83 FR 60534 - Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Adopt Reserve Orders

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 83, Issue 227 (November 26, 2018)

[Federal Register Volume 83, Number 227 (Monday, November 26, 2018)]
[Notices]
[Pages 60534-60536]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2018-25596]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84619; File No. SR-CboeEDGX-2018-051]


Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice 
of Filing and Immediate Effectiveness of a Proposed Rule Change To 
Adopt Reserve Orders

November 19, 2018.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on November 5, 2018, Cboe EDGX Exchange, Inc. (``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 
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 EDGX Exchange, Inc. (the ``Exchange'' or ``EDGX Options'') 
proposes to adopt Reserve Orders.

(additions are italicized; deletions are [bracketed])
* * * * *
Rules of Cboe EDGX Exchange, Inc.
* * * * *
Rule 21.1. Definitions
    The following definitions apply to Chapter XXI for the trading of 
options listed on EDGX Options.
    (a)-(c) No change.
    (d) The term ``Order Type'' shall mean the unique processing 
prescribed for designated orders that are eligible for entry into the 
System, and shall include:
    (1) [(Reserved.)] ``Reserve Orders'' are limit orders that have 
both a portion of the quantity displayed (``Display Quantity'') and a 
reserve portion of the quantity (``Reserve Quantity'') not displayed. 
Both the Display Quantity and Reserve Quantity of the Reserve Order are 
available for potential execution against incoming orders. When 
entering a Reserve Order, a User must instruct the Exchange as to the 
quantity of the order to be initially displayed by the System (``Max 
Floor''). If the Display Quantity of a Reserve Order is fully executed, 
the System will, in accordance with the User's instruction, replenish 
the Display Quantity from the Reserve Quantity using one of the below 
replenishment instructions. If the remainder of an order is less than 
the replenishment amount, the System will display the entire remainder 
of the order. The System creates a new timestamp for both the Display 
Quantity and Reserve Quantity of the order each time it is replenished 
from reserve.
    (A) Random Replenishment. An instruction that a User may attach to 
an order with Reserve Quantity where the System randomly replenishes 
the Display Quantity for the order with a number of contracts not 
outside a replenishment range, which equals the Max Floor plus and 
minus a replenishment value established by the User when entering a 
Reserve Order with a Random Replenishment instruction.
    (B) Fixed Replenishment. For any order that a User does not select 
Random Replenishment, the System will replenish the Display Quantity of 
the order with the number of contracts equal to the Max Floor.
    (2)-(12) No change.
    (e)-(j) No change.
* * * * *
Rule 21.6. Entry of Orders
    Users can enter orders into the System, subject to the following 
requirements and conditions:
    (a) Users shall be permitted to transmit to the System multiple 
orders at a single as well as multiple price levels. Each order will 
indicate the Reserve Quantity (if applicable).
    (b)-(f) No change.
* * * * *
Rule 21.8. Order Display and Book Processing
    (a)-(k) No change.
    (l) Nondisplayed Orders. Displayed orders have priority over 
nondisplayed orders. Nondisplayed portions of Reserve Orders are 
allocated in accordance with paragraph (c) above, but additional 
priority overlays do not apply, except for the Customer Overlay (if 
applicable).
* * * * *
    The text of the proposed rule change is also available on the 
Exchange's website (http://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx), 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 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
    In 2016, the Exchange's parent company, Cboe Global Markets, Inc. 
(formerly named CBOE Holdings, Inc.) (``Cboe Global''), which is also 
the parent company of Cboe Exchange, Inc. (``Cboe Options'') and Cboe 
C2 Exchange, Inc. (``C2''), acquired the Exchange and its affiliated 
exchanges,

[[Page 60535]]

Cboe EDGA Exchange, Inc. (``EDGA''), Cboe BZX Exchange, Inc. (``BZX or 
BZX Options''), and Cboe BYX Exchange, Inc. (``BYX'' and, together with 
C2, Cboe Options, EDGX, EDGA, and BZX, the ``Cboe Affiliated 
Exchanges''). In this context, EDGX Options proposes to align certain 
system functionality with C2 and BZX Options. Although the Exchange 
intentionally offers certain features that differ from those offered by 
the Cboe Affiliated Exchange and will continue to do so, the Exchange 
believes offering similar functionality to the extent practicable will 
reduce potential confusion for market participants.
    The proposed rule change adopts Reserve Orders. Reserve Orders 
permit Users to enter orders with both displayed and nondisplayed 
amounts. Specifically, proposed Rule 21.1(d)(1) provides that ``Reserve 
Orders'' are limit orders that have both a portion of the quantity 
displayed (``Display Quantity'') and a reserve portion of the quantity 
(``Reserve Quantity'') not displayed.\3\ Both the Display Quantity and 
Reserve Quantity of the Reserve Order are available for potential 
execution against incoming orders. When entering a Reserve Order, a 
User must instruct the Exchange as to the quantity of the order to be 
initially displayed by the System (``Max Floor''). If the Display 
Quantity of a Reserve Order is fully executed, the System will, in 
accordance with the User's instruction, replenish the Display Quantity 
from the Reserve Quantity using one of two replenishment options, as 
described below. If the remainder of an order is less than the 
replenishment amount, the System will display the entire remainder of 
the order. The System creates a new timestamp for both the Display 
Quantity and Reserve Quantity of the order each time it is replenished 
from reserve.
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    \3\ The proposed change to Rule 21.6(a) states that each order 
will indicate the Reserve Quantity (if applicable).
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    A User may determine that a Reserve Order should be subject to 
``Random Replenishment'' or ``Fixed Replenishment.'' If a Reserve Order 
has a Random Replenishment instruction, the System randomly replenishes 
the Display Quantity for the order with a number of contracts not 
outside a replenishment range, which equals the Max Floor plus and 
minus a replenishment value established by the User when entering a 
Reserve Order with a Random Replenishment instruction. For any order 
that a User does not select Random Replenishment, the System will 
replenish the Display Quantity of the order with the number of 
contracts equal to the Max Floor.
    Pursuant to proposed Rule 21.8(l), displayed orders have priority 
over nondisplayed orders. In other words, while both portions of a 
Reserve Order may execute against incoming marketable orders, the 
displayed portion will be executed first, and the non-displayed portion 
will only execute after all displayed interest (from other orders) at 
that price has executed. Nondisplayed portions of Reserve Orders are 
allocated in accordance with Rule 21.8(c), but additional priority 
overlays will not apply, except for the Customer Overlay (if 
applicable). Therefore, if there are nondisplayed portions of multiple 
Reserve Orders at the same price that can execute against an incoming 
marketable order, those nondisplayed portions will be allocated in a 
pro-rata manner; however, if the Customer Overlay has been applied to 
the class, the nondisplayed portion of any Customer Reserve Orders will 
execute first. The Exchange notes that pursuant to Rule 22.13, 
Interpretation and Policy .03, with respect to nondisplayed trading 
interest, including the Reserve Quantity of a Reserve Order, the 
exposure requirement in Rule 22.13(a) is satisfied if the displayable 
portion of the order (the Display Quantity) is displayed at its 
displayable price for one second.
    The proposed rule change is substantially the same as the rules of 
other options exchanges.\4\
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    \4\ See, e.g., C2 Rules 1.1 (definition of Reserve order in 
Order Instruction definition) and 6.12(a)(3); and BZX Options Rules 
21.1(d)(1) and 21.8(a)(2).
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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.\5\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \6\ 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) \7\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \5\ 15 U.S.C. 78f(b).
    \6\ 15 U.S.C. 78f(b)(5).
    \7\ Id.
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    The proposed rule change is generally intended to add certain 
system functionality currently offered by C2 and BZX Options to the 
Exchange's System in order to provide a consistent technology offering 
for the Cboe Affiliated Exchanges. A consistent technology offering, in 
turn, will simplify the technology implementation, changes and 
maintenance by Users of the Exchange that are also participants on Cboe 
Affiliated Exchanges. The proposed rule change will provide Users with 
additional flexibility to manage and display their orders on the 
Exchange, as well as increased functionality on the Exchange. This may 
encourage market participants to bring additional liquidity to the 
market, which benefits all investors. Additionally, this will provide 
Users with greater harmonization between the order handling 
instructions available among the Cboe Affiliated Exchanges.
    The proposed rule change also removes impediments to and perfect 
the mechanism of a free and open market and a national market system 
because the proposed functionality is available on other options 
exchanges.\8\ The proposed rule change does not propose to implement 
new or unique functionality that has not been previously filed with the 
Commission or is not available on Cboe Affiliated Exchanges.
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    \8\ See supra note 6.
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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 proposed rule change 
will not impose a burden on intramarket competition, because the use of 
Reserve Orders, like all other order instructions available on the 
Exchange, is voluntary. Reserve Orders entered by all Users will be 
handled in the same manner. The proposed rule change will not impose a 
burden on intermarket competition, because Reserve Order functionality 
is available on other options exchanges.\9\
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    \9\ Id.

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[[Page 60536]]

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: (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 \10\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\11\
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    \10\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \11\ 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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    A proposed rule change filed under Rule 19b-4(f)(6) \12\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, Rule 19b-4(f)(6)(iii) \13\ permits the Commission to 
designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay so that the proposed 
rule change may become effective and operative immediately upon filing. 
The Exchange states that waiver of the operative delay will provide 
Users with additional flexibility to manage and display their orders 
and provide additional control over their executions on the Exchange as 
soon as possible. The Exchange further states that waiver of the 
operative delay will allow the Exchange to continue to strive towards a 
complete technology integration of the Cboe Affiliated Exchanges, with 
gradual roll-outs of new functionality to ensure the stability of the 
System. The Exchange notes that the proposed rule change is generally 
intended to codify and to add certain system functionality to the 
Exchange's System in order to provide a consistent technology offering 
for the Cboe Affiliated Exchanges. The Exchange further notes that a 
consistent technology offering will simplify the technology 
implementation changes and maintenance by Trading Permit Holders of the 
Exchange that are also participants on Cboe Affiliated Exchanges. The 
Commission believes that waiver of the 30-day operative delay is 
consistent with the protection of investors and the public interest. 
Therefore, the Commission hereby waives the 30-day operative delay and 
designates the proposed rule change as operative upon filing.\14\
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    \12\ 17 CFR 240.19b-4(f)(6).
    \13\ 17 CFR 240.19b-4(f)(6)(iii).
    \14\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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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-2018-051 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-2018-051. 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-2018-051 and should be 
submitted on or before December 17, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
Eduardo A. Aleman,
Assistant Secretary.
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    \15\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2018-25596 Filed 11-23-18; 8:45 am]
 BILLING CODE 8011-01-P