Notice2026-06474
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing of Amendment No. 1 and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment No. 1, To Amend the Definition of “Indicative Price” Under Exchange Rule 11.23(a)(10) and Amend Exchange Rule 11.23(d)(2)(B) (Extending the Quote-Only Period for Initial Public Offering (“IPO”) Auctions)
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
April 3, 2026
Issuing agencies
Securities and Exchange Commission
Full Text
<html>
<head>
<title>Federal Register, Volume 91 Issue 64 (Friday, April 3, 2026)</title>
</head>
<body><pre>
[Federal Register Volume 91, Number 64 (Friday, April 3, 2026)]
[Notices]
[Pages 17011-17018]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-06474]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-105124; File No. SR-CboeBZX-2025-149]
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of
Filing of Amendment No. 1 and Order Granting Accelerated Approval of a
Proposed Rule Change, as Modified by Amendment No. 1, To Amend the
Definition of ``Indicative Price'' Under Exchange Rule 11.23(a)(10) and
Amend Exchange Rule 11.23(d)(2)(B) (Extending the Quote-Only Period for
Initial Public Offering (``IPO'') Auctions)
March 31, 2026.
I. Introduction
On December 17, 2025, Cboe BZX Exchange, Inc. (the ``Exchange'' or
``BZX'') 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
11.23(d)(2)(B) (Extending the Quote-Only Period for Initial Public
Offering (``IPO'') Auctions), to (1) delineate between BZX-listed
corporate securities and exchange-traded product (``ETP'') IPO
Securities; and (2) expand the circumstances under which the Exchange
may extend the Quote-Only Period for IPO Auctions in an ETP IPO
Security. The proposed rule change was published for comment in the
Federal
[[Page 17012]]
Register on December 31, 2025.\3\ On January 29, 2026, 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\ On March 30, 2026, the Exchange
filed Amendment No. 1 to the proposed rule change, which amended and
replaced the proposed rule change as originally filed and superseded
such filing in its entirety.\6\ The Commission has received no comment
letters on the proposed rule change. The Commission is publishing this
Notice and Order to solicit comment on Amendment No. 1 in Sections II
and III below, which sections are being published substantively the
same as filed by the Exchange, and to approve the proposed rule change,
as modified and superseded by Amendment No. 1, on an accelerated basis.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities and Exchange Act Release No. 104501 (Dec. 23,
2025), 90 FR 61492.
\4\ 15 U.S.C. 78s(b)(2).
\5\ See Securities Exchange Act Release No. 104737, 91 FR 4980
(Feb. 3, 2026). The Commission designated March 31, 2026, as the
date by which the Commission shall approve or disapprove, or
institute proceedings to determine whether to disapprove, the
proposed rule change.
\6\ In Amendment No. 1, the Exchange added clarifying or
corrective changes that, among other things: (1) provided a
definition the term ``Indicative Price'' in the context an IPO
Auction, (2) removed the optionality for an issuer to opt in/out of
the price validation test and instead requires application of the
price validation test and (3) clarified the certain aspects of the
original proposal. Amendment No. 1 to the proposed rule change is
available on the Commission's website at: <a href="https://www.sec.gov/comments/sr-cboebzx-2025-149/srcboebzx2025149-736847-2291835.pdf">https://www.sec.gov/comments/sr-cboebzx-2025-149/srcboebzx2025149-736847-2291835.pdf</a>.
---------------------------------------------------------------------------
II. 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 proposed rule change to amend the definition of Indicative Price
under Exchange Rule 11.23(a)(10) and to amend Exchange Rule
11.23(d)(2)(B) (Extending the Quote-Only Period for Initial Public
Offering (``IPO'') Auctions) to: (1) delineate between BZX-listed
corporate securities and exchange-traded product (``ETP'') IPO
Securities; and (2) expand the circumstances under which the Exchange
may extend the Quote-Only Period for IPO Auctions in an ETP IPO
Security. 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/regulation/rule_filings/bzx/">https://www.cboe.com/us/equities/regulation/rule_filings/bzx/</a>) and at the principal office of the Exchange.
III. 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 V 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
This Amendment No. 1 to SR-CboeBZX-2025-149 amends and replaces in
its entirety the proposal as originally submitted on December 17, 2025.
The Exchange submits this Amendment No. 1 in order to clarify certain
points and add additional details to the proposal.
The Exchange proposes to amend the definition of the term
Indicative Price \7\ under Rule 11.23(a)(10) and to amend Rule
11.23(d)(2)(B) (Extending the Quote-Only Period \8\ for IPO Auctions
\9\) to: (1) delineate between BZX-listed corporate securities and ETP
IPO Securities \10\ in proposed Rules 11.23(d)(2)(B) and (C),
respectively; and (2) expand the circumstances under which the Exchange
may extend the Quote-Only Period for IPO Auctions in ETP IPO
Securities. The Exchange also proposes to update rule numbering and
lettering to accommodate these changes, and to update cross-references
throughout Rule 11.23 as necessary.
---------------------------------------------------------------------------
\7\ The term ``Indicative Price'' means 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.
\8\ The term ``Quote-Only Period'' shall mean a designated
period of time prior to a Halt Auction, a Volatility Closing
Auction, or an IPO Auction during which Users may submit orders to
the Exchange for participation in the auction. See Exchange Rule
11.23(a)(17).
\9\ See Exchange Rule 11.22(l)(2)(B).
\10\ The term ``ETP IPO Security'' means a Derivative Security
that is eligible to participate in an IPO Auction pursuant to Rule
11.23(d). See Exchange Rule 11.23(a)(24). See also Exchange Rule
1.5(dd) defining ``Derivative Security''.
---------------------------------------------------------------------------
Background
Exchange Rule 11.23(d) governs IPO and halt auctions on the
Exchange. Under Rule 11.23(d)(1)(A), the Quote-Only Period for IPO
Auctions commences at 8:00 a.m. ET \11\ and terminates at the
conclusion of the IPO Auction, which generally occurs shortly after
9:30 a.m. ET \12\ There are no IPO Auction-specific order types. All
Eligible Auction Orders associated with an IPO Auction are queued until
the end of the Quote-Only Period, at which time they become eligible
for execution in the IPO Auction. Orders must be received prior to the
end of the Quote-Only Period to participate in the IPO Auction.
---------------------------------------------------------------------------
\11\ All times referenced herein are Eastern Time.
\12\ See Exchange Rule 11.23(b)(1)(A).
---------------------------------------------------------------------------
Exchange Rule 11.23(d)(2)(B) currently provides five circumstances
under which the Exchange may extend the Quote-Only Period for IPO
Auctions. These circumstances apply to both BZX-listed corporate
securities and ETP IPO Securities:
(i) there are unmatched market orders on the Auction Book \13\
associated with the auction;
---------------------------------------------------------------------------
\13\ See Exchange Rule 11.23(a)(1).
---------------------------------------------------------------------------
(ii) the underwriter requests an extension;
(iii) the Indicative Price \14\ moves the greater of 10% or fifty
(50) cents in the fifteen (15) seconds prior to the auction;
---------------------------------------------------------------------------
\14\ As discussed further below, the Exchange proposes to amend
the definition of Indicative Price. As proposed, the term
``Indicative Price'' shall mean the price at which the most shares
from the Auction Book and the Continuous Book would match; provided,
however, that for an IPO Auction, the Indicative Price shall mean
the price at which the most shares from the Auction Book only would
match, as no Continuous Book exists prior to commencement of trading
in an IPO Security.
---------------------------------------------------------------------------
(iv) in the event of a technical or systems issue at the Exchange
that may impair the ability of Users to participate in the IPO Auction
or of the Exchange to complete the IPO Auction;
(v) a Derivative Security fails to meet the Exchange's listing
qualification requirements as set forth in Rule 14.11; or
(vi) there is a security that is the subject of an initial pricing
on the Exchange of a security that has not been listed on a national
securities exchange immediately prior to the initial pricing.
The duration of each Quote-Only Period extension depends on the
triggering circumstance. Provisions (ii), (iv), (v), and (vi) are
manual extensions without fixed durations. Provisions (i) and (iii) are
automatic extensions: provision (i) extends the Quote-Only
[[Page 17013]]
Period for as long as unmatched market orders remain on the Auction
Book, while provision (iii) extends the Quote-Only Period for five
minutes.
Proposal
First, the Exchange proposes to modify the definition of
``Indicative Price'' under Rule 11.23(a)(10) to provide that for an IPO
Auction (whether for an ETP IPO Security or a BZX-listed corporate
security), the Indicative Price shall mean the price at which the most
shares from the Auction Book only would match. Currently, the
definition provides generally that the Indicative Price means the price
at which the most shares from the Auction Book and the Continuous Book
\15\ would match, with no carve-out for IPO Auctions. Because no
Continuous Book exists prior to the commencement of trading in an IPO
Security, the proposed amendment adds an IPO-specific carve-out to
reflect this reality. The Exchange believes this change adds clarity
and precision to the rulebook by ensuring the definition accurately
reflects how the Indicative Price is determined in the context of an
IPO Auction.
---------------------------------------------------------------------------
\15\ See Exchange Rule 11.23(a)(7).
---------------------------------------------------------------------------
The Exchange also proposes to separately delineate the
circumstances under which it may extend the Quote-Only Period for IPO
Auctions applicable to BZX-listed corporate securities and ETP IPO
Securities under proposed Rules 11.23(d)(2)(B) and (C), respectively.
The Exchange also proposes to adopt an additional extension provision
applicable to ETP IPO Securities.
The Exchange proposes to modify the circumstances under which the
Exchange may extend the Quote-Only Period applicable to BZX-listed
corporate securities by eliminating existing Rule 11.23(d)(2)(B)(v) as
the provision is not applicable to BZX-listed corporate securities. The
Exchange also proposes to make a ministerial change to Rule
11.23(d)(2)(B)(iii) to remove the extraneous word ``where''.
The Exchange proposes to adopt Rule 11.23(d)(2)(C), which would
govern extensions of the Quote-Only Period for IPO Auctions in ETP IPO
Securities. The Exchange also proposes to use the term ``ETP IPO
Security'' throughout proposed Rule 11.23(d)(2)(C) rather than
``Derivative Security.'' \16\ Because an ETP IPO Security is a subset
of Derivative Securities that are eligible to participate in the IPO
Auction, this change is ministerial but adds precision and clarity to
the Exchange's rulebook.
---------------------------------------------------------------------------
\16\ The term ``Derivative Security'' means a security that
meets the definition of ``new derivative securities product'' in
Rule 19b-4(e) under the Exchange Act. See Exchange Rule 1.5(dd).
---------------------------------------------------------------------------
Proposed Rule 11.23(d)(2)(C)(i) is identical to existing Rule
11.23(d)(2)(B)(i). The Exchange does not propose to include existing
Rule 11.23(d)(2)(B)(ii) that allows the Quote-Only Period to be
extended upon underwriter request in proposed Rule 11.23(d)(2)(C). ETP
IPO Securities do not have underwriters, making this provision
inapplicable.
Proposed Rules 11.23(d)(2)(C)(ii), (iii), (iv), and (v) are
substantively identical to Rules 11.23(d)(2)(B)(iii), (iv), (v), and
(vi), respectively, except that the proposed rules refer specifically
to an ETP IPO Security rather than a Derivative Security.
The Exchange proposes to adopt Rule 11.23(d)(2)(C)(vi), which would
establish a new circumstance under which the Exchange may extend the
Quote-Only Period for IPO Auctions in ETP IPO Securities.\17\
Specifically, the proposed rule would permit the Exchange to extend the
Quote-Only Period if the ETP IPO Security does not pass the below
described ``price validation test.''
---------------------------------------------------------------------------
\17\ The Exchange is not proposing to apply this additional
extension provision to BZX-listed corporate securities because
underwriters are involved in corporate IPOs and may request that the
Exchange extend the Quote-Only Period under existing Rule
11.23(d)(2)(B)(ii). ETP IPO Securities, by contrast, do not have an
underwriter. The proposed provision is designed to provide a
protection analogous to that offered by an underwriter in a
corporate security IPO; namely, ensuring that the ETP IPO Auction
occurs at a price in line with the issuer's expectations.
---------------------------------------------------------------------------
Indicative Price and Expected Price Mechanism
Starting at 8:00 a.m. with the commencement of the Quote-Only
Period, the System will determine and display the live Indicative Price
of the ETP IPO Security in the IPO Auction (the ``ETP IPO Auction'') to
the lead market maker (``LMM'') \18\ through a tool accessible via the
Exchange's web portal \19\ through which the LMM may approve an
Indicative Price, or update a prior approval, as often as necessary
prior to 9:45 a.m. ET. The most recently approved Indicative Price at
the time of each application of the price validation test shall be the
``Expected Price.'' The distinction between these terms is important:
the Indicative Price is a live price that changes continuously during
the Quote-Only Period as market participants enter and cancel orders,
while the Expected Price is an Indicative Price that the LMM has locked
in (i.e., approved) at a specific point in time prior to 9:45 a.m. ET.
---------------------------------------------------------------------------
\18\ Exchange Rules do not require an LMM in an ETP IPO
Security.
\19\ The Indicative Price is made available to the LMM pursuant
to proposed Rule 11.23(d)(2)(C)(vi). The Exchange notes that the
Indicative Price is available to subscribers of certain BZX data
feeds as provided in Rule 11.22.
---------------------------------------------------------------------------
If there is no LMM or the LMM does not provide an Expected Price,
the ETP IPO Security shall be deemed to have failed the price
validation test and the Quote-Only Period will extend as provided
below.
Price Band Selection
At any time prior to 9:45 a.m. ET, the LMM for the ETP IPO Security
may select price bands for the purpose of applying the price validation
test to the ETP IPO Security.\20\ The LMM may also update its price
band selection at any time prior to 9:45 a.m. ET, including between
iterations of the price validation test. The price bands are determined
based on the Expected Price and are designed to limit how far an
Indicative Price can move to pass the price validation test. The LMM
may select an upper price band (i.e., the maximum amount above the
Expected Price by which the live Indicative Price may move) and a lower
price band (i.e., the maximum amount below the Expected Price by which
the live Indicative Price may move).\21\ If the LMM does not select
price bands, the Exchange will automatically apply default upper and
lower price bands of $0.10 each.\22\
---------------------------------------------------------------------------
\20\ As discussed above, the LMM may approve new Indicative
Prices (i.e., provide a new Expected Price) as often as necessary
prior to 9:45 a.m.
\21\ The upper price band and lower price band may be set at
different distances from the Expected Price.
\22\ The Exchange will automatically apply the upper and lower
price bands of $0.10 if the LMM has not selected price bands by 9:30
a.m. However, the LMM can select or change the price bands at any
time prior to 9:45 a.m.
---------------------------------------------------------------------------
The price bands available for selection shall be in such increments
and at such price points as may be established from time to time by the
Exchange. The available price bands shall include $0, which would
require the Indicative Price to equal the Expected Price, but shall not
exceed $0.50. The Exchange reserves the right to establish larger
increment steps (such as $0.05) or to make available price bands at
certain price points but not others (for example, increment steps of
$0.01 up to $0.10 and increment steps of $0.05 thereafter). However,
the Exchange will not (in the absence of the submission of a proposed
rule change) allow price bands wider than $0.50. The Exchange will
notify Members and the public of changes in available price bands or
increments through a notice that is widely disseminated at least one
[[Page 17014]]
week in advance of the change. In selecting available price bands and
increments, the Exchange will consider input from LMMs and other market
participants and the results of past usage of price bands to adopt
price bands and increments that promote efficiency in the initiation of
trading and protect investors and the public interest.
Initially, available price bands will range from $0 to $0.50 in
increments of $0.01. Thus, the LMM may select price bands of $0 (i.e.,
no deviation from the Expected Price would be permitted), $0.01, $0.02,
or any other $0.01 increment up to $0.50. The LMM may select different
price bands above and below the Expected Price.
Price Validation Test Criteria
Beginning at 9:30 a.m. ET, if an Expected Price has been provided
by the LMM, the ETP IPO Security will automatically be subjected to the
price validation test, which will be reapplied automatically in five-
second increments following each failure. An ETP IPO Security does not
pass the price validation test if the Indicative Price differs from the
Expected Price by an amount in excess of the price bands. For example,
assume that an Indicative Price for the ETP IPO Auction is $32.00 per
share, and the LMM approves that Indicative Price, thereby establishing
an Expected Price of $32.00 per share. If the LMM selects an upper
price band of $0.10 and a lower price band of $0.05, the Indicative
Price calculated by the System for the ETP IPO Auction could not be
higher than $32.10 nor lower than $31.95. If the LMM does not select
price bands, the Exchange will apply the default price bands of $0.10
for each band as described above, and the Indicative Price could not be
higher than $32.10 nor lower than $31.90. An ETP IPO Security passes
the price validation test if the Indicative Price is within the price
bands established using the Expected Price.
If an ETP IPO Security does not pass the price validation test, the
Quote-Only Period will be automatically extended by the system in five-
second increments, but in no circumstance will the Quote-Only Period be
extended past 9:45 a.m. ET under proposed Rule 11.23(d)(2)(C)(vi). The
LMM may select different price bands or approve a new Indicative Price,
after which the price validation test will be reapplied pursuant to
proposed Rule 11.23(d)(2)(C)(vi). For example, an LMM might initially
select upper and lower bands of $0, such that the ETP IPO Auction would
not occur unless the Indicative Price exactly equaled the Expected
Price. If the ETP IPO Security has not passed the price validation test
by 9:45 a.m. ET, the price validation test will no longer apply and the
Quote-Only Period will terminate, provided that no other conditions
under Rule 11.23(d)(2)(C) are present.\23\
---------------------------------------------------------------------------
\23\ The Quote-Only Period may extend past 9:45 a.m. ET if there
are unmatched market orders on the Auction Book associated with the
auction, the Indicative Price moves the greater of 10% or fifty (50)
cents in the fifteen (15) seconds prior to the auction, in the event
of a technical or systems issue at the Exchange that may impair the
ability of Users to participate in the ETP IPO Auction or of the
Exchange to complete the ETP IPO Auction, the ETP IPO Security fails
to meet the Exchange's listing qualification requirements as set
forth in Rule 14.11, or there is an ETP IPO Security that is the
subject of an initial pricing on the Exchange that has not been
listed on a national securities exchange immediately prior to the
initial pricing.
---------------------------------------------------------------------------
The Exchange recognizes that granting the LMM authority to set
price bands could be viewed as conferring a potential advantage on the
LMM. The Exchange believes, however, that this advantage is not unfair.
The price validation test is designed primarily to benefit the contra-
side (i.e., the end client whose order will be executed at the auction
price). By setting price bands, the LMM is effectively ensuring that
the auction occurs at a price consistent with prevailing market
conditions, which benefits all market participants. Furthermore, if the
LMM sets narrow bands and no other market participant can match them,
the LMM would be the one to fill any resulting order, but this outcome
reflects the LMM's commitment to providing liquidity, not an artificial
informational edge. Any market maker may respond to unmatched orders,
and the LMM's authority to set price bands does not preclude other
market makers from participating. The distinction between the LMM and
other market makers in this context is one of commercial
responsibility: while the LMM has a commercial obligation to respond to
unmatched orders, it does not bear a regulatory obligation to do so.
The Exchange therefore believes the LMM's role in the price validation
process is appropriately calibrated to promote a fair and orderly
auction without conferring an undue advantage.
The Exchange also believes that ending the price validation test at
9:45 a.m. ET with no exceptions is appropriate. Before 9:45 a.m. ET,
the LMM would be expected to step in and respond to any unmatched
orders in the ETP IPO Auction, and any residual volatility in the ETP
IPO Security would have been mitigated through the proposed validation
checks conducted during the Quote-Only Period. Accordingly, the
continued application of the price validation test beyond 9:45 a.m. ET
is unnecessary to achieve the investor protection goals underlying the
test.\24\
---------------------------------------------------------------------------
\24\ The Exchange notes that, under both existing Rule
11.23(d)(2)(B)(vi) and proposed Rule 11.23(d)(2)(C)(v), the Exchange
retains authority to extend the Quote-Only Period beyond 9:45 a.m.
ET in the event of an unforeseen circumstance requiring the IPO to
be rescheduled.
---------------------------------------------------------------------------
In addition, the LMM may step in and begin providing markets in an
ETP IPO Security on its first day of trading after the Quote-Only
Period has concluded, which could further promote price stability. The
Exchange may also determine at any point during the Quote-Only Period
to postpone and reschedule the ETP IPO Auction.\25\
---------------------------------------------------------------------------
\25\ The Exchange's authority to postpone and reschedule the IPO
Auction is set forth in existing Rule 11.23(d)(1)(B)(vi).
---------------------------------------------------------------------------
The Exchange notes that the LMM's involvement in timing the
commencement of trading in an IPO Auction for an ETP IPO Security is
consistent with an underwriter's involvement in the existing IPO
Auction process for BZX-listed corporate securities. Similar to an
underwriter in a corporate IPO, the LMM, with market knowledge of the
order book and an understanding of the security, is well positioned to
provide an Expected Price and applicable price bands that facilitate
the price validation check.
Accordingly, the Exchange believes it is in the best interest of
the market to give LMMs input into the timing of the ETP IPO Auction to
help facilitate the fair and orderly launch of trading in an ETP IPO
Security. The Exchange believes that additional time for price
formation in the ETP IPO Auction will benefit investors by increasing
the likelihood that the ETP IPO Auction occurs at a price that
generally aligns with the LMM's and ETP issuer's expectations.
Furthermore, delaying an ETP IPO Auction is not unprecedented, as
Nasdaq currently begins its ETP IPO auction process at 9:40 a.m.
ET.\26\
---------------------------------------------------------------------------
\26\ See Securities Exchange Act No. 103085 (May 20, 2025) 90 FR
22424 (May 27, 2025) (SR-Nasdaq-2025-011) (Notice of Filing of
Amendment No. 1, and Order Granting Accelerated Approval of a
Proposed Rule Change, as Modified by Amendment No. 1, To Introduce
Functionality To Initiate a Trading Halt for Exchange-Traded
Products on Launch Day).
---------------------------------------------------------------------------
Finally, to accommodate the addition of new Rule 11.23(d)(2)(C),
the Exchange proposes to re-letter existing Rules 11.23(d)(2)(C)
through (F) as (D) through (G), respectively, and to update all cross-
references to Rule 11.23 throughout the rulebook accordingly. In
connection with this re-lettering, the Exchange also proposes to amend
Rule 11.23(e)(2)(B) to correct a cross-reference from existing Rule
[[Page 17015]]
11.23(d)(1)(C) to re-lettered Rule 11.23(d)(2)(D).\27\
---------------------------------------------------------------------------
\27\ There is currently no Rule 11.23(d)(1)(C), and the existing
Rule should have referenced existing Rule 11.23(d)(2)(C).
---------------------------------------------------------------------------
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Act and the rules and regulations thereunder applicable to the
Exchange and, in particular, the requirements of Section 6(b) of the
Act.\28\ Specifically, the Exchange believes the proposed rule change
is consistent with the Section 6(b)(5) \29\ 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) \30\ requirement that the rules of
an exchange not be designed to permit unfair discrimination between
customers, issuers, brokers, or dealers.
---------------------------------------------------------------------------
\28\ 15 U.S.C. 78f(b).
\29\ 15 U.S.C. 78f(b)(5).
\30\ Id.
---------------------------------------------------------------------------
The Exchange believes that its proposal to require a price
validation test for all ETPs utilizing the ETP IPO Auction process
would promote more efficient price discovery and remove impediments to
and perfect the mechanism of a free and open market and a national
market system and, in general, protect investors because the ETP IPO
Auction price would be based on market interest and the matching of buy
and sell orders in an auction that would be open to all market
participants. Today, an ETP IPO Security opens for trading during the
ETP IPO Auction at an initial price that is based on market interest at
that time. The proposed price validation test enhances this process by
providing additional safeguards for the opening price of the ETP based
on additional market information, thereby strengthening investor
protection and promoting the public interest. By applying this
requirement uniformly to all ETP IPO Auctions, the Exchange seeks to
provide consistent price integrity protections across all ETP IPO
Auctions conducted through this mechanism.\31\
---------------------------------------------------------------------------
\31\ The Exchange is not proposing to apply this additional
extension provision to BZX-listed corporate securities because
underwriters are involved in corporate IPOs and may request that the
Exchange extend the Quote-Only Period under existing Rule
11.23(d)(2)(B)(ii). ETP IPO Securities, by contrast, do not have an
underwriter. The proposed provision is designed to provide a
protection analogous to that offered by an underwriter in a
corporate security IPO; namely, ensuring that the ETP IPO Auction
occurs at a price in line with the issuer's expectations.
---------------------------------------------------------------------------
The Exchange believes that the proposed price validation test will
benefit investors by providing additional time for price formation in
the ETP IPO Auction for ETP IPO Securities and by increasing the
likelihood that the ETP IPO Auction occurs at a price that generally
aligns with the LMM's and ETP issuer's expectations. In particular, the
Exchange believes that the change will facilitate the commencement of
orderly trading in ETPs on their first day of trading by providing the
LMM with flexibility throughout the initial launch process to allow the
development of price stability prior to opening. The Exchange believes
that the LMM's involvement in timing the commencement of trading in the
ETP is consistent with the Act as this will promote the fair and
orderly launch of trading in the ETP. The Exchange believes that the
LMM, with its market knowledge of the book and an understanding of the
ETP IPO Security, would be well positioned to provide an Expected Price
and price bands. However, if the LMM does not provide price bands, the
Exchange will apply default price bands. Accordingly, the Exchange
believes it is in the best interest of the market to give LMMs the
opportunity to provide input into the price validation test to help
facilitate the fair and orderly launch of trading in the ETP.
The proposed language allowing the LMM to select price bands and
approve the Expected Price is designed to allow flexibility to promote
efficient price discovery while protecting against unexpected
volatility. The Exchange believes that limiting price bands to a
maximum of $0.50 is reasonable and appropriate to balance the need for
price stability with the need to allow the market to discover the
appropriate opening price. The Exchange will notify Members and the
public of any changes to available price bands or increments at least
one week in advance of the change, ensuring transparency and allowing
market participants to adjust their strategies accordingly.
Furthermore, the Exchange believes that requiring the ETP IPO
Auction to occur by 9:45 a.m. ET at the latest, under proposed Rule
11.23(d)(2)(C)(vi), is reasonable and appropriate because by that time,
the LMM would be expected to step in and respond to any unmatched
orders, and any excess volatility in the ETP would be mitigated through
the proposed validation checks. As described above, the ETP IPO Auction
may be delayed past 9:45 a.m. ET if the criteria in proposed Rules
11.23(d)(2)(C)(i) through (v) are met. This timing is also consistent
with market practice, as Nasdaq currently begins its ETP IPO auction
process at 9:40 a.m. ET for ETPs.
The Exchange believes that requiring this functionality for all
ETPs participating in the ETP IPO Auction process promotes just and
equitable principles of trade and does not unfairly discriminate
between issuers. The price validation test is designed to enhance the
integrity of the price discovery process by increasing the likelihood
that the ETP IPO Auction occurs at a price that generally aligns with
the LMM's expectations. This requirement applies uniformly to all ETP
issuers utilizing the ETP IPO Auction, thereby promoting consistency
and investor protection across all ETP IPO Auctions conducted through
this mechanism.
Finally, the Exchange believes that the proposed amendments to
delineate between BZX-listed corporate securities and ETP IPO
Securities promote clarity and transparency in the Exchange's rules.
The proposed changes recognize the unique characteristics of ETPs,
including the absence of an underwriter, and tailor the Quote-Only
Period extension provisions accordingly. This promotes just and
equitable principles of trade by ensuring that the rules applicable to
each security type are appropriate for that security's characteristics.
Additionally, the proposed re-lettering of existing Rule 11.23(d)(2)(C)
through (F) to (D) through (G), the corresponding updates to cross-
references throughout Rule 11.23, and the correction of a cross-
reference error in Rule 11.23(e)(2)(B) enhance the organizational
structure and usability of the rulebook, further promoting clarity and
reducing the potential for confusion.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The Exchange does not
believe the proposed
[[Page 17016]]
rule change will impose any burden on intramarket competition. The
price validation test applies uniformly to all ETP issuers and their
LMMs utilizing the ETP IPO Auction process, providing consistent
treatment and eliminating any potential competitive advantage or
disadvantage based on the price discovery mechanism used. The price
validation test is designed to enhance the integrity of the ETP IPO
Auction process by increasing the likelihood that the auction occurs at
a price that generally aligns with the LMM's and ETP issuer's
expectations, thereby benefiting all market participants equally. The
proposed rule change does not advantage or disadvantage any particular
category of market participant. All market participants may participate
in the ETP IPO Auction on equal terms, with the same price validation
protections applied consistently across all ETP IPO Auctions, and will
continue to have the ability to enter orders during the Quote-Only
Period with the added benefit of enhanced price integrity protections.
The Exchange further believes that the proposed price validation
test appropriately leverages the LMM's market knowledge and role in the
opening process. The LMM's involvement in selecting price bands and
approving the Indicative Price (i.e., providing the Expected Price) is
designed to promote fair and orderly trading in the ETP IPO Security on
its first day of trading, which benefits all market participants by
reducing unexpected volatility and enhancing price discovery.
The Exchange does not believe the proposed rule change will impose
any burden on intermarket competition. The proposed rule change is
designed to enhance the competitiveness of the Exchange's ETP listing
and trading services by providing a price discovery tool on launch day.
This functionality is similar to processes offered by another exchange
and is designed to attract ETP listings to the Exchange by offering
issuers enhanced safeguards during the critical first moments of
trading. To the extent the proposed functionality makes the Exchange a
more attractive venue for ETP listings or trading, this reflects
legitimate competition among exchanges to offer superior services and
functionality. Market participants on other exchanges are welcome to
become Members and trade on BZX if they determine that the proposed
rule change has made BZX more attractive. Similarly, other exchanges
remain free to propose similar or alternative functionality for their
own ETP listings.
The Exchange notes that Nasdaq currently offers similar
functionality for ETP IPO Auctions, beginning its ETP IPO auction
process at 9:40 a.m. ET. The Exchange's proposal and Nasdaq's
functionality are generally similar in that both allow the LMM (on BZX)
or Designated Liquidity Provider (``DLP'' on Nasdaq) to set price bands
around the opening auction price, and both allow for extension of the
Quote-Only Period prior to an ETP IPO Auction to permit additional
price formation. Further, both functionalities provide that the LMM or
DLP, as applicable, may select upper and lower price bands for purposes
of the price validation test, with a maximum price band of $0.50.
Further, the LMM or DLP must approve an Indicative Price before the
validation test is applied, and if the security does not pass the price
validation test, the LMM or DLP may--but is not required to--select
different price bands before the process recommences. Both exchanges
will notify members and the public of any changes to available price
bands or increments at least one week in advance. Both functionalities
also require that the ETP IPO Auction occur by 9:45 a.m. ET at the
latest under the price validation test. Finally, both functionalities
delineate between corporate IPO securities and ETP IPO Securities,
recognizing the unique characteristics of ETPs, including the absence
of an underwriter.
The Exchange's proposal differs from the Nasdaq functionality in
several additional respects. For example, the Exchange specifies
default price bands of $0.10 if the LMM does not select price bands,
whereas Nasdaq's functionality does not specify default bands and
leaves the matter to DLP discretion. The Exchange also integrates the
ETP IPO Auction provisions into its existing Rule 11.23 governing
auctions, using its existing Quote-Only Period terminology and
structure, whereas Nasdaq created a new halt category under Rule
4120(a)(15) and introduced new terminology including a ``Display Only
Period'' followed by a ``Pre-Launch Period.'' The Exchange believes
these differences reflect variations in existing rule structures,
terminology, and organizational approaches between the exchanges.
Accordingly, the Exchange believes the proposed rule change will
promote competition among exchanges while protecting investors through
enhanced price discovery mechanisms.
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.
IV. Discussion and Commission Findings
After careful review, the Commission finds that the proposed rule
change, as modified and superseded by Amendment No. 1 (``Amended
Proposal''), is consistent with the requirements of the Act and the
rules and regulations thereunder applicable to a national securities
exchange.\32\ In particular, the Commission finds that the Amended
Proposal is consistent with Section 6(b)(5) of the Act,\33\ which
requires, among other things, that the Exchange's rules 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 are
not designed to permit unfair discrimination between customers,
issuers, brokers, or dealers.
---------------------------------------------------------------------------
\32\ 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).
\33\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Exchange states that its proposal to permit the Quote-Only
Period to be extended and to require a price validation test for all
ETPs utilizing the ETP IPO Auction process would promote more efficient
price discovery and remove impediments to and perfect the mechanism of
a free and open market and a national market system and, in general,
protect investors because the ETP IPO Auction price for an ETP IPO
Security would be based on market interest and the matching of buy and
sell orders in an auction that would be open to all market
participants.\34\ The Exchange further states that application of the
proposed price validation test would protect investors and the public
interest because it would enhance its current opening process for
initiating trading in ETP IPO Securities by providing additional
safeguards for the opening price of the ETP based on additional market
information.\35\ Further, the Exchange states that the proposed price
validation test will benefit investors by (1) providing additional time
for price formation in
[[Page 17017]]
the ETP IPO Auction for ETP IPO Securities and (2) increasing the
likelihood that the ETP IPO Auction will occur at a price that
generally aligns with the LMM's and ETP issuer's expectations.\36\
Specifically, the Exchange states that the proposal will facilitate the
commencement of orderly trading in ETPs on their first day of trading
by providing the LMM with flexibility throughout the initial launch
process to allow the development of price stability prior to opening,
which will benefit investors and the public interest.\37\ The Exchange
believes that the LMM, with its market knowledge of the book and an
understanding of the ETP IPO Security, would be well positioned to
provide an Expected Price and price bands, which would allow
flexibility to promote efficient price discovery while protecting
against unexpected volatility.\38\ The Exchange further believes it is
in the best interest of the market to give LMMs the opportunity to
provide input into the price validation test and involvement in timing
the commencement of trading in the ETP because it will promote the fair
and orderly launch of trading in the ETP and and is therefore
consistent with the Act.\39\ Further, the Exchange states that the
price validation test will be applied uniformly to all ETP issuers
utilizing the ETP IPO Auction, which will promote consistency and
investor protection across all ETP IPO Auctions conducted through this
mechanism.\40\ Finally, the Exchange states that its proposal to
delineate between BZX-listed corporate securities and ETP IPO
Securities will promote clarity and transparency in the Exchange's
rules and is designed to recognize the unique characteristics of ETPs,
including the absence of an underwriter, and to tailor the Quote-Only
Period extension provisions to ensure that the rules applicable to each
security type are appropriate for that security's characteristics.\41\
---------------------------------------------------------------------------
\34\ See Amendment No. 1, supra note 6 at 35.
\35\ See id. at 36.
\36\ See id.
\37\ See id. at 36.
\38\ See id. at 37.
\39\ See id. at 36-37.
\40\ See id. at 37-38.
\41\ See id. at 38.
---------------------------------------------------------------------------
The Exchange's proposal to provide an additional basis to extend
the Quote-Only Period and apply a price validation test could benefit
investors by enhancing the price discovery process for ETPs on their
initial day of trading, and the role of the LMM could provide an
additional safeguard against unexpected volatility in the pricing of
the ETP. In addition, the Amended Proposal does not raise unique
regulatory concerns because the proposed process to allow additional
time for price formation, including the use of a price validation test,
in an ETP IPO Security is similar to the previously approved
functionality utilized for price formation in an ETP IPO Security on
another options exchange.\42\
---------------------------------------------------------------------------
\42\ See Securities and Exchange Act Release No. 103085 (May 20,
2025), 90 FR 22424 (May 27, 2025) (SR-Nasdaq-2025-011) (Notice of
Filing of Amendment No. 1, and Order Granting Accelerated Approval
of a Proposed Rule Change, as Modified by Amendment No. 1, to
Introduce Functionality to Initiate a Trading Halt for Exchange-
Traded Products on Launch Day).
---------------------------------------------------------------------------
For the foregoing reasons, the Commission finds that the proposed
rule change, as modified by Amendment No. 1, is consistent with Section
6(b)(5) of the Act \43\ and the rules and regulations thereunder
applicable to a national securities exchange.
---------------------------------------------------------------------------
\43\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
V. Solicitation of Comments on Amendment No. 1 to the Proposed Rule
Change
Interested persons are invited to submit written data, views, and
arguments concerning whether Amendment No. 1 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#84f6f1e8e1a9e7ebe9e9e1eaf0f7c4f7e1e7aae3ebf2"><span class="__cf_email__" data-cfemail="a9dbdcc5cc84cac6c4c4ccc7dddae9daccca87cec6df">[email protected]</span></a>. Please include
file number SR-CboeBZX-2025-149 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-2025-149 on the
subject line. 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-2025-149 on the
subject line, and should be submitted on or before April 24, 2026.
VI. Accelerated Approval of Proposed Rule Change, as Modified and
Superseded by Amendment No. 1
The Commission finds good cause to approve the Amended Proposal
prior to the 30th day after the date of publication of Amendment No. 1
in the Federal Register. Amendment No. 1 does not change the original
purpose of the proposal, which was, and remains under Amendment No. 1,
to permit the Exchange to amend Rule 11.23(d)(2)(B) to differentiate
between BZX-listed corporate securities and ETP IPO Securities and to
expand the circumstances under which the Exchange may extend the Quote-
Only Period for IPO Auctions in an ETP IPO Security. In addition, the
original proposal has been subject to public comment and no comments
have been received.
Amendment No. 1 sets forth additional support for and detail
regarding the original filing, and clarifies certain rule text
provisions.\44\ Among other things, Amendment No. 1 amended the
definition of the term ``Indicative Price'' under Rule 11.23(a)(10) to
explain the meaning of the term in the context of an IPO; removed the
discretion of an issuer to opt in/out of the application of the price
validation test; and generally clarified certain points and added
detail to the original proposal. The Commission believes that Amendment
No. 1 provides additional clarity and support, as explained above, and
does not materially change the Exchange's original proposal. The
Commission also believes that Amendment No. 1 raises no novel
regulatory issues that have not previously been subject to comment.
Accordingly, pursuant to Section 19(b)(2) of the Act,\45\ the
Commission finds good cause to approve the Amended Proposal on an
accelerated basis prior to the 30th day after publication of notice of
the filing of Amendment No. 1 in the Federal Register.
---------------------------------------------------------------------------
\44\ See supra note 6.
\45\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------
VII. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\46\ that the proposed rule change (SR-CboeBZX-2025-149), as
modified and superseded by Amendment No. 1, be, and hereby is, approved
on an accelerated basis.
---------------------------------------------------------------------------
\46\ 15 U.S.C. 78s(b)(2).
[[Page 17018]]
---------------------------------------------------------------------------
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\47\
---------------------------------------------------------------------------
\47\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2026-06474 Filed 4-2-26; 8:45 am]
BILLING CODE 8011-01-P
</pre><script data-cfasync="false" src="/cdn-cgi/scripts/5c5dd728/cloudflare-static/email-decode.min.js"></script></body>
</html>Indexed from Federal Register on April 3, 2026.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.