Notice2024-00284
Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Rule 21.17
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
January 10, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
<html>
<head>
<title>Federal Register, Volume 89 Issue 7 (Wednesday, January 10, 2024)</title>
</head>
<body><pre>
[Federal Register Volume 89, Number 7 (Wednesday, January 10, 2024)]
[Notices]
[Pages 1619-1621]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-00284]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-99273; File No. SR-CboeEDGX-2023-082]
Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice
of Filing and Immediate Effectiveness of a Proposed Rule Change To
Amend Rule 21.17
January 4, 2024.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on December 21, 2023, Cboe EDGX Exchange, Inc. (the ``Exchange''
or ``EDGX'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I, II,
and III 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.
---------------------------------------------------------------------------
\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).
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Cboe EDGX Exchange, Inc. (the ``Exchange'' or ``EDGX'') proposes to
amend Rule 21.17. The text of the proposed rule change is provided
below.
(additions are italicized; deletions are [bracketed])
* * * * *
Rules of Cboe EDGX Exchange, Inc.
* * * * *
Rule 21.17. Additional Price Protection Mechanisms and Risk Controls
The System's acceptance and execution of orders, quotes, and bulk
messages, as applicable, are subject to the price protection mechanisms
and risk controls in Rule 21.16, this Rule 21.17, and as otherwise set
forth in the Rules. Unless otherwise specified the price protections
set forth in this Rule, including the numeric values established by the
Exchange, may not be disabled or adjusted. The Exchange may share any
of a User's risk settings with the Clearing Member that clears
transactions on behalf of the User.
(a) Simple Orders.
(1)-(3) No change.
(4) Drill-Through Price Protection.
(A)-(B) No change.
(C) The System enters a market order with a Time-in Force of Day or
limit order with a Time-in-Force of Day, GTC, or GTD (or unexecuted
portion) not executed pursuant to subparagraph (A) in the EDGX Options
Book with a displayed price equal to the Drill-Through Price, unless
the terms of the order instruct otherwise.
(i)-(vii) No change.
([viii]D) This protection does not apply to bulk messages or ISOs.
* * * * *
The text of the proposed rule change is also available on the
Exchange's website (<a href="http://markets.cboe.com/us/options/regulation/rule_filings/edgx/">http://markets.cboe.com/us/options/regulation/rule_filings/edgx/</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 Exchange proposes to amend Rule 21.17. Specifically, the
Exchange proposes to exclude Intermarket Sweep Orders (``ISOs'') from
its drill-through protection. Pursuant to Rule 21.17(a)(4)(A), if a buy
(sell) order enters the book at the conclusion of the opening auction
process or would execute or post to the book when it enters the book,
the Exchange's system executes the order up to an Exchange-determined
buffer amount (determined on a class and premium basis) above (below)
the offer (bid) limit of the Opening Collar \5\ or the National Best
Offer (``NBO'') (National Best Bid (``NBB'')) that existed at the time
of order entry, respectively (the ``drill-through price''). The System
cancels or rejects any market order with a time-in-force of immediate-
or-cancel (``IOC'') (or unexecuted portion or limit order with time-in-
force of IOC or fill-or-kill (``FOK'') (or unexecuted portion not
executed pursuant to the previous sentence.\6\ Rule 21.17(a)(4)(C)
establishes an iterative drill-through process, whereby the Exchange
permits orders to rest in the book for multiple time periods and at
more aggressive displayed prices during each time period. Specifically,
for a market order with a time-in-force of day or limit order with a
time-in-force of day, good-til-cancelled (``GTC''), or good-til-gate
(``GTD'') (or unexecuted portion), the Exchange system enters the order
in the book with a displayed price equal to the drill-through price
(unless the terms of the order instruct otherwise). The order (or
unexecuted portion) will rest in the book at the drill-through price
for the
[[Page 1620]]
duration of consecutive time periods (the Exchange determines on a
class-by-class basis the length of the time period in milliseconds,
which may not exceed three seconds), which are referred to as
``iterations.'' Following the end of each period, the Exchange system
adds (if a buy order) or subtracts (if a sell order) one buffer amount
(the Exchange determines the buffer amount on a class-by-class basis)
to the drill-through price displayed during the immediately preceding
period (each new price becomes the ``drill-through price''). The order
(or unexecuted portion) rests in the book at that new drill-through
price for the duration of the subsequent period. The Exchange system
applies a timestamp to the order (or unexecuted portion) based on the
time it enters or is re-priced in the book for priority reasons. The
order continues through this iterative process until the earliest of
the following to occur: (a) the order fully executes; (b) the user
cancels the order; and (c) the buy (sell) order's limit price equals or
is less (greater) than the drill-through price at any time during
application of the drill-through mechanism, in which case the order
rests in the book at its limit price, subject to a user's instructions.
---------------------------------------------------------------------------
\5\ See Rule 21.7(a) for the definition of Opening Collars.
\6\ See Rule 21.17(a)(4)(B).
---------------------------------------------------------------------------
Currently, the drill-through protection applies to ISOs. An ISO is
a limit order for an options series that meets the following
requirements: (1) when routed to an Eligible Exchange,\7\ the order is
identified as an ISO; and (2) simultaneously with the routing of the
order, one or more additional ISOs, as necessary, are routed to execute
against the full displayed size of any Protected Bid, in the case of a
limit order to sell, or any Protected Offer, in the case of a limit
order to buy, for the options series with a price that is superior to
the limit price of the ISO, with such additional orders also marked as
ISOs.\8\
---------------------------------------------------------------------------
\7\ An ``Eligible Exchange'' means a national securities
exchange registered with the SEC in accordance with Section 6(a) of
the Securities Exchange Act of 1934 (the ``Act'') that: (a) is a
Participant Exchange in OCC (as that term is defined in Section VII
of the OCC by-laws); (b) is a party to the OPRA Plan (as that term
is described in Section I of the OPRA Plan); and (c) if the national
securities exchange chooses not to become a party to this Plan, is a
participant in another plan approved by the Securities and Exchange
Commission (the ``Commission'') providing for comparable Trade-
Through and Locked and Crossed Market protection. The term ``Trade-
Through'' means a transaction in an options series at a price that
is lower than a Protected Bid or higher than a Protected Offer. A
``Protected Bid'' or ``Protected Offer'' means a bid or offer in an
options series, respectively, that (a) is disseminated pursuant to
the OPRA Plan; and (b) is the best bid or best offer, respectively,
displayed by an Eligible Exchange. A ``Locked Market'' means a
quoted market in which a Protected Bid is equal to a Protected Offer
in a series of an options class, and a ``Crossed Market'' means a
quoted market in which a Protected bid is higher than a Protected
Offer in a series of an options class. See Rule 27.1(a)(5), (7),
(10), (18), and (22).
\8\ See Rules 21.1(d)(9) and 27.1(a)(9).
---------------------------------------------------------------------------
The Exchange proposes to exclude ISOs from the drill-through
protection.\9\ The primary purpose of the drill-through price
protection is to prevent orders from executing at prices ``too far
away'' from the market when they enter the book for potential
execution. This is inconsistent with the primary purpose of ISOs, which
is to permit orders to trade at prices outside of the market. The
Exchange believes excluding ISOs from the drill-through is consistent
with the purpose of each type of functionality.
---------------------------------------------------------------------------
\9\ See proposed Rule 21.17(a)(4)(D). As set forth in current
Rule 21.17(a)(4)(C)(viii), the drill-through protection does not
apply to bulk messages. The proposed rule change moves this current
exclusion to proposed Rule 21.17(a)(4)(D) so that all orders and
quotes that are excluded from the drill-through protection are
maintained in the same rule provision, and the Exchange believes
proposed subparagraph (D) is a more appropriate place for listing
excluded orders and quotes. This nonsubstantive change regarding the
exclusion of bulk messages from the drill-through protection has no
impact on current behavior and merely moves the exclusion to a
different subparagraph.
---------------------------------------------------------------------------
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.\10\ Specifically, the Exchange believes the proposed rule change
is consistent with the Section 6(b)(5) \11\ 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) \12\ requirement that the rules of
an exchange not be designed to permit unfair discrimination between
customers, issuers, brokers, or dealers.
---------------------------------------------------------------------------
\10\ 15 U.S.C. 78f(b).
\11\ 15 U.S.C. 78f(b)(5).
\12\ Id.
---------------------------------------------------------------------------
In particular, the Exchange believes the proposed rule change will
promote just and equitable principles of trade, remove impediments to
and perfect the mechanism of a national market system, and protect
investors and the public interest, because it will increase instances
in which ISOs receive executions up to their limit prices, including
outside of the market prices when the ISOs were submitted to the
Exchange, which the Exchange believes is consistent with the
expectations of users that submit those orders. As noted above, the
primary purpose of ISOs is to permit orders to trade at prices outside
of the market. The primary purpose of the drill-through price
protection is to prevent orders from executing at prices ``too far
away'' from the market when they enter the book for potential
execution. The Exchange believes excluding ISOs from the drill-through
is consistent with the purpose of each type of functionality.
Therefore, the Exchange believes the proposed rule change will enhance
the Exchange system by aligning its drill-through protection with the
intended purpose of ISOs.\13\ The Exchange believes the proposed rule
change may ultimately result in additional executions consistent with
the expectations of users that submit ISOs, which ultimately benefits
investors. The Exchange further believes the proposed rule change is
not designed to permit unfair discrimination between customers,
issuers, brokers, or dealers, as it will apply to ISOs of all users.
---------------------------------------------------------------------------
\13\ The Exchange notes ISOs will continue to receive price
protection, such as from the limit order fat finger check. See Rule
21.17(a)(2).
---------------------------------------------------------------------------
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The Exchange does not
believe that the proposed rule change will impose any burden on
intramarket competition that is not necessary or appropriate in
furtherance of the purposes of the Act, because it will apply in the
same manner to ISOs of all Members. The Exchange does not believe that
the proposed rule change will impose any burden on intermarket
competition that is not necessary or appropriate in furtherance of the
purposes of the Act, because it relates solely to the application of
one of the Exchange's price protection mechanisms to ISOs. The Exchange
notes at least one other options exchange excludes ISOs from certain of
its price protection measures.\14\
---------------------------------------------------------------------------
\14\ See Miami International Securities Exchange, LLC (``MIAX'')
Rule 515(c)(1) (ISOs excluded from MIAX's price protection on non-
market maker orders in non-proprietary products, which prevents
orders from executing more than a specified number of increments
away from the national best bid or offer (``NBBO'') at the time the
order is received).
---------------------------------------------------------------------------
[[Page 1621]]
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
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A)(ii) of the Act \15\ and Rule 19b-4(f)(2) \16\ thereunder.
---------------------------------------------------------------------------
\15\ 15 U.S.C. 78s(b)(3)(A)(ii).
\16\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------
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 shall 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#e795928b82ca84888a8a82899394a7948284c9808891"><span class="__cf_email__" data-cfemail="7b090e171e56181416161e150f083b081e18551c140d">[email protected]</span></a>. Please include
File Number SR-CboeEDGX-2023-082 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-CboeEDGX-2023-082. 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-CboeEDGX-2023-082 and should
be submitted on or before January 31, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
---------------------------------------------------------------------------
\17\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-00284 Filed 1-9-24; 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 January 10, 2024.
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.