Self-Regulatory Organizations; Cboe BYX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Rule 11.9(f) To Permit Affiliated Users To Enable Match Trade Prevention, 68759-68763 [2022-24955]

Download as PDF Federal Register / Vol. 87, No. 220 / Wednesday, November 16, 2022 / Notices 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 MTP functionality in order to better manage order flow and assist with preventing undesirable executions in the same manner as individual Users who currently enable MTP at either the MPID, Exchange Member identifier, or Exchange Sponsored Participant 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 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 khammond on DSKJM1Z7X2PROD with NOTICES 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: 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). 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). VerDate Sep<11>2014 17:27 Nov 15, 2022 Jkt 259001 Electronic Comments • Use the Commission’s internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– CboeBZX–2022–053. 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–CboeBZX–2022–053. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s internet website (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for website viewing and printing in the Commission’s Public Reference Room, 100 F Street NE, Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–CboeBZX–2022–053, 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. SECURITIES AND EXCHANGE COMMISSION [Release No. 34–96294; File No. SR– CboeBYX–2022–025] Self-Regulatory Organizations; Cboe BYX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Rule 11.9(f) To Permit Affiliated Users To Enable Match Trade Prevention November 10, 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 BYX Exchange, Inc. (the ‘‘Exchange’’ or ‘‘BYX’’) 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. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change Cboe BYX Exchange, Inc. (the ‘‘Exchange’’ or ‘‘BYX’’) proposes to amend Exchange Rule 11.9(f) (‘‘Match Trade Prevention (‘‘MTP’’) Modifiers’’) to permit affiliated Users to enable Match 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/byx/), 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 [FR Doc. 2022–24956 Filed 11–15–22; 8:45 am] 1 15 BILLING CODE 8011–01–P U.S.C. 78s(b)(1). CFR 240.19b–4. 3 15 U.S.C. 78s(b)(3)(A)(iii). 4 17 CFR 240.19b–4(f)(6). 2 17 29 17 PO 00000 CFR 200.30–3(a)(12). Frm 00092 Fmt 4703 Sfmt 4703 68759 E:\FR\FM\16NON1.SGM 16NON1 68760 Federal Register / Vol. 87, No. 220 / Wednesday, November 16, 2022 / Notices 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 11.9(f) (‘‘Match Trade Prevention (‘‘MTP’’) 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. Adding an affiliate identifier for MTP functionality on the Exchange would allow affiliated Users 5 to enable MTP at the affiliate level, in addition to the current MTP functionality based on market participant identifier (‘‘MPID’’), Exchange Member identifier, trading group identifier, or Exchange Sponsored Participant identifier (any such existing identifier, a ‘‘Unique Identifier’’).6 Currently, the Exchange’s MTP 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 MTP 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 four Unique Identifiers that a User may choose from when submitting an order subject to MTP: (i) MPID; 8 (ii) Exchange Member identifier; (iii) trading group identifier; and (iv) Exchange Sponsored Participant identifier.9 MTP khammond on DSKJM1Z7X2PROD with NOTICES 5 See Exchange Rule 1.5(cc). ‘‘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(aa). 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 11.9(f). 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. 63097 (October 13, 2010), 75 FR 64767 (October 20, 2010) SR–BYX–2010–002 (‘‘Notice of Filing of Proposed Rule Change To Amend BATS Y-Exchange Rules to Conform to the Current Rules of BATS Exchange’’). See also Securities Exchange Act Release No. 60266 (July 9, 2009), 74 FR 34380 (July 15, 2009) SR– BATS–2009–022 (‘‘Notice of Filing and Immediate VerDate Sep<11>2014 17:27 Nov 15, 2022 Jkt 259001 functionality is optional for Users 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 MTP functionality using the MPID Unique Identifier will prevent contra side executions between the same MPID from occurring. A User who enables MTP 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 trading 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. Users who enable MTP functionality using the Exchange Sponsored Participant Unique Identifier will prevent matched trades between contra side orders with an identical Sponsored Participant identifier. The Exchange is not proposing any change in functionality for the current Unique Identifiers described above. The Exchange now proposes to amend Rule 11.9(f) and enhance its existing MTP functionality by introducing a fifth 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 use of the affiliate identifier will be determined.10 The proposed addition of the affiliate identifier does not present any new or novel MTP functionality, but rather would extend existing MTP 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 Effectiveness of a Proposed Rule Change To Amend BATS Rule 11.9, Entitled ‘‘Orders and Modifiers’’’’), in which the Exchange’s affiliate Cboe BZX Exchange adopted Member Match Trade Prevention (now known as MTP) and designated MPID, Exchange Member identifier, or Exchange Sponsored Participant identifier as Unique Identifiers. See also Securities Exchange Act Release No. 67092 (June 1, 2012), 77 FR 33800 (June 7, 2012) SR–BYX–2012–009 (‘‘Notice of Filing and Immediate Effectiveness of Proposed Rule Change to Amend BYX Rules Related to the Operation of BATS Post Only Orders and Match Trade Prevention Functionality’’), which amended the definition of Unique Identifier to include trading group identifier. 10 Infra note 14. PO 00000 Frm 00093 Fmt 4703 Sfmt 4703 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 MTP functionality can replace Usermanaged risk management solutions. The Exchange is proposing to allow affiliated Users that maintain individual Exchange memberships or Sponsored Participant relationships to utilize MTP where one User is an affiliate of another User.14 Specifically, the Exchange is proposing to allow affiliated Users to use MTP functionality in order to 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. 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. E:\FR\FM\16NON1.SGM 16NON1 Federal Register / Vol. 87, No. 220 / Wednesday, November 16, 2022 / Notices khammond on DSKJM1Z7X2PROD with NOTICES prevent executions from occurring between those individual Users. When a User requests MTP 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 MTP 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 MTP functionality may be useful. To demonstrate how MTP will operate with the proposed affiliate identifier, the Exchange has included examples of potential scenarios in which MTP may be used by affiliated Users. For all examples below, Firm A and Firm B are presumed to have a controlling affiliate relationship and will use an affiliate identifier of ‘‘A’’ when requesting MTP at the affiliate level. Firm C is unaffiliated with Firms A and B and uses an affiliate identifier of ‘‘C’’. Affiliate Level MTP 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 MTP at the affiliate level using an affiliate identifier of A. Firm B has enabled MTP at the affiliate level using an affiliate identifier of A. Firm C has not enabled MTP. Firm A’s buy order is prevented from executing with Firm B’s sell order as each firm has enabled MTP 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 MTP. 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 MTP at the affiliate level using an affiliate identifier of A. Firm B has not enabled MTP. Firm C has enabled MTP 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 MTP. In order for MTP to prevent the matching of contra side orders, both the buy and sell order must contain an MTP modifier. Firm A’s order is also eligible to trade with Firm C because even though Firm A and Firm C have both enabled MTP 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 VerDate Sep<11>2014 17:27 Nov 15, 2022 Jkt 259001 a buy order. Firm A has enabled MTP at the affiliate level using an affiliate identifier of A. Firm B has enabled MTP 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 MTP 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 MTP 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 MTP at the affiliate level using an affiliate identifier of A. Firm B has enabled MTP at the affiliate level using an affiliate identifier of A. Firm C has enabled MTP 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 MTP 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 MTP 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 MTP 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 15 15 16 15 U.S.C. 78f(b). U.S.C. 78f(b)(5). 17 Id. PO 00000 Frm 00094 Fmt 4703 Sfmt 4703 68761 to permit unfair discrimination between customers, issuers, brokers, or dealers. In particular, the Exchange believes that the proposed affiliate level MTP 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 MTP functionality in a manner generally consistent with the functionality currently offered at the MPID, Exchange Member, trading group, and Sponsored Participant 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 MTP 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 MTP functionality applies on the existing Unique Identifier level. In this regard, the proposed affiliate level MTP functionality will permit Users that have separate memberships or Sponsored Participant relationships 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 18 Supra note 5. 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 MTP 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. 19 Supra E:\FR\FM\16NON1.SGM 16NON1 68762 Federal Register / Vol. 87, No. 220 / Wednesday, November 16, 2022 / Notices khammond on DSKJM1Z7X2PROD with NOTICES 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 MTP 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., 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. MTP is an optional functionality offered by the Exchange and Users are free to decide whether to use MTP 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 MTP 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. MTP VerDate Sep<11>2014 17:27 Nov 15, 2022 Jkt 259001 will continue to be an optional functionality offered by the Exchange and the addition of affiliate level MTP will not change how the current Unique Identifiers and MTP functionality operate. The Exchange believes that the proposed affiliate identifier does not impose any undue burden on intermarket competition. MTP is an optional functionality offered by the Exchange and Users are not required to use MTP functionality when submitting orders to the Exchange. Further, the Exchange is not required to offer MTP and is choosing to do so as a benefit for Users who wish to enable MTP 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 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 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 PO 00000 Frm 00095 Fmt 4703 Sfmt 4703 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 MTP functionality in order to better manage order flow and assist with preventing undesirable executions in the same manner as individual Users who currently enable MTP at either the MPID, Exchange Member identifier, or Exchange Sponsored Participant 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 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– CboeBYX–2022–025. 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–CboeBYX–2022–025. This file number should be included on the subject line if email is used. To help the Commission process and review your 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 16NON1 Federal Register / Vol. 87, No. 220 / Wednesday, November 16, 2022 / Notices comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s internet website (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for website viewing and printing in the Commission’s Public Reference Room, 100 F Street NE, Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–CboeBYX–2022–025, 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. 2022–24955 Filed 11–15–22; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–96285; File No. SR–Phlx– 2022–44] Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Rule Phlx Equity 6, Section 5 Concerning Optional Risk Settings for Stocks khammond on DSKJM1Z7X2PROD with NOTICES 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, Nasdaq PHLX LLC (‘‘Phlx’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission 29 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 VerDate Sep<11>2014 17:27 Nov 15, 2022 Jkt 259001 (‘‘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. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend Rule Phlx Equity 6, Section 5 (Exchange Sharing of PSX Participant Risk Settings) to provide PSX Participants with additional optional settings. The text of the proposed rule change is available on the Exchange’s website at https://listingcenter.nasdaq.com/ rulebook/phlx/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 purpose of the proposed rule changes under Rule Phlx Equity 6, Section 5 (Exchange Sharing of PSX Participant Risk Settings) is to provide PSX Participants (the ‘‘Participants’’) with additional optional settings to assist them in their efforts to manage risk on their order flow. These additional settings provide participants with extra oversight and controls on orders coming into the exchange. Once the optional risk controls are set, the Exchange is authorized to take automated action if a designated risk level for a Participant is exceeded. Such risk settings would provide Participants with enhanced abilities to manage their risk with respect to orders on the Exchange. All proposed risk settings are optional for Participants and afford flexibility to Participants to select their own risk tolerance levels. The proposed new and amended risk settings are as follows. PO 00000 Frm 00096 Fmt 4703 Sfmt 4703 68763 The Exchange is proposing to add an additional risk setting titled ‘‘Restricted Stock List.’’ This control allows a Participant to restrict the types of securities transacted by setting a list of symbols for which orders cannot be entered. This control also allows Participants to set a hard to borrow list, which is a list of symbols for which short sale orders may not be entered. Short sale orders for symbols not on the hard to borrow list will be accepted; however, Participants will have an option to indicate that short sales orders are permitted for all symbols by not maintaining a hard to borrow list. This setting is similar to Interpretations and Policies .01(d) of BZX Rule 11.13.3 The Exchange is proposing to add an additional risk setting titled ‘‘ADV Check.’’ This control relates to the size of an order as compared to the 20 day consolidated average daily volume 4 (ADV) of the security and allows a Participant to set a specified percent of ADV that an order size cannot exceed. This control also allows a Participant to specify the minimum value on which such control is based if the average daily volume of the securities is below such value. This setting is similar to Interpretations and Policies .01(g) of BZX Rule 11.13. The Exchange is proposing to add an additional risk setting titled ‘‘Fat Finger Protection.’’ This control relates to the limit price of an order as compared to the NBBO and includes both percentage-based and dollar-based controls. If the limit price of an order deviates from the NBBO in excess of the amount set by a Participant (either percentage or dollar based), the order will not be accepted. This setting is similar to Interpretations and Policies .01(b) of BZX Rule 11.13. The Exchange is proposing to add an additional risk setting titled ‘‘Rate Thresholds Check.’’ A Participant will be able to set the maximum number of messages (other than cancellations, but including new orders, replacement orders and modifications) that can be sent in during a configurable one second time window set by the Exchange. This control can be set as a port level or per symbol. This setting is similar to Interpretations and Policies .01(f) of BZX Rule 11.13. The Exchange is proposing to add an additional risk setting titled ‘‘Gross Exposure Check.’’ This control measures open, executed, or notional exposure of 3 See Securities Exchange Act Release No. 80611 (May 5, 2017) 82 FR 22045 (May 11, 2017) (SR– BatsBZX–2017–24). 4 In certain circumstances, when the security does not have 20 days of trading history, the ADV Check is calculated on fewer than 20 data points. E:\FR\FM\16NON1.SGM 16NON1

Agencies

[Federal Register Volume 87, Number 220 (Wednesday, November 16, 2022)]
[Notices]
[Pages 68759-68763]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-24955]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-96294; File No. SR-CboeBYX-2022-025]


Self-Regulatory Organizations; Cboe BYX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
Rule 11.9(f) To Permit Affiliated Users To Enable Match Trade 
Prevention

November 10, 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 BYX Exchange, Inc. (the ``Exchange'' or 
``BYX'') 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).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Cboe BYX Exchange, Inc. (the ``Exchange'' or ``BYX'') proposes to 
amend Exchange Rule 11.9(f) (``Match Trade Prevention (``MTP'') 
Modifiers'') to permit affiliated Users to enable Match 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/byx/), 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

[[Page 68760]]

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 11.9(f) (``Match Trade 
Prevention (``MTP'') 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. Adding an affiliate identifier for MTP functionality on the 
Exchange would allow affiliated Users \5\ to enable MTP at the 
affiliate level, in addition to the current MTP functionality based on 
market participant identifier (``MPID''), Exchange Member identifier, 
trading group identifier, or Exchange Sponsored Participant identifier 
(any such existing identifier, a ``Unique Identifier'').\6\ Currently, 
the Exchange's MTP 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\ MTP 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(cc). ``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(aa). 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 11.9(f).
    \7\ Id.
---------------------------------------------------------------------------

    As noted above, there are currently four Unique Identifiers that a 
User may choose from when submitting an order subject to MTP: (i) MPID; 
\8\ (ii) Exchange Member identifier; (iii) trading group identifier; 
and (iv) Exchange Sponsored Participant identifier.\9\ MTP 
functionality is optional for Users 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 MTP functionality using the MPID Unique Identifier will 
prevent contra side executions between the same MPID from occurring. A 
User who enables MTP 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 trading 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. Users who enable MTP functionality 
using the Exchange Sponsored Participant Unique Identifier will prevent 
matched trades between contra side orders with an identical Sponsored 
Participant identifier. 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. 63097 (October 13, 
2010), 75 FR 64767 (October 20, 2010) SR-BYX-2010-002 (``Notice of 
Filing of Proposed Rule Change To Amend BATS Y-Exchange Rules to 
Conform to the Current Rules of BATS Exchange''). See also 
Securities Exchange Act Release No. 60266 (July 9, 2009), 74 FR 
34380 (July 15, 2009) SR-BATS-2009-022 (``Notice of Filing and 
Immediate Effectiveness of a Proposed Rule Change To Amend BATS Rule 
11.9, Entitled ``Orders and Modifiers''''), in which the Exchange's 
affiliate Cboe BZX Exchange adopted Member Match Trade Prevention 
(now known as MTP) and designated MPID, Exchange Member identifier, 
or Exchange Sponsored Participant identifier as Unique Identifiers. 
See also Securities Exchange Act Release No. 67092 (June 1, 2012), 
77 FR 33800 (June 7, 2012) SR-BYX-2012-009 (``Notice of Filing and 
Immediate Effectiveness of Proposed Rule Change to Amend BYX Rules 
Related to the Operation of BATS Post Only Orders and Match Trade 
Prevention Functionality''), which amended the definition of Unique 
Identifier to include trading group identifier.
---------------------------------------------------------------------------

    The Exchange now proposes to amend Rule 11.9(f) and enhance its 
existing MTP functionality by introducing a fifth 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 use of the affiliate 
identifier will be determined.\10\ The proposed addition of the 
affiliate identifier does not present any new or novel MTP 
functionality, but rather would extend existing MTP 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 MTP 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 or Sponsored Participant relationships 
to utilize MTP where one User is an affiliate of another User.\14\ 
Specifically, the Exchange is proposing to allow affiliated Users to 
use MTP functionality in order to

[[Page 68761]]

prevent executions from occurring between those individual Users. When 
a User requests MTP 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 MTP 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 
MTP 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 MTP will operate with the proposed affiliate 
identifier, the Exchange has included examples of potential scenarios 
in which MTP may be used by affiliated Users. For all examples below, 
Firm A and Firm B are presumed to have a controlling affiliate 
relationship and will use an affiliate identifier of ``A'' when 
requesting MTP at the affiliate level. Firm C is unaffiliated with 
Firms A and B and uses an affiliate identifier of ``C''.
Affiliate Level MTP
    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 MTP at the 
affiliate level using an affiliate identifier of A. Firm B has enabled 
MTP at the affiliate level using an affiliate identifier of A. Firm C 
has not enabled MTP. Firm A's buy order is prevented from executing 
with Firm B's sell order as each firm has enabled MTP 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 MTP.
    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 MTP at the 
affiliate level using an affiliate identifier of A. Firm B has not 
enabled MTP. Firm C has enabled MTP 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 MTP. In order for MTP to prevent 
the matching of contra side orders, both the buy and sell order must 
contain an MTP modifier. Firm A's order is also eligible to trade with 
Firm C because even though Firm A and Firm C have both enabled MTP 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 MTP at the affiliate level 
using an affiliate identifier of A. Firm B has enabled MTP 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 MTP 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 MTP 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 
MTP at the affiliate level using an affiliate identifier of A. Firm B 
has enabled MTP at the affiliate level using an affiliate identifier of 
A. Firm C has enabled MTP 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 MTP 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 MTP 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 MTP 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 MTP 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 MTP functionality in a manner generally consistent with the 
functionality currently offered at the MPID, Exchange Member, trading 
group, and Sponsored Participant 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 MTP 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 MTP functionality applies on the 
existing Unique Identifier level. In this regard, the proposed 
affiliate level MTP functionality will permit Users that have separate 
memberships or Sponsored Participant relationships 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 MTP 
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

[[Page 68762]]

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 MTP 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., 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. MTP is an optional 
functionality offered by the Exchange and Users are free to decide 
whether to use MTP 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 MTP 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. MTP will continue to 
be an optional functionality offered by the Exchange and the addition 
of affiliate level MTP will not change how the current Unique 
Identifiers and MTP functionality operate.
    The Exchange believes that the proposed affiliate identifier does 
not impose any undue burden on intermarket competition. MTP is an 
optional functionality offered by the Exchange and Users are not 
required to use MTP functionality when submitting orders to the 
Exchange. Further, the Exchange is not required to offer MTP and is 
choosing to do so as a benefit for Users who wish to enable MTP 
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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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 MTP functionality in order to 
better manage order flow and assist with preventing undesirable 
executions in the same manner as individual Users who currently enable 
MTP at either the MPID, Exchange Member identifier, or Exchange 
Sponsored Participant 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\
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \28\ 15 U.S.C. 78s(b)(3)(C).
---------------------------------------------------------------------------

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-CboeBYX-2022-025.

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-CboeBYX-2022-025. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your

[[Page 68763]]

comments more efficiently, please use only one method. The Commission 
will post all comments on the Commission's internet website (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent 
amendments, all written statements with respect to the proposed rule 
change that are filed with the Commission, and all written 
communications relating to the proposed rule change between the 
Commission and any person, other than those that may be withheld from 
the public in accordance with the provisions of 5 U.S.C. 552, will be 
available for website viewing and printing in the Commission's Public 
Reference Room, 100 F Street NE, Washington, DC 20549, on official 
business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of 
the filing also will be available for inspection and copying at the 
principal office of the Exchange. All comments received will be posted 
without change. Persons submitting comments are cautioned that we do 
not redact or edit personal identifying information from comment 
submissions. You should submit only information that you wish to make 
available publicly. All submissions should refer to File Number SR-
CboeBYX-2022-025, 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\
---------------------------------------------------------------------------

    \29\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-24955 Filed 11-15-22; 8:45 am]
BILLING CODE 8011-01-P
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