Notice2023-16111
Self-Regulatory Organizations; Cboe BYX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Exchange Rules To Provide Users With a Risk Setting They May Elect To Apply to Their Orders That Will Allow Them To Reject Market Orders During Continuous Trading and/or Auctions
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
July 31, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
<html>
<head>
<title>Federal Register, Volume 88 Issue 145 (Monday, July 31, 2023)</title>
</head>
<body><pre>
[Federal Register Volume 88, Number 145 (Monday, July 31, 2023)]
[Notices]
[Pages 49540-49542]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-16111]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-97986; File No. SR-CboeBYX-2023-011]
Self-Regulatory Organizations; Cboe BYX Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
Exchange Rules To Provide Users With a Risk Setting They May Elect To
Apply to Their Orders That Will Allow Them To Reject Market Orders
During Continuous Trading and/or Auctions
July 25, 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 July 14, 2023, Cboe BYX Exchange, Inc. (the ``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 Commission is publishing this
notice to solicit comments on the proposed rule change from interested
persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Cboe BYX Exchange, Inc. (``BYX'' or the ``Exchange'') is filing
with the Securities and Exchange Commission (the ``Commission'') a
proposal to amend Interpretation and Policy .01 to Rule 11.13 in
connection with a risk setting that Users \3\ may elect to apply to
their orders that will allow them to reject market orders during
continuous trading and/or auctions.\4\ The text of the proposed rule
change is provided in Exhibit 5.
---------------------------------------------------------------------------
\3\ A User is any Member or Sponsored Participant who is
authorized to obtain access to the System pursuant to Rule 11.13.
See Rule 1.5(cc).
\4\ The Exchange plans to implement the proposed rule change on
a date that will be circulated in a notice from the Cboe Trade Desk
to all Members.
---------------------------------------------------------------------------
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 proposal is to amend Interpretation and Policy
.01 to Rule 11.13 to allow the Exchange to offer its Users the ability
to apply a risk setting to their orders that will allow them to reject
market orders during continuous trading or auctions (``Market Order
Check''). Pursuant to Interpretation and Policy .01 to Rule 11.13, the
Exchange currently offers certain optional risk settings applicable to
a User's activities on the Exchange. Specifically, pursuant to
Interpretation and Policy .01(c) to 11.13, the Exchange currently
offers Users with the controls to restrict order types or modifiers
that can be utilized (including pre-market, post-market, short sales,
ISOs, and Directed ISOs). When utilized, this optional risk tool acts
as a risk filter by evaluating a User's orders to determine whether the
orders comply with certain criteria established by the User.
Based on feedback from its Members, the Exchange now seeks to
expand this risk setting to allow a User to restrict additional order
types from being entered--market orders during continuous trading and/
or market orders during auctions (``Market Order Check'').\5\ The
Market Order Check will reside at a User's port level, a User-specific
logical session used to access the Exchange. A User may utilize the
Market Order Check to control the acceptance of, or rejection of, its
inbound market orders. Similarly, a Sponsoring Member \6\ may utilize
the
[[Page 49541]]
check to control the acceptance of, or rejection of, its Sponsored
Participants \7\ inbound market orders. Specifically, when utilized the
Market Order Check will allow a User to (1) permit market orders; (2)
reject market orders during continuous trading and allow market orders
during auctions, or (3) reject market orders during continuous trading
and also during auctions. In the case of Sponsored Participants, the
Sponsoring Member will be responsible for their Sponsored Participant's
Market Order Check settings. The Market Order Check will apply only to
equities orders and will not apply to market on open or market on close
orders. The proposed Market Order Check is similar in nature to the
Order Type/Attribution check offered by Nasdaq Stock Exchange, LLC
(``Nasdaq''), which prevents the entry of certain order types or
modifiers that can be utilized, including but not limited to, non-
auction market orders.\8\ While the proposed Market Order Check differs
slightly from that offered by Nasdaq in that it includes functionality
that prohibits the entry of both auction and non-auction market orders,
the intended purpose of the control--a risk management tool designed to
prevent the entry of orders that may cause undue market impact--remains
the same.
---------------------------------------------------------------------------
\5\ The Exchange notes that the proposed Market Order Check will
treat Stop Orders as regular market orders. A ``Stop Order'' Stop
Order is an order that becomes a BYX market order when the stop
price is elected. A Stop Order to buy is elected when the
consolidated last sale in the security occurs at, or above, the
specified stop price. A Stop Order to sell is elected when the
consolidated last sale in the security occurs at, or below, the
specified stop price. See Rule 11.9(c)(16), definition of ``Stop
Order''.
\6\ The term ``Sponsoring Member'' shall mean a broker-dealer
that has been issued a membership by the Exchange who has been
designated by a Sponsored Participant to execute, clear and settle
transactions resulting from the System. The Sponsoring Member shall
be either (i) a clearing firm with membership in a clearing agency
registered with the Commission that maintains facilities through
which transactions may be cleared or (ii) a correspondent firm with
a clearing arrangement with any such clearing firm. See Rule 1.5(y),
definition of, ``Sponsoring Member''.
\7\ The term ``Sponsored Participant'' shall mean a person which
has entered into a sponsorship arrangement with a Sponsoring Member
pursuant to Rule 11.3. See Rule 1.5(x), definition of, ``Sponsored
Participant''.
\8\ See Nasdaq Equity 6, Section 5. Risk Settings (b), ``Order
Type/Attribution Check--This control relates to the order types or
modifiers that can be utilized (including pre-market, post-market,
short sales, non-auction market orders and Intermarket Sweep
Orders)'', available at: <a href="https://listingcenter.nasdaq.com/rulebook/Nasdaq/rules/Nasdaq%20Equity%206/market%20impact%20check/EQUALS/#position">https://listingcenter.nasdaq.com/rulebook/Nasdaq/rules/Nasdaq%20Equity%206/market%20impact%20check/EQUALS/#position</a>; see also Securities Exchange Act Release No. 34-95495
(August 12, 2022), 87 FR 50902 (August 18, 2022) (SR-NASDAQ-2022-
047) (Notice of Filing and Immediate Effectiveness of Proposed Rule
Change to Amend Nasdaq Equity 6, Section 5).
---------------------------------------------------------------------------
Importantly, as is the case with the existing risk settings, the
User, and not the Exchange, will have the full responsibility for
ensuring that their orders comply with applicable securities rules,
laws, and regulations. Furthermore, the Exchange does not believe that
the use of the Market Order Check can replace User-managed risk
management solutions, and use of the Market Order Check does not
automatically constitute compliance with Exchange rules.
The Exchange proposes to make the risk setting available to its
Users upon request and will not require Users to utilize the Market
Order Check. The Exchange will not provide preferential treatment to
Users utilizing the Market Order Check. However, the Exchange believes
the Market Order Check will offer Exchange Users another option in
efficient risk management of its access to the Exchange. For instance,
the Market Order Check may assist some Users in mitigating the risk of
receiving executions at unfavorable prices due to market fluctuations
and/or available liquidity in the subject security. Similarly, the
Market Order Risk Check may serve as a supplemental tool for Sponsoring
Members to ensure that market orders entered by their Sponsored
Participants do not unexpectedly cause undue impact to the market for a
security, which may occur when the market fluctuates, and an order
executes at prices significantly different from the price of the
security at the time of order entry.
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the requirements of Section 6(b) of the Act,\9\ in general, and Section
6(b)(5) of the Act,\10\ in particular, in that it is 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 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. Period footnote throughout
[sic]
---------------------------------------------------------------------------
\9\ 15 U.S.C. 78f(b).
\10\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
Specifically, the proposed Market Order Check is designed to
protect investors and the public interest because it will provide Users
with a tool to help prevent the entry of market orders that may cause
unintentional market impact, and reduce the potential for disruptive,
market-wide events. The proposed Market Order Check may also assist
Users in managing their financial exposure by preventing executions at
unfavorable prices, thereby fostering the integrity of trading on the
securities markets and helping to assure the stability of the financial
system. Finally, the Exchange believes that the proposed rule change
does not unfairly discriminate among the Exchange's Users because like
each of the other Exchange's risk settings, use of the Market Order
Check is optional and available to all Users, and its use is not a
perquisite for participation on the Exchange.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change imposes
any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act. Rather, the proposed Market
Order Check will foster competition because it would allow the Exchange
to offer a risk check that is similar to functionality being offered by
Nasdaq,\11\ which offers an order type/attribution check that prevents
the entry of certain order types or modifiers that can be utilized,
including but not limited to, non-auction market orders. Additionally,
by providing Users with additional means to monitor and control their
risk, the proposed Market Order Check may enhance proper functioning of
the markets and contribute to additional competition among trading
venues and broker-dealer dealers. Finally, the proposed Market Order
Check will enable Users to strengthen their risk management
capabilities, which, in turn, may enhance the integrity of trading on
the securities markets and help to assure the stability of the
financial system.
---------------------------------------------------------------------------
\11\ Supra note 10.
---------------------------------------------------------------------------
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange has not solicited, and does not intend to solicit,
comments on this proposal. No written comments were solicited or
received on the proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not (A)
significantly affect the protection of investors or the public
interest; (B) impose any significant burden on competition; and (C)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A) of the Act \12\ and Rule 19b-
4(f)(6) \13\ thereunder.
---------------------------------------------------------------------------
\12\ 15 U.S.C. 78s(b)(3)(A).
\13\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
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.
---------------------------------------------------------------------------
[[Page 49542]]
A proposed rule change filed under Rule 19b-4(f)(6) \14\ normally
does not become operative prior to 30 days after the date of the
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\15\ the Commission
may designate a shorter time if such action is consistent with the
protection of investor and the public interest. The Exchange has asked
the Commission to waive the 30-day operative delay so that the proposed
rule change may become operative upon filing. The Exchange states that
waiver of the 30-day operative delay will allow the Exchange to
immediately offer its Users an additional means to mitigate unintended
market impact, thus fostering the protection of investors and the
public interest. Because the proposed rule change does not raise any
novel regulatory issues, the Commission believes that waiving the 30-
day operative delay is consistent with the protection of investors and
the public interest. Therefore, the Commission hereby waives the
operative delay and designates the proposal operative upon filing.\16\
---------------------------------------------------------------------------
\14\ 17 CFR 240.19b-4(f)(6).
\15\ 17 CFR 240.19b-4(f)(6)(iii).
\16\ For purposes only of waiving the 30-day operative delay,
the Commission has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
---------------------------------------------------------------------------
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="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#89fbfce5eca4eae6e4e4ece7fdfac9faeceaa7eee6ff"><span class="__cf_email__" data-cfemail="681a1d040d450b0705050d061c1b281b0d0b460f071e">[email protected]</span></a>. Please include
file number SR-CboeBYX-2023-011 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-CboeBYX-2023-011. 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="https://www.sec.gov/rules/sro.shtml">https://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
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. Do not
include personal identifiable information in submissions; you should
submit only information that you wish to make available publicly. We
may redact in part or withhold entirely from publication submitted
material that is obscene or subject to copyright protection. All
submissions should refer to file number SR-CboeBYX-2023-011 and should
be submitted on or before August 21, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
---------------------------------------------------------------------------
\17\ 17 CFR 200.30-3(a)(12), (59).
---------------------------------------------------------------------------
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2023-16111 Filed 7-28-23; 8:45 am]
BILLING CODE 8011-01-P
</pre><script data-cfasync="false" src="/cdn-cgi/scripts/5c5dd728/cloudflare-static/email-decode.min.js"></script></body>
</html>Indexed from Federal Register on July 31, 2023.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.