Notice2022-22177
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Rule 21.17 Concerning Drill-Through Protection and Fat Finger Check
Primary source
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Published
October 13, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 197 (Thursday, October 13, 2022)</title>
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[Federal Register Volume 87, Number 197 (Thursday, October 13, 2022)]
[Notices]
[Pages 62123-62125]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-22177]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-95994; File No. SR-CboeBZX-2022-049]
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
Rule 21.17 Concerning Drill-Through Protection and Fat Finger Check
October 6, 2022.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on October 4, 2022, Cboe BZX Exchange, Inc. (``Exchange'' or ``BZX'')
filed with the Securities and Exchange Commission (``Commission'') the
proposed rule change as described in Items I, II, and III below, which
Items have been prepared by the Exchange. The Commission is publishing
this notice to solicit comments on the proposed rule change from
interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Cboe BZX Exchange, Inc. (the ``Exchange'' or ``BZX Options'')
proposes to amend Rule 21.17. The text of the proposed rule change is
provided in Exhibit 5.
The text of the proposed rule change is also available on the
Exchange's website (<a href="http://markets.cboe.com/us/equities/regulation/rule_filings/bzx/">http://markets.cboe.com/us/equities/regulation/rule_filings/bzx/</a>), 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
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forth in sections A, B, and C below, of the most significant aspects of
such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend Rule 21.17. Specifically, the
Exchange proposes to amend its drill-through protection mechanism and
limit order fat finger check.
The Exchange proposes to amend Rule 21.17(d) to update the drill-
through protection mechanism to provide orders with additional
execution opportunities. Pursuant to the current drill-through
protection, if a buy (sell) order enters the Book at the conclusion of
the opening auction process or would execute or post to the Book at the
time of order entry, the System executes the order up to a buffer
amount (the Exchange determines the buffer amount on a class and
premium basis) above (below) the offer (bid) limit of the opening
collar \3\ or the national best bid (``NBO'') (national best offer
(``NBB'')) that existed at the time of order entry, respectively (the
``drill-through price'').\4\ The System enters an order (or unexecuted
portion) not executed pursuant to the provision in the immediately
preceding sentence in the Book with a displayed equal to the drill-
through price.\5\ The order (or unexecuted portion) rests in the Book
at the drill-through price \6\ until the earlier to occur of its full
execution and the end of the duration of a number of consecutive time
periods (the Exchange determines on a class-by-class basis the number
of periods, which may not exceed five, and the length of the time
period in milliseconds, which may not exceed three seconds).\7\
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\3\ See Rule 21.7(a) for the definition of Opening Collars.
\4\ See Rule 21.17(d)(1).
\5\ See Rule 21.17(d)(2).
\6\ The proposed rule change adds ``at the drill-through price''
in the first sentence of subparagraph (d)(2)(A), which is a
nonsubstantive change, as it reflects current functionality and is
stated in the introductory paragraph to Rule 21.17(d)(2). The
proposed rule change merely includes this detail in the next portion
of the rule for additional clarity.
\7\ See Rule 21.17(d)(2)(A).
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The proposed rule change amends Rule 21.17(d)(2)(A) to eliminate
the concept that there will be a maximum number of time periods and
proposes that the order (or unexecuted portion) will rest in the Book
at the drill-through price for the duration of consecutive time
periods.\8\ The proposed rule change makes conforming changes to
subparagraph (ii) by deleting references to ``the final period'' and
subparagraph (iv) by deleting the reference to ``any remaining time
period(s),'' as there will no longer be an Exchange-determined limited
number of time periods. Currently, as set forth in current subparagraph
(i), the drill-through mechanism will continue until the earlier to
occur of the order's full execution and the end of the duration of the
Exchange-determined number of time periods. The Exchange proposes to
amend subparagraph (iv) to describe when the drill-through process will
conclude. Specifically, proposed Rule 21.17(d)(2)(D) provides that the
order continues through the process described in subparagraph (ii) (as
proposed to be amended) until the earliest of the following to occur:
(a) the order fully executes; (b) the User cancels the order; and (c)
the order's limit price equals or is less than (if a buy order) or
greater than (if a sell order) the drill-through price at any time
during application of the drill-through mechanism, in which case the
order rests in the Book at its limit price, subject to a User's
instructions. In other words, the order will continue through
consecutive time periods until it fully executes (unless it is
cancelled by the User or reaches its limit price prior to full
execution), compared to today when the order will continue through
consecutive time periods until it fully executes or reaches the
Exchange-determined final time period, at which time the order would be
cancelled (unless it reaches its limit price prior to full execution).
The Exchange believes eliminating the limit on the number of time
periods may increase execution opportunities for limit orders, which
will still continue to be bound by their limit prices and protected by
the limit order fat finger check.\9\
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\8\ The Exchange will continue to determine on a class-by-class
basis the length of the time periods in milliseconds, which may
continue to not exceed three seconds.
\9\ If a limit price is ``too far away'' from the market, the
order will continue to be subject to the limit order fat finger
protection set forth in Rule 21.17(b) and thus will still be subject
to protection against a potentially erroneous execution due to an
order pricing error upon submission.
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In addition, the Exchange proposes to amend Rule 21.17(b) to add
Limit-on-Close orders \10\ to the list of orders to which the limit
order fat finger check does not apply. Pursuant to the limit order fat
finger check, if a User submits a buy (sell) limit order to the System
with a price that is more than a buffer amount above (below) the NBO
(NBB), the System cancels or rejects the order.\11\ Currently, the
simple limit order fat finger check does not apply to bulk messages or
Stop-Limit Orders.\12\ The Exchange proposes to also not apply the
limit order fat finger check to Limit-on-Close orders. The limit order
fat finger check applies to orders upon entry to the System. However,
the limit price of a Limit-on-Close order is intended to relate to the
price at the market close, and thus may intentionally be further away
from the NBBO at the time the order is entered. This may cause the
order to be inadvertently rejected pursuant to this check. The Exchange
believes it is not appropriate for this limit order to be subject to
the fat finger check, as the check may inadvertently cause rejections
for orders with limit prices that are intentionally ``far away'' from
the market at the time of order entry.
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\10\ A ``Limit-on-Close'' or ``LOC'' order is, for an order so
designated, a limit order that may not execute on the Exchange until
three minutes prior to market close. At that time, the System enters
LOC orders into the Book in time sequence (based on the times at
which the System initially received them), where they may be
processed in accordance with Rule 21.8. The System cancels an LOC
order (or unexecuted portion) that does not execute by the market
close. Users may not designate bulk messages as LOC. See Rule
21.1(f)(7) (definition of ``Limit-on-Close'' and ``LOC'' order).
\11\ Rule 21.17(a).
\12\ Id.
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2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Securities Exchange Act of 1934 (the ``Act'') and the rules and
regulations thereunder applicable to the Exchange and, in particular,
the requirements of Section 6(b) of the Act.\13\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \14\ 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) \15\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
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\13\ 15 U.S.C. 78f(b).
\14\ 15 U.S.C. 78f(b)(5).
\15\ Id.
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In particular, the Exchange believes the proposed rule change to
eliminate
[[Page 62125]]
the maximum number of time periods for which an order will rest in the
Book during application of the drill-through protection mechanism will
remove impediments to and perfect the mechanism of a free and open
market and a national market system, and, in general, protect
investors, because it will provide orders with additional execution
opportunities. These orders may continue to be available on the Book
for execution, at a wider range of prices, as opposed to today when
such orders are cancelled after a specified number of time periods
(depending on the User's instructions and if the order does not reach
its limit price prior to the end of those time periods). The Exchange
believes these additional execution opportunities will benefit
investors that submit such orders and believes such orders will
continue to receive protection against potentially erroneous
executions, as the limit order fat finger check will continue to apply
to them.
Finally, the Exchange believes excluding Limit-on-Close orders from
the limit order fat finger check will remove impediments to and perfect
the mechanism of a free and open market and a national market system,
and, in general, protect investors, because it may reduce inadvertent
rejections of Limit-on-Close orders, which may be purposely priced
further away from the NBBO at the time of entry, as their limit prices
are intended to relate to price at the market close. Therefore, this
proposed rule change may increase execution opportunities for Users
that submit Limit-on-Close orders.
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. The Exchange does not
believe that the proposed rule change will impose any burden on
intramarket competition that is not necessary or appropriate in
furtherance of the purposes of the Act, because the amended drill-
through protection mechanism and limit order fat finger check will
continue to apply in the same manner to orders of all Users and may
lead to increased execution opportunities. The Exchange does not
believe that the proposed rule change will impose any burden on
intermarket competition that is not necessary or appropriate in
furtherance of purposes of the Act, because the proposed rule change
relates solely to Exchange risk controls and how the Exchange handles
orders subject to those risk controls.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received comments on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not:
A. significantly affect the protection of investors or the public
interest;
B. impose any significant burden on competition; and
C. become operative for 30 days from the date on which it was
filed, or such shorter time as the Commission may designate, it has
become effective pursuant to Section 19(b)(3)(A) of the Act \16\ and
Rule 19b-4(f)(6) \17\ thereunder. At any time within 60 days of the
filing of the proposed rule change, the Commission summarily may
temporarily suspend such rule change if it appears to the Commission
that such action is necessary or appropriate in the public interest,
for the protection of investors, or otherwise in furtherance of the
purposes of the Act. If the Commission takes such action, the
Commission will institute proceedings to determine whether the proposed
rule change should be approved or disapproved.
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\16\ 15 U.S.C. 78s(b)(3)(A).
\17\ 17 CFR 240.19b-4(f)(6).
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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
<bullet> Use the Commission's internet comment form (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#0f7d7a636a226c6062626a617b7c4f7c6a6c21686079"><span class="__cf_email__" data-cfemail="99ebecf5fcb4faf6f4f4fcf7edead9eafcfab7fef6ef">[email protected]</span></a>. Please include
File Number SR-CboeBZX-2022-049 on the subject line.
Paper Comments
<bullet> Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-CboeBZX-2022-049. 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 (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>).
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 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-CboeBZX-2022-049 and should be submitted
on or before November 3, 2022.
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\18\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\18\
J. Lynn Taylor,
Assistant Secretary.
[FR Doc. 2022-22177 Filed 10-12-22; 8:45 am]
BILLING CODE 8011-01-P
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