Self-Regulatory Organizations; Cboe BYX Exchange, Inc.; Notice of Filing of Amendment No. 1 and Order Instituting Proceedings To Determine Whether To Approve or Disapprove of a Proposed Rule Change, as Modified by Amendment No. 1, To Amend Exchange Rule 11.25(e) To Allow Users To Utilize the Exchange's Match Trade Prevention Functionality When Entering Periodic Auction Orders Onto the Exchange for Execution, 78418-78425 [2024-21876]

Download as PDF 78418 Federal Register / Vol. 89, No. 186 / Wednesday, September 25, 2024 / Notices III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The Exchange has filed the proposed rule change pursuant to Section 19(b)(3)(A)(iii) of the Act 10 and Rule 19b–4(f)(6) thereunder.11 Because the proposed rule change does not (i) significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative prior to 30 days from the date on which it was filed, or such shorter time as the Commission may designate, if consistent with the protection of investors and the public interest, the proposed rule change has become effective pursuant to Section 19(b)(3)(A)(iii) of the Act 12 and Rule 19b–4(f)(6)(iii) thereunder.13 A proposed rule change filed under Rule 19b–4(f)(6) 14 normally does not become operative prior to 30 days after the date of the filing. However, pursuant to Rule 19b4(f)(6)(iii),15 the Commission may designate a shorter time if such action is consistent with the protection of investors and the public interest. The Exchange has asked the Commission to waive the 30-day operative delay so that the proposal may take effect as soon as the technology associated with the proposed change is available, which is anticipated to be less than 30 days from the date of this filing. The Commission believes that waiver of the operative delay is consistent with the protection of investors and the public interest because the proposal raises no novel issues and would allow use of the MTS Modifier with odd lot quantities without delay and promote clarity in Exchange rules as to the order types that may be designated with an MTS Modifier. Accordingly, the Commission hereby waives the 30-day operative delay and designates the proposal operative upon filing.16 At any time within 60 days of the filing of such proposed rule change, the 10 15 U.S.C. 78s(b)(3)(A)(iii). CFR 240.19b–4(f)(6). 12 15 U.S.C. 78s(b)(3)(A)(iii). 13 17 CFR 240.19b–4(f)(6). In addition, Rule 19b– 4(f)(6)(iii) requires a self-regulatory organization to give the Commission written notice of its intent to file the proposed rule change, along with a brief description and text of the proposed rule change, at least five business days prior to the date of filing of the proposed rule change, or such shorter time as designated by the Commission. The Exchange has fulfilled this requirement. 14 17 CFR 240.19b–4(f)(6). 15 17 CFR 240.19b–4(f)(6)(iii). 16 For purposes only of accelerating the operative date of this proposal, the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f). ddrumheller on DSK120RN23PROD with NOTICES1 11 17 VerDate Sep<11>2014 17:28 Sep 24, 2024 Jkt 262001 Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings under Section 19(b)(2)(B) 17 of the Act to determine whether the proposed rule change should be approved or disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include file number SR– NYSEARCA–2024–78 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–NYSEARCA–2024–78. 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 17 15 PO 00000 U.S.C. 78s(b)(2)(B). Frm 00140 Fmt 4703 Sfmt 4703 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–NYSEARCA–2024–78 and should be submitted on or before October 16, 2024. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.18 Vanessa A. Countryman, Secretary. [FR Doc. 2024–21875 Filed 9–24–24; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–101105; File No. SR– CboeBYX–2024–009] Self-Regulatory Organizations; Cboe BYX Exchange, Inc.; Notice of Filing of Amendment No. 1 and Order Instituting Proceedings To Determine Whether To Approve or Disapprove of a Proposed Rule Change, as Modified by Amendment No. 1, To Amend Exchange Rule 11.25(e) To Allow Users To Utilize the Exchange’s Match Trade Prevention Functionality When Entering Periodic Auction Orders Onto the Exchange for Execution September 19, 2024. On June 6, 2024, Cboe BYX Exchange, Inc. (‘‘Exchange’’ or ‘‘BYX’’) filed with the Securities and Exchange Commission (the ‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change to amend Exchange Rule 11.25(e) (‘‘Priority and Execution of Orders’’) to allow Users to utilize the Exchange’s Match Trade Prevention functionality when entering Periodic Auction Orders onto the Exchange for execution. The proposed rule change was published for comment in the Federal Register on June 21, 2024.3 On August 5, 2024, the Commission extended the time period within which to approve, disapprove the proposed rule change, or institute proceedings to determine whether to approve or disapprove the proposed 18 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 See Securities Exchange Act Release No. 100337 (June 14, 2024), 89 FR 52148 (‘‘Notice’’). 1 15 E:\FR\FM\25SEN1.SGM 25SEN1 Federal Register / Vol. 89, No. 186 / Wednesday, September 25, 2024 / Notices rule change to September 19, 2024.4 On September 18, 2024, the Exchange filed Amendment No. 1 to the proposed rule change.5 The Commission is publishing this notice and to solicit comments on the proposed rule change, as modified by Amendment No. 1, from interested persons and to institute proceedings pursuant to Section 19(b)(2)(B) of the Act 6 to determine whether to approve or disapprove the proposed rule change, as modified by Amendment No. 1. I. Exchange’s Description of the Proposal, as Modified by Amendment No. 1 ddrumheller on DSK120RN23PROD with NOTICES1 Cboe BYX Exchange, Inc. (the ‘‘Exchange’’ or ‘‘BYX’’) proposes to amend Exchange Rule 11.25(e) (‘‘Priority and Execution of Orders’’) to allow (1) Users to utilize the Exchange’s Match Trade Prevention (‘‘MTP’’) functionality when entering Periodic Auction Orders onto the Exchange for execution and (2) add new rule text providing that in the event a Periodic Auction Order is entered as a Minimum Quantity Order, as well as with an MTP modifier (e.g., Order 1), and such Periodic Auction Order could either trade with a contra-side Continuous Book Order or initiate a Periodic Auction with a contra-side Periodic Auction Order (e.g., Order 2), designated with an MTP modifier from the same Unique Identifier as Order 1, the System will apply MTP regardless of whether the Minimum Quantity is satisfied. This Amendment No. 1 replaces SR–CboeBYX–2024–009 (‘‘Initial Filing’’) 7 as originally filed and supersedes the Initial Filing its entirety. The text of the proposed rule changes is provided in Exhibit 5. The text of the proposed rule change is also available on the Exchange’s website (https://markets.cboe.com/us/ equities/regulation/rule_filings/byx/), at the Exchange’s Office of the Secretary, and at the Commission’s Public Reference Room. 4 See Securities Exchange Act Release No. 100649 (August 9, 2024), 89 FR 65420. The Commission has received no comment letters on the proposed rule change. 5 Amendment No. 1 modifies the proposed rule change by: (1) amending rule text relating to Exchange Match Trade Prevention functionality when entering Periodic Auction Orders onto the Exchange for execution; and (2) adding new rule text describing how the Exchange will handle Periodic Auction Orders entered as a Minimum Quantity Order with a Match Trade Prevention modifier. 6 15 U.S.C. 78s(b)(2)(B). 7 See Securities Exchange Act Release No. 100337 (June 14, 2024), 89 FR 52148 (June 21, 2024) (SR– CboeBYX–2024–009). VerDate Sep<11>2014 17:28 Sep 24, 2024 Jkt 262001 II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange proposes to (1) amend Rule 11.25(e) to allow Users 8 to utilize the Exchange’s Match Trade Prevention (‘‘MTP’’) functionality when entering Periodic Auction Orders 9 onto the Exchange for execution,10 and (2) add new rule text providing that in the event a Periodic Auction Order is entered as a Minimum Quantity Order, as well as with an MTP modifier (e.g., Order 1), and such Periodic Auction Order could either trade with a contra-side Continuous Book Order or initiate a Periodic Auction with a contra-side Periodic Auction Order (e.g., Order 2), designated with an MTP modifier from the same Unique Identifier as Order 1, the System will apply MTP regardless of whether the Minimum Quantity is satisfied. By way of background, MTP is an existing process 11 through which Users can prevent their incoming orders designated with a MTP modifier from 8 The term ‘‘User’’ shall mean any Member or Sponsored Participant who is authorized to obtain access to the System pursuant to Rule 11.3. See Rule 1.5(cc), definition of ‘‘User’’. 9 The term ‘‘Periodic Auction Order’’ shall mean a ‘‘Periodic Auction Only Order’’ or ‘‘Periodic Auction Eligible Order’’ as those terms are defined in Rules 11.25(b)(1)–(2), and the term ‘‘Periodic Auction Book’’ shall mean the System’s electronic file of such Periodic Auction Orders. See Rule 11.25(a)(6). Hereinafter, a Periodic Auction Only Order may be referred to as a ‘‘PAO Order’’, and a Periodic Auction Eligible Order may be referred to as a, ‘‘PAE Order’’. 10 The Exchange plans to implement the proposed rule change on a date that will be circulated in a notice from the Cboe Trade Desk to all Members. 11 The Exchange notes that previous proposals extending the functionality of MTP to other trading scenarios were effective upon filing with the Commission. See generally Securities and Exchange Act Release No. 53429 (December 3, 2010), 75 FR 76763 (December 9, 2010) (SR–EDGX–2010–18); Securities and Exchange Act Release No. 34–96292 (November 10, 20220), 87 FR 68766 (November 16, 2022) (SR–CboeEDGX–2022–048). PO 00000 Frm 00141 Fmt 4703 Sfmt 4703 78419 executing against a resting opposite side order also designated with an MTP modifier and originating from the same market participant identifier (‘‘MPID’’), Exchange Member identifier, trading group identifier, Exchange Sponsored Participant identifier, affiliate identifier, or Multiple Access identifier (any such identifier, a ‘‘Unique Identifier’’).12 Both the buy and the sell order must include the same Unique Identifier in order to prevent an execution from occurring and to effect a cancel instruction. MTP is a valuable tool for Exchange Users because it allows them to better manage order flow and prevent undesirable trading activity such as wash sales 13 or self-trades 14 that may occur because of the high-speed nature of trading in today’s marketplace. Currently, Rule 11.25(e) states that all MTP modifiers (as defined in Rule 11.9(f)(1)–(5)) for Periodic Auction Orders will be ignored for executions occurring during a Periodic Auction. As part of the Exchange’s prior Periodic Auction Rule filings,15 the Exchange reasoned that MTP is mainly designed for use on the Continuous Book,16 and use of MTP for Periodic Eligible Orders 17 and Periodic Auction Only 12 See Rule 11.9(f)—Match Trade Prevention (‘‘MTP’’) Modifiers. 13 A ‘‘wash sale’’ is generally defined as a trade involving no change in beneficial ownership that is intended to produce the false appearance of trading and is strictly prohibited under both the federal securities laws and FINRA rules. See, e.g., 15 U.S.C. 78i(a)(1); FINRA Rule 6140(b) (‘‘Other Trading Practices’’). 14 Self-trades are ‘‘transactions in a security resulting from the unintentional interaction of orders originating from the same firm that involve no change in beneficial ownership of the security.’’ FINRA requires members to have policies and procedures in place that are reasonably designed to review trading activity for, and prevent, a pattern or practice of self-trades resulting from orders originating from a single algorithm or trading desk, or related algorithms or trading desks. See FINRA Rule 5210, Supplementary Material .02, available at: https://www.finra.org/rules-guidance/rulebooks/ finra-rules/5210. 15 See Securities and Exchange Act Release No. 34–91423 (March 26, 2021), 86 FR 17230 (April 1, 2021) (SR–CboeBYX–2020–021). 16 The term ‘‘Continuous Book’’ shall mean an order on the BYX Book that is not a Periodic Auction Order, and the term ‘‘Continuous Book’’ shall mean the System’s electronic file of such Continuous Book Orders. See Rule 11.25(a)(2), definition of ‘‘Continuous Book Order’’. 17 ‘‘A ‘Periodic Auction Eligible Order’ is a nondisplayed limit order eligible to trade on the Continuous Book that is entered with an instruction to also initiate a Periodic Auction, if possible . . . Periodic Auction Eligible Orders will be ranked as Non-Displayed Limit Orders consistent with the priority of order outlined in Rule 11.12(a). An incoming Periodic Auction Eligible Order that is eligible both to trade on the Continuous Book and initiate a Periodic Auction against a Periodic Auction Only Order at the same price will trade immediately with the Continuous Book. Incoming Periodic Auction Eligible Orders will upon entry E:\FR\FM\25SEN1.SGM Continued 25SEN1 78420 Federal Register / Vol. 89, No. 186 / Wednesday, September 25, 2024 / Notices ddrumheller on DSK120RN23PROD with NOTICES1 Orders 18 (collectively, Periodic Auction Orders) may complicate the execution of an auction that requires the pooling and matching of multiple orders against other orders at the Periodic Auction Book Price.19 Based on User feedback, however, Users of Periodic Auctions desire the ability to utilize MTP for their Periodic Auction Orders (when the Periodic Auction is not in progress) to help them manage their order flow and prevent undesirable executions against themselves. Users are not asking to utilize MTP for their Periodic Auction Orders when a Periodic Auction is occurring. Accordingly, the Exchange now seeks to allow Users to utilize MTP when entering Periodic Auction Orders onto the Exchange.20 Importantly, allowing Users to designate Periodic Auction Orders with MTP modifiers will not impact how the Periodic Auction itself is conducted, and the proposed MTP functionality will not prevent the completion of a Periodic Auction once it has been initiated. As proposed, however, there will be instances where the Exchange has elected to temporarily bypass a User’s MTP instruction. These instances are demonstrated in Examples 5 and 8, below, and generally involve scenarios where (i) a Periodic Auction is in progress, and the temporary bypassing of the MTP modifier on Firm A’s inbound Continuous Book Order is interact with Continuous Book Orders and other Periodic Auction Eligible Orders according to their rank under Rule 11.12(a). Periodic Auction Eligible Orders will not trade on the Continuous Book during a Periodic Auction Period in the security.’’ See 11.25(b)(2). 18 ‘‘A ‘Periodic Auction Only Order’ is a nondisplayed limit order entered with an instruction to participate solely in Periodic Auctions pursuant to this Rule 11.25. Periodic Auction Only Orders are not eligible for executions on the Continuous Book.’’ See Rule 11.25(b)(1). Hereinafter, Periodic Auction Only Orders as, ‘‘PAO Orders.’’ 19 ‘‘The term ‘Periodic Auction Book Price’ shall mean the price within the Collar Price Range at which the most shares from the Periodic Auction Book would match. In the event of a volume-based tied at multiple price-levels, the Periodic Auction Book Price will be the price that results in the minimum total imbalance. In the event of a volumebased tie and a tie in minimum total imbalance at multiple price levels, the Periodic Auction Book Price will be the price closest to the Volume Based Tie Breaker. The Periodic Auction Book Price will be expressed in the minimum increment for the security unless the midpoint of the NBBO establishes the Periodic Auction Book Price.’’ See 11.25(a)(5), definition of ‘‘Periodic Auction Book Price’’. 20 The Exchange notes that previous proposals extending the functionality of MTP to other trading scenarios were effective upon filing with the Commission. See Securities and Exchange Act Release No. 53429 (December 3, 2010), 75 FR 76763 (December 9, 2010) (SR–EDGX–2010–18); see also Securities and Exchange Act Release No. 34–96292 (November 10, 20220), 87 FR 68766 (November 16, 2022) (SR–CboeEDGX–2022–048). VerDate Sep<11>2014 17:28 Sep 24, 2024 Jkt 262001 necessary to prevent the cancelation of Firm A’s Periodic Auction Order with an MTP modifier that is currently participating in the Periodic Auction, or (ii) a Periodic Auction is in progress, and the bypassing of Firm A’s MTP modifier on its inbound Periodic Auction Order is necessary to prevent— depending on the relevant MTP instruction—the cancelation of Firm A’s resting Continuous Book Order, or the cancelation of the inbound Periodic Auction Order itself, preventing such order from participating in the Periodic Auction. In each instance, the temporary bypassing of the inbound order’s MTP modifier is intended to prevent the cancelation of orders where an immediate execution would not occur. Importantly, the bypassing of an inbound order’s MTP modifier is temporary and occurs only upon entry of the inbound order. The Exchange believes this behavior is necessary and appropriate to help strike a responsible balance between providing Users with an optional risk tool to prevent undesirable executions and ensuring that Periodic Auctions will complete. Moreover, the current architecture and design of Exchange Systems require that MTP for Periodic Auctions function as described. Additionally, the Exchange proposes to add new rule text providing that in the event a Periodic Auction Order is entered as a Minimum Quantity Order, as well as with an MTP modifier (e.g., Order 1), and such Periodic Auction Order could either trade with a contraside Continuous Book Order or initiate a Periodic Auction with a contra-side Periodic Auction Order (e.g., Order 2), designated with an MTP modifier from the same Unique Identifier as Order 1, the System will apply MTP regardless of whether the Minimum Quantity is satisfied. To illustrate how Periodic Auction Orders designated with MTP modifiers will behave, the Exchange offers the following examples: 21 21 For each example, assume that all trade prices are within the National Best Bid or National Best Offer (‘‘NBBO’’). Additionally, note that while Exchange Rule 11.9(f) provides for various MTP modifiers—including Cancel Newest, Cancel Oldest, Decrement and Cancel, Cancel Both, and Cancel Smallest—the Examples provided in this rule filing only demonstrate how certain of these modifiers will operate. Including examples for every possible MTP scenario would be difficult to efficiently demonstrate in a rule filing. Nevertheless, the MTP modifier exemplified in the provided Examples is not critical to understanding how the proposed functionality will operate because as demonstrated below, when a Periodic Auction is not in progress MTP will operate as it does today, and when a Periodic Auction is in progress, the System will, as described below, temporarily bypass an order’s MTP instruction. PO 00000 Frm 00142 Fmt 4703 Sfmt 4703 Example 1: Two PAE Orders Matching—MTP Action Occurs Example 1 illustrates how MTP will operate when Firm A’s resting PAE Order with an MTP modifier of MTP Cancel Oldest (‘‘MCO’’),22 interacts with a subsequent inbound PAE Order submitted by Firm A with an MTP modifier of MCO and a Periodic Auction is not in progress. Here, MTP operates in the same manner 23 as it would for Continuous Book Orders; i.e., because Firm A’s inbound PAE Order was entered with an MTP modifier of MCO, the System will cancel Firm A’s Order 1,24 which is the ‘‘oldest’’ contra-side Firm A order that is marketable versus Firm A’s inbound PAE Order to sell. This MTP action prevents Firm A from potentially trading with itself either on the Continuous Book or during a Periodic Auction.25 • Order 1—Resting (Firm A): PAE Order (MTP = Cancel Oldest), Buy 100 @1.00 • Order 2—Inbound order (Firm A): PAE Order (MTP = Cancel Oldest), Sell 200 @1.00 • Result: Order 1 is canceled. 22 MTP Cancel Oldest (‘‘MCO’’) is defined as ‘‘[a]n incoming order marked with the ‘‘MCO’’ modifier will not execute against opposite side resting interest marked with any MTP modifier originating from the same Unique Identifier. The resting order marked with the MCO modifier will be cancelled back to the originating User(s). The incoming order marked with the MCO modifier will remain on the BYX Book. See Rule 11.9(f)(2). 23 See Rule 11.9(f)—Match Trade Prevention (‘‘MTP’’) Modifiers. Any incoming order designated with an MTP modifier will be prevented from executing against a resting opposite side order also designated with an MTP modifier and originating from the same market participant identifier (‘‘MPID’’), Exchange Member identifiers, trading group identifier, Exchange Sponsored Participant identifier, affiliate identifier, or Multiple Access identifier (any such identifier, a ‘‘Unique Identifier’’). The order canceled by the System will depend on the incoming order’s MTP modifier, as described in 11.9(f)(1)–(5). 24 See Rule 11.9(f)(2). 25 As MTP action is controlled by the incoming order (‘‘. . . the MTP modifier on the incoming order controls the interaction between two orders marked with MTP modifiers.’’ See Rule 11.21(g)), Firm A’s Order 1 was correctly cancelled in this situation. Note, however, that if Firm A’s Order 2 had included an MTP modifier of MTP Cancel Newest (‘‘MCN’’), the result would simply be that Order 2 is instead canceled. MTP Cancel Newest (‘‘MCN’’) is defined as ‘‘[a]n incoming order marked with the ‘‘MCN’’ modifier will not execute against opposite side resting interest marked with any MTP modifier originating from the same Unique Identifier. The incoming order marked with the MCN modifier will be cancelled back to the originating User(s). The resting order marked with an MTP modifier will remain on the BYX Book.’’ See Rule 11.9(f)(1). Similarly, if we changed Order 1’s MTP Modifier to Cancel Newest and Order 2 remained as MTP Cancel Oldest, Order 1 would be canceled as Order 2’s instruction controls MTP action. E:\FR\FM\25SEN1.SGM 25SEN1 Federal Register / Vol. 89, No. 186 / Wednesday, September 25, 2024 / Notices Example 2: Two PAO Orders Matching—MTP Action Occurs Example 2 illustrates how MTP will operate when Firm A’s resting PAO Order with an MTP Modifier of MCN, interacts with Firm A’s inbound PAO Order with an MCN modifier, and a Periodic Auction is not in progress. Here, MTP operates in the same manner 26 as it would for Continuous Book Orders; i.e., because Firm A has designated its inbound Order 2 with MCN, the System will cancel Firm A’s Order 2,27 which is Firm’s A’s newest contra-side order that is marketable versus Firm A’s resting Order 1. This MTP action prevents Firm A from potentially trading with itself during a Periodic Auction. • Order 1—Resting (Firm A): PAO Order (MTP = Cancel Newest), Buy 100 @1.00 • Order 2—Inbound order (Firm A): PAO Order (MTP = Cancel Newest), Sell 200 @1.00 • Result: Order 2 is canceled For the sake of clarity, the Exchange also wishes to explain what would happen to Order 2 if a Periodic Auction was in progress when Order 2 arrived.28 To address this scenario, assume an inbound Periodic Auction Order from Firm B—Order X—arrived between Order 1 and Order 2, and initiated a Periodic Auction with Order 1. Here, when Order 2 arrives, and the Periodic Auction is in progress, Order 2 would still be canceled. When a Periodic Auction is in progress, and an inbound Periodic Auction Order is designated with an MTP modifier, and such order matches against a resting contra-side Periodic Auction Order originating from the same Unique Identifier that is also designated with a MTP modifier, the inbound Periodic Auction Order will be canceled. This behavior will enable Users to better manage their order flow and prevent undesirable executions in Periodic Auctions, just as they do today for their Continuous Book orders. Example 3: Incoming PAE Order Matching Against a PAO Order—MTP Action Occurs ddrumheller on DSK120RN23PROD with NOTICES1 note 19. Rule 11.9(f)(1). 28 This iteration of Example 2 demonstrates the functionality described in proposed Rule 11.25(e)(1)(B). 29 MTP Cancel Smallest (‘‘MCS’’) is defined as ‘‘[a]n incoming order marked with the ‘‘MCS’’ modifier will not execute against opposite side resting interest marked with any MTP modifier 27 See VerDate Sep<11>2014 17:28 Sep 24, 2024 Jkt 262001 Example 4: Incoming PAE Order Matching Against a Continuous Book Order—MTP Action Occurs Example 4 illustrates how MTP will operate when Firm A’s incoming PAE Order with a MCS modifier, matches against Firm A’s resting Continuous Book Order, and a Periodic Auction is not in progress. Here, MTP operates in the same manner 32 as it would for Continuous Book Orders; i.e., Firm’s A’s Order 1 is canceled 33 based on Firm A’s Order 2 MCS modifier because Order 1 is smaller than Order 2. Because a PAE Order is eligible to receive an execution on the Continuous Book,34 and both Order 1 and Order 2 are designated with MTP modifiers, the System correctly cancels Order 1, thereby preventing Firm A from potentially trading with itself on the Continuous Book. • Order 1—Resting (Firm A): Continuous Book order (MTP = Cancel Smallest), Buy 100 @1.00 • Order 2—Inbound order (Firm A): PAE Order (MTP = Cancel Smallest), Sell 200 @1.00 • Result: Order 1 is canceled. Example 5: Incoming PAE Order Matching Against a Continuous Book Order When a Periodic Auction Is in Progress—No MTP Action Occurs For the sake of clarity, the Exchange wishes to describe what would happen to Order 1 if a Periodic Auction is in progress and an inbound Periodic Example 3 illustrates how MTP will operate when Firm A’s resting PAO Order with a MTP modifier of MTP Cancel Smallest (‘‘MCS’’),29 interacts 26 Supra with Firm A’s inbound PAE Order with an MCS modifier, and an auction is not in progress. Here, MTP operates in the same manner 30 as it would for Continuous Book Orders; i.e., because Firm A has designated its orders with the MTP modifier, MCS, the System will cancel Firm A’s Order 1, which is Firm A’s small quantity order.31 This MTP action prevents Firm A from potentially trading with itself during a Periodic Auction. • Order 1—Resting (Firm A): PAO Order (MTP = Cancel Smallest), Buy 100 @1.00 • Order 2—Inbound order (Firm A): PAE Order (MTP = Cancel Smallest), Sell 200 @1.00 • Result: Order 1 is canceled. originating from the same Unique Identifier. If both orders are equivalent in size, both orders will be cancelled back to the originating User(s). If the orders are not equivalent in size, the smaller of the two orders will be cancelled back to the originating User and the larger order will remain on the book. See Rule 11.9(f)(5). 30 Supra note 19. 31 See Rule 11.9(f)(5). 32 Supra note 19. 33 Supra note 31. 34 Supra note 14. PO 00000 Frm 00143 Fmt 4703 Sfmt 4703 78421 Auction Order arrives (e.g., Order 4).35 First, note that a Continuous Book Order cannot initiate a Periodic Auction.36 Therefore, to initiate a Periodic Auction in this example, assume that two Periodic Auction Orders arrived, from Firm B and Firm C, prior to Order 1 and Order 4—e.g., Order X (Firm B) and Order Y (Firm C). Further assume that Order X and Order Y are marketable versus each other and initiated a Periodic Auction. Additionally, assume that Order 1, a Continuous Book Order is entered prior to Order 4, and that Order 1 and Order 4 are designated with MTP modifiers originating from the same Unique Identifiers. Upon the arrival of Order 4, a Periodic Auction Order, the System will temporarily bypass 37 Order 1’s and Order 4’s MTP instruction, and Order 4 will join the Periodic Auction. Order 1 will remain on the Book. If Order 1 did not execute in the Continuous Book while the Periodic Auction was in progress, then Order 1 could potentially execute with Order 4, provided that Order 1 has priority as determined by Rule 11.25(f). The bypassing of the MTP modifiers in this scenario occurs only upon entry of Order 4 to prevent the cancelation of orders in situations where an immediate execution would not occur. • NBBO: 10.00 x 10.05 • Order X (Firm B): Buy 100 @10.03— Midpoint Peg PAO • Order Y (Firm C): Sell 100 @10.02— Midpoint Peg PAO • Auction is initiated between Order X and Order Y • Order 1 (Firm A): Buy 100 @10.03— Midpoint Peg Continuous Book Order—MTP = Cancel Oldest • Order 4 (Firm A): Sell 100 @10.02— Midpoint Peg PAE—MTP = Cancel Oldest • MTP would be bypassed when Order 4 is entered and Order 4 would join the Periodic Auction in progress. • Result: Order X and Order Y trade 100 @10.025 in Periodic Auction. Order 1 and Order 2 trade 100 @ 10.025 in Periodic Auction 35 This iteration of Example 4 demonstrates the proposed functionality described in proposed Rule 11.25(e)(1)(A). 36 See Rule 11.25(c), Initiation and Publication of Periodic Auction Information, ‘‘A Periodic Auction will be initiated in a security during Regular Trading Hours when one or more Periodic Auction Orders to buy become executable against one or more Periodic Auction Orders to sell pursuant to this Rule 11.25.’’ 37 The Exchange notes that the bypassing of the MTP modifiers in this scenario is temporary. Should the Periodic Auction complete and Order 1 does not have the opportunity to trade with Order 4 in the Periodic Auction, then Order 1 would remain posted on the Continuous Book with its MTP modifier and be afforded the protections of MTP. E:\FR\FM\25SEN1.SGM 25SEN1 78422 Federal Register / Vol. 89, No. 186 / Wednesday, September 25, 2024 / Notices Here, even though Order 1 and Order 4 both originated from Firm A, and are designated with an MTP modifier, Order 1 is not canceled upon Order 4’s arrival because Order 1 is a Continuous Book Order that may or may not end up trading with Order 4 once the Periodic Auction is complete. Because Order 1 could receive an execution on the Continuous Book while the Periodic Auction is in progress, the Exchange temporarily bypasses Order 1’s MTP instruction upon Order 4’s arrival to prevent Order 1 from forfeiting a Continuous Book execution based on a possibility that Order 1 would be executable versus Order 4 at the completion of the Periodic Auction. Example 6: Incoming Continuous Book Order Matching Against a PAO Order— No MTP Action Occurs Example 6 illustrates how MTP will operate when Firm A’s incoming Continuous Book Order with an MCS modifier matches with Firm A’s resting PAO Order with an MCS modifier, and a Periodic Auction is not in progress. Here, MTP will not be applied because PAO Orders and Continuous Book Orders are not permitted to trade with one another.38 As such, MTP is not needed to prevent Firm A’s Order 1 from trading with Firm A’s Order 2 and as such, Order 2 is permitted to post to the BYX Book. • Order 1—Resting (Firm A): PAO Order (MTP = Cancel Smallest), Buy 100 @1.00 • Order 2—Inbound order (Firm A): Continuous Book order (MTP = Cancel Smallest), Sell 200 @1.00 • Result: Order 2 will rest in the Continuous Book, and there is no MTP action. Example 7: Incoming Order Is Canceled Due to ‘‘Periodic Auction in Progress’’ Involving a PAO Order Example 7 illustrates how an incoming order with a MTP modifier is canceled because a Periodic Auction is in progress.39 Here, Firm A’s inbound Order 2, a PAE Order to sell 200 @1.00, with a MTP modifier of MTP Cancel Both (‘‘MCB’’),40 immediately starts an auction with Firm B’s Order 1, a resting PAO Order to Buy 100 @1.00, that is participating in the Periodic Auction. While the Periodic Auction is in progress, Firm A enters Order 3, a PAE Order to Buy 200 @1.00 with an MCB instruction. The entry of Order 3 presents a scenario in which the Exchange seeks to implement MTP functionality that behaves differently than demonstrated in each of the preceding five examples. Specifically, if a Periodic Auction is in progress, and an inbound Periodic Auction is designated with an MTP modifier, and such order matches against a resting contra-side Periodic Auction Order, that is participating in the Periodic Auction, originating from the same Unique Identifier that is also designated with an MTP modifier, then the Periodic Auction Order will be cancelled. Importantly, this behavior is necessary to help ensure that once a Periodic Auction is initiated it will be completed. Applying this proposed behavior to Example 7’s fact pattern, when Firm A’s Order 3, a PAE Order with an MCB modifier is entered after Periodic Auction has been initiated and Order 3 subsequently matches with Firm A’s Order 2 (a PAE Order with a MCB modifier), Order 3 will be cancelled. Without this proposed behavior, Order 3 would otherwise be included in the Periodic Auction, and its MTP Cancel Both instruction would result in the cancelation of Order 2,41 preventing the Periodic Auction from completing, and denying Firm A an execution it would otherwise have expected to receive. The Exchange believes that this proposed behavior appropriately balances the dual goals of ensuring that Periodic Auctions complete once initiated and providing Members the ability to utilize MTP for their Periodic Auction Orders in each of the scenarios described in the preceding five examples.42 • Order 1—Resting (Firm B): PAO Order, Buy 100 @1.00 41 See ddrumheller on DSK120RN23PROD with NOTICES1 38 Supra note 16 (‘‘Periodic Auction Only Orders are not eligible for execution on the Continuous Book.’’). 39 Example 7 demonstrates the proposed functionality described in 11.25(e)(1)(B).)(1)(B). 40 MTP Cancel Both (‘‘MCB’’) is defined as ‘‘[a]n incoming order marketed with the ‘‘MCB’’ modifier will not execute against opposite side resting interest marked with any MTP modifier originating from the same Unique Identifier. The entire size of both orders will be cancelled back to the originating User(s). See Rule 11.9(f)(4). demonstrates the proposed functionality described in proposed Rule 11.25(e). VerDate Sep<11>2014 18:17 Sep 24, 2024 Jkt 262001 Rule 11.9(f)(4). Exchange notes that the proposed MTP functionality is intended as a supplementary risk tool that Members may voluntarily use to help them manage their risk and compliance with applicable securities rules. As registered broker-dealers, Members are ultimately responsible for compliance with applicable securities rules, and should not rely on the proposed functionality as a sole means of compliance. As such, while the proposed MTP functionality will, in some instances, operate differently than it does outside of the context of Periodic Auctions, its design as a supplementary risk tool will still serve to benefit Members that choose to utilize this tool. 42 The PO 00000 Frm 00144 Fmt 4703 Sfmt 4703 • Order 2—Inbound Order (Firm A): PAE Order (MTP = Cancel Both 43), Sell 200 @1.00 • Action: Order 2 initiates a Periodic Auction with Order 1 • Order 3—Inbound order (Firm A): PAE Order (MTP = Cancel Both), Buy 200 @1.00 • Result: Order 3 is canceled in order to prevent Order 3 participating in the Periodic Auction, canceling Order 2, and disrupting the completion of the Periodic Auction. Example 8: Incoming Order Has MTP Temporarily Bypassed in a Periodic Auction Example 8 is another example of MTP being temporarily bypasses when a Periodic Auction is in progress, despite the Member adding MTP instructions to their Periodic Auction Order(s) and Continuous Book Order(s). Here, Firm B’s Order 2, a PAE Order with an MCO modifier, initiates a Periodic Auction upon entry with Firm A’s Order 1, a resting PAE Order with an MCO modifier. Firm A subsequently enters a Continuous Book Order (Hidden) with an MCO modifier. Here, the Exchange will temporarily bypass 44 an inbound Continuous Book Order’s MTP modifier when a Periodic Auction is in progress, and such Continuous Book Order would post to the Continuous Book, and be eligible to participate in the Periodic Auction, or alternatively receive an execution from the Continuous Book. In such instance, applying the Continuous Book Order’s MTP modifier and canceling such order based on the potential that the order could trade in the Periodic Auction, would be unnecessarily prohibitive. By posting to the Continuous Book, such order could still execute without violating its MTP instructions. Based on the proposed MTP functionality, Order 3 will post to the BYX Book prior to the end of the Periodic Auction as the MTP modifier is temporarily bypassed.45 Order 1 and 43 MTP Cancel Both is defined as ‘‘[a]n incoming order marked with the ‘‘MCB’’ modifier will not execute against the opposite side resting interest marked with any MTP modifier originating from the same Unique Identifier. The entire size of both orders will be cancelled back to the originating User (s). See Rule 11.9(f)(4). 44 The Exchange notes that the bypassing of the Continuous Book Order’s MTP modifier in this scenario is temporary. Should the Periodic Auction complete and Order 3 does not have the opportunity to trade with Order 1 in the Periodic Auction, then Order 3 would remain posted on the Continuous Book with its MTP modifier and be afforded the protections of MTP. 45 The Exchange notes that the bypassing of the Continuous Book Order’s MTP modifier in this scenario is temporary. Should the Periodic Auction complete and Order 3 does not have the E:\FR\FM\25SEN1.SGM 25SEN1 Federal Register / Vol. 89, No. 186 / Wednesday, September 25, 2024 / Notices ddrumheller on DSK120RN23PROD with NOTICES1 Order 2 will trade in the Periodic Auction for 500 shares @10.02. After trading with Order 2, Order 1 still has 500 shares remaining. Prior to the end of the Periodic Auction, Order 3 will be matched in the Periodic Auction and trade 200 shares with Order 1 @10.02, bypassing the MCO modifier assigned by Firm A to its Order 1 and Order 3. The Exchange believes that temporarily bypassing an MTP modifier in this scenario is necessary to ensure that a Periodic Auction completes once it is initiated.46 Additionally, bypassing Order 3’s MTP instruction is also necessary to avoid disrupting trading in the Continuous Book, because Order 3 could perhaps post and trade while the Periodic Auction is in progress. The Exchange therefore believes cancelling Order 3 based on its potential to trade in the Periodic Auction would unnecessarily prevent a Member from potentially receiving a Continuous Book execution. While the proposed MTP functionality will explicitly and automatically temporarily bypass a Member’s MTP modifier when the scenario described in Example 8 is present, the Exchange believes that such behavior appropriately balances the dual goals of ensuring that Periodic Auctions operate as designed (i.e., once initiated they will complete, executing the maximum number of shares), and still provides Members the ability to utilize MTP for their Periodic Auction Orders in majority of instances described in each of the preceding six examples.47 • Order 1—Firm A: PAE Order (MTP = Cancel Oldest), Buy 1000 @10.02 • Order 2—Firm B: PAE Order (MTP = Cancel Oldest), Sell 500, @10.02 • Action: Order 2 initiates an auction with Order 1, because Firm A and Firm B are different entities. • Order 3—Inbound order (Firm A): Continuous Book Order (MTP = Cancel Oldest), Sell 200 @10.02 opportunity to trade with Order 1 in the Periodic Auction, then Order 3 would remain posted on the Continuous Book with its MTP modifier and be afforded the protections of MTP. 46 Example 8 demonstrates the proposed functionality described in proposed Rule 11.25(e)(1)(C). 47 The Exchange notes that the proposed MTP functionality is intended as a supplementary risk tool that Members may voluntarily use to help them manage their risk and compliance with applicable securities rules. As registered broker-dealers, Members are ultimately responsible for compliance with applicable securities rules, and should not rely on the proposed functionality as a sole means of compliance. As such, while the proposed MTP functionality will, in some instances, operate differently than it does outside of the context of Periodic Auctions, its design as a supplementary risk tool will still serve to benefit Members that choose to utilize this tool. VerDate Sep<11>2014 17:28 Sep 24, 2024 Jkt 262001 • Action: MTP modifier on Order 3 is temporarily bypassed • Result: Order 3 posts to the BYX Book prior to the end of the auction; Order 1 and Order 2 trade in the Periodic Auction for 500 @10.02; Order 3 then trades 200 @10.02 with Order 1 (bypassing MTP). Example 9: Minimum Quantity Order Unable To Be Filled (PAE vs. PAE) 48 Example 9 illustrates how the System will ignore the Minimum Quantity instruction on a Periodic Auction Order that is also designated with an MTP modifier, when the Minimum Quantity cannot be satisfied. Specifically, in the event a Periodic Auction Order is entered as a Minimum Quantity Order, as well as with an MTP modifier (e.g., Order 1), and such Periodic Auction Order could initiate a Periodic Auction with a contra-side Periodic Auction Order or trade with a Continuous Book Order (e.g., Order 2), designated with an MTP modifier from the same Unique Identifier as Order 1, the System will apply ignore Order 1’s Minimum Quantity instruction, and apply MTP, regardless of whether the Minimum Quantity is satisfied. Here, upon entry of Order 2, the System will ignore Order 1’s Minimum Quantity instruction, and instead apply MTP, resulting in the cancelation of Order 1. • Order 1 (Firm A): Buy 1000 @10.02— PAE—Min Quantity = 500 (MTP=any) • Order 2 (Firm A): Sell 400 @10.02— PAE order (MTP=Cancel Oldest) • Result: Order 2 cannot initiate an auction with Order 1 due to the MIN quantity on Order 1. ‘MIN’ on Order 1 is ignored and Order 2 cancels Order 1. Order 2 posts to the book. Example 10: Minimum Quantity Order Able To Be Filled (PAE vs. PAE) 49 Example 10 illustrates how the System will ignore the Minimum Quantity instruction on a Periodic Auction Order that is also designated with a an MTP modifier, when the Minimum Quantity is satisfied. Here, even though the Minium Quantity for Order 1 can be satisfied by Order 2, the System will apply MTP resulting in the cancelation of Order 1. • Order 1 (Firm A): Buy 1000 @10.02— PAE—Min Quantity = 500 (MTP = any) • Order 2 (Firm 2): Sell 1000 @10.02— PAE (MTP = Cancel Oldest) Result: The System applies MTP, and cancels Order 1 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.50 Specifically, the Exchange believes the proposed rule change is consistent with the Section 6(b)(5) 51 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) 52 requirement that the rules of an exchange not be designed to permit unfair discrimination between customers, issuers, brokers, or dealers. In particular, the Exchange believes that its proposed MTP functionality is designed to promote the just and equitable principles of trade, and to protect investors and the public interest, by enabling Users to better prevent undesirable trading activity such as wash sales or self-trades for not only their Continuous Book Orders, but their Periodic Auction Orders as well. Additionally, by providing Users with a supplemental risk tool that will better enable them to achieve compliance with applicable securities rules and regulations, the proposed rule change will help to further ensure that orders eligible for execution in the Periodic Auction indeed represent genuine trading interest from separate and distinct firms. While the proposed MTP functionality would not operate identically to MTP as it is used in nonPeriodic Auction scenarios, the Exchange believes that its proposal strikes an appropriate balance between ensuring Users receive executions in the Periodic Auction and providing Users’ the ability to utilize MTP in most trading situations involving Periodic Auctions. By making this clear to Users,53 they will be able to anticipate 50 15 51 15 48 Example 9 demonstrates the proposed functionality described in 11.25(e)(2). 49 Example 10 demonstrates the proposed functionality described in 11.25(e)(2). PO 00000 Frm 00145 Fmt 4703 Sfmt 4703 78423 U.S.C. 78f(b). U.S.C. 78f(b)(5). 52 Id. 53 In addition to codifying the proposed functionality, the Exchange will send out a Member E:\FR\FM\25SEN1.SGM Continued 25SEN1 ddrumheller on DSK120RN23PROD with NOTICES1 78424 Federal Register / Vol. 89, No. 186 / Wednesday, September 25, 2024 / Notices how MTP modifiers will interact with their Periodic Auction Orders and mitigate any confusion that Users may have in using the proposed functionality. Similarly, by making clear to Users that when they enter their Periodic Auction Orders as Minimum Quantity Orders, and designate them with an MTP instruction, and such Periodic Auction Orders attempt to execute versus contra-side Periodic Auction Orders or Continuous Book orders with a MTP modifier originating from the same Unique Identifier, that the Minimum Quantity instruction will not be enforced, Users will be better informed as to how MTP operates in conjunction with Minimum Quantity restrictions, and will be better able to manage their Periodic Auction Orders and when it may be sensible to enter Periodic Auction Orders with both a Minimum Quantity restriction and an MTP modifier. Additionally, the Exchange believes that the proposed rule changes are designed to facilitate transactions in securities, and to remove impediments to and perfect the mechanism of a free and open market and a national market system. Based on User feedback, the lack of MTP functionality for Periodic Auction Orders may discourage Users from entering Periodic Auction Orders because they do not have an automated way to systematically prevent undesirable executions resulting from orders originating from a User’s algorithm or trading desk, or their related algorithms or trading desks. In this regard, the proposed rule changes may encourage Users to increase their Periodic Auction participation, thereby further enhancing the Periodic Auction liquidity pool and the ability of investors to execute larger orders that may otherwise be difficult to execute without market impact in the continuous market. Additionally, because Periodic Auctions are priceforming, the enhanced liquidity pools would indeed augment Periodic Auction’s valuable price discovery function, which may be particularly helpful for investors when trading securities that typically trade with wider spreads. Again, while the proposed MTP functionality may not apply a User’s MTP modifiers in all instances, the Exchange as well as its Users believe that some level of MTP protection is more beneficial than completely foregoing MTP protection in its entirety. By making clear to Users how MTP for notice that includes information about the proposed MTP functionality for Periodic Auctions. VerDate Sep<11>2014 17:28 Sep 24, 2024 Jkt 262001 Periodic Auction Orders will operate, Users can better manage their use of MTP modifiers, and anticipate how their Periodic Auction Orders will behave. Similarly, while Periodic Auction Orders entered as Minimum Quantity Orders, as well as an MTP Modifier, will in certain circumstances (discussed supra) cause the System to ignore a User’s Minimum Quantity requirements and instead apply MTP, Users have indicated that they would prefer that MTP apply consistently so as to prevent undesirable wash sales. Finally, the Exchange further believes that the proposed rule change does not unfairly discriminate amongst Users because the proposal will allow all Periodic Auction Users to utilize MTP just as all Users entering Continuous Book Orders may utilize MTP today. In this regard, the proposed amendment will avoid disparate treatment of Users. Furthermore, the bypassing or amending of MTP modifiers, as described in the Examples above, will apply equally to all Periodic Auction Users, regardless of their size. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. MTP is an optional functionality offered by the Exchange and Periodic Auction Users are free to decide whether to use MTP in their decision-making process when submitting Periodic Auction Orders to the Exchange. Similarly, the Exchange does not believe that the proposed amendment poses a burden on intermarket competition that is not necessary or appropriate in furtherance of the Act. Indeed, the proposed rule change is designed to increase competition by offering Periodic Auction Users the ability to better manage their order flow and prevent undesirable executions. In turn, Users may be further incentivized to send additional orders to BYX’s Periodic Auction mechanism, thereby fostering competition amongst exchanges, as well as with off-exchange venues (e.g., alternative trading systems) where Users that may otherwise utilized Periodic Auctions, typically seek to source block-sized liquidity.54 54 See ‘‘Trade Big with Cboe U.S. Periodic Auctions,’’ available at: https://www.cboe.com/us/ equities/trading/offerings/periodic_auctions/. (‘‘Cboe created its patented Periodic Auctions to establish an on-exchange alternative to the growth of off-exchange liquidity. Most recently, the use of conditional order types on Alternative Trading Systems (ATSs) has reached new highs as a PO 00000 Frm 00146 Fmt 4703 Sfmt 4703 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. Proceedings To Determine Whether To Approve or Disapprove SR– CboeBYX–2024–009 and Grounds for Disapproval Under Consideration The Commission is instituting proceedings pursuant to Section 19(b)(2)(B) of the Act 55 to determine whether the proposed rule change should be approved or disapproved. Institution of such proceedings is appropriate at this time in view of the legal and policy issues raised by the proposed rule change. Institution of proceedings does not indicate that the Commission has reached any conclusions with respect to any of the issues involved. Rather, as described below, the Commission seeks and encourages interested persons to provide comments on the proposed rule change. Pursuant to Section 19(b)(2)(B) of the Act,56 the Commission is providing notice of the grounds for disapproval under consideration. The Commission is instituting proceedings to allow for additional analysis of the proposed rule change’s consistency with Section 6(b)(5) of the Act, which requires, among other things, that the rules of a national securities exchange be ‘‘designed to perfect the operation of a free and open market and a national market system’’ and ‘‘protect investors and the public interest,’’ and not be ‘‘designed to permit unfair discrimination between customers, issuers, brokers, or dealers,’’ 57 and Section 6(b)(8) of the Act, which requires that the rules of a national securities exchange ‘‘not impose any burden on competition not necessary or appropriate in furtherance of the purposes of [the Act].’’ 58 percentage of ATS volumes. Periodic Auctions would offer a new price forming auction for investors seeking liquidity, including but not limited to block size transactions, during the course of the trading day. These intraday auctions may be a useful tool to attract buyers and sellers in less liquid or wider spread names, and would create an equal and fair market for market participants and investors that wish to either initiate or respond to such auctions. Periodic Auctions will be available on Cboe’s BYXTM market center.’’). 55 15 U.S.C. 78s(b)(2)(B). 56 Id. 57 15 U.S.C. 78f(b)(5). 58 15 U.S.C. 78f(b)(8). E:\FR\FM\25SEN1.SGM 25SEN1 Federal Register / Vol. 89, No. 186 / Wednesday, September 25, 2024 / Notices IV. Procedure: Request for Written Comments ddrumheller on DSK120RN23PROD with NOTICES1 The Commission requests that interested persons provide written submissions of their views, data, and arguments with respect to the issues identified above, as well as any other concerns they may have with the proposal. In particular, the Commission invites the written views of interested persons concerning whether the proposal is consistent with Section 6(b)(5), 6(b)(8) or any other provision of the Act, or the rules and regulations thereunder. Although there do not appear to be any issues relevant to approval or disapproval that would be facilitated by an oral presentation of views, data, and arguments, the Commission will consider, pursuant to Rule 19b–4, any request for an opportunity to make an oral presentation.59 In particular, the Commission seeks comment on the following: • Commenter’s views on whether or not the Exchange has adequately described how the proposed functionality would handle incoming Periodic Auction Orders with MTP modifiers and incoming Continuous Book Orders with MTP modifiers before, during and after the conclusion of a Periodic Auction; • Commenter’s views on whether or not the Exchange has adequately described how the proposed incoming Periodic Auction Orders with MTP modifiers and incoming Continuous Book Orders with MTP modifiers would impact other Continuous Book Orders or Periodic Auction Orders; • Commenter’s views on whether or not it is appropriate for the proposed functionality to, in certain circumstances, allow for the execution of orders originating from the same Unique Identifier, even if those orders have MTP modifiers, and whether or not the Exchange has adequately explained and justified this proposed functionality; and • Commenter’s views on whether or not the proposed functionality adds unnecessary complexity to the Exchange. Interested persons are invited to submit written data, views, and 59 Section 19(b)(2) of the Act, as amended by the Securities Act Amendments of 1975, Public Law 94–29 (June 4, 1975), grants the Commission flexibility to determine what type of proceeding— either oral or notice and opportunity for written comments—is appropriate for consideration of a particular proposal by a self-regulatory organization. See Securities Act Amendments of 1975, Senate Comm. on Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st Sess. 30 (1975). VerDate Sep<11>2014 17:28 Sep 24, 2024 Jkt 262001 78425 arguments regarding whether the proposal should be approved or disapproved by October 16, 2024. Any person who wishes to file a rebuttal to any other person’s submission must file that rebuttal by October 30, 2024. The Commission asks that commenters address the sufficiency of the Exchange’s statements in support of the proposal, which are set forth in Amendment No. 1,60 in addition to any other comments they may wish to submit about the proposed rule change. Comments may be submitted by any of the following methods: SR–CboeBYX–2024–009 and should be submitted on or before October 16, 2024. Rebuttal comments should be submitted by October 30, 2024. Electronic Comments • Use the Commission’s internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include file number SR– CboeBYX–2024–009 on the subject line. [Disaster Declaration #20574 and #20575; SOUTH CAROLINA Disaster Number SC– 20009] Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549–1090. All submissions should refer to file number SR–CboeBYX–2024–009. 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 60 See PO 00000 Fmt 4703 [FR Doc. 2024–21876 Filed 9–24–24; 8:45 am] BILLING CODE 8011–01–P SMALL BUSINESS ADMINISTRATION Administrative Declaration of a Disaster for the State of South Carolina U.S. Small Business Administration. ACTION: Notice. AGENCY: This is a notice of an Administrative declaration of a disaster for the State of South Carolina dated 09/ 18/2024. Incident: Tropical Storm Debby. Incident Period: 08/04/2024 through 08/22/2024. DATES: Issued on 09/18/2024. Physical Loan Application Deadline Date: 11/18/2024. Economic Injury (EIDL) Loan Application Deadline Date: 06/18/2025. ADDRESSES: Visit the MySBA Loan Portal at https://lending.sba.gov to apply for a disaster assistance loan. FOR FURTHER INFORMATION CONTACT: Alan Escobar, Office of Disaster Recovery & Resilience, U.S. Small Business Administration, 409 3rd Street SW, Suite 6050, Washington, DC 20416, (202) 205–6734. SUPPLEMENTARY INFORMATION: Notice is hereby given that as a result of the Administrator’s disaster declaration, applications for disaster loans may be submitted online using the MySBA Loan Portal https://lending.sba.gov or other locally announced locations. Please contact the SBA disaster assistance customer service center by email at disastercustomerservice@ sba.gov or by phone at 1–800–659–2955 for further assistance. The following areas have been determined to be adversely affected by the disaster: Primary Counties: Berkeley, Orangeburg Contiguous Counties: South Carolina: Aiken, Bamberg, Barnwell, Calhoun, Charleston, SUMMARY: 61 17 CFR 200.30–3(a)(12); 17 CFR 200.30– 3(a)(57). supra note 4. Frm 00147 For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.61 Sherry R. Haywood, Assistant Secretary. Sfmt 4703 E:\FR\FM\25SEN1.SGM 25SEN1

Agencies

[Federal Register Volume 89, Number 186 (Wednesday, September 25, 2024)]
[Notices]
[Pages 78418-78425]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-21876]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-101105; File No. SR-CboeBYX-2024-009]


Self-Regulatory Organizations; Cboe BYX Exchange, Inc.; Notice of 
Filing of Amendment No. 1 and Order Instituting Proceedings To 
Determine Whether To Approve or Disapprove of a Proposed Rule Change, 
as Modified by Amendment No. 1, To Amend Exchange Rule 11.25(e) To 
Allow Users To Utilize the Exchange's Match Trade Prevention 
Functionality When Entering Periodic Auction Orders Onto the Exchange 
for Execution

September 19, 2024.
    On June 6, 2024, Cboe BYX Exchange, Inc. (``Exchange'' or ``BYX'') 
filed with the Securities and Exchange Commission (the ``Commission''), 
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to 
amend Exchange Rule 11.25(e) (``Priority and Execution of Orders'') to 
allow Users to utilize the Exchange's Match Trade Prevention 
functionality when entering Periodic Auction Orders onto the Exchange 
for execution. The proposed rule change was published for comment in 
the Federal Register on June 21, 2024.\3\ On August 5, 2024, the 
Commission extended the time period within which to approve, disapprove 
the proposed rule change, or institute proceedings to determine whether 
to approve or disapprove the proposed

[[Page 78419]]

rule change to September 19, 2024.\4\ On September 18, 2024, the 
Exchange filed Amendment No. 1 to the proposed rule change.\5\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 100337 (June 14, 
2024), 89 FR 52148 (``Notice'').
    \4\ See Securities Exchange Act Release No. 100649 (August 9, 
2024), 89 FR 65420. The Commission has received no comment letters 
on the proposed rule change.
    \5\ Amendment No. 1 modifies the proposed rule change by: (1) 
amending rule text relating to Exchange Match Trade Prevention 
functionality when entering Periodic Auction Orders onto the 
Exchange for execution; and (2) adding new rule text describing how 
the Exchange will handle Periodic Auction Orders entered as a 
Minimum Quantity Order with a Match Trade Prevention modifier.
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    The Commission is publishing this notice and to solicit comments on 
the proposed rule change, as modified by Amendment No. 1, from 
interested persons and to institute proceedings pursuant to Section 
19(b)(2)(B) of the Act \6\ to determine whether to approve or 
disapprove the proposed rule change, as modified by Amendment No. 1.
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    \6\ 15 U.S.C. 78s(b)(2)(B).
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I. Exchange's Description of the Proposal, as Modified by Amendment No. 
1

    Cboe BYX Exchange, Inc. (the ``Exchange'' or ``BYX'') proposes to 
amend Exchange Rule 11.25(e) (``Priority and Execution of Orders'') to 
allow (1) Users to utilize the Exchange's Match Trade Prevention 
(``MTP'') functionality when entering Periodic Auction Orders onto the 
Exchange for execution and (2) add new rule text providing that in the 
event a Periodic Auction Order is entered as a Minimum Quantity Order, 
as well as with an MTP modifier (e.g., Order 1), and such Periodic 
Auction Order could either trade with a contra-side Continuous Book 
Order or initiate a Periodic Auction with a contra-side Periodic 
Auction Order (e.g., Order 2), designated with an MTP modifier from the 
same Unique Identifier as Order 1, the System will apply MTP regardless 
of whether the Minimum Quantity is satisfied. This Amendment No. 1 
replaces SR-CboeBYX-2024-009 (``Initial Filing'') \7\ as originally 
filed and supersedes the Initial Filing its entirety. The text of the 
proposed rule changes is provided in Exhibit 5.
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    \7\ See Securities Exchange Act Release No. 100337 (June 14, 
2024), 89 FR 52148 (June 21, 2024) (SR-CboeBYX-2024-009).
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    The text of the proposed rule change is also available on the 
Exchange's website (https://markets.cboe.com/us/equities/regulation/rule_filings/byx/), at the Exchange's Office of the Secretary, and at 
the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to (1) amend Rule 11.25(e) to allow Users \8\ 
to utilize the Exchange's Match Trade Prevention (``MTP'') 
functionality when entering Periodic Auction Orders \9\ onto the 
Exchange for execution,\10\ and (2) add new rule text providing that in 
the event a Periodic Auction Order is entered as a Minimum Quantity 
Order, as well as with an MTP modifier (e.g., Order 1), and such 
Periodic Auction Order could either trade with a contra-side Continuous 
Book Order or initiate a Periodic Auction with a contra-side Periodic 
Auction Order (e.g., Order 2), designated with an MTP modifier from the 
same Unique Identifier as Order 1, the System will apply MTP regardless 
of whether the Minimum Quantity is satisfied.
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    \8\ The term ``User'' shall mean any Member or Sponsored 
Participant who is authorized to obtain access to the System 
pursuant to Rule 11.3. See Rule 1.5(cc), definition of ``User''.
    \9\ The term ``Periodic Auction Order'' shall mean a ``Periodic 
Auction Only Order'' or ``Periodic Auction Eligible Order'' as those 
terms are defined in Rules 11.25(b)(1)-(2), and the term ``Periodic 
Auction Book'' shall mean the System's electronic file of such 
Periodic Auction Orders. See Rule 11.25(a)(6). Hereinafter, a 
Periodic Auction Only Order may be referred to as a ``PAO Order'', 
and a Periodic Auction Eligible Order may be referred to as a, ``PAE 
Order''.
    \10\ The Exchange plans to implement the proposed rule change on 
a date that will be circulated in a notice from the Cboe Trade Desk 
to all Members.
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    By way of background, MTP is an existing process \11\ through which 
Users can prevent their incoming orders designated with a MTP modifier 
from executing against a resting opposite side order also designated 
with an MTP modifier and originating from the same market participant 
identifier (``MPID''), Exchange Member identifier, trading group 
identifier, Exchange Sponsored Participant identifier, affiliate 
identifier, or Multiple Access identifier (any such identifier, a 
``Unique Identifier'').\12\ Both the buy and the sell order must 
include the same Unique Identifier in order to prevent an execution 
from occurring and to effect a cancel instruction. MTP is a valuable 
tool for Exchange Users because it allows them to better manage order 
flow and prevent undesirable trading activity such as wash sales \13\ 
or self-trades \14\ that may occur because of the high-speed nature of 
trading in today's marketplace.
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    \11\ The Exchange notes that previous proposals extending the 
functionality of MTP to other trading scenarios were effective upon 
filing with the Commission. See generally Securities and Exchange 
Act Release No. 53429 (December 3, 2010), 75 FR 76763 (December 9, 
2010) (SR-EDGX-2010-18); Securities and Exchange Act Release No. 34-
96292 (November 10, 20220), 87 FR 68766 (November 16, 2022) (SR-
CboeEDGX-2022-048).
    \12\ See Rule 11.9(f)--Match Trade Prevention (``MTP'') 
Modifiers.
    \13\ A ``wash sale'' is generally defined as a trade involving 
no change in beneficial ownership that is intended to produce the 
false appearance of trading and is strictly prohibited under both 
the federal securities laws and FINRA rules. See, e.g., 15 U.S.C. 
78i(a)(1); FINRA Rule 6140(b) (``Other Trading Practices'').
    \14\ Self-trades are ``transactions in a security resulting from 
the unintentional interaction of orders originating from the same 
firm that involve no change in beneficial ownership of the 
security.'' FINRA requires members to have policies and procedures 
in place that are reasonably designed to review trading activity 
for, and prevent, a pattern or practice of self-trades resulting 
from orders originating from a single algorithm or trading desk, or 
related algorithms or trading desks. See FINRA Rule 5210, 
Supplementary Material .02, available at: https://www.finra.org/rules-guidance/rulebooks/finra-rules/5210.
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    Currently, Rule 11.25(e) states that all MTP modifiers (as defined 
in Rule 11.9(f)(1)-(5)) for Periodic Auction Orders will be ignored for 
executions occurring during a Periodic Auction. As part of the 
Exchange's prior Periodic Auction Rule filings,\15\ the Exchange 
reasoned that MTP is mainly designed for use on the Continuous 
Book,\16\ and use of MTP for Periodic Eligible Orders \17\ and Periodic 
Auction Only

[[Page 78420]]

Orders \18\ (collectively, Periodic Auction Orders) may complicate the 
execution of an auction that requires the pooling and matching of 
multiple orders against other orders at the Periodic Auction Book 
Price.\19\ Based on User feedback, however, Users of Periodic Auctions 
desire the ability to utilize MTP for their Periodic Auction Orders 
(when the Periodic Auction is not in progress) to help them manage 
their order flow and prevent undesirable executions against themselves. 
Users are not asking to utilize MTP for their Periodic Auction Orders 
when a Periodic Auction is occurring.
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    \15\ See Securities and Exchange Act Release No. 34-91423 (March 
26, 2021), 86 FR 17230 (April 1, 2021) (SR-CboeBYX-2020-021).
    \16\ The term ``Continuous Book'' shall mean an order on the BYX 
Book that is not a Periodic Auction Order, and the term ``Continuous 
Book'' shall mean the System's electronic file of such Continuous 
Book Orders. See Rule 11.25(a)(2), definition of ``Continuous Book 
Order''.
    \17\ ``A `Periodic Auction Eligible Order' is a non-displayed 
limit order eligible to trade on the Continuous Book that is entered 
with an instruction to also initiate a Periodic Auction, if possible 
. . . Periodic Auction Eligible Orders will be ranked as Non-
Displayed Limit Orders consistent with the priority of order 
outlined in Rule 11.12(a). An incoming Periodic Auction Eligible 
Order that is eligible both to trade on the Continuous Book and 
initiate a Periodic Auction against a Periodic Auction Only Order at 
the same price will trade immediately with the Continuous Book. 
Incoming Periodic Auction Eligible Orders will upon entry interact 
with Continuous Book Orders and other Periodic Auction Eligible 
Orders according to their rank under Rule 11.12(a). Periodic Auction 
Eligible Orders will not trade on the Continuous Book during a 
Periodic Auction Period in the security.'' See 11.25(b)(2).
    \18\ ``A `Periodic Auction Only Order' is a non-displayed limit 
order entered with an instruction to participate solely in Periodic 
Auctions pursuant to this Rule 11.25. Periodic Auction Only Orders 
are not eligible for executions on the Continuous Book.'' See Rule 
11.25(b)(1). Hereinafter, Periodic Auction Only Orders as, ``PAO 
Orders.''
    \19\ ``The term `Periodic Auction Book Price' shall mean the 
price within the Collar Price Range at which the most shares from 
the Periodic Auction Book would match. In the event of a volume-
based tied at multiple price-levels, the Periodic Auction Book Price 
will be the price that results in the minimum total imbalance. In 
the event of a volume-based tie and a tie in minimum total imbalance 
at multiple price levels, the Periodic Auction Book Price will be 
the price closest to the Volume Based Tie Breaker. The Periodic 
Auction Book Price will be expressed in the minimum increment for 
the security unless the midpoint of the NBBO establishes the 
Periodic Auction Book Price.'' See 11.25(a)(5), definition of 
``Periodic Auction Book Price''.
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    Accordingly, the Exchange now seeks to allow Users to utilize MTP 
when entering Periodic Auction Orders onto the Exchange.\20\ 
Importantly, allowing Users to designate Periodic Auction Orders with 
MTP modifiers will not impact how the Periodic Auction itself is 
conducted, and the proposed MTP functionality will not prevent the 
completion of a Periodic Auction once it has been initiated.
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    \20\ The Exchange notes that previous proposals extending the 
functionality of MTP to other trading scenarios were effective upon 
filing with the Commission. See Securities and Exchange Act Release 
No. 53429 (December 3, 2010), 75 FR 76763 (December 9, 2010) (SR-
EDGX-2010-18); see also Securities and Exchange Act Release No. 34-
96292 (November 10, 20220), 87 FR 68766 (November 16, 2022) (SR-
CboeEDGX-2022-048).
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    As proposed, however, there will be instances where the Exchange 
has elected to temporarily bypass a User's MTP instruction. These 
instances are demonstrated in Examples 5 and 8, below, and generally 
involve scenarios where (i) a Periodic Auction is in progress, and the 
temporary bypassing of the MTP modifier on Firm A's inbound Continuous 
Book Order is necessary to prevent the cancelation of Firm A's Periodic 
Auction Order with an MTP modifier that is currently participating in 
the Periodic Auction, or (ii) a Periodic Auction is in progress, and 
the bypassing of Firm A's MTP modifier on its inbound Periodic Auction 
Order is necessary to prevent--depending on the relevant MTP 
instruction--the cancelation of Firm A's resting Continuous Book Order, 
or the cancelation of the inbound Periodic Auction Order itself, 
preventing such order from participating in the Periodic Auction.
    In each instance, the temporary bypassing of the inbound order's 
MTP modifier is intended to prevent the cancelation of orders where an 
immediate execution would not occur. Importantly, the bypassing of an 
inbound order's MTP modifier is temporary and occurs only upon entry of 
the inbound order. The Exchange believes this behavior is necessary and 
appropriate to help strike a responsible balance between providing 
Users with an optional risk tool to prevent undesirable executions and 
ensuring that Periodic Auctions will complete. Moreover, the current 
architecture and design of Exchange Systems require that MTP for 
Periodic Auctions function as described.
    Additionally, the Exchange proposes to add new rule text providing 
that in the event a Periodic Auction Order is entered as a Minimum 
Quantity Order, as well as with an MTP modifier (e.g., Order 1), and 
such Periodic Auction Order could either trade with a contra-side 
Continuous Book Order or initiate a Periodic Auction with a contra-side 
Periodic Auction Order (e.g., Order 2), designated with an MTP modifier 
from the same Unique Identifier as Order 1, the System will apply MTP 
regardless of whether the Minimum Quantity is satisfied.
    To illustrate how Periodic Auction Orders designated with MTP 
modifiers will behave, the Exchange offers the following examples: \21\
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    \21\ For each example, assume that all trade prices are within 
the National Best Bid or National Best Offer (``NBBO''). 
Additionally, note that while Exchange Rule 11.9(f) provides for 
various MTP modifiers--including Cancel Newest, Cancel Oldest, 
Decrement and Cancel, Cancel Both, and Cancel Smallest--the Examples 
provided in this rule filing only demonstrate how certain of these 
modifiers will operate. Including examples for every possible MTP 
scenario would be difficult to efficiently demonstrate in a rule 
filing. Nevertheless, the MTP modifier exemplified in the provided 
Examples is not critical to understanding how the proposed 
functionality will operate because as demonstrated below, when a 
Periodic Auction is not in progress MTP will operate as it does 
today, and when a Periodic Auction is in progress, the System will, 
as described below, temporarily bypass an order's MTP instruction.
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Example 1: Two PAE Orders Matching--MTP Action Occurs
    Example 1 illustrates how MTP will operate when Firm A's resting 
PAE Order with an MTP modifier of MTP Cancel Oldest (``MCO''),\22\ 
interacts with a subsequent inbound PAE Order submitted by Firm A with 
an MTP modifier of MCO and a Periodic Auction is not in progress. Here, 
MTP operates in the same manner \23\ as it would for Continuous Book 
Orders; i.e., because Firm A's inbound PAE Order was entered with an 
MTP modifier of MCO, the System will cancel Firm A's Order 1,\24\ which 
is the ``oldest'' contra-side Firm A order that is marketable versus 
Firm A's inbound PAE Order to sell. This MTP action prevents Firm A 
from potentially trading with itself either on the Continuous Book or 
during a Periodic Auction.\25\
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    \22\ MTP Cancel Oldest (``MCO'') is defined as ``[a]n incoming 
order marked with the ``MCO'' modifier will not execute against 
opposite side resting interest marked with any MTP modifier 
originating from the same Unique Identifier. The resting order 
marked with the MCO modifier will be cancelled back to the 
originating User(s). The incoming order marked with the MCO modifier 
will remain on the BYX Book. See Rule 11.9(f)(2).
    \23\ See Rule 11.9(f)--Match Trade Prevention (``MTP'') 
Modifiers. Any incoming order designated with an MTP modifier will 
be prevented from executing against a resting opposite side order 
also designated with an MTP modifier and originating from the same 
market participant identifier (``MPID''), Exchange Member 
identifiers, trading group identifier, Exchange Sponsored 
Participant identifier, affiliate identifier, or Multiple Access 
identifier (any such identifier, a ``Unique Identifier''). The order 
canceled by the System will depend on the incoming order's MTP 
modifier, as described in 11.9(f)(1)-(5).
    \24\ See Rule 11.9(f)(2).
    \25\ As MTP action is controlled by the incoming order (``. . . 
the MTP modifier on the incoming order controls the interaction 
between two orders marked with MTP modifiers.'' See Rule 11.21(g)), 
Firm A's Order 1 was correctly cancelled in this situation. Note, 
however, that if Firm A's Order 2 had included an MTP modifier of 
MTP Cancel Newest (``MCN''), the result would simply be that Order 2 
is instead canceled. MTP Cancel Newest (``MCN'') is defined as 
``[a]n incoming order marked with the ``MCN'' modifier will not 
execute against opposite side resting interest marked with any MTP 
modifier originating from the same Unique Identifier. The incoming 
order marked with the MCN modifier will be cancelled back to the 
originating User(s). The resting order marked with an MTP modifier 
will remain on the BYX Book.'' See Rule 11.9(f)(1). Similarly, if we 
changed Order 1's MTP Modifier to Cancel Newest and Order 2 remained 
as MTP Cancel Oldest, Order 1 would be canceled as Order 2's 
instruction controls MTP action.

 Order 1--Resting (Firm A): PAE Order (MTP = Cancel Oldest), 
Buy 100 @1.00
 Order 2--Inbound order (Firm A): PAE Order (MTP = Cancel 
Oldest), Sell 200 @1.00
 Result: Order 1 is canceled.

[[Page 78421]]

Example 2: Two PAO Orders Matching--MTP Action Occurs
    Example 2 illustrates how MTP will operate when Firm A's resting 
PAO Order with an MTP Modifier of MCN, interacts with Firm A's inbound 
PAO Order with an MCN modifier, and a Periodic Auction is not in 
progress. Here, MTP operates in the same manner \26\ as it would for 
Continuous Book Orders; i.e., because Firm A has designated its inbound 
Order 2 with MCN, the System will cancel Firm A's Order 2,\27\ which is 
Firm's A's newest contra-side order that is marketable versus Firm A's 
resting Order 1. This MTP action prevents Firm A from potentially 
trading with itself during a Periodic Auction.
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    \26\ Supra note 19.
    \27\ See Rule 11.9(f)(1).

 Order 1--Resting (Firm A): PAO Order (MTP = Cancel Newest), 
Buy 100 @1.00
 Order 2--Inbound order (Firm A): PAO Order (MTP = Cancel 
Newest), Sell 200 @1.00
 Result: Order 2 is canceled

    For the sake of clarity, the Exchange also wishes to explain what 
would happen to Order 2 if a Periodic Auction was in progress when 
Order 2 arrived.\28\ To address this scenario, assume an inbound 
Periodic Auction Order from Firm B--Order X--arrived between Order 1 
and Order 2, and initiated a Periodic Auction with Order 1. Here, when 
Order 2 arrives, and the Periodic Auction is in progress, Order 2 would 
still be canceled. When a Periodic Auction is in progress, and an 
inbound Periodic Auction Order is designated with an MTP modifier, and 
such order matches against a resting contra-side Periodic Auction Order 
originating from the same Unique Identifier that is also designated 
with a MTP modifier, the inbound Periodic Auction Order will be 
canceled. This behavior will enable Users to better manage their order 
flow and prevent undesirable executions in Periodic Auctions, just as 
they do today for their Continuous Book orders.
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    \28\ This iteration of Example 2 demonstrates the functionality 
described in proposed Rule 11.25(e)(1)(B).
---------------------------------------------------------------------------

Example 3: Incoming PAE Order Matching Against a PAO Order--MTP Action 
Occurs
    Example 3 illustrates how MTP will operate when Firm A's resting 
PAO Order with a MTP modifier of MTP Cancel Smallest (``MCS''),\29\ 
interacts with Firm A's inbound PAE Order with an MCS modifier, and an 
auction is not in progress. Here, MTP operates in the same manner \30\ 
as it would for Continuous Book Orders; i.e., because Firm A has 
designated its orders with the MTP modifier, MCS, the System will 
cancel Firm A's Order 1, which is Firm A's small quantity order.\31\ 
This MTP action prevents Firm A from potentially trading with itself 
during a Periodic Auction.
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    \29\ MTP Cancel Smallest (``MCS'') is defined as ``[a]n incoming 
order marked with the ``MCS'' modifier will not execute against 
opposite side resting interest marked with any MTP modifier 
originating from the same Unique Identifier. If both orders are 
equivalent in size, both orders will be cancelled back to the 
originating User(s). If the orders are not equivalent in size, the 
smaller of the two orders will be cancelled back to the originating 
User and the larger order will remain on the book. See Rule 
11.9(f)(5).
    \30\ Supra note 19.
    \31\ See Rule 11.9(f)(5).

 Order 1--Resting (Firm A): PAO Order (MTP = Cancel Smallest), 
Buy 100 @1.00
 Order 2--Inbound order (Firm A): PAE Order (MTP = Cancel 
Smallest), Sell 200 @1.00
 Result: Order 1 is canceled.
Example 4: Incoming PAE Order Matching Against a Continuous Book 
Order--MTP Action Occurs
    Example 4 illustrates how MTP will operate when Firm A's incoming 
PAE Order with a MCS modifier, matches against Firm A's resting 
Continuous Book Order, and a Periodic Auction is not in progress. Here, 
MTP operates in the same manner \32\ as it would for Continuous Book 
Orders; i.e., Firm's A's Order 1 is canceled \33\ based on Firm A's 
Order 2 MCS modifier because Order 1 is smaller than Order 2. Because a 
PAE Order is eligible to receive an execution on the Continuous 
Book,\34\ and both Order 1 and Order 2 are designated with MTP 
modifiers, the System correctly cancels Order 1, thereby preventing 
Firm A from potentially trading with itself on the Continuous Book.
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    \32\ Supra note 19.
    \33\ Supra note 31.
    \34\ Supra note 14.

 Order 1--Resting (Firm A): Continuous Book order (MTP = Cancel 
Smallest), Buy 100 @1.00
 Order 2--Inbound order (Firm A): PAE Order (MTP = Cancel 
Smallest), Sell 200 @1.00
 Result: Order 1 is canceled.
Example 5: Incoming PAE Order Matching Against a Continuous Book Order 
When a Periodic Auction Is in Progress--No MTP Action Occurs
    For the sake of clarity, the Exchange wishes to describe what would 
happen to Order 1 if a Periodic Auction is in progress and an inbound 
Periodic Auction Order arrives (e.g., Order 4).\35\ First, note that a 
Continuous Book Order cannot initiate a Periodic Auction.\36\ 
Therefore, to initiate a Periodic Auction in this example, assume that 
two Periodic Auction Orders arrived, from Firm B and Firm C, prior to 
Order 1 and Order 4--e.g., Order X (Firm B) and Order Y (Firm C). 
Further assume that Order X and Order Y are marketable versus each 
other and initiated a Periodic Auction. Additionally, assume that Order 
1, a Continuous Book Order is entered prior to Order 4, and that Order 
1 and Order 4 are designated with MTP modifiers originating from the 
same Unique Identifiers. Upon the arrival of Order 4, a Periodic 
Auction Order, the System will temporarily bypass \37\ Order 1's and 
Order 4's MTP instruction, and Order 4 will join the Periodic Auction. 
Order 1 will remain on the Book. If Order 1 did not execute in the 
Continuous Book while the Periodic Auction was in progress, then Order 
1 could potentially execute with Order 4, provided that Order 1 has 
priority as determined by Rule 11.25(f). The bypassing of the MTP 
modifiers in this scenario occurs only upon entry of Order 4 to prevent 
the cancelation of orders in situations where an immediate execution 
would not occur.
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    \35\ This iteration of Example 4 demonstrates the proposed 
functionality described in proposed Rule 11.25(e)(1)(A).
    \36\ See Rule 11.25(c), Initiation and Publication of Periodic 
Auction Information, ``A Periodic Auction will be initiated in a 
security during Regular Trading Hours when one or more Periodic 
Auction Orders to buy become executable against one or more Periodic 
Auction Orders to sell pursuant to this Rule 11.25.''
    \37\ The Exchange notes that the bypassing of the MTP modifiers 
in this scenario is temporary. Should the Periodic Auction complete 
and Order 1 does not have the opportunity to trade with Order 4 in 
the Periodic Auction, then Order 1 would remain posted on the 
Continuous Book with its MTP modifier and be afforded the 
protections of MTP.

 NBBO: 10.00 x 10.05
 Order X (Firm B): Buy 100 @10.03--Midpoint Peg PAO
 Order Y (Firm C): Sell 100 @10.02--Midpoint Peg PAO
 Auction is initiated between Order X and Order Y
 Order 1 (Firm A): Buy 100 @10.03--Midpoint Peg Continuous Book 
Order--MTP = Cancel Oldest
 Order 4 (Firm A): Sell 100 @10.02--Midpoint Peg PAE--MTP = 
Cancel Oldest
 MTP would be bypassed when Order 4 is entered and Order 4 
would join the Periodic Auction in progress.
 Result: Order X and Order Y trade 100 @10.025 in Periodic 
Auction. Order 1 and Order 2 trade 100 @10.025 in Periodic Auction


[[Page 78422]]


    Here, even though Order 1 and Order 4 both originated from Firm A, 
and are designated with an MTP modifier, Order 1 is not canceled upon 
Order 4's arrival because Order 1 is a Continuous Book Order that may 
or may not end up trading with Order 4 once the Periodic Auction is 
complete. Because Order 1 could receive an execution on the Continuous 
Book while the Periodic Auction is in progress, the Exchange 
temporarily bypasses Order 1's MTP instruction upon Order 4's arrival 
to prevent Order 1 from forfeiting a Continuous Book execution based on 
a possibility that Order 1 would be executable versus Order 4 at the 
completion of the Periodic Auction.
Example 6: Incoming Continuous Book Order Matching Against a PAO 
Order--No MTP Action Occurs
    Example 6 illustrates how MTP will operate when Firm A's incoming 
Continuous Book Order with an MCS modifier matches with Firm A's 
resting PAO Order with an MCS modifier, and a Periodic Auction is not 
in progress. Here, MTP will not be applied because PAO Orders and 
Continuous Book Orders are not permitted to trade with one another.\38\ 
As such, MTP is not needed to prevent Firm A's Order 1 from trading 
with Firm A's Order 2 and as such, Order 2 is permitted to post to the 
BYX Book.
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    \38\ Supra note 16 (``Periodic Auction Only Orders are not 
eligible for execution on the Continuous Book.'').

 Order 1--Resting (Firm A): PAO Order (MTP = Cancel Smallest), 
Buy 100 @1.00
 Order 2--Inbound order (Firm A): Continuous Book order (MTP = 
Cancel Smallest), Sell 200 @1.00
 Result: Order 2 will rest in the Continuous Book, and there is 
no MTP action.
Example 7: Incoming Order Is Canceled Due to ``Periodic Auction in 
Progress'' Involving a PAO Order
    Example 7 illustrates how an incoming order with a MTP modifier is 
canceled because a Periodic Auction is in progress.\39\ Here, Firm A's 
inbound Order 2, a PAE Order to sell 200 @1.00, with a MTP modifier of 
MTP Cancel Both (``MCB''),\40\ immediately starts an auction with Firm 
B's Order 1, a resting PAO Order to Buy 100 @1.00, that is 
participating in the Periodic Auction. While the Periodic Auction is in 
progress, Firm A enters Order 3, a PAE Order to Buy 200 @1.00 with an 
MCB instruction.
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    \39\ Example 7 demonstrates the proposed functionality described 
in 11.25(e)(1)(B).)(1)(B).
    \40\ MTP Cancel Both (``MCB'') is defined as ``[a]n incoming 
order marketed with the ``MCB'' modifier will not execute against 
opposite side resting interest marked with any MTP modifier 
originating from the same Unique Identifier. The entire size of both 
orders will be cancelled back to the originating User(s). See Rule 
11.9(f)(4). demonstrates the proposed functionality described in 
proposed Rule 11.25(e).
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    The entry of Order 3 presents a scenario in which the Exchange 
seeks to implement MTP functionality that behaves differently than 
demonstrated in each of the preceding five examples. Specifically, if a 
Periodic Auction is in progress, and an inbound Periodic Auction is 
designated with an MTP modifier, and such order matches against a 
resting contra-side Periodic Auction Order, that is participating in 
the Periodic Auction, originating from the same Unique Identifier that 
is also designated with an MTP modifier, then the Periodic Auction 
Order will be cancelled. Importantly, this behavior is necessary to 
help ensure that once a Periodic Auction is initiated it will be 
completed.
    Applying this proposed behavior to Example 7's fact pattern, when 
Firm A's Order 3, a PAE Order with an MCB modifier is entered after 
Periodic Auction has been initiated and Order 3 subsequently matches 
with Firm A's Order 2 (a PAE Order with a MCB modifier), Order 3 will 
be cancelled. Without this proposed behavior, Order 3 would otherwise 
be included in the Periodic Auction, and its MTP Cancel Both 
instruction would result in the cancelation of Order 2,\41\ preventing 
the Periodic Auction from completing, and denying Firm A an execution 
it would otherwise have expected to receive. The Exchange believes that 
this proposed behavior appropriately balances the dual goals of 
ensuring that Periodic Auctions complete once initiated and providing 
Members the ability to utilize MTP for their Periodic Auction Orders in 
each of the scenarios described in the preceding five examples.\42\
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    \41\ See Rule 11.9(f)(4).
    \42\ The Exchange notes that the proposed MTP functionality is 
intended as a supplementary risk tool that Members may voluntarily 
use to help them manage their risk and compliance with applicable 
securities rules. As registered broker-dealers, Members are 
ultimately responsible for compliance with applicable securities 
rules, and should not rely on the proposed functionality as a sole 
means of compliance. As such, while the proposed MTP functionality 
will, in some instances, operate differently than it does outside of 
the context of Periodic Auctions, its design as a supplementary risk 
tool will still serve to benefit Members that choose to utilize this 
tool.

 Order 1--Resting (Firm B): PAO Order, Buy 100 @1.00
 Order 2--Inbound Order (Firm A): PAE Order (MTP = Cancel Both 
43), Sell 200 @1.00
---------------------------------------------------------------------------

    \43\ MTP Cancel Both is defined as ``[a]n incoming order marked 
with the ``MCB'' modifier will not execute against the opposite side 
resting interest marked with any MTP modifier originating from the 
same Unique Identifier. The entire size of both orders will be 
cancelled back to the originating User (s). See Rule 11.9(f)(4).
---------------------------------------------------------------------------

 Action: Order 2 initiates a Periodic Auction with Order 1
 Order 3--Inbound order (Firm A): PAE Order (MTP = Cancel 
Both), Buy 200 @1.00
 Result: Order 3 is canceled in order to prevent Order 3 
participating in the Periodic Auction, canceling Order 2, and 
disrupting the completion of the Periodic Auction.
Example 8: Incoming Order Has MTP Temporarily Bypassed in a Periodic 
Auction
    Example 8 is another example of MTP being temporarily bypasses when 
a Periodic Auction is in progress, despite the Member adding MTP 
instructions to their Periodic Auction Order(s) and Continuous Book 
Order(s). Here, Firm B's Order 2, a PAE Order with an MCO modifier, 
initiates a Periodic Auction upon entry with Firm A's Order 1, a 
resting PAE Order with an MCO modifier. Firm A subsequently enters a 
Continuous Book Order (Hidden) with an MCO modifier. Here, the Exchange 
will temporarily bypass \44\ an inbound Continuous Book Order's MTP 
modifier when a Periodic Auction is in progress, and such Continuous 
Book Order would post to the Continuous Book, and be eligible to 
participate in the Periodic Auction, or alternatively receive an 
execution from the Continuous Book. In such instance, applying the 
Continuous Book Order's MTP modifier and canceling such order based on 
the potential that the order could trade in the Periodic Auction, would 
be unnecessarily prohibitive. By posting to the Continuous Book, such 
order could still execute without violating its MTP instructions.
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    \44\ The Exchange notes that the bypassing of the Continuous 
Book Order's MTP modifier in this scenario is temporary. Should the 
Periodic Auction complete and Order 3 does not have the opportunity 
to trade with Order 1 in the Periodic Auction, then Order 3 would 
remain posted on the Continuous Book with its MTP modifier and be 
afforded the protections of MTP.
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    Based on the proposed MTP functionality, Order 3 will post to the 
BYX Book prior to the end of the Periodic Auction as the MTP modifier 
is temporarily bypassed.\45\ Order 1 and

[[Page 78423]]

Order 2 will trade in the Periodic Auction for 500 shares @10.02. After 
trading with Order 2, Order 1 still has 500 shares remaining. Prior to 
the end of the Periodic Auction, Order 3 will be matched in the 
Periodic Auction and trade 200 shares with Order 1 @10.02, bypassing 
the MCO modifier assigned by Firm A to its Order 1 and Order 3.
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    \45\ The Exchange notes that the bypassing of the Continuous 
Book Order's MTP modifier in this scenario is temporary. Should the 
Periodic Auction complete and Order 3 does not have the opportunity 
to trade with Order 1 in the Periodic Auction, then Order 3 would 
remain posted on the Continuous Book with its MTP modifier and be 
afforded the protections of MTP.
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    The Exchange believes that temporarily bypassing an MTP modifier in 
this scenario is necessary to ensure that a Periodic Auction completes 
once it is initiated.\46\ Additionally, bypassing Order 3's MTP 
instruction is also necessary to avoid disrupting trading in the 
Continuous Book, because Order 3 could perhaps post and trade while the 
Periodic Auction is in progress. The Exchange therefore believes 
cancelling Order 3 based on its potential to trade in the Periodic 
Auction would unnecessarily prevent a Member from potentially receiving 
a Continuous Book execution. While the proposed MTP functionality will 
explicitly and automatically temporarily bypass a Member's MTP modifier 
when the scenario described in Example 8 is present, the Exchange 
believes that such behavior appropriately balances the dual goals of 
ensuring that Periodic Auctions operate as designed (i.e., once 
initiated they will complete, executing the maximum number of shares), 
and still provides Members the ability to utilize MTP for their 
Periodic Auction Orders in majority of instances described in each of 
the preceding six examples.\47\
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    \46\ Example 8 demonstrates the proposed functionality described 
in proposed Rule 11.25(e)(1)(C).
    \47\ The Exchange notes that the proposed MTP functionality is 
intended as a supplementary risk tool that Members may voluntarily 
use to help them manage their risk and compliance with applicable 
securities rules. As registered broker-dealers, Members are 
ultimately responsible for compliance with applicable securities 
rules, and should not rely on the proposed functionality as a sole 
means of compliance. As such, while the proposed MTP functionality 
will, in some instances, operate differently than it does outside of 
the context of Periodic Auctions, its design as a supplementary risk 
tool will still serve to benefit Members that choose to utilize this 
tool.

 Order 1--Firm A: PAE Order (MTP = Cancel Oldest), Buy 1000 
@10.02
 Order 2--Firm B: PAE Order (MTP = Cancel Oldest), Sell 500, 
@10.02
 Action: Order 2 initiates an auction with Order 1, because 
Firm A and Firm B are different entities.
 Order 3--Inbound order (Firm A): Continuous Book Order (MTP = 
Cancel Oldest), Sell 200 @10.02
 Action: MTP modifier on Order 3 is temporarily bypassed
 Result: Order 3 posts to the BYX Book prior to the end of the 
auction; Order 1 and Order 2 trade in the Periodic Auction for 500 
@10.02; Order 3 then trades 200 @10.02 with Order 1 (bypassing MTP).
Example 9: Minimum Quantity Order Unable To Be Filled (PAE vs. PAE) 
48
---------------------------------------------------------------------------

    \48\ Example 9 demonstrates the proposed functionality described 
in 11.25(e)(2).
---------------------------------------------------------------------------

    Example 9 illustrates how the System will ignore the Minimum 
Quantity instruction on a Periodic Auction Order that is also 
designated with an MTP modifier, when the Minimum Quantity cannot be 
satisfied. Specifically, in the event a Periodic Auction Order is 
entered as a Minimum Quantity Order, as well as with an MTP modifier 
(e.g., Order 1), and such Periodic Auction Order could initiate a 
Periodic Auction with a contra-side Periodic Auction Order or trade 
with a Continuous Book Order (e.g., Order 2), designated with an MTP 
modifier from the same Unique Identifier as Order 1, the System will 
apply ignore Order 1's Minimum Quantity instruction, and apply MTP, 
regardless of whether the Minimum Quantity is satisfied. Here, upon 
entry of Order 2, the System will ignore Order 1's Minimum Quantity 
instruction, and instead apply MTP, resulting in the cancelation of 
Order 1.

 Order 1 (Firm A): Buy 1000 @10.02--PAE--Min Quantity = 500 
(MTP=any)
 Order 2 (Firm A): Sell 400 @10.02--PAE order (MTP=Cancel 
Oldest)
 Result: Order 2 cannot initiate an auction with Order 1 due to 
the MIN quantity on Order 1. `MIN' on Order 1 is ignored and Order 2 
cancels Order 1. Order 2 posts to the book.
Example 10: Minimum Quantity Order Able To Be Filled (PAE vs. PAE) 
49
---------------------------------------------------------------------------

    \49\ Example 10 demonstrates the proposed functionality 
described in 11.25(e)(2).
---------------------------------------------------------------------------

    Example 10 illustrates how the System will ignore the Minimum 
Quantity instruction on a Periodic Auction Order that is also 
designated with a an MTP modifier, when the Minimum Quantity is 
satisfied. Here, even though the Minium Quantity for Order 1 can be 
satisfied by Order 2, the System will apply MTP resulting in the 
cancelation of Order 1.

 Order 1 (Firm A): Buy 1000 @10.02--PAE--Min Quantity = 500 
(MTP = any)
 Order 2 (Firm 2): Sell 1000 @10.02--PAE (MTP = Cancel Oldest)
Result: The System applies MTP, and cancels Order 1
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.\50\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \51\ 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) \52\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
---------------------------------------------------------------------------

    \50\ 15 U.S.C. 78f(b).
    \51\ 15 U.S.C. 78f(b)(5).
    \52\ Id.
---------------------------------------------------------------------------

    In particular, the Exchange believes that its proposed MTP 
functionality is designed to promote the just and equitable principles 
of trade, and to protect investors and the public interest, by enabling 
Users to better prevent undesirable trading activity such as wash sales 
or self-trades for not only their Continuous Book Orders, but their 
Periodic Auction Orders as well. Additionally, by providing Users with 
a supplemental risk tool that will better enable them to achieve 
compliance with applicable securities rules and regulations, the 
proposed rule change will help to further ensure that orders eligible 
for execution in the Periodic Auction indeed represent genuine trading 
interest from separate and distinct firms. While the proposed MTP 
functionality would not operate identically to MTP as it is used in 
non-Periodic Auction scenarios, the Exchange believes that its proposal 
strikes an appropriate balance between ensuring Users receive 
executions in the Periodic Auction and providing Users' the ability to 
utilize MTP in most trading situations involving Periodic Auctions. By 
making this clear to Users,\53\ they will be able to anticipate

[[Page 78424]]

how MTP modifiers will interact with their Periodic Auction Orders and 
mitigate any confusion that Users may have in using the proposed 
functionality.
---------------------------------------------------------------------------

    \53\ In addition to codifying the proposed functionality, the 
Exchange will send out a Member notice that includes information 
about the proposed MTP functionality for Periodic Auctions.
---------------------------------------------------------------------------

    Similarly, by making clear to Users that when they enter their 
Periodic Auction Orders as Minimum Quantity Orders, and designate them 
with an MTP instruction, and such Periodic Auction Orders attempt to 
execute versus contra-side Periodic Auction Orders or Continuous Book 
orders with a MTP modifier originating from the same Unique Identifier, 
that the Minimum Quantity instruction will not be enforced, Users will 
be better informed as to how MTP operates in conjunction with Minimum 
Quantity restrictions, and will be better able to manage their Periodic 
Auction Orders and when it may be sensible to enter Periodic Auction 
Orders with both a Minimum Quantity restriction and an MTP modifier.
    Additionally, the Exchange believes that the proposed rule changes 
are designed to facilitate transactions in securities, and to remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system. Based on User feedback, the lack of MTP 
functionality for Periodic Auction Orders may discourage Users from 
entering Periodic Auction Orders because they do not have an automated 
way to systematically prevent undesirable executions resulting from 
orders originating from a User's algorithm or trading desk, or their 
related algorithms or trading desks. In this regard, the proposed rule 
changes may encourage Users to increase their Periodic Auction 
participation, thereby further enhancing the Periodic Auction liquidity 
pool and the ability of investors to execute larger orders that may 
otherwise be difficult to execute without market impact in the 
continuous market. Additionally, because Periodic Auctions are price-
forming, the enhanced liquidity pools would indeed augment Periodic 
Auction's valuable price discovery function, which may be particularly 
helpful for investors when trading securities that typically trade with 
wider spreads.
    Again, while the proposed MTP functionality may not apply a User's 
MTP modifiers in all instances, the Exchange as well as its Users 
believe that some level of MTP protection is more beneficial than 
completely foregoing MTP protection in its entirety. By making clear to 
Users how MTP for Periodic Auction Orders will operate, Users can 
better manage their use of MTP modifiers, and anticipate how their 
Periodic Auction Orders will behave. Similarly, while Periodic Auction 
Orders entered as Minimum Quantity Orders, as well as an MTP Modifier, 
will in certain circumstances (discussed supra) cause the System to 
ignore a User's Minimum Quantity requirements and instead apply MTP, 
Users have indicated that they would prefer that MTP apply consistently 
so as to prevent undesirable wash sales.
    Finally, the Exchange further believes that the proposed rule 
change does not unfairly discriminate amongst Users because the 
proposal will allow all Periodic Auction Users to utilize MTP just as 
all Users entering Continuous Book Orders may utilize MTP today. In 
this regard, the proposed amendment will avoid disparate treatment of 
Users. Furthermore, the bypassing or amending of MTP modifiers, as 
described in the Examples above, will apply equally to all Periodic 
Auction Users, regardless of their size.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. MTP is an optional 
functionality offered by the Exchange and Periodic Auction Users are 
free to decide whether to use MTP in their decision-making process when 
submitting Periodic Auction Orders to the Exchange.
    Similarly, the Exchange does not believe that the proposed 
amendment poses a burden on intermarket competition that is not 
necessary or appropriate in furtherance of the Act. Indeed, the 
proposed rule change is designed to increase competition by offering 
Periodic Auction Users the ability to better manage their order flow 
and prevent undesirable executions. In turn, Users may be further 
incentivized to send additional orders to BYX's Periodic Auction 
mechanism, thereby fostering competition amongst exchanges, as well as 
with off-exchange venues (e.g., alternative trading systems) where 
Users that may otherwise utilized Periodic Auctions, typically seek to 
source block-sized liquidity.\54\
---------------------------------------------------------------------------

    \54\ See ``Trade Big with Cboe U.S. Periodic Auctions,'' 
available at: https://www.cboe.com/us/equities/trading/offerings/periodic_auctions/. (``Cboe created its patented Periodic Auctions 
to establish an on-exchange alternative to the growth of off-
exchange liquidity. Most recently, the use of conditional order 
types on Alternative Trading Systems (ATSs) has reached new highs as 
a percentage of ATS volumes. Periodic Auctions would offer a new 
price forming auction for investors seeking liquidity, including but 
not limited to block size transactions, during the course of the 
trading day. These intraday auctions may be a useful tool to attract 
buyers and sellers in less liquid or wider spread names, and would 
create an equal and fair market for market participants and 
investors that wish to either initiate or respond to such auctions. 
Periodic Auctions will be available on Cboe's BYXTM 
market center.'').
---------------------------------------------------------------------------

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. Proceedings To Determine Whether To Approve or Disapprove SR-
CboeBYX-2024-009 and Grounds for Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to Section 
19(b)(2)(B) of the Act \55\ to determine whether the proposed rule 
change should be approved or disapproved. Institution of such 
proceedings is appropriate at this time in view of the legal and policy 
issues raised by the proposed rule change. Institution of proceedings 
does not indicate that the Commission has reached any conclusions with 
respect to any of the issues involved. Rather, as described below, the 
Commission seeks and encourages interested persons to provide comments 
on the proposed rule change.
---------------------------------------------------------------------------

    \55\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

    Pursuant to Section 19(b)(2)(B) of the Act,\56\ the Commission is 
providing notice of the grounds for disapproval under consideration. 
The Commission is instituting proceedings to allow for additional 
analysis of the proposed rule change's consistency with Section 6(b)(5) 
of the Act, which requires, among other things, that the rules of a 
national securities exchange be ``designed to perfect the operation of 
a free and open market and a national market system'' and ``protect 
investors and the public interest,'' and not be ``designed to permit 
unfair discrimination between customers, issuers, brokers, or 
dealers,'' \57\ and Section 6(b)(8) of the Act, which requires that the 
rules of a national securities exchange ``not impose any burden on 
competition not necessary or appropriate in furtherance of the purposes 
of [the Act].'' \58\
---------------------------------------------------------------------------

    \56\ Id.
    \57\ 15 U.S.C. 78f(b)(5).
    \58\ 15 U.S.C. 78f(b)(8).

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[[Page 78425]]

IV. Procedure: Request for Written Comments

    The Commission requests that interested persons provide written 
submissions of their views, data, and arguments with respect to the 
issues identified above, as well as any other concerns they may have 
with the proposal. In particular, the Commission invites the written 
views of interested persons concerning whether the proposal is 
consistent with Section 6(b)(5), 6(b)(8) or any other provision of the 
Act, or the rules and regulations thereunder. Although there do not 
appear to be any issues relevant to approval or disapproval that would 
be facilitated by an oral presentation of views, data, and arguments, 
the Commission will consider, pursuant to Rule 19b-4, any request for 
an opportunity to make an oral presentation.\59\
---------------------------------------------------------------------------

    \59\ Section 19(b)(2) of the Act, as amended by the Securities 
Act Amendments of 1975, Public Law 94-29 (June 4, 1975), grants the 
Commission flexibility to determine what type of proceeding--either 
oral or notice and opportunity for written comments--is appropriate 
for consideration of a particular proposal by a self-regulatory 
organization. See Securities Act Amendments of 1975, Senate Comm. on 
Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st 
Sess. 30 (1975).
---------------------------------------------------------------------------

    In particular, the Commission seeks comment on the following:
     Commenter's views on whether or not the Exchange has 
adequately described how the proposed functionality would handle 
incoming Periodic Auction Orders with MTP modifiers and incoming 
Continuous Book Orders with MTP modifiers before, during and after the 
conclusion of a Periodic Auction;
     Commenter's views on whether or not the Exchange has 
adequately described how the proposed incoming Periodic Auction Orders 
with MTP modifiers and incoming Continuous Book Orders with MTP 
modifiers would impact other Continuous Book Orders or Periodic Auction 
Orders;
     Commenter's views on whether or not it is appropriate for 
the proposed functionality to, in certain circumstances, allow for the 
execution of orders originating from the same Unique Identifier, even 
if those orders have MTP modifiers, and whether or not the Exchange has 
adequately explained and justified this proposed functionality; and
     Commenter's views on whether or not the proposed 
functionality adds unnecessary complexity to the Exchange.
    Interested persons are invited to submit written data, views, and 
arguments regarding whether the proposal should be approved or 
disapproved by October 16, 2024. Any person who wishes to file a 
rebuttal to any other person's submission must file that rebuttal by 
October 30, 2024. The Commission asks that commenters address the 
sufficiency of the Exchange's statements in support of the proposal, 
which are set forth in Amendment No. 1,\60\ in addition to any other 
comments they may wish to submit about the proposed rule change.
---------------------------------------------------------------------------

    \60\ See supra note 4.
---------------------------------------------------------------------------

    Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-CboeBYX-2024-009 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-CboeBYX-2024-009. 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-CboeBYX-2024-009 and should 
be submitted on or before October 16, 2024. Rebuttal comments should be 
submitted by October 30, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\61\
---------------------------------------------------------------------------

    \61\ 17 CFR 200.30-3(a)(12); 17 CFR 200.30-3(a)(57).
---------------------------------------------------------------------------

Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-21876 Filed 9-24-24; 8:45 am]
BILLING CODE 8011-01-P
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