[Federal Register Volume 85, Number 41 (Monday, March 2, 2020)]
[Notices]
[Pages 12357-12360]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-04187]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-88279; File No. SR-CboeBZX-2020-017]
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Codify
the Cancel Back Order Type and To Add That the Post Only Order
Designated as Cancel Back May Remove Liquidity Pursuant to Exchange
Rule 21.1
February 25, 2020.
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 February 12, 2020, Cboe BZX Exchange, Inc. (the ``Exchange'' or
``BZX'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the Exchange. The
Exchange filed the proposal as a ``non-controversial'' proposed rule
change pursuant to Section 19(b)(3)(A)(iii) of the Act \3\ and Rule
19b-4(f)(6) thereunder.\4\ The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A)(iii).
\4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Cboe BZX Exchange, Inc. (the ``Exchange'' or ``BZX'') proposes to
codify the Cancel Back order type and amend the Post Only order
instructions that may remove liquidity pursuant to Rule 21.1. 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 (http://markets.cboe.com/us/equities/regulation/rule_filings/bzx/), at the Exchange's Office of the Secretary, and at
the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the
[[Page 12358]]
places specified in Item IV below. The Exchange has prepared summaries,
set forth in sections A, B, and C below, of the most significant
aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to codify the Cancel Back order type, which
is a System \5\ functionality already in place and currently available
to Users today. In addition, the Exchange proposes to add that a Post
Only order designated as Cancel Back may, in addition to Post Only
orders designated as a display-price sliding order,\6\ remove
liquidity.
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\5\ The ``System'' is the automated trading system used by BZX
Options for the trading of options contracts. See Rule 21.1(a).
\6\ See Rule 21.1(h), which states that, unless a User enters
instructions for an order (including a bulk message) to not be
subject to the display-price sliding process in this paragraph (h),
an order (including a bulk message) that, at the time of entry,
would lock or cross a Protected Quotation of another options
exchange will be ranked at the locking price in the BZX Options Book
and displayed by the System at one minimum price variation below the
current NBO (for bids) or to one minimum price variation above the
current NBB (for offers) (``display-price sliding'').
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First, the System currently offers ``Cancel Back'' functionality
for Users' orders, which is not currently defined in the Rules.
Specifically, the functionality operates so that when a User designates
an order not to be subject to the display-price sliding process or
Price Adjust process,\7\ then the order is subject to the Cancel Back
instruction (note that an order will always include a Price Adjust,
display-price sliding, or Cancel Back instruction). A Cancel Back order
is immediately cancelled instead of re-priced when displaying the order
at its limit price would create a violation of the linkage rules.\8\
The Exchange also notes that Rule 21.6(f) provides affirmative
instruction consistent with Cancel Back functionality as it
specifically provides that an order entered with a price that would
lock or cross a Protected Quotation of another options exchange that is
not eligible for either routing, the display-price sliding process, or
the Price Adjust process will be cancelled. The Exchange now proposes
to codify the existing Cancel Back instruction in proposed Rule
21.1(m). The proposed definition is consistent (save for the provision
in connection with Post Only--Cancel Back instructions, as described in
greater detail below) with the corresponding definitions of a Cancel
Back order under the rules of the Exchange's affiliated exchanges, Cboe
EDGX Exchange, Inc. (``EDGX Options'') and Cboe C2 Exchange, Inc.
(``C2'').\9\ As proposed, a Cancel Back order is an order (including
bulk messages) \10\ a User designates to not be subject to the display-
price sliding process or the Price Adjust process that the System
cancels or rejects (immediately at the time the System receives the
order or upon return to the System after being routed away) if
displaying the order on the Book would create a violation of Rule 27.3
(Locked and Crossed Markets), or if the order cannot otherwise be
executed or displayed in the BZX Options Book at its limit price. The
System executes a Book Only--Cancel Back order against resting orders.
The Exchange notes that pursuant to the Book Only instruction, an order
or bulk message may not route away to another Exchange. Therefore, if
an incoming Book Only order designated as Cancel Back locked or crossed
an away market (i.e., the ABBO), the System would execute it to the
extent it could against contra-side interest on the Exchange at prices
the same as or better than the ABBO in accordance with the linkage
rules. The System would then cancel it (or the remaining portion) to
prevent a violation of Rule 27.3 of the intermarket linkage rules.
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\7\ See Rule 21.1(i), which states that an order that, at the
time of entry, would lock or cross a Protected Quotation of another
options exchange or the Exchange will be ranked and displayed by the
System at one minimum price variation below the current NBO (for
bids) or to one minimum price variation above the current NBB (for
offers) (``Price Adjust'').
\8\ See Chapter XXVII of the Rules. See also Options Order
Protection and Locked/Crossed Market Plan (the ``Linkage Plan'').
\9\ See EDGX Options Rule 21.1(l) and C2 Rule 6.10(c).
\10\ Bulk messages allow Users to enter, modify or cancel up to
an Exchange-specified number of bids and offers in a single message.
Therefore, a Cancel Back designation for a bulk message applies to
all bulk message bids and offers within a single message. The System
handles bulk message bids and offers in the same manner as it
handles an order, or quote if submitted by a Market Maker, unless
the Rules specify otherwise. See Rule 21.1(l)(3).
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The proposed Cancel Back order definition also provides that the
System executes a Post Only--Cancel Back order as set forth in Rule
21.1(d)(8) (as proposed). In particular, Rule 21.1(d)(8) currently
defines a Post Only order as an order to be ranked and executed on the
Exchange or cancelled, as appropriate, without routing away to another
options exchange and will not remove liquidity from the BZX Options
Book unless it is subject to the display-price sliding process and
executing against on order on the Book would be economically beneficial
to the User entering the order (i.e., if the value of price improvement
associated with such execution equals or exceeds the sum of fees
charged for such execution and the value of any rebate that would be
provided if the order posted to the BZX Options Book and subsequently
provided liquidity).\11\ Thus, an executable order entered with a Post
Only instruction is eligible to remove liquidity instead of having its
display-price adjusted pursuant to those order handling instructions.
The Exchange notes that the purpose of the display-price sliding
instruction is to ensure compliance with the linkage rules like that of
a Cancel Back instruction. The Exchange now proposes to amend Rule
21.1(d)(8) to make it explicit that a Post Only order with a Cancel
Back instruction may also be eligible to remove liquidity instead of
being cancelled or rejected back to the User in certain circumstances.
The Exchange believes that removal of liquidity in these circumstances
would be economically beneficial to Users that submit Post Only--Cancel
Back orders, in that, instead of being cancelled or rejected back to
the User upon locking or crossing the market, a Post Only--Cancel Back
order would have the opportunity to execute at an improved price while
contributing to liquidity and the price discovery process on the
Exchange. The Exchange notes that this is consistent with the price
improvement opportunities currently provided for a locking or crossing
Post Only order subject to the display-price sliding process, instead
of having its display-price adjusted. Users who wish for their Post
Only orders to post to the Book and forego the opportunity to remove
liquidity upon entry under Rule 21.1(d)(8) may continue to do so by
electing that the Post Only order be subject to the Price Adjust
process. As indicated above, this proposed description of a Post Only--
Cancel Back order in proposed Rule 21.1(m) is unlike the description of
a Post Only--Cancel Back order on the Exchange's affiliated options
exchanges, C2 and EDGX Options, which cancel or reject a Post Only--
Cancel Back order that locks or crosses the respective exchange's best
bid or offer, as their rules do not currently offer the same price
improvement opportunity (opportunities, as proposed) for their Post
Only orders.\12\
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\11\ See Rule 21.1(h)(4). Any Post Only Order subject to the
display-price sliding process that locks or crosses a Protected
Quotation displayed by the Exchange upon entry will be executed as
set forth in Rule 21.1(d)(8) or cancelled.
\12\ See EDGX Options Rule 21.1(d)(8) and C2 Rule 6.10(c).
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[[Page 12359]]
Additionally, the Exchange proposes to amend Rule 21.1(h)(4), which
describes the display-price sliding process as it applies to Post Only
orders, to provide additional clarity within the Rule. Currently, Rule
21.1(h)(4) provides that any Post Only Order subject to the display-
price sliding process described in this paragraph (h) that locks or
crosses a Protected Quotation displayed by the Exchange upon entry will
be executed as set forth in Rule 21.1(d)(8) or cancelled. A Post Only
bulk message that locks or crosses a Protected Quotation displayed by
the Exchange upon entry will be cancelled. Any Post Only Order that
locks or crosses a Protected Quotation displayed by an external market
upon entry will be subject to the display-price sliding process
described in this paragraph (h). The Exchange now proposes to
restructure the paragraph language so that it reads in a more uniform
and explanatory manner that is easier to follow. Specifically, the
Exchange proposes to amend the rule to first provide for the manner in
which a Post Only order that is subject to the display-price sliding
process will be handled if it either locks or crosses a Protected
Quotation displayed by the Exchange or by an away market. The
description of how a Post Only order subject to the display price-
sliding message will be handled if it locks or crosses an away market
is already in this provision, the Exchange is merely proposing to move
this clause into the same sentence that describes how such an order is
handled upon locking or crossing the Book. As indicated above, this
provision then goes on to describe the manner in which a Post Only bulk
message that is subject to the display-price sliding process will be
handled if it locks or crosses a Protected Quotation displayed by the
Exchange. The Exchange proposes to also add to this clause the
description of how a Post Only bulk message subject to the display-
price sliding process will be handled if it locks or crosses a
Protected Quotation displayed by an external market--to which,
according to Rule 21.1(h)(1), the System would apply the display-price
sliding process. The Exchange notes that it does not make any
substantive changes to Rule 21.1(h)(4), but merely amends the rule to
provide additional clarity and enhanced explanation within the Rule.
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.\13\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \14\ 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) \15\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
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\13\ 15 U.S.C. 78f(b).
\14\ 15 U.S.C. 78f(b)(5).
\15\ Id.
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In particular, the Exchange believes the proposed definition of
Cancel Back orders will provide additional transparency within the
Rules and facilitate better understanding for market participants
regarding their flexibility to designate orders as Cancel Back, as an
alternative manner to comply with the linkage rules. The Exchange
believes that the proposed rule change serves to remove impediments to
and perfect the mechanism of a free and open market and a national
market system because this change provides Users with Rules that
clearly delineate an additional User flexibility regarding how they may
instruct the System to handle their orders (i.e., designating their
orders as Cancel Back by specifying that their orders are not subject
to Price Adjust or display-price sliding). The Exchange also notes that
permitting Users to elect that their orders to be treated as Cancel
Back is an additional way to ensure compliance with the linkage rules,
thereby protecting investors and the public interest. The Exchange also
believes that this change is generally consistent with the Cancel Back
definitions under the rules of the Exchange's affiliated exchanges,
EDGX Options and C2.\16\ The Exchange believes that generally mirroring
the corresponding rule language of its affiliates will provide better
understanding for Users that participate across the affiliated
exchanges.
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\16\ See supra note 8.
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Moreover, the Exchange believes that it is consistent with just and
equitable principles of trade to permit an order entered with a Post
Only--Cancel Back instruction to remove liquidity when executing as the
taker of liquidity would be economically beneficial to a User. This
handling is designed to ensure that orders entered with a Post Only
instruction are eligible to trade in certain circumstances where the
User may have an interest in securing an execution on entry (i.e., as
the taker of liquidity) notwithstanding a Post Only instruction. The
Exchange does not believe that the proposed change would raise any new
or novel issues for market participants, as the System currently allows
for Post Only orders subject to the display-price sliding process, an
instruction similarly designed to ensure compliance with the linkage
rules, to remove liquidity when economically beneficial to the User.
The Exchange also believes that the proposed rule change will present
Users with increased trading opportunities at multiple price points,
which will potentially encourage the provision of more liquidity to the
market to interact with such orders. As a result, the Exchange believes
that the proposed rule change is reasonably designed to facilitate the
mechanism of price discovery and enhance competition and overall market
quality on the Exchange to the benefit of all investors.
The Exchange also believes that the proposed change to the
provision regarding Post Only orders subject to the display-price
sliding process will provide market participants with additional
clarity within the rules thereby facilitating increased understanding
of the Exchange Rules. By making this provision easier to follow and
understand the proposed rule change serves to remove impediments to and
perfect the mechanism of a free and open market and national market
system and benefit market participants. As noted, the proposed rule
change is not of a substantive nature, as it merely reorganizes the
provision and adds an order handling explanation that already applies
and is provided within the general display-price sliding rule.
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 rule change will impose any burden on intramarket
competition that is not necessary or appropriate in furtherance of the
purposes of the Act, because all Users would be able to designate their
[[Page 12360]]
orders as Cancel Back orders, including Post Only orders. Cancel Back
orders of all Users will be handled in the same manner. Additionally,
all Post Only--Cancel Back orders that would remove liquidity will be
handled in the same manner pursuant to the proposed rule change.
Further, the use of the Cancel Back instruction and/or the Post Only--
Cancel Back designation is voluntary and all Users may, instead, elect
for their orders to be subject to the display-price sliding process or
the Price Adjust process (specifically, if they wish for their Post
Only orders not to remove liquidity).
The Exchange does not believe 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. First, the
Cancel Back instruction is functionality currently available and
contemplated by the Rules. The instruction is intended as an additional
order mechanism to ensure compliance with the linkage rules that
provides Users with additional flexibility with respect to handling
their orders. Second, the proposed rule change to allow Post Only--
Cancel Back orders to remove liquidity pursuant to Rule 21.1(d)(8) does
not impact intermarket competition as Post Only orders (with any
additional instruction), by definition, do not route away to other
options exchanges. To the extent that the proposed changes make BZX
Options a more attractive marketplace for market participants at other
exchanges, such market participants are welcome to become BZX Options
market participants. Additionally, the Exchange notes that the proposed
rule change to the rule governing Post Only orders subject to the
display-price sliding process would not impose any burden on
competition as the proposed changes are nonsubstantive and serve only
to add clarity to the rule and make it easier to follow and understand.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received comments on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not:
A. Significantly affect the protection of investors or the public
interest;
B. impose any significant burden on competition; and
C. become operative for 30 days from the date on which it was
filed, or such shorter time as the Commission may designate, it has
become effective pursuant to Section 19(b)(3)(A) of the Act \17\ and
Rule 19b-4(f)(6) \18\ thereunder. At any time within 60 days of the
filing of the proposed rule change, the Commission summarily may
temporarily suspend such rule change if it appears to the Commission
that such action is necessary or appropriate in the public interest,
for the protection of investors, or otherwise in furtherance of the
purposes of the Act. If the Commission takes such action, the
Commission will institute proceedings to determine whether the proposed
rule change should be approved or disapproved.
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\17\ 15 U.S.C. 78s(b)(3)(A).
\18\ 17 CFR 240.19b-4(f)(6).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-CboeBZX-2020-017 on the subject line.
Paper Comments
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-2020-017. 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 (http://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549 on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-CboeBZX-2020-017 and should be submitted
on or before March 23, 2020.
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\19\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\19\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-04187 Filed 2-28-20; 8:45 am]
BILLING CODE 8011-01-P