Self-Regulatory Organizations; Cboe EDGX 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, 8473-8478 [2024-02421]
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Federal Register / Vol. 89, No. 26 / Wednesday, February 7, 2024 / Notices
to be appropriate and publishes its
reasons for so finding or as to which the
self-regulatory organization consents,
the Commission shall either approve the
proposed rule change, disapprove the
proposed rule change, or institute
proceedings to determine whether the
proposed rule change should be
disapproved. The 45th day after
publication of the notice for this
proposed rule change is February 5,
2024. The Commission is extending this
45-day time period.
The Commission finds it appropriate
to designate a longer period within
which to take action on the proposed
rule change so that it has sufficient time
to consider the proposed rule change
and the issues raised therein.
Accordingly, the Commission, pursuant
to Section 19(b)(2) of the Act,5
designates March 21, 2024, as the date
by which the Commission shall either
approve or disapprove, or institute
proceedings to determine whether to
disapprove, the proposed rule change
(File No. SR–CboeBZX–2023–101).
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.6
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024–02416 Filed 2–6–24; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
Self-Regulatory Organizations; Cboe
EDGX 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
khammond on DSKJM1Z7X2PROD with NOTICES
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 EDGX Exchange, Inc.
(the ‘‘Exchange’’ or ‘‘EDGX’’) 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
U.S.C. 78s(b)(2).
CFR 200.30–3(a)(31).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
6 17
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I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Cboe EDGX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘EDGX’’) 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/
options/regulation/rule_filings/edgx/),
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
[Release No. 34–99459; File No. SR–
CboeEDGX–2024–007]
5 15
proposed rule change from interested
persons.
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
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,
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8473
represented approximately 39.8%
market share in sub-dollar securities,
with a total of 1,638 securities trading
below $1.00.7 As an exchange group,
Cboe had approximately 13.3% of
market share in sub-dollar securities in
the first quarter of 2023.8 Additionally,
an analysis of internal data showed that
the Exchange 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 EDGX 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 EDGX Book . . .’’.
Accordingly, an order containing a Post
Only instruction does not remove
liquidity, but rather posts to the EDGX
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
EDGX Book. The Exchange believes the
proposed changes will provide Users 10
with an additional order type to utilize
when submitting order flow to the
Exchange in securities priced below
$1.00, thereby contributing to a deeper
and more liquid market, which benefits
all market participants and provides
greater execution opportunities on the
Exchange.
Currently, orders containing a Post
Only instruction priced below $1.00 are
automatically treated as orders that
remove liquidity.11 In order to permit an
2022), 87 FR 80266 (December 29, 2022) (‘‘Tick Size
Proposal’’) at 80315.
7 Supra note 4.
8 Id.
9 See Rule 1.5(d). The EDGX 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 EDGX 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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order containing a Post Only instruction
to post to the EDGX 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
EDGX 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 of orders
containing a Post Only instruction in
securities priced below $1.00 for Users
who choose to utilize this particular
order type. Under this proposal, 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. The Exchange has
received User feedback requesting the
ability to utilize orders with 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 benefit for Users who choose
to utilize orders with 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 13 and
orders subject to display-price sliding
(collectively, ‘‘Resting Orders’’) which
are not executable at their most
aggressive price due to the presence of
a contra-side order containing a Post
Only instruction to be executed at one
minimum price variation less aggressive
than the order’s most aggressive price.14
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 EDGX Book and subsequently
provided liquidity. The determination of whether
an order containing a Post Only instruction will be
allowed to post to the EDGX Book or be eligible to
remove liquidity is based on the current fee
schedule, the execution price, and the amount of
price improvement received.
13 See Rule 11.6(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 EDGX Book.
14 See Securities Exchange Act Release No. 75479
(July 17, 2015), 80 FR 43810 (July 23, 2015), SR–
EDGX–2015–33 (‘‘EDGX Order Handling Filing’’).
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Currently, similar order handling
behavior applies only to securities
priced at or above $1.00.15 When
proposed in 2011, the Resting Order
Execution Filing stated that the order
handling functionality was not
necessary for securities priced below
$1.00 as the Exchange did not have the
ability to quote in sub-pennies and the
system limitations that market
participants may encounter if
attempting to execute in increments
finer than $0.0001.16 Given the rise in
sub-dollar trading discussed above, the
Exchange now proposes to expand the
order handling functionality introduced
by the Resting Order Execution Filing to
securities priced below $1.00.
Rule 11.10(a)(4)(D) states that for
securities priced above $1.00, incoming
orders that are Market Orders 17 or Limit
Orders 18 priced more aggressively than
an order displayed on the EDGX 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 EDGX 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
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 EDGX 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.
15 See Rule 11.10(a)(4)(D).
16 See Resting Order Execution Filing footnote 8.
17 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.
18 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.
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within the System,19 which cannot
process executions out to five decimal
places.
In order to demonstrate the proposed
order handling behavior for securities
priced below $1.00, the Exchange has
included the following example:
Example 1
• Assume the NBB is $0.50 and the
NBO is $0.53. There is no resting
interest on the EDGX 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).20 Pursuant to
Rule 11.6(l)(1)(B)(i), Order 1 is
temporarily slid to a displayed price of
$0.5001 as it locked the NBB upon
entry.21 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.22
• 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 EDGX 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.23 The result would be depicted
as follows:
Bid
National best .......
EDGA best ..........
$0.50
0.50
Offer
×
×
$0.5001
0.5001
19 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.
20 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 EDGX
Book at the time of entry, will be ranked at the
Locking Price in the EDGX 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’’).
21 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).
22 Id.
23 See Rule 11.6(l)(1)(B)(v).
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• The Exchange then receives an
IOC 24 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 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 EDGX Order
Handling Filing granted the Exchange
the ability to execute Non-Displayed
Orders and orders subject to NMS Price
Sliding 25 priced at or above $1.00 at
one-half minimum price variation more
(less) than the locking price in the event
that a bid (offer) submitted to the
Exchange opposite such Resting Order
is a market order or limit order priced
more aggressive than the locking price.
In the example above, Order 1, ranked
at $0.50 upon entry, was slid to a
displayed price of $0.5001 pursuant to
Rule 11.6(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 EDGX Book and display opposite of
Order 1,26 the Exchange’s current
priority rule prohibits Order 1 from
executing at a price of $0.50 in the event
a subsequent contra-side incoming order
is entered at a more aggressive price
than the locking price. In the example
above, Order 3 was entered at a more
aggressive price ($0.5001) than the
locking price ($0.50). Without the
proposed changes to Rule 11.10(a)(4)(D),
Order 3 would be cancelled upon entry
24 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 EDGX Book.
25 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.
26 Supra note 20.
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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.27 This behavior is
substantially similar to the order
handling functionality described in the
EDGX 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 EDGX
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 against Order 1 at
a price of $0.5001 and Order 3 would
receive price improvement equal to the
difference between its limit price and
$0.5001.28
The EDGX 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
27 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.
28 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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8475
market participants.29 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
11.9.30 The Exchange recognizes that
the order handling behavior for
securities priced at or above $1.00
described in the EDGX 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 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 EDGX Book (depending on User
instruction), which will result in higher
overall market quality and likelihood of
execution on EDGX 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 EDGX 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.
29 See
Resting Order Execution Filing at 28831.
30 Id.
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The Exchange is proposing a solution
to address specific conditions that are
present on the EDGX Book when an
order with 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 EDGX 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 EDGX
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 EDGX Book
(depending on User instruction).
Further, the Exchange believes that
Users who received increased execution
rates on EDGX 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 EDGX
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
liquidity for incoming orders.
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2. Statutory Basis
The Exchange believes the proposed
rule change is consistent with the
Securities Exchange Act of 1934 (the
‘‘Act’’) and the rules and regulations
thereunder applicable to the Exchange
and, in particular, the requirements of
Section 6(b) of the Act.31 Specifically,
the Exchange believes the proposed rule
change is consistent with the Section
6(b)(5) 32 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) 33 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. 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 EDGX Book when an
order containing a Post Only instruction
is displayed opposite the ranked price
of orders subject to display-price
sliding. As discussed below, the
Exchange believes its proposal is
consistent with Section 6(b)(5) of the
Act.
In particular, the proposal to amend
Rule 11.6(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
31 15
32 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
33 Id.
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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. 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, which
will permit orders to post on the
Exchange without removing liquidity or
routing to away to another trading
center. 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. Indeed, such market
participants have asked the Exchange to
implement such functionality in order
to permit them to utilize a single trading
strategy across securities at all prices.
Allowing an order containing a Post
Only instruction to be utilized at prices
below $1.00 will deepen the Exchange’s
pool of available liquidity in sub-dollar
securities, which is a growing area of
trading, particularly for retail investors.
A deeper and more liquid market
supports the quality of price discovery,
promotes market transparency, and
improves market quality for all
investors. The Exchange does not
believe that the proposed amendment to
Rule 11.6(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.
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
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khammond on DSKJM1Z7X2PROD with NOTICES
Federal Register / Vol. 89, No. 26 / Wednesday, February 7, 2024 / Notices
promotes just and equitable principles
of trade and removes impediments to,
and perfects the mechanism of a free
and open market and a national market
system because it extends functionality
currently available to orders priced at or
above $1.00 to orders priced below
$1.00, with a slight difference in the
minimum price variation to account for
the System’s inability to display orders
out to five decimal places ($0.00001).
The proposed amendment to Rule
11.10(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 EDGX Order
Handling Filing, and will only serve to
improve execution quality for
participants sending orders to the
Exchange.
The Exchange does not believe that
the treatment of sub-dollar securities is
unfairly discriminatory as the Exchange
will be using the standard minimum
pricing increment for sub-dollar
securities in order to determine the
price at which the Resting Order is
eligible to execute.34 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 EDGX Book (depending
on User instruction), which will result
in higher overall market quality and
likelihood of execution on EDGX 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 EDGX Book.
34 Supra
note 27.
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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.
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. The
proposed changes are designed to
expand an existing Exchange order
instruction and existing order handling
behavior to securities priced below
$1.00 due to the growth in sub-dollar
trading that has been seen since 2019.
Further, the Exchange does not believe
that Users submitting incoming, 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 EDGX
Book which results in increased overall
market quality and a higher likelihood
of execution on EDGX.
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 $1.00.35
The Exchange believes its proposal to
expand the use of the Post Only
instruction to securities priced below
35 See
Nasdaq Equity 4, Rule 4702(b)(4) (‘‘PostOnly Order’’). See also NYSE Rule 7.31(e)(2) (‘‘ALO
Order’’).
PO 00000
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8477
$1.00 will promote competition between
the Exchange and other exchanges for
volume in sub-dollar securities.
Furthermore, the Exchange believes its
proposal will promote competition
between the Exchange and off-exchange
trading venues, where a significant
amount of sub-dollar trading occurs
today.36 The Exchange similarly
believes that its proposal to amend its
order handling behavior in limited
circumstances where a Resting Order
cannot execute due to the presence of a
contra-side 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.
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:
36 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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8478
Federal Register / Vol. 89, No. 26 / Wednesday, February 7, 2024 / Notices
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include file number SR–
CboeEDGX–2024–007 on the subject
line.
Paper Comments
DEPARTMENT OF STATE
[Public Notice: 12320]
[Public Notice: 12321]
Notice of Determinations; Culturally
Significant Object Being Imported for
Exhibition—Determinations: ‘‘New
Worlds: Women to Watch 2024’’
Exhibition
Notice of Determinations; Culturally
Significant Objects Being Imported for
Exhibition—Determinations: ‘‘Picture
Worlds: Greek, Maya and Moche
Pottery’’ Exhibition
Notice is hereby given of the
following determinations: I hereby
determine that a certain object being
imported from abroad pursuant to an
agreement with its foreign owner or
custodian for temporary display in the
exhibition ‘‘New Worlds: Women to
Watch 2024’’ at the National Museum of
Women in the Arts, Washington,
District of Columbia, and at possible
additional exhibitions or venues yet to
be determined, is of cultural
significance, and, further, that its
temporary exhibition or display within
the United States as aforementioned is
in the national interest. I have ordered
that Public Notice of these
determinations be published in the
Federal Register.
SUMMARY:
SUMMARY:
• 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–CboeEDGX–2024–007. 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–CboeEDGX–2024–007 and should be
submitted on or before February 28,
2024.
khammond on DSKJM1Z7X2PROD with NOTICES
DEPARTMENT OF STATE
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.37
Sherry R. Haywood,
Assistant Secretary.
FOR FURTHER INFORMATION CONTACT:
Reed Liriano, Program Coordinator,
Office of the Legal Adviser, U.S.
Department of State (telephone: 202–
632–6471; email: section2459@
state.gov). The mailing address is U.S.
Department of State, L/PD, 2200 C Street
NW (SA–5), Suite 5H03, Washington,
DC 20522–0505.
The
foregoing determinations were made
pursuant to the authority vested in me
by the Act of October 19, 1965 (79 Stat.
985; 22 U.S.C. 2459), Executive Order
12047 of March 27, 1978, the Foreign
Affairs Reform and Restructuring Act of
1998 (112 Stat. 2681, et seq.; 22 U.S.C.
6501 note, et seq.), Delegation of
Authority No. 234 of October 1, 1999,
Delegation of Authority No. 236–3 of
August 28, 2000, and Delegation of
Authority No. 523 of December 22,
2021.
SUPPLEMENTARY INFORMATION:
Nicole L. Elkon,
Deputy Assistant Secretary for Professional
and Cultural Exchanges, Bureau of
Educational and Cultural Affairs, Department
of State.
[FR Doc. 2024–02451 Filed 2–6–24; 8:45 am]
BILLING CODE 4710–05–P
Notice is hereby given of the
following determinations: I hereby
determine that certain objects being
imported from abroad pursuant to
agreements with their foreign owners or
custodians for temporary display in the
exhibition ‘‘Picture Worlds: Greek,
Maya and Moche Pottery’’ at the J. Paul
Getty Museum at the Getty Villa, Pacific
Palisades, California; the Michael C.
Carlos Museum, Emory University,
Atlanta, Georgia; and at possible
additional exhibitions or venues yet to
be determined, are of cultural
significance, and, further, that their
temporary exhibition or display within
the United States as aforementioned is
in the national interest. I have ordered
that Public Notice of these
determinations be published in the
Federal Register.
FOR FURTHER INFORMATION CONTACT:
Reed Liriano, Program Coordinator,
Office of the Legal Adviser, U.S.
Department of State (telephone: 202–
632–6471; email: section2459@
state.gov). The mailing address is U.S.
Department of State, L/PD, 2200 C
Street, NW (SA–5), Suite 5H03,
Washington, DC 20522–0505.
The
foregoing determinations were made
pursuant to the authority vested in me
by the Act of October 19, 1965 (79 Stat.
985; 22 U.S.C. 2459), Executive Order
12047 of March 27, 1978, the Foreign
Affairs Reform and Restructuring Act of
1998 (112 Stat. 2681, et seq.; 22 U.S.C.
6501 note, et seq.), Delegation of
Authority No. 234 of October 1, 1999,
Delegation of Authority No. 236–3 of
August 28, 2000, and Delegation of
Authority No. 523 of December 22,
2021.
SUPPLEMENTARY INFORMATION:
Nicole L. Elkon,
Deputy Assistant Secretary for Professional
and Cultural Exchanges, Bureau of
Educational and Cultural Affairs, Department
of State.
[FR Doc. 2024–02502 Filed 2–6–24; 8:45 am]
[FR Doc. 2024–02421 Filed 2–6–24; 8:45 am]
BILLING CODE 4710–05–P
BILLING CODE 8011–01–P
37 17
CFR 200.30–3(a)(12).
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]]>Agencies
[Federal Register Volume 89, Number 26 (Wednesday, February 7, 2024)]
[Notices]
[Pages 8473-8478]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-02421]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-99459; File No. SR-CboeEDGX-2024-007]
Self-Regulatory Organizations; Cboe EDGX 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 EDGX Exchange, Inc. (the ``Exchange'' or
``EDGX'') 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 EDGX Exchange, Inc. (the ``Exchange'' or ``EDGX'') 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/options/regulation/rule_filings/edgx/), 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 the
first quarter of 2023.\8\ Additionally, an analysis of internal data
showed that the Exchange 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 EDGX 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 EDGX Book . . .''. Accordingly, an order containing a Post
Only instruction does not remove liquidity, but rather posts to the
EDGX 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 EDGX Book. The Exchange believes the proposed changes
will provide Users \10\ with an additional order type to utilize when
submitting order flow to the Exchange in securities priced below $1.00,
thereby contributing to a deeper and more liquid market, which benefits
all market participants and provides greater execution opportunities on
the Exchange.
---------------------------------------------------------------------------
\9\ See Rule 1.5(d). The EDGX 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
[[Page 8474]]
order containing a Post Only instruction to post to the EDGX 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 EDGX Book if the
order is an order to buy or sell a security ``priced below $1.00 . .
.''. While the Exchange's economic best interest calculation \12\ will
remain the same as is currently in-place for securities priced at or
above $1.00, the impact of this proposal will modify the outcome of
orders containing a Post Only instruction in securities priced below
$1.00 for Users who choose to utilize this particular order type. Under
this proposal, 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. The Exchange
has received User feedback requesting the ability to utilize orders
with 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 benefit for Users
who choose to utilize orders with 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 EDGX
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 EDGX Book and
subsequently provided liquidity. The determination of whether an
order containing a Post Only instruction will be allowed to post to
the EDGX Book or be eligible to remove liquidity is based on the
current fee schedule, the execution price, and the amount of price
improvement received.
---------------------------------------------------------------------------
In addition to the proposed amendment to Rule 11.6(n)(4), the
Exchange proposes an amendment to its order handling procedures in
order to permit Non-Displayed Orders \13\ and orders subject to
display-price sliding (collectively, ``Resting Orders'') which are not
executable at their most aggressive price due to the presence of a
contra-side order containing a Post Only instruction to be executed at
one minimum price variation less aggressive than the order's most
aggressive price.\14\ Currently, similar order handling behavior
applies only to securities priced at or above $1.00.\15\ When proposed
in 2011, the Resting Order Execution Filing stated that the order
handling functionality was not necessary for securities priced below
$1.00 as the Exchange did not have the ability to quote in sub-pennies
and the system limitations that market participants may encounter if
attempting to execute in increments finer than $0.0001.\16\ Given the
rise in sub-dollar trading discussed above, the Exchange now proposes
to expand the order handling functionality introduced by the Resting
Order Execution Filing to securities priced below $1.00.
---------------------------------------------------------------------------
\13\ See Rule 11.6(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 EDGX Book.
\14\ See Securities Exchange Act Release No. 75479 (July 17,
2015), 80 FR 43810 (July 23, 2015), SR-EDGX-2015-33 (``EDGX 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
EDGX 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.
\15\ See Rule 11.10(a)(4)(D).
\16\ 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 \17\ or Limit Orders \18\ priced
more aggressively than an order displayed on the EDGX 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 EDGX 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,\19\ which cannot process executions out
to five decimal places.
---------------------------------------------------------------------------
\17\ 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.
\18\ 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.
\19\ 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.
---------------------------------------------------------------------------
In order to demonstrate the proposed order handling behavior for
securities priced below $1.00, the Exchange has included the following
example:
Example 1
Assume the NBB is $0.50 and the NBO is $0.53. There is no
resting interest on the EDGX 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).\20\ Pursuant to Rule
11.6(l)(1)(B)(i), Order 1 is temporarily slid to a displayed price of
$0.5001 as it locked the NBB upon entry.\21\ 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.\22\
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\20\ 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
EDGX Book at the time of entry, will be ranked at the Locking Price
in the EDGX 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'').
\21\ 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).
\22\ 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 EDGX 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.\23\ The result would be
depicted as follows:
---------------------------------------------------------------------------
\23\ See Rule 11.6(l)(1)(B)(v).
------------------------------------------------------------------------
Bid Offer
------------------------------------------------------------------------
National best................................ $0.50 x $0.5001
EDGA best.................................... 0.50 x 0.5001
------------------------------------------------------------------------
[[Page 8475]]
The Exchange then receives an IOC \24\ 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.
---------------------------------------------------------------------------
\24\ 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 EDGX Book.
---------------------------------------------------------------------------
Consistent 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 EDGX Order Handling
Filing granted the Exchange the ability to execute Non-Displayed Orders
and orders subject to NMS Price Sliding \25\ 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.
---------------------------------------------------------------------------
\25\ 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 price 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
EDGX Book and display opposite of Order 1,\26\ the Exchange's current
priority rule prohibits Order 1 from executing at a price of $0.50 in
the event a subsequent contra-side incoming order is entered at a more
aggressive price than the locking price. In the example above, Order 3
was entered at a more aggressive price ($0.5001) than the locking price
($0.50). Without the proposed changes to Rule 11.10(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.
---------------------------------------------------------------------------
\26\ Supra note 20.
---------------------------------------------------------------------------
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.\27\ This
behavior is substantially similar to the order handling functionality
described in the EDGX 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 EDGX 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 against Order 1 at a price of $0.5001 and
Order 3 would receive price improvement equal to the difference between
its limit price and $0.5001.\28\
---------------------------------------------------------------------------
\27\ 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.
\28\ 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 EDGX 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.\29\
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.\30\ The Exchange recognizes that
the order handling behavior for securities priced at or above $1.00
described in the EDGX 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 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 EDGX
Book (depending on User instruction), which will result in higher
overall market quality and likelihood of execution on EDGX 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.
---------------------------------------------------------------------------
\29\ See Resting Order Execution Filing at 28831.
\30\ 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 EDGX 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.
[[Page 8476]]
The Exchange is proposing a solution to address specific conditions
that are present on the EDGX Book when an order with 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 EDGX 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 EDGX 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 EDGX Book (depending on User
instruction). Further, the Exchange believes that Users who received
increased execution rates on EDGX 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 EDGX 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 liquidity for
incoming orders.
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Securities Exchange Act of 1934 (the ``Act'') and the rules and
regulations thereunder applicable to the Exchange and, in particular,
the requirements of Section 6(b) of the Act.\31\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \32\ 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) \33\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
---------------------------------------------------------------------------
\31\ 15 U.S.C. 78f(b).
\32\ 15 U.S.C. 78f(b)(5).
\33\ Id.
---------------------------------------------------------------------------
As discussed above, the Exchange is proposing to expand the use of
its Post Only instruction to securities priced below $1.00. 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 EDGX Book when an order
containing a Post Only instruction is displayed opposite the ranked
price of orders subject to display-price sliding. As discussed below,
the Exchange believes its proposal is consistent with Section 6(b)(5)
of the Act.
In particular, the proposal to amend Rule 11.6(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. 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, which will
permit orders to post on the Exchange without removing liquidity or
routing to away to another trading center. 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. Indeed, such market participants have asked
the Exchange to implement such functionality in order to permit them to
utilize a single trading strategy across securities at all prices.
Allowing an order containing a Post Only instruction to be utilized at
prices below $1.00 will deepen the Exchange's pool of available
liquidity in sub-dollar securities, which is a growing area of trading,
particularly for retail investors. A deeper and more liquid market
supports the quality of price discovery, promotes market transparency,
and improves market quality for all investors. The Exchange does not
believe that the proposed amendment to Rule 11.6(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.
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
[[Page 8477]]
promotes just and equitable principles of trade and removes impediments
to, and perfects the mechanism of a free and open market and a national
market system because it extends functionality currently available to
orders priced at or above $1.00 to orders priced below $1.00, with a
slight difference in the minimum price variation to account for the
System's inability to display orders out to five decimal places
($0.00001). The proposed amendment to Rule 11.10(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 EDGX
Order Handling Filing, and will only serve to improve execution quality
for participants sending orders to the Exchange.
The Exchange does not believe that the treatment of sub-dollar
securities is unfairly discriminatory as the Exchange will be using the
standard minimum pricing increment for sub-dollar securities in order
to determine the price at which the Resting Order is eligible to
execute.\34\ 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 EDGX Book (depending on User
instruction), which will result in higher overall market quality and
likelihood of execution on EDGX 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 EDGX 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.
---------------------------------------------------------------------------
\34\ Supra note 27.
---------------------------------------------------------------------------
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. The proposed changes are
designed to expand an existing Exchange order instruction and existing
order handling behavior to securities priced below $1.00 due to the
growth in sub-dollar trading that has been seen since 2019. Further,
the Exchange does not believe that Users submitting incoming, contra-
side orders are burdened by virtue of not receiving price improvement
in limited situations as they instead receive the benefit of an
immediate execution as opposed to being cancelled back to the User or
posting on the EDGX Book which results in increased overall market
quality and a higher likelihood of execution on EDGX.
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.\35\ 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. 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.\36\ The Exchange similarly believes that its proposal to amend
its order handling behavior in limited circumstances where a Resting
Order cannot execute due to the presence of a contra-side 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.
---------------------------------------------------------------------------
\35\ See Nasdaq Equity 4, Rule 4702(b)(4) (``Post-Only Order'').
See also NYSE Rule 7.31(e)(2) (``ALO Order'').
\36\ 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/.
---------------------------------------------------------------------------
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received comments on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the Exchange consents, the Commission will:
A. by order approve or disapprove such proposed rule change, or
B. institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
[[Page 8478]]
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-CboeEDGX-2024-007 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-CboeEDGX-2024-007. 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-CboeEDGX-2024-007 and should
be submitted on or before February 28, 2024.
For the Commission, by the Division of Trading and Markets, pursuant
to delegated authority.\37\
---------------------------------------------------------------------------
\37\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-02421 Filed 2-6-24; 8:45 am]
BILLING CODE 8011-01-P
