Self-Regulatory Organizations; Cboe BYX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Rules 11.9, 11.12, and 11.13, 13218-13224 [2023-04227]
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Federal Register / Vol. 88, No. 41 / Thursday, March 2, 2023 / Notices
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–NYSEArca–2023–15, and
should be submitted on or before March
23, 2023.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.34
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2023–04226 Filed 3–1–23; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
Self-Regulatory Organizations; Cboe
BYX Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of a
Proposed Rule Change To Amend
Rules 11.9, 11.12, and 11.13
ddrumheller on DSK120RN23PROD with NOTICES1
February 24, 2023.
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 February
15, 2023, Cboe BYX Exchange, Inc.
(‘‘Exchange’’ or ‘‘BYX’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the Exchange. The 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
CFR 200.30–3(a)(12), (59).
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).
1 15
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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 Rule 11.9(e)(3) to provide that
orders may be modified from either sell
long to sell short exempt (or vice versa)
or sell short exempt to sell short (or vice
versa) using a Replace message. The
Exchange also proposes to amend Rule
11.12(a)(4) to provide that a change in
position from either sell long to sell
short exempt (or vice versa) or sell short
exempt to sell short (or vice versa) will
result in a loss of time priority if made
when a short sale circuit breaker
pursuant to Rule 201 of Regulation SHO
is in effect. Additionally, the Exchange
proposes to amend Rule 11.13(b)(1) to
provide when the Exchange may route
orders with a short sale instruction
when a short sale circuit breaker
pursuant to Rule 201 of Regulation SHO
is in effect. 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
[Release No. 34–96975; File No. SR–
CboeBYX–2023–004]
34 17
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
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 11.12(a)(4) to reflect that if a User 5
changes the position of an order from
either sell long to sell short exempt (or
vice versa) or sell short exempt to sell
short (or vice versa) while a Regulation
5 See
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Exchange Rule 1.5(cc).
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SHO Rule 201 6 short sale circuit
breaker (the ‘‘SSCB’’) 7 is in effect, the
change will result in a loss of time
priority. This proposed change is
substantially similar to MIAX PEARL,
LLC (‘‘MIAX Pearl’’) Rule 2616
(discussed infra).8 The Exchange also
proposes to amend Rule 11.9(e)(3) to
provide that an order may be modified
from sell long to sell short exempt (or
vice versa) or sell short exempt to sell
short (or vice versa) using a Replace
Message. Additionally, the Exchange
proposes to amend Rule 11.13(b)(1)
(Regulation SHO) to make clear that
short sale orders 9 entered with an order
instruction to post to an away trading
center when an SSCB is in effect are
eligible for routing by the Exchange.
Priority Loss for Position Changes
During an SSCB
Pursuant to Exchange Rule 11.9(e)(3),
certain order modifications may be
made via a Replace Message (i.e., other
than changing a limit order to a market
order, only the price, stop price, the sell
long or sell short indicator, Max Floor
of a Reserve Order, and size of the order
may be changed by a Replace Message),
while other modifications require that
the existing order be cancelled, and a
new order be entered. Furthermore,
pursuant to Rule 11.12(a)(4), when an
order is cancelled or replaced in
accordance with Rule 11.9(e)(3), such
order will retain its priority only for
certain types of modifications (e.g.,
changing an order’s position from sell
long to sell short or a decrease in the
size of the order). Certain other types of
order modifications 10 (e.g., a change in
the order’s price) will otherwise receive
a new timestamp and lose priority on
the BYX Book.11 For example, if
pursuant to Rule 11.9(e)(3) an order is
modified from sell long to sell short,
6 See 17 CFR 242.201; Securities Exchange Act
Release No. 61595 (February 26, 2010), 75 FR 11232
(March 10, 2010).
7 For any execution of a short sale order to occur
on the Exchange when a short sale price test
restriction is in effect, the price must be better than
the national best bid (‘‘NBB’’), unless the sell order
was initially displayed by the System at a price
above then the current NBB or is market ‘‘short
exempt’’ pursuant to Regulation SHO. See Exchange
Rule 11.13(a)(1).
8 See Securities Exchange Act Release No. 93506
(November 2, 2021), 86 FR 61796 (November 8,
2021) (SR–PEARL–2021–35) (Notice of Filing of
Amendment No. 1 and Order Granting Accelerated
Approval of a Proposed Rule Changes, as Modified
by Amendment No. 1, To Amend Exchange Rule
2616, Priority of Orders).
9 See 17 CFR 242.200(a). The term ‘‘short sale’’ is
defined as ‘‘any sale of a security which the seller
does not own or any sale which is consummated
by the delivery of a security borrowed by, or for the
account of, the seller.’’
10 See Rule 11.12(a)(4).
11 See Rule 1.5(e).
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such modification may be accomplished
via a Replace Message, and the System
will, pursuant to Rule 11.12(a)(4), allow
such order to retain its original
timestamp and priority on the BYX
Book.
The Exchange first proposes to amend
Rule 11.9(e)(3) to provide that an order’s
position may be modified from sell long
to sell short exempt (or vice versa) or
sell short exempt to sell short (or vice
versa) through the use of a Replace
Message. The Exchange notes that Users
complete a position modification from
sell long to sell short exempt (or vice
versa) or sell short exempt to sell short
(or vice versa) using the same
functionality to mark an order as either
sell long or sell short under Rule
11.9(e)(3). The Exchange believes this
change will provide additional
specificity to the rule and ensure the
rule uses terminology consistent with
the description of Replace Messages and
their impact on an order’s priority under
Exchange Rule 11.12(a)(4) (discussed
infra).
The Exchange also proposes to amend
Rule 11.12(a)(4) in order to align the
Rule text with how the System currently
behaves when an SSCB is in effect, and
to provide clarification to Users that
when an SSCB is in effect that changing
an order’s position from either sell long
to sell short (or vice versa) or sell short
exempt to sell short (or vice versa) will
instead result in such order receiving a
new timestamp and losing its original
priority. The Exchange is not proposing
to change the timestamp for
modifications from either sell long to
sell short (or vice versa) or sell short
exempt to sell short (or vice versa) when
an SSCB is not in effect. Additionally,
the Exchange is also proposing to add
language to Rule 11.12(a)(4) stating that
a modification from sell long to sell
short exempt (or vice versa) is a type of
order modification that would retain
time priority and would not receive a
new timestamp, regardless of whether
an SSCB is in effect (discussed infra).
The Exchange also proposes a nonsubstantive change to Rule 11.12(a)(4) to
provide that an order is being modified
by a Replace Message rather than
cancelled and replaced with a new
order. This change is intended to
provide that an order does not need to
be cancelled and replaced with a new
order, but rather includes modifications
to orders via the use of a Replace
Message. The proposed changes to
Exchange Rule 11.12(a)(4) are based on
previously-approved changes to MIAX
Pearl Rule 2616(a)(5), which is
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substantially similar to Exchange Rule
11.12(a)(4).12
In the event that a User requests an
order modification using a Replace
Message, the System will first determine
whether the modification is of a kind
that may result in a loss of time priority
in order to determine how the
modification will be handled by the
System. For example, as noted in
Exchange Rule 11.12(a)(4), a
modification to the price of an order
will cause the loss of time priority.
Therefore, in the event of a modification
of the price of an order, the System will
first determine that the type of
modification may result in a loss of time
priority and then handle the order
accordingly by giving it a new
timestamp.13 Since an order
modification from sell long to sell short
(or vice versa) or sell short exempt to
sell short (or vice versa) may result in
a change in price of the order when an
SSCB is in effect, the Exchange
immediately gives the order a new
timestamp. As previously discussed, a
modification from sell long to sell short
(or vice versa) or a modification from
sell short exempt to sell short (or vice
versa) requires the System to determine
whether an order must be re-priced to
be compliant with the requirements of
Regulation SHO. The Exchange notes,
however, that an order modification
from sell long to sell short exempt (or
vice versa) does not require the System
to determine whether the order shall be
re-priced as a result of the modification,
as both a sell long and a sell short
exempt order may execute at a more
aggressive price than a sell short order
when an SSCB is in effect. Given that
the System does not have to evaluate
whether a price change is required as
part of an order modification from sell
long to sell short exempt (or vice versa),
this specific order modification does not
lose priority on the BYX Book.
Specifically, if a sell long order is
modified to a sell short order (or vice
versa) or a sell short exempt order is
modified to a sell short order (or vice
versa) while an SSCB is in effect, the
Exchange cannot simply change the
order from sell long to sell short (or vice
versa) or sell short exempt to sell short
(or vice versa) while resting on the book,
but rather must verify that the sell short
12 Supra
note 8.
13 Alternatively,
as noted in Rule 11.12(a)(4) a
modification that involves a decrease in the size of
the order will not cause the loss of time priority.
Therefore, in order to decrease the size of the order,
the System will first determine that the type of
modification will not result in a loss of time priority
and will handle the order in a completely different
manner than it would if the order would have
resulted in a loss of time priority.
PO 00000
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13219
order would not violate Rule
201(b)(1)(ii) 14 of Regulation SHO before
the order is re-added to the BYX Book.
Therefore, as such a modification may
result in a change of the order’s price,
the System gives the order a new
timestamp, resulting in a loss of
priority. Similarly, if a sell short order
is modified to a sell long order (or vice
versa) or a sell short order is modified
to a sell short exempt (or vice versa)
order while an SSCB is in effect, the
order may be eligible to display at a
more aggressive price. As such, the
System gives the order a new
timestamp, again resulting in a loss of
time priority, but potentially in
improved price priority. However, if an
order is modified from sell long to sell
short exempt (or vice versa) when an
SSCB is in effect, the System does not
have to take an additional step to
evaluate whether the modification
violates Rule 201(b)(1)(ii) of Regulation
SHO given that sell long and sell short
exempt orders may execute at more
aggressive prices that sell short orders
during an SSCB. Accordingly, an order
modification from sell long to sell short
exempt (or vice versa) would not result
in a loss of priority. Stated differently,
the System treats orders marked sell
long and sell short exempt the same,
and only order modifications from
either sell long to sell short (or vice
versa) or sell short exempt to sell short
(or vice versa) would cause an order to
lose priority during an SSCB because
the System is required to determine
whether a change in the order’s price is
required as a consequence of the change
in status from either sell long to sell
short (or vice versa) or sell short exempt
to sell short (or vice versa). This order
price analysis by the System is required
in order to prevent potential violations
of Rule 201(b)(1)(ii) of Regulation SHO
as orders may be required to be repriced to prevent potential violations of
Rule 201 when the SSCB is in effect.
To illustrate order behavior with a
modification from sell long to sell short
during an SSCB, consider the following
example:
Assume the National Best Bid and
Offer (‘‘NBBO’’) 15 in a given covered
security 16 is $5.00 × $5.10 while an
14 Pursuant to Rule 201(b)(1)(ii) of Regulation
SHO, the Exchange must establish, maintain, and
enforce written policies and procedures reasonably
designed to prevent the execution or display of a
short sale order of a covered security at a price that
is less than or equal to the current NBB during an
SSCB.
15 See Exchange Rule 1.5(o).
16 Rule 201(a)(1) of Regulation SHO defines the
term ‘‘covered security’’ to mean any ‘‘NMS stock’’
as defined under Rule 600(b)(48) of Regulation
NMS. Rule 600(b)(48) of Regulation NMS defines an
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SSCB is in effect. A User enters a nondisplayed sell long order with a limit
price of $5.00. Subsequently, the User
modifies the position of the order from
sell long to sell short, while the NBBO
has remained the same. In order to effect
the modification, the System determines
that a modification from sell long to sell
short may result in a change in the
order’s price in order to prevent
potential violations of Rule 201(b)(1)(ii)
of Regulation SHO, as orders may be
required to be repriced to prevent
potential violations of Rule 201 when
the SSCB is in effect. Accordingly, the
order loses its time priority in order for
the System to handle the potential price
change. In this example, the subject
order resulted in a change of the order’s
price as the sell short order was not
eligible for execution at a price equal to
the NBB. Nonetheless, even if the
modification would not have ultimately
resulted in a price change, the
modification would have necessarily
caused the System to evaluate whether
a price change was necessary and, thus,
required a new timestamp, resulting in
a loss of time priority.
Order modifications from sell long to
sell short (or vice versa), sell long to sell
short exempt (or vice versa), or sell
short exempt to sell short (or vice versa)
that occur when an SSCB is not in effect
will not be subject to a loss of priority
on the Exchange, as orders may be
required to be re-priced to prevent
potential violations of Rule 201 of
Regulation SHO, only when an SSCB is
in effect. When an SSCB is not in effect
the System does not have to take the
additional step of determining whether
a price change is required before
effecting a position modification from
sell long to sell short (or vice versa), sell
long to sell short exempt (or vice versa),
or sell short exempt to sell short (or vice
versa) and as such, these order
modifications can be processed without
a loss of priority.
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Routing Clarification for Orders That
Will Post to an Away Trading Center
The Exchange is also proposing to
amend Rule 11.13(b)(1) in order to
codify that any sell short order that will
post to an away Trading Center 17 will
‘‘NMS stock’’ as ‘‘any NMS security other than an
option.’’ Rule 600(b)(47) of Regulation NMS defines
an ‘‘NMS security’’ as ‘‘any security or class of
securities for which transaction reports are
collected, processed, and made available pursuant
to an effective transaction reporting plan, or an
effective national market system plan for reporting
transactions in listed options.’’ See 17 CFR
242.201(a)(1); 17 CFR 242.600(b)(47); and 17 CFR
242.600(b)(48).
17 Rule 600(b)(82) of Regulation NMS defines a
‘‘Trading Center’’ as ‘‘a national securities exchange
or national securities association that operates an
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be routed when an SSCB is in effect.
Given that sell short orders that post to
an away Trading Center are subjected to
the receiving Trading Center’s processes
for handling sell short orders in
compliance with Rule 201 of Regulation
SHO,18 the Exchange believes the
capability to route all sell short orders
with the ability to post to an away
market center during an SSCB is
appropriate and that Exchange Rules
should be amended to codify such
functionality.19 The Exchange also
proposes to correct an inadvertent
reference to the Cboe BZX Exchange,
Inc. (‘‘BZX’’), rather than the Exchange,
in Rule 11.13(b)(1).
The proposed rule change would
provide Users with clarity as how the
Exchange will handle routable sell short
orders when the SSCB is in effect. For
instance, Rule 11.13(b)(1) explicitly
states that the Post to Away 20 routing
option will post an order to another
Trading Center’s book when the SSCB is
in effect.21 However, while Rule
11.13(b)(3)(K) provides that the RDOT 22
routing option may post an order to
another Trading Center’s book (which
SRO trading facility, an alternative trading system,
an exchange market maker, an OTC market maker,
or any other broker or dealer that executes orders
internally by trading as principal or crossing orders
as agent.’’ See 17 CFR 242.201(a)(9); 17 CFR
242.600(b)(82).
18 Rule 201(b)(1) of Regulation SHO requires a
Trading Center (e.g., Cboe BYX) to establish,
maintain, and enforce written policies and
procedures reasonably designed to prevent the
execution or display of a short sale order of a
covered security at a price that is less than or equal
to the national best bid if the price of that covered
security decrease by 10% or more from the covered
security’s closing price as determined by the listing
market for the covered security as of the end of
regular trading hours on the prior day. See 17 CFR
242.201(b)(1).
19 See, e.g., Nasdaq Rule 4763; NYSE Rule 440B;
and Nasdaq’s Regulation SHO Frequently Asked
Questions (updated March 10, 2011), available at
https://nasdaqtrader.com/content/
marketregulation/regsho/regshoFAQs.pdf.
20 See Exchange Rule 11.13(b)(3)(H). Post to Away
is a routing option that routes the remainder of a
routed order to and posts such order on the order
book of a destination on the System routing table
as specified by the User.
21 The Exchange notes that orders routed
pursuant to the Post to Away routing option that
include a short sale instruction are identified as
‘‘short’’ and are subject to the receiving Trading
Center’s processes for handling sell short orders in
compliance with Rule 201 of Regulation SHO. See
Securities Exchange Act No. 79148 (October 25,
2016) 81 FR 75456 (October 31, 2016) (SR–
BatsBYX–2016–27) (Notice of Filing and Immediate
Effectiveness of a Proposed Rule Change to Amend
BYX Rule 11.13, Order Execution and Routing).
22 See Exchange Rule 11.13(b)(3)(K). RDOT is a
routing option under which an order checks the
System for available shares and then is sent to
destinations on the System routing table. If shares
remain unexecuted after routing, they are sent to
the NYSE and can be re-routed by the NYSE. If
shares remain unexecuted after routing, they are
posted to the NYSE, unless otherwise instructed by
the User.
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could occur if the order is entered with
a time-in-force (‘‘TIF’’) of Day),23 Rule
11.13(b)(1) does not state that the RDOT
routing option is available to orders
marked sell short during an SSCB. The
Exchange seeks to clarify that any
routing strategy that would post the
remainder of the routed order to another
Trading Center’s book is eligible for
routing during an SSCB. Under
Exchange Rule 11.13(b)(1), IOC orders 24
marked ‘‘short’’ that are not eligible for
routing during an SSCB will continue to
be cancelled. The unfilled portions of
limit orders marked ‘‘short’’ that are
ineligible for routing due to an SSCB
will continue to be posted to the BYX
Book subject to the price sliding process
as defined in Exchange Rule 11.9(g).
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.25 Specifically,
the Exchange believes the proposed rule
change is consistent with the Section
6(b)(5) 26 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) 27 requirement that
the rules of an exchange not be designed
to permit unfair discrimination between
customers, issuers, brokers, or dealers.
In particular, the proposed rule
change to Rule 11.9(e)(3) is consistent
with the protection of investors and the
23 A ‘‘Day Order’’ refers to a limit order to buy
or sell which, if not executed, expires at the end
of Regular Trading Hours. See Exchange Rule
11.9(b)(2). Day Orders routed pursuant to the RDOT
routing option that include a short sale instruction
are identified as ‘‘short’’ and are subject to the
receiving Trading Center’s processes for handling
short sale orders in compliance with Rule 201 of
Regulation SHO.
24 An ‘‘IOC Order’’ refers to a limit order that is
to be executed in whole or part as soon as such
order is received and the portion not immediately
executed on the Exchange or another trading center
is treated as cancelled and is not posted to the BYX
Book. See Exchange Rule 11.9(b)(1).
25 15 U.S.C. 78f(b).
26 15 U.S.C. 78f(b)(5).
27 Id.
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public interest because it aligns the rule
text with the how the System currently
operates and helps to eliminate any
potential confusion Users may have
regarding current Rule 11.9(e)(3). This
proposed amendment will not change
existing System behavior and Users will
have more certainty about how orders
may be modified, which is related to the
proposed changes to Rule 11.12(a)(4).
Additionally, the proposed rule
change to Rule 11.12(a)(4) is designed to
ensure all sell short orders are subjected
to the Exchange’s process for ensuring
that the order would not violate Rule
201(b)(1)(ii) of Regulation SHO during
an SSCB. In order to verify the
displayed price of an order with a
position modification from sell long to
sell short (or vice versa) or sell short
exempt to sell short (or vice versa)
during an SSCB, the System handles the
modification as if a price change would
occur, even if the modification does not
ultimately result in a price change. If the
System permitted such order
modifications to forego this process, no
order modifications from sell long to
sell short (or vice versa) or sell short
exempt to sell short (or vice versa)
during an SSCB would result in a loss
of time priority, and as a result, certain
sell short orders could be permitted to
display or execute at an impermissible
price that would not comply with Rule
201(b)(1)(ii). The Exchange’s process is
designed to ensure compliance with
Rule 201(b)(1)(ii) of Regulation SHO and
is consistent with the protection of
investors and the public interest. As
designed, during an SSCB, the System
determines up front whether an order
modification could result in a price
change before it can properly effect the
modification. If the modification is of a
type that may result in a price change
to comply with Regulation SHO, the
System gives the order a new
timestamp. As a result, such a
modification from sell long to sell short
(or vice versa) or sell short exempt to
sell short (or vice versa) always results
in a loss of time priority even if the
modification did not result in a change
of the order’s price. Conversely, an
order modification from sell long to sell
short exempt (or vice versa) does not
result in an order losing priority because
the System does not conduct an order
price analysis to ensure compliance
with Rule 201(b)(1)(ii) of Regulation
SHO as both sell long and sell short
exempt orders may execute at more
aggressive prices than sell short orders
during an SSCB.
Moreover, the Exchange processes
billions of order modifications each
month, with only a limited amount of
modifications involving a change from
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sell long to sell short (or vice versa) or
sell short exempt to sell short (or vice
versa) during an SSCB. Out of the
billions of order modifications
processed by the Cboe affiliated equity
exchanges during the months of May,
June, and July 2022, the Exchange
identified approximately 369,884 order
modifications from sell long to sell short
(or vice versa) or sell short exempt to
sell short (or vice versa) across the Cboe
affiliated equity exchanges during an
SSCB that would potentially be affected
by the proposed amendment to Rule
11.12(a)(4).28 Given that 369,884 order
modifications during an SSCB across
the Cboe affiliated equity exchanges is
an extremely small percentage of the
billions of order modifications that the
Cboe affiliated equity exchanges
processed during the months of May,
June, and July 2022, the Exchange
believes that any benefit from restoring
priority to this limited amount of order
modifications is outweighed by the
burden of changing the System to be
able to conduct an order price analysis
in real time to prevent potential
violations of Rule 201(b)(1)(ii) of
Regulation SHO and to permit these
orders to retain priority.
In addition, the proposed change to
Rule 11.12(a)(4) will also protect
investors and the public interest
because it continues to promote
compliance with Regulation SHO,
including Regulation SHO’s order
marking requirements 29 and Users’
compliance with any applicable
exemptions. Users are currently able to
modify their order’s position using a
Replace Message and the proposed rule
change does not alter a User’s ability to
do so. Users are required to mark their
orders properly upon entry and upon
modification 30 and the proposed
amendment to Rule 11.12(a)(4) does not
change this obligation. As they are
required to do today, Users must also
28 When identifying orders impacted by this
functionality during May, June, and July 2022, the
Exchange broadly identified any orders regardless
of whether those orders were at or near the NBBO
(i.e., marketable orders) at the time of the event. The
Cboe affiliated equities exchanges refers to the
Exchange, Cboe BZX Exchange, Inc. (‘‘BZX’’), Cboe
EDGX Exchange, Inc. (‘‘EDGX’’), and Cboe EDGA
Exchange, Inc. (‘‘EDGA’’).
29 17 CFR 242.200(g).
30 See Exchange Rule 11.19 (‘‘Short Sales’’). The
rule provides that ‘‘[a]ll short sale orders shall be
identified as ‘‘short’’ or ‘‘short exempt’’ when
entered into the System. If marked ‘‘short exempt,’’
the Exchange shall execute, display and/or route an
order without regard to any short sale price test
restriction in effect under Regulation SHO. The
Exchange relies on the marking of an order as
‘‘short exempt’’ when handling such order, and
thus, it is the entering Member’s responsibility, not
the Exchange’s responsibility, to comply with the
requirements of Regulation SHO relating to marking
of orders as ‘‘short exempt’’.
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13221
continue to ensure that their order
complies with any applicable
exemption from Regulation SHO that
they seek to avail themselves of, not
only at the time of entry, but also at the
time they change an order’s position via
a Replace Message.31 The Exchange
notes that it will continue to surveil for
compliance with Exchange Rules 11.19
and 11.21 as well as Regulation SHO.
The proposed amendment to Rule
11.9(e)(3) is designed to remove
impediments to and perfect the
mechanism of a free and open market
and a national market system because it
does not seek to change how order
modifications from either sell long to
sell short exempt (or vice versa) or sell
short exempt to sell short (or vice versa)
are accomplished. Instead, the proposed
change provides clarity to Users that a
position change from either sell long to
sell short exempt (or vice versa) or from
sell short exempt to sell short (or vice
versa) may be accomplished through the
use of a Replace Message and does not
require an order to be cancelled and a
new order submitted in order to modify
an order’s position to sell short exempt.
The proposed change to Rule 11.9(e)(3)
will also provide continuity between
Rule 11.9(e)(3) and the proposed
changes to Rule 11.12(a)(4), and as such
are directly intended to remove
impediments to and perfect the
mechanism of a free and open market
and national market system.
The proposed change to Rule
11.12(a)(4) removes impediments to and
perfects the mechanism of a free and
open market and a national market
system because it addresses a limited
scenario when a User modifies an
order’s position using a Replace
Message during an SSCB. The proposed
rule change specifically states that
orders whose positions are modified
from either sell long to sell short (or vice
versa) or sell short exempt to sell short
(or vice versa) using a Replace Message
when an SSCB is not in effect will not
receive a new timestamp and will not
lose priority as compared to other orders
on the BYX Book. Further, the proposed
rule change provides that order
modifications from sell long to sell short
exempt (or vice versa) using a Replace
Message will not lose priority as
31 A change in an order’s price or position as well
as an increase in an order’s size via a Cancel/
Replace message implicitly results in a new order.
All Users must, therefore, ensure continued
compliance with the order marking and locate
requirements of Regulation SHO (17 CFR 242.201)
including compliance with Question 2.6 of the
Commission’s ‘‘Responses to Frequently Asked
Questions Concerning Regulation SHO’’ available at
https://www.sec.gov//marketreg/
mrfaqregsho1204.htm (last accessed October 3,
2022).
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compared to other orders on the BYX
Book, regardless of whether an SSCB is
in effect. Additionally, the proposed
change to Rule 11.12(a)(4) removes
impediments to and perfects a free and
open market system because it is
designed to make clear to Users that
orders may be modified using a Replace
Message without losing priority subject
to the limitations named in Rule
11.12(a)(4). This change does not amend
the meaning or operation of Rule
11.12(a)(4).
The proposed changes to Rule
11.13(b)(1) are designed to provide that
any sell short order that will post to an
away Trading Center will be routed
when an SSCB is in effect. In addition,
providing Users the ability to send sell
short orders that will post to an away
Trading Center, and thus are routable
when an SSCB is in effect provides
them additional flexibility with regard
to the handling of their orders, and may
provide additional execution
opportunities for those orders. Given
this, the proposed amendments to Rule
11.13(b)(1) are directly targeted at
removing impediments to and
perfecting the mechanism of a free and
open market and national market
system, as well as to assure fair
competition among brokers and dealers
and among exchange markets.
The proposed change to Rule
11.13(b)(1) further promotes just and
equitable principles of trade and
perfects a free and open market system
by identifying which orders containing
routing instructions are eligible to route
and post to an away market center
during an SSCB. As all Trading Centers
are required to comply with Rule
201(b)(1)(ii) of Regulation SHO, a User
can expect that an order routed from the
Exchange to an away market center will
be treated similarly on the away market
center as it would on the Exchange
during an SSCB. There is no change to
the meaning or operation of this rule,
but rather an amendment to make clear
that an order that is eligible to post to
an away market may be routed during
an SSCB. In addition, correcting an
inadvertent reference to the Exchange’s
affiliate promotes just and equitable
principles of trade by correctly
identifying the Exchange within the rule
text without changing the meaning or
operation of the rule.
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 as the
proposed rule changes are not being
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proposed for competitive reasons.
Rather, the proposed amendment to
Rule 11.9(e)(3) provides that
modifications from sell long to sell short
exempt (or vice versa) or from sell short
exempt to sell short (or vice versa) may
be accomplished through the use of a
Replace Message. This proposed
amendment will not change existing
System behavior and Users will have
more certainty about how orders may be
modified, which is related to the
proposed changes to Rule 11.12(a)(4).
Order modifications from sell long to
sell short (or vice versa) use the same
Replace Message functionality as a
modification from either sell long to sell
short exempt (or vice versa) or from sell
short exempt to sell short (or vice versa),
and amending Rule 11.9(e)(3) to
describe this behavior for Users is
directly related to the Exchange’s
proposed changes to Rule 11.12(a)(4)
and does not impose a burden on intermarket competition that is not necessary
or appropriate in furtherance of the Act.
Additionally, the proposed
amendments to Rule 11.12(a)(4) will
enhance the transparency of the rules by
revising the rule text. By revising the
rule text to align with the current
System behavior, Users will be aware
that if they modify their orders from sell
long to sell short (or vice versa) or from
sell short exempt to sell short (or vice
versa) and an SSCB is in effect, their
orders will be given a new timestamp
and lose time priority. Users are free to
consider this proposed change as part of
their overall experience with the
Exchange, which also includes
execution quality and functionality
offerings, when making order routing
decisions. Additionally, the Exchange
notes that the proposed rule change
applies equally to all Users, and all
Users’ orders are subject to the
described functionality, regardless of
their size. Users may not opt-out of this
System functionality.
Furthermore, this loss of time priority
for a position modification would only
occur when an SSCB is in effect and the
Exchange is required to comply with
Rule 201 of Regulation SHO. The impact
of an order modification from sell long
to sell short (or vice versa) or sell short
exempt to sell short (or vice versa) using
a Replace Message during an SSCB with
respect to loss of time priority is no
different than when a User seeks to
increase the size of their order using a
Replace Message or when a User seeks
to change the position of their order by
cancelling the existing order and
entering a new order. In each instance,
the order will receive a new timestamp
reflecting the time the modification was
made and the order would lose priority
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Sfmt 4703
as compared to other orders on the BYX
Book.
Furthermore, the proposed change to
Rule 11.12(a)(4) does not impose any
burden on inter-market competition that
is not necessary or appropriate in
furtherance of the Act in that the
proposed change does not present a
novel approach to sell short order
handling. Indeed, the proposed changes
to Rule 11.12(a)(4) are consistent with a
recently approved amendment 32 to
MIAX Pearl Rule 2616(a).33 Pursuant to
MIAX Pearl Rule 2616(a), any position
modification involving a change from
sell long to either sell short exempt or
sell short (or vice versa) will result in
the order receiving a new timestamp
and the order losing priority, as
compared to other orders resting on the
book while an SSCB is in effect. The
Exchange’s proposed Rule is also
similar to MIAX Pearl Rule 2616(a) in
that modifications from sell long to sell
short (or vice versa) and modifications
from sell short exempt to sell short (or
vice versa) will be subject to a loss of
priority during an SSCB.
While the proposed rule change is
substantially similar to that of MIAX
Pearl, the Exchange’s proposal differs in
that its proposal would not cause orders
modified from sell long to sell short
exempt (or vice versa) to lose priority
during an SSCB, whereas MIAX Pearl
Rule 2616(a) specifically states that a
change from sell long to sell short
exempt is a type of order modification
that would be subject to a loss of
priority during an SSCB. The
Exchange’s System does not view an
order modification from sell long to sell
short exempt (or vice versa) as a type of
change which requires an order price
analysis in order to prevent potential
violations of Rule 201(b)(1)(ii) of
Regulation SHO, and as such does not
cause these types of order modifications
to result in a loss of priority.
In addition, the proposed rule change
is more narrowly tailored than the rules
of Investors Exchange LLC (‘‘IEX’’),
which requires market participants to
enter a new order where an order’s
position is changed even when an SSCB
32 Supra
note 8.
Pearl Rule 2616(a) states: ‘‘[i]n the event
an order has been modified via a Cancel/Replace
message in accordance with Rule 2614(e) above,
such order only retains its timestamp if such
modification involves a decrease in the size of the
order, a change to the Max Floor of an order with
a Reserve Quantity, or when a Short Sale Period,
as defined in Exchange Rule 2614(g)(3)(A), is not in
effect, a change in position from (A) sell to sell
short; (B) sell to sell short exempt; (C) sell short to
sell; (D) sell short to sell short exempt; (E) sell short
exempt to sell; and (F) sell short exempt to sell
short.’’
33 MIAX
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Federal Register / Vol. 88, No. 41 / Thursday, March 2, 2023 / Notices
is not in effect 34 and Nasdaq Stock
Market, LLC (‘‘Nasdaq’’), which requires
orders to be cancelled if the order’s
position is redesignated as short during
a Short Sale Period and the order is not
priced at a Permitted Price or higher
under Nasdaq Rule 4763(e).35 In each
instance mentioned above, the original
order would need to be replaced with a
new order and therefore would receive
a new timestamp which would result in
a loss of priority. The Exchange is
seeking to only append a new
timestamp and cause a loss of priority
as compared to other orders on the BYX
Book when an order’s position is
modified from sell long to sell short (or
vice versa) or sell short exempt to sell
short (or vice versa) during an SSCB,
which is more narrowly-tailored than
the rules governing similar order
behavior on MIAX Pearl, IEX and
Nasdaq.
Furthermore, the proposed change to
Rule 11.13(b)(1) does not impose any
burden on inter-market competition that
is not necessary or appropriate in
furtherance of the Act as it makes clear
that orders that may post to away
market centers will be routed during an
SSCB. Users will have the ability to take
this factor into consideration when
determining which routing strategy to
use when entering an order on the
Exchange and are able to consider this
proposed change as part of their overall
experience with the Exchange. If a User
disfavors this proposed change they are
free to use a different routing strategy or
submit an order directly to an away
market center. This proposed change is
not being proposed for competitive
reasons, but rather to make clear that
any order eligible to be posted to an
away market center will be routed
during an SSCB. As each market center
is required to comply with Rule 201 of
Regulation SHO, the Exchange believes
that any order eligible to be posted to an
away market center should be permitted
to route, as the order would be subject
to the away market center’s rules
regarding compliance with Rule 201 of
Regulation SHO upon posting. The
proposed change to correct an
inadvertent reference to the Exchange’s
affiliate is similarly not proposed for
competitive reasons, but rather in order
to ensure that the rule correctly
identifies the Exchange within the rule
text.
34 See
IEX Rule 11.190(d)(3) and IEX Rule
11.190(d)(4).
35 See Nasdaq Equity 4, Rule 4756(a)(3).
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C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
The Exchange neither solicited nor
received comments on the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule
change does not: (i) significantly affect
the protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days from the date on
which it was filed, or such shorter time
as the Commission may designate, it has
become effective pursuant to Section
19(b)(3)(A) of the Act 36 and Rule 19b–
4(f)(6) thereunder.37
A proposed rule change filed under
Rule 19b–4(f)(6) normally does not
become operative prior to 30 days after
the date of the filing. However, pursuant
to Rule 19b–4(f)(6)(iii),38 the
Commission may 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. The Exchange states the
proposed rule change provides clarity
on how orders modified to sell short
exempt are accomplished and the
priority of orders marked sell short
exempt. The Exchange believes that the
proposed rule change related to
modifications from sell long to sell short
(or vice versa) or sell short exempt to
sell short (or vice versa) that occur
during an SSCB will affect only a small
percentage of overall order
modifications.39 Finally, the Exchange
states that the proposed change to Rule
11.11(a) will permit orders containing
routing instructions entered by all Users
that would post to an away market
during an SSCB to route to away market
centers immediately upon becoming
operative. 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.
36 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6)(iii) requires a self-regulatory organization to
give the Commission written notice of its 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.
38 17 CFR 240.19b–4(f)(6)(iii).
39 See supra note 28.
37 17
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13223
Accordingly, the Commission hereby
waives the operative delay and
designates the proposal operative upon
filing.40
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission will institute proceedings
to determine whether the proposed rule
change should be approved or
disapproved.
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–2023–004.
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–2023–004. 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
40 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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Federal Register / Vol. 88, No. 41 / Thursday, March 2, 2023 / Notices
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–2023–004, and
should be submitted on or before March
23, 2023.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.41
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2023–04227 Filed 3–1–23; 8:45 am]
BILLING CODE 8011–01–P
SURFACE TRANSPORTATION BOARD
[Docket No. FD 36377 (Sub-No. 7)]
ddrumheller on DSK120RN23PROD with NOTICES1
BNSF Railway Company—Trackage
Rights Exemption—Union Pacific
Railroad Company
By petition filed on December 13,
2022, BNSF Railway Company (BNSF)
requests that the Board partially revoke
the trackage rights exemption granted to
it under 49 CFR 1180.2(d)(7) in Docket
No. FD 36377 (Sub-No. 6), as necessary
to permit that trackage rights
arrangement to expire at midnight on
December 31, 2023.
As explained by BNSF in its verified
notice of exemption in Docket No. FD
36377 (Sub-No. 6), BNSF and Union
Pacific Railroad Company (UP) entered
into an agreement granting BNSF
restricted, local trackage rights over two
rail lines owned by UP between: (1) UP
milepost 93.2 at Stockton, Cal., on UP’s
Oakland Subdivision, and UP milepost
219.4 at Elsey, Cal., on UP’s Canyon
Subdivision, a distance of 126.2 miles;
and (2) UP milepost 219.4 at Elsey, and
UP milepost 280.7 at Keddie, Cal., on
UP’s Canyon Subdivision, a distance of
61.3 miles (collectively, the Lines).
BNSF Verified Notice of Exemption 2,
BNSF Ry.—Trackage Rts. Exemption—
Union Pac. R.R., FD 36377 (Sub-No. 6).
BNSF further stated that the trackage
rights arrangement is intended to permit
BNSF to move empty and loaded unit
ballast trains to and from the ballast pit
located at Elsey. Id. According to BNSF,
41 17
CFR 200.30–3(a)(12), (59).
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it filed its verified notice of exemption
under the Board’s class exemption
procedures at 49 CFR 1180.2(d)(7),
instead of 49 CFR 1180.2(d)(8), because
the trackage rights covered by the notice
are local rather than overhead rights.
BNSF Verified Notice of Exemption 1
n.1, 2, BNSF Ry.—Trackage Rts.
Exemption—Union Pac. R.R., FD 36377
(Sub-No. 6).
In its petition, BNSF asks the Board
to partially revoke the exemption as
necessary to permit the trackage rights
to expire at midnight on December 31,
2023, pursuant to the parties’
agreement. (See BNSF Pet. 1–2); see also
BNSF Verified Notice of Exemption, Ex.
B at 2, BNSF Ry.—Trackage Rts.
Exemption—Union Pac. R.R., FD 36377
(Sub-No. 6). BNSF argues that granting
this petition will promote the rail
transportation policy at 49 U.S.C. 10101
and that the partial revocation would be
consistent with the limited scope of the
transaction and would not have an
adverse effect on shippers. (BNSF Pet.
3.) In addition, BNSF asserts that the
Board has granted similar petitions for
partial revocation to permit temporary
trackage rights to expire, including
petitions involving prior iterations of
the trackage rights agreement at issue
here. (Id. at 3–4.)
Discussion and Conclusions
Although BNSF and UP have
expressly agreed on the duration of the
proposed trackage rights agreement,
trackage rights approved under the class
exemption at 49 CFR 1180.2(d)(7)
typically remain effective indefinitely,
regardless of any contract provisions. At
times, however, the Board has partially
revoked a trackage rights exemption to
allow those rights to expire after a
limited time period rather than lasting
in perpetuity. See, e.g., BNSF Ry.––
Trackage Rts. Exemption––Union Pac.
R.R., FD 36377 (Sub-No. 5) (STB served
Feb. 7, 2022) (granting a petition to
partially revoke a trackage rights
exemption involving the Lines at issue
in this case); New Orleans Pub. Belt
R.R.—Trackage Rts. Exemption—Ill.
Cent. R.R., FD 36198 (Sub-No. 1) (STB
served June 20, 2018).
Granting partial revocation in these
circumstances to permit the trackage
rights to expire at the end of 2023 would
eliminate the need for BNSF to file a
second pleading seeking discontinuance
authority when the agreement expires,
thereby promoting the aspects of the rail
transportation policy at 49 U.S.C.
10101(2), (7), and (15). Moreover,
partially revoking the exemption to
limit the term of the trackage rights
would have no adverse impact on
shippers because the trackage rights at
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Sfmt 4703
issue are solely to allow BNSF to move
empty and loaded unit ballast trains to
and from the ballast pit in Elsey for use
in BNSF’s maintenance-of-way projects.
(See BNSF Pet. 2.) Therefore, the Board
will grant the petition and permit the
trackage rights exempted in Docket No.
FD 36377 (Sub-No. 6) to expire at
midnight on December 31, 2023.
To provide the statutorily mandated
protection to any employee adversely
affected by the discontinuance of
trackage rights, the Board will impose
the employee protective conditions set
forth in Oregon Short Line Railroad—
Abandonment Portion Goshen Branch
Between Firth & Ammon, in Bingham &
Bonneville Counties, Idaho, 360 I.C.C.
91 (1979).
This action is categorically excluded
from environmental review under 49
CFR 1105.6(c).
It is ordered:
1. The petition for partial revocation
of the trackage rights class exemption is
granted.
2. As discussed above, the trackage
rights in Docket No. FD 36377 (Sub-No.
6) are permitted to expire at midnight
on December 31, 2023, subject to the
employee protective conditions set forth
in Oregon Short Line.
3. Notice of this decision will be
published in the Federal Register.
4. This decision is effective on April
1, 2023. Petitions for stay must be filed
by March 13, 2023. Petitions for
reconsideration must be filed by March
22, 2023.
Decided: February 24, 2023.
By the Board, Board Members Fuchs,
Hedlund, Oberman, Primus, and Schultz.
Stefan Rice,
Clearance Clerk.
[FR Doc. 2023–04263 Filed 3–1–23; 8:45 am]
BILLING CODE 4915–01–P
DEPARTMENT OF TRANSPORTATION
Federal Railroad Administration
[Docket No. FRA–2023–0002–N–03]
Proposed Agency Information
Collection Activities; Comment
Request
Federal Railroad
Administration (FRA), Department of
Transportation (DOT).
ACTION: Notice of information collection;
request for comment.
AGENCY:
Under the Paperwork
Reduction Act of 1995 (PRA) and its
implementing regulations, FRA will
seek approval of the Information
Collection Request (ICR) abstracted
SUMMARY:
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]]>Agencies
[Federal Register Volume 88, Number 41 (Thursday, March 2, 2023)]
[Notices]
[Pages 13218-13224]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-04227]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-96975; File No. SR-CboeBYX-2023-004]
Self-Regulatory Organizations; Cboe BYX Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
Rules 11.9, 11.12, and 11.13
February 24, 2023.
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 February 15, 2023, Cboe BYX Exchange, Inc. (``Exchange'' or ``BYX'')
filed with the Securities and Exchange Commission (``Commission'') the
proposed rule change as described in Items I and II below, which Items
have been prepared by the Exchange. The 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.
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\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 Rule 11.9(e)(3) to provide that orders may be modified from
either sell long to sell short exempt (or vice versa) or sell short
exempt to sell short (or vice versa) using a Replace message. The
Exchange also proposes to amend Rule 11.12(a)(4) to provide that a
change in position from either sell long to sell short exempt (or vice
versa) or sell short exempt to sell short (or vice versa) will result
in a loss of time priority if made when a short sale circuit breaker
pursuant to Rule 201 of Regulation SHO is in effect. Additionally, the
Exchange proposes to amend Rule 11.13(b)(1) to provide when the
Exchange may route orders with a short sale instruction when a short
sale circuit breaker pursuant to Rule 201 of Regulation SHO is in
effect. 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 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 11.12(a)(4) to reflect that if
a User \5\ changes the position of an order from either sell long to
sell short exempt (or vice versa) or sell short exempt to sell short
(or vice versa) while a Regulation SHO Rule 201 \6\ short sale circuit
breaker (the ``SSCB'') \7\ is in effect, the change will result in a
loss of time priority. This proposed change is substantially similar to
MIAX PEARL, LLC (``MIAX Pearl'') Rule 2616 (discussed infra).\8\ The
Exchange also proposes to amend Rule 11.9(e)(3) to provide that an
order may be modified from sell long to sell short exempt (or vice
versa) or sell short exempt to sell short (or vice versa) using a
Replace Message. Additionally, the Exchange proposes to amend Rule
11.13(b)(1) (Regulation SHO) to make clear that short sale orders \9\
entered with an order instruction to post to an away trading center
when an SSCB is in effect are eligible for routing by the Exchange.
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\5\ See Exchange Rule 1.5(cc).
\6\ See 17 CFR 242.201; Securities Exchange Act Release No.
61595 (February 26, 2010), 75 FR 11232 (March 10, 2010).
\7\ For any execution of a short sale order to occur on the
Exchange when a short sale price test restriction is in effect, the
price must be better than the national best bid (``NBB''), unless
the sell order was initially displayed by the System at a price
above then the current NBB or is market ``short exempt'' pursuant to
Regulation SHO. See Exchange Rule 11.13(a)(1).
\8\ See Securities Exchange Act Release No. 93506 (November 2,
2021), 86 FR 61796 (November 8, 2021) (SR-PEARL-2021-35) (Notice of
Filing of Amendment No. 1 and Order Granting Accelerated Approval of
a Proposed Rule Changes, as Modified by Amendment No. 1, To Amend
Exchange Rule 2616, Priority of Orders).
\9\ See 17 CFR 242.200(a). The term ``short sale'' is defined as
``any sale of a security which the seller does not own or any sale
which is consummated by the delivery of a security borrowed by, or
for the account of, the seller.''
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Priority Loss for Position Changes During an SSCB
Pursuant to Exchange Rule 11.9(e)(3), certain order modifications
may be made via a Replace Message (i.e., other than changing a limit
order to a market order, only the price, stop price, the sell long or
sell short indicator, Max Floor of a Reserve Order, and size of the
order may be changed by a Replace Message), while other modifications
require that the existing order be cancelled, and a new order be
entered. Furthermore, pursuant to Rule 11.12(a)(4), when an order is
cancelled or replaced in accordance with Rule 11.9(e)(3), such order
will retain its priority only for certain types of modifications (e.g.,
changing an order's position from sell long to sell short or a decrease
in the size of the order). Certain other types of order modifications
\10\ (e.g., a change in the order's price) will otherwise receive a new
timestamp and lose priority on the BYX Book.\11\ For example, if
pursuant to Rule 11.9(e)(3) an order is modified from sell long to sell
short,
[[Page 13219]]
such modification may be accomplished via a Replace Message, and the
System will, pursuant to Rule 11.12(a)(4), allow such order to retain
its original timestamp and priority on the BYX Book.
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\10\ See Rule 11.12(a)(4).
\11\ See Rule 1.5(e).
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The Exchange first proposes to amend Rule 11.9(e)(3) to provide
that an order's position may be modified from sell long to sell short
exempt (or vice versa) or sell short exempt to sell short (or vice
versa) through the use of a Replace Message. The Exchange notes that
Users complete a position modification from sell long to sell short
exempt (or vice versa) or sell short exempt to sell short (or vice
versa) using the same functionality to mark an order as either sell
long or sell short under Rule 11.9(e)(3). The Exchange believes this
change will provide additional specificity to the rule and ensure the
rule uses terminology consistent with the description of Replace
Messages and their impact on an order's priority under Exchange Rule
11.12(a)(4) (discussed infra).
The Exchange also proposes to amend Rule 11.12(a)(4) in order to
align the Rule text with how the System currently behaves when an SSCB
is in effect, and to provide clarification to Users that when an SSCB
is in effect that changing an order's position from either sell long to
sell short (or vice versa) or sell short exempt to sell short (or vice
versa) will instead result in such order receiving a new timestamp and
losing its original priority. The Exchange is not proposing to change
the timestamp for modifications from either sell long to sell short (or
vice versa) or sell short exempt to sell short (or vice versa) when an
SSCB is not in effect. Additionally, the Exchange is also proposing to
add language to Rule 11.12(a)(4) stating that a modification from sell
long to sell short exempt (or vice versa) is a type of order
modification that would retain time priority and would not receive a
new timestamp, regardless of whether an SSCB is in effect (discussed
infra).
The Exchange also proposes a non-substantive change to Rule
11.12(a)(4) to provide that an order is being modified by a Replace
Message rather than cancelled and replaced with a new order. This
change is intended to provide that an order does not need to be
cancelled and replaced with a new order, but rather includes
modifications to orders via the use of a Replace Message. The proposed
changes to Exchange Rule 11.12(a)(4) are based on previously-approved
changes to MIAX Pearl Rule 2616(a)(5), which is substantially similar
to Exchange Rule 11.12(a)(4).\12\
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\12\ Supra note 8.
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In the event that a User requests an order modification using a
Replace Message, the System will first determine whether the
modification is of a kind that may result in a loss of time priority in
order to determine how the modification will be handled by the System.
For example, as noted in Exchange Rule 11.12(a)(4), a modification to
the price of an order will cause the loss of time priority. Therefore,
in the event of a modification of the price of an order, the System
will first determine that the type of modification may result in a loss
of time priority and then handle the order accordingly by giving it a
new timestamp.\13\ Since an order modification from sell long to sell
short (or vice versa) or sell short exempt to sell short (or vice
versa) may result in a change in price of the order when an SSCB is in
effect, the Exchange immediately gives the order a new timestamp. As
previously discussed, a modification from sell long to sell short (or
vice versa) or a modification from sell short exempt to sell short (or
vice versa) requires the System to determine whether an order must be
re-priced to be compliant with the requirements of Regulation SHO. The
Exchange notes, however, that an order modification from sell long to
sell short exempt (or vice versa) does not require the System to
determine whether the order shall be re-priced as a result of the
modification, as both a sell long and a sell short exempt order may
execute at a more aggressive price than a sell short order when an SSCB
is in effect. Given that the System does not have to evaluate whether a
price change is required as part of an order modification from sell
long to sell short exempt (or vice versa), this specific order
modification does not lose priority on the BYX Book.
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\13\ Alternatively, as noted in Rule 11.12(a)(4) a modification
that involves a decrease in the size of the order will not cause the
loss of time priority. Therefore, in order to decrease the size of
the order, the System will first determine that the type of
modification will not result in a loss of time priority and will
handle the order in a completely different manner than it would if
the order would have resulted in a loss of time priority.
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Specifically, if a sell long order is modified to a sell short
order (or vice versa) or a sell short exempt order is modified to a
sell short order (or vice versa) while an SSCB is in effect, the
Exchange cannot simply change the order from sell long to sell short
(or vice versa) or sell short exempt to sell short (or vice versa)
while resting on the book, but rather must verify that the sell short
order would not violate Rule 201(b)(1)(ii) \14\ of Regulation SHO
before the order is re-added to the BYX Book. Therefore, as such a
modification may result in a change of the order's price, the System
gives the order a new timestamp, resulting in a loss of priority.
Similarly, if a sell short order is modified to a sell long order (or
vice versa) or a sell short order is modified to a sell short exempt
(or vice versa) order while an SSCB is in effect, the order may be
eligible to display at a more aggressive price. As such, the System
gives the order a new timestamp, again resulting in a loss of time
priority, but potentially in improved price priority. However, if an
order is modified from sell long to sell short exempt (or vice versa)
when an SSCB is in effect, the System does not have to take an
additional step to evaluate whether the modification violates Rule
201(b)(1)(ii) of Regulation SHO given that sell long and sell short
exempt orders may execute at more aggressive prices that sell short
orders during an SSCB. Accordingly, an order modification from sell
long to sell short exempt (or vice versa) would not result in a loss of
priority. Stated differently, the System treats orders marked sell long
and sell short exempt the same, and only order modifications from
either sell long to sell short (or vice versa) or sell short exempt to
sell short (or vice versa) would cause an order to lose priority during
an SSCB because the System is required to determine whether a change in
the order's price is required as a consequence of the change in status
from either sell long to sell short (or vice versa) or sell short
exempt to sell short (or vice versa). This order price analysis by the
System is required in order to prevent potential violations of Rule
201(b)(1)(ii) of Regulation SHO as orders may be required to be re-
priced to prevent potential violations of Rule 201 when the SSCB is in
effect.
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\14\ Pursuant to Rule 201(b)(1)(ii) of Regulation SHO, the
Exchange must establish, maintain, and enforce written policies and
procedures reasonably designed to prevent the execution or display
of a short sale order of a covered security at a price that is less
than or equal to the current NBB during an SSCB.
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To illustrate order behavior with a modification from sell long to
sell short during an SSCB, consider the following example:
Assume the National Best Bid and Offer (``NBBO'') \15\ in a given
covered security \16\ is $5.00 x $5.10 while an
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SSCB is in effect. A User enters a non-displayed sell long order with a
limit price of $5.00. Subsequently, the User modifies the position of
the order from sell long to sell short, while the NBBO has remained the
same. In order to effect the modification, the System determines that a
modification from sell long to sell short may result in a change in the
order's price in order to prevent potential violations of Rule
201(b)(1)(ii) of Regulation SHO, as orders may be required to be
repriced to prevent potential violations of Rule 201 when the SSCB is
in effect. Accordingly, the order loses its time priority in order for
the System to handle the potential price change. In this example, the
subject order resulted in a change of the order's price as the sell
short order was not eligible for execution at a price equal to the NBB.
Nonetheless, even if the modification would not have ultimately
resulted in a price change, the modification would have necessarily
caused the System to evaluate whether a price change was necessary and,
thus, required a new timestamp, resulting in a loss of time priority.
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\15\ See Exchange Rule 1.5(o).
\16\ Rule 201(a)(1) of Regulation SHO defines the term ``covered
security'' to mean any ``NMS stock'' as defined under Rule
600(b)(48) of Regulation NMS. Rule 600(b)(48) of Regulation NMS
defines an ``NMS stock'' as ``any NMS security other than an
option.'' Rule 600(b)(47) of Regulation NMS defines an ``NMS
security'' as ``any security or class of securities for which
transaction reports are collected, processed, and made available
pursuant to an effective transaction reporting plan, or an effective
national market system plan for reporting transactions in listed
options.'' See 17 CFR 242.201(a)(1); 17 CFR 242.600(b)(47); and 17
CFR 242.600(b)(48).
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Order modifications from sell long to sell short (or vice versa),
sell long to sell short exempt (or vice versa), or sell short exempt to
sell short (or vice versa) that occur when an SSCB is not in effect
will not be subject to a loss of priority on the Exchange, as orders
may be required to be re-priced to prevent potential violations of Rule
201 of Regulation SHO, only when an SSCB is in effect. When an SSCB is
not in effect the System does not have to take the additional step of
determining whether a price change is required before effecting a
position modification from sell long to sell short (or vice versa),
sell long to sell short exempt (or vice versa), or sell short exempt to
sell short (or vice versa) and as such, these order modifications can
be processed without a loss of priority.
Routing Clarification for Orders That Will Post to an Away Trading
Center
The Exchange is also proposing to amend Rule 11.13(b)(1) in order
to codify that any sell short order that will post to an away Trading
Center \17\ will be routed when an SSCB is in effect. Given that sell
short orders that post to an away Trading Center are subjected to the
receiving Trading Center's processes for handling sell short orders in
compliance with Rule 201 of Regulation SHO,\18\ the Exchange believes
the capability to route all sell short orders with the ability to post
to an away market center during an SSCB is appropriate and that
Exchange Rules should be amended to codify such functionality.\19\ The
Exchange also proposes to correct an inadvertent reference to the Cboe
BZX Exchange, Inc. (``BZX''), rather than the Exchange, in Rule
11.13(b)(1).
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\17\ Rule 600(b)(82) of Regulation NMS defines a ``Trading
Center'' as ``a national securities exchange or national securities
association that operates an SRO trading facility, an alternative
trading system, an exchange market maker, an OTC market maker, or
any other broker or dealer that executes orders internally by
trading as principal or crossing orders as agent.'' See 17 CFR
242.201(a)(9); 17 CFR 242.600(b)(82).
\18\ Rule 201(b)(1) of Regulation SHO requires a Trading Center
(e.g., Cboe BYX) to establish, maintain, and enforce written
policies and procedures reasonably designed to prevent the execution
or display of a short sale order of a covered security at a price
that is less than or equal to the national best bid if the price of
that covered security decrease by 10% or more from the covered
security's closing price as determined by the listing market for the
covered security as of the end of regular trading hours on the prior
day. See 17 CFR 242.201(b)(1).
\19\ See, e.g., Nasdaq Rule 4763; NYSE Rule 440B; and Nasdaq's
Regulation SHO Frequently Asked Questions (updated March 10, 2011),
available at https://nasdaqtrader.com/content/marketregulation/regsho/regshoFAQs.pdf.
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The proposed rule change would provide Users with clarity as how
the Exchange will handle routable sell short orders when the SSCB is in
effect. For instance, Rule 11.13(b)(1) explicitly states that the Post
to Away \20\ routing option will post an order to another Trading
Center's book when the SSCB is in effect.\21\ However, while Rule
11.13(b)(3)(K) provides that the RDOT \22\ routing option may post an
order to another Trading Center's book (which could occur if the order
is entered with a time-in-force (``TIF'') of Day),\23\ Rule 11.13(b)(1)
does not state that the RDOT routing option is available to orders
marked sell short during an SSCB. The Exchange seeks to clarify that
any routing strategy that would post the remainder of the routed order
to another Trading Center's book is eligible for routing during an
SSCB. Under Exchange Rule 11.13(b)(1), IOC orders \24\ marked ``short''
that are not eligible for routing during an SSCB will continue to be
cancelled. The unfilled portions of limit orders marked ``short'' that
are ineligible for routing due to an SSCB will continue to be posted to
the BYX Book subject to the price sliding process as defined in
Exchange Rule 11.9(g).
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\20\ See Exchange Rule 11.13(b)(3)(H). Post to Away is a routing
option that routes the remainder of a routed order to and posts such
order on the order book of a destination on the System routing table
as specified by the User.
\21\ The Exchange notes that orders routed pursuant to the Post
to Away routing option that include a short sale instruction are
identified as ``short'' and are subject to the receiving Trading
Center's processes for handling sell short orders in compliance with
Rule 201 of Regulation SHO. See Securities Exchange Act No. 79148
(October 25, 2016) 81 FR 75456 (October 31, 2016) (SR-BatsBYX-2016-
27) (Notice of Filing and Immediate Effectiveness of a Proposed Rule
Change to Amend BYX Rule 11.13, Order Execution and Routing).
\22\ See Exchange Rule 11.13(b)(3)(K). RDOT is a routing option
under which an order checks the System for available shares and then
is sent to destinations on the System routing table. If shares
remain unexecuted after routing, they are sent to the NYSE and can
be re-routed by the NYSE. If shares remain unexecuted after routing,
they are posted to the NYSE, unless otherwise instructed by the
User.
\23\ A ``Day Order'' refers to a limit order to buy or sell
which, if not executed, expires at the end of Regular Trading Hours.
See Exchange Rule 11.9(b)(2). Day Orders routed pursuant to the RDOT
routing option that include a short sale instruction are identified
as ``short'' and are subject to the receiving Trading Center's
processes for handling short sale orders in compliance with Rule 201
of Regulation SHO.
\24\ An ``IOC Order'' refers to a limit order that is to be
executed in whole or part as soon as such order is received and the
portion not immediately executed on the Exchange or another trading
center is treated as cancelled and is not posted to the BYX Book.
See Exchange Rule 11.9(b)(1).
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2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Securities Exchange Act of 1934 (the ``Act'') and the rules and
regulations thereunder applicable to the Exchange and, in particular,
the requirements of Section 6(b) of the Act.\25\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \26\ 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) \27\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
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\25\ 15 U.S.C. 78f(b).
\26\ 15 U.S.C. 78f(b)(5).
\27\ Id.
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In particular, the proposed rule change to Rule 11.9(e)(3) is
consistent with the protection of investors and the
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public interest because it aligns the rule text with the how the System
currently operates and helps to eliminate any potential confusion Users
may have regarding current Rule 11.9(e)(3). This proposed amendment
will not change existing System behavior and Users will have more
certainty about how orders may be modified, which is related to the
proposed changes to Rule 11.12(a)(4).
Additionally, the proposed rule change to Rule 11.12(a)(4) is
designed to ensure all sell short orders are subjected to the
Exchange's process for ensuring that the order would not violate Rule
201(b)(1)(ii) of Regulation SHO during an SSCB. In order to verify the
displayed price of an order with a position modification from sell long
to sell short (or vice versa) or sell short exempt to sell short (or
vice versa) during an SSCB, the System handles the modification as if a
price change would occur, even if the modification does not ultimately
result in a price change. If the System permitted such order
modifications to forego this process, no order modifications from sell
long to sell short (or vice versa) or sell short exempt to sell short
(or vice versa) during an SSCB would result in a loss of time priority,
and as a result, certain sell short orders could be permitted to
display or execute at an impermissible price that would not comply with
Rule 201(b)(1)(ii). The Exchange's process is designed to ensure
compliance with Rule 201(b)(1)(ii) of Regulation SHO and is consistent
with the protection of investors and the public interest. As designed,
during an SSCB, the System determines up front whether an order
modification could result in a price change before it can properly
effect the modification. If the modification is of a type that may
result in a price change to comply with Regulation SHO, the System
gives the order a new timestamp. As a result, such a modification from
sell long to sell short (or vice versa) or sell short exempt to sell
short (or vice versa) always results in a loss of time priority even if
the modification did not result in a change of the order's price.
Conversely, an order modification from sell long to sell short exempt
(or vice versa) does not result in an order losing priority because the
System does not conduct an order price analysis to ensure compliance
with Rule 201(b)(1)(ii) of Regulation SHO as both sell long and sell
short exempt orders may execute at more aggressive prices than sell
short orders during an SSCB.
Moreover, the Exchange processes billions of order modifications
each month, with only a limited amount of modifications involving a
change from sell long to sell short (or vice versa) or sell short
exempt to sell short (or vice versa) during an SSCB. Out of the
billions of order modifications processed by the Cboe affiliated equity
exchanges during the months of May, June, and July 2022, the Exchange
identified approximately 369,884 order modifications from sell long to
sell short (or vice versa) or sell short exempt to sell short (or vice
versa) across the Cboe affiliated equity exchanges during an SSCB that
would potentially be affected by the proposed amendment to Rule
11.12(a)(4).\28\ Given that 369,884 order modifications during an SSCB
across the Cboe affiliated equity exchanges is an extremely small
percentage of the billions of order modifications that the Cboe
affiliated equity exchanges processed during the months of May, June,
and July 2022, the Exchange believes that any benefit from restoring
priority to this limited amount of order modifications is outweighed by
the burden of changing the System to be able to conduct an order price
analysis in real time to prevent potential violations of Rule
201(b)(1)(ii) of Regulation SHO and to permit these orders to retain
priority.
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\28\ When identifying orders impacted by this functionality
during May, June, and July 2022, the Exchange broadly identified any
orders regardless of whether those orders were at or near the NBBO
(i.e., marketable orders) at the time of the event. The Cboe
affiliated equities exchanges refers to the Exchange, Cboe BZX
Exchange, Inc. (``BZX''), Cboe EDGX Exchange, Inc. (``EDGX''), and
Cboe EDGA Exchange, Inc. (``EDGA'').
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In addition, the proposed change to Rule 11.12(a)(4) will also
protect investors and the public interest because it continues to
promote compliance with Regulation SHO, including Regulation SHO's
order marking requirements \29\ and Users' compliance with any
applicable exemptions. Users are currently able to modify their order's
position using a Replace Message and the proposed rule change does not
alter a User's ability to do so. Users are required to mark their
orders properly upon entry and upon modification \30\ and the proposed
amendment to Rule 11.12(a)(4) does not change this obligation. As they
are required to do today, Users must also continue to ensure that their
order complies with any applicable exemption from Regulation SHO that
they seek to avail themselves of, not only at the time of entry, but
also at the time they change an order's position via a Replace
Message.\31\ The Exchange notes that it will continue to surveil for
compliance with Exchange Rules 11.19 and 11.21 as well as Regulation
SHO.
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\29\ 17 CFR 242.200(g).
\30\ See Exchange Rule 11.19 (``Short Sales''). The rule
provides that ``[a]ll short sale orders shall be identified as
``short'' or ``short exempt'' when entered into the System. If
marked ``short exempt,'' the Exchange shall execute, display and/or
route an order without regard to any short sale price test
restriction in effect under Regulation SHO. The Exchange relies on
the marking of an order as ``short exempt'' when handling such
order, and thus, it is the entering Member's responsibility, not the
Exchange's responsibility, to comply with the requirements of
Regulation SHO relating to marking of orders as ``short exempt''.
\31\ A change in an order's price or position as well as an
increase in an order's size via a Cancel/Replace message implicitly
results in a new order. All Users must, therefore, ensure continued
compliance with the order marking and locate requirements of
Regulation SHO (17 CFR 242.201) including compliance with Question
2.6 of the Commission's ``Responses to Frequently Asked Questions
Concerning Regulation SHO'' available at https://www.sec.gov//marketreg/mrfaqregsho1204.htm (last accessed October 3, 2022).
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The proposed amendment to Rule 11.9(e)(3) is designed to remove
impediments to and perfect the mechanism of a free and open market and
a national market system because it does not seek to change how order
modifications from either sell long to sell short exempt (or vice
versa) or sell short exempt to sell short (or vice versa) are
accomplished. Instead, the proposed change provides clarity to Users
that a position change from either sell long to sell short exempt (or
vice versa) or from sell short exempt to sell short (or vice versa) may
be accomplished through the use of a Replace Message and does not
require an order to be cancelled and a new order submitted in order to
modify an order's position to sell short exempt. The proposed change to
Rule 11.9(e)(3) will also provide continuity between Rule 11.9(e)(3)
and the proposed changes to Rule 11.12(a)(4), and as such are directly
intended to remove impediments to and perfect the mechanism of a free
and open market and national market system.
The proposed change to Rule 11.12(a)(4) removes impediments to and
perfects the mechanism of a free and open market and a national market
system because it addresses a limited scenario when a User modifies an
order's position using a Replace Message during an SSCB. The proposed
rule change specifically states that orders whose positions are
modified from either sell long to sell short (or vice versa) or sell
short exempt to sell short (or vice versa) using a Replace Message when
an SSCB is not in effect will not receive a new timestamp and will not
lose priority as compared to other orders on the BYX Book. Further, the
proposed rule change provides that order modifications from sell long
to sell short exempt (or vice versa) using a Replace Message will not
lose priority as
[[Page 13222]]
compared to other orders on the BYX Book, regardless of whether an SSCB
is in effect. Additionally, the proposed change to Rule 11.12(a)(4)
removes impediments to and perfects a free and open market system
because it is designed to make clear to Users that orders may be
modified using a Replace Message without losing priority subject to the
limitations named in Rule 11.12(a)(4). This change does not amend the
meaning or operation of Rule 11.12(a)(4).
The proposed changes to Rule 11.13(b)(1) are designed to provide
that any sell short order that will post to an away Trading Center will
be routed when an SSCB is in effect. In addition, providing Users the
ability to send sell short orders that will post to an away Trading
Center, and thus are routable when an SSCB is in effect provides them
additional flexibility with regard to the handling of their orders, and
may provide additional execution opportunities for those orders. Given
this, the proposed amendments to Rule 11.13(b)(1) are directly targeted
at removing impediments to and perfecting the mechanism of a free and
open market and national market system, as well as to assure fair
competition among brokers and dealers and among exchange markets.
The proposed change to Rule 11.13(b)(1) further promotes just and
equitable principles of trade and perfects a free and open market
system by identifying which orders containing routing instructions are
eligible to route and post to an away market center during an SSCB. As
all Trading Centers are required to comply with Rule 201(b)(1)(ii) of
Regulation SHO, a User can expect that an order routed from the
Exchange to an away market center will be treated similarly on the away
market center as it would on the Exchange during an SSCB. There is no
change to the meaning or operation of this rule, but rather an
amendment to make clear that an order that is eligible to post to an
away market may be routed during an SSCB. In addition, correcting an
inadvertent reference to the Exchange's affiliate promotes just and
equitable principles of trade by correctly identifying the Exchange
within the rule text without changing the meaning or operation of the
rule.
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 as the proposed rule changes
are not being proposed for competitive reasons. Rather, the proposed
amendment to Rule 11.9(e)(3) provides that modifications from sell long
to sell short exempt (or vice versa) or from sell short exempt to sell
short (or vice versa) may be accomplished through the use of a Replace
Message. This proposed amendment will not change existing System
behavior and Users will have more certainty about how orders may be
modified, which is related to the proposed changes to Rule 11.12(a)(4).
Order modifications from sell long to sell short (or vice versa) use
the same Replace Message functionality as a modification from either
sell long to sell short exempt (or vice versa) or from sell short
exempt to sell short (or vice versa), and amending Rule 11.9(e)(3) to
describe this behavior for Users is directly related to the Exchange's
proposed changes to Rule 11.12(a)(4) and does not impose a burden on
inter-market competition that is not necessary or appropriate in
furtherance of the Act.
Additionally, the proposed amendments to Rule 11.12(a)(4) will
enhance the transparency of the rules by revising the rule text. By
revising the rule text to align with the current System behavior, Users
will be aware that if they modify their orders from sell long to sell
short (or vice versa) or from sell short exempt to sell short (or vice
versa) and an SSCB is in effect, their orders will be given a new
timestamp and lose time priority. Users are free to consider this
proposed change as part of their overall experience with the Exchange,
which also includes execution quality and functionality offerings, when
making order routing decisions. Additionally, the Exchange notes that
the proposed rule change applies equally to all Users, and all Users'
orders are subject to the described functionality, regardless of their
size. Users may not opt-out of this System functionality.
Furthermore, this loss of time priority for a position modification
would only occur when an SSCB is in effect and the Exchange is required
to comply with Rule 201 of Regulation SHO. The impact of an order
modification from sell long to sell short (or vice versa) or sell short
exempt to sell short (or vice versa) using a Replace Message during an
SSCB with respect to loss of time priority is no different than when a
User seeks to increase the size of their order using a Replace Message
or when a User seeks to change the position of their order by
cancelling the existing order and entering a new order. In each
instance, the order will receive a new timestamp reflecting the time
the modification was made and the order would lose priority as compared
to other orders on the BYX Book.
Furthermore, the proposed change to Rule 11.12(a)(4) does not
impose any burden on inter-market competition that is not necessary or
appropriate in furtherance of the Act in that the proposed change does
not present a novel approach to sell short order handling. Indeed, the
proposed changes to Rule 11.12(a)(4) are consistent with a recently
approved amendment \32\ to MIAX Pearl Rule 2616(a).\33\ Pursuant to
MIAX Pearl Rule 2616(a), any position modification involving a change
from sell long to either sell short exempt or sell short (or vice
versa) will result in the order receiving a new timestamp and the order
losing priority, as compared to other orders resting on the book while
an SSCB is in effect. The Exchange's proposed Rule is also similar to
MIAX Pearl Rule 2616(a) in that modifications from sell long to sell
short (or vice versa) and modifications from sell short exempt to sell
short (or vice versa) will be subject to a loss of priority during an
SSCB.
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\32\ Supra note 8.
\33\ MIAX Pearl Rule 2616(a) states: ``[i]n the event an order
has been modified via a Cancel/Replace message in accordance with
Rule 2614(e) above, such order only retains its timestamp if such
modification involves a decrease in the size of the order, a change
to the Max Floor of an order with a Reserve Quantity, or when a
Short Sale Period, as defined in Exchange Rule 2614(g)(3)(A), is not
in effect, a change in position from (A) sell to sell short; (B)
sell to sell short exempt; (C) sell short to sell; (D) sell short to
sell short exempt; (E) sell short exempt to sell; and (F) sell short
exempt to sell short.''
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While the proposed rule change is substantially similar to that of
MIAX Pearl, the Exchange's proposal differs in that its proposal would
not cause orders modified from sell long to sell short exempt (or vice
versa) to lose priority during an SSCB, whereas MIAX Pearl Rule 2616(a)
specifically states that a change from sell long to sell short exempt
is a type of order modification that would be subject to a loss of
priority during an SSCB. The Exchange's System does not view an order
modification from sell long to sell short exempt (or vice versa) as a
type of change which requires an order price analysis in order to
prevent potential violations of Rule 201(b)(1)(ii) of Regulation SHO,
and as such does not cause these types of order modifications to result
in a loss of priority.
In addition, the proposed rule change is more narrowly tailored
than the rules of Investors Exchange LLC (``IEX''), which requires
market participants to enter a new order where an order's position is
changed even when an SSCB
[[Page 13223]]
is not in effect \34\ and Nasdaq Stock Market, LLC (``Nasdaq''), which
requires orders to be cancelled if the order's position is redesignated
as short during a Short Sale Period and the order is not priced at a
Permitted Price or higher under Nasdaq Rule 4763(e).\35\ In each
instance mentioned above, the original order would need to be replaced
with a new order and therefore would receive a new timestamp which
would result in a loss of priority. The Exchange is seeking to only
append a new timestamp and cause a loss of priority as compared to
other orders on the BYX Book when an order's position is modified from
sell long to sell short (or vice versa) or sell short exempt to sell
short (or vice versa) during an SSCB, which is more narrowly-tailored
than the rules governing similar order behavior on MIAX Pearl, IEX and
Nasdaq.
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\34\ See IEX Rule 11.190(d)(3) and IEX Rule 11.190(d)(4).
\35\ See Nasdaq Equity 4, Rule 4756(a)(3).
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Furthermore, the proposed change to Rule 11.13(b)(1) does not
impose any burden on inter-market competition that is not necessary or
appropriate in furtherance of the Act as it makes clear that orders
that may post to away market centers will be routed during an SSCB.
Users will have the ability to take this factor into consideration when
determining which routing strategy to use when entering an order on the
Exchange and are able to consider this proposed change as part of their
overall experience with the Exchange. If a User disfavors this proposed
change they are free to use a different routing strategy or submit an
order directly to an away market center. This proposed change is not
being proposed for competitive reasons, but rather to make clear that
any order eligible to be posted to an away market center will be routed
during an SSCB. As each market center is required to comply with Rule
201 of Regulation SHO, the Exchange believes that any order eligible to
be posted to an away market center should be permitted to route, as the
order would be subject to the away market center's rules regarding
compliance with Rule 201 of Regulation SHO upon posting. The proposed
change to correct an inadvertent reference to the Exchange's affiliate
is similarly not proposed for competitive reasons, but rather in order
to ensure that the rule correctly identifies the Exchange within the
rule text.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received comments on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (i)
significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A) of the Act \36\ and Rule 19b-
4(f)(6) thereunder.\37\
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\36\ 15 U.S.C. 78s(b)(3)(A).
\37\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires a self-regulatory organization to give the Commission
written notice of its 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 under Rule 19b-4(f)(6) normally does
not become operative prior to 30 days after the date of the filing.
However, pursuant to Rule 19b-4(f)(6)(iii),\38\ the Commission may
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. The Exchange states
the proposed rule change provides clarity on how orders modified to
sell short exempt are accomplished and the priority of orders marked
sell short exempt. The Exchange believes that the proposed rule change
related to modifications from sell long to sell short (or vice versa)
or sell short exempt to sell short (or vice versa) that occur during an
SSCB will affect only a small percentage of overall order
modifications.\39\ Finally, the Exchange states that the proposed
change to Rule 11.11(a) will permit orders containing routing
instructions entered by all Users that would post to an away market
during an SSCB to route to away market centers immediately upon
becoming operative. 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.\40\
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\38\ 17 CFR 240.19b-4(f)(6)(iii).
\39\ See supra note 28.
\40\ 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. If the Commission
takes such action, the Commission will institute proceedings to
determine whether the proposed rule change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-CboeBYX-2023-004.
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-2023-004. 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
[[Page 13224]]
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-2023-004, and should be submitted on or before March 23, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\41\
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\41\ 17 CFR 200.30-3(a)(12), (59).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2023-04227 Filed 3-1-23; 8:45 am]
BILLING CODE 8011-01-P
