Notice2026-07990
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Rule 21.17 To Adopt a Wide Market Protection Mechanism Designed To Reduce the Risk of Orders Executing at Extreme or Adverse Prices When the National Best Bid and Offer (“NBBO”) Is Determined To Be Wide
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 24, 2026
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 91 Issue 79 (Friday, April 24, 2026)</title>
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[Federal Register Volume 91, Number 79 (Friday, April 24, 2026)]
[Notices]
[Pages 22179-22184]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-07990]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-105282; File No. SR-CboeBZX-2026-030]
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
Rule 21.17 To Adopt a Wide Market Protection Mechanism Designed To
Reduce the Risk of Orders Executing at Extreme or Adverse Prices When
the National Best Bid and Offer (``NBBO'') Is Determined To Be Wide
April 21, 2026.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on April 10, 2026, Cboe BZX Exchange, Inc. (``Exchange'' or
``BZX'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I and
II 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. (the ``Exchange'' or ``BZX'') proposes to
amend Rule 21.17 to adopt a wide market protection mechanism designed
to reduce the risk of orders executing at extreme or adverse prices
when the national best bid and offer (``NBBO'') is determined to be
wide. 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
[[Page 22180]]
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 purpose of this rule filing is to amend Rule 21.17(a),
Additional Price Protection Mechanisms and Risk Controls (Simple
Orders), to adopt a wide market protection mechanism designed to reduce
the risk of orders executing at extreme or adverse prices when the NBBO
is determined to be wide.\3\ The Exchange notes that its affiliated
exchange, Cboe Exchange, Inc. (hereinafter ``C1'' or Cboe Exchange''),
recently implemented rule changes adopting a substantially similar wide
market protection mechanism.\4\ The proposed wide market protection
mechanism, similar to that implemented by Cboe Exchange, will leverage
the existing iterative drill-through protection mechanism for certain
orders when the NBBO is wide and will initiate a drill-through pause on
applicable inbound market or limit orders or elected Stop (Stop-Loss)
\5\ or Stop-Limit \6\ orders which would either execute or post to the
BZX Book \7\ at potentially extreme prices. In addition, the Exchange
proposes to update Rule 21.17 to make non-substantive formatting
corrections.\8\
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\3\ The Exchange notes it currently has a Market Order NBBO
Width Protection Mechanism set forth in updated Rule 21.17(a)(1);
the proposed rule change does not result in changes to the Market
Order NBBO Width Protection Mechanism, which is infrequently
triggered. In general, the current Market Order NBBO Width
Protection Mechanism applies when the NBBO is significantly wider
than will be considered under the proposed wide market protection
mechanism. Further, the Market Order NBBO Width Protection is
applicable only to market orders and does not apply to Stop (Stop-
Loss) orders. The proposed wide market protection mechanism is
applicable to market and limit orders (subject to certain
exceptions), and is intended to ``catch'' more orders. Unlike the
Market Order NBBO Width Protection Mechanism, which cancels orders
too far outside the NBBO, the proposed mechanism will trigger the
drill-through process for applicable orders and thus provide
additional execution opportunities.
\4\ See Securities Exchange Act Release No. 34-104245 (November
24, 2025), 90 FR 54806 (November 28, 2025) (SR-CBOE-2025-081)
(amending Cboe Exchange Rule 5.34 to adopt a wide market protection
mechanism). See also Securities Exchange Act Release No. 34-104435
(December 17, 2025), 90 FR 59890 (December 22, 2025) (SR-CBOE-2025-
091) (amending Cboe Exchange Rule 5.34 to exclude all M and N
capacity orders from the wide market protection mechanism).
\5\ A Stop Order is an order that becomes a BZX market order
when the stop price is elected. A Stop Order to buy is elected when
the consolidated last sale in the security occurs at, or above, the
specified stop price. A Stop Order to sell is elected when the
consolidated last sale in the security occurs at, or below, the
specified stop price. See Rule 11.9(c)(16) (definition of ``Stop
Order'').
\6\ A Stop Limit Order is an order that becomes a limit order
when the stop price is elected. A Stop Limit Order to buy is elected
when the consolidated last sale in the security occurs at, or above,
the specified stop price. A Stop Limit Order to sell becomes a sell
limit order when the consolidated last sale in the security occurs
at, or below, the specified stop price. See 11.9(c)(17) (definition
of ``Stop Limit Order'').
\7\ ``BZX Book'' shall mean the System's electronic file of
orders. See Rule 1.5(e) (definition of ``BZX Book'').
\8\ The Exchange proposes to renumber current Rule
21.17(a)(3)(1) to (5) to be Rule 21.17(a)(3)(A) to (E); current Rule
21.17(a)(3)(3)(A) to (G) to be Rule 21.17(a)(3)(C)(i) to (vii);
current Rule 21.17(a)(4)(1) to (3) to be Rule 21.17(a)(4)(A) to (C);
and current Rule 21.17(a)(4)(1)(A) and (B) to be Rule
21.17(a)(4)(A)(i) and (ii). All references to Rule 21.17 will refer
to the proposed updated numbering and formatting of the Rule.
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Drill-Through Price protection is currently described in updated
Exchange Rule 21.17(a)(3). Under updated Rule 21.17(a)(3)(A), if a buy
(sell) order enters the BZX Book at the conclusion of the opening
auction process or would execute or post to the BZX Book when it enters
the BZX Book, the System \9\ executes the order up (down) to a buffer
amount (the Exchange determines the buffer amount on a class and
premium basis) above (below) the offer (bid) limit of the Opening
Collar \10\ or the National Best Offer (``NBO'') (National Best Bid
(``NBB'')) that existed at the time of order entry, respectively (the
``Drill-Through Price'').\11\
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\9\ ``System'' means the electronic communications and trading
facility designated by the Board through which securities orders of
Users are consolidated for ranking, execution and, when applicable,
routing away. See Rule 1.5(aa) (definition of, ``System'').
\10\ See Rule 21.7(a) for the definition of Opening Collars.
\11\ See updated Rule 21.17(a)(3)(A).
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Updated Rule 21.17(a)(3)(C) establishes an iterative drill-through
process, whereby orders will rest in the BZX Book for multiple time
periods and at more aggressive displayed prices during each time
period.\12\ Specifically, for a market order with a Time-in-Force of
Day or a limit order (or unexecuted portion) with a Time-in-Force of
Day, Good-til-Cancelled (``GTC''), or Good-til-Date (``GTD''), the
System enters the order in the BZX Book with a displayed price equal to
the Drill-Through Price. The order (or unexecuted portion) will rest in
the BZX Book at the Drill-Through Price for the duration of consecutive
time periods (the Exchange determines on a class-by-class basis the
length of the time period in milliseconds, which may not exceed three
seconds) (each time period is referred to as an ``iteration'').\13\
Following the end of each period, the System adds (if a buy order) or
subtracts (if a sell order) one buffer amount (the Exchange determines
the buffer amount on a class-by-class basis) to the Drill-Through Price
displayed during the immediately preceding period (each new price
becomes the ``Drill-Through Price'').\14\ The order (or unexecuted
portion) rests in the BZX Book at that new Drill-Through Price for the
duration of the subsequent period. The System applies a timestamp to
the order (or unexecuted portion) based on the time it enters or is re-
priced in the BZX Book for priority reasons. The order continues
through this iterative process until the earliest of the following to
occur: (a) the order fully executes; (b) the User \15\ cancels the
order; or (c) the buy (sell) order's limit price equals or is less
(greater) than the Drill-Through Price at any time during application
of the drill-through mechanism, in which case the order rests in the
BZX Book at its limit price, subject to a User's instructions.
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\12\ The Exchange will announce to Members the buffer amount and
the length of the time periods in accordance with Rule 16.3. The
Exchange notes that each time period will be the same length (as
designated by the Exchange), and the buffer amount applied for each
time period will be the same.
\13\ See updated Rule 21.17(a)(3)(C).
\14\ See updated Rule 21.17(a)(3)(C).
\15\ The term ``User'' shall mean any Member or Sponsored
Participant who is authorized to obtain access to the System
pursuant to Rule 11.3. See Rule 1.5(cc) (definition of''User'').
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Currently, there are common scenarios in which certain orders are
trading at prices that are, for reasons described below, artificially
wide. For example, certain trading strategies result in a significant
number of simple Stop (Stop-Loss) and Stop-Limit orders resting in the
BZX Book and then being triggered simultaneously by a common event. The
receipt of large quantities of market and limit orders on the same side
of a series results in rapid removal of liquidity without opportunity
for replenishment (and potential related triggers of risk protections).
This results in potentially extreme or adverse execution prices as risk
is re-evaluated by Market-Makers and quotes are replenished, typically
within seconds of the start of the triggering event. Additionally, the
Exchange has observed an increase in resting Stop (Stop-Loss) or Stop-
Limit orders that are simultaneously triggered around the opening of
the relevant trading session and trading at extremely wide price
levels, up to Obvious Error prices. Similarly, Stop (Stop-Loss) and
Stop-Limit orders may be triggered on a trade (rather than an NBBO
update) that
[[Page 22181]]
exhausts liquidity, causing the triggered order(s) to execute at the
next available bid/offer, which may be at an extreme level, rather than
affording the order the benefit of Drill-Through Price protection by
displaying the order at the price of the triggering trade and iterating
from there.
The Exchange now proposes rule changes designed to prevent trades
at extreme or adverse price levels in such scenarios, when quotes are
wide or when orders are removing liquidity in rapid succession. The
Exchange proposes to amend Rule 21.17 to add a wide market protection
mechanism that will leverage the existing iterative drill-through
protection mechanism for certain orders when the NBBO is considered
``wide'' and will initiate a drill-through pause on applicable near-
marketable inbound market or limit orders or elected Stop (Stop-Loss)
or Stop-Limit orders which would either execute or post to the BZX Book
at potentially extreme or adverse prices.
Specifically, the Exchange proposes to add new Rule 21.17(a)(6) to
establish a wide market protection mechanism. Under proposed Rule
21.17(a)(6)(A), if (i) when the NBBO is ``wide,'' the System receives a
buy (sell) order with a price that is more than a buffer amount above
(below) the NBB (NBO) or (ii) a Stop (Stop-Loss) or Stop-Limit buy
(sell) order is triggered and is priced more than a buffer amount above
(below) the NBB (NBO) and the NBBO after the triggering event is
``wide,'' the order enters the BZX Book and is displayed at the
Benchmark Price for an Exchange determined-amount of time (this time
period will be considered the first drill-through iteration pursuant to
updated Rule 21.17(a)(3)). If the order does not execute or there is
any remaining size of the order following a partial execution, the
order will continue the drill-through process pursuant to updated Rule
21.17(a)(3).
As set forth in proposed Rule 21.17(a)(6)(A), for purposes of the
proposed subparagraph (6), the NBBO is ``wide'' if there is no NBO or
the width of the NBBO for the series is equal to or greater than an
amount the Exchange determines on a class-by-class basis and which is
applied based on the NBB. Further, for a buy (sell) order, the
Benchmark Price is the least aggressive price of (1) the NBB (NBO) plus
(minus) a buffer amount determined by the Exchange on a class and
premium basis; \16\ (2) the last trade price, if greater (less) than or
equal to the NBB (NBO); \17\ or (3) the midpoint of the then-current
NBBO. Consider the below examples.
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\16\ In a no-bid scenario for buy orders, the NBB will be
considered as zero and the Benchmark Price will be calculated
accordingly. In a no-offer scenario for sell orders, the NBO will
not be used; the Benchmark Price will use the less aggressive of the
last trade price or the NBB plus the buffer amount determined by the
Exchange on a class-by-class basis.
\17\ If last trade price is worse than the NBO (NBB) it will not
be used as a possible Benchmark Price.
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Example #1, Demonstrating Eligibility of a Stop-Limit Order for Wide
Market Protection
In this example, a buy Stop-Limit order is triggered, the NBBO
after the triggering event is determined to be wide, and the limit
price is more than a buffer amount above the NBB. Under the proposed
rules, the order will be paused at the Benchmark Price and begin drill-
through iteration. Assume for purposes of this example, the market will
be considered wide pursuant to proposed Rule 21.17(a)(6)(A)(i) if the
width of the NBBO for the series is equal to or greater than $1.50.
Further assume for this example, the buffer amount to determine limit
order eligibility based on price is 80% of the width of NBBO.
Order 1: Stop-Limit Buy 5 contracts @ 3.33, Stop Price = $2.30
MM1 Quote: 5 @ 1.95 x 5 @3.65
MM2 Quote: 5 @ 1.95 x 5 @ 2.30 (NBBO, not wide)
Order 2: Buy 5 @ 2.30
Order 2 trades with MM2 Quote at 2.30; as a result, Order 1 is
elected.
The resulting NBBO after the triggering event is 1.95 x 3.65 (i.e.,
NBBO width equal to $1.70), which is considered wide, and Order 1 is
triggered with a limit price of $3.33, which is greater than the
Exchange-determined buffer amount above the NBB (i.e., NBB of 1.95 +
(NBBO width of 1.70 x 0.80 buffer) = 3.31). Thus, Order 1 is subject to
the wide market protection mechanism.
Example #2, Demonstrating Determination of Benchmark Price
In this example, a buy Stop (Stop-Loss) order is triggered by a
quote, the NBBO after the triggering event is determined to be wide,
and the price is more than a buffer amount above the NBB. Under the
proposed rules, the order will be paused at the Benchmark Price and
begin drill-through iteration. Assume for purposes of this example, the
market will be considered wide pursuant to proposed Rule
21.17(a)(6)(A)(i) if the width of the NBBO for the series is equal to
or greater than $1.50. Further assume for this example, the buffer
amount to determine the order eligibility based on price is 80% of the
width of NBBO and the buffer amount used in determining Benchmark Price
is 0.75.
Order 1: Stop (Stop-Loss) Buy 5 @3.40, Stop Price = $2.00
MM1 Quote: 5 @ 1.95 x 5 @ 3.75
MM2 Quote: 5 @ 1.95 x 5 @ 2.30 (NBBO, not wide)
Order 2: Buy 5 @ 2.30
Order 2 trades with MM2 Quote at 2.30; as a result, Order 1 is
elected.
The resulting NBBO after the triggering event is 1.95 x 3.75 (i.e.,
NBBO width equal to $1.80), which is considered wide, and Order 1 is
triggered with a price of $3.40, which is greater than the Exchange-
determined buffer amount above the NBB (i.e., NBB of 1.95 + (NBBO width
of 1.80 x 0.80 buffer) = 3.39). Thus, Order 1 is subject to the wide
market protection mechanism. The Benchmark Price is 2.30, determined as
the least aggressive of:
<bullet> The NBB (1.95) plus a buffer amount determined by the
Exchange on a class and premium basis (0.75): 2.70.
<bullet> Last Trade Price: 2.30.
<bullet> The midpoint of the then-current NBBO: 2.85.
Thus, executions of Order 1 up to $2.30 will be considered the
initial drill-through iteration, as the order becomes subject to the
Drill-Through Price protection mechanism under updated Rule
21.17(a)(3)(C).
The Exchange proposes to add Rule 21.17(a)(6)(B) to specify that
the wide market protection mechanism will not apply during a pre-
determined amount of time prior to the close of the Regular Trading
Hours (``RTH'') \18\ trading session (such time will be determined by
the Exchange).\19\ This provides a final opportunity for market
participants to utilize Stop (Stop-Loss) and Stop-Limit orders to exit
positions if desired at the end of the trading session, in order to
avoid unintended overnight risk.\20\
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\18\ ``Regular Trading Hours'' means the time between 9:30 a.m.
and 4:00 p.m. Eastern Time. See Rule 1.5(w).
\19\ During this time, the drill-through process will not be
initiated by the wide market protection mechanism but may still
apply pursuant to updated Rule 21.17(a)(3).
\20\ The Exchange notes that Rule 20.6(c), Obvious Errors, will
continue to apply as it does today; there are no changes to the
Obvious Error rules as a result of the proposed rule change.
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The Exchange proposes to add Rule 21.17(a)(6)(C), which states that
if an order would initiate the wide market protection while the drill-
through process in the applicable series is in progress pursuant to
updated Rule 21.17(a)(3), then the System does not initiate the wide
market protection and
[[Page 22182]]
instead the order would join the ongoing drill-through as set forth in
updated Rule 21.17(a)(3)(C)(iv). The Exchange also proposes to add Rule
21.17(a)(6)(D) to exclude bulk messages, Intermarket Sweep Orders
(``ISOs''), Immediate-or-Cancel orders (``IOCs''), and M and N capacity
orders from the wide market protection mechanism; and to note that the
Exchange may apply the wide market protection on a class-by-class
basis.
The Exchange also proposes to amend updated Rule 21.17(a)(4)(A)(ii)
to exclude from the current protections for market orders in no-bid
series certain orders that would be otherwise subject to wide market
protection under the proposed rule changes. Currently, under updated
Rule 21.17(a)(4)(A)(ii), if the System receives a sell market order in
a series after it is open for trading with an NBB of zero, and the NBO
in the series is greater than $0.50, the System cancels or rejects the
market order, except if a drill-through process (described in updated
subparagraph (a)(3)) is in progress for sell orders in the series and
the sell market order would be subject to the drill-through protection,
then the order joins the ongoing drill-through process in the then-
current iteration and at the then-current Drill-Through Price,
regardless of NBBO. The Exchange proposes to amend updated Rule
21.17(a)(4)(A)(ii) to note that in the event the System receives a sell
market order in a series after it is open for trading with an NBB of
zero and the NBO in the series is greater than $0.50, if the order is
subject to wide market protection pursuant to proposed subparagraph
(a)(6), then the order enters the BZX Book and is displayed at the
Benchmark Price for an Exchange determined-amount of time (this time
period will be considered the first drill-through iteration pursuant to
updated subparagraph (a)(3)), with any remaining size continuing the
drill-through process pursuant to updated subparagraph (a)(3).
Finally, the Exchange proposes to amend updated Rule 21.17(a)(4)(B)
to exclude from the current protections for market orders in no-offer
series certain orders that would be otherwise subject to wide market
protection under the proposed rule changes or drill-through protections
pursuant to updated Rule 21.17(a)(3). Currently under updated Rule
21.17(a)(4)(B), if the System receives a buy market order in a series
after it is open for trading with an NBO of zero, the System cancels or
rejects the market order. The Exchange proposes to amend updated Rule
21.17(a)(4)(B) to note that in the event the System receives a buy
market order in a series after it is open for trading with an NBO of
zero, if the order is subject to wide market protection pursuant to
proposed subparagraph (a)(6), then the order enters the BZX Book and is
displayed at the Benchmark Price for an Exchange determined-amount of
time (this time period will be considered the first drill-through
iteration pursuant to updated subparagraph (a)(3)), with any remaining
size continuing the drill-through process pursuant to updated
subparagraph (a)(3); or if a drill-through process (described in
updated subparagraph (a)(3)) is in progress for buy orders in the
series and the buy market order would be subject to the drill-through
protection, then the order joins the ongoing drill-through process in
the then-current iteration and at the then-current Drill-Through Price,
regardless of NBBO.
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Securities Exchange Act of 1934 (the ``Act'') and the rules and
regulations thereunder applicable to the Exchange and, in particular,
the requirements of Section 6(b) of the Act.\21\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \22\ 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) \23\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
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\21\ 15 U.S.C. 78f(b).
\22\ 15 U.S.C. 78f(b)(5).
\23\ Id.
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In particular, the Exchange believes the proposed rule change to
implement a wide market protection mechanism will remove impediments to
and perfect the mechanism of a free and open market and a national
market system, and, in general, protect investors, because it will
provide applicable orders with additional and consistent execution
opportunities and price protections. As noted above, the wide market
protection mechanism is effectively an extension of the Exchange's
current Drill-Through Price protection, of which the primary purpose is
to prevent orders from executing at prices ``too far away'' from the
market when they enter the BZX Book for potential execution. The
Exchange believes the proposed rule change is consistent with this
purpose, because Users who submit applicable orders or have orders
triggered in markets that are wider than expected, possibly due to wide
quotes or orders removing liquidity in rapid succession, will receive
price protection against execution at potentially extreme or adverse
prices and additional execution opportunities.
Further, the proposed rule change to leverage the existing
iterative drill-through protection mechanism for certain orders when
the NBBO is considered ``wide'' allows these orders to receive the same
level of price protection as other orders otherwise subject to the
drill-through process. The proposed rule change will allow orders in
wide markets additional execution opportunities while continuing to
protect them against execution at potentially extreme prices, by
providing the opportunity for execution at reasonable prices by
allowing for liquidity replenishment that may result in more aggressive
prices, especially during times when liquidity may require additional
time to replenish, such as near the beginning of a trading session.
The Exchange believes the proposal will enhance risk protections,
the individual firm benefits of which flow downstream to counterparties
both at the Exchange and at other options exchanges, which increases
systemic protections as well. The Exchange believes enhancing risk
protections will allow Users to enter orders, including Stop (Stop-
Loss) and Stop-Limit orders, and quotes with further reduced fear of
inadvertent exposure to excessive risk, which will benefit investors
through increased exposure to liquidity for the execution of their
orders.
The Exchange also believes the proposed changes regarding the
application of the wide market protection mechanism during Exchange
trading sessions will protect investors, as the proposed application
allows market participants a final opportunity to utilize Stop (Stop-
Loss) and Stop-Limit orders to exit positions if desired at the end of
the relevant trading session, in order to avoid unintended overnight
risk. Further, the proposed changes add transparency to the rules
regarding the wide market protection functionality and provide greater
[[Page 22183]]
certainty as to the application of the process.
Additionally, the Exchange believes changes to specifically exclude
bulk messages, ISOs, and IOCs from the wide market protection mechanism
(similar to the Drill-Through Price protection mechanism) are
reasonable and appropriate, given the iterative pricing process would
be inconsistent with the orders instruction (and thus the user's
intent). The proposed change to exclude all M and N capacity orders is
designed to ensure consistency across all potential types of Market-
Maker orders. The Exchange believes the proposed change to exclude all
M and N capacity orders from the wide market protection is reasonable,
as Market-Makers are positioned to observe and subsequently address
wide market scenarios, by tightening the NBBO with an order or quote.
The Exchange also believes the proposed change to clarify that the
System will not initiate the wide market protection while a drill-
through process in the applicable series is in progress is reasonable,
as it will bring transparency and clarity to the rulebook regarding how
the wide market protection mechanism interacts with the Drill-Through
Price protection mechanism, to the benefit of investors. This proposed
change is consistent with current drill-through functionality, where
incoming orders that enter the BZX Book while the drill-through is in
progress and that would be subject to the drill-through protection join
the on-going drill-through process.\24\
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\24\ See updated Rule 21.17(a)(3)(C)(iv).
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Additionally, the Exchange believes changes to specifically exclude
from the current protections for market orders in no-bid (offer) series
certain orders that would otherwise be subject to wide market
protection will remove impediments to and perfect the mechanism of a
free and open market and a national market system, and, in general,
protect investors. Specifically, the Exchange believes the change to
exclude from the current protections for market orders in no-bid
(offer) series certain orders that would otherwise be subject to wide
market protection may allow opportunity for execution than if they were
immediately canceled or rejected. This proposed rule change may
increase execution opportunities for Users that submit sell market
orders with an NBB of zero when the NBO in the series is greater than
$0.50 (in the case of market orders in no-bid series protections) or
buy market orders with an NBO of zero while still providing protection
against executions at potentially erroneous prices. Similarly, the
Exchange believes the change to allow buy market orders received by the
System when the NBO is zero to be subject to the drill-through process
is reasonable, as it may allow opportunity for execution of such
orders, rather than if they were immediately canceled or rejected. This
change aligns market order in no-bid (offer) series protection for
Users that submit sell market orders with an NBB of zero when the NBO
in the series is greater than $0.50 (in the case of market orders in
no-bid series protections) with how the Exchange will handle buy market
orders with an NBO of zero.
Finally, the Exchange believes the proposed change to apply the
wide market protection on a class-by-class basis is reasonable, as
classes may have different trading characteristics or may be affected
differently by market conditions. The proposal will provide the
Exchange with flexibility to apply wide market protections in a manner
which accounts for material differences across option classes, thereby
enhancing investor protection while minimizing unnecessary market
disruption. Further, the Exchange believes the proposed changes are not
unfairly discriminatory, as wide market protection applies uniformly to
all market participants within each class. This approach is consistent
with the Exchange's existing practice of applying certain other order
and quote price protection and risk controls, such as the limit order
fat finger check for simple orders,\25\ on a class-by-class basis where
product characteristics warrant differential treatment in regard to
risk protections.
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\25\ See Rule 21.17(c)(1).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The Exchange does not
believe that the proposed rule change will impose any burden on
intramarket competition that is not necessary or appropriate in
furtherance of the purposes of the Act because the wide market
protection functionality will apply to all applicable orders in a class
in the same manner. Additionally, it will provide the same price
protection and execution opportunities to relevant orders that are
currently provided to orders that are subject to the Drill-Through
Price protection process, as the wide market protection mechanism is
effectively an extension of the Exchange's current Drill-Through Price
protection. As noted above, the Exchange believes it is not unfairly
discriminatory to apply this protection on a class-by-class basis, as
wide market protection applies uniformly to all market participants
within each class. This approach is consistent with the Exchange's
existing practice of applying certain other order and quote price
protection and risk controls, such as the limit order fat finger check
for simple orders,\26\ on a class-by-class basis where product
characteristics warrant differential treatment in regard to risk
protections.
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\26\ See Rule 21.17(c)(1).
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The Exchange does not believe that the proposed rule change will
impose any burden on intermarket competition that is not necessary or
appropriate in furtherance of the purposes of the Act, as the proposed
rule change relates specifically to price protections offered on the
Exchange and how the System handles orders as part of these price
protection mechanisms. The proposed wide market protection mechanism
expands the current Drill-Through Price protection mechanism and
provides relevant orders with improved protection against execution at
potentially extreme or adverse prices through Drill-Through Price
protection.
The Exchange believes the proposed rule change would ultimately
provide all market participants with additional execution opportunities
when appropriate while providing protection from extreme or adverse
execution. The Exchange believes the proposal will enhance risk
protections, the individual firm benefits of which flow downstream to
counterparties both at the Exchange and at other options exchanges,
which increases systemic protections as well. The Exchange believes
enhancing risk protections will allow Users to enter orders, including
Stop (Stop-Loss) and Stop-Limit orders, and quotes with further reduced
fear of inadvertent exposure to excessive risk, which will benefit
investors through increased exposure to liquidity for the execution of
their orders. Without adequate risk management tools, Trading Permit
Holders could reduce the amount of order flow and liquidity they
provide. Such actions may undermine the quality of the markets
available to customers and other market participants. Accordingly, the
proposed rule change is designed to encourage Trading Permit Holders to
submit additional order flow and liquidity to the Exchange. The
proposed change may similarly provide additional execution
opportunities, which further benefits liquidity, especially during
times when liquidity
[[Page 22184]]
may require additional time to replenish, such as near the beginning of
a trading session. Additionally, as discussed above, the Exchange's
affiliated exchange, Cboe Exchange, recently implemented rule changes
adopting a substantially similar wide market protection mechanism.\27\
Thus, the proposed rule change will also align the rules of the
Exchange with that of its affiliated exchange, Cboe Exchange.
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\27\ See Securities Exchange Act Release No. 34-104245 (November
24, 2025), 90 FR 54806 (November 28, 2025) (SR-CBOE-2025-081). See
also Securities Exchange Act Release No. 34-104435 (December 17,
2025), 90 FR 59890 (December 22, 2025) (SR-CBOE-2025-091).
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C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received comments on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The Exchange has filed the proposed rule change pursuant to Section
19(b)(3)(A) of the Act \28\ and Rule 19b-4(f)(6) \29\ thereunder.
Because the foregoing proposed rule change does not: (i) significantly
affect the protection of investors or the public interest; (ii) impose
any significant burden on competition; and (iii) become operative for
30 days from the date on which it was filed, or such shorter time as
the Commission may designate, it has become effective pursuant to
Section 19(b)(3)(A) of the Act \30\ and Rule 19b-4(f)(6) \31\
thereunder.
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\28\ 15 U.S.C. 78s(b)(3)(A).
\29\ 17 CFR 240.19b-4(f)(6).
\30\ 15 U.S.C. 78s(b)(3)(A).
\31\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change, along
with a brief description and text of the proposed rule change, at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#bac8cfd6df97d9d5d7d7dfd4cec9fac9dfd994ddd5cc"><span class="__cf_email__" data-cfemail="a7d5d2cbc28ac4c8cacac2c9d3d4e7d4c2c489c0c8d1">[email protected]</span></a>. Please include
file number SR-CboeBZX-2026-030 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-2026-030. 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-2026-030 and should be submitted
on or before May 15, 2026.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\32\
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\32\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2026-07990 Filed 4-23-26; 8:45 am]
BILLING CODE 8011-01-P
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