[Federal Register Volume 82, Number 241 (Monday, December 18, 2017)]
[Notices]
[Pages 60090-60093]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-27152]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82305; File No. SR-CboeEDGA-2017-002]


Self-Regulatory Organizations; Cboe EDGA Exchange, Inc.; Notice 
of Filing and Immediate Effectiveness of a Proposed Rule Change To 
Amend Exchange Rule 11.8, Order Types

December 12, 2017.
    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 November 29, 2017, Cboe EDGA Exchange, Inc. (``EDGA'' or the 
``Exchange'') 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) 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.
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange filed a proposal to amend paragraph (b) of Exchange 
Rule 11.8, Order Types, to restrict the Time-In-Force (``TIF'') 
instruction that a Limit Order with both a Display \5\ instruction and 
Primary Peg \6\ instruction that also include a Primary Offset Amount 
(defined below) may have to Regular Hours Only (``RHO'') \7\ or Day \8\ 
if entered during Regular Trading Hours.\9\
---------------------------------------------------------------------------

    \5\ See Exchange Rule 11.6(e)(1).
    \6\ See Exchange Rule 11.6(j)(2).
    \7\ See Exchange Rule 11.6(q)(6) (defining a TIF of RHO as an 
instruction a User may attach to an order designating it for 
execution only during Regular Trading Hours).
    \8\ See Exchange Rule 11.6(q)(2) (defining a TIF of Day as an 
instruction a User may attach to an order stating that an order to 
buy or sell which, if not executed, expires at the end of Regular 
Trading Hours).
    \9\ Regular Trading Hours is defined as the time between 9:30 
a.m. and 4:00 p.m. Eastern Time. See Exchange Rule 1.5(y).
---------------------------------------------------------------------------

    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.

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 Exchange proposes to amend paragraph (b) of Exchange Rule 11.8, 
Order Types, to restrict the TIF instruction that a Limit Order with 
both a Display instruction and Primary Peg instruction and a Primary 
Offset Amount may have to RHO or, if entered during Regular Trading 
Hours, a TIF of Day. Exchange Rule 11.8(b)(9) allows for a Limit Order 
to include a Primary Peg instruction. Exchange Rule 11.6(j)(2) 
describes the Primary Peg instruction as an order with instructions to 
peg to the National Best Bid (``NBB''), for a buy order, or the 
National Best Offer (``NBO''), for a sell order. A User \10\ may, but 
is not required to, elect an offset equal to or greater than one 
Minimum Price Variation above or below the NBB or NBO that the order is 
pegged to (``Primary Offset Amount''). The Primary Offset Amount for an 
order with Primary Peg instruction that is to be displayed on the EDGA 
Book must result in the price of such order being inferior to or equal 
to the inside quote on the same side of the market.
---------------------------------------------------------------------------

    \10\ See Exchange Rule 1.5(ee).
---------------------------------------------------------------------------

    Exchange Rule 11.8(b)(2) sets forth the TIF instructions that may 
be attached to a Limit Order. Some available TIF instructions enable a 
Limit Order to expire at a time past the end of Regular Trading Hours 
at 4:00 p.m. Eastern Time. These TIF instructions are Good-`til 
Extended Day (``GTX''), Good-`til Day (``GTD''), Pre-Opening Session 
`til Extended Day (``PTX''), and Pre-Opening Session `til Day 
(``PTD'').\11\ The System automatically defaults the Limit Order to 
include a TIF instruction of Day if the User does not select a 
different TIF instruction.\12\
---------------------------------------------------------------------------

    \11\ See Exchange Rule 11.6(q) (defining each of these TIF 
instructions).
    \12\ See Exchange Rule 11.8(b)(2).
---------------------------------------------------------------------------

    The Exchange has observed that Limit Orders with a Primary Peg 
instruction displayed on the EDGA Book with non-aggressive Primary 
Offset Amounts and similar orders entered on away exchanges that remain 
active after the end of Regular Trading Hours may be pegged to and 
repriced off of each other during extended hours trading when no other 
reference price is available due to orders expiring or being cancelled 
at 4:00 p.m. Eastern Time. The following example illustrates this 
scenario. Assume the NBBO is $0.00 by $0.00. Market Maker 1 enters an 
order on Exchange A to buy 100 shares at $10.00

[[Page 60091]]

resulting in a new NBBO of $10.00 by $0.00. Market Maker 2 sends a 
Displayed Primary Peg order to Exchange B to buy 100 with a -$0.01 
Primary Offset Amount. That order is posted on Exchange B at $9.99. 
Market Maker 3 then also sends a Displayed Primary Peg order to 
Exchange C to buy 100 with a -$0.01 Primary Offset Amount. That order 
is posted on Exchange C at $9.99. The NBBO remains $10.00 by $0.00. 
Market Maker 1 cancels their order to buy 100 shares at $10.00. The 
NBBO is now $9.99 by $0.00. Exchange B re-prices Market Maker 2's 
Displayed Primary Peg order to buy to $9.98, one cent below Market 
Maker 3's Displayed Primary Peg order on Exchange C. The NBBO is now 
$9.98 by $0.00. Exchange C then re-prices Market Maker 3's Displayed 
Primary Peg order to buy to $9.97, one cent below Market Maker 2's 
Displayed Primary Peg order on Exchange B. In the absence of new 
additional liquidity being entered at the NBB, each order would 
continue to be re-priced off each other until each reach $0.00.\13\
---------------------------------------------------------------------------

    \13\ While this behavior may occur in less liquid securities 
during Regular Trading Hours, the Exchange has only witnesses [sic] 
this occurring after the close of trading, on only one occasion, and 
not with the use of any other pegged order type or instruction. The 
Exchange intends to monitor the use of Limit Order [sic] with both a 
Display instruction and Primary Peg instruction that include a 
Primary Offset Amount during Regular Trading Hours to identify when 
the situation subject to this proposal may occur.
---------------------------------------------------------------------------

    To prevent this from occurring, the Exchange proposes to restrict 
the TIF instruction that a Limit Order with both a Display instruction 
and Primary Peg instruction that include [sic] a Primary Offset Amount 
may have to RHO, or, if entered during Regular Trading Hours, a TIF 
instruction of Day. Doing so would cause Displayed Primary Peg orders 
resting on the EDGA Book to be eligible for execution from 9:30 a.m. to 
4:00 p.m. Eastern Time. Limiting the TIF instructions to RHO and Day 
only for Displayed Primary Peg orders with Primary Offsets Amounts 
would ensure that these orders are eligible for execution during 
Regular Trading Hours, which is the most liquid portion of the trading 
day, thereby significantly decreasing the possibility that such orders 
may re-price off similar orders entered on away exchanges in the 
absence of additional liquidity at the NBB or NBO. The proposed rule 
change would cause Displayed Primary Peg orders with Primary Offset 
Amounts to expire at the end of Regular Trading Hours when a vast 
majority of orders expire and do not participate in extended hours 
trading. As amended, paragraph (b)(9) of the Rule 11.8 would be amended 
to state that a Limit Order that includes a both [sic] Displayed 
instruction and Primary Peg instruction with a Primary Offset Amount 
(as defined in Rule 11.6(j)(2)) shall only include a TIF instruction of 
RHO or, if entered during Regular Trading Hours, a TIF instruction of 
Day. As is the case today, Users may continue to enter Displayed 
Primary Peg orders with Primary Offset Amounts and a TIF instruction of 
RHO beginning at 6:00 a.m. Eastern Time. However, those orders would 
not be eligible for execution until 9:30 a.m. Eastern Time, the start 
of Regular Trading Hours.\14\ Displayed Primary Peg orders with Primary 
Offset Amounts and a TIF of Day will be rejected if entered prior to 
9:30 a.m., the start of Regular Trading Hours. Primary Pegged orders 
that do not include a Primary Offset Amount or that are not displayed 
on the EDGA Book would have no restrictions on the TIF instructions 
that may be attached to the order pursuant to Exchange Rule 11.8(b)(2). 
Exchange Rule 11.8(b)(2) currently states that a Limit Order would be 
defaulted to a TIF instruction of Day. The Exchange proposes to amend 
Exchange Rule 11.8(b)(2) to state that the default behavior would be 
subject to the behavior proposed to be added to Exchange Rule 
11.8(b)(9). As such, a Limit Order with both a Display instruction and 
Primary Peg instruction and a Primary Offset Amount that defaults to a 
TIF instruction of Day would be rejected if entered prior to the start 
of Regular Trading Hours. That order would need to be reentered with a 
TIF instruction of RHO. If entered during Regular Trading Hours, a 
Limit Order with both a Display instruction and Primary Peg instruction 
and a Primary Offset Amount that defaults to a TIF instruction of Day 
would be accepted by the System and handled in accordance with its 
order instructions.
---------------------------------------------------------------------------

    \14\ See Exchange Rule 11.1(a)(1).
---------------------------------------------------------------------------

    In light of the change proposed above, the Exchange also proposes 
the following clarifying change to Exchange Rule 11.8(b) to account for 
a TIF instruction of RHO or Day being applied to a Displayed Primary 
Peg order with a Primary Offset Amount. Exchange Rule 11.8(b) specifies 
that the functionality described in paragraphs (9), (10), and (11) of 
the rule is available for Limit Orders that include a Post Only or Book 
Only instruction or TIF instruction of Day, GTD or GTX. As described 
above, paragraph (9) of Rule 11.8(b) explains that a Limit Order may be 
accompanied by a Pegged instruction. Paragraph (10) of Rule 11.8(b) 
describes the default behavior of order [sic] to comply with Rule 610 
of Regulations NMS \15\ and states that a Limit Order to buy (sell) 
that would cross the market at the time of entry would not be executed 
at a price higher (lower) than the locking price. Lastly, paragraph 
(11) of Rule 11.8(b) states that a Limit Order that includes a Short 
Sale instruction \16\ that is not marked Short Exempt,\17\ and that 
cannot be executed in the System or displayed by the System on the EDGA 
Book at its limit price because a Short Sale Circuit Breaker \18\ is in 
effect, will be subject to the Re-Pricing Instruction to comply with 
Rule 201 of Regulation SHO,\19\ unless the User affirmatively elects to 
have the order immediately Cancel Back.\20\
---------------------------------------------------------------------------

    \15\ 17 CFR 242.610.
    \16\ Exchange Rule 11.6(o).
    \17\ Exchange Rule 11.6(p).
    \18\ 17 CFR 242.201.
    \19\ 17 CFR 242.201.
    \20\ Exchange Rule 11.8(b).
---------------------------------------------------------------------------

    The functionality described in each of these paragraphs by design 
only applies to orders once they are posted to the EDGA Book. For 
instance, an order would only be re-priced in to [sic] comply with Rule 
610 or Regulation NMS or Rule 201 of Regulation SHO once posted to the 
EDGA Book to ensure it is posted at a price that complies with both 
rules. Overtime [sic], this language preceding paragraph (9) of Rule 
11.8(b) has become outdated and does not account for TIF instructions 
that have been adopted since this provision of the rule was put into 
effect.\21\ These include TIF instructions of PRE, PTX and PTD.\22\ 
Therefore, the Exchange proposes to amend this provision to make it 
more general and simply state that paragraphs (9), (10), and (11) apply 
only to orders that are posted to the EDGA Book. This will include 
orders with a Post Only or Book Only instruction as well as orders with 
a TIF instruction of Day, GTD, GTX, RHO, PRE, PTX, and PTD. Paragraphs 
(9), (10), and (11) would not apply to orders that include a TIF of IOC 
or FOK as those orders are to be executed or cancelled upon entry and 
would never be placed on the EDGA Book.
---------------------------------------------------------------------------

    \21\ These TIF instructions govern during which trading sessions 
an order remains eligible for execution and when that order expires 
if posted to the EDGA Book. See Exchange Rule 11.6(q)(7), (8), and 
(9). See also Securities Exchange Act Release No. 77537 (April 6, 
2016), 81 FR 21620 (April 12, 2016) (SR-EDGA-2016-02).
    \22\ See Exchange Rule 11.6(q) (defining each of these TIF 
instructions).
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b)

[[Page 60092]]

of the Act \23\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \24\ in particular, in that it is designed to 
promote just and equitable principles of trade, to foster cooperation 
and coordination with persons engaged in 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. The proposed rule change 
removes impediments to and perfects the mechanism of a free and open 
market and a national market system by ensuring that Limit Orders with 
a Primary Pegged instruction and Primary Offset Amount displayed on the 
EDGA Book do not inadvertently re-price off similar orders on away 
exchanges in absence of other liquidity creating the illusion of 
aberrant prices for the security. The proposed rule change would 
restrict the use of the order type to Regular Trading Hours only, the 
most liquid part of the trading day, thereby significantly decreasing 
the possibility of such orders re-pricing off of each other in the 
absence of additional liquidity. The Exchange does not propose to amend 
or alter the operation of Limit Orders with a Pegged instruction in any 
other manner. The proposed rule change also promotes just and equitable 
principles of trade by limiting the times at which such orders are 
active so as to ensure that the order pegs to prices that reflect the 
true NBBO of the security and not the Primary Offset Amount of a pegged 
order in the absence of other liquidity. Lastly, the Exchange believes 
the proposed rule change removes impediments to and perfect [sic] the 
mechanism of a free and open market and a national market system by 
updating the rule to account for all scenarios in which a Limit Order 
may be placed on the EDGA Book and subject to the functionality covered 
in paragraphs (9), (10), and (11) of Rule 11.8(b).
---------------------------------------------------------------------------

    \23\ 15 U.S.C. 78f(b).
    \24\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

(B) Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act, as amended. The 
proposed rule change is intended to ensure Limit Orders with a Primary 
Pegged instruction and Primary Offset Amount displayed on the EDGA Book 
do not inadvertently re-price off similar orders on away exchanges in 
absence of other liquidity. It is not intended to have a competitive 
impact.

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

    No comments were solicited or received 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) of the Act \25\ and paragraph 
(f)(6) of Rule 19b-4 thereunder.\26\
---------------------------------------------------------------------------

    \25\ 15 U.S.C. 78s(b)(3)(A).
    \26\ 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 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.
---------------------------------------------------------------------------

    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative for 30 days after the date of its filing. However, 
Rule 19b-4(f)(6)(iii) \27\ 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 requested that the 
Commission waive the 30-day operative delay so that the proposed rule 
change will become operative upon filing. The Exchange stated that such 
waiver will enable the Exchange to update its functionality during the 
operative delay period such that Limit Orders with a Primary Pegged 
instruction and Primary Offset Amount displayed on the EDGA Book do not 
inadvertently re-price off of similar orders on away exchanges in the 
absence of other liquidity. The Commission believes that waiver of the 
30-day operative delay is consistent with the protection of investors 
and the public interest because it would enable the Exchange to update 
its rule without delay to help prevent these types of pegged orders 
from inadvertently re-pricing to aberrant prices. Therefore, the 
Commission hereby waives the operative delay and designates the 
proposed rule change operative upon filing.\28\
---------------------------------------------------------------------------

    \27\ 17 CFR 240.19b-4(f)(6)(iii).
    \28\ 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).
---------------------------------------------------------------------------

    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

     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-CboeEDGA-2017-002 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-CboeEDGA-2017-002. 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

[[Page 60093]]

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-CboeEDGA-2017-
002 and should be submitted on or before January 8, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\29\
---------------------------------------------------------------------------

    \29\ 17 CFR 200.30-3(a)(12) and (59).
---------------------------------------------------------------------------

Robert W. Errett,
Deputy Secretary.
[FR Doc. 2017-27152 Filed 12-15-17; 8:45 am]
 BILLING CODE 8011-01-P


