[Federal Register Volume 82, Number 241 (Monday, December 18, 2017)]
[Notices]
[Pages 60075-60078]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-27151]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82304; File No. SR-CboeBZX-2017-008]


Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
Exchange Rule 11.9, Primary Pegged Order

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 BZX Exchange, Inc. (``BZX'' 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

[[Page 60076]]

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

    The Exchange filed a proposal to amend paragraph (c)(8)(A) of 
Exchange Rule 11.9, Primary Pegged Order, to restrict the Time-In-Force 
(``TIF'') instruction that a displayed Primary Pegged Order that 
includes a Primary Offset Amount (defined below) may have to Regular
    Hours Only (``RHO'') \5\ or Day \6\ if entered during Regular 
Trading Hours.\7\
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    \5\ See Exchange Rule 11.9(b)(7) (defining a TIF of RHO as a 
limit or market order that is designated for execution only during 
Regular Trading Hours).
    \6\ See Exchange Rule 11.9(b)(2) (defining a TIF of Day as a 
limit order to buy or sell which, if not executed, expires at the 
end of Regular Trading Hours).
    \7\ 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(w).
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    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 (c)(8)(A) of Exchange Rule 
11.9, Primary Pegged Order, to restrict the TIF instruction that a 
displayed Primary Pegged Order with a Primary Offset Amount may have to 
RHO, or if entered during Regular Trading Hours, a TIF instruction of 
Day.\8\ Exchange Rule 11.9(c)(8) describes a Pegged Order as a limit 
order that after entry into the System,\9\ the price of the order is 
automatically adjusted by the System in response to changes in the 
National Best Bid or Offer (``NBBO''). Exchange Rule 11.9(c)(8)(A) 
states that a User \10\ entering a Pegged Order can specify that such 
order's price will offset the inside quote on the same side of the 
market by an amount set by the User (``Primary Offset Amount''). The 
Primary Offset Amount for a displayed Primary Pegged Order must result 
in the price of such order being inferior to or equal to the inside 
quote on the same side of the market.
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    \8\ The Exchange also proposes a non-substantive change to 
delete the extraneous word ``order'' after ``Pegged Order'' in 
Exchange Rule 11.9(c)(8).
    \9\ See Exchange Rule 1.5(aa).
    \10\ See Exchange Rule 1.5(cc).
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    Some available TIF instructions enable a Primary Pegged 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\
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    \11\ See Exchange Rule 11.9(b) (defining each of these TIF 
instructions).
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    The Exchange has observed that Primary Pegged Orders displayed on 
the BZX 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 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.\12\
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    \12\ 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 displayed Primary Pegged 
Orders that include a Primary Offset Amount during Regular Trading 
Hours to identify when the situation subject to this proposal may 
occur.
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    To prevent this from occurring, the Exchange proposes to restrict 
the TIF instruction that a displayed Primary Pegged Order with a 
Primary Offset Amount may have to RHO, or, if entered during Regular 
Trading Hours, a TIF instruction of Day. Doing so, [sic] would cause 
displayed Primary Pegged Orders resting on the BZX 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 Pegged 
Orders with Primary Offset 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 Pegged 
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 (c)(8)(A) 
of the Rule 11.9 would be amended to state that a displayed Primary 
Pegged Order with a Primary Offset Amount shall only include a TIF 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 Pegged Orders with Primary Offset Amounts and TIF instructions 
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.\13\ 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

[[Page 60077]]

on the BZX Book would have no restrictions on the TIF instructions that 
may be attached to the order.
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    \13\ See Exchange Rule 11.1(a).
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \14\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \15\ 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 Primary Pegged 
Orders with Primary Offset Amounts displayed on the EDGX [sic] 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 possibly [sic] 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.
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    \14\ 15 U.S.C. 78f(b).
    \15\ 15 U.S.C. 78f(b)(5).
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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 
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 BZX 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 \16\ and paragraph 
(f)(6) of Rule 19b-4 thereunder.\17\
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    \16\ 15 U.S.C. 78s(b)(3)(A).
    \17\ 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.
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    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)\18\ 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 BZX 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.\19\
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    \18\ 17 CFR 240.19b-4(f)(6)(iii).
    \19\ 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 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-CboeBZX-2017-008 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-2017-008. 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

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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-2017-008 and should 
be submitted on or before January 8, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12) and (59).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2017-27151 Filed 12-15-17; 8:45 am]
 BILLING CODE 8011-01-P


