior to the primary
exchanges' cut-off times. Additionally, because of the technological
capabilities of today's market participants discussed more fully above,
this information can still be incorporated by the primary markets'
closing processes, and CMC users will still have ample time \43\ to
reroute any MOC orders not matched via CMC to the primary markets to be
included in their closing auction processes.
---------------------------------------------------------------------------
\43\ Supra note 28.
---------------------------------------------------------------------------
Fragmentation \44\
---------------------------------------------------------------------------
\44\ Supra note 38.
---------------------------------------------------------------------------
Another matter addressed by the Commission in their review of the
Initial Proposal was fragmentation, and whether CMC would fragment the
markets beyond what currently occurs through off-exchange close price
matching venues.\45\ Importantly, as illustrated in the chart below, an
analysis by the Exchange shows that the closing auction volume on both
NYSE and Nasdaq has increased since the launch of CMC on March 6, 2022.
As such, the Exchange believes that the initial fragmentation concerns
raised by commenters during the Initial Proposal have not materialized,
and that merely extending the MOC Cut-Off Time, while leaving all other
CMC functionality intact, will not result in increased market
fragmentation.
---------------------------------------------------------------------------
\45\ Supra note 15.
[GRAPHIC] [TIFF OMITTED] TN24AU22.000
[[Page 52096]]
The Exchange also notes that even if the proposed rule change
results in fewer MOC orders participating in the primary exchanges'
closing auctions, that the fragmentation of MOC orders already occurs
in today's markets on off-exchange venues. As illustrated in the first
two charts below, a growing proportion of trading volume at the close
occurs on off-exchange venues, where the TRF close volume, as a percent
of Exchange close volume, has risen steadily since January 2019.\46\ In
the third chart the Exchange also studied the top ten most actively
traded securities during the same time period and found that a
significant portion of the total closing volume is executed off-
exchange, following the dissemination of the official closing price.
---------------------------------------------------------------------------
\46\ The Exchange conducted an analysis of off-exchange/Trade
Reporting Facility (``TRF'') closing volume that occurs after market
close, 4:00 p.m. Eastern Time, where the price is equal to the
closing price and for which such trades are reported with a Prior
Reference Price (``PRP'') trade reporting modifier. The TRF is a
trade reporting facility where FINRA members may report trades in
Nasdaq-listed and other exchange-listed securities, that were
executed otherwise than on an exchange. The first two charts
represent TRF executed volume at the close with the ``PRP'' flag
that equals the closing auction price, divided by total on exchange
auction volume.
---------------------------------------------------------------------------
BILLING CODE 8011-01-P
[GRAPHIC] [TIFF OMITTED] TN24AU22.001
[GRAPHIC] [TIFF OMITTED] TN24AU22.002
----------------------------------------------------------------------------------------------------------------
TRF close %
Rank Symbol Primary exchange inc. PRP \47\
----------------------------------------------------------------------------------------------------------------
1...................................... AAPL...................... Nasdaq.................... 9
2...................................... T......................... NYSE...................... 6
3...................................... BAC....................... NYSE...................... 10
4...................................... INTC...................... Nasdaq.................... 5
5...................................... MSFT...................... Nasdaq.................... 7
6...................................... F......................... NYSE...................... 9
7...................................... PFE....................... NYSE...................... 5
8...................................... CSCO...................... Nasdaq.................... 5
9...................................... CMCSA..................... Nasdaq.................... 7
[[Page 52097]]
10..................................... WFC....................... NYSE...................... 9
----------------------------------------------------------------------------------------------------------------
Source: Internal Exchange Data.
BILLING CODE 8011-01-C
Accordingly, the Exchange believes that approving this proposal
will allow the Exchange to compete on a more equal playing field with
off-exchange venues for closing volume already being executed away from
the primary listing venues. In better competing with off-exchange
venues, CMC can help increase transparency, reliability, and price
discovery by encouraging market participants that would otherwise seek
to match MOC orders off-exchange to re-direct their MOC orders to BZX,
a public exchange. Moreover, by attracting such order flow, CMC can
help to increase the amount of volume at the close executed on systems
subject to the resiliency requirements of Regulation SCI.\48\
---------------------------------------------------------------------------
\47\ As defined above, ``PRP''.
\48\ See Letter from Joanne Moffic-Silver, Executive Vice
President, General Counsel, and Corporate Secretary, Bats Global
Markets, Inc., a Cboe Company (Oct. 11, 2017) (``The Proposal is
further consistent with the Commission's assertion that closing
auctions are critical SCI systems . . . [CMC] would provide a much
needed, seamless, and easy way for the industry to address the
single point of failure risk that exists for closing auctions today,
especially when a primary listing market is experiencing system
issues and lacks full operational capability. As Bats previously
asserted, in the event of a system's disruption at the primary
listing market, [CMC] could provide an alternative pool of liquidity
to which market participants could send MOC orders for execution at
the official closing price. Therefore, it promotes just and
equitable principles of trade and competition among national
securities exchanges. [CMC] would also remove impediments to and
perfect the mechanism of a free and open market and a national
market system by providing a mechanism for market participants to
execute their orders at the official closing price should a system
disruption on the primary listing market prevent them from entering
orders.''); (``Furthermore, [CMC] would operate on the Exchange's
reliable SCI systems . . . significant MOC liquidity is conducted
today by off-exchange venues. These venues are not SCI systems and,
therefore, not subject to Regulation SCI's enhanced resiliency
requirements. [CMC] could attract MOC orders from these off-exchange
venues and its reliable SCI system, furthering the Commission's
presumed desire for liquidity at the close to be conducted on SCI
systems.'')
---------------------------------------------------------------------------
Market Complexity and Operational Risk \49\
---------------------------------------------------------------------------
\49\ Supra note 38.
---------------------------------------------------------------------------
The Exchange believes that the proposed rule change is simple and
straightforward, and as such will not significantly increase market
complexity or operational risk. The Exchange seeks only to extend the
MOC Cut-Off Time to 3:49 p.m., leaving all other aspects of the CMC
process intact. Members will not have to consider new operational
requirements of monitoring and consuming a new data feed or consider
the utilization of a new order type or implementation of new Exchange
code. Rather, Members may continue to monitor the same data feed as
they do today, the Cboe Auction Feed, and simply look for the
publication of the CMC information at the new proposed MOC Cut-Off
Time.
Additionally, as discussed more fully above, the Exchange discussed
this proposal with current CMC users prior to submitting this proposal
and learned that CMC users are technologically equipped to manage a MOC
Cut-Off Time closer to the primary exchanges' cut-off times, and that
they can respond to CMC's publication of matched shares and quickly
reroute any unmatched MOC orders to the respective primary closing
auction. Moreover, CMC is a voluntary offering, and Members may freely
decide whether to participate.
Furthermore, as noted throughout, both off-exchange venues and
other exchanges already offer MOC cut-off times that are closer in time
to the end of Regular Trading Hours. Specifically, as mentioned above,
in 2018 Nasdaq received approval to move the cut-off times for the
entry of MOC and Limit-On-Close (``LOC'') orders from 3:50 to 3:55
p.m.\50\ Similarly, in 2018 the NYSE received approval from the SEC to
extend their cut-off times for order entry and cancellation for
participation their closing auction, from 3:45 p.m. to 3:50 p.m.\51\
NYSE also offers discretionary-orders, which unlike MOC/LOC orders that
are subject to NYSE's 3:50 p.m. cut-off, may be entered for
participation in the closing auction until 3:59:50.\52\ Additionally,
market participants may enter MOC orders for participation in NYSE
Arca's closing auction up to 3:59 p.m..\53\ Finally, various off-
exchange venues offer closing match processes with cut-off times
aligned with those of the primary exchanges, and even as close to 30-
seconds before market close, 4:00 p.m.\54\
---------------------------------------------------------------------------
\50\ Supra note 20.
\51\ Id.
\52\ See NYSE Rule 7.31 (c)(2)(C); see also ``The Floor Broker's
Modern Trading Tool'', available at: https://www.nyse.com/article/trading/d-order (``While D Orders are available for use throughout
the trading day, most executions occur in the closing auction, where
they're known as Closing D Orders. At 3:55 p.m., Closing D Order
interest eligible to participate in the closing auction is added to
the order imbalance feed at their discretionary price range. Closing
D Orders can also be submitted, modified or cancelled up to 3:59:50
p.m. These distinct features of Closing D Orders are designed to
facilitate the Floor Broker's traditional agency role on behalf of
larger institutional interest, allowing Floor Brokers to work in
conjunction with their customer to find larger liquidity
opportunities.'').
\53\ See ``Closing Auction Timeline'', available at: https://www.nyse.com/markets/nyse-arca/trading-info.
\54\ Supra note 22.
---------------------------------------------------------------------------
Accordingly, the Exchange believes that market participants are
well accustomed to managing the various cut-off times in today's
marketplace, and in incorporating these timelines into their trading
decisions. The number of exchanges and off-exchange venues with
extended cut-off times indicates that market participants find value in
their ability to retain control of their trading heading into the end
of Regular Trading Hours, and the exchanges and off-exchange venues
have responded to such demand. Certainly, market participants would not
desire cut-off times closer to the end of Regular Trading Hours if they
could not technologically and operationally manage their trading
accordingly. Therefore, the extension of CMC's MOC Cut-Off Time should
not present market participants with any novel operational or
technological complexities.
Manipulation \55\
---------------------------------------------------------------------------
\55\ Supra note 38.
---------------------------------------------------------------------------
The Exchange does not expect that the proposed extension of the MOC
Cut-Off Time to 3:49 p.m. will result in an increase of manipulative
activity due to information asymmetries, or raise any unique
manipulation concerns relative to how CMC exists today with a current
MOC Cut-Time of 3:35 p.m. Specifically, any information CMC
participants may be able to glean from their paired-off MOC orders, or
from their unmatched MOC orders, is still limited in nature. For
instance, any information that CMC participants may learn from
receiving unmatched MOC order messages is still limited in nature
because the CMC participant would still only know the unexecuted size
of its own order.\56\ Moreover, even if a
[[Page 52098]]
Member chose to participate in CMC only to gather information about the
direction of an imbalance and use such information to manipulate the
closing price, the Member's orders were still eligible for execution.
Thus, in addition to any such information being of limited use, the
Member's actions still do not provide them with free information
unavailable to other market participants because the Member's orders
were eligible to for execution, subjecting the Member to economic risk.
---------------------------------------------------------------------------
\56\ The Exchange notes that in its Final Approval Order, even
the Commission noted that, ``In particular, a market participant
would only be able to determine the direction of the imbalance and
would have difficulty determining the magnitude of any imbalance, as
it would only know the unexecuted size of its own order. In
addition, the information would only be with regard to the pool of
liquidity on BZX and would provide no insight into imbalances on the
primary listing exchange, competing auctions, ATSs, or other off-
exchange matching services which, as described above, can represent
a significant portion of trading volume at the close.'' Supra note
15.
---------------------------------------------------------------------------
Furthermore, as with the current MOC Cut-Off Time, the proposed
extension does not present any information asymmetries that do not
already exist in today's markets, as the very nature of trading creates
short term asymmetries of information to those who are parties to a
trade.\57\ Indeed, as noted by the Commission, any party to a trade
gains valuable insight regarding the depth of the market when an order
is executed or partially executed.\58\ Additionally, NYSE imbalance
information is already disseminated to NYSE floor brokers, who are
permitted to share with their customers specific data from the
imbalance feed.\59\ Even in this case, though, the Commission stated
that the value of such information is limited because the imbalance
information does not represent overall supply and demand for a
security, is subject to change, and is only one relevant piece of
information.\60\ Similarly, because any information gleaned by a CMC
participant is limited only to the unexecuted size of their order, and
relative to the depth of only the BZX pool of liquidity, the Exchange
believes that the proposed extension of the MOC Cut-Off Time does not
create an increased risk of manipulative trading activity.
---------------------------------------------------------------------------
\57\ The Exchange further notes that in its approval order, even
the Commission noted that, ``Further, the Commission believes
information asymmetries as those described by commenters exist today
and are inherent in trading, including with respect to closing
auctions. For example, any party to a trade gains valuable insight
regarding the depth of the market when an order is executed or
partially executed.'' Id.
\58\ Id.
\59\ Id.
\60\ Id.
---------------------------------------------------------------------------
While this proposal would result in the total shares for buy and
sell orders in CMC being disseminated closer in time to the primary
exchanges' cut-off times, this change does not suddenly make the value
of such information more valuable or useful in terms of enhancing
opportunities for gaming and manipulating the official closing price.
The proposed MOC Cut-off Time is one-minute prior to NYSE's cut-off
time of 3:50 p.m., and six-minutes prior to Nasdaq's cut-off time of
3:55 p.m. As noted above, today's markets are marked by technological
solutions which typically operate in durations of microseconds. In this
context, the separation between the CMC MOC Cut-Off Time and that of
NYSE's and Nasdaq's is a substantial duration of time, during which
much can change in the marketplace, thus limiting the value of
information, if any, that can be gleaned from CMC's dissemination of
matched shares at 3:49 p.m. Moreover, there are currently controls and
processes in place to monitor for manipulative trading activity, such
as the supervisory responsibilities and capabilities of exchanges and
the expansive cross market surveillance conducted by FINRA. Following
approval of this proposal, the Exchange, FINRA and others will continue
to surveil for potential manipulative activity and when appropriate,
bring enforcement actions against market participants engaged in
manipulative trading activity.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. Rather, the proposed rule
change seeks merely to extend the MOC Cut-Off Time from 3:35 p.m. to
3:49 p.m., enabling all Members to manage their trading for a longer
period. The Exchange is not proposing to make any other changes to the
CMC process. Moreover, CMC is a voluntary closing match process, and
Members are not required to participate in the CMC. Additionally, the
proposed rule change applies to equally to all Members. Importantly,
based on feedback from CMC users, the proposed MOC Cut-Off Time will
not prevent CMC's current user's from participating in CMC, as CMC's
current users are technologically equipped to manage a 3:49 p.m. MOC
Cut-Off Time, and should they choose to do so, reroute MOC orders not
matched in CMC to the primary exchanges' closing auctions.
Furthermore, the Exchange does not believe that the proposed rule
change will impose any burden on intramarket competition that is not
necessary or appropriate in furtherance of the purposes of the Act. As
noted above, the proposed rule change more closely aligns the CMC MOC
Cut-Off Time to the cut-off times of other exchanges, while still
providing CMC participants with an opportunity to reroute any of their
unpaired MOC orders to the primary exchanges. In this regard, the
proposed rule change may make CMC a more viable alternative to the
primary auctions and should therefore promote competition amongst the
exchanges. Additionally, the proposed MOC Cut-Off Time may also enable
the Exchange to more effectively compete with off-exchange venues that
have cut-off times much closer in time to the market close and comprise
a growing percentage of closing volume.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received comments on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
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 Exchange consents, the Commission will:
A. by order approve or disapprove such 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-CboeBZX-2022-038 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.
[[Page 52099]]
All submissions should refer to File Number SR-CboeBZX-2022-038. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549 on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-CboeBZX-2022-038 and should be submitted
on or before September 14, 2022.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\61\
---------------------------------------------------------------------------
\61\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2022-18097 Filed 8-23-22; 8:45 am]
BILLING CODE 8011-01-P
