83 FR 45472 - Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Expand the Types of Messages That Users May Submit Into Bulk Order Ports

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 83, Issue 174 (September 7, 2018)

[Federal Register Volume 83, Number 174 (Friday, September 7, 2018)]
[Notices]
[Pages 45472-45474]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2018-19375]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84011; File No. SR-CboeEDGX-2018-038]


Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice 
of Filing and Immediate Effectiveness of a Proposed Rule Change To 
Expand the Types of Messages That Users May Submit Into Bulk Order 
Ports

August 31, 2018.
    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 August 24, 2018, Cboe EDGX Exchange, Inc. (the ``Exchange'' or 
``EDGX'') 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 Exchange 
has designated this proposal as a ``non-controversial'' proposed rule 
change pursuant to Section 19(b)(3)(A) of the Act \3\ and Rule 19b-
4(f)(6)(iii) thereunder,\4\ which renders it effective upon filing with 
the Commission. 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).
    \4\ 17 CFR 240.19b-4(f)(6)(iii).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is proposing to expand the types of messages that 
Users may submit into bulk order ports.
    The text of the proposed rule change is available at the Exchange's 
website at www.markets.cboe.com, at the principal office of the 
Exchange, and at the Commission's Public Reference Room.

[[Page 45473]]

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
Sections A, B, and C below, of the most significant parts of such 
statements.

(A) Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The proposed rule change expands the types of messages that Users 
may submit into bulk order ports. A bulk order port is a logical port 
that provides Users with the ability to submit bulk messages to enter, 
modify, or cancel orders designated as Post Only Orders, provided such 
orders are entered with a Time-in-Force of Day \5\ or GTD \6\ with an 
expiration time on that trading day. Post Only Orders \7\ with a Time-
in-Force of Day or GTD are orders that will be posted to and displayed 
by the Exchange, rather than removing liquidity or routing to another 
options exchange. The Exchange currently limits the use of bulk order 
ports to these orders to limit the use of these ports to liquidity 
provision. The primary purpose of bulk order ports is to encourage 
Users, and Market-Makers in particular, to quote on the Exchange. As a 
general matter, however, the overall purpose of bulk order ports is to 
allow Users to bundle multiple instructions in a single message and 
provide all Users (not just Market-Makers) with an efficient way to 
provide liquidity on the Exchange.
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    \5\ An order designated as ``Day'' means a limit order to buy or 
sell that, if not executed expires at market close. See Rule 
21.1(f)(3).
    \6\ An order designated as ``GTD'' means an order (or unexecuted 
portion) that will remain available for potential display and/or 
execution for the amount of time specified by the entering User 
unless cancelled by the entering party. See Rule 21.1(f)(1).
    \7\ A ``Post Only Order'' is an order that is to be ranked and 
executed on the Exchange pursuant to Rule 21.8 (Order Display and 
Book Processing) or cancelled, as appropriate, without routing away 
to another options exchange except that the order will not remove 
liquidity from the EDGX Options Book. A Post Only Order that is not 
subject to the Price adjust process that would lock or cross a 
Protected Quotation of another options exchange or the Exchange will 
be cancelled. See Rule 21.1(d)(8).
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    The proposed rule change permits Users to submit auction responses 
into bulk order ports, in addition to Post Only Orders with a Time-in-
Force of Day or GTD with an expiration time on that trading day. The 
Exchange offers various auction mechanisms that provide Users with 
additional execution opportunities and potential price improvement for 
their orders.\8\ When the Exchange initiates an auction, it 
disseminates messages that contain the relevant information about the 
auction order.\9\ The purpose of these messages is to encourage Users 
to provide liquidity against which the auctioned orders may trade. 
Users submit this liquidity in the form of auction responses. Like Post 
Only Orders with a Time-in-Force of Day or GTD with an expiration time 
on the applicable trading day, auction responses will not remove 
liquidity from the Exchange order book or route to another options 
exchange. Auction responses are similarly available for execution for a 
limited time period. Unexecuted auction responses are cancelled at the 
end of the auction, and thus do not last beyond the auction to which 
they were submitted.\10\ Because the purpose of auction responses is to 
provide liquidity, which is the purpose of bulk order ports, the 
Exchange believes it is appropriate to permit Users to submit auction 
responses into bulk order ports.
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    \8\ See Rules 21.18 (Step Up Mechanism (``SUM''), pursuant to 
which eligible marketable orders are auctioned when the Exchange's 
disseminated quote is not at the national best bid or offer 
(``NBBO'')); 21.19 (Bats Auction Mechanism (``BAM''), pursuant to 
which a Member may submit an eligible order paired with contra 
interest for potential price improvement); and 21.20(d) (Complex 
Order Auction (``COA''), pursuant to which eligible complex orders 
are auctioned for execution and potential price improvement).
    \9\ See Rules 21.18(b) (the Exchange exposes orders received by 
SUM); 21.19(b)(1)(C) (the Exchange sends an auction notification 
message when it receives an order for BAM processing); and 
21.20(d)(2) (the Exchange initiates the COA process by sending a COA 
auction message).
    \10\ See Rules 21.18(b)(3), 21.19(b)(5), and 21.20(d)(4).
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    Orders submitted to the Exchange through all ports are subject to 
various parameters, such as price reasonability checks and volume 
restrictions.\11\ These parameters may be configured either by the 
Exchange or the Member. Orders are also subject to other validation 
checks and processes before execution, entry into the book, or 
cancellation. Examples of such validation checks include validating an 
order's Capacity, Time-in-Force, order instructions, and routing 
options. While orders submitted through bulk order ports pass through 
these same validation checks and processes, they are not subject to 
parameters such as routing options and are restricted to one order 
instruction and two Time-in-Force options. As a result, the System can 
perform these validation checks with respect to orders submitted 
through bulk order ports in a more efficient manner.
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    \11\ See, e.g., Rules 21.16 and 21.17 and technical 
specifications available at http://markets.cboe.com/us/options/support/technical/.
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    Pursuant to Exchange technical specifications,\12\ the order 
messages per second that a User may submit through a non-bulk order 
port is smaller than the order messages per second that a User may 
submit through a bulk order port. The Exchange understands from certain 
Members that they may restrict the number of auction response messages 
they submit to avoid having to obtain additional ports. The Exchange 
believes permitting Users to submit auction responses through bulk 
order ports will encourage Users to provide increased liquidity to 
auction mechanisms in a more cost-efficient manner. While bulk order 
ports have a higher monthly cost, the higher order message/second rate 
may ultimately be more cost-efficient than a User having to obtain 
multiple additional non-bulk ports to accommodate the submission of 
auction responses. Additionally, Users that have both bulk and non-bulk 
order ports would be able to increase their submission of auction 
responses without additional monthly fees.\13\
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    \12\ These technical specifications are available at http://markets.cboe.com/us/options/support/technical/.
    \13\ The Exchange notes certain Market-Makers currently only 
have bulk order ports, and thus are unable to provide liquidity to 
auction mechanisms without obtaining additional non-bulk order 
ports.
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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.\14\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \15\ 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

[[Page 45474]]

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) \16\ 
requirement that the rules of an exchange not be designed to permit 
unfair discrimination between customers, issuers, brokers, or dealers.
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    \14\ 15 U.S.C. 78f(b).
    \15\ 15 U.S.C. 78f(b)(5).
    \16\ Id.
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    In particular, the Exchange believes the proposed rule change 
protects investors and the public interest because it provides all 
Users with an efficient process to enter and update auction responses. 
Like quoting, auction responses are a critical form of liquidity on the 
Exchange. Auction mechanisms and the execution and price improvement 
opportunities they provide are dependent on auction responses submitted 
during the auctions. Permitting Users to submit auction responses into 
bulk order ports is consistent with the purpose of these ports and have 
a similar purpose as the orders that Users are currently permitted to 
enter into bulk order ports. The Exchange believes the proposed rule 
change may encourage the provision of additional liquidity in auctions, 
which will provide additional execution and price improvement 
opportunities to auctioned orders, which ultimately benefit investors.

(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, as the use of bulk order ports and the proposed 
functionality is voluntary and available to all Users of the Exchange. 
Bulk order entry functionality is available to all Users of the 
Exchange, as is the proposed functionality to submit auction responses 
into bulk order ports. Users may already submit auction responses to 
the Exchange using other types of ports--the proposed rule change 
merely provides Users of the Exchange with an additional method to 
submit auction responses to the Exchange. The Exchange does not believe 
the proposed rule change will have any direct impact on intermarket 
competition, as the proposed rule change relates solely to the manner 
in which Users may submit auction responses into auctions occurring on 
the Exchange.

(C) Self-Regulatory Organization's Statement on Comments on the 
Proposed Rule Change Received From Members, Participants or Others

    The Exchange has neither solicited nor received written 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: (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)(iii) of the Act \17\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\18\
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    \17\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \18\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
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: (i) 
Necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) 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

     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-CboeEDGX-2018-038 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-CboeEDGX-2018-038. 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-CboeEDGX-2018-038 and should be 
submitted on or before September 28, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
Eduardo A. Aleman,
Assistant Secretary.
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    \19\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2018-19375 Filed 9-6-18; 8:45 am]
 BILLING CODE 8011-01-P