Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing of a Proposed Rule Change To Amend Rule 11.9(c)(6) and Rule 11.13(a)(4)(D) To Permit the Use of BZX Post Only Orders at Prices Below $1.00, 5596-5601 [2024-01618]
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Federal Register / Vol. 89, No. 19 / Monday, January 29, 2024 / Notices
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–
CBOE–2024–006 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
ddrumheller on DSK120RN23PROD with NOTICES1
All submissions should refer to file
number SR–CBOE–2024–006. 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, as modified by Amendment No.
1, that are filed with the Commission,
and all written communications relating
to the proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549, on official
business days between the hours of 10
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will be available for inspection and
copying at the principal office of the
Exchange. Do not include personal
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you should submit only information
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publicly. We may redact in part or
withhold entirely from publication
submitted material that is obscene or
subject to copyright protection. All
submissions should refer to file number
SR–CBOE–2024–006 and should be
submitted on or before February 20,
2024.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.64
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024–01620 Filed 1–26–24; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
Sunshine Act Meetings
Notice is hereby given,
pursuant to the provisions of the
Government in the Sunshine Act, Public
Law 94–409, that the Securities and
Exchange Commission will hold an
Open Meeting on Wednesday, January
31, 2024, at 10:00 a.m. (ET).
PLACE: The meeting will be held in
Auditorium LL–002 at the
Commission’s headquarters, 100 F
Street NE, Washington, DC 20549 and
will be simultaneously webcast on the
Commission’s website at www.sec.gov.
STATUS: This meeting will begin at 10:00
a.m. (ET) and will be open to the public.
Seating will be on a first-come, firstserved basis. Visitors will be subject to
security checks. The meeting will be
webcast on the Commission’s website at
www.sec.gov.
MATTERS TO BE CONSIDERED:
1. The Commission will consider
whether to adopt new rules to further
define the phrase ‘‘as a part of a regular
business’’ as used in the statutory
definitions of the terms ‘‘dealer’’ and
‘‘government securities dealer’’ under
the Securities Exchange Act of 1934, in
connection with certain liquidity
providers.
CONTACT PERSON FOR MORE INFORMATION:
For further information and to ascertain
what, if any, matters have been added,
deleted or postponed, please contact
Vanessa A. Countryman from the Office
of the Secretary at (202) 551–5400.
Authority: 5 U.S.C. 552b.
TIME AND DATE:
Dated: January 24, 2024.
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024–01758 Filed 1–25–24; 11:15 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–99414; File No. SR–
CboeBZX–2024–006]
Self-Regulatory Organizations; Cboe
BZX Exchange, Inc.; Notice of Filing of
a Proposed Rule Change To Amend
Rule 11.9(c)(6) and Rule 11.13(a)(4)(D)
To Permit the Use of BZX Post Only
Orders at Prices Below $1.00
January 23, 2024.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
1 15
64 17
CFR 200.30–3(a)(12).
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U.S.C. 78s(b)(1).
CFR 240.19b–4.
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notice is hereby given that on January 8,
2024, Cboe BZX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘BZX’’) filed with the
Securities and Exchange Commission
(the ‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Cboe BZX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘BZX’’) proposes to
amend Rule 11.9(c)(6) and Rule
11.13(a)(4)(D) to permit the use of BZX
Post Only Orders at prices below $1.00.
The text of the proposed rule change is
provided in Exhibit 5.
The text of the proposed rule change
is also available on the Exchange’s
website (https://markets.cboe.com/us/
equities/regulation/rule_filings/bzx/), at
the Exchange’s Office of the Secretary,
and at the Commission’s Public
Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
Trading in sub-dollar securities both
on- and off-exchange has grown
significantly since early 2019. An
analysis of SIP 3 data by the Exchange
found that sub-dollar average daily
volume has increased 313% as
compared to volumes in the first quarter
of 2019.4 During this period, onexchange average daily volume in subdollar securities grew from 442 million
3 The ‘‘SIP’’ refers to the centralized securities
information processors.
4 See ‘‘How Subdollar Securities are Trading
Now’’ (March 16, 2023). Available at https://
www.cboe.com/insights/posts/how-subdollarsecurities-are-trading-now/.
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shares per day to 1.8 billion shares per
day.5 A separate analysis of SIP and
FINRA Trade Reporting Facility
(‘‘TRF’’) 6 data indicated that exchanges
represented approximately 39.8%
market share in sub-dollar securities,
with a total of 1,638 securities trading
below $1.00.7 As an exchange group,
Cboe had approximately 13.3% of
market share in sub-dollar securities in
the first quarter of 2023.8
As a result of the growth in sub-dollar
trading, the Exchange proposes to
amend Rule 11.9(c)(6) in order to permit
a BZX Post Only Order to post to the
BZX Book 9 at prices below $1.00. As
defined in Rule 11.9(c)(6), a BZX Post
Only Order is ‘‘[a]n order that is to be
ranked and executed on the Exchange
pursuant to Rule 11.12 and Rule
11.13(a)(4) or cancelled, as appropriate,
without routing away to another trading
center except that the order will not
remove liquidity from the BZX
Book. . .’’. Accordingly, a BZX Post
Only Order does not remove liquidity,
but rather posts to the BZX Book to the
extent permissible. Additionally, the
Exchange proposes to amend Rule
11.13(a)(4)(D) to describe the manner in
which bids or offers priced below $1.00
per share are executed against orders
resting on the BZX Book. The Exchange
believes the proposed changes will
provide Users 10 with an additional
order type to utilize when submitting
order flow to the Exchange in securities
priced below $1.00, thereby
contributing to a deeper and more liquid
market, which benefits all market
participants and provides greater
execution opportunities on the
Exchange.
Currently, BZX Post Only Orders
priced below $1.00 are automatically
treated as orders that remove liquidity.11
In order to permit a BZX Post Only
5 Id.
ddrumheller on DSK120RN23PROD with NOTICES1
6 Trade
Reporting Facilities are facilities through
which FINRA members report off-exchange
transactions in NMS stocks, as defined in SEC Rule
600(b)(47) of Regulation NMS. See Securities
Exchange Act Release No. 96494 (December 14,
2022), 87 FR 80266 (December 29, 2022) (‘‘Tick Size
Proposal’’) at 80315.
7 Supra note 5.
8 Id.
9 See Rule 1.5(e). The BZX Book means the
System’s electronic file of orders.
10 See Rule 1.5(cc). The term ‘‘User’’ shall mean
any Member or Sponsored Participant who is
authorized to obtain access to the System pursuant
to Rule 11.3.
11 BZX Post Only Orders in securities priced at or
above $1.00 remove contra-side liquidity only if the
value of such execution when removing liquidity
equals or exceeds the value of such execution if the
order instead posted to the BZX Book and
subsequently provided liquidity. The Exchange
does not propose to change the functionality of BZX
Post Only Orders in securities priced at or above
$1.00.
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Order to post to the BZX Book at prices
below $1.00, the Exchange proposes to
amend Rule 11.9(c)(6) to remove
language that states that a BZX Post
Only Order ‘‘will remove contra-side
liquidity from the BZX Book if the order
is an order to buy or sell a security
priced below $1.00. . .’’. While the
Exchange’s economic best interest
calculation 12 will remain the same as is
currently in-place for securities priced
at or above $1.00, the impact of this
proposal will modify the outcome of
BZX Post Only Orders in securities
priced below $1.00 for Users who
choose to utilize this particular order
type. Under this proposal, BZX Post
Only Orders priced below $1.00 will
only remove liquidity if the value of the
overall execution (taking into account
all applicable fees and rebates) make it
economically beneficial for the order to
remove liquidity. The Exchange has
received User feedback requesting the
ability to utilize BZX Post Only Orders
in securities priced below $1.00 in order
to allow Users to operate a single
trading strategy for securities at all
prices even though the execution cost
economics for securities priced below
$1.00 may only provide a slight
economic benefit for Users who choose
to utilize BZX Post Only Orders in
securities priced below $1.00.
In addition to the proposed
amendment to Rule 11.9(c)(6), the
Exchange proposes an amendment to its
order handling procedures in order to
permit Non-Displayed Orders 13 and
orders subject to display-price sliding
(collectively, ‘‘Resting Orders’’) which
are not executable at their most
aggressive price due to the presence of
a contra-side BZX Post Only Order to be
executed at one minimum price
variation less aggressive than the order’s
most aggressive price.14 Currently,
12 The Exchange’s economic best interest
calculation determines whether the value of price
improvement associated with a BZX Post Only
Order equals or exceeds the sum of fees charged for
such execution and the value of any rebate that
would be provided if the order posted to the BZX
Book and subsequently provided liquidity. The
determination of whether a BZX Post Only Order
will be allowed to post to the BZX Book or be
eligible to remove liquidity is based on the current
fee schedule, the execution price, and the amount
of price improvement received.
13 See Rule 11.9(c)(11). A ‘‘Non-Displayed Order’’
is a market or limit order that is not displayed on
the Exchange.
14 See Securities Exchange Act Release No. 64475
(May 12, 2011), 76 FR 28830 (May 18, 2011), SR–
BATS–2011–015 (‘‘Resting Order Execution
Filing’’). The Resting Order Execution Filing
introduced an order handling change for certain
Non-Displayed Orders and orders subject to
display-price sliding that are not executable at
prices equal to displayed orders on the opposite
side of the market (the ‘‘locking price’’). The Resting
Order Execution Filing permits Resting Orders
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5597
similar order handling behavior applies
only to securities priced at or above
$1.00.15 When proposed in 2011, the
Resting Order Execution Filing stated
that the order handling functionality
was not necessary for securities priced
below $1.00 as the Exchange did not
have the ability to quote in sub-pennies
and the system limitations that market
participants may encounter if
attempting to execute in increments
finer than $0.0001.16 Given the rise in
sub-dollar trading discussed above, the
Exchange now proposes to expand the
order handling functionality introduced
by the Resting Order Execution Filing to
securities priced below $1.00.
Rule 11.13(a)(4)(D) states that for
securities priced above $1.00, incoming
orders that are market orders or limit
orders priced more aggressively than a
displayed order on the same side of the
market, the Exchange will execute the
incoming order at, in the case of an
incoming sell order, one-half minimum
price variation less than the price of the
displayed order, and, in the case of an
incoming buy order, at one-half
minimum price variation more than the
price of the displayed order. The
Exchange proposes that for securities
priced below $1.00, incoming orders
that are market orders or limit orders
priced more aggressively than a
displayed order on the same side of the
market, the Exchange will execute the
incoming order at, in the case of an
incoming sell order, one minimum price
variation less than the price of the
displayed order, and, in the case of an
incoming buy order, at one minimum
price variation more than the price of
the displayed order. The different
treatment of securities priced below
$1.00 from securities priced at or above
$1.00 arises from limitations within the
System,17 which cannot process
executions out to five decimal places.
In order to demonstrate the proposed
order handling behavior for securities
priced below $1.00, the Exchange has
included the following examples:
Example 1
• Assume the NBB is $0.50 and the
NBO is $0.53. There is no resting
interest on the BZX Book.
priced at or above $1.00 to be executed at one-half
minimum price variation less aggressive than the
locking price (for bids) and one-half minimum price
variation more aggressive than the locking price (for
offers), under certain circumstances.
15 See Rule 11.13(a)(4)(D).
16 See Resting Order Execution Filing footnote 8.
17 See Rule 1.5(aa). The term ‘‘System’’ shall
mean the electronic communications and trading
facility designated by the Board through which
securities orders of Users are consolidated for
ranked, executions and, when applicable, routing
away.
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Bid
National best:
$0.50
Offer
×
$0.53
• Next, assume the Exchange received
an incoming displayed offer (Order 1) to
sell 100 shares at $0.50. Order 1 is
eligible for display-price sliding
pursuant to Rule 11.9(g).18 Pursuant to
Rule 11.9(g), Order 1 is temporarily slid
to a displayed price of $0.5001 as it
locked the NBB upon entry.19 Even
though Order 1 is now temporarily
displayed at a price of $0.5001, Order
1’s ranked price remains $0.50, as $0.50
is the locking price.20
• Next, assume the Exchange received
an incoming BZX Post Only Order bid
(Order 2) to buy 100 shares at $0.50. The
Exchange’s economic best interest
calculation determined that it was more
beneficial for Order 2 to post to the BZX
Book and display at a price of $0.50.
BZX Post Only Orders are permitted to
post and be displayed opposite the
ranked price of orders subject to
display-price sliding.21 The result is
depicted as follows:
Bid
National best:
BZX best:
$0.50
$0.50
Offer
×
×
$0.5001
$0.5001
ddrumheller on DSK120RN23PROD with NOTICES1
• The Exchange then receives an
IOC 22 order to buy (Order 3) 100 shares
at $0.5001. Order 3 executes against
Order 1 in its entirety at a price of
$0.5001.
Consistent with the Exchange’s rule
regarding priority of orders, Rule 11.12,
a Non-Displayed order cannot be
executed by the Exchange pursuant to
Rule 11.13 when such order would be
executed at the locking price.
Specifically, if an incoming, marketable
order was allowed to execute against the
18 See Rule 11.9(g)(1)(A). An order eligible for
display by the Exchange that, at the time of entry,
would create a violation of Rule 610(d) of
Regulation NMS by locking or crossing a Protected
Quotation of an external market will be ranked at
the locking price in the BZX Book and displayed
by the System at one minimum price variation
below the current NBO (for bids) or to one
minimum price variation above the current NBB
(for offers) (‘‘display-price sliding’’).
19 The Exchange notes that the reference to
‘‘temporarily’’ is meant to convey that for so long
as the NBB is locked, Order 1 will be displayed at
a price of $0.5001 pursuant to Rule 11.9(g)(1)(A)(i).
In the event that the NBB moves so that Order 1
is no longer locking the NBB, Order 1 will be
displayed at the most aggressive permissible price.
See also Rule 11.9(g)(1)(A)(ii).
20 Id.
21 See Rule 11.9(g)(1)(E).
22 See Rule 11.9(b)(1). An ‘‘IOC’’ order is a limit
order that is to be executed in whole or in part as
soon as such order is received. The portion not
executed immediately on the Exchange or another
trading center is treated as cancelled and is not
posted to the BZX Book.
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18:33 Jan 26, 2024
Jkt 262001
resting, non-displayed portion of Order
1 at the locking price, such order would
receive a priority advantage over Order
2, a resting, displayed order at the
locking price. The Resting Order
Execution Filing granted the Exchange
the ability to execute Non-Displayed
Orders and orders subject to NMS Price
Sliding 23 priced at or above $1.00 at
one-half minimum price variation more
(less) than the locking price in the event
that a bid (offer) submitted to the
Exchange opposite such Resting Order
is a market order or limit order priced
more aggressive than the locking price.
In the example above, Order 1, ranked
at $0.50 upon entry, was slid to a
displayed price of $0.5001 pursuant to
Rule 11.9(g)(1)(A) as it locked the NBB.
Upon the arrival of Order 2, which is a
BZX Post Only Order that is permitted
to post to the BZX Book and display
opposite of Order 1,24 the Exchange’s
current priority rule prohibits Order 1
from executing at a price of $0.50 in the
event a subsequent contra-side
incoming order is entered at a more
aggressive price than the locking price.
In the example above, Order 3 was
entered at a more aggressive price
($0.5001) than the locking price ($0.50).
Without the proposed changes to Rule
11.13(a)(4), Order 3 would be cancelled
upon entry as it cannot execute at a
price of $0.50 due to Order 2’s higher
priority status.
As discussed above, the Exchange is
proposing that a Resting Order priced
below $1.00 be permitted to execute at
one minimum price variation above the
locking price (in the event of a Resting
Order offer) or one minimum price
variation below the locking price (in the
event of a Resting Order bid) in the
event that an order submitted to the
Exchange on the side opposite such
Resting Order is a market or limit order
priced more aggressively than the
locking price.25 This behavior is
23 Orders subject to NMS price sliding (‘‘displayprice sliding’’) that are temporarily slid to one
minimum price variation above (below) the NBO
(NBB) will consist of a non-displayed ranked price
that is equal to the locking price while
simultaneously showing a displayed price that is
one minimum price variation above (below) the
NBO (NBB). Given that orders subject to displayprice sliding contain a non-displayed ranked price
in addition to the order’s displayed price, the
particular priority issue identified in the Resting
Order Execution Filing with regard to NonDisplayed Orders is also present when an order
subject to display-price sliding is resting on the
BZX Book opposite a displayed order.
24 Supra note 18.
25 See 17 CFR 242.612 (‘‘Minimum pricing
increment’’). Given that the minimum pricing
increment for securities priced below $1.00 is
$0.0001, the Exchange believes that allowing orders
to execute at one minimum price variation above
(for offers) or below (for bids) the locking price is
appropriate, as requiring executions to occur at one-
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substantially similar to the order
handling functionality described in the
Resting Order Execution Filing, with
one difference being that securities
priced below $1.00 will execute at one
full minimum price variation above
(below) the locking price for offers
(bids) rather than one-half minimum
price variation above (below) the
locking price for offers (bids) in
securities priced at or above $1.00.
While the example above shows a
scenario in which only the Resting
Order will receive $0.0001 of price
improvement, rather than each side of
the transaction as is the case in the
scenarios described in the Resting Order
Execution Filing, the Exchange notes
that if Order 3 in the example above was
entered at any price more aggressive
than $0.5001, Order 3 would continue
to execute against Order 1 at a price of
$0.5001 and Order 3 would receive
price improvement equal to the
difference between its limit price and
$0.5001.26
The Resting Order Execution Filing
specifically introduced order handling
behavior that would permit Resting
Orders to be executed at one-half
minimum price variation above (below)
the locking price when an incoming,
marketable offer (bid) would otherwise
be prevented from executing due to the
presence of a BZX Post Only Order in
order to optimize available liquidity for
incoming orders and to provide price
improvement for market participants.27
This change to order handling behavior
was required because, if incoming
orders were allowed to execute against
Resting Orders at the locking price, such
incoming order would receive a priority
advantage over the resting, displayed
order at the locking price, contrary to
the Exchange’s priority rule, Rule
11.12.28 The Exchange recognizes that
the order handling behavior for
securities priced at or above $1.00
described in the Resting Order
Execution Filing results in price
improvement for both sides of an
affected transaction and the Exchange’s
proposed order handling change will
result in $0.0001 of price improvement
only for the Resting Order, however this
situation is limited to instances where
half minimum price variation above (for offers) or
below (for bids) the locking price, which is the
current behavior for securities priced at or above
$1.00, would result in trades executing out to five
decimal places, which is not supported by the
System.
26 For example, if all facts from Example 1 remain
the same except that Order 3 is an IOC buy order
entered with a limit price of $0.5005, then Order
3 will execute against Order 1 at a price of $0.5001
and receive $0.0004 of price improvement.
27 See Resting Order Execution Filing at 28831
28 Id.
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the incoming order is entered at a price
equal to the displayed price of the
Resting Order. While only the Resting
Order will receive $0.0001 of price
improvement when an incoming order
is entered at a price equal to the Resting
Order’s displayed price, the Exchange
believes the incoming order is receiving
the benefit of immediate execution
rather than cancelling back or posting to
the BZX Book (depending on User
instruction), which will result in higher
overall market quality and likelihood of
execution on BZX for Users. In
situations where the incoming order is
entered at a more aggressive price than
the displayed price of the Resting Order,
however, each side of the transaction
will be receiving at least $0.0001 of
price improvement.
Without the proposed order handling
change for securities priced below
$1.00, a Resting Order may be priced at
the very inside of the market at a price
below $1.00 but temporarily unable to
execute at its full limit price due to the
Exchange’s priority rule and current
order handling procedures. The
Exchange notes that by permitting a
User’s Resting Order to rest at a locking
price opposite a displayed order and
receive an execution against an
incoming order that is priced equal to or
more aggressively than the displayed
price, the Exchange is incentivizing
Users to post aggressively priced
liquidity on both sides of the market,
rather than discouraging such liquidity
by leaving orders unexecuted. In
addition, if the BZX Book changes so
that such orders are no longer resting or
ranked opposite a displayed order, then
such orders will again be executable at
their full limit price, and in the case of
price slid orders, will be displayed at
that limit price.
The Exchange is proposing a solution
to address specific conditions that are
present on the BZX Book when a BZX
Post Only Order is displayed opposite
the ranked price of orders subject to
display-price sliding. The Exchange
believes that such specific
circumstances, without modification of
Rule 11.13(a)(4), would be present upon
the expansion of BZX Post Only Order
functionality to securities priced below
$1.00 and would result in Users
receiving fewer executions than the
Exchange could otherwise facilitate. The
Exchange believes the proposed change
to Rule 11.13(a)(4)(D) is substantially
similar to the order handling
modification proposed and ultimately
approved by the Resting Order
Execution Filing and does not introduce
any novel order handling behavior that
has not previously been proposed.
While the Exchange is proposing to use
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a full minimum price variation rather
than the one-half minimum price
variation currently used for securities
priced at or above $1.00 as detailed in
the Resting Order Execution Filing, the
minimum price variation proposed for
securities priced below $1.00 is
commensurate with the standard
minimum pricing increment for
securities priced below $1.00.
The Exchange believes the absence of
price improvement for the incoming
order is diminished by the incoming
order’s ability to receive an execution
on the Exchange against the Resting
Order, rather than receive a cancellation
or be posted to the BZX Book
(depending on User instruction).
Further, the Exchange believes that
Users who receive increased execution
rates on BZX will be more likely to
submit additional order flow to the
Exchange. Additional increased order
flow benefits all market participants by
contributing to a deeper, more liquid
market and provides even more
execution opportunities for active
market participants. Additionally, this
difference is necessary due to System
limitations that do not support
executions out to five decimal places
($0.00001) in securities priced below
$1.00, which would occur should the
Exchange utilize the same minimum
price variation described in the Resting
Order Execution Filing. The proposal to
amend Rule 11.13(a)(4)(D) is limited to
certain circumstances that occur as a
result of the presence of a BZX Post
Only Order resting opposite a NonDisplayed Order or order subject to
display-price sliding and is designed to
optimize available liquidity for
incoming orders.
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.29 Specifically,
the Exchange believes the proposed rule
change is consistent with the Section
6(b)(5) 30 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
29 15
30 15
PO 00000
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
Frm 00120
Fmt 4703
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) 31 requirement that
the rules of an exchange not be designed
to permit unfair discrimination between
customers, issuers, brokers, or dealers.
As discussed above, the Exchange is
proposing to expand its BZX Post Only
Order functionality to securities priced
below $1.00. In conjunction with
expanding the ability to utilize BZX
Post Only Orders at prices below $1.00,
the Exchange also proposes that a
Resting Order priced below $1.00 be
permitted to execute at one minimum
price variation above the locking price
(in the event of a Resting Order offer) or
one minimum price variation below the
locking price (in the event of a Resting
Order bid) in the event that an order
submitted to the Exchange on the side
opposite such Resting Order is a market
or limit order priced more aggressively
than the locking price. This change in
order handling behavior is necessary in
order to address specific conditions that
are present on the BZX Book when a
BZX Post Only Order is displayed
opposite the ranked price of orders
subject to display-price sliding. As
discussed below, the Exchange believes
its proposal is consistent with Section
6(b)(5) of the Act.
In particular, the proposal to amend
Rule 11.9(c)(6) to permit orders priced
below $1.00 to utilize BZX Post Only
Order functionality promotes just and
equitable principles of trade and
removes impediments to, and perfects
the mechanism of a free and open
market and a national market system
because it will allow Users to enter
orders with a BZX Post Only instruction
at any price, rather than being limited
to securities priced above $1.00. The
growth in trading of sub-dollar
securities has expanded significantly
since 2019 and as such, the Exchange
believes that orders at all prices, not
only securities priced above $1.00,
should be permitted to utilize BZX Post
Only Order functionality, which will
permit orders to post on the Exchange
without removing liquidity or routing to
away to another trading center. BZX
Post Only Orders allow Users to post
aggressively priced liquidity, as such
Users have certainty as to the fee or
rebate they will receive from the
Exchange if their order is executed.
Without such ability, the Exchange
believes that certain Users would
simply post less aggressively priced
liquidity, and prices available for
31 Id.
Sfmt 4703
5599
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Federal Register / Vol. 89, No. 19 / Monday, January 29, 2024 / Notices
market participants, including retail
investors, would deteriorate.
Accordingly, the Exchange believes that
BZX Post Only Orders enhance the
liquidity available to all market
participants by allowing market makers
and other liquidity providers to add
liquidity to the Exchange at or near the
inside of the market. Indeed, such
market participants have asked the
Exchange to implement such
functionality in order to permit them to
utilize a single trading strategy across
securities at all prices. Allowing BZX
Post Only Orders to be utilized at prices
below $1.00 will deepen the Exchange’s
pool of available liquidity in sub-dollar
securities, which is a growing area of
trading, particularly for retail investors.
A deeper and more liquid market
supports the quality of price discovery,
promotes market transparency, and
improves market quality for all
investors. The Exchange does not
believe that the proposed amendment to
Rule 11.9(c)(6) is unfairly
discriminatory as it will permit the BZX
Post Only Order type to be used by all
Users at any price and the order type
will no longer be limited to securities
priced at or above $1.00.
Similarly, the proposal to amend Rule
11.13(a)(4)(D) to allow, under limited
circumstances, a Resting Order priced
below $1.00 that would otherwise be
non-executable due to the presence of a
BZX Post Only Order to execute at one
minimum price variation above (below)
the locking price upon the receipt of an
incoming, marketable offer (bid) that
would otherwise be prohibited from
executing due to the presence of a BZX
Post Only Order promotes just and
equitable principles of trade and
removes impediments to, and perfects
the mechanism of a free and open
market and a national market system
because it extends functionality
currently available to orders priced at or
above $1.00 to orders priced below
$1.00, with a slight difference in the
minimum price variation to account for
the System’s inability to display orders
out to five decimal places ($0.00001).
The proposed amendment to Rule
11.13(a)(4)(D) is substantially similar to
the order handling behavior change that
was proposed (and later approved) by
the Resting Order Execution Filing and
will only serve to improve execution
quality for participants sending orders
to the Exchange.
The Exchange does not believe that
the treatment of sub-dollar securities is
unfairly discriminatory as the Exchange
will be using the standard minimum
pricing increment for sub-dollar
securities in order to determine the
price at which the Resting Order is
VerDate Sep<11>2014
18:33 Jan 26, 2024
Jkt 262001
eligible to execute.32 While the
Exchange recognizes that under its
proposal for securities priced below
$1.00 results in a limited situation in
which only the Resting Order will
receive $0.0001 of price improvement
(i.e., when an incoming order is entered
at the same price as the displayed price
of the Resting Order), the Exchange
believes the incoming, contra-side order
is receiving the benefit of immediate
execution rather than cancelling or
posting to the BZX Book (depending on
User instruction), which will result in
higher overall market quality and
likelihood of execution on BZX for
Users. In situations where the incoming
order is entered at a more aggressive
price than the displayed price of the
Resting Order, however, each side of the
transaction will be receiving at least
$0.0001 of price improvement, which is
substantially similar to how the order
handling functionality works for
securities priced at or above $1.00. The
Exchange believes the proposed change
to execute marketable orders that are
currently not executed under specific
scenarios will help provide price
improvement to Resting Orders that, in
these limited circumstances, otherwise
would not receive an execution even
though their order is priced at the inside
of the market and would also provide
increased execution opportunities to
aggressively priced incoming orders
rather than requiring these orders to be
cancelled or post to the BZX Book.
Thus, the Exchange believes that its
proposed order handling process in the
limited scenario where a Resting Order
is ineligible to execute due to the
presence of a contra-side BZX Post Only
Order will benefit market participants
and their customers by allowing them
greater flexibility in their efforts to fill
orders and minimize trading costs.
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 intramarket competition
that is not necessary or appropriate in
furtherance of the purposes of the Act.
The proposed change to Rule 11.9(c)(6)
will apply equally to all Users in that all
Users will be eligible to utilize the BZX
Post Only Order for securities priced
below $1.00. Similarly, the proposed
change to Rule 11.13(a)(4)(D) applies
equally to all Users in that all Resting
Orders will benefit from the proposed
order handling behavior change that
will execute Resting Orders at one
minimum price variation above (below)
the locking price upon the receipt of a
32 Supra
PO 00000
note 25.
Frm 00121
Fmt 4703
Sfmt 4703
marketable offer (bid) should a Resting
Order be ineligible to execute due to the
presence of a contra-side BZX Post Only
Order. The proposed changes are
designed to expand an existing
Exchange order type and existing order
handling behavior to securities priced
below $1.00 due to the growth in subdollar trading that has been seen since
2019. Further, the Exchange does not
believe that Users submitting incoming,
contra-side orders are burdened by
virtue of not receiving price
improvement in limited situations as
they instead receive the benefit of an
immediate execution as opposed to
being cancelled back to the User or
posting on the BZX Book which results
in increased overall market quality and
a higher likelihood of execution on
BZX.
The Exchange similarly does not
believe that the proposed rule change
will impose any burden on intermarket
competition that is not necessary or
appropriate in furtherance of the
purposes of the Act. In fact, the
Exchange notes that other exchanges
already offer the ability to submit an
order that is not eligible for routing to
away markets and posts to the relevant
exchange book at prices below $1.00.33
The Exchange believes its proposal to
expand the use of the BZX Post Only
Order to securities priced below $1.00
will promote competition between the
Exchange and other exchanges for
volume in sub-dollar securities.
Furthermore, the Exchange believes its
proposal will promote competition
between the Exchange and off-exchange
trading venues, where a significant
amount of sub-dollar trading occurs
today.34 The Exchange similarly
believes that its proposal to amend its
order handling behavior in limited
circumstances where a Resting Order
cannot execute due to the presence of a
contra-side BZX Post Only Order does
not impose a burden on intermarket
competition as the change is not
designed to address any competitive
issue, but rather to address order
handling behavior in a substantially
similar manner to how the Exchange
treats Resting Orders priced at or above
$1.00 in the limited scenario where a
Resting Order is ineligible to execute
against an incoming, marketable order
due to the presence of a contra-side BZX
Post Only Order.
33 See Nasdaq Equity 4, Rule 4702(b)(4) (‘‘PostOnly Order’’). See also NYSE Rule 7.31(e)(2) (‘‘ALO
Order’’).
34 See ‘‘Off-Exchange Trends: Beyond Sub-dollar
Trading’’ (May 17, 2023). Available at https://
www.cboe.com/insights/posts/off-exchange-trendsbeyond-sub-dollar-trading/.
E:\FR\FM\29JAN1.SGM
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Federal Register / Vol. 89, No. 19 / Monday, January 29, 2024 / Notices
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
The Exchange neither solicited nor
received comments on the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period
up to 90 days (i) as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding or (ii) as to which
the Exchange consents, the Commission
will:
A. by order approve or disapprove
such proposed rule change, or
B. institute proceedings to determine
whether the proposed rule change
should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
ddrumheller on DSK120RN23PROD with NOTICES1
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to file
number SR–CboeBZX–2024–006. 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
18:33 Jan 26, 2024
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.35
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024–01618 Filed 1–26–24; 8:45 am]
BILLING CODE 8011–01–P
DEPARTMENT OF TRANSPORTATION
Federal Highway Administration
Federal Share Flexibility Pilot Program
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include file number SR–
CboeBZX–2024–006 on the subject line.
VerDate Sep<11>2014
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
a.m. and 3 p.m. Copies of the filing also
will be available for inspection and
copying at the principal office of the
Exchange. Do not include personal
identifiable information in submissions;
you should submit only information
that you wish to make available
publicly. We may redact in part or
withhold entirely from publication
submitted material that is obscene or
subject to copyright protection. All
submissions should refer to file number
SR–CboeBZX–2024–006 and should be
submitted on or before February 20,
2024.
Jkt 262001
Federal Highway
Administration (FHWA), Department of
Transportation (DOT).
ACTION: Notice.
AGENCY:
The FHWA is announcing a
pilot program to enable, on an
experimental basis, a State department
of transportation (State DOT) to
determine the Federal share on a
project, multi-project, or program basis
for projects under certain specified
programs. The Federal Share Flexibility
Pilot (Pilot) Program will be carried out
until September 30, 2026.
DATES: Applications must be received
by March 29, 2024.
ADDRESSES: All application materials
should be emailed to FSPPP@
Sharepointmail.dot.gov or mailed
attention to Rhonda Shaffer, Federal
Highway Administration, Room E62–
332, 1200 New Jersey Avenue SE,
Washington, DC 20590.
FOR FURTHER INFORMATION CONTACT: Mr.
Dan Parker, Senior Program Analyst,
Office of Financial Management, (801)
955–3518, Danial.Parker@dot.gov.
SUPPLEMENTARY INFORMATION:
SUMMARY:
35 17
PO 00000
CFR 200.30–3(a)(12).
Frm 00122
Fmt 4703
Sfmt 4703
5601
Electronic Access
An electronic copy of this notice may
be downloaded from the Office of the
Federal Register’s home page at:
www.federalregister.gov/ and the
Government Publishing Office’s web
page at: www.gpo.gov/fdsys/.
Background
The Federal-aid highway program is a
federally funded, State-administered
program, under which State DOTs are
responsible for determining which
projects are federally funded. Projects
are authorized and federally funded up
to the maximum Federal share as
authorized in statute. Section 11107 of
the Bipartisan Infrastructure Law (BIL),
enacted as the Infrastructure Investment
and Jobs Act (IIJA) (Pub. L. 117–58),
amended section 120(l) of title 23,
United States Code (U.S.C.) to require
the establishment of a Pilot Program not
later than 180 days after the date of
enactment of the BIL. In accordance
with 23 U.S.C. 120(l), selected States in
the Pilot Program are allowed to
determine the Federal share on an
individual project that is more than 0
percent and up to 100 percent as long
as the average annual Federal share of
all participating projects does not
exceed the average of the maximum
Federal share of those projects if those
projects were not carried out under the
Pilot Program. The following guidelines
have been established for the Pilot
Program:
(a) Up to 10 State DOTs may
participate in the Pilot Program.
(b) The Pilot Program will expire on
September 30, 2026.
(c) The Federal share will be
determined based on the following
criteria:
(1) Determined based on project,
multiple projects, or program basis.
(2) Maximum Federal share for an
individual project under the Pilot
Program is 100 percent.
(3) Minimum Federal share for an
individual project under the Pilot
Program is greater than 0 percent (i.e.,
any project authorized under the Pilot
Program cannot be 0 percent).
(4) The average annual Federal share
of the total cost of all projects
authorized under this Pilot Program
shall not exceed the average of the
maximum Federal share of those
projects if those projects were not
carried out under the Pilot Program.
(d) State DOTs participating in the
Pilot Program may determine the
Federal share on a project, multipleproject, or program basis for projects
under any of the following programs:
(1) National Highway Performance
Program (23 U.S.C. 119).
E:\FR\FM\29JAN1.SGM
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]]>Agencies
[Federal Register Volume 89, Number 19 (Monday, January 29, 2024)]
[Notices]
[Pages 5596-5601]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-01618]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-99414; File No. SR-CboeBZX-2024-006]
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of
Filing of a Proposed Rule Change To Amend Rule 11.9(c)(6) and Rule
11.13(a)(4)(D) To Permit the Use of BZX Post Only Orders at Prices
Below $1.00
January 23, 2024.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on January 8, 2024, Cboe BZX Exchange, Inc. (the ``Exchange'' or
``BZX'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Cboe BZX Exchange, Inc. (the ``Exchange'' or ``BZX'') proposes to
amend Rule 11.9(c)(6) and Rule 11.13(a)(4)(D) to permit the use of BZX
Post Only Orders at prices below $1.00. The text of the proposed rule
change is provided in Exhibit 5.
The text of the proposed rule change is also available on the
Exchange's website (https://markets.cboe.com/us/equities/regulation/rule_filings/bzx/), at the Exchange's Office of the Secretary, and at
the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
Trading in sub-dollar securities both on- and off-exchange has
grown significantly since early 2019. An analysis of SIP \3\ data by
the Exchange found that sub-dollar average daily volume has increased
313% as compared to volumes in the first quarter of 2019.\4\ During
this period, on-exchange average daily volume in sub-dollar securities
grew from 442 million
[[Page 5597]]
shares per day to 1.8 billion shares per day.\5\ A separate analysis of
SIP and FINRA Trade Reporting Facility (``TRF'') \6\ data indicated
that exchanges represented approximately 39.8% market share in sub-
dollar securities, with a total of 1,638 securities trading below
$1.00.\7\ As an exchange group, Cboe had approximately 13.3% of market
share in sub-dollar securities in the first quarter of 2023.\8\
---------------------------------------------------------------------------
\3\ The ``SIP'' refers to the centralized securities information
processors.
\4\ See ``How Subdollar Securities are Trading Now'' (March 16,
2023). Available at https://www.cboe.com/insights/posts/how-subdollar-securities-are-trading-now/.
\5\ Id.
\6\ Trade Reporting Facilities are facilities through which
FINRA members report off-exchange transactions in NMS stocks, as
defined in SEC Rule 600(b)(47) of Regulation NMS. See Securities
Exchange Act Release No. 96494 (December 14, 2022), 87 FR 80266
(December 29, 2022) (``Tick Size Proposal'') at 80315.
\7\ Supra note 5.
\8\ Id.
---------------------------------------------------------------------------
As a result of the growth in sub-dollar trading, the Exchange
proposes to amend Rule 11.9(c)(6) in order to permit a BZX Post Only
Order to post to the BZX Book \9\ at prices below $1.00. As defined in
Rule 11.9(c)(6), a BZX Post Only Order is ``[a]n order that is to be
ranked and executed on the Exchange pursuant to Rule 11.12 and Rule
11.13(a)(4) or cancelled, as appropriate, without routing away to
another trading center except that the order will not remove liquidity
from the BZX Book. . .''. Accordingly, a BZX Post Only Order does not
remove liquidity, but rather posts to the BZX Book to the extent
permissible. Additionally, the Exchange proposes to amend Rule
11.13(a)(4)(D) to describe the manner in which bids or offers priced
below $1.00 per share are executed against orders resting on the BZX
Book. The Exchange believes the proposed changes will provide Users
\10\ with an additional order type to utilize when submitting order
flow to the Exchange in securities priced below $1.00, thereby
contributing to a deeper and more liquid market, which benefits all
market participants and provides greater execution opportunities on the
Exchange.
---------------------------------------------------------------------------
\9\ See Rule 1.5(e). The BZX Book means the System's electronic
file of orders.
\10\ See Rule 1.5(cc). The term ``User'' shall mean any Member
or Sponsored Participant who is authorized to obtain access to the
System pursuant to Rule 11.3.
---------------------------------------------------------------------------
Currently, BZX Post Only Orders priced below $1.00 are
automatically treated as orders that remove liquidity.\11\ In order to
permit a BZX Post Only Order to post to the BZX Book at prices below
$1.00, the Exchange proposes to amend Rule 11.9(c)(6) to remove
language that states that a BZX Post Only Order ``will remove contra-
side liquidity from the BZX Book if the order is an order to buy or
sell a security priced below $1.00. . .''. While the Exchange's
economic best interest calculation \12\ will remain the same as is
currently in-place for securities priced at or above $1.00, the impact
of this proposal will modify the outcome of BZX Post Only Orders in
securities priced below $1.00 for Users who choose to utilize this
particular order type. Under this proposal, BZX Post Only Orders priced
below $1.00 will only remove liquidity if the value of the overall
execution (taking into account all applicable fees and rebates) make it
economically beneficial for the order to remove liquidity. The Exchange
has received User feedback requesting the ability to utilize BZX Post
Only Orders in securities priced below $1.00 in order to allow Users to
operate a single trading strategy for securities at all prices even
though the execution cost economics for securities priced below $1.00
may only provide a slight economic benefit for Users who choose to
utilize BZX Post Only Orders in securities priced below $1.00.
---------------------------------------------------------------------------
\11\ BZX Post Only Orders in securities priced at or above $1.00
remove contra-side liquidity only if the value of such execution
when removing liquidity equals or exceeds the value of such
execution if the order instead posted to the BZX Book and
subsequently provided liquidity. The Exchange does not propose to
change the functionality of BZX Post Only Orders in securities
priced at or above $1.00.
\12\ The Exchange's economic best interest calculation
determines whether the value of price improvement associated with a
BZX Post Only Order equals or exceeds the sum of fees charged for
such execution and the value of any rebate that would be provided if
the order posted to the BZX Book and subsequently provided
liquidity. The determination of whether a BZX Post Only Order will
be allowed to post to the BZX Book or be eligible to remove
liquidity is based on the current fee schedule, the execution price,
and the amount of price improvement received.
---------------------------------------------------------------------------
In addition to the proposed amendment to Rule 11.9(c)(6), the
Exchange proposes an amendment to its order handling procedures in
order to permit Non-Displayed Orders \13\ and orders subject to
display-price sliding (collectively, ``Resting Orders'') which are not
executable at their most aggressive price due to the presence of a
contra-side BZX Post Only Order to be executed at one minimum price
variation less aggressive than the order's most aggressive price.\14\
Currently, similar order handling behavior applies only to securities
priced at or above $1.00.\15\ When proposed in 2011, the Resting Order
Execution Filing stated that the order handling functionality was not
necessary for securities priced below $1.00 as the Exchange did not
have the ability to quote in sub-pennies and the system limitations
that market participants may encounter if attempting to execute in
increments finer than $0.0001.\16\ Given the rise in sub-dollar trading
discussed above, the Exchange now proposes to expand the order handling
functionality introduced by the Resting Order Execution Filing to
securities priced below $1.00.
---------------------------------------------------------------------------
\13\ See Rule 11.9(c)(11). A ``Non-Displayed Order'' is a market
or limit order that is not displayed on the Exchange.
\14\ See Securities Exchange Act Release No. 64475 (May 12,
2011), 76 FR 28830 (May 18, 2011), SR-BATS-2011-015 (``Resting Order
Execution Filing''). The Resting Order Execution Filing introduced
an order handling change for certain Non-Displayed Orders and orders
subject to display-price sliding that are not executable at prices
equal to displayed orders on the opposite side of the market (the
``locking price''). The Resting Order Execution Filing permits
Resting Orders priced at or above $1.00 to be executed at one-half
minimum price variation less aggressive than the locking price (for
bids) and one-half minimum price variation more aggressive than the
locking price (for offers), under certain circumstances.
\15\ See Rule 11.13(a)(4)(D).
\16\ See Resting Order Execution Filing footnote 8.
---------------------------------------------------------------------------
Rule 11.13(a)(4)(D) states that for securities priced above $1.00,
incoming orders that are market orders or limit orders priced more
aggressively than a displayed order on the same side of the market, the
Exchange will execute the incoming order at, in the case of an incoming
sell order, one-half minimum price variation less than the price of the
displayed order, and, in the case of an incoming buy order, at one-half
minimum price variation more than the price of the displayed order. The
Exchange proposes that for securities priced below $1.00, incoming
orders that are market orders or limit orders priced more aggressively
than a displayed order on the same side of the market, the Exchange
will execute the incoming order at, in the case of an incoming sell
order, one minimum price variation less than the price of the displayed
order, and, in the case of an incoming buy order, at one minimum price
variation more than the price of the displayed order. The different
treatment of securities priced below $1.00 from securities priced at or
above $1.00 arises from limitations within the System,\17\ which cannot
process executions out to five decimal places.
---------------------------------------------------------------------------
\17\ See Rule 1.5(aa). The term ``System'' shall mean the
electronic communications and trading facility designated by the
Board through which securities orders of Users are consolidated for
ranked, executions and, when applicable, routing away.
---------------------------------------------------------------------------
In order to demonstrate the proposed order handling behavior for
securities priced below $1.00, the Exchange has included the following
examples:
Example 1
Assume the NBB is $0.50 and the NBO is $0.53. There is no
resting interest on the BZX Book.
[[Page 5598]]
------------------------------------------------------------------------
Bid Offer
------------------------------------------------------------------------
National best: $0.50 x $0.53
------------------------------------------------------------------------
Next, assume the Exchange received an incoming displayed
offer (Order 1) to sell 100 shares at $0.50. Order 1 is eligible for
display-price sliding pursuant to Rule 11.9(g).\18\ Pursuant to Rule
11.9(g), Order 1 is temporarily slid to a displayed price of $0.5001 as
it locked the NBB upon entry.\19\ Even though Order 1 is now
temporarily displayed at a price of $0.5001, Order 1's ranked price
remains $0.50, as $0.50 is the locking price.\20\
---------------------------------------------------------------------------
\18\ See Rule 11.9(g)(1)(A). An order eligible for display by
the Exchange that, at the time of entry, would create a violation of
Rule 610(d) of Regulation NMS by locking or crossing a Protected
Quotation of an external market will be ranked at the locking price
in the BZX Book and displayed by the System at one minimum price
variation below the current NBO (for bids) or to one minimum price
variation above the current NBB (for offers) (``display-price
sliding'').
\19\ The Exchange notes that the reference to ``temporarily'' is
meant to convey that for so long as the NBB is locked, Order 1 will
be displayed at a price of $0.5001 pursuant to Rule
11.9(g)(1)(A)(i). In the event that the NBB moves so that Order 1 is
no longer locking the NBB, Order 1 will be displayed at the most
aggressive permissible price. See also Rule 11.9(g)(1)(A)(ii).
\20\ Id.
---------------------------------------------------------------------------
Next, assume the Exchange received an incoming BZX Post
Only Order bid (Order 2) to buy 100 shares at $0.50. The Exchange's
economic best interest calculation determined that it was more
beneficial for Order 2 to post to the BZX Book and display at a price
of $0.50. BZX Post Only Orders are permitted to post and be displayed
opposite the ranked price of orders subject to display-price
sliding.\21\ The result is depicted as follows:
---------------------------------------------------------------------------
\21\ See Rule 11.9(g)(1)(E).
------------------------------------------------------------------------
Bid Offer
------------------------------------------------------------------------
National best: $0.50 x $0.5001
BZX best: $0.50 x $0.5001
------------------------------------------------------------------------
The Exchange then receives an IOC \22\ order to buy (Order
3) 100 shares at $0.5001. Order 3 executes against Order 1 in its
entirety at a price of $0.5001.
---------------------------------------------------------------------------
\22\ See Rule 11.9(b)(1). An ``IOC'' order is a limit order that
is to be executed in whole or in part as soon as such order is
received. The portion not executed immediately on the Exchange or
another trading center is treated as cancelled and is not posted to
the BZX Book.
---------------------------------------------------------------------------
Consistent with the Exchange's rule regarding priority of orders,
Rule 11.12, a Non-Displayed order cannot be executed by the Exchange
pursuant to Rule 11.13 when such order would be executed at the locking
price. Specifically, if an incoming, marketable order was allowed to
execute against the resting, non-displayed portion of Order 1 at the
locking price, such order would receive a priority advantage over Order
2, a resting, displayed order at the locking price. The Resting Order
Execution Filing granted the Exchange the ability to execute Non-
Displayed Orders and orders subject to NMS Price Sliding \23\ priced at
or above $1.00 at one-half minimum price variation more (less) than the
locking price in the event that a bid (offer) submitted to the Exchange
opposite such Resting Order is a market order or limit order priced
more aggressive than the locking price.
---------------------------------------------------------------------------
\23\ Orders subject to NMS price sliding (``display-price
sliding'') that are temporarily slid to one minimum price variation
above (below) the NBO (NBB) will consist of a non-displayed ranked
price that is equal to the locking price while simultaneously
showing a displayed price that is one minimum price variation above
(below) the NBO (NBB). Given that orders subject to display-price
sliding contain a non-displayed ranked price in addition to the
order's displayed price, the particular priority issue identified in
the Resting Order Execution Filing with regard to Non-Displayed
Orders is also present when an order subject to display-price
sliding is resting on the BZX Book opposite a displayed order.
---------------------------------------------------------------------------
In the example above, Order 1, ranked at $0.50 upon entry, was slid
to a displayed price of $0.5001 pursuant to Rule 11.9(g)(1)(A) as it
locked the NBB. Upon the arrival of Order 2, which is a BZX Post Only
Order that is permitted to post to the BZX Book and display opposite of
Order 1,\24\ the Exchange's current priority rule prohibits Order 1
from executing at a price of $0.50 in the event a subsequent contra-
side incoming order is entered at a more aggressive price than the
locking price. In the example above, Order 3 was entered at a more
aggressive price ($0.5001) than the locking price ($0.50). Without the
proposed changes to Rule 11.13(a)(4), Order 3 would be cancelled upon
entry as it cannot execute at a price of $0.50 due to Order 2's higher
priority status.
---------------------------------------------------------------------------
\24\ Supra note 18.
---------------------------------------------------------------------------
As discussed above, the Exchange is proposing that a Resting Order
priced below $1.00 be permitted to execute at one minimum price
variation above the locking price (in the event of a Resting Order
offer) or one minimum price variation below the locking price (in the
event of a Resting Order bid) in the event that an order submitted to
the Exchange on the side opposite such Resting Order is a market or
limit order priced more aggressively than the locking price.\25\ This
behavior is substantially similar to the order handling functionality
described in the Resting Order Execution Filing, with one difference
being that securities priced below $1.00 will execute at one full
minimum price variation above (below) the locking price for offers
(bids) rather than one-half minimum price variation above (below) the
locking price for offers (bids) in securities priced at or above $1.00.
While the example above shows a scenario in which only the Resting
Order will receive $0.0001 of price improvement, rather than each side
of the transaction as is the case in the scenarios described in the
Resting Order Execution Filing, the Exchange notes that if Order 3 in
the example above was entered at any price more aggressive than
$0.5001, Order 3 would continue to execute against Order 1 at a price
of $0.5001 and Order 3 would receive price improvement equal to the
difference between its limit price and $0.5001.\26\
---------------------------------------------------------------------------
\25\ See 17 CFR 242.612 (``Minimum pricing increment''). Given
that the minimum pricing increment for securities priced below $1.00
is $0.0001, the Exchange believes that allowing orders to execute at
one minimum price variation above (for offers) or below (for bids)
the locking price is appropriate, as requiring executions to occur
at one-half minimum price variation above (for offers) or below (for
bids) the locking price, which is the current behavior for
securities priced at or above $1.00, would result in trades
executing out to five decimal places, which is not supported by the
System.
\26\ For example, if all facts from Example 1 remain the same
except that Order 3 is an IOC buy order entered with a limit price
of $0.5005, then Order 3 will execute against Order 1 at a price of
$0.5001 and receive $0.0004 of price improvement.
---------------------------------------------------------------------------
The Resting Order Execution Filing specifically introduced order
handling behavior that would permit Resting Orders to be executed at
one-half minimum price variation above (below) the locking price when
an incoming, marketable offer (bid) would otherwise be prevented from
executing due to the presence of a BZX Post Only Order in order to
optimize available liquidity for incoming orders and to provide price
improvement for market participants.\27\ This change to order handling
behavior was required because, if incoming orders were allowed to
execute against Resting Orders at the locking price, such incoming
order would receive a priority advantage over the resting, displayed
order at the locking price, contrary to the Exchange's priority rule,
Rule 11.12.\28\ The Exchange recognizes that the order handling
behavior for securities priced at or above $1.00 described in the
Resting Order Execution Filing results in price improvement for both
sides of an affected transaction and the Exchange's proposed order
handling change will result in $0.0001 of price improvement only for
the Resting Order, however this situation is limited to instances where
[[Page 5599]]
the incoming order is entered at a price equal to the displayed price
of the Resting Order. While only the Resting Order will receive $0.0001
of price improvement when an incoming order is entered at a price equal
to the Resting Order's displayed price, the Exchange believes the
incoming order is receiving the benefit of immediate execution rather
than cancelling back or posting to the BZX Book (depending on User
instruction), which will result in higher overall market quality and
likelihood of execution on BZX for Users. In situations where the
incoming order is entered at a more aggressive price than the displayed
price of the Resting Order, however, each side of the transaction will
be receiving at least $0.0001 of price improvement.
---------------------------------------------------------------------------
\27\ See Resting Order Execution Filing at 28831
\28\ Id.
---------------------------------------------------------------------------
Without the proposed order handling change for securities priced
below $1.00, a Resting Order may be priced at the very inside of the
market at a price below $1.00 but temporarily unable to execute at its
full limit price due to the Exchange's priority rule and current order
handling procedures. The Exchange notes that by permitting a User's
Resting Order to rest at a locking price opposite a displayed order and
receive an execution against an incoming order that is priced equal to
or more aggressively than the displayed price, the Exchange is
incentivizing Users to post aggressively priced liquidity on both sides
of the market, rather than discouraging such liquidity by leaving
orders unexecuted. In addition, if the BZX Book changes so that such
orders are no longer resting or ranked opposite a displayed order, then
such orders will again be executable at their full limit price, and in
the case of price slid orders, will be displayed at that limit price.
The Exchange is proposing a solution to address specific conditions
that are present on the BZX Book when a BZX Post Only Order is
displayed opposite the ranked price of orders subject to display-price
sliding. The Exchange believes that such specific circumstances,
without modification of Rule 11.13(a)(4), would be present upon the
expansion of BZX Post Only Order functionality to securities priced
below $1.00 and would result in Users receiving fewer executions than
the Exchange could otherwise facilitate. The Exchange believes the
proposed change to Rule 11.13(a)(4)(D) is substantially similar to the
order handling modification proposed and ultimately approved by the
Resting Order Execution Filing and does not introduce any novel order
handling behavior that has not previously been proposed. While the
Exchange is proposing to use a full minimum price variation rather than
the one-half minimum price variation currently used for securities
priced at or above $1.00 as detailed in the Resting Order Execution
Filing, the minimum price variation proposed for securities priced
below $1.00 is commensurate with the standard minimum pricing increment
for securities priced below $1.00.
The Exchange believes the absence of price improvement for the
incoming order is diminished by the incoming order's ability to receive
an execution on the Exchange against the Resting Order, rather than
receive a cancellation or be posted to the BZX Book (depending on User
instruction). Further, the Exchange believes that Users who receive
increased execution rates on BZX will be more likely to submit
additional order flow to the Exchange. Additional increased order flow
benefits all market participants by contributing to a deeper, more
liquid market and provides even more execution opportunities for active
market participants. Additionally, this difference is necessary due to
System limitations that do not support executions out to five decimal
places ($0.00001) in securities priced below $1.00, which would occur
should the Exchange utilize the same minimum price variation described
in the Resting Order Execution Filing. The proposal to amend Rule
11.13(a)(4)(D) is limited to certain circumstances that occur as a
result of the presence of a BZX Post Only Order resting opposite a Non-
Displayed Order or order subject to display-price sliding and is
designed to optimize available liquidity for incoming orders.
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.\29\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \30\ 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) \31\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
---------------------------------------------------------------------------
\29\ 15 U.S.C. 78f(b).
\30\ 15 U.S.C. 78f(b)(5).
\31\ Id.
---------------------------------------------------------------------------
As discussed above, the Exchange is proposing to expand its BZX
Post Only Order functionality to securities priced below $1.00. In
conjunction with expanding the ability to utilize BZX Post Only Orders
at prices below $1.00, the Exchange also proposes that a Resting Order
priced below $1.00 be permitted to execute at one minimum price
variation above the locking price (in the event of a Resting Order
offer) or one minimum price variation below the locking price (in the
event of a Resting Order bid) in the event that an order submitted to
the Exchange on the side opposite such Resting Order is a market or
limit order priced more aggressively than the locking price. This
change in order handling behavior is necessary in order to address
specific conditions that are present on the BZX Book when a BZX Post
Only Order is displayed opposite the ranked price of orders subject to
display-price sliding. As discussed below, the Exchange believes its
proposal is consistent with Section 6(b)(5) of the Act.
In particular, the proposal to amend Rule 11.9(c)(6) to permit
orders priced below $1.00 to utilize BZX Post Only Order functionality
promotes just and equitable principles of trade and removes impediments
to, and perfects the mechanism of a free and open market and a national
market system because it will allow Users to enter orders with a BZX
Post Only instruction at any price, rather than being limited to
securities priced above $1.00. The growth in trading of sub-dollar
securities has expanded significantly since 2019 and as such, the
Exchange believes that orders at all prices, not only securities priced
above $1.00, should be permitted to utilize BZX Post Only Order
functionality, which will permit orders to post on the Exchange without
removing liquidity or routing to away to another trading center. BZX
Post Only Orders allow Users to post aggressively priced liquidity, as
such Users have certainty as to the fee or rebate they will receive
from the Exchange if their order is executed. Without such ability, the
Exchange believes that certain Users would simply post less
aggressively priced liquidity, and prices available for
[[Page 5600]]
market participants, including retail investors, would deteriorate.
Accordingly, the Exchange believes that BZX Post Only Orders enhance
the liquidity available to all market participants by allowing market
makers and other liquidity providers to add liquidity to the Exchange
at or near the inside of the market. Indeed, such market participants
have asked the Exchange to implement such functionality in order to
permit them to utilize a single trading strategy across securities at
all prices. Allowing BZX Post Only Orders to be utilized at prices
below $1.00 will deepen the Exchange's pool of available liquidity in
sub-dollar securities, which is a growing area of trading, particularly
for retail investors. A deeper and more liquid market supports the
quality of price discovery, promotes market transparency, and improves
market quality for all investors. The Exchange does not believe that
the proposed amendment to Rule 11.9(c)(6) is unfairly discriminatory as
it will permit the BZX Post Only Order type to be used by all Users at
any price and the order type will no longer be limited to securities
priced at or above $1.00.
Similarly, the proposal to amend Rule 11.13(a)(4)(D) to allow,
under limited circumstances, a Resting Order priced below $1.00 that
would otherwise be non-executable due to the presence of a BZX Post
Only Order to execute at one minimum price variation above (below) the
locking price upon the receipt of an incoming, marketable offer (bid)
that would otherwise be prohibited from executing due to the presence
of a BZX Post Only Order promotes just and equitable principles of
trade and removes impediments to, and perfects the mechanism of a free
and open market and a national market system because it extends
functionality currently available to orders priced at or above $1.00 to
orders priced below $1.00, with a slight difference in the minimum
price variation to account for the System's inability to display orders
out to five decimal places ($0.00001). The proposed amendment to Rule
11.13(a)(4)(D) is substantially similar to the order handling behavior
change that was proposed (and later approved) by the Resting Order
Execution Filing and will only serve to improve execution quality for
participants sending orders to the Exchange.
The Exchange does not believe that the treatment of sub-dollar
securities is unfairly discriminatory as the Exchange will be using the
standard minimum pricing increment for sub-dollar securities in order
to determine the price at which the Resting Order is eligible to
execute.\32\ While the Exchange recognizes that under its proposal for
securities priced below $1.00 results in a limited situation in which
only the Resting Order will receive $0.0001 of price improvement (i.e.,
when an incoming order is entered at the same price as the displayed
price of the Resting Order), the Exchange believes the incoming,
contra-side order is receiving the benefit of immediate execution
rather than cancelling or posting to the BZX Book (depending on User
instruction), which will result in higher overall market quality and
likelihood of execution on BZX for Users. In situations where the
incoming order is entered at a more aggressive price than the displayed
price of the Resting Order, however, each side of the transaction will
be receiving at least $0.0001 of price improvement, which is
substantially similar to how the order handling functionality works for
securities priced at or above $1.00. The Exchange believes the proposed
change to execute marketable orders that are currently not executed
under specific scenarios will help provide price improvement to Resting
Orders that, in these limited circumstances, otherwise would not
receive an execution even though their order is priced at the inside of
the market and would also provide increased execution opportunities to
aggressively priced incoming orders rather than requiring these orders
to be cancelled or post to the BZX Book. Thus, the Exchange believes
that its proposed order handling process in the limited scenario where
a Resting Order is ineligible to execute due to the presence of a
contra-side BZX Post Only Order will benefit market participants and
their customers by allowing them greater flexibility in their efforts
to fill orders and minimize trading costs.
---------------------------------------------------------------------------
\32\ Supra note 25.
---------------------------------------------------------------------------
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 intramarket competition that is not necessary or
appropriate in furtherance of the purposes of the Act. The proposed
change to Rule 11.9(c)(6) will apply equally to all Users in that all
Users will be eligible to utilize the BZX Post Only Order for
securities priced below $1.00. Similarly, the proposed change to Rule
11.13(a)(4)(D) applies equally to all Users in that all Resting Orders
will benefit from the proposed order handling behavior change that will
execute Resting Orders at one minimum price variation above (below) the
locking price upon the receipt of a marketable offer (bid) should a
Resting Order be ineligible to execute due to the presence of a contra-
side BZX Post Only Order. The proposed changes are designed to expand
an existing Exchange order type and existing order handling behavior to
securities priced below $1.00 due to the growth in sub-dollar trading
that has been seen since 2019. Further, the Exchange does not believe
that Users submitting incoming, contra-side orders are burdened by
virtue of not receiving price improvement in limited situations as they
instead receive the benefit of an immediate execution as opposed to
being cancelled back to the User or posting on the BZX Book which
results in increased overall market quality and a higher likelihood of
execution on BZX.
The Exchange similarly does not believe that the proposed rule
change will impose any burden on intermarket competition that is not
necessary or appropriate in furtherance of the purposes of the Act. In
fact, the Exchange notes that other exchanges already offer the ability
to submit an order that is not eligible for routing to away markets and
posts to the relevant exchange book at prices below $1.00.\33\ The
Exchange believes its proposal to expand the use of the BZX Post Only
Order to securities priced below $1.00 will promote competition between
the Exchange and other exchanges for volume in sub-dollar securities.
Furthermore, the Exchange believes its proposal will promote
competition between the Exchange and off-exchange trading venues, where
a significant amount of sub-dollar trading occurs today.\34\ The
Exchange similarly believes that its proposal to amend its order
handling behavior in limited circumstances where a Resting Order cannot
execute due to the presence of a contra-side BZX Post Only Order does
not impose a burden on intermarket competition as the change is not
designed to address any competitive issue, but rather to address order
handling behavior in a substantially similar manner to how the Exchange
treats Resting Orders priced at or above $1.00 in the limited scenario
where a Resting Order is ineligible to execute against an incoming,
marketable order due to the presence of a contra-side BZX Post Only
Order.
---------------------------------------------------------------------------
\33\ See Nasdaq Equity 4, Rule 4702(b)(4) (``Post-Only Order'').
See also NYSE Rule 7.31(e)(2) (``ALO Order'').
\34\ See ``Off-Exchange Trends: Beyond Sub-dollar Trading'' (May
17, 2023). Available at https://www.cboe.com/insights/posts/off-exchange-trends-beyond-sub-dollar-trading/.
---------------------------------------------------------------------------
[[Page 5601]]
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received comments on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the Exchange consents, the Commission will:
A. by order approve or disapprove such proposed rule change, or
B. institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
file number SR-CboeBZX-2024-006 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to file number SR-CboeBZX-2024-006. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for website viewing and
printing in the Commission's Public Reference Room, 100 F Street NE,
Washington, DC 20549, on official business days between the hours of 10
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. Do not
include personal identifiable information in submissions; you should
submit only information that you wish to make available publicly. We
may redact in part or withhold entirely from publication submitted
material that is obscene or subject to copyright protection. All
submissions should refer to file number SR-CboeBZX-2024-006 and should
be submitted on or before February 20, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\35\
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\35\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-01618 Filed 1-26-24; 8:45 am]
BILLING CODE 8011-01-P
