Notice2023-03478
Self-Regulatory Organizations; Cboe BYX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Modify Rule 11.25 To Permit Mid-Point Peg Orders Entered as Periodic Auction Eligible Orders To Contain an Instruction To Not Execute in a Locked Market
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Published
February 21, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 34 (Tuesday, February 21, 2023)</title>
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[Federal Register Volume 88, Number 34 (Tuesday, February 21, 2023)]
[Notices]
[Pages 10602-10605]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-03478]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-96916; File No. SR-CboeBYX-2023-001]
Self-Regulatory Organizations; Cboe BYX Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Modify
Rule 11.25 To Permit Mid-Point Peg Orders Entered as Periodic Auction
Eligible Orders To Contain an Instruction To Not Execute in a Locked
Market
February 14, 2023.
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 February 2, 2023, Cboe BYX Exchange, Inc. (``Exchange'' or ``BYX'')
filed with the Securities and Exchange Commission (``Commission'') the
proposed rule change as described in Items I and II below, which Items
have been prepared by the Exchange. The Exchange filed the proposal as
a ``non-controversial'' proposed rule change pursuant to Section
19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-4(f)(6) thereunder.\4\ 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.
\3\ 15 U.S.C. 78s(b)(3)(A)(iii).
\4\ 17 CFR 240.19b-4(f)(6).
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[[Page 10603]]
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Cboe BYX Exchange, Inc. (the ``Exchange'' or ``BYX'') is filing
with the Securities and Exchange Commission (``Commission'') a proposal
to modify Rule 11.25 to permit Mid-Point Peg Orders entered as Periodic
Auction Eligible Orders to contain an instruction to not execute in a
locked market. 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/byx/">http://markets.cboe.com/us/equities/regulation/rule_filings/byx/</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.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of this proposed rule change is to amend Rule
11.25(b)(2)(B) \5\ in order to permit Mid-Point Peg Orders \6\ entered
as Periodic Auction Eligible Orders (``Mid-Point PAE Order'') \7\ to be
designated as ineligible to trade on the Continuous Book \8\ when the
national best bid or offer (``NBBO'') is locked and to provide that
such instruction will not apply during a Periodic Auction.\9\ Rule
11.25(b)(2)(B) currently prohibits the entry of such orders. The
proposed change would not apply to Mid-Point Peg Orders designated as
Periodic Auction Only Orders, as Periodic Auction Only Orders are not
eligible for execution on the Continuous Book.\10\ The System \11\
currently rejects Mid-Point PAE Orders containing an instruction to not
execute during a locked market because the System would not be able to
prevent such orders from participating in a Periodic Auction where
there is a locked market at the time that the Periodic Auction
occurs.\12\
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\5\ Rule 11.25 governs Periodic Auctions on the Exchange. The
Commission approved the Exchange's proposal to introduce Periodic
Auctions for the trading of U.S. equity securities on March 26,
2021. Periodic Auctions are price forming auctions that are executed
at the price level which maximizes the total number of shares in
both the auction book and the continuous market that are executed in
the auction and do not interrupt trading on the continuous market.
See Securities Exchange Act Release No. 91423 (March 26, 2021), 86
FR 17230 (April 1, 2021) (SR-CboeBYX-2020-021) (Notice of Filing of
Amendments No. 3 and No. 4, and Order Granting Accelerated Approval
of a Proposed Rule Change, as Modified by Amendments No. 3 and No.
4, to Introduce Periodic Auctions for the Trading of U.S. Equity
Securities). See also Securities Exchange Act Release No. 94012
(January 20, 2022), 87 FR 4060 (January 26, 2022) (SR-CboeBYX-2021-
024) (Notice of Filing of Amendment No. 2 and Order Approving on an
Accelerated Basis a Proposed Rule Change, as Modified by Amendment
No. 2, To Make Clarifying Changes Regarding Its Periodic Auctions)
(together, the ``Original Proposal'').
\6\ See Rule 11.9(c)(9). A ``Mid-Point Peg Order'' is a limit
order whose price is automatically adjusted by the System in
response to changes in the NBBO to be pegged to the mid-point of the
NBBO, or, alternatively, pegged to the less aggressive of the
midpoint of the NBBO or one minimum price variation inside the same
side of the NBBO as the order.
\7\ See Rule 11.25(b). A ``Periodic Auction Eligible Order'' is
a non-displayed limit order eligible to trade on the Continuous Book
that is entered with an instruction to also initiate a Periodic
Auction, if possible, pursuant to Rule 11.25. Periodic Auction
Eligible Orders will not trade on the Continuous Book during a
Periodic Auction Period in the security.
\8\ See Rule 11.25(a)(2). The term ``Continuous Book'' shall
mean the System's electronic file of Continuous Book Orders. A
Continuous Book Order shall mean an order on the BYX Book that is
not a Periodic Auction Only Order or a Periodic Auction Eligible
Order.
\9\ Supra note 5.
\10\ See Rule 11.25(b)(1). A ``Periodic Auction Only Order'' is
a non-displayed limit order entered with an instruction to
participate solely in Periodic Auctions pursuant to Rule 11.25.
\11\ See Rule 1.5(aa). The term ``System'' shall mean the
electronic communications and trading facility designated by the
Board through which securities orders of Users are consolidated for
ranking, execution and, when applicable, routing away.
\12\ See Rule 11.25(a)(8). The term ``Periodic Auction Period''
shall mean the fixed time period of 100 milliseconds for conducting
a Periodic Auction.
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However, User \13\ feedback has indicated a desire to enter Mid-
Point PAE Orders that are eligible to participate in Periodic Auctions,
while simultaneously prohibiting these orders from trading on the
Continuous Book during a locked market.\14\ Accordingly, the Exchange
now seeks to permit the System to accept Mid-Point PAE Orders
containing an instruction prohibiting trading on the Continuous Book
during a locked market.\15\
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\13\ See Rule 1.5(cc). The term ``User'' shall mean any Member
or Sponsored Participant who is authorized to obtain access to the
System pursuant to Rule 11.3.
\14\ Mid-Point Peg Orders are often used by Members seeking
price improvement over displayed liquidity. When Mid-Point Peg
Orders execute during a locked market, the Member does not receive
any price improvement.
\15\ The proposed rule change will not prevent Mid-Point PAE
Orders from initiating and completing a Periodic Auction, as the
instruction to not execute in a locked market will be ignored when a
Periodic Auction Period begins and will only apply when a Mid-Point
PAE Order is trading on the Continuous Book.
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As noted above, the System currently rejects Mid-Point PAE Orders
that are designated as ineligible to execute during a locked
market.\16\ However, the System does permit Non-PAE Mid-Point Orders
(i.e. Mid-Point Peg Orders that do not also contain a Periodic Auction
Eligible Order instruction) to be designated as ineligible to execute
during a locked market.\17\ Based on the feedback from Users described
above, the Exchange is proposing that Mid-Point PAE Orders be handled
by the System in the same manner as Non-PAE Mid-Point Orders. As noted
above, Periodic Auction Eligible Orders are eligible to trade on either
the Continuous Book or initiate a Periodic Auction, if possible. Mid-
Point PAE Orders trade on the Continuous Book until such orders match
with contra-side Periodic Auction Orders \18\ and initiate a Periodic
Auction Period. Once a Periodic Auction Period has been initiated,
Periodic Auction Eligible Orders, including Mid-Point PAE Orders, are
ineligible for trading on the Continuous Book until the Periodic
Auction Period is completed. Outside of the ability to initiate a
Periodic Auction Period, Mid-Point PAE Orders behave just as a Non-PAE
Mid-Point Orders. Accordingly, Users should be able to designate their
Mid-Point PAE Orders as ineligible to execute during a locked market
while trading on the Continuous Book.\19\
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\16\ See Rule 11.25(b)(2)(B).
\17\ See Securities Exchange Act Release No. 91423 (March 26,
2021), 86 FR 17230 (April 1, 2021) (SR-CboeBYX-2020-021) (Notice of
Filing of Amendments No. 3 and No. 4, and Order Granting Accelerated
Approval of a Proposed Rule Change, as Modified by Amendments No. 3
and No. 4, to Introduce Periodic Auctions for the Trading of U.S.
Equity Securities) at footnote 27.
\18\ See Rule 11.25(a)(6). The term ``Periodic Auction Order''
shall mean a ``Periodic Auction Only Order'' or ``Periodic Auction
Eligible Order'' as those terms are defined in Rules 11.25(b)(1)-
(2).
\19\ The Exchange is not proposing to broadly change Mid-Point
Peg Order functionality. Rather, the proposal seeks only to modify
Mid-Point Peg Orders entered as PAE.
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The Exchange plans to implement the proposed rule change during the
first quarter of 2023 and will announce the implementation date via
Trade Desk Notice.
[[Page 10604]]
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.\20\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \21\ 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) \22\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
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\20\ 15 U.S.C. 78f(b).
\21\ 15 U.S.C. 78f(b)(5).
\22\ Id.
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In particular, the proposed rule change is consistent with just and
equitable principles of trade as the Exchange will allow the System to
accept Mid-Point PAE Orders containing an instruction to prohibit
trading on the Continuous Book during a locked market, which is
consistent with how the System accepts Non-PAE Mid-Point Orders
containing the same instruction pursuant to Rule 11.9(c)(9). Further,
the proposed change will provide Users with enhanced control over their
Mid-Point PAE Orders as the System will be permitted to accept Mid-
Point Peg PAE Orders containing an instruction to prohibit trading on
the Continuous Book during a locked market, and these orders will
continue to have the benefit of initiating a Periodic Auction should
the order match with a contra-side Periodic Auction Order. The Exchange
believes that by accepting Mid-Point PAE Orders containing an
instruction to prohibit trading on the Continuous Book during a locked
market, additional Users would begin using the Periodic Auction
Eligible Order type, which would in turn may create additional
liquidity in Periodic Auctions.
The Exchange believes the proposed Rule change removes impediments
to and perfects the mechanism of a free and open market and a national
market system by permitting the System to accept Mid-Point PAE Orders
containing an instruction to prohibit trading on the Continuous Book
during a locked market without concern that the order could initiate a
Periodic Auction and would be unable to execute at the conclusion of
the Periodic Auction Period due to the presence of a locked market. The
Exchange introduced Periodic Auctions with the intent of providing a
competitive mechanism for the execution of orders in thinly-traded
securities. The System's current practice of rejecting Mid-Point PAE
Orders containing an instruction to prohibit trading during a locked
market limits Users' desire to utilize the Mid-Point PAE Order
instruction, which in turn may limit the liquidity in Periodic
Auctions. Some Users have indicated to the Exchange that they prefer
the use of Non-PAE Mid-Point Orders that are ineligible to execute
during a locked market over use of Mid-Point PAE Orders because Non-PAE
Mid-Point Orders that are ineligible to execute during a locked market
provide Users an opportunity to receive midpoint price improvement.
Mid-Point PAE Orders, however, may execute during a locked market while
trading on the Continuous Book and therefore may not receive midpoint
price improvement. The proposed rule change will encourage the use of
Mid-Point PAE Orders while removing the possibility of an execution
during a locked market while these orders are trading on the Continuous
Book.
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 proposed rule change
would not impose any intramarket burden on competition for Users
currently using Periodic Auction Orders as there will be no change as
to how Mid-Point PAE Orders interact with Periodic Auction Orders. Mid-
Point PAE Orders will continue to remain eligible to initiate a
Periodic Auction if matched with contra-side Periodic Auction Orders.
The proposed rule change will only affect how Mid-Point PAE Orders
behave during a locked market when these orders are trading on the
Continuous Book. The Exchange also believes that the proposed rule
change will encourage Users to submit this particular order type,
thereby increasing Users' participation in Periodic Auctions. The
Exchange notes that the ability to restrict Mid-Point PAE Orders from
executing during a locked market will be available to all Users of the
Mid-Point PAE Order type and will be available on an optional basis.
While the proposal directly benefits Users of Mid-Point PAE Orders, all
Exchange market participants may benefit from the potential increased
utilization of Periodic Auctions that may occur if Mid-Point PAE Orders
are able to initiate additional Periodic Auctions.
While Periodic Auctions are a unique feature to the Exchange, the
proposed rule change will not burden intermarket competition as the
ability to restrict Mid-Point Peg Orders from executing during a locked
market on the Continuous Book already exists on other markets.\23\
Users are free to determine whether to utilize the Mid-Point PAE Order
functionality offered by the Exchange when making order routing
determinations. The Exchange notes that it operates in a highly
competitive market in which market participants can readily choose
between competing venues if they deem participation in the Exchange's
market is no longer desirable. The Exchange believes its proposed
change will promote competition among trading venues by making the
Exchange a more attractive trading venue for participants and
investors.
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\23\ See NYSE Rule 7.31(d)(3)(B); MIAX Pearl Equities Rule
2614(a)(3)(B).
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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: (i)
significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
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 \24\ and Rule 19b-
4(f)(6) thereunder.\25\
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\24\ 15 U.S.C. 78s(b)(3)(A).
\25\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change, along
with a brief description and text of the proposed rule change, at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
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[[Page 10605]]
A proposed rule change filed under Rule 19b-4(f)(6) normally does
not become operative prior to 30 days after the date of the filing.
However, pursuant to Rule 19b-4(f)(6)(iii),\26\ the Commission may
designate a shorter time if such action is consistent with the
protection of investors and the public interest. The Exchange has asked
the Commission to waive the 30-day operative delay. The Exchange states
that it is seeking to offer the same functionality to Mid-Point PAE
Orders that it already provides for Non-PAE Mid-Point Orders under Rule
11.9(c)(9).
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\26\ 17 CFR 240.19b-4(f)(6)(iii).
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The System accepts Non-PAE Mid-Point Orders with an instruction to
not execute in a locked market when trading on the Continuous Book, and
the only proposed change is to allow Mid-Point PAE Orders to similarly
be ineligible from trading during a locked market while trading on the
Continuous Book. The proposed order instruction is also voluntary, and
Users may continue to designate Mid-Point PAE Orders to execute in a
locked market. For these reasons, the Commission finds that waiving the
30-day operative delay is consistent with the protection of investors
and the public interest. Accordingly, the Commission hereby waives the
operative delay and designates the proposed rule change operative upon
filing.\27\
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\27\ For purposes only of accelerating the operative date of
this proposal, the Commission has considered the proposed rule's
impact on efficiency, competition, and capital formation. 15 U.S.C.
78c(f).
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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.
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#7a080f161f57191517171f140e093a091f19541d150c"><span class="__cf_email__" data-cfemail="aedcdbc2cb83cdc1c3c3cbc0daddeeddcbcd80c9c1d8">[email protected]</span></a>. Please include
File Number SR-CboeBYX-2023-001.
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-CboeBYX-2023-001. 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-CboeBYX-2023-001, and should be
submitted on or before March 14, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\28\
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\28\ 17 CFR 200.30-3(a)(12), (59).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-03478 Filed 2-17-23; 8:45 am]
BILLING CODE 8011-01-P
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