Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Rule 21.17 Concerning Drill-Through Protection and Fat Finger Check, 62125-62129 [2022-22178]

Agencies

• SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 87, Number 197 (Thursday, October 13, 2022)]
[Notices]
[Pages 62125-62129]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-22178]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-95995; File No. SR-CboeEDGX-2022-044]


Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice 
of Filing and Immediate Effectiveness of a Proposed Rule Change To 
Amend Rule 21.17 Concerning Drill-Through Protection and Fat Finger 
Check

October 6, 2022.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on October 4, 2022, Cboe EDGX Exchange, Inc.

[[Page 62126]]

(``Exchange'' or ````EDGX'''') filed with the Securities and Exchange 
Commission (``Commission'') the proposed rule change as described in 
Items I, II, and III below, which Items have been prepared by the 
Exchange. The Commission is publishing this notice to solicit comments 
on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Cboe EDGX Exchange, Inc. (the ``Exchange'' or ``EDGX Options'') 
proposes to amend Rule 21.17. The text of the proposed rule change is 
provided in Exhibit 5.
    The text of the proposed rule change is also available on the 
Exchange's website (https://markets.cboe.com/us/options/regulation/rule_filings/edgx/), at the Exchange's Office of the Secretary, and at 
the Commission's Public Reference Room.

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

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

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

1. Purpose
    The Exchange proposes to amend Rule 21.17. Specifically, the 
Exchange proposes to amend its drill-through protection mechanism and 
limit order fat finger check for both simple and complex orders.
    The Exchange proposes to amend Rule 21.17(a)(4) and (b)(6) to 
update the drill-through protection mechanism for simple and complex 
orders, respectively, to provide orders with additional execution 
opportunities. Pursuant to the current simple drill-through protection, 
if a buy (sell) order enters the Book at the conclusion of the opening 
auction process or would execute or post to the Book at the time of 
order entry, the System executes the order up to a buffer amount (the 
Exchange determines the buffer amount on a class and premium basis) 
above (below) the offer (bid) limit of the opening collar \3\ or the 
national best bid (``NBO'') (national best offer (``NBB'')) that 
existed at the time of order entry, respectively (the ``drill-through 
price'').\4\ The System enters an order (or unexecuted portion) not 
executed pursuant to the provision in the immediately preceding 
sentence in the Book with a displayed equal to the drill-through 
price.\5\ The order (or unexecuted portion) rests in the Book at the 
drill-through price \6\ until the earlier to occur of its full 
execution and the end of the duration of a number of consecutive time 
periods (the Exchange determines on a class-by-class basis the number 
of periods, which may not exceed five, and the length of the time 
period in milliseconds, which may not exceed three seconds).\7\
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    \3\ See Rule 21.7(a) for the definition of Opening Collars.
    \4\ See Rule 21.17(a)(4)(A).
    \5\ See Rule 21.17(a)(4)(B).
    \6\ The proposed rule change adds ``at the drill-through price'' 
in the first sentence of subparagraph (a)(1)(B)(i), [sic] which is a 
nonsubstantive change, as it reflects current functionality and is 
stated in the introductory paragraph to Rule 21.17(a)(1)(B). [sic] 
The proposed rule change merely includes this detail in the next 
portion of the rule for additional clarity.
    \7\ See Rule 21.17(a)(4)(B)(i).
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    The proposed rule change amends Rule 21.17(a)(4)(B)(i) to eliminate 
the concept that there will be a maximum number of time periods and 
proposes that the order (or unexecuted portion) will rest in the Book 
at the drill-through price for the duration of consecutive time 
periods.\8\ The proposed rule change makes conforming changes to 
subparagraph (ii) by deleting references to ``the final period'' and 
subparagraph (iv) by deleting the reference to ``any remaining time 
period(s),'' as there will no longer be an Exchange-determined limited 
number of time periods. Currently, as set forth in current subparagraph 
(i), the drill-through mechanism will continue until the earlier to 
occur of the order's full execution and the end of the duration of the 
Exchange-determined number of time periods. The Exchange proposes to 
amend subparagraph (iv) to describe when the drill-through process will 
conclude. Specifically, proposed Rule 21.17(a)(4)(B)(iv) provides that 
the order continues through the process described in subparagraph (ii) 
(as proposed to be amended) until the earliest of the following to 
occur: (a) the order fully executes; (b) the User cancels the order; 
and (c) the order's limit price equals or is less than (if a buy order) 
or greater than (if a sell order) the drill-through price at any time 
during application of the drill-through mechanism, in which case the 
order rests in the Book at its limit price, subject to a User's 
instructions. In other words, the order will continue through 
consecutive time periods until it fully executes (unless it is 
cancelled by the User or reaches its limit price prior to full 
execution), compared to today when the order will continue through 
consecutive time periods until it fully executes or reaches the 
Exchange-determined final time period, at which time the order would be 
cancelled (unless it reaches its limit price prior to full execution). 
The Exchange believes eliminating the limit on the number of time 
periods may increase execution opportunities for limit orders, which 
will still continue to be bound by their limit prices and protected by 
the limit order fat finger check.\9\
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    \8\ The Exchange will continue to determine on a class-by-class 
basis the length of the time periods in milliseconds, which may 
continue to not exceed three seconds.
    \9\ If a limit price is ``too far away'' from the market, the 
order will continue to be subject to the limit order fat finger 
protection set forth in Rule 21.17(c)(1) and thus will still be 
subject to protection against a potentially erroneous execution due 
to an order pricing error upon submission.
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    The proposed rule change makes a similar change to the drill-
through protection mechanism for complex orders. Specifically, the 
proposed rule change eliminates the concept that, for complex orders 
for which the user does not establish a buffer amount (and instead the 
Exchange-determined default buffer amount applies),\10\ there will be a 
maximum number of time periods and proposes that the complex order (or 
unexecuted portion) will rest in the Book at the drill-through price 
for the duration of consecutive time periods.\11\ Currently, similar to 
the drill-through protection mechanism for simple orders (as described 
above), if a user enters a buy (sell) complex order into the System 
(and does not enter its own buffer amount), the System executes the 
order \12\ up to a buffer amount above (below) the Synthetic National 
Best Offer (``SNBO'') (Synthetic National Best Bid (``SNBB'')) that 
existed at the time of entry (the ``drill-through price'') or initiates 
a complex order auction (``COA'') at the drill-through price if the 
order would initiate

[[Page 62127]]

a COA.\13\ For complex orders for which the user did not establish a 
buffer amount, the complex order (or unexecuted portion) rests in the 
COB with a displayed price equal to the drill-through price until the 
earlier to occur of the complex order's full execution and the end of 
the duration of a number of time periods (the Exchange determines on a 
class-by-class basis the number of periods, which may not exceed five, 
and the length of the time period in milliseconds, which may not exceed 
three seconds). Following the end of each period prior to the final 
period, the System adds (if a buy order) or subtracts (if a sell order) 
one buffer amount to the drill-through price displayed during the 
immediately preceding period (each new price becomes the ``drill-
through price''). The complex order (or unexecuted portion) rests in 
the COB at that new drill-through price during the subsequent period. 
Following the end of the final period, the System cancels, the complex 
order (or unexecuted portion) not executed during any time period.\14\
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    \10\ See Rule 21.17(b)(6)(A).
    \11\ See proposed Rule 21.17(b)(6)(B). The proposed rule change 
has no impact on how the drill-through protection mechanism applies 
to a complex order for which the inputting user establishes a buffer 
amount, as in that situation, there is only a single time period 
pursuant to the current rule (which will continue to be the case).
    \12\ Executions occur pursuant to Rule 21.20(e).
    \13\ Unlike the simple order drill-through protection mechanism, 
the complex order drill-through protection mechanism permits users 
to establish a buffer amount different than the Exchange-determined 
default buffer amount. See Rule 21.17(b)(6)(A). A description of 
COAs is located in Rule 21.20(d).
    \14\ See current Rule 21.17(b)(6)(B)(i) and (ii). As set forth 
in current subparagraph (iv), if the complex order's limit price is 
reached during the application of the drill-through mechanism, the 
order will rest in the COB at its limit price.
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    The proposed rule change amends Rule 21.17(b)(6)(B)(i) and (ii) to 
eliminate the concept that there will be a maximum number of time 
periods and proposes that the order (or unexecuted portion) will rest 
in the COB at the drill-through price for the duration of consecutive 
time periods when a User does not establish its own buffer amount.\15\ 
The proposed rule change makes conforming changes to current 
subparagraphs (i), (ii), and (iv) (proposed subparagraphs (ii) and 
(iii)) by deleting references to ``the final period'' and deleting the 
reference to ``any remaining time period(s),'' as there will no longer 
be an Exchange-determined limited number of time periods. Currently, as 
set forth in current subparagraphs (i), (ii), and (iv), if the 
inputting User does not establish a buffer amount for the complex 
order, the drill-through mechanism will continue until the earlier to 
occur of the order's full execution and the end of the duration of the 
Exchange-determined number of time periods (unless it reaches its limit 
price prior to full execution), at which time the order would be 
cancelled. The Exchange proposes to add to the end of proposed 
subparagraph (ii) when the drill-through process will conclude and what 
happens at that time for complex orders for which the user did not 
establish a buffer amount. Specifically, proposed Rule 
21.17(b)(6)(B)(ii) provides that the complex order continues through 
the process described in proposed subparagraph (ii) until the earliest 
of the following to occur: (a) the complex order fully executes; (b) 
the User cancels the order; and (c) the complex order's limit price 
equals or is less than (if a buy order) or greater than (if a sell 
order) the drill-through price at any time during application of the 
drill-through mechanism, in which case the complex order rests in the 
COB at its limit price, subject to a User's instructions.\16\ In other 
words, a complex order for which the User did not establish a buffer 
amount will continue through consecutive time periods until it fully 
executes (or is cancelled or reaches its limit price), compared to 
today when the complex order will continue through consecutive time 
periods until it fully executes or reaches the Exchange-determined 
final time period, at which time the order would be cancelled (unless 
it reaches its limit price, as described in current subparagraph (iv)). 
The Exchange believes eliminating the limit on the number of time 
periods may increase execution opportunities for limit orders, which 
will still continue to be bound by their limit prices and protected by 
the limit order fat finger check.\17\
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    \15\ The Exchange will continue to determine on a class-by-class 
basis the length of the time periods in milliseconds, which may 
continue to not exceed three seconds.
    \16\ Proposed clause (c) is applicable today and located in 
current subparagraph (iv). As described below, the proposed rule 
change merely moves this provision from current subparagraph (iv) to 
proposed subparagraph (ii).
    \17\ If a limit price is ``too far away'' from the market, the 
order will continue to be subject to the limit order fat finger 
protection set forth in Rule 21.17(a)(2) and (b)(7) and thus will 
still be subject to protection against a potentially erroneous 
execution due to an order pricing error upon submission.
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    The proposed rule change also makes certain nonsubstantive changes 
to Rule 21.17(b)(6). Specifically, the proposed rule change moves all 
provisions specific to the application of the drill-through mechanism 
if the user establishes a buffer amount into Rule 21.17(b)(6)(B)(i) and 
moves all provisions specific to the application of the drill-through 
mechanism if the user does not establish a buffer amount into Rule 
21.17(b)(6)(B)(ii). This includes incorporating into each of proposed 
subparagraphs (i) and (ii) how the System handles a complex order if 
its limit price equals or less than (if a buy order) or greater than 
(if a sell order) the drill-through price, as described in current 
subparagraph (iv). As a result, the proposed rule change deletes 
current subparagraph (iv). Additionally, the proposed rule change moves 
certain language regarding what happens if the SBBO changes during any 
period, which applies to all complex orders subject to the drill-
through protection mechanism, regardless of whether the user input its 
own buffer amount, to proposed subparagraph (iii) from current 
subparagraph (ii) and correspondingly changes current subparagraph 
(iii) to proposed subparagraph (iv). The proposed rule change makes a 
nonsubstantive change to the beginning of proposed subparagraph (iii) 
by changing ``However'' to ``Notwithstanding the above,'' as the 
Exchange believes that phrase is more appropriate.
    In addition, the Exchange proposes to amend Rule 21.17(a)(2) and 
(b)(7) to add Limit-on-Close orders \18\ to the list of orders to which 
the limit order fat finger check (for simple and complex orders, 
respectively) does not apply. Pursuant to the limit order fat finger 
check, if a User submits a buy (sell) limit order to the System with a 
price that is more than a buffer amount \19\ above (below) the NBO 
(NBB) for simple orders or the SNBO (SNBB) for complex orders, the 
System cancels or rejects the order.\20\ Currently, the simple limit 
order fat finger check does not apply to bulk messages.\21\ The 
Exchange proposes to also not apply the limit order fat finger check to 
Limit-on-Close orders (simple and complex). The limit order fat finger 
check applies to orders upon entry to the System. However, the limit 
price of a Limit-on-Close order is intended to relate to the price at 
the market close, and thus may intentionally be further away from the 
NBBO or SNBBO, as applicable, at the time the order is entered. This 
may cause the order to be inadvertently rejected pursuant to this 
check. The Exchange believes it is not

[[Page 62128]]

appropriate for this limit order to be subject to the fat finger check, 
as the check may inadvertently cause rejections for orders with limit 
prices that are intentionally ``far away'' from the market at the time 
of order entry.
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    \18\ A ``Limit-on-Close'' or ``LOC'' order is, for an order so 
designated, a limit order that may not execute on the Exchange until 
three minutes prior to market close. At that time, the System enters 
LOC orders into the Book in time sequence (based on the times at 
which the System initially received them), where they may be 
processed in accordance with Rule 21.8. The System cancels an LOC 
order (or unexecuted portion) that does not execute by the market 
close. Users may not designate bulk messages as LOC. See Rule 
21.1(f)(7) (definition of ``Limit-on-Close'' and ``LOC'' order).
    \19\ The Exchange determines a default buffer amount on a class-
by-class basis; however, for complex orders, a User may establish a 
higher or lower amount than the Exchange default for a class.
    \20\ Rule 21.17(a)(2).
    \21\ Id.
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2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Securities Exchange Act of 1934 (the ``Act'') and the rules and 
regulations thereunder applicable to the Exchange and, in particular, 
the requirements of Section 6(b) of the Act.\22\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \23\ 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) \24\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \22\ 15 U.S.C. 78f(b).
    \23\ 15 U.S.C. 78f(b)(5).
    \24\ Id.
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    In particular, the Exchange believes the proposed rule change to 
eliminate the maximum number of time periods for which a simple or 
complex order will rest in the Book or COB, respectively, during 
application of the drill-through protection mechanism will remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system, and, in general, protect investors, because 
it will provide simple and complex orders with additional execution 
opportunities. These orders may continue to be available on the Book or 
COB, as applicable, for execution, at a wider range of prices, as 
opposed to today when such orders are cancelled after a specified 
number of time periods (depending on the User's instructions and if the 
order does not reach its limit price prior to the end of those time 
periods). The Exchange believes these additional execution 
opportunities will benefit investors that submit such orders and 
believes such orders will continue to receive protection against 
potentially erroneous executions, as the limit order fat finger check 
will continue to apply to them.
    The Exchange believes the proposed nonsubstantive rule changes to 
the complex order drill-through protection mechanism will protect 
investors and the public interest, because these changes improve the 
organization of this rule's provisions by grouping all provisions that 
apply when a User establishes its own buffer and all provisions that 
apply when a User does not establish its own buffer, eliminating 
potential confusion.
    Finally, the Exchange believes excluding Limit-on-Close orders from 
the limit order fat finger check will remove impediments to and perfect 
the mechanism of a free and open market and a national market system, 
and, in general, protect investors, because it may reduce inadvertent 
rejections of Limit-on-Close orders, which may be purposely priced 
further away from the NBBO or SNBBO, as applicable, at the time of 
entry, as their limit prices are intended to relate to price at the 
market close. Therefore, this proposed rule change may increase 
execution opportunities for Users that submit Limit-on-Close orders.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The Exchange does not 
believe 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, because the amended drill-
through protection mechanism (for both simple and complex orders) and 
limit order fat finger check will continue to apply in the same manner 
to orders of all Users and may lead to increased execution 
opportunities. The Exchange does not believe that the proposed rule 
change will impose any burden on intermarket competition that is not 
necessary or appropriate in furtherance of purposes of the Act, because 
the proposed rule change relates solely to Exchange risk controls and 
how the Exchange handles orders subject to those risk controls.

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

    The Exchange neither solicited nor received comments on the 
proposed rule change.

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

    Because the foregoing proposed rule change does not:
    A. significantly affect the protection of investors or the public 
interest;
    B. impose any significant burden on competition; and
    C. become operative for 30 days from the date on which it was 
filed, or such shorter time as the Commission may designate, it has 
become effective pursuant to Section 19(b)(3)(A) of the Act \25\ and 
Rule 19b-4(f)(6) \26\ thereunder. At any time within 60 days of the 
filing of the proposed rule change, the Commission summarily may 
temporarily suspend such rule change if it appears to the Commission 
that such action is necessary or appropriate in the public interest, 
for the protection of investors, or otherwise in furtherance of the 
purposes of the Act. If the Commission takes such action, the 
Commission will institute proceedings to determine whether the proposed 
rule change should be approved or disapproved.
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    \25\ 15 U.S.C. 78s(b)(3)(A).
    \26\ 17 CFR 240.19b-4(f)(6).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-CboeEDGX-2022-044 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-CboeEDGX-2022-044. 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

[[Page 62129]]

change that are filed with the Commission, and all written 
communications relating to the proposed rule change between the 
Commission and any person, other than those that may be withheld from 
the public in accordance with the provisions of 5 U.S.C. 552, will be 
available for website viewing and printing in the Commission's Public 
Reference Room, 100 F Street NE, Washington, DC 20549 on official 
business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of 
the filing also will be available for inspection and copying at the 
principal office of the Exchange. All comments received will be posted 
without change. Persons submitting comments are cautioned that we do 
not redact or edit personal identifying information from comment 
submissions. You should submit only information that you wish to make 
available publicly. All submissions should refer to File Number SR-
CboeEDGX-2022-044 and should be submitted on or before November 3, 
2022.
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    \27\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\27\
J. Lynn Taylor,
Assistant Secretary.
[FR Doc. 2022-22178 Filed 10-12-22; 8:45 am]
BILLING CODE 8011-01-P