Notice2023-03162
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Order Granting Approval of Proposed Rule Change, as Modified by Amendment No. 1, To Amend Rule 11.28(a) To Extend the MOC Cut-Off Time for Cboe Market Close
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
February 15, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 31 (Wednesday, February 15, 2023)</title>
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[Federal Register Volume 88, Number 31 (Wednesday, February 15, 2023)]
[Notices]
[Pages 9940-9941]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-03162]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-96861; File No. SR-CboeBZX-2022-038]
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Order
Granting Approval of Proposed Rule Change, as Modified by Amendment No.
1, To Amend Rule 11.28(a) To Extend the MOC Cut-Off Time for Cboe
Market Close
February 9, 2023.
I. Introduction
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\
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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.
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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.\6\ Amendment No. 1 was published for
comment in the Federal Register and, under Section 19(b)(2)(B) of the
Act,\7\ the Commission instituted proceedings to determine whether to
approve or disapprove the proposed rule change, as modified by
Amendment No. 1.\8\
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\4\ 15 U.S.C. 78s(b)(2).
\5\ See Securities Exchange Act Release No. 95967, 87 FR 61425
(October 11, 2022).
\6\ Amendment No. 1 amended and superseded the proposed rule
change as originally filed. 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).
\8\ See Securities Exchange Act Release No. 96359 (November 18,
2022), 87 FR 72527 (November 25, 2022) (``Order Instituting
Proceedings'').
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The Commission has received no comments on the proposed rule
change. This order approves the proposed rule change, as modified by
Amendment No. 1.
II. Description of the Proposal, as Modified by Amendment No. 1
Cboe Market Close (``CMC'') provides the Exchange's Members \9\ an
optional closing match process for non-BZX-listed securities.
Currently, pursuant to BZX Rule 11.28(a), Members may enter, cancel, or
replace Market-on-Close (``MOC'') orders designated for participation
in CMC beginning at 6:00 a.m.\10\ up to 3:35 p.m. (``MOC Cut-Off
Time'').\11\ The Exchange states that the CMC closing match process--
the matching of all buy and sell MOC orders entered into the BZX 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 in the Cboe Auction Feed of the total size of all buy and sell
orders matched via CMC--generally occurs within microseconds.\12\
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\9\ The term ``Member'' means any registered broker or dealer
that has been admitted to membership in the Exchange. See BZX Rule
1.5(n), definition of ``Member.''
\10\ All times referenced in this order are Eastern Time.
\11\ See Order Instituting Proceedings, 87 FR at 72528.
\12\ See id. at 72530 n.34. The Exchange states that, while the
duration may vary, the total matching process typically takes a
fraction of a second--about 948 microseconds--with the maximum being
around one second. See id. at 72531 n.41.
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The Exchange now proposes to move the MOC Cut-Off Time from 3:35
p.m. to 3:49 p.m. The Exchange states that its Members have requested
an MOC Cut-Off Time that is closer to the end of its regular trading
hours (4:00 p.m.) so that they may retain control of their trading for
a longer period and better manage their trading at the close.\13\ The
Exchange also states that its Members have indicated that extending the
MOC Cut-Off Time to 3:49 p.m. will help make CMC a more comparable
alternative to the New York Stock Exchange (``NYSE'') and Nasdaq,\14\
which have extended the MOC cut-off times for their closing auctions
closer to 4:00 p.m. (to 3:50 p.m. and 3:55 p.m., respectively).\15\ The
Exchange further states that closing price match services offered by
off-exchange venues, including alternative trading systems, have grown
in popularity, and that such venues offer an MOC cut-off time as close
as 30 seconds before the primary exchanges' cut-off times.\16\
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\13\ See id. at 72529. The Exchange posits that market
participants may 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, 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 exchanges' closing auctions, or
services offered by off-exchange venues. See id. at 72529-31.
\14\ See id. at 72529.
\15\ See id. at 72528 and n.25.
\16\ See id. at 72528-59 and n.27.
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III. Discussion and Commission Findings
After careful review, the Commission finds that the proposed rule
change, as modified by Amendment No. 1, is consistent with the
requirements of the Act and the rules and regulations thereunder.\17\
In particular, the Commission finds that the proposed rule change, as
modified by Amendment No. 1, is consistent with Section 6(b)(5) of the
Act,\18\ which requires, among other things, that the rules of a
national securities exchange be designed to prevent fraudulent and
manipulative
[[Page 9941]]
acts and practices, 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; and
Section 6(b)(8) of the Act,\19\ 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.
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\17\ In approving this proposed rule change, as modified by
Amendment No. 1, the Commission has considered the proposed rule's
impact on efficiency, competition, and capital formation. See 15
U.S.C. 78c(f).
\18\ 15 U.S.C. 78f(b)(5).
\19\ 15 U.S.C. 78f(b)(8).
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The Exchange proposes an MOC Cut-Off Time of 3:49 p.m., which would
be one minute prior to NYSE's current MOC cut-off time of 3:50 p.m. and
six minutes prior to Nasdaq's current MOC cut-off time of 3:55 p.m.\20\
The Exchange states that it discussed the proposed 3:49 p.m. MOC Cut-
Off Time with both current CMC users and potential new CMC users and
confirmed that both groups could technologically manage the proposed
change.\21\ The Exchange states that 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.\22\ The Exchange states that CMC's current users utilize
third-party providers or broker-dealers that provide them with
electronic trading technology, enabling them to quickly react to market
conditions and messages; and further states that market participants
that may not currently possess internal high-speed routing and trading
technology may, and likely already do, utilize such service
providers.\23\ The Exchange thus believes that if a CMC user receives a
message that their MOC order was not matched in CMC, such user would
have more than enough time to re-route their MOC order to the primary
exchange.\24\ The Commission believes that the data and survey
information provided by the Exchange support the Exchange's contention
that a 3:49 p.m. MOC Cut-Off Time would provide CMC users with adequate
time to receive electronic notification of any unmatched MOC orders and
participate in the primary exchanges' closing auctions, should they
choose to do so.\25\ Further, enabling CMC users to retain control of
their trading for a longer period could encourage participation in CMC
by market participants who are unwilling to give up flexibility and
control over their MOC orders starting at 3:35 p.m. and may therefore
promote competition among MOC order execution venues.
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\20\ It would be 10 minutes prior to NYSE Arca, Inc.'s MOC cut-
off time of 3:59 p.m. See Order Instituting Proceedings, 87 FR
72534.
\21\ See id. at 72530. Specifically, the Exchange discussed the
proposed change with the two third-party providers whose end users
are responsible for 100 percent of CMC's current volume. These
providers indicated that the automated routing and trading solutions
that they offer to CMC users can appropriately manage a 3:49 p.m.
MOC Cut-Off Time. Additionally, the Exchange discussed the proposed
change with approximately 60 potential new CMC users. These market
participants indicated that extending the MOC Cut-Off Time would
likely encourage them to use CMC as part of their trading strategies
because it would enable them to hold onto and trade their orders
closer to 4:00 p.m. and make CMC a more viable alternative to the
primary exchanges' closing auctions. See id. at 72530 n.35.
\22\ See id. at 72530.
\23\ See id. at 72531.
\24\ See id. at 72530. According to the Exchange, because the
total matching process typically takes a fraction of a second, with
the maximum around one second, with a 3:49 p.m. MOC Cut-Off Time, a
user should, in most instances, know the paired CMC quantity no
later than 3:49:01 p.m., leaving the user at least 59 seconds to re-
route any unpaired MOC orders to the primary exchanges' closing
auctions. See id. at 72531 n.41.
\25\ The Commission solicited comment in the Order Instituting
Proceedings on the Exchange's evidence and assertions with respect
to these timing considerations and received no contradictory
information.
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The Exchange also states that CMC's total matched shares
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. According to the Exchange, 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.\26\ Further, the
Exchange states that it discussed the proposed 3:49 p.m. MOC Cut-Off
Time with four designated market makers for the primary exchanges who
confirmed that, while they do not currently monitor the Cboe Auction
Feed, they are technically equipped to do so.\27\ Therefore, with a
3:49 p.m. MOC Cut-Off Time, market participants should continue to have
opportunities to utilize CMC's total matched shares information, should
they choose to do so.\28\
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\26\ See Order Instituting Proceedings, 87 FR 72531.
\27\ See id. at 72531 n.46.
\28\ The Commission also solicited comment in the Order
Instituting Proceedings on the Exchange's evidence and assertions
with respect to the dissemination of total matched shares
information and received no contradictory information.
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The Commission notes that, other than the extension of the MOC Cut-
Off Time, the Exchange proposes no changes to the CMC process.\29\ As
noted above, the Exchange's survey information and data indicate that
CMC users and other market participants could accommodate an MOC Cut-
Off Time of 3:49 p.m. and the total matched shares information would be
disseminated by the Exchange free of charge at the new MOC Cut-Off
Time. Therefore, the Commission believes that the proposed extension of
the MOC Cut-Off Time to 3:49 p.m. should not significantly contribute
to increased market complexity or operational risk.\30\ Finally, the
proposed extension of the MOC Cut-Off Time should not adversely impact
the ability of existing self-regulatory organization surveillance and
enforcement activity to deter market participants who might seek to
abuse CMC or use CMC information to abuse a closing auction on a
primary exchange.
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\29\ See Order Instituting Proceedings, 87 FR 72528.
\30\ Moreover, the Commission previously found that CMC ``should
not significantly increase market complexity and operational risk
because it will simply constitute an additional optional MOC order
execution venue for market participants, and an optional data feed
that market participants may choose to monitor for information
regarding the total size of matched MOC orders via Cboe Market
Close.'' Securities Exchange Act Release No. 88008 (January 21,
2020), 85 FR 4726, 4729 (January 27, 2020) (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).
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Based on the foregoing, the Commission finds that the proposed rule
change, as modified by Amendment No. 1, is consistent with the Act and
the rules and regulations thereunder.
IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\31\ that the proposed rule change (SR-CboeBZX-2022-038), as
modified by Amendment No. 1, be and hereby is approved.
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\31\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\32\
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\32\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-03162 Filed 2-14-23; 8:45 am]
BILLING CODE 8011-01-P
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