Self-Regulatory Organizations; Cboe EDGA Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Rule 11.10(d) To Permit Affiliated Users To Enable EdgeRisk Self Trade Prevention, 68784-68788 [2022-24894]
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Federal Register / Vol. 87, No. 220 / Wednesday, November 16, 2022 / Notices
III. Discussion and Commission
Findings
After careful review of the proposal
and the comment letters, the
Commission finds that the proposed
rule change is consistent with the
requirements of the Act and the rules
and regulations thereunder applicable to
a national securities association.15 In
particular, the Commission finds that
the proposed rule change is consistent
with Section 15A(b)(6) of the Act,16
which requires, among other things, that
the rules of a national securities
association be designed to prevent
fraudulent and manipulative acts and
practices, to promote just and equitable
principles of trade, and, in general, to
protect investors and the public interest.
The Commission believes that the
proposed rule change is reasonably
designed to reduce a number of risks
associated with syndicate debt
issuances, including counterparty and
liquidity risk. Specifically, it would
reduce the exposure of syndicate
members to the potential deterioration
of the credit of syndicate managers
during the pendency of account
settlement. Further, a shorter syndicate
settlement timeframe would result in
lower liquidity risk for certain syndicate
members by providing syndicate
members with earlier access to capital
and improve the syndicate member’s
liquidity position where their own net
capital is limited. Additionally, because
the proposed rule change is expected to
benefit smaller firms, especially those
that are capital-constrained, the
Commission believes that the proposed
rule change is reasonably designed to
have positive effects on competition and
thereby to remove impediments to, and
perfect the mechanism of a free and
open market. Alleviation of liquidity
constraints would create opportunities
for the syndicate members, especially
those that are capital-constrained, to
participate in more new offerings and
enhance their ability to compete with
other firms, maintain business
operations, or use the funds for other
purposes. This may reduce barriers to
entering the corporate debt
underwriting market and could
ultimately result in an increase in the
supply of underwriters and lower costs
for corporate debt issuers and investors.
At the same time, the Commission
believes that the proposed rule change
is reasonably designed not to impact
negatively the ability of syndicate
15 In approving this proposal, the Commission has
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f); infra Section III.
16 15 U.S.C. 78o–3(b)(6).
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managers to run the syndicate
settlement account process or unduly
burden syndicate managers, given the
technological advances that have been
made since the 90-day syndicate
account settlement timeframe was
adopted in 1987, such as electronic
order entry and accounting systems.17
Specifically, FINRA stated that in more
than 95% of offerings from 2016 to
2018, the debt security is priced,
allocated to investors, and starts trading
in the secondary market all within the
same day, meaning a large part of
syndicate income can be accounted for
within days after the date of issuance.18
Commenters supported approval of
the proposed rule change 19 and some
commenters encouraged the
Commission to act quickly to approve it
so that FINRA can meet its proposed
January 1, 2023 effective date.
For the reasons noted above, the
Commission finds that the proposed
rule change is consistent with the Act.
IV. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,20 that the
proposed rule change (SR–FINRA–
2022–025) be, and hereby is, approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.21
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022–24887 Filed 11–15–22; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–96291; File No. SR–
CboeEDGA–2022–017]
Self-Regulatory Organizations; Cboe
EDGA Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of a
Proposed Rule Change To Amend Rule
11.10(d) To Permit Affiliated Users To
Enable EdgeRisk Self Trade Prevention
November 9, 2022.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
17 See
Notice, 87 FR at 50900.
id. at 50898.
19 See Letter from Michael Decker, Senior Vice
President for Public Policy, Bond Dealers of
America, to Secretary, Commission, dated
September 8, 2022; Letter from Joseph Corcoran,
Managing Director, Associate General Counsel,
SIFMA, to Vanessa Countryman, Secretary,
Commission, dated September 8, 2022; Letter from
Anonymous, dated October 12, 2022.
20 15 U.S.C. 78s(b)(2).
21 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
18 See
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notice is hereby given that on October
27, 2022, Cboe EDGA Exchange, Inc.
(the ‘‘Exchange’’ or ‘‘EDGA’’) filed with
the Securities and Exchange
Commission (the ‘‘Commission’’) the
proposed rule change as described in
Items I and II below, which Items have
been prepared by the Exchange. The
Exchange filed the proposal as a ‘‘noncontroversial’’ proposed rule change
pursuant to Section 19(b)(3)(A)(iii) of
the Act 3 and Rule 19b–4(f)(6)
thereunder.4 The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Cboe EDGA Exchange, Inc. (the
‘‘Exchange’’ or ‘‘EDGA’’) proposes to
amend Exchange Rule 11.10(d)
(‘‘EdgeRisk Self Trade Prevention
(‘‘ERSTP’’) Modifiers’’) to permit
affiliated Users to enable Self Trade
Prevention at the parent company level.
The text of the proposed rule change is
provided in Exhibit 5.
The text of the proposed rule change
is also available on the Exchange’s
website (https://markets.cboe.com/us/
equities/regulation/rule_filings/edga/),
at the Exchange’s Office of the
Secretary, and at the Commission’s
Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend
Rule 11.10(d) (‘‘EdgeRisk Self Trade
Prevention (‘‘ERSTP’’) Modifiers’’) to
add the term ‘‘affiliate identifier’’ to the
definition of ‘‘Unique Identifier’’ while
also adding a description of eligibility to
utilize the proposed affiliate identifier.
3 15
4 17
U.S.C. 78s(b)(3)(A)(iii).
CFR 240.19b–4(f)(6).
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Adding an affiliate identifier for ERSTP
functionality on the Exchange would
allow affiliated Users 5 to enable ERSTP
at the affiliate level, in addition to the
current ERSTP functionality based on
market participant identifier (‘‘MPID’’),
Exchange Member identifier, or ERSTP
Group identifier (any such existing
identifier, a ‘‘Unique Identifier’’).6
Currently, the Exchange’s ERSTP
functionality prevents certain contra
side orders entered by a User from
executing, provided that each order has
been marked with the same Unique
Identifier.7 ERSTP functionality is
currently available only to individual
Users on the Exchange, and cannot be
enabled by affiliated Users who each
maintain individual Exchange
memberships or Sponsored Participant
relationships.
As noted above, there are currently
three Unique Identifiers that a User may
choose from when submitting an order
subject to ERSTP: (i) MPID; 8 (ii)
Exchange Member identifier; and (iii)
ERSTP Group identifier.9 Use of ERSTP
functionality is optional and is not
automatically implemented by the
Exchange. Both the buy and the sell
order must include the same Unique
Identifier in order to prevent an
execution from occurring and to effect a
cancel instruction. For example, a User
who enables ERSTP functionality using
the MPID Unique Identifier will prevent
contra side executions between the
same MPID from occurring. A User who
5 See Exchange Rule 1.5(ee). ‘‘User’’ is defined as
‘‘[a]ny Member or Sponsored Participant who is
authorized to obtain access to the System pursuant
to Rule 11.3.’’ The ‘‘System’’ is ‘‘[t]he electronic
communications and trading facility designated by
the Board through which securities orders of Users
are consolidated for ranking, execution and, when
applicable, routing away.’’ See Exchange Rule
1.5(cc). The term ‘‘Member’’ means any registered
broker or dealer that has been admitted to
membership in the Exchange. See Exchange Rule
1.5(n).
6 See Exchange Rule 11.10(d).
7 Id.
8 An MPID is a four-character unique identifier
that is approved by the Exchange and assigned to
a Member for use on the Exchange to identify the
Member firm on the orders sent to the Exchange
and resulting executions.
9 See Securities Exchange Act Release No. 63427
(December 3, 2010), 75 FR 76768 (December 9,
2010) SR–EDGA–2010–19 (‘‘Notice of Filing and
Immediate Effectiveness of Proposed Rule Change
To Amend EDGA Rule 11.9 To Offer AntiInternalization Qualifier (‘‘AIQ’’) Functionality to
Exchange Users’’). See also Securities Exchange Act
Release No. 73592 (November 13, 2014), 79 FR
68937 (November 19, 2014) SR–EDGA–2014–20
(‘‘Notice of Filing of Amendment Nos. 1 and 2 and
Order Granting Accelerated Approval of a Proposed
Rule Change, as Modified by Amendment Nos. 1
and 2, To Amend EDGA Rule 1.5 and Chapter XI
Regarding Current System Functionality Including
the Operation of Order Types and Order
Instructions’’), in which AIQ functionality was
renamed ERSTP.
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enables ERSTP using the Exchange
Member Unique Identifier would
prevent contra side executions between
any MPID associated with that User and
not just a single MPID. The ERSTP
Group Unique Identifier permits Users
to prevent matched trades amongst
traders or desks within a certain firm,
but allows orders from outside such
group or desk to interact with other firm
orders. The Exchange is not proposing
any change in functionality for the
current Unique Identifiers described
above.
The Exchange now proposes to amend
Rule 11.10(d) and enhance its existing
ERSTP functionality by introducing a
fourth Unique Identifier, affiliate
identifier, which will allow a User to
prevent its orders from matching with
another User that is an affiliate of the
User. In addition to the proposed
addition of the affiliate identifier, the
Exchange also proposes to add language
to Rule 11.9(f) in order to provide clarity
to Users about how eligibility for the use
of the affiliate identifier will be
determined.10 The proposed addition of
the affiliate identifier does not present
any new or novel ERSTP functionality,
but rather would extend existing ERSTP
functionality to a User who
demonstrates an affiliate relationship
with another User who maintains a
separate membership or Sponsored
Participant relationship on the
Exchange. Generally speaking, an
affiliated entity is an organization that
directly or indirectly controls another
entity, or is directly controlled by
another entity, or which is under
common control alongside another
entity. The concept of affiliation is
formally recognized in securities law,
particularly Rule 405 of the Securities
Act of 1933.11 As applied to the
Exchange, there are situations where
two separate entities (i.e., Users)
maintain individual memberships or
Sponsored Participant relationships on
the Exchange even as Firm A owns a
controlling percentage of Firm B (i.e.,
Firm A and Firm B are affiliated
entities). The proposed functionality
would serve as an additional tool that
Users may enable in order to assist with
compliance with the various securities
laws relating to potentially
manipulative trading activity such as
10 Infra
note 14.
17 CFR 230.405. An affiliate of, or person
affiliated with, a specified person, is a person that
directly, or indirectly through one or more
intermediaries, controls or is controlled by, or is
under common control with, the person specified.
11 See
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68785
wash sales 12 and self-trades.13
Additionally, the proposed functionality
would provide Users an additional
solution to manage order flow by
preventing undesirable executions
against the User’s affiliates. As is the
case with the existing risk tools, Users,
and not the Exchange, have full
responsibility for ensuring that their
orders comply with applicable
securities rules, laws, and regulations.
Furthermore, as is the case with the
existing risk settings, the Exchange does
not believe that the use of the proposed
ERSTP functionality can replace Usermanaged risk management solutions.
The Exchange is proposing to allow
affiliated Users that maintain individual
Exchange memberships to utilize ERSTP
where one User is an affiliate of another
User.14 Specifically, the Exchange is
proposing to allow affiliated Users to
use ERSTP functionality in order to
prevent executions from occurring
between those individual Users. When a
User requests ERSTP at the affiliate
level and an affiliate relationship is
confirmed by the Exchange, the
Exchange will assign an identical
affiliate identifier to each User that will
be used to prevent executions between
contra side orders entered by the Users
using the same affiliate identifier. The
purpose of this proposed change is to
extend ERSTP functionality to affiliated
Users in order to prevent transactions
between Users who maintain individual
memberships on the Exchange but
where an affiliate relationship exists for
which ERSTP functionality may be
useful.
To demonstrate how ERSTP will
operate with the proposed affiliate
identifier, the Exchange has included
examples of potential scenarios in
which ERSTP may be used by affiliated
Users. For all examples below, Firm A
and Firm B are presumed to have a
controlling affiliate relationship and
12 A ‘‘wash sale’’ is generally defined as a trade
involving no change in beneficial ownership that is
intended to produce the false appearance of trading
and is strictly prohibited under both the federal
securities laws and FINRA rules. See, e.g., 15 U.S.C
78i(a)(1); FINRA Rule 6140(b) (‘‘Other Trading
Practices’’).
13 Self-trades are ‘‘transactions in a security
resulting from the unintentional interaction of
orders originating from the same firm that involve
no change in beneficial ownership of the security.’’
FINRA requires members to have policies and
procedures in place that are reasonably designed to
review trading activity for, and prevent, a pattern
or practice of self-trades resulting from orders
originating from a single algorithm or trading desk,
or related algorithms or trading desks. See FINRA
Rule 5210, Supplementary Material .02.
14 The Exchange will consider a User to be an
affiliate of another User if: (i) Greater than 50%
ownership is identified in a User’s Form BD; and
(ii) the Users execute an affidavit stating that a
control relationship exists between the two Users.
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will use an affiliate identifier of ‘‘A’’
when requesting ERSTP at the affiliate
level. Firm C is unaffiliated with Firms
A and B and uses an affiliate identifier
of ‘‘C’’.
Affiliate Level ERSTP
Scenario 1: Firm A submits a buy
order. Firm B submits a sell order. Firm
C also submits a sell order. Firm A has
enabled ERSTP at the affiliate level
using an affiliate identifier of A. Firm B
has enabled ERSTP at the affiliate level
using an affiliate identifier of A. Firm C
has not enabled ERSTP. Firm A’s buy
order is prevented from executing with
Firm B’s sell order as each firm has
enabled ERSTP at the affiliate level
using an affiliate identifier of A. Firm
A’s buy order will be permitted to
execute with Firm C’s sell order because
Firm C has not enabled ERSTP.
Scenario 2: Firm A submits a buy
order. Firm B submits a sell order. Firm
C also submits a sell order. Firm A has
enabled ERSTP at the affiliate level
using an affiliate identifier of A. Firm B
has not enabled ERSTP. Firm C has
enabled ERSTP at the affiliate level
using an affiliate identifier of C. Firm
A’s order will be eligible to trade with
both Firm B and Firm C. Firm A’s order
is eligible to trade with Firm B because
Firm B did not enable ERSTP. In order
for ERSTP to prevent the matching of
contra side orders, both the buy and sell
order must contain an ERSTP modifier.
Firm A’s order is also eligible to trade
with Firm C because even though Firm
A and Firm C have both enabled ERSTP
at the affiliate level, Firm A and Firm C
have been assigned different affiliate
identifiers.
Scenario 3: Firm A submits a buy
order and a sell order. Firm B submits
a buy order. Firm A has enabled ERSTP
at the affiliate level using an affiliate
identifier of A. Firm B has enabled
ERSTP at the affiliate level using an
affiliate identifier of A. Firm A’s buy
order is not eligible to execute with
Firm A’s sell order because Firm A has
enabled ERSTP at the affiliate level
using an affiliate identifier of A. Firm
A’s sell order is not eligible to execute
with Firm B’s buy order because both
Firm A and Firm B have enabled ERSTP
at the affiliate level using an affiliate
identifier of A.
Scenario 4: Firm A submits a buy
order and a sell order. Firm B submits
a sell order. Firm C submits a sell order.
Firm A has enabled ERSTP at the
affiliate level using an affiliate identifier
of A. Firm B has enabled ERSTP at the
affiliate level using an affiliate identifier
of A. Firm C has enabled ERSTP at the
affiliate level using an affiliate identifier
of C. Firm A’s buy order is not eligible
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to execute with Firm A’s sell order
because Firm A has enabled ERSTP at
the affiliate level using an affiliate
identifier of A. Firm A’s buy order is not
eligible to execute with Firm B’s sell
order because both Firm A and Firm B
have enabled ERSTP at the affiliate level
using an affiliate identifier of A. Firm
A’s buy order is eligible to execute with
Firm C’s sell order because while Firm
A and Firm C have enabled ERSTP at
the affiliate level, Firm A and Firm C
have been assigned different affiliate
identifiers.
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.15 Specifically,
the Exchange believes the proposed rule
change is consistent with the Section
6(b)(5) 16 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) 17 requirement that
the rules of an exchange not be designed
to permit unfair discrimination between
customers, issuers, brokers, or dealers.
In particular, the Exchange believes
that the proposed affiliate level ERSTP
functionality promotes just and
equitable principles of trade by allowing
Users to better manage order flow and
prevent undesirable trading activity
such as wash sales’’ 18 or self-trades 19
that may occur as a result of the velocity
of trading in today’s high-speed
marketplace. The proposed affiliate
identifier and description of eligibility
to utilize the proposed affiliate
identifier does not introduce any new or
novel functionality, but rather will
extend the Exchange’s ERSTP
functionality in a manner generally
consistent with the functionality
currently offered at the MPID, Exchange
15 15
16 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
17 Id.
18 Supra
19 Supra
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note 6.
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Member, and ERSTP Group identifier
levels because the proposed Users are
required to have control over the
affiliated User and transactions entered
by the firms may be viewed as
functionally originating from one
User.20 For instance, the Users may
share traders or trading strategies, and
elected to not impose information
barriers between trading desks. In this
regard, Users may desire ERSTP
functionality on an affiliate level that
will help them achieve compliance 21
with regulatory rules regarding wash
sales and self-trades in a very similar
manner to the way that the current
ERSTP functionality applies on the
existing Unique Identifier level. In this
regard, the proposed affiliate level
ERSTP functionality will permit Users
that have separate memberships but
who also maintain an affiliate
relationship, to prevent the execution of
transactions by and between the Users.
The Exchange also believes that the
proposed rule change is fair and
equitable, and is not designed to permit
unfair discrimination. By way of
example, subject to appropriate
information barriers, many firms that
are Users of the Exchange operate both
a principal market making desk, which
is responsible for handling and
executing orders for the benefit of the
User, and an agency trading desk that is
responsible for handling and executing
customer orders. In such instances, the
User may elect to utilize ERSTP to
prevent transactions between their
market maker desk and their agency
trading desk. In contrast, other firms
may be part of a corporate structure that
separates those business lines into
separate, but affiliated, entities either for
business, compliance, or historical
reasons, with each entity maintaining its
own Exchange membership. In
scenarios where one User indirectly or
directly controls the other User (e.g.,
20 The Exchange notes that the proposed rule
filing is similar in in concept to how derivatives
markets sometimes contemplate ownership and
relationship between accounts. Specifically, in the
derivatives markets, rules have developed around of
the idea of ‘‘beneficial ownership’’, and whether
separate accounts have common ownership. For
example, the CME Group (‘‘CME’’), an operator of
global derivatives markets, recognizes that ‘‘buy and
sell orders for different accounts with common
beneficial ownership . . . shall also be deemed to
violate the prohibition on wash trades.’’ See CME
Rule 534. See also https://www.cmegroup.com/
rulebook/files/cme-group-Rule-534.pdf, FAQ Q2,
which describes ‘‘common beneficial ownership’’ as
accounts with common beneficial ownership that is
less than 100%.
21 The Exchange reminds Users that while they
may utilize ERSTP to help develop potential
transactions such as wash sales or self-trades, Users,
not the Exchange, are ultimately responsible for
ensuring that their orders comply with applicable
rules, laws, and regulations.
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voting power, shared traders and
algorithms, shared trading strategies,
shared technology, etc.), it is logical that
the Users, though separate entities, may
determine that transactions between
their firms would potentially run afoul
of certain securities rules, laws, or
regulations, such as wash sales and selftrades. In this regard, absent the
proposed rule change, such affiliated
entities would not receive the same
treatment as firms operating similar
business lines within a single entity that
is a User of the Exchange. Accordingly,
the Exchange believes that its proposed
policy is fair and equitable, and not
unreasonably discriminatory.
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. ERSTP is an
optional functionality offered by the
Exchange and Users are free to decide
whether to use ERSTP in their decisionmaking process when submitting orders
to the Exchange.
The Exchange believes that the
proposed affiliate identifier does not
impose any intramarket competition as
it seeks to enhance an existing
functionality available to all Users. The
Exchange is not proposing to introduce
any new or novel functionality, but
rather is proposing to provide an
extension of its existing ERSTP
functionality to Users who have an
affiliate relationship with another User
of the Exchange. Additionally, the
proposed rule specifies which Users are
eligible to use the proposed affiliate
identifier, which will be available to any
User who satisfies such criteria. ERSTP
will continue to be an optional
functionality offered by the Exchange
and the addition of affiliate level ERSTP
will not change how the current Unique
Identifiers and ERSTP functionality
operate.
The Exchange believes that the
proposed affiliate identifier does not
impose any undue burden on
intermarket competition. ERSTP is an
optional functionality offered by the
Exchange and Users are not required to
use ERSTP functionality when
submitting orders to the Exchange.
Further, the Exchange is not required to
offer ERSTP and is choosing to do so as
a benefit for Users who wish to enable
ERSTP functionality. Moreover, the
proposed change is not being submitted
for competitive reasons, but rather to
provide Users enhanced order
processing functionality that may
prevent undesirable executions by
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affiliated Users such as wash sales or
self-trades.
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
The foregoing rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act 22 and Rule 19b–4(f)(6) 23
thereunder because the proposal does
not: (i) significantly affect the protection
of investors or the public interest; (ii)
impose any significant burden on
competition; and (iii) by its terms,
become operative for 30 days from the
date on which it was filed, or such
shorter time as the Commission may
designate if consistent with the
protection of investors and the public
interest.24
A proposed rule change filed
pursuant to Rule 19b–4(f)(6) under the
Act 25 normally does not become
operative for 30 days after the date of its
filing. However, Rule 19b–4(f)(6)(iii) 26
permits the Commission to designate a
shorter time if such action is consistent
with the protection of investors and the
public interest. The Exchange has asked
the Commission to waive the 30-day
operative delay so that the proposal may
become operative immediately upon
filing. The Exchange states that waiver
of the 30-day operative delay would
permit affiliated Users to immediately
enable ERSTP functionality in order to
better manage order flow and assist with
preventing undesirable executions in
the same manner as individual Users
who currently enable ERSTP at either
the MPID, Exchange Member identifier,
or ERSTP Group identifier levels. The
Commission believes that waiver of the
30-day operative delay is consistent
with the protection of investors and the
public interest because the proposed
rule change does not raise any new or
novel issues. Accordingly, the
Commission hereby waives the
22 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6).
24 In addition, Rule 19b–4(f)(6)(iii) requires the
Exchange to give the Commission written notice of
the Exchange’s intent to file the proposed rule
change, along with a brief description and text of
the proposed rule change, at least five business days
prior to the date of filing of the proposed rule
change, or such shorter time as designated by the
Commission. The Exchange has satisfied this
requirement.
25 17 CFR 240.19b–4(f)(6).
26 17 CFR 240.19b–4(f)(6)(iii).
23 17
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68787
operative delay and designates the
proposal operative upon filing.27
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.28
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
CboeEDGA–2022–017.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–CboeEDGA–2022–017. 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
27 For purposes only of waiving the 30-day
operative delay, the Commission has also
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
28 15 U.S.C. 78s(b)(3)(C).
E:\FR\FM\16NON1.SGM
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68788
Federal Register / Vol. 87, No. 220 / Wednesday, November 16, 2022 / Notices
office of the Exchange. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–CboeEDGA–2022–017, and
should be submitted on or before
December 7, 2022.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.29
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022–24894 Filed 11–15–22; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–96282; File No. SR–
NASDAQ–2022–059]
Self-Regulatory Organizations; The
Nasdaq Stock Market LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Extend the
Expiration Date of the Temporary
Amendments Concerning Video
Conference Hearings
November 9, 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
28, 2022, The Nasdaq Stock Market LLC
(‘‘Nasdaq’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘SEC’’ or ‘‘Commission’’) the proposed
rule change as described in Items and II
below, which Items have been prepared
by the Exchange. The Exchange has
designated the proposed rule change as
constituting a ‘‘non-controversial’’ rule
change under paragraph (f)(6) of Rule
19b–4 under the Act,3 which renders
the proposal effective upon receipt of
this filing by the Commission. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
khammond on DSKJM1Z7X2PROD with NOTICES
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to extend the
expiration date of the temporary
amendments in SR–NASDAQ–2020–076
from October 31, 2022, to January 31,
29 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 17 CFR 240.19b–4(f)(6).
1 15
VerDate Sep<11>2014
17:27 Nov 15, 2022
Jkt 259001
2023.4 The proposed rule change would
not make any changes to the text of the
Exchange rules.
The text of the proposed rule change
is available on the Exchange’s website at
https://listingcenter.nasdaq.com/
rulebook/nasdaq/rules, at the principal
office of the Exchange, and at the
Commission’s Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to continue to
harmonize Exchange Rules 1015, 9261,
9524 and 9830 with recent changes by
the Financial Industry Regulatory
Authority, Inc. (‘‘FINRA’’) to its Rules
1015, 9261, 9524 and 9830 in response
to the COVID–19 global health crisis
and the corresponding need to restrict
in-person activities. The Exchange
originally filed proposed rule change
SR–NASDAQ–2020–076, which allows
the Exchange’s Office of Hearing
Officers (‘‘OHO’’) and the Exchange
Review Council (‘‘ERC’’) to conduct
hearings, on a temporary basis, by video
conference, if warranted by the current
COVID–19-related public health risks
posed by an in-person hearing. In July
2022, the Exchange filed a proposed
rule change, SR–NASDAQ–2022–044, to
extend the expiration date of the
temporary amendments in SRNASDAQ–2020–076 from July 31, 2022,
to October 31, 2022.5 Due to the
continued presence and uncertainty of
4 If the Exchange seeks to provide additional
temporary relief from the rule requirements
identified in this proposed rule change beyond
January 31, 2023, the Exchange will submit a
separate rule filing to further extend the temporary
extension of time. The amended Exchange rules
will revert to their original form at the conclusion
of the temporary relief period and any extension
thereof.
5 See Securities Exchange Act Release No. 95436
(August 5, 2022), 87 FR 49624 (August 11, 2022)
(Notice of Filing and Immediate Effectiveness of
File No. SR–NASDAQ–2022–044).
PO 00000
Frm 00121
Fmt 4703
Sfmt 4703
COVID–19, the Exchange proposes to
extend the expiration date of the
temporary rule amendments in SR–
NASDAQ–2020–076 from October 31,
2022, to January 31, 2023.
On November 5, 2020, the Exchange
filed, and subsequently extended to
October 31, 2022, SR–NASDAQ–2020–
076, to temporarily amend Exchange
Rules 1015, 9261, 9524 and 9830 to
grant OHO and the ERC authority 6 to
conduct hearings in connection with
appeals of Membership Application
Program decisions, disciplinary actions,
eligibility proceedings and temporary
and permanent cease and desist orders
by video conference, if warranted by the
COVID–19-related public health risks
posed by an in-person hearing.7
Although there has been a downward
trend in the number of COVID–19 cases
since July 2022, the Exchange believes
there is a continued need for temporary
relief beyond October 31, 2022. In this
regard, the Exchange notes that COVID–
19 still remains a public health concern.
For example, according to the Centers
for Disease Control and Prevention
(‘‘CDC’’), the 7-day moving average of
new deaths from COVID–19 in the
United States during September 2022
ranged from approximately 300 to 500
deaths per day,8 and approximately 19
percent of counties in the United States
have a medium or high COVID–19
Community Level based on the CDC’s
most recent calculations.9 Much
6 For OHO hearings under Exchange Rules 9261
and 9830, the proposed rule change temporarily
grants authority to the Chief or Deputy Chief
Hearing Officer to order that a hearing be conducted
by video conference. For ERC hearings under
Exchange Rules 1015 and 9524, this temporary
authority is granted to the ERC or relevant
Subcommittee.
7 See Securities Exchange Act Release No. 90390
(November 10, 2020), 85 FR 73302 (November 17,
2020) (Notice of Filing and Immediate Effectiveness
of File No. SR–NASDAQ–2020–076); see also
Securities Exchange Act Release No. 90774
(December 22, 2020), 85 FR 86614 (December 30,
2020) (Notice of Filing and Immediate Effectiveness
of File No. SR–NASDAQ–2020–092); Securities
Exchange Act Release No. 91763 (May 4, 2021), 86
FR 25055 (May 10, 2021) (Notice of Filing and
Immediate Effectiveness of File No. SR–NASDAQ–
2021–033); Securities Exchange Act Release No.
92911 (September 9, 2021), 86 FR 51395 (September
15, 2021) (Notice of Filing and Immediate
Effectiveness of File No. SR–NASDAQ–2021–067);
Securities Exchange Act Release No. 93852
(December 22, 2021), 86 FR 74201 (December 29,
2021) (Notice of Filing and Immediate Effectiveness
of File No. SR–NASDAQ–2021–104); Securities
Exchange Act Release No. 94610 (April 5, 2022), 87
FR 21225 (April 11, 2022) (Notice of Filing and
Immediate Effectiveness of File No. SR–NASDAQ–
2022–028); supra note 5.
8 See CDC, COVID Data Tracker—Trends in
Number of COVID–19 Cases and Deaths in the US
Reported to CDC, by State/Territory, https://
covid.cdc.gov/covid-data-tracker/#trends_
dailydeaths_select_00 (last visited Oct. 24, 2022).
9 See CDC, COVID Data Tracker—COVID–19
Integrated County View, https://covid.cdc.gov/
E:\FR\FM\16NON1.SGM
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]]>Agencies
[Federal Register Volume 87, Number 220 (Wednesday, November 16, 2022)]
[Notices]
[Pages 68784-68788]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-24894]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-96291; File No. SR-CboeEDGA-2022-017]
Self-Regulatory Organizations; Cboe EDGA Exchange, Inc.; Notice
of Filing and Immediate Effectiveness of a Proposed Rule Change To
Amend Rule 11.10(d) To Permit Affiliated Users To Enable EdgeRisk Self
Trade Prevention
November 9, 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 27, 2022, Cboe EDGA Exchange, Inc. (the ``Exchange'' or
``EDGA'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I and II
below, which Items have been prepared by the Exchange. The Exchange
filed the proposal as a ``non-controversial'' proposed rule change
pursuant to Section 19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-
4(f)(6) thereunder.\4\ The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A)(iii).
\4\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Cboe EDGA Exchange, Inc. (the ``Exchange'' or ``EDGA'') proposes to
amend Exchange Rule 11.10(d) (``EdgeRisk Self Trade Prevention
(``ERSTP'') Modifiers'') to permit affiliated Users to enable Self
Trade Prevention at the parent company level. The text of the proposed
rule change is provided in Exhibit 5.
The text of the proposed rule change is also available on the
Exchange's website (https://markets.cboe.com/us/equities/regulation/rule_filings/edga/), at the Exchange's Office of the Secretary, and at
the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend Rule 11.10(d) (``EdgeRisk Self Trade
Prevention (``ERSTP'') Modifiers'') to add the term ``affiliate
identifier'' to the definition of ``Unique Identifier'' while also
adding a description of eligibility to utilize the proposed affiliate
identifier.
[[Page 68785]]
Adding an affiliate identifier for ERSTP functionality on the Exchange
would allow affiliated Users \5\ to enable ERSTP at the affiliate
level, in addition to the current ERSTP functionality based on market
participant identifier (``MPID''), Exchange Member identifier, or ERSTP
Group identifier (any such existing identifier, a ``Unique
Identifier'').\6\ Currently, the Exchange's ERSTP functionality
prevents certain contra side orders entered by a User from executing,
provided that each order has been marked with the same Unique
Identifier.\7\ ERSTP functionality is currently available only to
individual Users on the Exchange, and cannot be enabled by affiliated
Users who each maintain individual Exchange memberships or Sponsored
Participant relationships.
---------------------------------------------------------------------------
\5\ See Exchange Rule 1.5(ee). ``User'' is defined as ``[a]ny
Member or Sponsored Participant who is authorized to obtain access
to the System pursuant to Rule 11.3.'' The ``System'' is ``[t]he
electronic communications and trading facility designated by the
Board through which securities orders of Users are consolidated for
ranking, execution and, when applicable, routing away.'' See
Exchange Rule 1.5(cc). The term ``Member'' means any registered
broker or dealer that has been admitted to membership in the
Exchange. See Exchange Rule 1.5(n).
\6\ See Exchange Rule 11.10(d).
\7\ Id.
---------------------------------------------------------------------------
As noted above, there are currently three Unique Identifiers that a
User may choose from when submitting an order subject to ERSTP: (i)
MPID; \8\ (ii) Exchange Member identifier; and (iii) ERSTP Group
identifier.\9\ Use of ERSTP functionality is optional and is not
automatically implemented by the Exchange. Both the buy and the sell
order must include the same Unique Identifier in order to prevent an
execution from occurring and to effect a cancel instruction. For
example, a User who enables ERSTP functionality using the MPID Unique
Identifier will prevent contra side executions between the same MPID
from occurring. A User who enables ERSTP using the Exchange Member
Unique Identifier would prevent contra side executions between any MPID
associated with that User and not just a single MPID. The ERSTP Group
Unique Identifier permits Users to prevent matched trades amongst
traders or desks within a certain firm, but allows orders from outside
such group or desk to interact with other firm orders. The Exchange is
not proposing any change in functionality for the current Unique
Identifiers described above.
---------------------------------------------------------------------------
\8\ An MPID is a four-character unique identifier that is
approved by the Exchange and assigned to a Member for use on the
Exchange to identify the Member firm on the orders sent to the
Exchange and resulting executions.
\9\ See Securities Exchange Act Release No. 63427 (December 3,
2010), 75 FR 76768 (December 9, 2010) SR-EDGA-2010-19 (``Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Amend
EDGA Rule 11.9 To Offer Anti-Internalization Qualifier (``AIQ'')
Functionality to Exchange Users''). See also Securities Exchange Act
Release No. 73592 (November 13, 2014), 79 FR 68937 (November 19,
2014) SR-EDGA-2014-20 (``Notice of Filing of Amendment Nos. 1 and 2
and Order Granting Accelerated Approval of a Proposed Rule Change,
as Modified by Amendment Nos. 1 and 2, To Amend EDGA Rule 1.5 and
Chapter XI Regarding Current System Functionality Including the
Operation of Order Types and Order Instructions''), in which AIQ
functionality was renamed ERSTP.
---------------------------------------------------------------------------
The Exchange now proposes to amend Rule 11.10(d) and enhance its
existing ERSTP functionality by introducing a fourth Unique Identifier,
affiliate identifier, which will allow a User to prevent its orders
from matching with another User that is an affiliate of the User. In
addition to the proposed addition of the affiliate identifier, the
Exchange also proposes to add language to Rule 11.9(f) in order to
provide clarity to Users about how eligibility for the use of the
affiliate identifier will be determined.\10\ The proposed addition of
the affiliate identifier does not present any new or novel ERSTP
functionality, but rather would extend existing ERSTP functionality to
a User who demonstrates an affiliate relationship with another User who
maintains a separate membership or Sponsored Participant relationship
on the Exchange. Generally speaking, an affiliated entity is an
organization that directly or indirectly controls another entity, or is
directly controlled by another entity, or which is under common control
alongside another entity. The concept of affiliation is formally
recognized in securities law, particularly Rule 405 of the Securities
Act of 1933.\11\ As applied to the Exchange, there are situations where
two separate entities (i.e., Users) maintain individual memberships or
Sponsored Participant relationships on the Exchange even as Firm A owns
a controlling percentage of Firm B (i.e., Firm A and Firm B are
affiliated entities). The proposed functionality would serve as an
additional tool that Users may enable in order to assist with
compliance with the various securities laws relating to potentially
manipulative trading activity such as wash sales \12\ and self-
trades.\13\ Additionally, the proposed functionality would provide
Users an additional solution to manage order flow by preventing
undesirable executions against the User's affiliates. As is the case
with the existing risk tools, Users, and not the Exchange, have full
responsibility for ensuring that their orders comply with applicable
securities rules, laws, and regulations. Furthermore, as is the case
with the existing risk settings, the Exchange does not believe that the
use of the proposed ERSTP functionality can replace User-managed risk
management solutions.
---------------------------------------------------------------------------
\10\ Infra note 14.
\11\ See 17 CFR 230.405. An affiliate of, or person affiliated
with, a specified person, is a person that directly, or indirectly
through one or more intermediaries, controls or is controlled by, or
is under common control with, the person specified.
\12\ A ``wash sale'' is generally defined as a trade involving
no change in beneficial ownership that is intended to produce the
false appearance of trading and is strictly prohibited under both
the federal securities laws and FINRA rules. See, e.g., 15 U.S.C
78i(a)(1); FINRA Rule 6140(b) (``Other Trading Practices'').
\13\ Self-trades are ``transactions in a security resulting from
the unintentional interaction of orders originating from the same
firm that involve no change in beneficial ownership of the
security.'' FINRA requires members to have policies and procedures
in place that are reasonably designed to review trading activity
for, and prevent, a pattern or practice of self-trades resulting
from orders originating from a single algorithm or trading desk, or
related algorithms or trading desks. See FINRA Rule 5210,
Supplementary Material .02.
---------------------------------------------------------------------------
The Exchange is proposing to allow affiliated Users that maintain
individual Exchange memberships to utilize ERSTP where one User is an
affiliate of another User.\14\ Specifically, the Exchange is proposing
to allow affiliated Users to use ERSTP functionality in order to
prevent executions from occurring between those individual Users. When
a User requests ERSTP at the affiliate level and an affiliate
relationship is confirmed by the Exchange, the Exchange will assign an
identical affiliate identifier to each User that will be used to
prevent executions between contra side orders entered by the Users
using the same affiliate identifier. The purpose of this proposed
change is to extend ERSTP functionality to affiliated Users in order to
prevent transactions between Users who maintain individual memberships
on the Exchange but where an affiliate relationship exists for which
ERSTP functionality may be useful.
---------------------------------------------------------------------------
\14\ The Exchange will consider a User to be an affiliate of
another User if: (i) Greater than 50% ownership is identified in a
User's Form BD; and (ii) the Users execute an affidavit stating that
a control relationship exists between the two Users.
---------------------------------------------------------------------------
To demonstrate how ERSTP will operate with the proposed affiliate
identifier, the Exchange has included examples of potential scenarios
in which ERSTP may be used by affiliated Users. For all examples below,
Firm A and Firm B are presumed to have a controlling affiliate
relationship and
[[Page 68786]]
will use an affiliate identifier of ``A'' when requesting ERSTP at the
affiliate level. Firm C is unaffiliated with Firms A and B and uses an
affiliate identifier of ``C''.
Affiliate Level ERSTP
Scenario 1: Firm A submits a buy order. Firm B submits a sell
order. Firm C also submits a sell order. Firm A has enabled ERSTP at
the affiliate level using an affiliate identifier of A. Firm B has
enabled ERSTP at the affiliate level using an affiliate identifier of
A. Firm C has not enabled ERSTP. Firm A's buy order is prevented from
executing with Firm B's sell order as each firm has enabled ERSTP at
the affiliate level using an affiliate identifier of A. Firm A's buy
order will be permitted to execute with Firm C's sell order because
Firm C has not enabled ERSTP.
Scenario 2: Firm A submits a buy order. Firm B submits a sell
order. Firm C also submits a sell order. Firm A has enabled ERSTP at
the affiliate level using an affiliate identifier of A. Firm B has not
enabled ERSTP. Firm C has enabled ERSTP at the affiliate level using an
affiliate identifier of C. Firm A's order will be eligible to trade
with both Firm B and Firm C. Firm A's order is eligible to trade with
Firm B because Firm B did not enable ERSTP. In order for ERSTP to
prevent the matching of contra side orders, both the buy and sell order
must contain an ERSTP modifier. Firm A's order is also eligible to
trade with Firm C because even though Firm A and Firm C have both
enabled ERSTP at the affiliate level, Firm A and Firm C have been
assigned different affiliate identifiers.
Scenario 3: Firm A submits a buy order and a sell order. Firm B
submits a buy order. Firm A has enabled ERSTP at the affiliate level
using an affiliate identifier of A. Firm B has enabled ERSTP at the
affiliate level using an affiliate identifier of A. Firm A's buy order
is not eligible to execute with Firm A's sell order because Firm A has
enabled ERSTP at the affiliate level using an affiliate identifier of
A. Firm A's sell order is not eligible to execute with Firm B's buy
order because both Firm A and Firm B have enabled ERSTP at the
affiliate level using an affiliate identifier of A.
Scenario 4: Firm A submits a buy order and a sell order. Firm B
submits a sell order. Firm C submits a sell order. Firm A has enabled
ERSTP at the affiliate level using an affiliate identifier of A. Firm B
has enabled ERSTP at the affiliate level using an affiliate identifier
of A. Firm C has enabled ERSTP at the affiliate level using an
affiliate identifier of C. Firm A's buy order is not eligible to
execute with Firm A's sell order because Firm A has enabled ERSTP at
the affiliate level using an affiliate identifier of A. Firm A's buy
order is not eligible to execute with Firm B's sell order because both
Firm A and Firm B have enabled ERSTP at the affiliate level using an
affiliate identifier of A. Firm A's buy order is eligible to execute
with Firm C's sell order because while Firm A and Firm C have enabled
ERSTP at the affiliate level, Firm A and Firm C have been assigned
different affiliate identifiers.
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.\15\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \16\ 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) \17\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
---------------------------------------------------------------------------
\15\ 15 U.S.C. 78f(b).
\16\ 15 U.S.C. 78f(b)(5).
\17\ Id.
---------------------------------------------------------------------------
In particular, the Exchange believes that the proposed affiliate
level ERSTP functionality promotes just and equitable principles of
trade by allowing Users to better manage order flow and prevent
undesirable trading activity such as wash sales'' \18\ or self-trades
\19\ that may occur as a result of the velocity of trading in today's
high-speed marketplace. The proposed affiliate identifier and
description of eligibility to utilize the proposed affiliate identifier
does not introduce any new or novel functionality, but rather will
extend the Exchange's ERSTP functionality in a manner generally
consistent with the functionality currently offered at the MPID,
Exchange Member, and ERSTP Group identifier levels because the proposed
Users are required to have control over the affiliated User and
transactions entered by the firms may be viewed as functionally
originating from one User.\20\ For instance, the Users may share
traders or trading strategies, and elected to not impose information
barriers between trading desks. In this regard, Users may desire ERSTP
functionality on an affiliate level that will help them achieve
compliance \21\ with regulatory rules regarding wash sales and self-
trades in a very similar manner to the way that the current ERSTP
functionality applies on the existing Unique Identifier level. In this
regard, the proposed affiliate level ERSTP functionality will permit
Users that have separate memberships but who also maintain an affiliate
relationship, to prevent the execution of transactions by and between
the Users.
---------------------------------------------------------------------------
\18\ Supra note 5.
\19\ Supra note 6.
\20\ The Exchange notes that the proposed rule filing is similar
in in concept to how derivatives markets sometimes contemplate
ownership and relationship between accounts. Specifically, in the
derivatives markets, rules have developed around of the idea of
``beneficial ownership'', and whether separate accounts have common
ownership. For example, the CME Group (``CME''), an operator of
global derivatives markets, recognizes that ``buy and sell orders
for different accounts with common beneficial ownership . . . shall
also be deemed to violate the prohibition on wash trades.'' See CME
Rule 534. See also https://www.cmegroup.com/rulebook/files/cme-group-Rule-534.pdf, FAQ Q2, which describes ``common beneficial
ownership'' as accounts with common beneficial ownership that is
less than 100%.
\21\ The Exchange reminds Users that while they may utilize
ERSTP to help develop potential transactions such as wash sales or
self-trades, Users, not the Exchange, are ultimately responsible for
ensuring that their orders comply with applicable rules, laws, and
regulations.
---------------------------------------------------------------------------
The Exchange also believes that the proposed rule change is fair
and equitable, and is not designed to permit unfair discrimination. By
way of example, subject to appropriate information barriers, many firms
that are Users of the Exchange operate both a principal market making
desk, which is responsible for handling and executing orders for the
benefit of the User, and an agency trading desk that is responsible for
handling and executing customer orders. In such instances, the User may
elect to utilize ERSTP to prevent transactions between their market
maker desk and their agency trading desk. In contrast, other firms may
be part of a corporate structure that separates those business lines
into separate, but affiliated, entities either for business,
compliance, or historical reasons, with each entity maintaining its own
Exchange membership. In scenarios where one User indirectly or directly
controls the other User (e.g.,
[[Page 68787]]
voting power, shared traders and algorithms, shared trading strategies,
shared technology, etc.), it is logical that the Users, though separate
entities, may determine that transactions between their firms would
potentially run afoul of certain securities rules, laws, or
regulations, such as wash sales and self-trades. In this regard, absent
the proposed rule change, such affiliated entities would not receive
the same treatment as firms operating similar business lines within a
single entity that is a User of the Exchange. Accordingly, the Exchange
believes that its proposed policy is fair and equitable, and not
unreasonably discriminatory.
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. ERSTP is an optional
functionality offered by the Exchange and Users are free to decide
whether to use ERSTP in their decision-making process when submitting
orders to the Exchange.
The Exchange believes that the proposed affiliate identifier does
not impose any intramarket competition as it seeks to enhance an
existing functionality available to all Users. The Exchange is not
proposing to introduce any new or novel functionality, but rather is
proposing to provide an extension of its existing ERSTP functionality
to Users who have an affiliate relationship with another User of the
Exchange. Additionally, the proposed rule specifies which Users are
eligible to use the proposed affiliate identifier, which will be
available to any User who satisfies such criteria. ERSTP will continue
to be an optional functionality offered by the Exchange and the
addition of affiliate level ERSTP will not change how the current
Unique Identifiers and ERSTP functionality operate.
The Exchange believes that the proposed affiliate identifier does
not impose any undue burden on intermarket competition. ERSTP is an
optional functionality offered by the Exchange and Users are not
required to use ERSTP functionality when submitting orders to the
Exchange. Further, the Exchange is not required to offer ERSTP and is
choosing to do so as a benefit for Users who wish to enable ERSTP
functionality. Moreover, the proposed change is not being submitted for
competitive reasons, but rather to provide Users enhanced order
processing functionality that may prevent undesirable executions by
affiliated Users such as wash sales or self-trades.
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
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A) of the Act \22\ and Rule 19b-4(f)(6) \23\ thereunder
because the proposal does not: (i) significantly affect the protection
of investors or the public interest; (ii) impose any significant burden
on competition; and (iii) by its terms, become operative for 30 days
from the date on which it was filed, or such shorter time as the
Commission may designate if consistent with the protection of investors
and the public interest.\24\
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\22\ 15 U.S.C. 78s(b)(3)(A).
\23\ 17 CFR 240.19b-4(f)(6).
\24\ In addition, Rule 19b-4(f)(6)(iii) requires the Exchange to
give the Commission written notice of the Exchange's intent to file
the proposed rule change, along with a brief description and text of
the proposed rule change, at least five business days prior to the
date of filing of the proposed rule change, or such shorter time as
designated by the Commission. The Exchange has satisfied this
requirement.
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A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the
Act \25\ normally does not become operative for 30 days after the date
of its filing. However, Rule 19b-4(f)(6)(iii) \26\ permits the
Commission to designate a shorter time if such action is consistent
with the protection of investors and the public interest. The Exchange
has asked the Commission to waive the 30-day operative delay so that
the proposal may become operative immediately upon filing. The Exchange
states that waiver of the 30-day operative delay would permit
affiliated Users to immediately enable ERSTP functionality in order to
better manage order flow and assist with preventing undesirable
executions in the same manner as individual Users who currently enable
ERSTP at either the MPID, Exchange Member identifier, or ERSTP Group
identifier levels. The Commission believes that waiver of the 30-day
operative delay is consistent with the protection of investors and the
public interest because the proposed rule change does not raise any new
or novel issues. Accordingly, the Commission hereby waives the
operative delay and designates the proposal operative upon filing.\27\
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\25\ 17 CFR 240.19b-4(f)(6).
\26\ 17 CFR 240.19b-4(f)(6)(iii).
\27\ For purposes only of waiving the 30-day operative delay,
the Commission has also considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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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.\28\
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\28\ 15 U.S.C. 78s(b)(3)(C).
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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-CboeEDGA-2022-017.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-CboeEDGA-2022-017. 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
[[Page 68788]]
office of the Exchange. All comments received will be posted without
change. Persons submitting comments are cautioned that we do not redact
or edit personal identifying information from comment submissions. You
should submit only information that you wish to make available
publicly. All submissions should refer to File Number SR-CboeEDGA-2022-
017, and should be submitted on or before December 7, 2022.
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\29\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\29\
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-24894 Filed 11-15-22; 8:45 am]
BILLING CODE 8011-01-P
