Notice2024-01306
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Rule 21.17
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Published
January 24, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 89 Issue 16 (Wednesday, January 24, 2024)</title>
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[Federal Register Volume 89, Number 16 (Wednesday, January 24, 2024)]
[Notices]
[Pages 4645-4648]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-01306]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-99387; File No. SR-CboeBZX-2024-005]
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
Rule 21.17
January 18, 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 January 3, 2024, Cboe BZX Exchange, Inc. (the ``Exchange'' or
``BZX'') 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.
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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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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 21.17. The text of the proposed rule change is provided
below.
(additions are italicized; deletions are [bracketed])
* * * * *
Rules of Cboe BZX 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
[[Page 4646]]
the Rules. All numeric values established by the Exchange pursuant
to this Rule will be maintained by the Exchange in publicly
available specifications and/or published in a Regulatory Circular.
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)-(c) No change.
(d) Drill-Through Price Protection.
(1)-(2) No change.
(3) 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 (1) in the
BZX Options Book with a displayed price equal to the Drill-Through
Price, unless the terms of the order instruct otherwise.
(A)-(G) No change.
([H]4) 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/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.
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(d)(1), 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(d)(3)
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 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.
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\5\ See Rule 21.7(a) for the definition of Opening Collars.
\6\ See Rule 21.17(d)(2).
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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\
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\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).
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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.
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\9\ See proposed Rule 21.17(d)(4). As set forth in current Rule
21.17(d)(3)(H), the drill-through protection does not apply to bulk
messages. The proposed rule change moves this current exclusion to
proposed Rule 21.17(d)(4) 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
(4) 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.
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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
[[Page 4647]]
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.
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\10\ 15 U.S.C. 78f(b).
\11\ 15 U.S.C. 78f(b)(5).
\12\ Id.
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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.
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\13\ The Exchange notes ISOs will continue to receive price
protection, such as from the limit order fat finger check. See Rule
21.17(b).
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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.
Additionally, the proposed rule change substantively identical to a
recent rule change by Cboe EDGX Exchange, Inc. (``EDGX Options'').\14\
The Exchange also notes at least one other options exchange excludes
ISOs from certain of its price protection measures.\15\
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\14\ See SR-CboeEDGX-2023-082 (December 21, 2023).
\15\ 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).
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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:
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 \16\ and
Rule 19b-4(f)(6) \17\ thereunder.\18\ 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.
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\16\ 15 U.S.C. 78s(b)(3)(A).
\17\ 17 CFR 240.19b-4(f)(6).
\18\ 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 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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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#ea989f868fc7898587878f849e99aa998f89c48d859c"><span class="__cf_email__" data-cfemail="d4a6a1b8b1f9b7bbb9b9b1baa0a794a7b1b7fab3bba2">[email protected]</span></a>. Please include
file number SR-CboeBZX-2024-005 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-2024-005. 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 a.m. and 3
p.m. Copies of the filing also
[[Page 4648]]
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-CboeBZX-
2024-005 and should be submitted on or before February 14, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\19\
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\19\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-01306 Filed 1-23-24; 8:45 am]
BILLING CODE 8011-01-P
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