Notice2022-25669
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing of Amendment No. 1 and Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change To Amend Rule 11.28(a) To Extend the MOC Cut-Off Time
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
November 25, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 226 (Friday, November 25, 2022)</title>
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[Federal Register Volume 87, Number 226 (Friday, November 25, 2022)]
[Notices]
[Pages 72527-72537]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-25669]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-96359; File No. SR-CboeBZX-2022-038]
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of
Filing of Amendment No. 1 and Order Instituting Proceedings To
Determine Whether To Approve or Disapprove a Proposed Rule Change To
Amend Rule 11.28(a) To Extend the MOC Cut-Off Time
November 18, 2022.
On August 5, 2022, Cboe BZX Exchange, Inc. (``BZX'' or
``Exchange'') filed with the Securities and Exchange Commission
(``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 BZX Rule 11.28(a) to extend the cut-off
time for accepting Market-on-Close orders entered for participation in
the Cboe Market Close. The proposed rule change was published for
comment in the Federal Register on August 24, 2022.\3\ On October 4,
2022, pursuant to section 19(b)(2) of the Act,\4\ the Commission
designated a longer period within which to approve the proposed rule
change, disapprove the proposed rule change, or institute proceedings
to determine whether to disapprove the proposed rule change.\5\ On
November 11, 2022, the Exchange submitted Amendment No. 1 to the
proposed rule change as described in Items I and II below, which Items
have been prepared by the Exchange. Amendment No. 1 amended and
superseded the proposed rule change as originally filed.\6\ The
Commission is publishing this notice and order 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 \7\ to determine whether to approve or
disapprove the proposed rule change, as modified by Amendment No. 1.
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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. 95529 (August 17,
2022), 87 FR 52092.
\4\ 15 U.S.C. 78s(b)(2).
\5\ See Securities Exchange Act Release No. 95967, 87 FR 61425
(October 11, 2022). The Commission designated November 22, 2022, as
the date by which the Commission shall approve or disapprove, or
institute proceedings to determine whether to disapprove, the
proposed rule change.
\6\ Amendment No. 1 is available on the Commission's website at:
<a href="https://www.sec.gov/comments/sr-cboebzx-2022-038/srcboebzx2022038.htm">https://www.sec.gov/comments/sr-cboebzx-2022-038/srcboebzx2022038.htm</a>.
\7\ 15 U.S.C. 78s(b)(2)(B).
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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'') proposes to
amend Rule 11.28(a) to extend the Cboe Market Close MOC Cut-Off Time
from 3:35 p.m. Eastern Time to 3:49 p.m. Eastern Time. 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 forth in
sections A, B, and C below, of the most significant aspects of such
statements.
[[Page 72528]]
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
Exchange Rule 11.28 (Cboe Market Close, a Closing Match Process for
Non-BZX-Listed Securities) provides Members an optional closing match
process for non-BZX-Listed securities, known as Cboe Market Close
(``CMC''). Currently, per Rule 11.28(a) (Order Entry) Members \8\ may
enter, cancel, or replace Market-on-Close (``MOC'') orders designated
for participation in CMC beginning at 6:00 a.m. Eastern Time \9\ up to
3:35 p.m. (``MOC Cut-Off Time''). The Exchange now proposes to move the
MOC Cut-Off Time from 3:35 p.m. to 3:49 p.m. The Exchange is not
proposing to make any other changes to the CMC process.
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\8\ The term ``Member'' shall mean any registered broker or
dealer that has been admitted to membership in the Exchange. A
Member will have the status of a ``member'' of the Exchange as that
term is defined in section 3(a)(3) of the Act. Membership may be
granted to a sole proprietor, partnership, corporation, limited
liability company or other organization which is a registered broker
or dealer pursuant to section 15 of the Act, and which has been
approved by the Exchange. See Rule 1.5(n), definition of ``Member''.
\9\ All times noted throughout are in Eastern Time.
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By way of background, on May 5, 2017, the Exchange filed a proposed
rule change to adopt CMC, a match process for MOC orders in non-BZX
listed securities and on December 1, 2017, filed Amendment No. 1 \10\
to that proposal (the ``Original Proposal'').\11\ On January 17, 2018,
the Commission, acting through authority delegated to the Division of
Trading and Markets,\12\ approved the Original Proposal (``Approval
Order'').\13\ On January 31, 2018, NYSE Group, Inc. (``NYSE'') and the
Nasdaq Stock Market LLC (``Nasdaq'') filed petitions for review of the
Approval Order (``Petitions for Review''). Pursuant to Commission Rule
of Practice 431(e),\14\ the Approval Order was stayed by the filing
with the Commission of a notice of intention to petition for
review.\15\ On March 1, 2018, pursuant to Commission Rule of Practice
431, the Commission issued a scheduling order granting the Petitions of
Review of the Approval Order, and provided until March 22, 2018, for
any party or other person to file a written statement in support of, or
in opposition to, the Approval Order.\16\ On April 12, 2018, NYSE and
Nasdaq submitted written statements opposing the Approval Order and BZX
submitted a statement in support of the Approval Order.\17\ On October
4, 2018, BZX filed Amendment No. 2 \18\ to the Original Proposal.
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\10\ The only change in Amendment No. 1 was to rename the
proposed closing match process as Cboe Market Close. Per the
Commission, because Amendment No. 1 was a technical amendment and
did not materially alter the substance of the proposed rule change
or raise unique or novel regulatory issues, Amendment No. 1 was not
subject to notice and comment.
\11\ See Securities Exchange Act Release No. 34-80683 (May 16,
2017), 82 FR 23320 (May 22, 2017) (SR-Bats-BZX-2017-34) (Notice of
Filing of a Proposed Rule Change to Introduce Bats Market Close, a
Closing Match Process for Non-BZX Listed Securities Under New
Exchange Rule 11.28).
\12\ 17 CFR 200.30-3(a)(12).
\13\ See Securities Exchange Act Release No. 34-82522 (January
17, 2018), 83 FR 3205 (January 23, 2018) (SR-BatsBZX-2017-34)
(Notice of Filing of Amendment No. 1 and Order Granting Approval of
a Proposed Rule Change, as Modified by Amendment No. 1, To Introduce
Cboe Market Close, a Closing Match Process for Non-BZX Listed
Securities Under New Exchange Rule 11.28).
\14\ 17 CFR 201.431(e).
\15\ See Letter to Christopher Solgan, Assistant General
Counsel, Cboe Global Markets, Inc. (Jan. 24, 2018) (providing notice
of receipt of notices of intention to petition for review of
delegated action and stay of order), available at: <a href="https://www.sec.gov/rules/sro/batsbzx/2018/sr-batsbzx-2017-34-letter-from-secretary-to-cboe.pdf">https://www.sec.gov/rules/sro/batsbzx/2018/sr-batsbzx-2017-34-letter-from-secretary-to-cboe.pdf</a>.
\16\ See Securities Exchange Act Release No. 82794, 83 FR 9561
(Mar. 6, 2018). On March 16, 2018, the Office of the Secretary,
acting by delegated authority, issued an order on behalf of the
Commission granting a motion for an extension of time to file
statements on or before April 12, 2018. See Securities Exchange Act
Release No. 82896, 83 FR 12633 (Mar. 22, 2018).
\17\ See Statement of NYSE Group, Inc., in Opposition to the
Division's Order Approving a Rule to Introduce Cboe Market Close
(``NYSE Statement''); Statement of the Nasdaq Stock Market LLC in
Opposition to Order Granting Approval of a Proposed Rule Change, as
Modified by Amendment No. 1, to Introduce Cboe Market Close
(``Nasdaq Statement''); and Statement of Cboe BZX Exchange, Inc., in
support of Commission Staff's Approval Order (``BZX Statement''),
available at: <a href="https://www.sec.gov/comments/sr-batsbzx-2017-34/batsbzx201734.htm">https://www.sec.gov/comments/sr-batsbzx-2017-34/batsbzx201734.htm</a>.
\18\ See Securities Exchange Act Release No. 34-84670 (November
28, 2018), 83 FR 62646 (December 4, 2018) (SR-BatsBZX-2017-34)
(``Notice of Filing of Amendment No. 2 to Proposed Rule Change to
Introduce Cboe Market Close, a Closing Match Process for Non-BZX
Listed Securities Under New Exchange Rule 11.28'').
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The Commission conducted a de novo review of the CMC proposal and
associated public record, including Amendment No. 2, the Petitions for
Review, and all comments and statements submitted by certain exchanges,
issuers, and other market participants,\19\ to determine whether the
proposal was consistent with the requirements of the Act and the rules
and regulations issued thereunder that are applicable to a national
securities exchange.\20\ The Commission noted that under Rule 700(b)(3)
of the Commission's Rule of Practice, the ``burden to demonstrate that
a proposed rule change is consistent with the Exchange Act and the
rules and regulations issued thereunder . . . is on the self-regulatory
organization that proposed the rule change.'' \21\
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\19\ See ``Statements on File No. SR-BatsBZX-2017-34'',
available at: <a href="https://www.sec.gov/comments/sr-batsbzx-2017-34/batsbzx201734.htm">https://www.sec.gov/comments/sr-batsbzx-2017-34/batsbzx201734.htm</a>.
\20\ See Securities Exchange Act Release No. 34-88008 (January
21, 2020), 85 FR 4726 (January 27, 2020) (SR-BatsBZX-2017-34)
(``Order Setting Aside Action by Delegated Authority and Approving a
Proposed Rule Change, as Modified by Amendments No. 1 and 2, To
Introduce Cboe Market Close, a Closing Match Process for Non-BZX
Listed Securities Under New Exchange Rule 11.28'').
\21\ Id.
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Importantly, after reviewing the entire record, the Commission
concluded that BZX met its burden to show that the proposed rule change
was consistent with the Act, and pursuant to its January 21, 2020,
order, set aside the Approval Order and approved BZX's CMC proposal, as
amended (``Final Approval Order'').\22\ Notably, the Commission stated
that the record ``demonstrate[d] that Cboe Market Close should
introduce and promote competitive forces among national securities
exchanges for the execution of MOC orders'' \23\ and that ``the record
demonstrate[d] that Cboe Market Close should not disrupt the closing
auction price discovery process nor should it materially increase the
risk of manipulation of official closing prices''.\24\ For the reasons
discussed more fully below, the Exchange believes that when applying
the Commission's analysis in the Final Approval Order to the current
proposal, such review would similarly conclude that this proposal is
consistent with the Act and should be approved.
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\22\ Id.
\23\ Id.
\24\ Id.
\25\ See Securities Exchange Act Release No. 34-84454 (October
19, 2018), 83 FR 53923 (October 25, 2018) (SR-Nasdaq-2018-068)
(Order approving a rule change by Nasdaq) (The Commission approved a
rule change by Nasdaq to move the cut-off times for the entry of MOC
and LOC orders from 3:50 p.m. to 3:55 p.m.); see also Securities
Exchange Act Release No. 34-85021 (January 31, 2019) (SR-NYSE-2018-
58) (Order approving a rule change by NYSE) (The Commission approved
a rule change by the NYSE to amend Rule 123C to extend the cut-off
times for order entry and cancellation for participation in the
closing auction, from 3:45 p.m. to 3:50 p.m.).
\26\ See infra, ``Price Discovery'' and ``Fragmentation'', which
describes the growth of off-exchange closing volume.
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Since the Original Proposal various exchanges have extended the MOC
cut-off times for their closing auctions, moving them closer to 4:00
p.m.\25\ Additionally, closing price match services offered by off-
exchange venues have grown in popularity,\26\ including alternative
trading systems (``ATS'') that offer a MOC cut-off time as close as 30-
seconds before the primary exchanges'
[[Page 72529]]
cut-off times, as well as MOC cut-off times aligned with those of NYSE,
NYSE Arca, and Nasdaq.\27\ As the market structure for closing auctions
and closing price match offerings has continued to evolve, and in
response to customer feedback and to better compete with off-exchange
venues, the Exchange is proposing this rule change to align CMC's MOC
Cut-Off Time more closely with the other exchanges and off-exchange
venues.
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\27\ For example, JP Morgan Securities' ATS, JPB-X, offers Close
Price Match. This functionality utilizes a conditional order process
to match orders and crosses them at the security's official closing
prices, as determined by the closing auction at the primary exchange
for a security. The Close Price Match time for an NMS stock is
currently 30-seconds before the MOC cut-off time for that stock's
primary exchange. Additionally, Instinet, LLC's ATS, CBX provides
for three MOC Crossing Sessions, which consist of: a cross for
securities where the primary listing exchange is the Nasdaq
(``Nasdaq Cross''), a cross for securities where the primary listing
exchange is the NYSE Arca (``Arca Cross''), and a cross for
securities where the primary listing exchange is the NYSE (``NYSE
Cross'') (collectively, ``MOC Crosses''). Each MOC Cross occurs two
minutes prior to the relevant exchange's cut-off time; i.e. the
Nasdaq Cross currently occurs at or near 3:53 p.m., the NYSE Cross
at or near 3:48 p.m., and the Arca Cross at or near 3:57 p.m. See
Form ATS-N, JPB-X, available at: <a href="https://www.sec.gov/Archives/edgar//data/782124/000001961722000459/xslATS-N_X01/primary_doc.xml">https://www.sec.gov/Archives/edgar//data/782124/000001961722000459/xslATS-N_X01/primary_doc.xml</a>; see
also Form ATS-N, Instinet, LLC's ATS, CBX, available at: <a href="https://www.sec.gov/Archives/edgar/data/310607//0000310607/22000009/xslATS-N_X01/primary_doc.xml">https://www.sec.gov/Archives/edgar/data/310607//0000310607/22000009/xslATS-N_X01/primary_doc.xml</a>.
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The Exchange notes that Members have requested a MOC Cut-Off Time
that is closer to the end of Regular Trading Hours \28\ so that they
may retain control of their trading for a longer period and be better
able to manage their trading at the close.\29\ Generally speaking,
notional trading and trading volatility are typically at their highest
towards the end of Regular Trading Hours. Accordingly, market
participants often prefer to trade as close to 4:00 p.m. as possible,
because doing so can provide them with more time to seek better priced
liquidity for their orders in a variety of ways, including but not
limited to, finding contra-side liquidity in the marketplace and
trading directly against such interest, or guaranteeing a customer
order at a price better than the national best bid or offer by
committing capital to an order and filling it in a principal capacity,
as well as continuing to trade orders algorithmically into the close,
thus reducing the size of their outstanding orders that they may decide
to commit to CMC or the primary auctions.
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\28\ The term ``Regular Trading Hours'' means the time between
9:30 a.m. and 4:00 p.m. Eastern Time. See Rule 1.2 (w), definition
of, ``Regular Trading Hours.''
\29\ The Exchange notes that part of its rationale for extending
CMC's MOC Cut-Off Time is substantively identical to that of other
exchanges moving their MOC cut-off times to later in the trading
day, namely, NYSE and Nasdaq. See Securities Exchange Act Release
No. 34-84454 (October 19, 2018), 83 FR 18580 (October 25, 2018) (SR-
Nasdaq-2018-068) (``Specifically, the Exchange believes that
extending the cutoff times for submitting on close orders will allow
market participants to retain control over their orders for a longer
period of time, and thereby assist those market participants in
managing their trading at the close.''); see also Securities
Exchange Act Release No. 34-84804 (December 12, 2018), 83 FR 64910
(December 18, 2018) (SR-NYSE-2018-58) (``The Exchange believes that
extending the cut-off times for entry and cancellation of MOC and
LOC Orders, cancellation of CO orders, as well as when the Exchange
would begin disseminating Order Imbalance Information for the close
would. . .allow market participants to retain control over their
orders for a longer period of time, and thereby assist those market
participants in managing their trading at the close.'').
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Additionally, Members have indicated that extending the MOC Cut-Off
Time to 3:49 p.m. will help to make CMC a more comparable alternative
to NYSE and Nasdaq, which have MOC cut-off times of 3:50 p.m.\30\ and
3:55 p.m.,\31\ respectively. For reasons discussed directly above, cut-
off times closer to 4:00 p.m. are beneficial to market participants,
and by extending CMC's MOC Cut-Off Time to 3:49 p.m., CMC will be
better positioned to serve as a viable option for market participants
to consider when deciding which venues to route their MOC orders, thus
enhancing intermarket competition.
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\30\ See NYSE Rule 73.5(a)(8), Closing Auction Imbalance Freeze
Time.
\31\ See Nasdaq Rule 4702(b)(11)(A), Market On Close Order.
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In support of the above, the chart below shows the total traded
volume across all market centers, from 3:30 p.m. to 4:00 p.m. in 30-
seconds intervals, and includes labels for the different MOC cut-off
times for CMC, NYSE, and Nasdaq. As illustrated, at NYSE's 3:50 p.m.
MOC cut-off time, Nasdaq's 3:55 p.m. MOC cut-off time, and 4:00 p.m.
market close, there is a noticeable increase in traded volume in the
overall marketplace, with volume relatively flat in the overall
marketplace prior to those times. Comparatively, there is no observed
spike in traded volume in the overall marketplace at the current CMC
MOC Cut-Off Time of 3:35 p.m. The Exchange believes that this data
substantiates the view that a MOC cut-off time closer to 4:00 p.m. is
valued by market participants, and that by extending the CMC MOC Cut-
Off Time to 3:49 p.m. CMC will be better positioned as a viable
alternative to the primary exchanges' closing auctions, ``foster[ing]
price competition and thereby decreas[ing] costs for market
participants.'' \32\
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\32\ Supra note 20.
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[[Page 72530]]
[GRAPHIC] [TIFF OMITTED] TN25NO22.046
Source: Internal Exchange Data
The Exchange also notes that today's market participants, including
users of CMC, are technologically equipped \33\ to handle a 3:49 p.m.
MOC Cut-Off Time. As a general matter, today's market participants,
including CMC users, rely on electronic smart order routers, order
management systems, and trading algorithms, which make routing and
trading decisions on an automated basis, in times typically measured in
microseconds. In this regard, the Exchange believes that if a CMC user
receives a message that their MOC order was not matched in CMC,\34\
such CMC user will have more than enough time to reroute their MOC
order to the primary exchange. Importantly, the Exchange discussed the
proposed change with both current CMC users and potential new CMC users
\35\ to gauge whether a MOC Cut-Off Time one-minute prior to the NYSE
cut-off time, and six-minutes prior to the Nasdaq cut-off time, would
present operational or technological challenges, and confirmed that
both current CMC users as well as potential new CMC users can in fact
technologically manage the proposed change.
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\33\ The Exchange notes that today's equities markets involve
the widespread use of automated trading algorithms and routing
solutions, as well as market connectivity options with speeds often
measured in microseconds. See generally ``Staff Report on
Algorithmic Trading in U.S. Capital Markets'' (August 5, 2020),
available at <a href="https://www.sec.gov/tm/reports-and-publications/special-studies/algo_trading_report_2020">https://www.sec.gov/tm/reports-and-publications/special-studies/algo_trading_report_2020</a> (``Algorithmic Trading
Report'') (``Over the past decade, the `manual handling of
institutional orders is increasingly rare and has been replaced by
sophisticated institutional order execution algorithms and smart
order routing systems.'') (``The secondary market for U.S.-listed
equity securities that has developed within this structure is now
primarily automated. The process of trading has changed dramatically
primarily as a result of developments in technologies for
generating, routing, and executing orders, as well as by the
requirement imposed by law and regulation.'') (``Modern equity
markets are connected in part by the data flowing between market
centers. An enormous volume of data is available to market
participants. In recent years, there has been an exponential growth
in the amount of market data available, the speed with which it is
disseminated, and the computer power used to analyze and react to
price movements.'').
\34\ The CMC Closing Match Process--i.e., the matching of all
buy and sell MOC orders entered into the System by time priority at
the MOC Cut-Off Time, the electronic notification to Members of any
unmatched MOC orders, and the dissemination by the Exchange of the
total size of all buy and sell orders matched via CMC via the Cboe
Auction Feed--generally occurs within microseconds. As such, a MOC
Cut-Off Time one-minute prior to the primary exchanges' cut-off
times is a sufficient period of time for Members to reroute their
unmatched MOC orders to the primary exchanges, should they choose to
do so.
\35\ The Exchange discussed the proposed amendment with both
current CMC users, as well as potential new users. By way of
background, a large majority of CMC Users are mid-size, regional
broker dealers that utilize third-party front-end providers or
broker-dealers that provide them with electronic and automated
trading solutions such as algorithms and smart order routers, which
they use to access CMC. Specifically, the Exchange discussed the
proposed amendment with CMC's Users' two (2) third-party providers
whose end users are responsible for 100% of CMC's volume, and these
providers indicated that the automated routing and trading solutions
they offer to CMC's users can appropriately manage the proposed MOC
Cut-Off Time. Additionally, the Exchange discussed the proposed
amendment with potential new users of CMC (approximately sixty (60)
market participants, including proprietary trading firms, regional
broker-dealers, and bulge bracket broker-dealers). These market
participants indicated that amending the MOC Cut-Off Time would
likely encourage them to use CMC as part of their trading strategies
(whether directly or through a third-party provider) because the
proposed MOC Cut-Off Time enables market participants to hold onto
and trade their orders closer to 4:00 p.m. and makes CMC a more
viable alternative to the primary exchanges' closing auctions.
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2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Act and the rules and regulations thereunder applicable to the
Exchange and, in particular, the requirements of Section 6(b) of the
Act.\36\ Specifically, the Exchange believes the proposed rule change
is consistent with the section 6(b)(5) \37\ 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) \38\ requirement that the rules of
an exchange not be designed to permit unfair discrimination between
customers, issuers, brokers, or dealers.
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\36\ 15 U.S.C. 78f(b).
\37\ 15 U.S.C. 78f(b)(5).
\38\ Id.
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In particular, the Exchange believes that moving the MOC Cut-Off
Time to 3:49 p.m. would remove impediments to and perfect the mechanism
of a free and open market and a national market system because it would
allow Members to retain control over their orders for a longer period,
thereby assisting market participants in managing their trading at the
close. As discussed more fully above, market participants may prefer to
trade as close to 4:00 p.m. as possible,
[[Page 72531]]
because doing so can provide them with more time to seek better priced
liquidity for their orders in a variety of ways, as well as give them
more time to determine the size of their outstanding orders that they
may decide to commit to CMC the primary auctions, or services offered
by off-exchange venues such as ATSs.
Additionally, the Exchange believes that a MOC Cut-Off Time
fifteen-minutes (15) prior to NYSE's cut-off time, and twenty-five-
minutes (25) prior to Nasdaq's cut-off time, is no longer necessary.
Rather, the Exchange notes that today's market participants are
technologically equipped \39\ to handle a 3:49 p.m. MOC Cut-Off Time.
Specifically, CMC's current users utilizes third-party providers or
broker-dealers \40\ that provide them with electronic trading
technology enabling them to quickly react to market conditions and
messages, such as the Cboe Auction Feed. Moreover, as noted above, many
market participants, including non-users of CMC, utilize electronic
smart order routers, order management systems, and trading algorithms,
which make routing and trading decisions on an automated basis, in
times often measured in microseconds. Therefore, the Exchange believes
that both current users of CMC, as well as those that may utilize CMC
following approval of this amendment, will be technologically equipped
to efficiently respond to CMC's publication of matched shares and
should they so choose, reroute any unmatched MOC orders to the
respective primary closing auction.\41\
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\39\ Supra note 33.
\40\ As a general matter, third-party technology providers and
broker-dealers with electronic trading offerings provide automated
trading and routing products and services to market participants
that may not possess their own proprietary technology, or simply
choose to leverage third party solutions they deem superior to their
own internal technology. By way of example, portfolio managers
responsible for reweighting their managed funds may not possess
internal automated routing and algorithmic trading capabilities, and
instead utilize third-party solutions enabling them to trade on an
automated basis. As such, the proposed MOC Cut-Off Time of 3:49 p.m.
is not likely to negatively impact market participants who may not
possess the internal capabilities to reroute unmatched CMC MOC
orders to the primary exchanges' closing auctions. The Exchange
further notes that the utilization of third parties and broker-
dealers for technological trading solutions was even noted by the
Commission in its Algorithmic Trading Report. Supra note 33
(``Institutions that do not create their own algorithms generally
use algorithms provided to them by institutional brokers.'')
(``Brokers are tasked by their customers with finding liquidity in a
complex, fragmented market, achieving best execution, and minimizing
information leakage and other implicit costs. To try to meet these
goals, brokers use, and offer to their customers, a wide range of
execution algorithms.'')
\41\ By way of background, CMC calculates the matched shares at
the MOC Cut-Off Time (currently 3:35 p.m.) Importantly, the matching
process happens quickly, and while the duration may vary, the total
matching process typically takes a fraction of second (e.g., ~948
microseconds), with the maximum being around 1-second. With these
timeframes in mind, a user should in most instances knows the paired
CMC quantity no later than 3:49:01 p.m., leaving the user at least
fifty-nine-seconds (59) to reroute any unpaired CMC MOC orders to
the primary exchanges' closing auctions. As noted by the Exchange
throughout this filing, the speed of today's trading technology is
typically measured in microseconds, making fifty-nine-seconds (59) a
significant amount of time for a user to make an automated trading
decision. For reference, a microsecond is 1-millionth of a second.
---------------------------------------------------------------------------
The Exchange acknowledges that there are market participants that
may not currently possess internal high-speed routing and trading
technology. However, such market participants may, and likely already
do, utilize routing and trading services offered by third-party
providers or broker-dealers \42\ to handle and execute their orders
electronically. Accordingly, the Exchange believes that the proposed
MOC Cut-Off Time is not likely to result in disparate treatment amongst
CMC users and other market participants.
---------------------------------------------------------------------------
\42\ Supra note 40.
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The Exchange also believes that the extension of cut-off times by
the primary exchanges since CMC's proposal, as well as the growth of
off-exchange venues \43\ with cut-off times in such close proximity to
the end of Regular Trading Hours is indicative of Members' desires for
such offerings. Logically, such a change in market structure would not
have occurred if market participants did not already possess the
operational and technological wherewithal to effectively manage the
multitude of cut-off times offered by the exchanges and off-exchange
venues.
---------------------------------------------------------------------------
\43\ Supra note 27.
\44\ As noted above, NYSE's cut-off time is 3:50 p.m., and
Nasdaq's cut-off time is 3:55 p.m. NYSE Arca's cut-off time for MOC
orders is 3:59 p.m. See ``Trading Information--Closing Auctions'',
available at: <a href="https://www.nyse.com/markets/nyse-arca/trading-info">https://www.nyse.com/markets/nyse-arca/trading-info</a>.
\45\ Supra note 20.
\46\ The Exchange spoke with four (4) designated market makers
for the primary exchanges and confirmed that while they do not
currently monitor the Cboe Auction Feed, they are technically
equipped to do so.
\47\ Supra note 41.
\48\ As a general matter, third-party technology providers and
broker-dealers with electronic trading offerings provide automated
trading and routing products and services to market participants
that may not possess their own proprietary technology, or simply
choose to leverage third party solutions they deem superior to their
own internal technology. By way of example, portfolio managers
responsible for reweighting their managed funds may not possess
internal automated routing and algorithmic trading capabilities, and
instead utilize third-party solutions enabling them to trade on an
automated basis. As such, the proposed MOC Cut-Off Time of 3:49 p.m.
is not likely to negatively impact market participants who may not
possess the internal capabilities to reroute unmatched CMC MOC
orders to the primary exchanges' closing auctions. The Exchange
further notes that the utilization of third parties and broker-
dealers for technological trading solutions was even noted by the
Commission in its Algorithmic Trading Report. Supra note 33
(``Institutions that do not create their own algorithms generally
use algorithms provided to them by institutional brokers.'')
(``Brokers are tasked by their customers with finding liquidity in a
complex, fragmented market, achieving best execution, and minimizing
information leakage and other implicit costs. To try to meet these
goals, brokers use, and offer to their customers, a wide range of
execution algorithms.'')
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Moreover, the Exchange believes that the proposed rule change will
remove impediments to and perfect the mechanism of a free and open
market and a national market system because extending the MOC Cut-Off
Time to 3:49 p.m. would more closely align the CMC MOC Cut-Off Time to
the cut-off times in place for the primary exchanges.\44\ For the
reasons discussed more fully above, the primary exchanges' cut-off
times are beneficial to market participants because of their proximity
to 4:00 p.m. By moving the MOC Cut-Off Time closer to the primary
exchanges' cut-off times, CMC can become a comparable alternative to
the primary exchanges' closing auctions for Members to route their
unpriced MOC orders, and ``should foster price competition and thereby
decrease costs for market participants.'' \45\ Importantly, even with a
MOC Cut-Off Time closer to the primary exchanges' cut-off times, CMC
removes any perceived impact on the primary listing markets' close by
publishing the number of matched order shares, by security, in advance
of the primary markets' cut-off time. The total matched shares would
still be disseminated by the Exchange free of charge via the Cboe
Auction Feed, albeit at the new proposed MOC Cut-Off Time of 3:49 p.m.
Because of the speeds and widespread use of market technology the
market makers on the primary exchanges could, should they choose to do
so, incorporate the Cboe Auction Feed information into their closing
processes.\46\ Additionally, as discussed above, because of the market
technology utilized by market participants in today's markets, those
who choose to participate in CMC will still have ample time \47\ to
reroute any MOC orders not matched via CMC to reach the primary market
to be included in their closing auction process. Specifically, CMC's
current users rely on third-party providers or broker-dealers \48\ to
handle and execute their orders electronically. Furthermore, potential
new users of
[[Page 72532]]
CMC either likely already possess the necessary routing and trading
technology or may simply choose to utilize third-party solutions.\49\
Accordingly, the Exchange believes that the proposed MOC Cut-Off Time
is not likely to result in disparate treatment amongst CMC users.
---------------------------------------------------------------------------
\49\ Supra note 40.
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The proposed rule change would also more closely align CMC's MOC
Cut-Off Time with that of off-exchange venues that offer cut-off times
aligned with those currently offered by the primary exchanges, and as
little as 30-seconds prior to market close.\50\ As such, the Exchange
believes that the proposed rule change is supported by both ample
precedent as well as current market structure, and should not present
any new or novel issues that market participants must consider when
managing their trading and determining which exchange or off-exchange
venue to route their MOC orders.
---------------------------------------------------------------------------
\50\ Supra note 27.
---------------------------------------------------------------------------
Price Discovery \51\
---------------------------------------------------------------------------
\51\ As part of this proposed rule change the Exchange is
addressing several questions considered by the Commission in
connection with the Exchange's Original Proposal, including price
discovery and fragmentation, market complexity and operational risk,
and manipulation. Importantly, in considering these questions, the
Commission found that based on CMC's design and the record before
the Commission, that the proposal was consistent with Section
6(b)(5) of the Act. Supra note 20.
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The Exchange believes that the proposed rule change is consistent
with the section 6(b)(5) requirements.\52\ As previously noted by the
Exchange,\53\ CMC accepts and matches only unpriced MOC orders. By
matching only unpriced MOC orders, and not Limit-On-Close (``LOC'')
orders and executing those matched MOC orders that naturally pair off
with each other and effectively cancel each other out, CMC is designed
to avoid impacting price discovery. While the proposed rule change
would have CMC accept MOC orders up to 3:49 p.m., such extension will
not change this underlying functionality. As previously noted by the
Exchange,\54\ matched MOC orders are merely recipients of price
formation and do not directly contribute to the price formation
process. Indeed, in its Final Approval Order for CMC, even the
Commission noted that unpriced, paired-off MOC orders do not directly
contribute to setting the official closing price of securities on the
primary listing exchanges but, rather, are inherently the recipients of
price formation information.\55\
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\52\ The Exchange notes that the Commission, in its Final
Approval Order, carefully analyzed and considered CMC and its
potential effects, if any, on the primary listing exchanges' closing
auctions, including their price discovery functions. Importantly,
the Commission found that, based on CMC's design, CMC should not
disrupt the price discovery process in the closing auctions of the
primary listing exchanges. Supra note 20.
\53\ See Letter from Joanne Moffic-Silver, Executive Vice
President, General Counsel, and Corporate Secretary, Bats Global
Markets, Inc. (August 2, 2017), available at: <a href="https://www.sec.gov//batsbzx-2017-34/batsbzx201734-2162452-157801.pdf">https://www.sec.gov//batsbzx-2017-34/batsbzx201734-2162452-157801.pdf</a>; see also Letter
from Joanne Moffic-Silver (October 11, 2017), available at: <a href="https://www.sec.gov/comments/sr-batsbzx-2017-34/batsbzx201734-2634580-161229.pdf">https://www.sec.gov/comments/sr-batsbzx-2017-34/batsbzx201734-2634580-161229.pdf</a>.
\54\ Id.
\55\ Supra note 20.
---------------------------------------------------------------------------
Moreover, the Exchange believes that even if extending the MOC Cut-
Off Time to 3:49 p.m. reduces the number of MOC orders routed to a
security's primary listing market, CMC is designed to remove any
perceived adverse impact on the primary listing markets' close because
the total matched shares would still be disseminated by the Exchange
free of charge via the Cboe Auction Feed prior to the primary
exchanges' cut-off times. Additionally, because of the technological
capabilities of today's market participants discussed more fully above,
the market makers on the primary exchanges could, should they choose to
do so, incorporate the Cboe Auction Feed information into their closing
processes. Furthermore, current users of CMC are technologically
equipped to manage the proposed CMC MOC-Cut Off Time. Potential new CMC
users are capable of rerouting any unmatched CMC MOC orders to the
primary exchanges. As discussed above, CMC's current users rely on
third-party solutions that provide them with the technological
capability to appropriately manage the proposed MOC Cut-Off Time above.
Similarly, given the widespread use of routing and trading technology
in today's markets, it is likely that potential new CMC users already
possess the technological capabilities to manage the proposed MOC Cut-
Off time. Even where potential new users of CMC may not possess
internally high-speed routing and trading technology, such users can
utilize, to the extent they do not so already, third-party providers
and broker-dealers to handle and route their orders electronically.
Fragmentation \56\
---------------------------------------------------------------------------
\56\ Supra note 51.
---------------------------------------------------------------------------
Another matter addressed by the Commission in their review of the
Original Proposal was fragmentation, and whether CMC would fragment the
markets beyond what currently occurs through off-exchange close price
matching venues offered by broker-dealers.\57\ While comparisons to
off-exchange MOC activity may not be a perfect measure of the potential
resulting effect of CMC market fragmentation,\58\ the proposed
amendment is designed to enable CMC to better compete with off-exchange
venues and for closing volume that is already executed away from the
primary listing venues.
---------------------------------------------------------------------------
\57\ Supra note 20.
\58\ Id (``. . .[C]omparisons to off-exchange activity are not a
perfect measure of the potential resulting effect of the [CMC]
proposal because the structures of the many off-exchange mechanisms
differ from the structure of Cboe Market Close.'').
---------------------------------------------------------------------------
As illustrated in the first two charts below, a growing proportion
of trading volume at the close occurs on off-exchange venues, where the
TRF close volume, as a percent of Exchange close volume, has risen
steadily since January 2019.\59\ In the third chart the Exchange also
studied the top ten most actively traded securities during the same
time period and found that a significant portion of the total closing
volume is executed off-exchange, following the dissemination of the
official closing price.
---------------------------------------------------------------------------
\59\ The Exchange conducted an analysis of off-exchange/Trade
Reporting Facility (``TRF'') closing volume that occurs after market
close, 4:00 p.m. Eastern Time, where the price is equal to the
closing price and for which such trades are reported with a Prior
Reference Price (``PRP'') trade reporting modifier. The TRF is a
trade reporting facility where FINRA members may report trades in
Nasdaq-listed and other exchange-listed securities, that were
executed otherwise than on an exchange. The first two charts
represent TRF executed volume at the close with the ``PRP'' flag
that equals the closing auction price, divided by total on exchange
auction volume.
---------------------------------------------------------------------------
[[Page 72533]]
[GRAPHIC] [TIFF OMITTED] TN25NO22.047
Source: Internal Exchange Data.
[GRAPHIC] [TIFF OMITTED] TN25NO22.048
Source: Internal Exchange Data.
------------------------------------------------------------------------
TRF close %
Symbol Primary exchange inc. PRP \60\
------------------------------------------------------------------------
1............... AAPL.............. Nasdaq............ 9
2............... T................. NYSE.............. 6
3............... BAC............... NYSE.............. 10
4............... INTC.............. Nasdaq............ 5
5............... MSFT.............. Nasdaq............ 7
6............... F................. NYSE.............. 9
7............... PFE............... NYSE.............. 5
8............... CSCO.............. Nasdaq............ 5
9............... CMCSA............. Nasdaq............ 7
10.............. WFC............... NYSE.............. 9
------------------------------------------------------------------------
Source: Internal Exchange Data.
Given the significant volume of off-exchange MOC activity, the
Exchange believes there is ample opportunity for CMC to attract
existing MOC volume that is already being executed away from CMC and
the primary listing venues. As discussed above, market participants
have expressed the value of being able to trade closer to 4:00 p.m. In
this regard, with the proposed MOC Cut-Off Time CMC will be able to
meet the needs of market participants, and better compete with off-
exchange venues, ``foster[ing] price competition and thereby
decreas[ing] costs for market participants.\61\ Members may prefer to
execute their MOC orders via CMC rather than off-exchange venues for
reasons such as the increased transparency and reliability that exists
when investors execute their orders on public, well-regulated
exchanges.
[[Page 72534]]
Moreover, by attracting such order flow, CMC can help to increase the
amount of volume at the close executed on systems subject to the
resiliency requirements of Regulation SCI.\62\
---------------------------------------------------------------------------
\60\ As defined above, ``PRP''.
\61\ Supra note 20.
\62\ See Letter from Joanne Moffic-Silver, Executive Vice
President, General Counsel, and Corporate Secretary, Bats Global
Markets, Inc., a Cboe Company (Oct. 11, 2017) (``Furthermore, [CMC]
would operate on the Exchange's reliable SCI systems . . .
significant MOC liquidity is conducted today by off-exchange venues.
These venues are not SCI systems and, therefore, not subject to
Regulation SCI's enhanced resiliency requirements. [CMC] could
attract MOC orders from these off-exchange venues to the Exchange
and its reliable SCI system, furthering the Commission's presumed
desire for liquidity at the close to be conducted on SCI systems.'')
---------------------------------------------------------------------------
Indeed, an analysis by the Exchange shows that the closing auction
volume on both NYSE and Nasdaq has increased despite the launch of CMC
on March 6, 2020. Therefore, while the proposed amendment may lead to
additional orders being routed to CMC rather than the primary
exchanges' closing auctions, it cannot be said with certainty that such
a change will significantly fragment the marketplace. In any event, the
proposed extension of the MOC Cut-Off Time to 3:49 p.m. is not likely
to materially increase market fragmentation and have a negative impact
on the market because the data shows that even with the implementation
of CMC, there is still a significant amount of volume executed on the
primary exchanges' suggesting that market participants continue to
utilize the primary closing auctions.
[GRAPHIC] [TIFF OMITTED] TN25NO22.049
Source: Internal Exchange Data.
Market Complexity and Operational Risk \63\
---------------------------------------------------------------------------
\63\ Supra note 51.
---------------------------------------------------------------------------
The Exchange believes that the proposed rule change is simple and
straightforward, and as such will not significantly increase market
complexity or operational risk. The Exchange seeks only to extend the
MOC Cut-Off Time to 3:49 p.m., leaving all other aspects of the CMC
process intact. Members will not have to consider new operational
requirements of monitoring and consuming a new data feed or consider
the utilization of a new order type or implementation of new Exchange
code. Rather, Members may continue to monitor the same data feed as
they do today, the Cboe Auction Feed, and simply look for the
publication of the CMC information at the new proposed MOC Cut-Off
Time.
Additionally, as discussed more fully above, the Exchange discussed
this proposal with current CMC users prior to submitting this proposal
and learned that CMC's current users are technologically equipped \64\
to manage a MOC Cut-Off Time closer to the primary exchanges' cut-off
times, and that they can respond to CMC's publication of matched shares
and quickly reroute any unmatched MOC orders to the respective primary
closing auction. Moreover, CMC is a voluntary offering, and Members may
freely decide whether to participate.
---------------------------------------------------------------------------
\64\ Supra note 41.
---------------------------------------------------------------------------
Furthermore, as noted throughout, both off-exchange venues and
other exchanges already offer MOC cut-off times that are closer in time
to the end of Regular Trading Hours. Specifically, as mentioned above,
in 2018 Nasdaq received approval to move the cut-off times for the
entry of MOC and Limit-On-Close (``LOC'') orders from 3:50 to 3:55
p.m.\65\ Similarly, in 2018 the NYSE received approval from the SEC to
extend their cut-off times for order entry and cancellation for
participation their closing auction, from 3:45 p.m. to 3:50 p.m.\66\
NYSE also offers discretionary-orders, which unlike MOC/LOC orders that
are subject to NYSE's 3:50 p.m. cut-off, may be entered for
participation in the closing auction until 3:59:50.\67\ Additionally,
market participants may enter MOC orders for participation in NYSE
Arca's closing auction up to 3:59 p.m.\68\ Finally, various off-
exchange venues offer closing match processes with cut-off times
aligned with those of
[[Page 72535]]
the primary exchanges, and even as close to 30-seconds before market
close, 4:00 p.m.\69\
---------------------------------------------------------------------------
\65\ Supra note 25.
\66\ Id.
\67\ See NYSE Rule 7.31(c)(2)(C); see also ``The Floor Broker's
Modern Trading Tool'', available at: <a href="https://www.nyse.com/article/trading/d-order">https://www.nyse.com/article/trading/d-order</a> (``While D Orders are available for use throughout
the trading day, most executions occur in the closing auction, where
they're known as Closing D Orders. At 3:55 p.m., Closing D Order
interest eligible to participate in the closing auction is added to
the order imbalance feed at their discretionary price range. Closing
D Orders can also be submitted, modified or cancelled up to 3:59:50
p.m. These distinct features of Closing D Orders are designed to
facilitate the Floor Broker's traditional agency role on behalf of
larger institutional interest, allowing Floor Brokers to work in
conjunction with their customer to find larger liquidity
opportunities.'').
\68\ See ``Closing Auction Timeline'', available at: <a href="https://www.nyse.com/markets/nyse-arca/trading-info">https://www.nyse.com/markets/nyse-arca/trading-info</a>.
\69\ Supra note 27.
---------------------------------------------------------------------------
Accordingly, the Exchange believes that market participants are
well accustomed to managing the various cut-off times in today's
marketplace, and in incorporating these timelines into their trading
decisions. The number of exchanges and off-exchange venues with
extended cut-off times indicates that market participants find value in
their ability to retain control of their trading heading into the end
of Regular Trading Hours, and the primary exchanges and off-exchange
venues have responded to such demand. Certainly, market participants
would not desire cut-off times closer to the end of Regular Trading
Hours if they could not technologically and operationally manage their
trading accordingly. Therefore, the extension of CMC's MOC Cut-Off Time
should not present market participants with any novel operational or
technological complexities.
Manipulation \70\
---------------------------------------------------------------------------
\70\ Supra note 51.
---------------------------------------------------------------------------
As a general matter, the Exchange notes that the value to market
participants in extending the MOC Cut-Off Time to 3:49 p.m. is not the
proximity of CMC's matched shares message to the cut-off times of the
primary exchanges. Rather, the value of the proposed amendment is the
ability of users to trade their orders for a longer period of time
before deciding whether to commit their MOC orders to CMC.
Nevertheless, the Exchange does not expect that the proposed extension
of the MOC Cut-Off Time to 3:49 p.m. will result in an increase of
manipulative activity due to information asymmetries, or raise any
unique manipulation concerns relative to how CMC exists today with a
current MOC Cut-Time of 3:35 p.m.
The Exchange notes that any information CMC participants may be
able to glean from their paired-off MOC orders, or from their unmatched
MOC orders, is still limited in nature. For instance, any information
that CMC participants may learn from receiving unmatched MOC order
messages is still limited in nature because the CMC participant would
still only know the unexecuted size of its own order.\71\ Moreover,
even if a Member chose to participate in CMC only to gather information
about the direction of an imbalance and use such information to
manipulate the closing price, the Member's orders were still eligible
for execution subjecting the Member to economic risk.
---------------------------------------------------------------------------
\71\ The Exchange notes that in its Final Approval Order, even
the Commission noted that, ``In particular, a market participant
would only be able to determine the direction of the imbalance and
would have difficulty determining the magnitude of any imbalance, as
it would only know the unexecuted size of its own order. In
addition, the information would only be with regard to the pool of
liquidity on BZX and would provide no insight into imbalances on the
primary listing exchange, competing auctions, ATSs, or other off-
exchange matching services which, as described above, can represent
a significant portion of trading volume at the close.'' Supra note
20.
---------------------------------------------------------------------------
While this proposal would result in the total shares for buy and
sell orders in CMC being disseminated closer in time to the primary
exchanges' cut-off times, this change does not suddenly make such
information more valuable or useful in terms of enhancing opportunities
for gaming and manipulating the official closing price. The proposed
MOC Cut-Off Time is one-minute prior to NYSE's cut-off time of 3:50
p.m., and six-minutes prior to Nasdaq's cut-off time of 3:55 p.m. As
noted above, today's markets are marked by technological solutions
which typically operate in durations of microseconds. In this context,
the separation between the CMC MOC Cut-Off Time and that of NYSE's and
Nasdaq's is a substantial duration of time, during which much can
change in the marketplace, thus limiting the value of information, if
any, that can be gleaned from CMC's dissemination of matched shares at
3:49 p.m.
Furthermore, as with the current MOC Cut-Off Time, the proposed
extension does not present any information asymmetries that do not
already exist in today's markets, as the very nature of trading creates
short term asymmetries of information to those who are parties to a
trade.\72\ Indeed, as noted by the Commission, any party to a trade
gains valuable insight regarding the depth of the market when an order
is executed or partially executed.\73\ Additionally, NYSE imbalance
information is already disseminated to NYSE floor brokers, who are
permitted to share with their customers specific data from the
imbalance feed.\74\ Even in this case, though, the Commission stated
that the value of such information is limited because the imbalance
information does not represent overall supply and demand for a
security, is subject to change, and is only one relevant piece of
information.\75\ Similarly, because any information gleaned by a CMC
participant is limited only to the unexecuted size of their order, and
relative to the depth of only the BZX pool of liquidity, the Exchange
believes that the proposed extension of the MOC Cut-Off Time does not
create an increased risk of manipulative trading activity.
---------------------------------------------------------------------------
\72\ The Exchange also notes that in its approval order, even
the Commission noted that, ``Further, the Commission believes
information asymmetries as those described by commenters exist today
and are inherent in trading, including with respect to closing
auctions. For example, any party to a trade gains valuable insight
regarding the depth of the market when an order is executed or
partially executed.'' Id.
\73\ Id.
\74\ Id.
\75\ Id.
---------------------------------------------------------------------------
Moreover, there are currently controls and processes in place to
monitor for manipulative trading activity, such as the supervisory
responsibilities and capabilities of exchanges and the expansive cross
market surveillance conducted by FINRA. Following approval of this
proposal, the Exchange, FINRA and others will continue to surveil for
potential manipulative activity and when appropriate, bring enforcement
actions against market participants engaged in manipulative trading
activity.
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. Rather, the proposed rule
change seeks merely to extend the MOC Cut-Off Time from 3:35 p.m. to
3:49 p.m., enabling all Members to manage their trading for a longer
period. The Exchange is not proposing to make any other changes to the
CMC process. Moreover, CMC is a voluntary closing match process, and
Members are not required to participate in the CMC. Additionally, the
proposed rule change applies equally to all Members. Importantly, based
on feedback from CMC users, the proposed MOC Cut-Off Time will not
prevent CMC's current user's from participating in CMC, as CMC's
current users are technologically equipped to manage a 3:49 p.m. MOC
Cut-Off Time, and should they choose to do so, reroute MOC orders not
matched in CMC to the primary exchanges' closing auctions.
Furthermore, 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. As
noted above, the proposed rule change more closely aligns the CMC MOC
Cut-Off Time to the cut-off times of other exchanges, while still
providing CMC participants with an opportunity to reroute any of their
unpaired MOC orders to the
[[Page 72536]]
primary exchanges. In this regard, the proposed rule change may make
CMC a more viable alternative to the primary auctions and ``should
foster price competition and thereby decrease costs for market
participants.'' \76\ Additionally, the proposed MOC Cut-Off Time may
also enable the Exchange to more effectively compete with off-exchange
venues that have cut-off times much closer in time to the market close
and comprise a growing percentage of closing volume.
---------------------------------------------------------------------------
\76\ Supra note 20.
---------------------------------------------------------------------------
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-
CboeBZX-2022-038, as Modified by Amendment No. 1, and Grounds for
Disapproval Under Consideration
The Commission is instituting proceedings pursuant to Section
19(b)(2)(B) of the Act \77\ to determine whether the proposed rule
change, as modified by Amendment No. 1, should be approved or
disapproved. Institution of proceedings is appropriate at this time in
view of the legal and policy issues raised by the proposal. 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, as modified by
Amendment No. 1, to further inform the Commission's analysis of whether
to approve or disapprove the proposal.
---------------------------------------------------------------------------
\77\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------
Pursuant to Section 19(b)(2)(B) of the Act,\78\ the Commission is
providing notice of the grounds for possible disapproval under
consideration. The Commission is instituting proceedings to allow for
additional analysis, and input from commenters with respect to, the
consistency of the proposal with Sections 6(b)(5) \79\ and 6(b)(8) \80\
of the Act. Section 6(b)(5) of the Act requires that the rules of a
national securities exchange be designed, among other things, to
promote just and equitable principles of trade, 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, and not be designed to permit unfair discrimination between
customers, issuers, brokers, or dealers. Section 6(b)(8) of the Act
requires that the rules of a national securities exchange not impose
any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act.
---------------------------------------------------------------------------
\78\ Id.
\79\ 15 U.S.C. 78f(b)(5).
\80\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------
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,\81\ in addition to any other comments they may wish
to submit about the proposed rule change, as modified by Amendment No.
1. In particular, the Commission seeks comment on the following aspects
of the proposal and asks commenters to submit data where appropriate to
support their views:
---------------------------------------------------------------------------
\81\ See supra note 6.
---------------------------------------------------------------------------
1. The Exchange states that CMC users are technologically equipped
to handle a 3:49 p.m. MOC Cut-Off Time and that, if a CMC user receives
a message that their MOC order was not matched in CMC, such CMC user
will have more than enough time to reroute their MOC order to the
primary exchange.\82\ While the Exchange acknowledges that there are
market participants that may not currently possess internal high-speed
routing and trading technology, the Exchange states that such market
participants may, and likely already do, utilize routing and trading
services offered by third-party providers or broker-dealers to handle
and execute their orders electronically.\83\ Accordingly, the Exchange
believes that the proposed MOC Cut-Off Time is not likely to result in
disparate treatment amongst CMC users and other market
participants.\84\ What are commenters' views on whether the proposed
MOC Cut-Off Time (3:49 p.m.), which would be one minute from NYSE's MOC
cut-off time of 3:50 p.m. and six minutes from Nasdaq's MOC cut-off
time of 3:55 p.m., would provide enough time for CMC users to reroute
unmatched MOC orders to the primary exchanges should they choose to do
so?
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\82\ See supra Item II.A.1.
\83\ See supra Item II.A.2.
\84\ See id.
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2. The Exchange states that total matched share information would
still be disseminated by the Exchange free of charge via the Cboe
Auction Feed, albeit at the new proposed MOC Cut-Off Time of 3:49
p.m.\85\ The Exchange states that, because of the speeds and widespread
use of market technology, market makers on the primary exchanges could,
should they choose to do so, incorporate the Cboe Auction Feed
information into their closing processes.\86\ What are commenters'
views on whether the dissemination of total matched share information
at an MOC Cut-Off Time of 3:49 p.m. would provide enough time for
market participants, including market makers, to access and incorporate
such information into their closing trading strategies and processes
should they choose to do so?
---------------------------------------------------------------------------
\85\ See id.
\86\ See id.
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3. The Exchange states that, with an MOC Cut-Off Time at 3:49 p.m.,
CMC will be better positioned to serve as a viable option for market
participants to consider when deciding which venues to route their MOC
orders, thus enhancing intermarket competition.\87\ In particular, the
Exchange states that, by extending the MOC Cut-Off Time to 3:49 p.m.,
CMC will be better positioned as a viable alternative to the primary
exchanges' closing auctions, ``foster[ing] price competition and
thereby decreas[ing] costs for market participants.'' \88\ The Exchange
also states that the proposed MOC Cut-Off Time may enable the Exchange
to more effectively compete with off-exchange venues that have cut-off
times much closer in time to the market close and comprise a growing
percentage of closing volume.\89\ What are commenters' views on the
extent to which an extension of the MOC Cut-Off Time to 3:49 p.m. would
promote competition among MOC order execution venues and foster price
competition for MOC order execution fees?
---------------------------------------------------------------------------
\87\ See supra Item II.A.1.
\88\ See id. (quoting the Final Approval Order).
\89\ See supra Item II.B.
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IV. Procedure: Request for Written Comments
The Commission requests that interested persons provide written
submissions of their data, views, 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 Sections 6(b)(5) and 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 data, views, and arguments,
the Commission will consider, pursuant to
[[Page 72537]]
Rule 19b-4 under the Act,\90\ any request for an opportunity to make an
oral presentation.\91\
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\90\ 17 CFR 240.19b-4.
\91\ Section 19(b)(2) of the Act, as amended by the Securities
Acts 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 Acts Amendments of 1975, Report of the
Senate Committee on Banking, Housing and Urban Affairs to Accompany
S. 249, S. Rep. No. 75, 94th Cong., 1st Sess. 30 (1975).
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Interested persons are invited to submit written data, views, and
arguments regarding whether the proposed rule change, as modified by
Amendment No. 1, should be approved or disapproved by December 16,
2022. Any person who wishes to file a rebuttal to any other person's
submission must file that rebuttal by December 30, 2022.
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#6012150c054d030f0d0d050e1413201305034e070f16"><span class="__cf_email__" data-cfemail="7b090e171e56181416161e150f083b081e18551c140d">[email protected]</span></a>. Please include
File Number SR-CboeBZX-2022-038 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-2022-038. 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-2022-038 and should be submitted
on or before December 16, 2022. Rebuttal comments should be submitted
by December 30, 2022.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\92\
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\92\ 17 CFR 200.30-3(a)(12); 17 CFR 200.30-3(a)(57).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2022-25669 Filed 11-23-22; 8:45 am]
BILLING CODE 8011-01-P
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