Notice2025-11873
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing of Amendments No. 1 and No. 2, and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendments No. 1 and No. 2, To Amend Exchange Rule 11.25(e) To Allow Users To Utilize the Exchange's Match Trade Prevention Functionality When Entering Periodic Auction Orders Onto the Exchange for Execution
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
June 27, 2025
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 90 Issue 122 (Friday, June 27, 2025)</title>
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[Federal Register Volume 90, Number 122 (Friday, June 27, 2025)]
[Notices]
[Pages 27726-27734]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2025-11873]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-103304; File No. SR-CboeBYX-2025-008]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of
Filing of Amendments No. 1 and No. 2, and Order Granting Accelerated
Approval of a Proposed Rule Change, as Modified by Amendments No. 1 and
No. 2, To Amend Exchange Rule 11.25(e) To Allow Users To Utilize the
Exchange's Match Trade Prevention Functionality When Entering Periodic
Auction Orders Onto the Exchange for Execution
June 24, 2025.
On March 14, 2025, Cboe BYX Exchange, Inc. (``Exchange'') filed
with the Securities and Exchange Commission (``Commission''), pursuant
to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'' or
``Exchange Act''),\1\ and Rule 19b-4 thereunder,\2\ a proposed rule
change to amend Exchange Rule 11.25(e) to allow Users to utilize the
Exchange's Match Trade Prevention (``MTP'') functionality when entering
Periodic Auction Orders onto the Exchange for execution. The proposed
rule change was published for comment in the Federal Register on March
31, 2025.\3\ On May 7, 2025, 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\ The Commission has not received comments
regarding the proposal. On June 13, 2025, the Exchange filed Amendment
No. 1 to the proposal, which supersedes and replaces the original
proposal in its entirety.\6\ On
[[Page 27727]]
June 18, 2025, the Exchange filed Amendment No. 2 to the proposal.\7\
The Commission is publishing this notice to solicit comments on
Amendments No. 1 and No. 2 from interested persons and is approving the
proposed rule change, as modified by Amendments No. 1 and No. 2, on an
accelerated basis.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Exchange Act Release No. 102727 (Mar. 25, 2025), 90 FR
14304.
\4\ 15 U.S.C. 78s(b)(2).
\5\ See Exchange Act Release No. 102997 (May 7, 2025), 90 FR
20333 (May 13, 2025).
\6\ Amendment No. 1 clarifies how Periodic Auction Orders with
MTP instructions will be applied during and outside of Periodic
Auctions, clarifies how MTP and Minimum Quantity instructions
operate in the context of Periodic Auctions, and provides additional
description and explanation justification for the proposal.
Amendment No. 1 to the proposed rule change is available at: <a href="https://www.sec.gov/comments/sr-cboebyx-2025-008/srcboebyx2025008.htm">https://www.sec.gov/comments/sr-cboebyx-2025-008/srcboebyx2025008.htm</a>.
\7\ Amendment No. 2 partially amends the proposal as modified by
Amendment No. 1 by correcting errors in the proposed rule text and
filing.
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I. Description of the Proposed Rule Change, as Modified by Amendments
No. 1 and No. 2
The Exchange filed with the Commission a proposed rule change, as
modified by Amendment No. 1, to amend Exchange Rule 11.25(e) to (1)
allow Users to utilize the Exchange's Match Trade Prevention
functionality when entering Periodic Auction Orders onto the Exchange
for execution; (2) add new rule text describing how the System will
handle Periodic Auction Orders entered with MTP instructions when a
Periodic Auction is not in progress; (3) add new rule text describing
how the System will handle Periodic Auction Orders entered with MTP
instructions when a Periodic Auction is in progress; and (4) add new
rule text describing how System will handle inbound Periodic Auction
Orders entered with both an MTP instruction and Minimum Quantity
instruction, when a Periodic Auction is not in progress. 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="https://www.cboe.com/us/equities/membership/fee_schedule/byx/">https://www.cboe.com/us/equities/membership/fee_schedule/byx/</a>, at the
Exchange's Office of the Secretary, and at the Commission's Public
Reference Room.
II. The Exchange'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 Exchange Rule 11.25 to allow (1)
Users to utilize the Exchange's Match Trade Prevention (``MTP'') \8\
functionality when entering Periodic Auction Orders \9\ onto the
Exchange for execution; (2) add new rule text describing how the System
\10\ will handle Periodic Auction Orders entered with MTP instructions
when a Periodic Auction is not in progress; (3) add new rule text
describing how the System will handle Periodic Auction Orders and
Continuous Book Orders \11\ entered with MTP instructions when a
Periodic Auction is in progress; and (4) add new rule text describing
how System will handle Periodic Auction Orders entered with both an MTP
instruction and Minimum Quantity \12\ instruction, when a Periodic
Auction is not in progress.
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\8\ See Rule 11.9(f).
\9\ The term ``Periodic Auction Order'' shall mean a ``Periodic
Auction Only Order'' (``PAO'') or ``Periodic Auction Eligible
Order'' (``PAE'') as those terms are defined in Rules 11.25(b)(1)-
(2), and the term ``Periodic Auction Book'' shall mean the System's
electronic file of such Periodic Auction Orders. See Rule
11.25(a)(6).
\10\ 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. See Rule 1.5(aa).
\11\ The term ``Continuous Book Order'' shall mean an order on
the BYX Book that is not a Periodic Auction Order, and the term
``Continuous Book'' shall mean System's electronic file of such
Continuous Book Orders. See Rule 11.25(a)(2).
\12\ Minimum Quantity Order. A limit order to buy or sell that
will only execute if a specified minimum quantity of shares can be
obtained. See Rule 11.9(c)(5).
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By way of background, MTP is an existing process \13\ through which
Users can prevent their incoming orders designated with a MTP modifier
from executing against a resting opposite side order also designated
with an MTP modifier and originating from the same market participant
identifier (``MPID''), Exchange Member identifier, trading group
identifier, Exchange Sponsored Participant identifier, affiliate
identifier, or Multiple Access identifier (any such identifier, a
``Unique Identifier'').\14\ Both the buy and the sell order must
include the same Unique Identifier in order to prevent an execution
from occurring and to effect a cancel instruction. MTP is a valuable
tool for Exchange Users because it allows them to better manage their
order flow to prevent undesirable trading activity such as wash sales
\15\ or self-trades \16\ that may occur because of the high-speed
nature of trading in today's marketplace. MTP is an optional order
instruction, and Users are not required to utilize this functionality.
Rather, the Exchange offers this optional functionality for Users as a
supplementary tool which they may choose to utilize in helping them
comply with relevant securities, rules, laws, or regulations.
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\13\ The Exchange notes that previous proposals extending the
functionality of MTP to other trading scenarios were effective upon
filing with the Commission. See generally Securities and Exchange
Act Release No. 53429 (December 3, 2010), 75 FR 76763 (December 9,
2010) (SR-EDGX-2010-18); Securities and Exchange Act Release No. 34-
96292 (November 10, 2022), 87 FR 68766 (November 16, 2022) (SR-
CboeEDGX-2022-048).
\14\ Supra note 7.
\15\ A ``wash sale'' is generally defined as a trade involving
no change in beneficial ownership that is intended to produce the
false appearance of trading and is strictly prohibited under both
the federal securities laws and FINRA rules. See, e.g., 15 U.S.C
78i(a)(1); FINRA Rule 6140(b) (``Other Trading Practices'').
\16\ Self-trades are ``transactions in a security resulting from
the unintentional interaction of orders originating from the same
firm that involve no change in beneficial ownership of the
security.'' FINRA requires members to have policies and procedures
in place that are reasonably designed to review trading activity
for, and prevent, a pattern or practice of self-trades resulting
from orders originating from a single algorithm or trading desk, or
related algorithms or trading desks. See FINRA Rule 5210,
Supplementary Material .02, available at: <a href="https://www.finra.org/rules-guidance/rulebooks/finra-rules/5210">https://www.finra.org/rules-guidance/rulebooks/finra-rules/5210</a>.
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Periodic Auctions Background
Periodic Auctions are available on BYX during the Regular Trading
Session (9:30 a.m. ET to 4:00 p.m. ET). Periodic Auction Orders \17\
are non-displayed, and Members may send PAOs \18\ or PAEs.\19\ PAOs
will only execute in a Periodic Auction and are eligible to initiate a
Periodic Auction when matched with a contra-side Periodic Auction
Order. PAEs are eligible to
[[Page 27728]]
trade with Continuous Book orders and may also participate in Periodic
Auctions. PAEs are eligible to initiate a Periodic Auction when matched
with a contra-side Periodic Auction Order. PAEs may also trade
immediately upon entry with a resting Continuous Book order instead of
initiating a Periodic Auction. PAEs will be locked from trading in the
Continuous Book upon initiation of a Periodic Auction. In addition,
Continuous Book orders, both displayed and non-displayed (e.g.,
Midpoint Peg Orders) are not eligible to initiate a Periodic Auction
but may be swept into the Periodic Auction at the end of the Periodic
Auction Period.\20\ A Periodic Auction is initiated when a buy (sell)
Periodic Auction Order is eligible to trade with a sell (buy) Periodic
Auction Order within the Collar Price Range.\21\
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\17\ Supra note 8.
\18\ A ``Periodic Auction Only Order'' (``PAO'') is a non-
displayed limit order entered with an instruction to participate
solely in Periodic Auctions pursuant to this Rule 11.25. Periodic
Auction Only Orders are not eligible for execution on the Continuous
Book. See Rule 11.25(b)(1).
\19\ ``A `Periodic Auction Eligible Order' (``PAE'') 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 . . . Periodic Auction Eligible Orders will be ranked as
Non-Displayed Limit Orders consistent with the priority of order
outlined in Rule 11.12(a). An incoming Periodic Auction Eligible
Order that is eligible both to trade on the Continuous Book and
initiate a Periodic Auction against a Periodic Auction Only Order at
the same price will trade immediately with the Continuous Book.
Incoming Periodic Auction Eligible Orders will upon entry interact
with Continuous Book Orders and other Periodic Auction Eligible
Orders according to their rank under Rule 11.12(a). Periodic Auction
Eligible Orders will not trade on the Continuous Book during a
Periodic Auction Period in the security.'' See 11.25(b)(2).
\20\ The term ``Periodic Auction Period'' shall mean the fixed
time period of 100 milliseconds for conducting a Periodic Auction.
Notwithstanding the foregoing, a Periodic Auction initiated pursuant
to Rule 11.25(c) will be performed at the end of the Regular Trading
Session if the Periodic Auction Period would otherwise end after the
Regular Trading Session. See Rule 11.25(a)(8).
\21\ The term ``Collar Price Range'' shall mean the more
restrictive of the Midpoint Collar Price Range, as defined in Rule
11.25(a)(1), and the Protected NBBO. Notwithstanding the foregoing,
if the Collar Price Range calculated by the Exchange would be
outside of the applicable Price Bands established pursuant to the
Limit Up-Limit Down Plan, the Collar Price Range will be capped at
such Price Bands. See Rule 11.25(a)(1).
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Once a Periodic Auction is initiated, a Periodic Auction message
will be generated and disseminated via the Exchange's proprietary depth
of book market data feed at a randomized time prior to the end of the
auction. All Periodic Auctions will run for a fixed time period of 100
milliseconds (i.e., the Periodic Auction Period). The Periodic Auction
Book Price \22\ will be the price where most shares will trade within
the Collar Price Range.
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\22\ The term ``Periodic Auction Book Price'' shall mean the
price within the Collar Price Range at which the most shares from
the Periodic Auction Book would match. In the event of a volume-
based tie at multiple price levels, the Periodic Auction Book Price
will be the price that results in the minimum total imbalance. In
the event of a volume-based tie and a tie in minimum total imbalance
at multiple price levels, the Periodic Auction Book Price will be
the price closest to the Volume Based Tie Breaker. The Periodic
Auction Book Price will be expressed in the minimum increment for
the security unless the midpoint of the NBBO establishes the
Periodic Auction Book Price. See Rule 11.25(a)(5).
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Periodic Auction Orders and Continuous Book Orders that are
executable at the end of the Periodic Auction Period are executed at
the Periodic Auction Book Price determined pursuant to Rule 11.25(d),
as follow: First, any displayed Continuous Book Orders that are
executable at the Periodic Auction Book Price are executed in price/
time priority. Second, any Periodic Auction Orders that are executable
at the Periodic Auction Book Price are executed in size/time priority,
beginning with the largest order. Finally, any non-displayed Continuous
Book Orders that are executable at the Periodic Auction Book Price are
executed as provided in Rule 11.9(a)(2)(B).
Proposed Rule Change
Currently, Rule 11.25(e) states that all MTP modifiers (as defined
in Rule 11.9(f)(1)-(5)) for Periodic Auction Orders will be ignored for
executions occurring during a Periodic Auction. As part of the
Exchange's prior Periodic Auction Rule filings,\23\ the Exchange
reasoned that MTP is mainly designed for use on the Continuous Book,
and use of MTP for PAE Orders and PAO Orders (collectively, Periodic
Auction Orders) may complicate the Periodic Auction which requires the
pooling and matching of multiple orders against other orders at the
Periodic Auction Book Price. Based on User feedback, however, Users of
Periodic Auctions desire the ability to utilize MTP for their Periodic
Auction Orders (when the Periodic Auction is not in progress) to help
better manage their order flow and regulatory risk by helping to
prevent the execution of wash sales when a User's buy (sell) Periodic
Auction Order or Continuous Book order inadvertently executes with its
sell (buy) Periodic Auction Order or Continuous Book Order. By reducing
their risk, Users may, in turn, increase their usage of Periodic
Auctions, thereby providing more liquidity, including but not limited
to block size transactions, thereby providing the marketplace with
alternative to off-exchange venues where a growing percentage of such
transactions are executed today.
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\23\ See Securities and Exchange Act Release No 34-91423 (March
26, 2021), 86 FR 17230 (April 1, 2021) (SR-CboeBYX-2020-021).
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Accordingly, the Exchange now seeks to allow Users to enter onto
the Exchange Periodic Auction Orders with MTP instructions (``MTP
Order'').\24\ Importantly, allowing Users to enter MTP Orders will not
impact how the Periodic Auction itself is conducted, and the proposed
MTP functionality will not prevent the completion of a Periodic Auction
once it has been initiated.
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\24\ The Exchange notes that previous proposals extending the
functionality of MTP to other trading scenarios were effective upon
filing with the Commission. See Securities and Exchange Act Release
No. 53429 (December 3, 2010), 75 FR 76763 (December 9, 2010) (SR-
EDGX-2010-18); see also Securities and Exchange Act Release No. 34-
96292 (November 10, 20220), 87 FR 68766 (November 16, 2022) (SR-
CboeEDGX-2022-048).
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The Exchange also wishes to add rule text describing how the System
will handle MTP Orders when a Periodic Auction is in progress. As
proposed, when a Periodic Auction is in progress, there will be
instances where the Exchange has elected to temporarily bypass \25\ the
MTP instruction that a User has included on their MTP Order or apply
MTP and cancel an inbound MTP Order even though such order would trade
with a MTP Order participating in the Periodic Auction originating from
the same Unique Identifier. As described below, when a Periodic Auction
is in progress, how the System applies MTP will depend on whether the
inbound MTP Order is a Continuous Book Order or a Periodic Auction
Order. However, as discussed below, there are instances where the
proposed MTP changes will not result in the System applying MTP 100% of
the time, and indeed, the System may in certain circumstances
temporarily bypass (discussed infra) a User's MTP instructions. While
the proposed MTP design is not without limitations, it does improve
upon the current rule text and System behavior, which do not currently
permit MTP to be used for Periodic Auction Orders.\26\ Importantly,
Users are aware of the limitations discussed below, and still believe
that the proposal, even with its limitations, is a valuable tool for
managing their regulatory risk and encouraging their use of Periodic
Auctions.
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\25\ Functionally, temporarily bypassing an MTP instruction that
a User has included on their MTP Order represents scenarios where
the System will choose to momentarily ignore an MTP instruction only
when the Periodic Auction is in progress. Generally, the System will
ignore an MTP Order's MTP instruction when a Periodic Auction is in
progress, and application of the MTP instruction would disrupt the
Periodic Auction (i.e., applying MTP would cancel an order
participating in the Periodic Auction), and where applying the MTP
instruction would result in the cancellation of a Continuous Book
order that may or may not participate in the Periodic Auction, but
while the Periodic Auction is in progress, could receive an
execution on the Continuous Book. Notably, once the Periodic Auction
Period has completed--i.e., the Periodic Auction has been
completed--an order's MTP instructions will once again persist on
that order.
\26\ See Amendment No. 2, supra note 7.
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The Exchange also notes that the proposed MTP functionality is
intended as a supplementary risk tool that Members may voluntarily use
to help them manage their risk and compliance with applicable
securities rules. As registered broker-dealers, Members are ultimately
responsible for compliance with applicable securities rules and should
not rely on the proposed functionality as a sole means of
[[Page 27729]]
compliance. As such, while the proposed MTP functionality will, in some
instances, operate differently than it does outside of the context of
Periodic Auctions, its design as a supplementary risk tool will still
benefit Members that choose to utilize this tool.
First, proposed Rule 11.25(g)(1)(A) would state that if an Inbound
MTP Continuous Book Order is marketable against a contra-side Resting
MTP Periodic Auction Order participating in the Periodic Auction, the
System will ignore the Inbound Continuous Book Order's MTP instruction
with regards to the Resting MTP Periodic Auction Order both upon entry
as well as at the end of the Periodic Auction Period, and the Inbound
MTP Continuous Book Order will be handled as set forth in Rule
11.25(a)-(e). For the sake of clarity, the end of the Periodic Auction
Period refers to an active part of the Periodic Auction and describes
the time period when the Periodic Auction Book Price has been struck,
and the System has identified which orders are executable at the
Periodic Auction Price. Additionally, the Exchange notes that the
temporary bypassing of MTP the inbound MTP Continuous Book Order is due
to the fact that upon entry the Inbound Continuous Book Order could
receive an execution on the Continuous Book while the Periodic Auction
is in progress. As such, rather than immediately cancel--depending on
the relevant MTP instruction--either the inbound MTP Continuous Book
Order that could execute on the Continuous Book while the Periodic
Auction process is in progress, or the Periodic Auction Order
participating in the Periodic Auction, the Exchange has elected to
temporarily bypass the application of the Inbound Continuous Book
Order's MTP instruction versus the Resting MTP Periodic Auction
Order.\27\ Furthermore, it is only at the end of the Periodic Auction
Period where the Periodic Auction Book Price has been struck, and the
System deems the inbound MTP Continuous Book Order executable at the
Periodic Auction Price, that the inbound MTP Continuous Book Order may
or may not end up participating in the Periodic Auction. In this
regard, the Exchange believes that cancelling the Inbound MTP
Continuous Book order based on the fact that it might trade with the
MTP Periodic Auction Order at the end of the Periodic Auction Period,
is overly restrictive and could deny the User an execution they might
receive on the Continuous Book while the Periodic Auction is in
progress, or result in the cancelation of the resting Periodic Auction
Order, thereby disrupting the completion of the Periodic Auction. To
illustrate the functionality as described in proposed Rule
11.25(g)(1)(A), consider the following example:
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\27\ The temporary bypassing of MTP instructions would not apply
where, upon entry of the inbound MTP Continuous Book Order there was
also a resting MTP Continuous Book Order. In that scenario, based on
the MTP instructions, either the inbound MTP Continuous Book Order
or the resting MTP Continuous Book Order, would cancel.
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Example 1
<bullet> Order 1--Firm A: PAE Order (MTP = Cancel Oldest),\28\ Buy
1000 @10.02.
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\28\ An incoming order marked with the MTP Cancel Oldest
(``MCO'') modifier will not execute against opposite side resting
interest marked with any MTP modifier originating from the same
Unique Identifier. The resting order marked with the MTP modifier
will be cancelled back to the originating User(s). The incoming
order marked with the MCO modifier will remain on the BYX Book. See
Rule 11.9(f)(2).
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<bullet> Order 2--Firm B: PAE Order (MTP = Cancel Oldest), Sell
500, @10.02.
<bullet> Action: Order 2 initiates an auction with Order 1, because
Firm A and Firm B are different entities.
<bullet> Order 3--Inbound order (Firm A): Continuous Book Order
(MTP = Cancel Oldest), Sell 200 @10.02.
<bullet> Action: MTP modifier on Order 3 is temporarily bypassed.
<bullet> Result: Order 3 posts to the BYX Book prior to the end of
the auction; Order 1 and Order 2 trade in the Periodic Auction for 500
@10.02; Order 3 then trades 200 @10.02 with Order 1 (bypassing MTP).
Example 1 demonstrates how the System will temporarily bypass an
inbound Continuous Book Order's MTP instruction when a Periodic Auction
is in progress, despite the User adding MTP instructions to their
Periodic Auction Order(s) and Continuous Book Order(s). Here, Firm B's
Order 2, a PAE Order with an MCO modifier, initiates a Periodic Auction
upon entry with Firm A's Order 1, a resting PAE Order with an MCO
modifier. Firm A subsequently enters a Continuous Book Order (Hidden)
with an MCO modifier. Here, the Exchange will temporarily bypass \29\
the inbound Continuous Book Order's (i.e., Order 3) MTP modifier versus
the resting MTP PAE Order (i.e. Order 1) while the Periodic Auction is
in progress, and such Continuous Book Order would post to the
Continuous Book, and be eligible to participate in the Periodic Auction
(if executable at the Periodic Auction Book Price), or alternatively
receive an execution on the Continuous Book while the Periodic Auction
is in progress.
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\29\ The Exchange notes that the bypassing of the Continuous
Book Order's MTP modifier in this scenario is temporary. Should the
Periodic Auction complete and Order 3 does not have the opportunity
to trade with Order 1 in the Periodic Auction, then Order 3 would
remain posted on the Continuous Book with its MTP modifier and MTP
will be enforced.
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Based on the proposed MTP functionality, Order 3 will be posted to
the BYX Book, and the System will temporarily bypass Order 3's MTP
instruction.\30\ Order 1 and Order 2 will trade in the Periodic Auction
for 500 shares 10.02. After trading with Order 2, Order 1 still has 500
shares remaining. Order 3 which is executable at the Periodic Auction
Price, will now be included in the Periodic Auction, and trade 200
shares with Order 1 @10.02, bypassing the MCO modifier assigned by Firm
A to its Order 1 and Order 3.
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\30\ Id.
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The Exchange believes that temporarily bypassing an MTP modifier in
this scenario is necessary to ensure that a Periodic Auction completes
once it is initiated. Additionally, bypassing Order 3's MTP instruction
is also necessary to avoid disrupting trading in the Continuous Book,
because Order 3 could receive an execution on the Continuous Book while
the Periodic Auction is in progress. While Order 3 could end up
becoming executable at the Periodic Auction Book Price and trade in the
Periodic Auction, the Exchange believes that canceling Order based on
the mere potential that it could trade in the Periodic Auction
unnecessarily prevents a Member from potentially receiving a Continuous
Book execution. While the proposed MTP functionality will explicitly
and automatically temporarily bypass a Member's MTP modifier in this
scenario, the Exchange believes that such behavior appropriately
balances the dual goals of ensuring that Periodic Auctions operate as
designed (i.e., once initiated they will complete, executing the
maximum number of shares), and still provides Members the ability to
utilize MTP for their Periodic Auction Orders in majority of trading
scenarios.
Second, proposed Rule 11.25(g)(1)(B) would state that if an Inbound
MTP Periodic Auction upon entry would, but for the application of MTP,
join the Periodic Auction, and there is a Resting MTP Continuous Book
Order on the BYX Book, then the System will not apply MTP even if the
Resting MTP Continuous Book Order becomes marketable versus the Inbound
MTP Periodic Auction Order and participates in the Periodic Auction.
The Inbound MTP Periodic Auction Order will be handled as set forth in
Rule 11.25(a)-(e). Here, the Exchange believes that the temporarily
bypassing MTP is warranted because the inbound MTP
[[Page 27730]]
Periodic Auction Only Order may or may not end up trading with the MTP
Continuous Book order at the end of the Periodic Auction Period.\31\
Specifically, based on feedback from its Users, the Exchange believes
that canceling the resting MTP Continuous Book Order in this scenario
would be overly restrictive, and based only on a mere possibility that
the MTP Periodic Auction Only Order might trade with the resting MTP
Continuous Book Order.
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\31\ Again, for the sake of clarity, end of the Periodic Auction
Period. refers to an active part of the Periodic Auction, and
describes the time period when the Periodic Auction Book Price has
been struck, and the System has identified which orders are
executable at the Periodic Auction Book Price.
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Moreover, depending on the relevant MTP instructions, application
of MTP could also result in the cancelation of the Inbound MTP Periodic
Auction Order. However, the Exchange believes that canceling the
Inbound MTP Periodic Auction Order would unnecessarily prevent a
marketable order from participating in the Periodic Auction as a User
might expect, based only a mere possibility that the MTP Periodic
Auction Only Order might trade with the resting MTP Continuous Book
Order at the end of the Periodic Auction Period.\32\ To illustrate the
proposed functionality in Rule 11.25(g)(1)(B), consider the following
example:
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\32\ Id.
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Example 2
<bullet> NBBO: 10.00 x 10.05.
<bullet> Order X (Firm B): Buy 100 @10.03-Midpoint Peg PAO.\33\
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\33\ A User may include an instruction on its Periodic Auction
Only Orders to peg such orders to either the midpoint of the NBBO
(``midpoint peg''), or the same side of the NBBO (``primary peg'').
Periodic Auction Only Orders entered with a primary peg instruction
can be pegged to the NBB or NBO, or a certain amount above the NBB
or below the NBO (``offset''). See Rule 11.25(b)(1)(C).
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<bullet> Order Y (Firm C): Sell 100 @10.02-Midpoint Peg PAO.
<bullet> Auction is initiated between Order X and Order Y.
<bullet> Order 1 (Firm A): Buy 100 @10.03-Midpoint Peg Continuous
Book Order-MTP = Cancel Oldest.
<bullet> Order 4 (Firm A): Sell 100 @10.02-Midpoint Peg PAE-MTP =
Cancel Oldest.
<bullet> MTP would be bypassed when Order 4 is entered and Order 4
would join the Periodic Auction in progress.
<bullet> Result: Order X and Order Y trade 100 @10.025 in Periodic
Auction. Order 1 and Order Y trade 100 @10.025 in Periodic Auction.
First, note that a Continuous Book Order cannot initiate a Periodic
Auction.\34\ Therefore, to initiate a Periodic Auction in this example,
assume that two Periodic Auction Orders arrived, from Firm B and Firm
C, prior to Order 1 and Order 4--e.g., Order X (Firm B) and Order Y
(Firm C). Further assume that Order X and Order Y are marketable versus
each other and initiated a Periodic Auction. Additionally, assume that
Order 1, a Continuous Book Order is entered prior to Order 4, and that
Order 1 and Order 4 are designated with MTP modifiers originating from
the same Unique Identifiers.
---------------------------------------------------------------------------
\34\ See Rule 11.25(c), Initiation and Publication of Periodic
Auction Information, ``A Periodic Auction will be initiated in a
security during Regular Trading Hours when one or more Periodic
Auction Orders to buy become executable against one or more Periodic
Auction Orders to sell pursuant to this Rule 11.25.''
---------------------------------------------------------------------------
Upon entry, Order 4, is marketable versus Order X and Order Y,
which are Periodic Auction Orders participating in the Periodic
Auction. As such, the System will temporarily bypass Order 4's MTP
instruction and Order 4 will join the Periodic Auction, despite the
fact that the System could determine that Order 1 is executable at the
Periodic Auction Book Price and thereby participate in the Periodic
Auction, potentially executing against Order 4. Specifically, the
System will temporarily bypass \35\ Order 1's and Order 4's MTP
instruction, and Order 4 will join the Periodic Auction. Order 1 will
remain on the Continuous Book. If Order 1 did not execute in the
Continuous Book while the Periodic Auction was in progress, then Order
1 could potentially execute with Order 4 in the Periodic Auction,
provided that Order 1 has priority as determined by Rule 11.25(f). The
bypassing of the MTP modifiers in this scenario occurs only upon entry
of Order 4 to prevent the cancelation of orders in situations where an
immediate execution would not occur.
---------------------------------------------------------------------------
\35\ The Exchange notes that the bypassing of the MTP modifiers
in this scenario is temporary. Should the Periodic Auction complete
and Order 1 does not have the opportunity to trade with Order 4 in
the Periodic Auction, then Order 1 would remain posted on the
Continuous Book with its MTP modifier and be afforded the
protections of MTP.
---------------------------------------------------------------------------
Here, even though Order 1 and Order 4 both originated from Firm A,
and are designated with an MTP modifier, Order 1 is not canceled upon
Order 4's arrival because Order 1 is a Continuous Book Order that may
or may not end up trading with Order 4 once the Periodic Auction is
complete. Because Order 1 could receive an execution on the Continuous
Book while the Periodic Auction is in progress, the Exchange
temporarily bypasses Order 1's MTP instruction upon Order 4's arrival
to prevent Order 1 from forfeiting a Continuous Book execution based on
a possibility that Order 1 would be executable versus Order 4 at the
completion of the Periodic Auction.
Importantly, BYX notes that the bypassing of an inbound order's MTP
modifier in proposed rule 11.25(g)(1)(A) and 11.25(g)(1)(B) is
temporary and occurs only upon entry of the inbound order. At the
conclusion of the Periodic Auction Period (i.e., the Periodic Auction
has completed and there is no Periodic Auction in progress), the System
would again enforce the MTP modifier consistent with Rule 11.9(f) and
proposed Rule 11.25(g)(2). While the scenarios described in proposed
Rule 11.25(g)(1)(A)-(C) may result in certain executions occurring
despite the User's inclusion of an MTP instruction, or the cancelation
of their inbound Periodic Auction Order when the Periodic Auction is in
progress, the Exchange believes this behavior is necessary and
appropriate to help strike a responsible balance between providing
Users with an optional risk tool and ensuring that Periodic Auctions
will complete once initiated. Importantly, in designing this
functionality, the Exchange consulted with its Periodic Auction Users,
as well as potential new Users, and explained the limitations of MTP
for Periodic Auction Orders, including that in some instances, MTP
modifiers may be temporarily bypassed, or that a User's inbound MTP
Periodic Auction Order may be canceled because it is marketable versus
their MTP Order participating in the Periodic Auction. Despite these
noted limitations, Users still believe the proposed MTP functionality
to be valuable and a reasonable compromise that is likely to foster
their increased use of Periodic Auctions. Should Users find the
proposed functionality to be too complex, or not sufficiently
restrictive in how it applies MTP, Users are free to decline usage of
MTP and instead rely on their own internal risk checks.
Third, proposed Rule 11.25(g)(1)(C) would state that if an Inbound
MTP Periodic Auction Order upon entry is, but for the application of
MTP, marketable against a contra-side Resting MTP Periodic Auction
Order participating in the Periodic Auction, then the Inbound MTP
Periodic Auction Order will be canceled. In this scenario, canceling
the inbound MTP Periodic Auction Order is preferred to prevent
disrupting the Periodic Auction. Moreover, while the Exchange could
alternatively choose to ignore MTP in
[[Page 27731]]
this scenario and allow the inbound MTP Periodic Auction Order join the
Periodic Auction, the Exchange believes its preferred approach strikes
a reasonable balance between disrupting the Periodic Auction once it is
in progress and bypassing a User's MTP instructions. To illustrate the
proposed functionality of Rule 11.25(g)(1)(C), consider the following
example:
Example 3
<bullet> Order 1--Resting (Firm B): PAO Order, Buy 100 @1.00.
<bullet> Order 2--Inbound Order (Firm A): PAE Order (MTP = Cancel
Both),\36\ Sell 200 @1.00.
---------------------------------------------------------------------------
\36\ An incoming order marked with the MTP Cancel Both (``MCB'')
modifier will not execute against opposite side resting interest
marked with any MTP modifier originating from the same Unique
Identifier. The entire size of both orders will be cancelled back to
the originating User(s) See Rule 11.9(f)(4).
---------------------------------------------------------------------------
<bullet> Action: Order 2 initiates a Periodic Auction with Order 1.
<bullet> Order 3--Inbound order (Firm A): PAE Order (MTP = Cancel
Both), Buy 200 @1.00.
<bullet> Result: Order 3 is canceled in order to minimize
disruption of the Periodic Auction.
Example 3 represents proposed rule 11.25(g)(1)(C), and illustrates
System behavior where a Periodic Auction is in progress, and an inbound
Periodic Auction Order is designated with an MTP modifier, and such
order matches against a resting contra-side Periodic Auction Order that
is participating in the Periodic Auction originating from the same
Unique Identifier that is also designated with an MTP modifier. In this
scenario, the inbound Periodic Auction Order will be cancelled.
Importantly, this behavior is necessary to help ensure that once a
Periodic Auction is initiated it will be completed
Here, Firm A's inbound Order 2, a PAE Order to sell 200 @1.00, with
a MTP modifier of MTP MCB immediately starts an auction with Firm B's
Order 1, a resting PAO Order to Buy 100 @1.00, that is participating in
the Periodic Auction. While the Periodic Auction is in progress, Firm A
enters Order 3, a PAE Order to Buy 200 @1.00 with an MCB instruction.
Applying this proposed behavior to Example 3's fact pattern, when Firm
A's Order 3, a PAE Order with an MCB modifier is entered after Periodic
Auction has been initiated and Order 3 subsequently matches with Firm
A's Order 2 (a PAE Order with a MCB modifier), Order 3 will be
cancelled. Without this proposed behavior, Order 3 would otherwise be
included in the Periodic Auction, and its MTP Cancel Both \37\
instruction would result in the cancelation of Order 2, preventing the
Periodic Auction from completing, and denying Firm A an execution it
would otherwise have expected to receive. The Exchange believes that
this proposed behavior appropriately balances the dual goals of
ensuring that Periodic Auctions complete once initiated and providing
Users the ability to utilize MTP for their Periodic Auction Orders in
each of the scenarios described in the preceding examples.
---------------------------------------------------------------------------
\37\ See Rule 11.9(f)(4).
---------------------------------------------------------------------------
Proposed Rule 11.25(g)(1)(D) would state that when a Periodic
Auction is in progress, the System will ignore a Minimum Quantity
instruction appended to a MTP Periodic Auction Order or MTP Continuous
Book Order and will apply MTP as described in 11.25(g)(1)(A)-(C).
Provided, however, when the Periodic Auction has completed (i.e. there
is no longer a Periodic Auction in progress), Minimum Quantity Orders
will execute in accordance with Rule 11.25(b)(2)(C). the System will
again honor an order's Minimum Quantity instructions, and such orders
will not execute against contra-side interest unless the minimum
execution size is satisfied. The Exchange notes it has designed the
proposed MTP and Minimum Quantity Order functionality in this manner
because of the current design of the Exchange's Systems. Generally
speaking, based on existing System architecture, when a Periodic
Auction is in progress and an inbound MTP Periodic Auction Order or
inbound MTP Continuous Book Order is appended with a Minimum Quantity
instruction, the System must perform a hypothetical scan of the
Periodic Auction Book to determine which order(s) can satisfy the
inbound order's Minimum Quantity instruction. When this hypothetical
scan is conducted, though, there may be instances where an order's
Minimum Quantity requirement could be satisfied while the Periodic
Auction is in progress, but when the Periodic Auction Period has
ended--i.e., when the Periodic Auction Book Price has been struck, and
the System has determined which orders are executable at that price--
the composition of orders in the Periodic Auction Book is likely to
differ and the Minimum Quantity order may no longer be capable of being
filled despite being pulled into the Periodic Auction. As such, the
Exchange believes that ignoring a User's Minimum Quantity instructions
on their MTP Order when a Periodic Auction is in progress strikes an
appropriate balance between providing User's a tool to prevent
undesirable wash trades and ensuring that MTP Orders with Minimum
Quantity instructions do not negatively impact the Periodic Auction
process.
Additionally, proposed Rule 11.25(g)(1)(D) will provide that when a
Periodic Auction is in progress, the System will ignore a Minimum
Quantity instruction appended to a MTP Periodic Auction Order or MTP
Continuous Book Order and will apply MTP. However, when the Periodic
Auction has been completed, Minimum Quantity Orders will be executed in
accordance with Rule 11.25(b)(2)(C). To illustrate the behavior of
proposed Rule 11.25(g)(1)(D), consider the following example:
Example 4
<bullet> Order 1 (Firm A): Buy 1000 @10.02-PAE-Min Quantity = 500
(MTP = any).
<bullet> Order 2 (Firm A): Sell 1000 @10.02-PAE (MTP = Cancel
Oldest).
<bullet> Result: The System applies MTP, and cancels Order 1.
Example 4 demonstrates that when a Periodic Auction is in progress
the System will ignore the Minimum Quantity instruction on a Periodic
Auction Order that is also designated with an MTP modifier. Here, even
though the Minium Quantity for Order 1 can be satisfied by Order 2, the
System will apply MTP resulting in the cancelation of Order 1. Note
that for the purposes of this proposed behavior, it does not matter
whether an order's Minimum Quantity instruction could be satisfied. As
such, even if Order 1's Minimum Quantity instruction was not satisfied,
the result would be the same; i.e., the System would apply MTP and
cancel Order 1.
Finally, proposed Rule 11.25(g)(2) addresses how the System will
handle inbound MTP Periodic Auction Orders when a Periodic Auction is
not in progress. Specifically, the Exchange proposes that when a
Periodic Auction is not in progress, the System will apply MTP as
described in Rule 11.9(f), upon receipt of an Inbound MTP Periodic
Auction Order. The MTP modifiers appended to the orders will determine
whether the System cancels the inbound order or the resting order.
Further if in addition to MTP, an Inbound Periodic Auction Order also
includes a Minimum Quantity instruction, the System will ignore the
Inbound Periodic Auction Order's Minimum Quantity instruction and
instead apply MTP. In this scenario, the System will ignore the Inbound
MTP Periodic Auction Order's Minimum Quantity instruction because
[[Page 27732]]
the System first applies an order's Minimum Quantity instruction when
an order includes both Minimum Quantity and MTP. However, when the
System first applies the Inbound MTP Periodic Auction Order's Minimum
Quantity instruction, and the Inbound MTP Periodic Auction Order's
Minimum Quantity is not satisfied by other orders, the Inbound MTP
Periodic Auction Order will not be executable. As such, the System will
not need to consider the application of MTP as there is no execution to
prevent. In such event, both the Inbound MTP Periodic Auction Order and
any resting orders originating from the same Unique Identifier could
then be included in the Periodic Auction. However, if additional orders
join the Periodic Auction and satisfy the Inbound MTP Periodic Auction
Order's Minimum Quantity instruction, then such order could become
executable. This may, in turn, result in wash sales, because once the
Periodic Auction is in progress the System will ignore MTP (as
described further above). Accordingly, the Exchange believes that
ignoring Minimum Quantity on an Inbound MTP Periodic Auction Order is
reasonable in that such proposal is designed to help User's manage
their risk and prevent undesirable wash sales.
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.\38\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \39\ 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) \40\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
---------------------------------------------------------------------------
\38\ 15 U.S.C. 78f(b).
\39\ 15 U.S.C. 78f(b)(5).
\40\ Id.
---------------------------------------------------------------------------
In particular, the Exchange believes that its proposed MTP
functionality is designed to promote the just and equitable principles
of trade, and to protect investors and the public interest, by enabling
Users to better prevent undesirable trading activity such as wash sales
or self-trades for not only their Continuous Book Orders, but their
Periodic Auction Orders as well. Additionally, by providing Users with
a supplemental risk tool that will better enable them to achieve
compliance with applicable securities rules and regulations, the
proposed rule change will help to further ensure that orders eligible
for execution in the Periodic Auction indeed represent genuine trading
interest from separate and distinct firms. While the proposed MTP
functionality would not operate identically to MTP as it is used in
non-Periodic Auction scenarios, the Exchange believes that its proposal
strikes an appropriate balance between ensuring Users receive
executions in the Periodic Auction and providing Users' the ability to
utilize MTP in most trading situations involving Periodic Auctions.
Moreover, the Exchange notes that the use of MTP on Periodic Auction
Orders is entirely optional, and Users may choose whether they want to
utilize MTP. The Exchange conferred with its Periodic Auction Users and
despite the limitations described in Rule 11.25(g)(1)(A)-(D), Users
still requested that the Exchange implement the proposed functionality.
Moreover, the Exchange will issue an Exchange Notice that notifies all
Users of the planned implementation date for the proposed MTP
functionality and describes the functionality. Accordingly, Users will
be fully aware of how MTP will impact their Periodic Auction Orders.
Furthermore, by making clear to Users how MTP will be managed by
the System when the Periodic Auction is in progress, Users will be able
to anticipate how MTP modifiers will interact with their Periodic
Auction Orders and mitigate any confusion that Users may have in using
the proposed functionality. In particular, proposed Rule
11.25(g)(1)(A)-(D) identifies the discrete scenarios where the
application of MTP is temporarily bypassed by the System so as to not
interrupt the Periodic Auction that is in progress, as well as to avoid
canceling MTP Continuous Book Orders and denying them an opportunity to
execute on the Continuous Book while the Periodic Auction is in
progress. By highlighting these four scenarios, Users will have a more
concrete understanding of when and how they can expect MTP to provide
them with wash sale protection, thereby better informing their trading
decisions.
Furthermore, by making clear how the Exchange will ignore Minimum
Quantity instructions appended to MTP Orders when a Periodic Auction is
in progress, Users will be better informed as to how MTP operates in
conjunction with Minimum Quantity restrictions and will be better able
to manage their Periodic Auction Orders. The Exchange notes that while
ignoring a User's Minimum Quantity instruction for their MTP Periodic
Auction Orders is not ideal, this functionality is necessary in order
to avoid adding unnecessary complexity to the Exchange's System. As
discussed further above, by incorporating Minimum Quantity into the
Periodic Auction process it is likely to add latency to this process,
leading to longer Periodic Auction times. Rather than impacting Users'
Periodic Auction experience, the Exchange has elected to incorporate
User feedback and instead choose, in the limited circumstance of when a
Periodic Auction is in progress, ignored Minimum Quantity instructions
appended to MTP Periodic Auction Orders. The Exchange further notes
that while ignoring a User's Minimum Quantity instruction for their MTP
Periodic Auction Orders while the Periodic Auction is in progress is
not ideal, this functionality is necessary in order to avoid adding
unnecessary complexity to the Exchange's System. As discussed further
above, by incorporating Minimum Quantity into the Periodic Auction
process it is likely to add latency to this process, leading to longer
Periodic Auction times. Rather than impacting Users' Periodic Auction
experience, the Exchange has elected to incorporate User feedback and
instead choose, in the limited circumstance of when a Periodic Auction
is in progress, ignored Minimum Quantity instructions appended to MTP
Periodic Auction Orders.
Additionally, by making clear that when a Periodic Auction is not
in progress that the System will ignore an Inbound MTP Periodic Auction
Order's Minimum Quantity instruction, Users will be better informed as
to how MTP operates in conjunction with Minimum Quantity restrictions
and will be better able to manage their Periodic Auction Orders. As
discussed more fully above, when a Periodic Auction is not in progress
the System will, upon receipt of an Inbound MTP Periodic Auction Order
that also includes a Minimum Quantity instruction, apply MTP as
described in Rule 11.9(f), and ignore such order's Minimum Quantity
instruction. The MTP modifiers
[[Page 27733]]
appended to the orders will determine whether the System cancels the
inbound order or the resting order. The System will ignore the Inbound
MTP Periodic Auction Order's Minimum Quantity instruction because by
design System first applies an inbound order's Minimum Quantity
instruction when an order includes both Minimum Quantity and MTP.
However, when the System first applies the Inbound MTP Periodic Auction
Order's Minimum Quantity instruction, and the Inbound MTP Periodic
Auction Order's Minimum Quantity is not satisfied by other outstanding
orders, the Inbound MTP Periodic Auction Order will not be executable.
As such, the System will not need to consider the application of MTP as
there is no execution to prevent. In such event, both the Inbound MTP
Periodic Auction Order and any resting orders originating from the same
Unique Identifier could then be included in the Periodic Auction.
However, if additional orders join the Periodic Auction and satisfy the
Inbound MTP Periodic Auction Order's Minimum Quantity instruction, then
such order could become executable. This may, in turn, result in wash
sales, because the System will ignore MTP (as described further above)
when the Periodic Auction is in progress. In this regard, the Exchange
believes that ignoring Minimum Quantity on an Inbound MTP Periodic
Auction Order will promote the just and equitable principles of trade
and protect investors and the public interest.
Additionally, the Exchange believes that the proposed rule changes
are designed to facilitate transactions in securities, and to remove
impediments to and perfect the mechanism of a free and open market and
a national market system. Based on User feedback, the lack of MTP
functionality for Periodic Auction Orders may discourage Users from
entering Periodic Auction Orders because they do not have an automated
way to systematically prevent undesirable executions resulting from
orders originating from a User's algorithm or trading desk, or their
related algorithms or trading desks. In this regard, the proposed rule
changes may encourage Users to increase their Periodic Auction
participation, thereby further enhancing the Periodic Auction liquidity
pool and the ability of investors to execute larger orders that may
otherwise be difficult to execute without market impact in the
continuous market. Additionally, because Periodic Auctions are price-
forming, the enhanced liquidity pools would indeed augment Periodic
Auction's valuable price discovery function, which may be particularly
helpful for investors when trading securities that typically trade with
wider spreads.
Finally, the Exchange further believes that the proposed rule
change does not unfairly discriminate amongst Users because the
proposal will allow all Periodic Auction Users to utilize MTP just as
all Users entering Continuous Book Orders may utilize MTP today. In
this regard, the proposed amendment will avoid disparate treatment of
Users. Furthermore, the bypassing or amending of MTP modifiers, as
described in the Examples above, will apply equally to all Periodic
Auction Users, regardless of the User's size.
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. MTP is an optional risk tool
offered by the Exchange and Periodic Auction Users are free to decide
whether to use MTP when submitting Periodic Auction Orders to the
Exchange. Similarly, the Exchange does not believe that the proposed
amendment poses a burden on intermarket competition that is not
necessary or appropriate in furtherance of the Act. Indeed, the
proposed rule change is designed to increase competition by offering
Periodic Auction Users the ability to better manage their order flow
and prevent undesirable executions. In turn, Users may be further
incentivized to send additional orders to BYX's Periodic Auction
mechanism, thereby fostering competition amongst exchanges, as well as
with off-exchange venues (e.g., alternative trading systems) where
Users that may otherwise utilized Periodic Auctions, typically seek to
source block-sized liquidity.\41\
---------------------------------------------------------------------------
\41\ See ``Trade Big with Cboe U.S. Periodic Auctions,''
available at: <a href="https://www.cboe.com/us/equities/trading/offerings/periodic_auctions/">https://www.cboe.com/us/equities/trading/offerings/periodic_auctions/</a>. (``Cboe created its patented Periodic Auctions
to establish an on-exchange alternative to the growth of off-
exchange liquidity. Most recently, the use of conditional order
types on Alternative Trading Systems (ATSs) has reached new highs as
a percentage of ATS volumes. Periodic Auctions would offer a new
price forming auction for investors seeking liquidity, including but
not limited to block size transactions, during the course of the
trading day. These intraday auctions may be a useful tool to attract
buyers and sellers in less liquid or wider spread names, and would
create an equal and fair market for market participants and
investors that wish to either initiate or respond to such auctions.
Periodic Auctions will be available on Cboe's BYX<SUP>TM</SUP>
market center.'').
---------------------------------------------------------------------------
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 written comments on the
proposed rule change.
III. Discussion and Commission Findings
After careful consideration, the Commission finds that the proposed
rule change, as modified by Amendments No. 1 and No. 2, is consistent
with the requirements of the Act and the rules and regulations
thereunder applicable to a national securities exchange.\42\ In
particular, the Commission finds that the proposed rule change is
consistent with Section 6(b)(5) of the Act,\43\ which requires, among
other things, that the rules of a national securities exchange be
designed to prevent fraudulent and manipulative 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.
---------------------------------------------------------------------------
\42\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
\43\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
As more fully described above, the proposal will allow Users to
utilize MTP functionality when a Periodic Auction is in progress. The
Exchange states that MTP allows Users to better manage their order flow
to prevent undesirable trading activity such as wash sales or self-
trades that may occur as a result of the velocity of trading in today's
high-speed marketplace, but that MTP is an optional order instruction
and Users are not required to utilize this functionality.\44\ The
Commission believes that the proposed application of MTP in certain
situations that do not disrupt a Periodic Auction reasonably balances
the goal of preventing of wash sales or self-trades against the goal of
allowing Periodic Auctions to continue without interruption. In
addition, the Exchange states that, in order to avoid potential
disruptions of Periodic Auctions and to allow the benefits of MTP, it
will prioritize a user's MTP instructions over its Minimum Quantity
instructions for Period Auction Orders in certain instances.\45\ The
Commission
[[Page 27734]]
believes that the proposed application of MTP and Minimum Quantity
Instructions in the context of the Exchange's Periodic Auctions and the
proposed handling of Periodic Auction Orders with MTP instructions is
reasonably designed to enable increased access to the benefits of MTP
while minimizing the risk that MTP Orders with Minimum Quantity
instructions negatively impact the Periodic Auction process.
Accordingly, the Commission finds that the proposed rule change, as
modified by Amendments No. 1 and No. 2, is consistent with the Exchange
Act,\46\ and the rules and regulations thereunder applicable to a
national securities exchange.
---------------------------------------------------------------------------
\44\ See Amendment No. 1 at 5-6.
\45\ See Amendment No. 1 at 21.
\46\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
IV. Solicitation of Comments on Amendments No. 1 and No. 2 to the
Proposed Rule Change
Interested persons are invited to submit written data, views, and
arguments concerning whether Amendments No. 1 and No. 2 are 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#c4b6b1a8a1e9a7aba9a9a1aab0b784b7a1a7eaa3abb2"><span class="__cf_email__" data-cfemail="5624233a337b35393b3b333822251625333578313920">[email protected]</span></a>. Please include
file number
SR-CboeBYX-2025-008 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-2025-008. 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-2025-008 and should
be submitted on or before July 18, 2025.
V. Accelerated Approval of Proposed Rule Change, as Modified by
Amendments No. 1 and No. 2
The Commission finds good cause, pursuant to Section 19(b)(2) of
the Act, for approving Amendments No. 1 and No. 2 prior to the 30th day
after the date of publication of notice of Amendments No. 1 and No. 2
in the Federal Register. Amendment No. 1 provides additional
clarification and details regarding the operation of MTP and Minimum
Quantity instructions in the context of Periodic Auctions, as well as
additional legal analysis to support the Exchange's position that the
proposal is consistent with the Act. Amendment No. 2 corrects minor
errors in the proposed rule text and filing. Amendments No. 1 and No. 2
raises no novel regulatory issues that have not previously been subject
to comment and does not significantly alter the proposed operation of
the proposed rule change. Accordingly, the Commission finds good cause,
pursuant to Section 19(b)(2) of the Act,\47\ to approve the proposed
rule change, as modified by Amendments No. 1 and No. 2, on an
accelerated basis.
---------------------------------------------------------------------------
\47\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------
VI. Conclusion
For the reasons set forth above, the Commission finds that the
proposed rule change, as modified by Amendments No. 1 and No. 2, is
consistent with the requirements of the Act and the rules and
regulations thereunder applicable to a national securities exchange
and, in particular, the requirements of Section 6(b)(5) of the Act.\48\
---------------------------------------------------------------------------
\48\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\49\ that the proposed rule change (SR-CboeBYX-2025-008), as
modified by Amendments No. 1 and No. 2, is approved.
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\49\ 15 U.S.C. 78s(b)(2)
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\50\
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\50\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-11873 Filed 6-26-25; 8:45 am]
BILLING CODE 8011-01-P
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</html>Indexed from Federal Register on June 27, 2025.
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