Notice2026-01520
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing of a Proposed Rule Change To Amend the Opening Auction Process Provided Under Rule 11.23(b)(2)(B) To Delay the Opening Auction Under Certain Market Conditions in Order To Improve Price Discovery and Allow Executions To Occur at Prices That Better Reflect Current Market Conditions
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 27, 2026
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 91 Issue 17 (Tuesday, January 27, 2026)</title>
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[Federal Register Volume 91, Number 17 (Tuesday, January 27, 2026)]
[Notices]
[Pages 3588-3594]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-01520]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-104654; File No. SR-CboeBZX-2026-004]
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of
Filing of a Proposed Rule Change To Amend the Opening Auction Process
Provided Under Rule 11.23(b)(2)(B) To Delay the Opening Auction Under
Certain Market Conditions in Order To Improve Price Discovery and Allow
Executions To Occur at Prices That Better Reflect Current Market
Conditions
January 22, 2026.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on January 8, 2026, Cboe BZX Exchange, Inc. (the ``Exchange'' or
``BZX'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Cboe BZX Exchange, Inc. (``BZX'' or the ``Exchange'') is filing
with the Securities and Exchange Commission (``Commission'' or ``SEC'')
a proposal to amend the Opening Auction Process provided under Rule
11.23(b)(2)(B) to delay the Opening Auction under certain market
conditions in order to improve price discovery and allow executions to
occur at prices that better reflect current market conditions. The text
of the proposed rule change is provided in Exhibit 5.
The text of the proposed rule change is also available on the
Commission's website (<a href="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>), the
Exchange's website (<a href="https://www.cboe.com/us/equities/regulation/rule_filings/bzx/">https://www.cboe.com/us/equities/regulation/rule_filings/bzx/</a>), and at the principal office of the Exchange.
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 11.23(b)(2)(B) to delay the
Opening Auction under certain market conditions to improve price
discovery and allow executions to occur at prices that better reflect
current market conditions. Specifically, as proposed, the Rule would
provide that when (1) there is a Valid National Best Bid and Offer
(``NBBO'') \3\ but the Indicative
[[Page 3589]]
Price \4\ is outside the Collar Price Range \5\ established using the
NBBO (the ``NBBO-established Collar Price Range'') or (2) there is no
Valid NBBO and the Indicative Price is outside the Collar Price Range
established using the Final Last Sale Eligible Trade (``FLSET'') \6\
(the ``FLSET-established Collar Price Range''), the Opening Auction
will be delayed until market conditions improve or the delay period has
lapsed, as further described below. In addition to these changes above,
the Exchange proposes to amend the definition of ``BZX Official Opening
Price'' to allow odd lot trades to set the BZX Official Opening Price.
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\3\ As provided in Rule 11.23(a)(23), a NBBO is a Valid NBBO
where: (i) there is both a NBB and NBO for the security; (ii) the
NBBO is not crossed; and (iii) the midpoint of the NBBO is less than
the Maximum Percentage away from both the NBB and the NBO. See
Exchange Rule 11.23(a)(23). The Maximum Percentage will vary
depending on the price of the NBBO midpoint. Currently, the Maximum
Percentages are as follows: for a NBBO midpoint price less than or
equal to $25, the Maximum Percentage is 5%; for a NBBO midpoint
price greater than $25 but less than or equal to $50, the Maximum
Percentage is 2.5%; for a NBBO midpoint price greater than $50, the
Maximum Percentage is 1.5%. See Section 1.5 (Definitions) of the US
Equities Auction Process at <a href="https://cdn.cboe.com/resources/membership/Cboe_US_Equities_Auction_Process.pdf">https://cdn.cboe.com/resources/membership/Cboe_US_Equities_Auction_Process.pdf</a>.
\4\ The term ``Indicative Price'' shall mean the price at which
the most shares from the Auction Book and the Continuous Book would
match. In the event of a volume based tie at multiple price levels,
the Indicative Price will be the price which 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 Indicative
Price will be the price closest to the Volume Based Tie Breaker. See
Exchange Rule 11.23(a)(10). The term ``Volume Based Tie Breaker''
shall mean the midpoint of the NBBO for a particular security where
the NBBO is a Valid NBBO. A NBBO is a Valid NBBO where: (i) there is
both a NBB and NBO for the security; (ii) the NBBO is not crossed;
and (iii) the midpoint of the NBBO is less than the Maximum
Percentage away from both the NBB and the NBO. The Maximum
Percentage will be determined by the Exchange and will be published
in a circular distributed to Members with reasonable advance notice
prior to initial implementation and any change thereto. Where the
NBBO is not a Valid NBBO, the price of the Final Last Sale Eligible
Trade will be used. See Exchange Rule 11.23(a)(23).
\5\ The term ``Collar Price Range'' shall mean the range from a
set percentage below the Collar Midpoint (as defined below) to above
the Collar Midpoint, such set percentage being dependent on the
value of the Collar Midpoint at the time of the auction, as
described below. The Collar Midpoint will be the Volume Based Tie
Breaker for all applicable auctions, except for IPO Auctions in ETPs
(as defined in Rule 11.8, Interpretation and Policy .02(d)(2)), for
which the Collar Midpoint will be the issue price. Specifically, the
Collar Price Range will be determined as follows: where the Collar
Midpoint is $25.00 or less, the Collar Price Range shall be the
range from 10% below the Collar Midpoint to 10% above the Collar
Midpoint; where the Collar Midpoint is greater than $25.00 but less
than or equal to $50.00, the Collar Price Range shall be the range
from 5% below the Collar Midpoint to 5% above the Collar Midpoint;
and where the Collar Midpoint is greater than $50.00, the Collar
Price Range shall be the range from 3% below the Collar Midpoint to
3% above the Collar Midpoint. See Exchange Rule 11.23(a)(6).
\6\ The term ``Final Last Sale Eligible Trade'' shall mean the
last round lot trade occurring during Regular Trading Hours on the
Exchange if the trade was executed within the last one second prior
to either the Closing Auction or, for Halt Auctions, trading in the
security being halted. Where the trade was not executed within the
last one second, the last round lot trade reported to the
consolidated tape received by the Exchange during Regular Trading
Hours and, where applicable, prior to trading in the security being
halted will be used. If there is no qualifying trade for the current
day, the BZX Official Closing Price from the previous trading day
will be used. See Exchange Rule 11.23(a)(9). As noted in the
definition of Final Last Sale Eligible Trade, if no qualifying trade
occurs on the current day, the BZX Official Closing Price from the
previous day will be used. Under Rule 11.23(c)(2)(B)(ii), the BZX
Official Closing Price may, in certain circumstances, be determined
using the time-weighted average price of the NBBO midpoint measured
over the last five minutes of Regular Trading Hours. Consequently,
both the BZX Official Closing Price and the Final Last Sale Eligible
Trade may be determined based on a time-weighted average price
calculation rather than an actual trade.
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The Exchange notes that the official opening price disseminated by
the primary listing market (such as the BZX Official Opening Price) \7\
provides market participants valuable information that is typically
used to calculate the initial limit up-limit down (``LULD'') price
bands \8\ and also may serve as the basis for trading strategies for
that trading day.\9\ The Exchange believes the proposal will result in
1) fewer LULD Halts due to LULD bands that are based on a stale price
(i.e., the BZX Official Closing Price); and 2) more accurate Collar
Price Ranges that are based on current market conditions rather than
the BZX Official Closing Price. The Exchange believes the benefit of
allowing crossed auction interest to execute at the price that better
reflects market conditions for a given security, outweighs any minimal
and finite delay in the dissemination of the BZX Official Opening Price
and LULD price bands. As such, the Exchange believes that this proposal
strikes an appropriate balance by providing additional time for the
Opening Auction Process to facilitate more meaningful price formation
that better reflects current market conditions for BZX-listed
securities, while limiting any delay to ensure the BZX Official Opening
Price is still reported to the Securities Information Processor
(``SIP'') \10\ by 9:35 a.m. and used to set the LULD price bands.
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\7\ The term ``BZX Official Opening Price'' shall mean the price
disseminated to the consolidated tape as the market center opening
trade. See Exchange Rule 11.23(a)(5).
\8\ The LULD Plan to Address Extraordinary Market Volatility
(the ``LULD Plan'') provides for a market-wide LULD mechanism
intended to address extraordinary market volatility in NMS Stocks,
as defined in Rule 600(b)(55) of Regulation NMS under the Exchange
Act. The LULD Plan sets forth procedures that provide for market-
wide LULD requirements to prevent trades in individual NMS Stocks
and from occurring outside the specified LULD price bands''.
\9\ The Exchange further notes that the official opening price
is not as important or time sensitive as the official closing price
disseminated by the primary listing market, which is used for the
pricing and valuation of certain indices, funds and derivative
products.
\10\ The SIP links the U.S. markets by processing and
consolidating all protected bid/ask quotes and trades from every
trading venue into a single data feed.
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Background--Current Opening Auction Process
As noted above, the Exchange proposes to amend its Opening Auction
Process to allow, under limited circumstances, a delay that would
enable additional information to be incorporated into the determination
of the Opening Auction price. Currently, Rule 11.23(b)(2)(B) sets forth
the process by which the BZX Official Opening Price is determined for
BZX-listed securities during the Opening Auction Process (hereinafter
referred to as the ``Standard Opening Process''). Specifically, as
currently provided in Rule 11.23(b)(2)(B), the Opening Auction price
will be the price level within the Collar Price Range that maximizes
the number of shares executed between the Continuous Book \11\ and
Auction Book \12\ in the Opening Auction. In the event of a volume
based tie at multiple price levels, the Opening Auction price will be
the price which 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 Opening Auction price will be the price closest to
the Volume Based Tie Breaker.\13\
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\11\ The term ``Continuous Book'' shall mean all orders on the
BZX Book that are not Eligible Auction Orders. See Exchange Rule
11.23(a)(7).
\12\ The term ``Auction Book'' shall mean all Eligible Auction
Orders on the BZX Book. See Exchange Rule 11.23(a)(1).
\13\ The term ``Volume Based Tie Breaker'' shall mean the
midpoint of the NBBO for a particular security where the NBBO is a
Valid NBBO. A NBBO is a Valid NBBO where: (i) there is both a NBB
and NBO for the security; (ii) the NBBO is not crossed; and (iii)
the midpoint of the NBBO is less than the Maximum Percentage away
from both the NBB and the NBO. The Maximum Percentage will be
determined by the Exchange and will be published in a circular
distributed to Members with reasonable advance notice prior to
initial implementation and any change thereto. Where the NBBO is not
a Valid NBBO, the price of the Final Last Sale Eligible Trade will
be used. See Exchange Rule 11.23(a)(23).
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The Collar Price Range for an Opening Auction is the range from a
set percentage below the Collar Midpoint (which is generally the Volume
Based Tie Breaker) to above the Collar Midpoint.\14\ The Collar
Midpoint (and Volume Based Tie Breaker) will be the midpoint of the
NBBO where there is a Valid NBBO. Where there is no Valid NBBO, the
FLSET will be used as the Collar Midpoint (and Volume Based Tie
Breaker).
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\14\ Supra note 5.
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Proposal
The Exchange notes, however, that because the FLSET \15\ is
typically based
[[Page 3590]]
on the most recent execution in a security during Regular Trading
Hours,\16\ its value may be significantly away from the Indicative
Price at the time of the Opening Auction Process.\17\ As a result, the
Exchange has observed instances where auction eligible orders priced
in-line with the Indicative Price were not executed in the Opening
Auction because they were outside the FLSET-established Collar Price
Range. Based on analysis by the Exchange and feedback from market
participants, certain of these instances prevented orders from
executing in the Opening Auction at prices that would have been
acceptable to both parties.
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\15\ Supra note 6.
\16\ See Exchange Rule 1.5(w).
\17\ The Exchange notes that such price differences may be
particularly exacerbated for leveraged exchange-traded products
(``ETPs'').
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To address the circumstances described, above, the Exchange is
proposing to change its Opening Auction process in circumstances where
the Indicative Price is outside the Collar Price Range--whether an
FLSET-established Collar Price Range or NBBO-established Collar Price
Range. The proposal is designed to prevent the cancellation of auction
eligible orders priced equally or more aggressively than the Indicative
Price, which the Exchange believes will result in Opening Auctions that
occur at a price that better reflects current market conditions. The
proposed process follows the general framework of the LULD re-opening
process provided under existing Exchange Rules.\18\
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\18\ See Exchange Rule 11.23(d)(2)(C).
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The Exchange proposes to modify the definition of BZX Official
Opening Price in Rule 11.23(a)(5). Existing Rule 11.23(a)(5) provides
that the term ``BZX Official Opening Price'' shall mean the price
disseminated to the consolidated tape as the market center opening
trade.\19\ Based on this rule text, the Exchange currently allows only
round-lot trades to set the BZX Official Opening Price. The Exchange
now proposes to revise the definition to provide that the term ``BZX
Official Opening Price'' shall mean the price disseminated to the
consolidated tape as the market center official open (rather than
market center opening trade). This change would align the Exchange's
terminology with the terms used in specification documents related to
the Consolidated Tape System Participation Input Binary Specification
(``CTS SIP'') \20\ and would encompass both odd-lot and round-lot
executions. The proposed change would allow the Exchange to determine
the BZX Official Opening Price by execution of either a round-lot or an
odd-lot trade in the Opening Auction. The Exchange believes it is
important to allow an odd-lot execution in the Opening Auction to set
the BZX Official Opening Price because such a price would better
reflect current market conditions.
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\19\ Market center opening trade is a term that is consistent
with a sale condition set forth in the Consolidated Tape System
(``CTS'') participant input binary specification document. See e.g.,
CTS Input Specification. The market center opening trade sale
condition requires a round-lot execution.
\20\ ``Market Center Official Open'' indicates the official
opening value as determined by a market center for purposes of the
Consolidated Tape System (``CTS'') participant input binary
specification document. See e.g., CTS Input Specification.
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The Exchange also proposes to expand the definition of BZX Official
Opening Price to provide that the BZX Opening Auction price shall be
the BZX Official Opening Price for issues that participate in the BZX
Opening Auction. In the event there is no Opening Auction for an issue,
the BZX Official Opening Price will be the price of the Final Last Sale
Eligible Trade. This additional language is being moved from existing
Rule 11.23(b)(2)(B) to more clearly explain how the BZX Official
Opening Price is determined. The Exchange does not propose to move (and
therefore proposes to eliminate) the portion of existing Rule
11.23(b)(2)(B) that provides that the FLSET will be the previous BZX
Official Closing Price, because as proposed an FLSET may occur between
9:30:00 and 9:34:30, as described further below.
Next, as the proposal would allow the Opening Auction to occur
later than 9:30 a.m. ET in certain circumstances, the Exchange also
proposes to modify Rules 11.23(b)(1)(A) and (B) to reflect this
variable timing. Specifically, as amended Rule 11.23(b)(1)(A) would
state that Users may submit orders to the Exchange as set forth in Rule
11.1. Any Eligible Auction Orders designated for the Opening Auction
will be queued for participation in the Opening Auction. Users may
submit limit-on-open (``LOO'') and market-on-open (``MOO'') orders
until 9:28 a.m., at which point any additional LOO and MOO orders
submitted to the Exchange will be rejected. Regular Hours Only \21\
(``RHO'') market orders will also be rejected from 9:28 a.m. until the
Opening Auction has concluded. Users may submit late-limit-on-open \22\
(``LLOO'') orders from 9:28 a.m. until the Opening Auction has
concluded. Any LLOO orders submitted before 9:28 a.m. or after the
Opening Auction has concluded will be rejected. RHO limit orders
submitted from 9:28 a.m. until the Opening Auction has concluded will
be treated as LLOO orders.\23\ Any portion of such order that remains
unexecuted after the Opening Auction concludes will revert to RHO limit
order treatment. As amended, Rule 11.23(b)(1)(B) would state that
Eligible Auction Orders designated for the Opening Auction may not be
cancelled or modified from 9:28 a.m. until the Opening Auction has
concluded except that RHO limit orders designated for the Opening
Auction may be modified, but not cancelled, from 9:28 a.m. until the
time the Opening Auction has concluded. Any such RHO limit orders
modified from 9:28 a.m. until the Opening Auction has concluded will be
treated as LLOO orders until the Opening Auction has concluded. Any
portion of such order that remains unexecuted after the Opening Auction
concludes will revert to RHO limit order treatment.
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\21\ See Exchange Rule 11.9(b)(7).
\22\ See Exchange Rule 11.23(a)(12).
\23\ Consistent with Rule 11.1, Continuous book orders (i.e.,
Day orders) may continue to be submitted after 9:28 a.m. as trading
may occur on the continuous book.
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Proposed Rule 11.23(b)(2)(B)(i) would set forth the ``Standard
Opening Process'' as described above and currently provided for in
existing Rule 11.23(b)(2)(B). However, the Standard Opening Process
would only apply if the conditions of proposed Rule 11.23(b)(2)(B)(i)
or (ii) are met. Specifically, the Opening Auction price will be
established pursuant to the Standard Opening Process if (i) there is a
Valid NBBO and the Indicative Price is within the NBBO-established
Collar Price Range, or (ii) there is no Valid NBBO and the Indicative
Price is within the FLSET-established Collar Price Range.
Proposed Rule 11.23(b)(2)(B)(iii) would delay the Opening Auction
and set forth an alternative Opening Auction Process in subparagraphs
(a) and (b), as discussed below, if the conditions in proposed Rules
11.23(b)(2)(B)(i) or (ii) are not met.
(a) Initial Five-Second Delay Period (9:30:00-9:30:05)
The System will check every second from 9:30:00 to 9:30:05 to
determine whether (1) there is a Valid NBBO and the Indicative Price is
within the NBBO-established Collar Price Range, or (2) there is no
Valid NBBO and the Indicative Price is within the FLSET-established
Collar Price Range. If either condition is met during a check, the
Opening Auction price will be established pursuant to the Standard
Opening Auction Process.
[[Page 3591]]
If, during any one-second check, there is no Indicative Price
(i.e., there is no longer crossed interest), the Opening Auction would
occur immediately pursuant to proposed Rule 11.23(2)(B)(v), which
provides that the BZX Official Opening Price will be the price of the
FLSET.
(b) Collar Widening and Extended Delay Period (9:30:05-9:34:30)
If the Opening Auction has not occurred by 9:30:05, the System will
widen the Collar Price Range in the direction of the Indicative Price
by 5% of the Volume Based Tie Breaker \24\ as of 9:30:05 a.m. (the
``Widening Amount'').\25\ The Volume Based Tie Breaker will be locked
in at 9:30:05 and will be used for all subsequent collar widenings. If
the Indicative Price is within the widened Collar Price Range, the
Opening Auction price will be established pursuant to the Standard
Opening Auction Process. If the Indicative Price is not within the
widened Collar Price Range, the Opening Auction will be further
delayed, as discussed below.
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\24\ As referenced in the definition of Volume Based Tie
Breaker, if there is no Valid NBBO, the FLSET will be used as the
Volume Based Tie Breaker. See Exchange Rule 11.23(a)(23).
\25\ The Exchange notes that Widening Amount will be locked-in
as of 9:30:05 and will not change between 9:30:05 and 9:34:30 even
in the event that a round lot trade (i.e., a FLSET) reported to the
consolidated tape after that 9:30:05.
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Proposed Rules 11.23(b)(2)(B)(iii)(b)(1) through (4) would set
forth the delay of the Opening Auction if no auction occurred between
9:30:05 and 9:34:30. Specifically, the proposed Rules would provide:
(1) The System will check to see whether the Indicative Price is
inside the widened Collar Price Range every second between 9:30:05 and
9:30:30 a.m. If the Indicative Price is inside the widened Collar Price
Range during a check, the Opening Auction price will be established
pursuant to the Standard Opening Auction Process.
(2) If by 9:30:30 a.m. the Indicative Price is not within the
widened Collar Price Range, the Collar Price Range will again widen by
the Widening Amount (based on the locked-in 9:30:05 Volume Based Tie
Breaker). The System will check to see whether the Indicative Price is
inside the widened Collar Price Range every second between 9:30:30 and
9:31:30 a.m. If an Indicative Price is inside the widened Collar Price
Range during a check, the Opening Auction price will be established
pursuant to the Standard Opening Auction Process.
(3) If by 9:31:30 a.m. the Indicative Price is not within the
widened Collar Price Range, the Collar Price Range will again widen by
the Widening Amount. The System will check to see whether the
Indicative Price is inside the widened Collar Price Range every second
between 9:31:30 and 9:32:30 a.m. If an Indicative Price is inside the
widened Collar Price Range during a check, the Opening Auction price
will be established pursuant to the Standard Opening Auction Process.
(4) If by 9:32:30 a.m. the Indicative Price is not within the
widened Collar Price Range, the Collar Price Range will again widen by
the Widening Amount. The System will check to see whether the
Indicative Price is inside the widened Collar Price Range every second
between 9:32:30 and 9:33:30 a.m. If an Indicative Price is inside the
widened Collar Price Range during a check, the Opening Auction price
will be established pursuant to the Standard Opening Auction Process.
(5) If by 9:33:30 a.m. the Indicative Price is not within the
widened Collar Price Range, the Collar Price Range will again widen by
the Widening Amount. The System will check to see whether the
Indicative Price is inside the widened Collar Price Range every second
between 9:33:30 and 9:34:30 a.m. If an Indicative Price is inside the
widened Collar Price Range during a check, the Opening Auction price
will be established pursuant to the Standard Opening Auction Process.
(6) If no Opening Auction has occurred by 9:34:30 a.m., the Opening
Auction will occur pursuant to the Standard Opening Auction Process
using the expanded Collar Price Range as of 9:34:30.
The Exchange notes that if, during any one-second check after
9:30:05, there is no longer an Indicative Price (i.e., there is no
longer crossed interest), the Opening Auction would occur immediately
pursuant to proposed Rule 11.23(2)(B)(v).\26\ The Exchange is proposing
to stop extending the Opening Auction Process at 9:34:30 a.m. in part
to ensure that the Exchange is able to disseminate the BZX Official
Opening Price with sufficient time to be used in the determination of
the opening price \27\ pursuant to the Plan to Address Extraordinary
Market Volatility (the ``LULD Plan''), from which the reference price
\28\ is used to calculate the LULD price bands. Specifically, the
reference price for trading is typically the opening price on the
primary listing exchange in an NMS Stock if such opening price occurs
less than five minutes after the start of Regular Trading Hours.
Therefore, because under the proposal the Opening Auction Process would
occur no later than 9:34:30, the LULD price bands would be determined
based on the BZX Official Opening Price.
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\26\ The Exchange notes that the BZX Official Opening Price will
be the price of the FLSET, which will be the previous BZX Official
Closing Price unless an FLSET occurred after 9:30:00.
\27\ For purposes of the Plan, ``opening price'' shall mean the
price of a transaction that opens trading on the primary listing
exchange. If the primary listing exchange opens with quotations, the
``opening price'' shall mean the closing price of the NMS Stock on
the primary listing exchange on the previous trading day, or if no
such closing price exists, the last sale on the primary listing
exchange.See section I(I) of the Plan.
\28\ For purposes of the plan, ``reference price'' shall have
the meaning provided in Section V of the Plan. See section I(R) of
the Plan. Section V of the Plan provides that the LULD price bands
are based on a reference price for each NMS Stock that, for purposes
of the first reference price for a trading day shall be the opening
price on the primary listing exchange in an NMS Stock if such
opening price occurs less than five minutes after the start of
Regular Trading Hours. If the opening price on the primary listing
exchange in an NMS Stock does not occur within five minutes after
the start of Regular Trading Hours, the first reference price for a
trading day shall be the arithmetic mean price of eligible reported
transactions for the NMS Stock over the preceding five minute time
period. If there is no opening price on the primary listing exchange
in an NMS Stock and no trades have occurred by 9:35:00, the previous
reference price shall remain in effect.
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2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act.\29\ Specifically, the proposed change is
consistent with Section 6(b)(5) of the Act,\30\ because it would
promote just and equitable principles of trade, remove impediments to
and perfect the mechanism of a free and open market and a national
market system, and, in general, protect investors and the public
interest. The Exchange also believes the proposed rule change is
consistent with Section 6(b)(1) of the Act, which provides that the
Exchange be organized and have the capacity to be able to carry out the
purposes of the Act and to enforce compliance by the Exchange's Members
and persons associated with its Members with the Act, the rules and
regulations thereunder, and the rules of the Exchange.\31\ Generally,
the Exchange believes that the proposed changes will improve the price
discovery process in the Opening Auction for securities listed on the
Exchange along with additional benefits set forth below.
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\29\ 15 U.S.C. 78f(b).
\30\ 15 U.S.C. 78f(b)(5).
\31\ 15 U.S.C. 78f(b)(1).
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First, the Exchange believes proposed Rules 11.23(b)(2)(B)(i) and
(ii) are consistent with the Act as the proposed paragraphs are
substantially similar to existing Rule 11.23(b)(2)(B) and involve no
change in the Opening Auction
[[Page 3592]]
functionality. Second, the Exchange believes proposed Rule
11.23(b)(2)(B)(iii) would promote just and equitable principles of
trade, remove impediments to and perfect the mechanism of a free and
open market and a national market system and, in general, protect
investors and the public interest. The proposal is designed to increase
the likelihood that auction eligible orders that are priced equally or
more aggressive than the Indicative Price of the security are able to
participate in the Opening Auction at a price that reflects current
market conditions, instead of being canceled because they are priced
outside the FLSET-established Collar Price Range.
As stated above, current Rule 11.23(b)(2)(B) provides that in the
event there is no Valid NBBO, the FLSET will be used as the Volume
Based Tie Breaker and basis for calculating the Collar Price Range.
Because the current Opening Auction Process occurs at 9:30:00 a.m.,
such a Collar Price Range is based on an FLSET that may not have
occurred recently or may not otherwise be reflective of current market
conditions. As a result, the Exchange has observed instances where
auction eligible orders priced in-line with the Indicative Price were
not executed in the Opening Auction because they were outside the
FLSET-established Collar Price Range. The Exchange believes it is
important to ensure that the BZX Opening Process is designed to allow
executions to occur at a price that accurately reflects current market
conditions and allows willing buyers and sellers to execute.
Further to this point, Market-On-Open orders (also known as MOO
orders) \32\ are market orders only eligible for execution in the
Opening Auction that are designed for participants that want to get an
execution without regard to price. Because such orders are not price
sensitive, they are more likely to cross contra-side orders outside of
the Collar Price Range and the Exchange believes that the proposed
changes will create a better opening process for such MOO orders.
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\32\ As defined in Rule 11.23(a)(16), the term ``Market-On-
Open'' or ``MOO'' shall mean a BZX market order that is designated
for execution only in the Opening Auction.
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The Exchange also believes the proposal strikes an appropriate
balance by providing additional time for the Opening Auction Process to
facilitate more meaningful price formation that better reflects current
market conditions for BZX-listed securities, while limiting any delay
to ensure the BZX Official Opening Price is reported to SIP \33\ by
9:35 a.m. and is therefore used to set the LULD price bands. The
Exchange notes that, while there will be no LULD price bands until the
Exchange disseminates a reference price and thus there will be no LULD
price bands during the period before the Opening Auction Process
occurs, this is a tradeoff that already exists as it relates to the
opening process on the New York Stock Exchange LLC (``NYSE''), which
may delay the opening process for an indefinite period of time. The
Exchange also notes that LULD price bands disseminated during the
circumstances in which the proposed delay would be applied are more
likely to be based on a price that may not be reflective of current
market conditions. For example, in situations where the proposed delay
would be applied, the LULD price bands would be based off an FLSET from
the prior trading day, and thus the LULD price bands could be based on
a stale price. The Exchange is only proposing to delay the Opening
Auction in circumstances where there is crossed interest and either (1)
there is a Valid NBBO but the Indicative Price is outside the NBBO-
established Collar Price Range, or (2) there is no Valid NBBO and the
Indicative Price is outside the FLSET-established Collar Price Range,
meaning that there are parties willing to execute at a particular price
but the Collar Price Range established using either the NBBO or FLSET
is not reflective of current market conditions. Therefore, the Exchange
believes any potential drawback in a delay of the LULD price bands is
mitigated by the limited circumstances in which the delay would occur
and that any LULD price bands disseminated during such a delay may not
be reflective of current market conditions. Delaying the opening
auction process under certain circumstances provides an opportunity for
more meaningful price formation that is more representative of current
market conditions, especially in thinly traded or less liquid
securities which are by definition less likely to have executions
during the period before the Opening Auction Process occurs.
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\33\ The SIP links the U.S. markets by processing and
consolidating all protected bid/ask quotes and trades from every
trading venue into a single data feed.
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Separately, the Exchange believes that creating functionality that
could delay the Opening Auction Process by four minutes and 30 seconds
is consistent with the Act because it also ensures that the Exchange's
opening process is used to determine the LULD price band reference
price. If the opening price on a primary listing exchange is not
reported to the SIPs within five minutes after the start of Regular
Trading Hours, the first reference price for a trading day is the
arithmetic mean price of eligible reported transactions for the NMS
stock over the preceding five minute period.\34\ However, if no
eligible reported transactions have occurred in the NMS stock over the
preceding five minute period, there will be no reference price and thus
no LULD price bands in the security until an eligible reported
transaction occurs. The Exchange believes that LULD price bands are an
important mechanism for investor protection, especially in thinly
traded or illiquid securities and, as such, is proposing to calculate a
BZX Official Opening Price no later than 9:34:30 a.m. which will allow
it to continue to report the BZX Official Opening price to the SIP
prior to 9:35 a.m. so that it serves as the reference price on which
the LULD price bands are based.
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\34\ See Section V(B)(2) of the Plan.
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To the extent that the Exchange's proposed opening process results
in a more accurate BZX Official Opening Price it follows that such a
price would also provide a better foundation for the LULD price bands
without negatively impacting the LULD process because the Exchange
would continue to provide the BZX Official Opening Price to the SIP
prior to 9:35. As a result, the Exchange believes that the proposal
would promote just and equitable principles of trade, remove
impediments to and perfect the mechanism of a free and open market and
a national market system and, in general, protect investors and the
public interest.
The Exchange notes that the concept of delaying an auction and
widening the Collar Price Range as provided in proposed paragraphs
11.23(b)(2)(B)(iii)(b)(1) through (5) is similar to the Twelfth
Amendment of the Plan (``Amendment 12'') and corresponding amendments
by the primary listing exchanges. Specifically, Amendment 12 was
created to improve re-openings following a trading pause,\35\ with an
eye towards carefully balancing halt auction price quality and the
speed with which continuous trading can be resumed. Amendment 12
provided that auction halt periods would be extended if either the
auction price at which the most shares would be traded is outside
[[Page 3593]]
the range of the pre-defined price threshold collars (the ``price
threshold collars'') or there is a market order share imbalance.
Further, Amendment 12 provided that the price threshold collars would
be widened in the event that the auction's halt period is extended. In
its approval of Amendment 12, the Commission stated that it is
appropriate in the public interest, for the protection of investors and
the maintenance of a fair and orderly market to provide that a trading
pause continue until the primary listing exchange has reopened trading
using its established reopening procedures, even if such reopening is
more than 10 minutes after the beginning of a trading pause, and to
require that trading centers may not resume trading in an NMS Stock
following a trading pause without price bands in such NMS Stock. The
Commission stated that these two provisions together support a more
standardized process for reopening trading after a trading pause has
been declared.
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\35\ A ``trading pause'' refers to a function of the LULD
mechanism provided under the Plan. Specifically, the Plan sets for
procedures that provide for market-wide LULD requirements that
prevent trades in individual NMS stocks from occurring outside of
the specified price bands and provides for trading pauses to
accommodate more fundamental price moves.
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As a primary listing exchange, the Exchange amended Rule 11.23(d)
to incorporate the provisions of Amendment 12.\36\ The Exchange notes
that the purpose of Amendment 12 and corresponding Exchange amendment
was intended to delay a halt auction to attract offsetting interest and
improve price discovery, while the purpose of this proposal is intended
to delay the Opening Auction Process in order to provide the Opening
Auction price additional time to reflect current market conditions to
arrive at a price that better reflects current market conditions and
allows willing buyers and sellers to execute. While Exchange Rule
11.23(d) and Amendment 12 apply only to re-opening auctions that are
single venue liquidity events and this proposal applies to the opening
auction which is not a single venue liquidity event,\37\ applying a
common functionality across the two remains logical because the
Exchange believes that delaying the Opening Auction Process under
certain conditions such that the delay will be coincident with the
increasing liquidity that comes shortly after the beginning of Regular
Trading Hours, which the Exchange believes is similar to extending halt
auctions in order to allow for greater participation and simultaneous
expansion of executable price range. Even though trading is ongoing
while the Opening Auction Process is underway, orders on the Continuous
Book are included in the Opening Auction Process and the increased
liquidity around the open will generally increase liquidity in the
Opening Auction Process even if market participants are entering orders
in the Continuous Book rather than auction specific orders. To this
point, both are designed to balance auction price quality and the speed
with which an auction can occur and thus continuous trading can be
resumed, in the case of a halt auction, or when the Opening Auction
Process completes, in the case of an Opening Auction. Further, this
consistency in approach offers a process that market participants are
already familiar with. Having consistent auction processes benefits all
investors because market participants are already familiar with the
proposed functionality and will not have to learn a new set of nuanced
rules designed to accomplish the same end goal, will understand how the
functionality operates because of its common usage in the LULD context,
and will generally help with quick understanding and adoption while
reducing the need for market participants to build systems designed to
accommodate an entirely new process. Therefore, the Exchange believes
the proposal is appropriate, in the public interest, for the protection
of investors and the maintenance of a fair and orderly market.
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\36\ See Securities Exchange Act No. 75879 (October 26, 2016) 81
FR 75875 (November 1, 2016) (SR-BatsBZX-2016-61) (Notice of Filing
of a Proposed Rule Change To Amend Exchange Rule 11.23, Auctions, To
Enhance the Reopening Auction Process Following a Trading Halt
Declared Pursuant to the Plan To Address Extraordinary Market
Volatility Pursuant to Rule 608 of Regulation NMS). See also
Securities Exchange Act No. 79885 (January 26, 2017) 82 FR 8968
(February 1, 2017) (SR-BatsBZX-2016-61) (Order Granting Approval of
Proposed Rule Change, as Modified by Amendment No. 1, To Amend
Exchange Rule 11.23, Auctions, To Enhance the Reopening Auction
Process Following a Trading Halt Declared Pursuant to the Plan To
Address Extraordinary Market Volatility Pursuant to Rule 608 of
Regulation NMS).
\37\ The Exchange's Opening Auction is not a single venue
liquidity event because trading is occurring on the Exchange's
Continuous book and at away market centers before and during the
Opening Auction.
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The Exchange believes its proposal to allow odd-lot executions to
establish the BZX Official Opening Price is consistent with Section
6(b)(5) of the Act because it will enable the Exchange to disseminate
an opening price that more accurately reflects current market
conditions and investor interest. By allowing either round-lot or odd-
lot executions to set the BZX Official Opening Price, the Exchange will
provide market participants with more timely and accurate pricing
information, thereby promoting fair and orderly markets and protecting
investors and the public interest. Additionally, a BZX Official Opening
Price that more accurately reflects current market conditions will
contribute to more appropriate LULD price bands. More accurate LULD
bands better protect investors by preventing erroneous trades that
deviate significantly from prevailing market prices while avoiding
unnecessary trading halts that could result from bands based on stale
or unrepresentative opening prices.
The Exchange also believes its proposal to move the last two
sentences of existing Rule 11.23(b)(2)(B) to paragraphs
11.23(b)(2)(B)(iv) and (v), respectively, is consistent with Section
6(b)(5) of the Act because it will improve the clarity and readability
of the rule without altering its substantive operation. Clear and well-
organized rules enable market participants to better understand their
obligations and the Exchange's procedures, thereby facilitating
compliance and promoting fair and orderly markets. Further, the
proposal to remove the provision of paragraph 11.23(b)(2)(B)(v) that
states the FLSET will be the previous BZX Official Closing Price is
consistent with Section 6(b)(5) of the Act and the new proposed
functionality, which would allow for an FLSET to occur between 9:30 and
9:34:30. This change eliminates an outdated provision that would be
inconsistent with the Exchange's enhanced ability to establish a
current-day FLSET during the opening period, thereby ensuring the rule
accurately reflects the Exchange's operational procedures and provides
market participants with the most current and relevant pricing
information. Finally, the Exchange believes its proposed clarifications
to Rules 11.23(b)(1)(A) and (B) to reflect that the Opening Auction may
occur at a time other than 9:30 a.m. will allow the Exchange to more
easily administer its rules, and Members can more clearly understand
how the Opening Auction Process may occur. Specifically, the proposed
amendments to Rules 11.23(b)(1)(A) and (B) will add clarity,
transparency and internal consistency to Exchange rules making them
easier to navigate, in light of the other proposed Rule changes
described herein.
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 not necessary or appropriate in
furtherance of the purposes of the Act. To the contrary, allowing the
Exchange to make the above proposed modifications will allow the
Exchange to better compete with other exchanges as a listing venue by
improving the Exchange's auction process by allowing executions to
occur
[[Page 3594]]
at prices that better reflect current market conditions. The Exchange
believes the proposed amendments will improve the Exchange's auction
process, allowing it to better compete as both a listing and execution
venue.
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
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the Exchange consents, the Commission will:
A. by order approve or disapprove such proposed rule change, or
B. institute proceedings to determine whether the proposed rule
change should be 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#9eecebf2fbb3fdf1f3f3fbf0eaeddeedfbfdb0f9f1e8"><span class="__cf_email__" data-cfemail="dba9aeb7bef6b8b4b6b6beb5afa89ba8beb8f5bcb4ad">[email protected]</span></a>. Please include
file number SR-CboeBZX-2026-004 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-2026-004. 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 filing 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-2026-004 and
should be submitted on or before February 17, 2026.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\38\
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\38\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2026-01520 Filed 1-26-26; 8:45 am]
BILLING CODE 8011-01-P
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