Self-Regulatory Organizations; Cboe EDGA Exchange, Inc.; Notice of Filing of a Proposed Rule Change To Amend Rule 11.6(n)(4) and Rule 11.10(a)(4)(D) To Permit the Use of the Post Only Order Instruction at Prices Below $1.00, 8460-8466 [2024-02414]
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Federal Register / Vol. 89, No. 26 / Wednesday, February 7, 2024 / Notices
notice informs the public of the filing,
invites public comment, and takes other
administrative steps.
DATES: Comments are due: February 8,
2024.
ADDRESSES: Submit comments
electronically via the Commission’s
Filing Online system at https://
www.prc.gov. Those who cannot submit
comments electronically should contact
the person identified in the FOR FURTHER
INFORMATION CONTACT section by
telephone for advice on filing
alternatives.
FOR FURTHER INFORMATION CONTACT:
David A. Trissell, General Counsel, at
202–789–6820.
SUPPLEMENTARY INFORMATION:
Table of Contents
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I. Introduction
II. Docketed Proceeding(s)
I. Introduction
The Commission gives notice that the
Postal Service filed request(s) for the
Commission to consider matters related
to negotiated service agreement(s). The
request(s) may propose the addition or
removal of a negotiated service
agreement from the Market Dominant or
the Competitive product list, or the
modification of an existing product
currently appearing on the Market
Dominant or the Competitive product
list.
Section II identifies the docket
number(s) associated with each Postal
Service request, the title of each Postal
Service request, the request’s acceptance
date, and the authority cited by the
Postal Service for each request. For each
request, the Commission appoints an
officer of the Commission to represent
the interests of the general public in the
proceeding, pursuant to 39 U.S.C. 505
(Public Representative). Section II also
establishes comment deadline(s)
pertaining to each request.
The public portions of the Postal
Service’s request(s) can be accessed via
the Commission’s website (https://
www.prc.gov). Non-public portions of
the Postal Service’s request(s), if any,
can be accessed through compliance
with the requirements of 39 CFR
3011.301.1
The Commission invites comments on
whether the Postal Service’s request(s)
in the captioned docket(s) are consistent
with the policies of title 39. For
request(s) that the Postal Service states
concern Market Dominant product(s),
applicable statutory and regulatory
1 See
Docket No. RM2018–3, Order Adopting
Final Rules Relating to Non-Public Information,
June 27, 2018, Attachment A at 19–22 (Order No.
4679).
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requirements include 39 U.S.C. 3622, 39
U.S.C. 3642, 39 CFR part 3030, and 39
CFR part 3040, subpart B. For request(s)
that the Postal Service states concern
Competitive product(s), applicable
statutory and regulatory requirements
include 39 U.S.C. 3632, 39 U.S.C. 3633,
39 U.S.C. 3642, 39 CFR part 3035, and
39 CFR part 3040, subpart B. Comment
deadline(s) for each request appear in
section II.
II. Docketed Proceeding(s)
1. Docket No(s).: CP2022–110; Filing
Title: USPS Notice of Amendment to
Priority Mail Express, Priority Mail,
First-Class Package Service & Parcel
Select Contract 20, Filed Under Seal,
Filed Under Seal; Filing Acceptance
Date: January 31, 2024; Filing Authority:
39 CFR 3035.105; Public Representative:
Cherry Yao; Comments Due: February 8,
2024.
This Notice will be published in the
Federal Register.
Jennie L. Jbara,
Alternate Certifying Officer.
[FR Doc. 2024–02435 Filed 2–6–24; 8:45 am]
BILLING CODE 7710–FW–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–99458; File No. SR–
CboeEDGA–2024–003]
Self-Regulatory Organizations; Cboe
EDGA Exchange, Inc.; Notice of Filing
of a Proposed Rule Change To Amend
Rule 11.6(n)(4) and Rule 11.10(a)(4)(D)
To Permit the Use of the Post Only
Order Instruction at Prices Below $1.00
February 1, 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
19, 2024, Cboe EDGA Exchange, Inc.
(the ‘‘Exchange’’ or ‘‘EDGA’’) filed with
the Securities and Exchange
Commission (the ‘‘Commission’’) the
proposed rule change as described in
Items I, 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 EDGA Exchange, Inc. (the
‘‘Exchange’’ or ‘‘EDGA’’) proposes to
1 15
2 17
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U.S.C. 78s(b)(1).
CFR 240.19b–4.
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amend Rule 11.6(n)(4) and Rule
11.10(a)(4)(D) to permit the use of the
Post Only order instruction 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/edga/),
at the Exchange’s Office of the
Secretary, and at the Commission’s
Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
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 over 300% 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
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
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/.
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 4.
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Federal Register / Vol. 89, No. 26 / Wednesday, February 7, 2024 / Notices
the first quarter of 2023.8 Additionally,
an analysis of internal data showed that
the Exchange’s affiliate exchange, EDGX
Exchange, Inc. (‘‘EDGX’’), has seen retail
sub-dollar average daily volume grow
from approximately $40 million during
the first quarter of 2022 to over $100
million during the third quarter of 2023.
As a result of the growth in sub-dollar
trading, the Exchange proposes to
amend Rule 11.6(n)(4) in order to permit
an order containing a Post Only
instruction to post to the EDGA Book 9
at prices below $1.00. As defined in
Rule 11.6(n)(4), a Post Only instruction
is ‘‘[a]n instruction that may be attached
to an order that is to be ranked and
executed on the Exchange pursuant to
Rule 11.9 and Rule 11.10(a)(4) or
cancelled, as appropriate, without
routing away to another trading center
except that the order will not remove
liquidity from the EDGA Book. . .’’.
Accordingly, an order containing a Post
Only instruction does not remove
liquidity, but rather posts to the EDGA
Book to the extent permissible.
Additionally, the Exchange proposes to
amend Rule 11.10(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
EDGA 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. While the Exchange believes
that expanding the use of the Post Only
instruction to securities priced below
$1.00 will contribute to a deeper and
more liquid market, the Exchange does
not anticipate any capacity issues as a
result of its proposal.
Currently, orders containing a Post
Only instruction priced below $1.00 are
automatically treated as orders that
remove liquidity.11 In order to permit an
order containing a Post Only instruction
to post to the EDGA Book at prices
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8 Id.
9 See Rule 1.5(d). The EDGA Book means the
System’s electronic file of orders.
10 See Rule 1.5(ee). 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 Orders containing a Post Only instruction in
securities priced at or above $1.00 remove contraside 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 EDGA Book and subsequently provided
liquidity. The Exchange does not propose to change
the functionality of orders containing a Post Only
instruction in securities priced at or above $1.00.
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below $1.00, the Exchange proposes to
amend Rule 11.6(n)(4) to remove
language that states that an order
containing a Post Only instruction ‘‘will
remove contra-side liquidity from the
EDGA 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 inplace for securities priced at or above
$1.00, the impact of this proposal will
modify the outcome for orders
containing a Post Only instruction in
securities priced below $1.00 for Users
who choose to utilize this particular
order type. Orders containing a Post
Only instruction 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.13 The
Exchange has received User feedback
requesting the ability to utilize orders
containing a Post Only instruction 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 advantage for
Users who choose to utilize a Post Only
instruction in securities priced below
$1.00.
Under the Exchange’s current fee
schedule, orders containing a Post Only
instruction in securities priced below
$1.00 will not result in an economic
benefit for Users and as such, securities
priced below $1.00 containing a Post
Only instruction will be permitted to
remove liquidity upon entry. The
Exchange is proposing to update the
rule text to permit orders priced below
$1.00 to include a Post Only instruction
in order to maintain consistency with its
affiliate exchanges (Cboe BYX
Exchange, Inc. (‘‘BYX’’), Cboe BZX
Exchange, Inc. (‘‘BZX’’), and Cboe EDGX
Exchange, Inc. (‘‘EDGX’’). Functionally,
there will be no change to how an order
containing a Post Only instruction is
treated (i.e., an order priced below $1.00
will continue to be permitted to remove
liquidity just as it is today), however the
ability of the order to remove liquidity
will be the result of the Exchange’s
economic best interest calculation rather
than the treatment of the order based on
current rule text. If, in the future, the
Exchange modifies its fee schedule such
that there would be an economic benefit
for orders priced below $1.00 containing
a Post Only instruction to post to the
EDGA Book rather than remove
liquidity upon entry, then the proposed
changes would result in a different
outcome for Users who choose to submit
orders containing a Post Only
instruction in securities priced below
$1.00.
In addition to the proposed
amendment to Rule 11.6(n)(4), the
Exchange proposes an amendment to its
order handling procedures in order to
permit Non-Displayed Orders 14 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 order containing a Post
Only instruction to be executed at one
minimum price variation less aggressive
than the order’s most aggressive price.15
Currently, similar order handling
behavior is codified for securities priced
at or above $1.00 in Rule 11.6(n)(4), but
the Exchange’s current fee schedule
does not provide an economic benefit
for orders containing a Post Only
instruction to post to the EDGA Book,
and as such, the order handling
functionality is not currently
12 The Exchange’s economic best interest
calculation determines whether the value of price
improvement associated with an order containing a
Post Only instruction 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 EDGA Book and subsequently
provided liquidity. The determination of whether
an order containing a Post Only instruction will be
allowed to post to the EDGA 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 The Exchange notes that EDGA currently offers
a flat pricing structure for securities priced below
$1.00 in which it does not assess any fees to Users
that add liquidity or pay any rebates to Users that
remove liquidity. For securities priced at or above
$1.00, EDGA pays rebates to Users that remove
liquidity and assesses fees to Users that add
liquidity. All orders containing a Post Only
instruction in securities priced at or above $1.00 are
permitted to remove liquidity, as the Exchange’s
economic best interest calculation does not result
in an economic benefit for Users.
14 See Rule 11.6(e)(2). A User may attach a ‘‘NonDisplayed Order’’ instruction to an order stating
that the order is not to be displayed by the System
on the EDGA Book.
15 See Securities Exchange Act Release No. 75700
(August 14, 2015), 80 FR 50689 (August 20, 2015),
SR–EDGA–2015–33 (‘‘EDGA Order Handling
Filing’’). See also 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’’) on the
Exchange’s affiliate, BZX (BATS) Exchange in 2011
and is incorporated by reference in the EDGA Order
Handling Filing. 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.
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Federal Register / Vol. 89, No. 26 / Wednesday, February 7, 2024 / Notices
applicable.16 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 $0.0001.17 Given
the rise in sub-dollar trading discussed
above, the Exchange now proposes to
expand the order handling functionality
introduced by the EDGA Order
Handling Filing to securities priced
below $1.00 should the Exchange
modify its fee schedule such that Users
receive an economic benefit to utilize
orders containing a Post Only
instruction.
Rule 11.10(a)(4)(D) states that for
securities priced above $1.00, incoming
orders that are Market Orders 18 or Limit
Orders 19 priced more aggressively than
an order displayed on the EDGA Book,
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 an order displayed on
the EDGA Book, 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,20 which cannot
process executions out to five decimal
places.
As stated previously, the Exchange is
proposing changes to its rule text in
order to maintain consistency with its
affiliate exchanges, but so long as the
16 See
Rule 11.10(a)(4)(D).
Resting Order Execution Filing footnote 8.
18 See Rule 11.8(a). A ‘‘Market Order’’ is an order
to buy or sell a stated amount of a security that is
to be executed at the NBBO or better when the order
reaches the Exchange.
19 See Rule 11.8(b). A ‘‘Limit Order’’ is an order
to buy or sell a stated amount of a security at a
specified price or better.
20 See Rule 1.5(cc). 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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17 See
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current EDGA fee schedule remains in
place, orders containing a Post Only
instruction in securities priced below
$1.00 will continue to remove liquidity
upon entry and the proposed order
handling behavior change will not take
effect, as no orders containing a Post
Only instruction will be posted on the
EDGA Book. The Exchange has included
the following example to demonstrate
the proposed changes, which shall only
become effective should the Exchange
modify its fee schedule such that Users
receive an economic benefit to utilize
orders containing a Post Only
instruction.
Example 1
• Assume the NBB is $0.50 and the
NBO is $0.53. There is no resting
interest on the EDGA Book.
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 11.6(l).21 Pursuant to
Rule 11.6(l), Order 1 is temporarily slid
to a displayed price of $0.5001 as it
locked the NBB upon entry.22 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.23
• Next, assume the Exchange received
an incoming bid containing a Post Only
instruction (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 EDGA Book and display at a price
of $0.50. Orders containing a Post Only
instruction are permitted to post and be
displayed opposite the ranked price of
orders subject to Display-Price
Sliding.24 The result would be depicted
as follows:
21 See Rule 11.6(l)(1)(B)(i). An order instruction
requiring that where an order would be a Locking
Quotation or Crossing Quotation of an external
market if displayed by the System on the EDGA
Book at the time of entry, will be ranked at the
Locking Price in the EDGA Book and displayed by
the System at one Minimum Price Variation lower
(higher) than the Locking Price for orders to buy
(sell) (‘‘Display-Price Sliding’’).
22 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 11.6(l)(1)(B)(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 11.6(l)(1)(B)(ii).
23 Id.
24 See Rule 11.6(l)(1)(B)(v).
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Bid
National best .......
EDGA best ..........
$0.50
0.50
Offer
×
×
$0.5001
0.5001
• The Exchange then receives an
IOC 25 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 11.9,
a Non-Displayed Order cannot be
executed by the Exchange pursuant to
Rule 11.10 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 EDGA Order
Handling Filing granted the Exchange
the ability to execute Non-Displayed
Orders and orders subject to NMS Price
Sliding 26 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 priced of $0.5001 pursuant to
Rule 11.6(l)(1)(B)(i) as it locked the
NBB. Upon the arrival of Order 2, which
is an order containing a Post Only
instruction that is permitted to post to
the EDGA Book and display opposite of
Order 1, 27 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
25 See Rule 11.6(q)(1). ‘‘IOC’’ is an instruction the
User may attach to an order stating the order 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 EDGA Book.
26 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
book opposite a displayed order.
27 Supra note 21.
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locking price ($0.50). Without the
proposed changes to Rule 11.10(a)(4)(D),
Order 3 would be cancelled upon entry
at is 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.28 This behavior is
substantially similar to the order
handling functionality described in the
EDGA Order Handling 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 EDGA
Order Handling 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 at a price of $0.5001
and Order 3 would receive price
improvement equal to the difference
between its limit price and $0.5001.29
The EDGA Order Handling 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 an order containing a Post
Only instruction in order to optimize
available liquidity for incoming orders
28 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 onehalf 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 execution out to five
decimal places, which is not supported by the
System.
29 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.
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16:17 Feb 06, 2024
Jkt 262001
and to provide price improvement for
market participants.30 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
11.9.31 The Exchange recognizes that
the order handling behavior for
securities priced at or above $1.00
described in the EDGA Order Handling
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 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 EDGA
Book (depending on User instruction),
which will result in higher overall
market quality and likelihood of
execution on EDGA 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 EDGA 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
30 See
Resting Order Execution Filing at 28831.
31 Id.
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8463
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 EDGA Book when an
order containing a Post Only instruction
is displayed opposite the ranked price
of orders subject to display-price
sliding. The Exchange believes that such
specific circumstances, without
modification of Rule 11.10(a)(4), would
be present upon the expansion of Post
Only instruction 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
11.10(a)(4)(D) is substantially similar to
the order handling modification
proposed and ultimately approved by
the EDGA Order Handling 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 EDGA
Order Handling 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 EDGA Book
(depending on User instruction).
Further, the Exchange believes that
Users who received increased execution
rates on EDGA 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 EDGA
Order Handling Filing. The proposal to
amend Rule 11.10(a)(4)(D) is limited to
certain circumstances that occur as a
result of the presence of an order
containing a Post Only instruction
resting opposite a Non-Displayed Order
or order subject to Display-Price Sliding
and is designed to optimize available
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Federal Register / Vol. 89, No. 26 / Wednesday, February 7, 2024 / Notices
liquidity for incoming orders. As
previously discussed, the proposed
changes to Rule 11.10(a)(4)(D) will only
modify current order handling
functionality should the Exchange
modify its fee schedule such that Users
entering orders containing a Post Only
instruction in securities priced below
$1.00 receive an economic benefit for
such order posting to the EDGA Book.
The proposed change to Rule
11.10(a)(4)(D) is being proposed in order
to keep the EDGA rulebook aligned with
the rulebooks of the Exchange’s
affiliates. The Exchange also proposes to
make a change to Rule 11.10(a)(4)(C) in
order to correct a reference to
subparagraph (d) in order to properly
reflect subparagraph (D).
khammond on DSKJM1Z7X2PROD with NOTICES
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.32 Specifically,
the Exchange believes the proposed rule
change is consistent with the Section
6(b)(5) 33 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) 34 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 the use of its Post
Only instruction to securities priced
below $1.00.35 In conjunction with
expanding the ability to utilize a Post
Only instruction at prices below $1.00,
the Exchange also proposes that a
Resting Order priced below $1.00 be
permitted to execute at one minimum
32 15
33 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
34 Id.
35 As stated previously, securities priced below
$1.00 will continue to remove liquidity from the
EDGA Book, however this will be the result of the
Exchange’s economic best interest calculation and
not language in the rule text that directs the
Exchange to treat orders containing a Post Only
instruction as liquidity-removing orders.
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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 EDGA Book when an
order containing a Post Only instruction
is displayed opposite the ranked price
of orders subject to display-price
sliding. The Exchange notes, however,
that as the economic best interest
calculation will not result in an
economic benefit for Users utilizing the
Post Only instruction for securities
priced below $1.00, orders containing a
Post Only instruction will continue to
remove liquidity from EDGA and the
proposed changes are simply being
made to align the EDGA rulebook with
the rulebooks of its affiliate exchanges.
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 11.6(n)(4) to permit orders priced
below $1.00 to utilize a Post Only
instruction 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
Post Only instruction at any price,
rather than being limited to securities
priced above $1.00, should the
Exchange amend its fee schedule such
that Users receive an economic benefit
for having an order containing a Post
Only instruction that posts to the EDGA
Book. The growth in trading of subdollar 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 a
Post Only instruction. A Post Only
instruction allows Users to post
aggressively priced liquidity, and 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
market participants, including retail
investors, would deteriorate.
Accordingly, the Exchange believes that
orders containing a Post Only
instruction enhance the liquidity
available to all market participants by
allowing market makers and other
PO 00000
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Fmt 4703
Sfmt 4703
liquidity providers to add liquidity to
the Exchange at or near the inside of the
market, should the Exchange amend its
fee schedule such that Users which
submit orders containing a Post Only
instruction receive an economic benefit
when the order posts to the EDGA Book.
Allowing an order containing a Post
Only instruction to be utilized at prices
below $1.00 in the future, should the
Exchange choose to amend its fee
schedule, 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. Indeed, such market
participants have asked the Exchange to
implement such functionality across the
Exchange’s affiliates in order to permit
them to utilize a single trading strategy
across securities at all prices and the
Exchange is proposing to update its
rulebook in order to maintain
consistency with its affiliates, even as
the Exchange’s current fee structure
does not result in the economic benefit
necessary for orders containing a Post
Only instruction to post to the EDGA
Book. The Exchange does not believe
that the proposed amendment to Rule
11.6(n)(4) is unfairly discriminatory as it
will permit the Post Only instruction to
be used by all Users at any price and the
order instruction will no longer be
limited to securities priced at or above
$1.00, should the Exchange amend its
fee schedule such that Users will
receive an economic benefit when an
order containing a Post Only instruction
posts to the EDGA Book.
Similarly, the proposal to amend Rule
11.10(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
an order containing a Post Only
instruction 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 an
order containing a Post Only instruction
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
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khammond on DSKJM1Z7X2PROD with NOTICES
Federal Register / Vol. 89, No. 26 / Wednesday, February 7, 2024 / Notices
11.10(a)(4)(D) is substantially similar to
the order handling behavior change that
was proposed (and later approved) by
the Resting Order Execution Filing on
the Exchange’s affiliate, BZX Exchange,
and subsequently by the EDGA Order
Handling Filing, and will only serve to
improve execution quality for
participants sending orders to the
Exchange. The Exchange notes,
however, that under the current fee
schedule, orders containing a Post Only
instruction will continue to remove
liquidity rather than post to the EDGA
Book, and as such, the proposed
amendment to Rule 11.10(a)(4)(D) will
not have any affect on order behavior
unless the Exchange amends its fee
schedule and orders containing a Post
Only instruction are permitted to post to
the EDGA Book.
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
priced at which the Resting Order is
eligible to execute.36 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 EDGA Book (depending
on User instruction), which will result
in higher overall market quality and
likelihood of execution on EDGA 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 EDGA Book.
Thus, the Exchange believes that its
36 Supra
note 28.
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16:17 Feb 06, 2024
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proposed order handling process in the
limited scenario where a Resting Order
is ineligible to execute due to the
presence of a contra-side order
containing a Post Only instruction will
benefit market participants and their
customers by allowing them greater
flexibility in their efforts to fill orders
and minimize trading costs, should the
Exchange amend its fee schedule such
that Users will receive an economic
benefit when an order containing a Post
Only instruction posts to the EDGA
Book.
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 11.6(n)(4)
will apply equally to all Users in that all
Users will be eligible to utilize the Post
Only instruction for securities priced
below $1.00. Similarly, the proposed
change to Rule 11.10(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 order
containing a Post Only instruction.
Further, the Exchange does not believe
that Users submitting incoming, contraside 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 EDGA
Book which results in increased overall
market quality and a higher likelihood
of execution on EDGA. The proposed
changes are designed to align the
Exchange rulebook with the rulebooks
of its affiliate exchanges and provide the
Exchange an opportunity to expand an
existing Exchange order instruction and
existing order handling behavior to
securities priced below $1.00 should the
Exchange amend its fee schedule in the
future due to the growth in sub-dollar
trading that has been seen since 2019.
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
PO 00000
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8465
exchange book at prices below $1.00.37
The Exchange believes its proposal to
expand the use of the Post Only
instruction to securities priced below
$1.00 will promote competition between
the Exchange and other exchanges for
volume in sub-dollar securities should
the Exchange amend its fee schedule
such that Users will receive an
economic benefit when an order
containing a Post Only instruction posts
to the EDGA Book. 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.38 The
Exchange similarly believes that its
proposal to grant it the ability to amend
its order handling behavior in limited
circumstances where a Resting Order
cannot execute due to the presence of a
contra-side order containing a Post Only
instruction 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
order containing a Post Only
instruction.
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.
37 See Nasdaq Equity 4, Rule 4702(b)(4) (‘‘PostOnly Order’’). See also NYSE Rule 7.31(e)(2) (‘‘ALO
Order’’).
38 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/.
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Federal Register / Vol. 89, No. 26 / Wednesday, February 7, 2024 / Notices
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include file number SR–
CboeEDGA–2024–003 on the subject
line.
Paper Comments
khammond on DSKJM1Z7X2PROD with NOTICES
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to file
number SR–CboeEDGA–2024–003. 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–CboeEDGA–2024–003 and should
be submitted on or before February 28,
2024.
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For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.39
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024–02414 Filed 2–6–24; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[SEC File No. 270–563, OMB Control No.
3235–0626]
Proposed Collection; Comment
Request; Extension: Rule 17g–3
Upon Written Request, Copies Available
From: Securities and Exchange
Commission, Office of FOIA Services.
100 F Street NE, Washington, DC
20549–2736.
Notice is hereby given that pursuant
to the Paperwork Reduction Act of 1995
(44 U.S.C. 3501 et seq.), the Securities
and Exchange Commission
(‘‘Commission’’) is soliciting comments
on the existing collection of information
provided for in Rule 17g–3 (17 CFR
240.17g–3) under the Securities
Exchange Act of 1934 (15 U.S.C. 78a et
seq.). The Commission plans to submit
this existing collection of information to
the Office of Management and Budget
for extension and approval.
Rule 17g–3 contains certain reporting
requirements for NRSROs. Specifically,
NRSROs are required to file with the
Commission, on an annual basis,
financial reports containing specified
financial statements, certain financial
condition reports, and a report on the
internal control structure. NRSROs are
also required to furnish a report of the
number of credit rating actions taken
during the most recently completed
fiscal year. Currently, there are 10 credit
rating agencies registered as NRSROs
with the Commission. Based on staff
experience, the Commission estimates
that the total burden for respondents to
comply with Rule 17g–3 is 3,650 hours.
In addition, the Commission estimates
an industry-wide annual external cost to
NRSROs of $350,000 to comply with
Rule 17g–3, reflecting costs to engage
the services of independent public
accountants and outside counsel.
Written comments are invited on: (a)
whether the proposed collection of
information is necessary for the proper
performance of the functions of the
Commission, including whether the
information shall have practical utility;
(b) the accuracy of the Commission’s
estimates of the burden of the proposed
collection of information; (c) ways to
39 17
PO 00000
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Frm 00071
Fmt 4703
Sfmt 4703
enhance the quality, utility, and clarity
of the information on respondents; and
(d) ways to minimize the burden of the
collection of information on
respondents, including through the use
of automated collection techniques or
other forms of information technology.
Consideration will be given to
comments and suggestions submitted by
April 8, 2024.
An agency may not conduct or
sponsor, and a person is not required to
respond to, a collection of information
unless it displays a currently valid OMB
control number. Please direct your
written comments to: Dave Bottom,
Director/Chief Information Officer,
Securities and Exchange Commission, c/
o John Pezzullo, 100 F St NE,
Washington, DC 20549 or send an email
to: PRA_Mailbox@sec.gov.
Dated: February 2, 2024.
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024–02489 Filed 2–6–24; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–99456; File No. SR–DTC–
2023–013]
Self-Regulatory Organizations; The
Depository Trust Company; Order
Approving of Proposed Rule Change
To Modify the DTC Settlement Service
Guide
February 1, 2024.
I. Introduction
On December 20, 2023, The
Depository Trust Company (‘‘DTC’’)
filed with the Securities and Exchange
Commission (‘‘Commission’’) proposed
rule change SR–DTC–2023–013
(‘‘Proposed Rule Change’’) pursuant to
Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’) 1 and Rule
19b–4 thereunder.2 The Proposed Rule
Change was published for comment in
the Federal Register on December 28,
2023.3 The Commission has received no
comments on the Proposed Rule
Change. For the reasons discussed
below, the Commission is approving the
Proposed Rule Change.4
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 99234
(Dec. 22, 2023), 88 FR 89752 (Dec. 28, 2023) (File
No. SR–DTC–2023–013) (‘‘Notice of Filing’’).
4 Capitalized terms not defined herein are defined
in the Rules, By-Laws and Organization Certificate
of DTC (‘‘Rules’’) and the DTC Settlement Service
Guide (‘‘Settlement Guide’’), available at https://
www.dtcc.com/legal/rules-and-procedures.aspx.
2 17
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]]>Agencies
[Federal Register Volume 89, Number 26 (Wednesday, February 7, 2024)]
[Notices]
[Pages 8460-8466]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-02414]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-99458; File No. SR-CboeEDGA-2024-003]
Self-Regulatory Organizations; Cboe EDGA Exchange, Inc.; Notice
of Filing of a Proposed Rule Change To Amend Rule 11.6(n)(4) and Rule
11.10(a)(4)(D) To Permit the Use of the Post Only Order Instruction at
Prices Below $1.00
February 1, 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 19, 2024, Cboe EDGA Exchange, Inc. (the ``Exchange'' or
``EDGA'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I, 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 EDGA Exchange, Inc. (the ``Exchange'' or ``EDGA'') proposes to
amend Rule 11.6(n)(4) and Rule 11.10(a)(4)(D) to permit the use of the
Post Only order instruction 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/edga/), at the Exchange's Office of the Secretary, and at
the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
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
over 300% 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 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
[[Page 8461]]
the first quarter of 2023.\8\ Additionally, an analysis of internal
data showed that the Exchange's affiliate exchange, EDGX Exchange, Inc.
(``EDGX''), has seen retail sub-dollar average daily volume grow from
approximately $40 million during the first quarter of 2022 to over $100
million during the third quarter of 2023.
---------------------------------------------------------------------------
\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 4.
\8\ Id.
---------------------------------------------------------------------------
As a result of the growth in sub-dollar trading, the Exchange
proposes to amend Rule 11.6(n)(4) in order to permit an order
containing a Post Only instruction to post to the EDGA Book \9\ at
prices below $1.00. As defined in Rule 11.6(n)(4), a Post Only
instruction is ``[a]n instruction that may be attached to an order that
is to be ranked and executed on the Exchange pursuant to Rule 11.9 and
Rule 11.10(a)(4) or cancelled, as appropriate, without routing away to
another trading center except that the order will not remove liquidity
from the EDGA Book. . .''. Accordingly, an order containing a Post Only
instruction does not remove liquidity, but rather posts to the EDGA
Book to the extent permissible. Additionally, the Exchange proposes to
amend Rule 11.10(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 EDGA 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. While the Exchange believes that expanding the use of the
Post Only instruction to securities priced below $1.00 will contribute
to a deeper and more liquid market, the Exchange does not anticipate
any capacity issues as a result of its proposal.
---------------------------------------------------------------------------
\9\ See Rule 1.5(d). The EDGA Book means the System's electronic
file of orders.
\10\ See Rule 1.5(ee). 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, orders containing a Post Only instruction priced below
$1.00 are automatically treated as orders that remove liquidity.\11\ In
order to permit an order containing a Post Only instruction to post to
the EDGA Book at prices below $1.00, the Exchange proposes to amend
Rule 11.6(n)(4) to remove language that states that an order containing
a Post Only instruction ``will remove contra-side liquidity from the
EDGA 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 for orders containing a Post Only instruction in
securities priced below $1.00 for Users who choose to utilize this
particular order type. Orders containing a Post Only instruction 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.\13\ The
Exchange has received User feedback requesting the ability to utilize
orders containing a Post Only instruction 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
advantage for Users who choose to utilize a Post Only instruction in
securities priced below $1.00.
---------------------------------------------------------------------------
\11\ Orders containing a Post Only instruction 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 EDGA
Book and subsequently provided liquidity. The Exchange does not
propose to change the functionality of orders containing a Post Only
instruction 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 an
order containing a Post Only instruction 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 EDGA Book and
subsequently provided liquidity. The determination of whether an
order containing a Post Only instruction will be allowed to post to
the EDGA 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\ The Exchange notes that EDGA currently offers a flat
pricing structure for securities priced below $1.00 in which it does
not assess any fees to Users that add liquidity or pay any rebates
to Users that remove liquidity. For securities priced at or above
$1.00, EDGA pays rebates to Users that remove liquidity and assesses
fees to Users that add liquidity. All orders containing a Post Only
instruction in securities priced at or above $1.00 are permitted to
remove liquidity, as the Exchange's economic best interest
calculation does not result in an economic benefit for Users.
---------------------------------------------------------------------------
Under the Exchange's current fee schedule, orders containing a Post
Only instruction in securities priced below $1.00 will not result in an
economic benefit for Users and as such, securities priced below $1.00
containing a Post Only instruction will be permitted to remove
liquidity upon entry. The Exchange is proposing to update the rule text
to permit orders priced below $1.00 to include a Post Only instruction
in order to maintain consistency with its affiliate exchanges (Cboe BYX
Exchange, Inc. (``BYX''), Cboe BZX Exchange, Inc. (``BZX''), and Cboe
EDGX Exchange, Inc. (``EDGX''). Functionally, there will be no change
to how an order containing a Post Only instruction is treated (i.e., an
order priced below $1.00 will continue to be permitted to remove
liquidity just as it is today), however the ability of the order to
remove liquidity will be the result of the Exchange's economic best
interest calculation rather than the treatment of the order based on
current rule text. If, in the future, the Exchange modifies its fee
schedule such that there would be an economic benefit for orders priced
below $1.00 containing a Post Only instruction to post to the EDGA Book
rather than remove liquidity upon entry, then the proposed changes
would result in a different outcome for Users who choose to submit
orders containing a Post Only instruction in securities priced below
$1.00.
In addition to the proposed amendment to Rule 11.6(n)(4), the
Exchange proposes an amendment to its order handling procedures in
order to permit Non-Displayed Orders \14\ 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 order containing a Post Only instruction to be executed at
one minimum price variation less aggressive than the order's most
aggressive price.\15\ Currently, similar order handling behavior is
codified for securities priced at or above $1.00 in Rule 11.6(n)(4),
but the Exchange's current fee schedule does not provide an economic
benefit for orders containing a Post Only instruction to post to the
EDGA Book, and as such, the order handling functionality is not
currently
[[Page 8462]]
applicable.\16\ 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.\17\ Given the rise in sub-dollar trading discussed above,
the Exchange now proposes to expand the order handling functionality
introduced by the EDGA Order Handling Filing to securities priced below
$1.00 should the Exchange modify its fee schedule such that Users
receive an economic benefit to utilize orders containing a Post Only
instruction.
---------------------------------------------------------------------------
\14\ See Rule 11.6(e)(2). A User may attach a ``Non-Displayed
Order'' instruction to an order stating that the order is not to be
displayed by the System on the EDGA Book.
\15\ See Securities Exchange Act Release No. 75700 (August 14,
2015), 80 FR 50689 (August 20, 2015), SR-EDGA-2015-33 (``EDGA Order
Handling Filing''). See also 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'') on the Exchange's affiliate,
BZX (BATS) Exchange in 2011 and is incorporated by reference in the
EDGA Order Handling Filing. 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.
\16\ See Rule 11.10(a)(4)(D).
\17\ See Resting Order Execution Filing footnote 8.
---------------------------------------------------------------------------
Rule 11.10(a)(4)(D) states that for securities priced above $1.00,
incoming orders that are Market Orders \18\ or Limit Orders \19\ priced
more aggressively than an order displayed on the EDGA Book, 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 an order displayed on the EDGA Book, 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,\20\ which cannot process executions out
to five decimal places.
---------------------------------------------------------------------------
\18\ See Rule 11.8(a). A ``Market Order'' is an order to buy or
sell a stated amount of a security that is to be executed at the
NBBO or better when the order reaches the Exchange.
\19\ See Rule 11.8(b). A ``Limit Order'' is an order to buy or
sell a stated amount of a security at a specified price or better.
\20\ See Rule 1.5(cc). 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.
---------------------------------------------------------------------------
As stated previously, the Exchange is proposing changes to its rule
text in order to maintain consistency with its affiliate exchanges, but
so long as the current EDGA fee schedule remains in place, orders
containing a Post Only instruction in securities priced below $1.00
will continue to remove liquidity upon entry and the proposed order
handling behavior change will not take effect, as no orders containing
a Post Only instruction will be posted on the EDGA Book. The Exchange
has included the following example to demonstrate the proposed changes,
which shall only become effective should the Exchange modify its fee
schedule such that Users receive an economic benefit to utilize orders
containing a Post Only instruction.
Example 1
Assume the NBB is $0.50 and the NBO is $0.53. There is no
resting interest on the EDGA Book.
------------------------------------------------------------------------
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 11.6(l).\21\ Pursuant to Rule
11.6(l), Order 1 is temporarily slid to a displayed price of $0.5001 as
it locked the NBB upon entry.\22\ 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.\23\
---------------------------------------------------------------------------
\21\ See Rule 11.6(l)(1)(B)(i). An order instruction requiring
that where an order would be a Locking Quotation or Crossing
Quotation of an external market if displayed by the System on the
EDGA Book at the time of entry, will be ranked at the Locking Price
in the EDGA Book and displayed by the System at one Minimum Price
Variation lower (higher) than the Locking Price for orders to buy
(sell) (``Display-Price Sliding'').
\22\ 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
11.6(l)(1)(B)(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 11.6(l)(1)(B)(ii).
\23\ Id.
---------------------------------------------------------------------------
Next, assume the Exchange received an incoming bid
containing a Post Only instruction (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 EDGA Book and
display at a price of $0.50. Orders containing a Post Only instruction
are permitted to post and be displayed opposite the ranked price of
orders subject to Display-Price Sliding.\24\ The result would be
depicted as follows:
---------------------------------------------------------------------------
\24\ See Rule 11.6(l)(1)(B)(v).
------------------------------------------------------------------------
Bid Offer
------------------------------------------------------------------------
National best................................ $0.50 x $0.5001
EDGA best.................................... 0.50 x 0.5001
------------------------------------------------------------------------
The Exchange then receives an IOC \25\ 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.
---------------------------------------------------------------------------
\25\ See Rule 11.6(q)(1). ``IOC'' is an instruction the User may
attach to an order stating the order 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 EDGA Book.
---------------------------------------------------------------------------
Consistent with the Exchange's rule regarding priority of orders,
Rule 11.9, a Non-Displayed Order cannot be executed by the Exchange
pursuant to Rule 11.10 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 EDGA Order
Handling Filing granted the Exchange the ability to execute Non-
Displayed Orders and orders subject to NMS Price Sliding \26\ 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.
---------------------------------------------------------------------------
\26\ 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 book opposite a displayed order.
---------------------------------------------------------------------------
In the example above, Order 1, ranked at $0.50 upon entry, was slid
to a displayed priced of $0.5001 pursuant to Rule 11.6(l)(1)(B)(i) as
it locked the NBB. Upon the arrival of Order 2, which is an order
containing a Post Only instruction that is permitted to post to the
EDGA Book and display opposite of Order 1, \27\ 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
[[Page 8463]]
locking price ($0.50). Without the proposed changes to Rule
11.10(a)(4)(D), Order 3 would be cancelled upon entry at is cannot
execute at a price of $0.50 due to Order 2's higher priority status.
---------------------------------------------------------------------------
\27\ Supra note 21.
---------------------------------------------------------------------------
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.\28\ This
behavior is substantially similar to the order handling functionality
described in the EDGA Order Handling 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 EDGA Order
Handling 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 at a price of $0.5001 and Order 3 would
receive price improvement equal to the difference between its limit
price and $0.5001.\29\
---------------------------------------------------------------------------
\28\ 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
execution out to five decimal places, which is not supported by the
System.
\29\ 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 EDGA Order Handling 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 an order containing a Post Only
instruction in order to optimize available liquidity for incoming
orders and to provide price improvement for market participants.\30\
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 11.9.\31\ The Exchange recognizes that
the order handling behavior for securities priced at or above $1.00
described in the EDGA Order Handling 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 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 EDGA Book (depending on User instruction), which will
result in higher overall market quality and likelihood of execution on
EDGA 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.
---------------------------------------------------------------------------
\30\ See Resting Order Execution Filing at 28831.
\31\ 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 EDGA 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 EDGA Book when an order containing a Post Only
instruction is displayed opposite the ranked price of orders subject to
display-price sliding. The Exchange believes that such specific
circumstances, without modification of Rule 11.10(a)(4), would be
present upon the expansion of Post Only instruction 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 11.10(a)(4)(D) is substantially
similar to the order handling modification proposed and ultimately
approved by the EDGA Order Handling 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 EDGA Order
Handling 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 EDGA Book (depending on User
instruction). Further, the Exchange believes that Users who received
increased execution rates on EDGA 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 EDGA Order Handling Filing. The proposal to amend Rule
11.10(a)(4)(D) is limited to certain circumstances that occur as a
result of the presence of an order containing a Post Only instruction
resting opposite a Non-Displayed Order or order subject to Display-
Price Sliding and is designed to optimize available
[[Page 8464]]
liquidity for incoming orders. As previously discussed, the proposed
changes to Rule 11.10(a)(4)(D) will only modify current order handling
functionality should the Exchange modify its fee schedule such that
Users entering orders containing a Post Only instruction in securities
priced below $1.00 receive an economic benefit for such order posting
to the EDGA Book. The proposed change to Rule 11.10(a)(4)(D) is being
proposed in order to keep the EDGA rulebook aligned with the rulebooks
of the Exchange's affiliates. The Exchange also proposes to make a
change to Rule 11.10(a)(4)(C) in order to correct a reference to
subparagraph (d) in order to properly reflect subparagraph (D).
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.\32\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \33\ 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) \34\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
---------------------------------------------------------------------------
\32\ 15 U.S.C. 78f(b).
\33\ 15 U.S.C. 78f(b)(5).
\34\ Id.
---------------------------------------------------------------------------
As discussed above, the Exchange is proposing to expand the use of
its Post Only instruction to securities priced below $1.00.\35\ In
conjunction with expanding the ability to utilize a Post Only
instruction 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 EDGA Book when an order
containing a Post Only instruction is displayed opposite the ranked
price of orders subject to display-price sliding. The Exchange notes,
however, that as the economic best interest calculation will not result
in an economic benefit for Users utilizing the Post Only instruction
for securities priced below $1.00, orders containing a Post Only
instruction will continue to remove liquidity from EDGA and the
proposed changes are simply being made to align the EDGA rulebook with
the rulebooks of its affiliate exchanges. As discussed below, the
Exchange believes its proposal is consistent with Section 6(b)(5) of
the Act.
---------------------------------------------------------------------------
\35\ As stated previously, securities priced below $1.00 will
continue to remove liquidity from the EDGA Book, however this will
be the result of the Exchange's economic best interest calculation
and not language in the rule text that directs the Exchange to treat
orders containing a Post Only instruction as liquidity-removing
orders.
---------------------------------------------------------------------------
In particular, the proposal to amend Rule 11.6(n)(4) to permit
orders priced below $1.00 to utilize a Post Only instruction 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 Post Only
instruction at any price, rather than being limited to securities
priced above $1.00, should the Exchange amend its fee schedule such
that Users receive an economic benefit for having an order containing a
Post Only instruction that posts to the EDGA Book. 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 a Post
Only instruction. A Post Only instruction allows Users to post
aggressively priced liquidity, and 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 market participants, including retail investors, would
deteriorate. Accordingly, the Exchange believes that orders containing
a Post Only instruction 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,
should the Exchange amend its fee schedule such that Users which submit
orders containing a Post Only instruction receive an economic benefit
when the order posts to the EDGA Book.
Allowing an order containing a Post Only instruction to be utilized
at prices below $1.00 in the future, should the Exchange choose to
amend its fee schedule, 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. Indeed, such market
participants have asked the Exchange to implement such functionality
across the Exchange's affiliates in order to permit them to utilize a
single trading strategy across securities at all prices and the
Exchange is proposing to update its rulebook in order to maintain
consistency with its affiliates, even as the Exchange's current fee
structure does not result in the economic benefit necessary for orders
containing a Post Only instruction to post to the EDGA Book. The
Exchange does not believe that the proposed amendment to Rule
11.6(n)(4) is unfairly discriminatory as it will permit the Post Only
instruction to be used by all Users at any price and the order
instruction will no longer be limited to securities priced at or above
$1.00, should the Exchange amend its fee schedule such that Users will
receive an economic benefit when an order containing a Post Only
instruction posts to the EDGA Book.
Similarly, the proposal to amend Rule 11.10(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 an order
containing a Post Only instruction 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 an order containing a Post Only
instruction 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
[[Page 8465]]
11.10(a)(4)(D) is substantially similar to the order handling behavior
change that was proposed (and later approved) by the Resting Order
Execution Filing on the Exchange's affiliate, BZX Exchange, and
subsequently by the EDGA Order Handling Filing, and will only serve to
improve execution quality for participants sending orders to the
Exchange. The Exchange notes, however, that under the current fee
schedule, orders containing a Post Only instruction will continue to
remove liquidity rather than post to the EDGA Book, and as such, the
proposed amendment to Rule 11.10(a)(4)(D) will not have any affect on
order behavior unless the Exchange amends its fee schedule and orders
containing a Post Only instruction are permitted to post to the EDGA
Book.
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 priced at which the Resting Order is eligible to
execute.\36\ 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 EDGA Book (depending on User
instruction), which will result in higher overall market quality and
likelihood of execution on EDGA 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 EDGA 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 order containing a Post Only instruction will benefit
market participants and their customers by allowing them greater
flexibility in their efforts to fill orders and minimize trading costs,
should the Exchange amend its fee schedule such that Users will receive
an economic benefit when an order containing a Post Only instruction
posts to the EDGA Book.
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\36\ Supra note 28.
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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 11.6(n)(4) will apply equally to all Users in that all
Users will be eligible to utilize the Post Only instruction for
securities priced below $1.00. Similarly, the proposed change to Rule
11.10(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 order containing a Post Only instruction. 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 EDGA Book which results in increased overall market quality and a
higher likelihood of execution on EDGA. The proposed changes are
designed to align the Exchange rulebook with the rulebooks of its
affiliate exchanges and provide the Exchange an opportunity to expand
an existing Exchange order instruction and existing order handling
behavior to securities priced below $1.00 should the Exchange amend its
fee schedule in the future due to the growth in sub-dollar trading that
has been seen since 2019.
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.\37\ The
Exchange believes its proposal to expand the use of the Post Only
instruction to securities priced below $1.00 will promote competition
between the Exchange and other exchanges for volume in sub-dollar
securities should the Exchange amend its fee schedule such that Users
will receive an economic benefit when an order containing a Post Only
instruction posts to the EDGA Book. 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.\38\ The Exchange similarly believes that its
proposal to grant it the ability to amend its order handling behavior
in limited circumstances where a Resting Order cannot execute due to
the presence of a contra-side order containing a Post Only instruction
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 order
containing a Post Only instruction.
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\37\ See Nasdaq Equity 4, Rule 4702(b)(4) (``Post-Only Order'').
See also NYSE Rule 7.31(e)(2) (``ALO Order'').
\38\ 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/.
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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
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.
[[Page 8466]]
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
file number SR-CboeEDGA-2024-003 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-CboeEDGA-2024-003. 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-CboeEDGA-2024-003 and should
be submitted on or before February 28, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\39\
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\39\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-02414 Filed 2-6-24; 8:45 am]
BILLING CODE 8011-01-P
