[Federal Register Volume 83, Number 228 (Tuesday, November 27, 2018)]
[Notices]
[Pages 60911-60916]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-25883]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84642; File No. SR-CboeEDGX-2018-049]


Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice 
of Filing of a Proposed Rule Change Relating To Adopt Complex Reserve 
Order Functionality

November 21, 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 November 8, 2018, Cboe EDGX Exchange, Inc. (the ``Exchange'' or 
``EDGX'') 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 
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'') proposes to 
adopt Complex Reserve Order functionality.

(additions are italic; deletions are [bracketed])
* * * * *
Rules of Cboe EDGX Exchange, Inc.
* * * * *
Rule 21.20. Complex Orders
    (a) No change.
    (b) Availability of Types of Complex Orders. The Exchange will 
determine and communicate to Members via specifications and/or a 
Regulatory Circular listing when the complex order types, among the 
complex order types set forth in this Rule, are available for use on 
the Exchange. The complex order types that may be submitted are limit 
orders and market orders, and orders with a Time in Force of GTD, IOC, 
DAY, GTC, or OPG as such terms are defined in Rule 21.1(f).The System 
also accepts the following instructions for complex orders[ will also 
be accepted by the Exchange]:
    (1)-(3) No change.
    (4) (Reserved)
    (5) (Reserved)
    (6) Complex Reserve Order. A ``Complex Reserve Order'' is a complex 
limit order with 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 a Complex Reserve Order are available for potential 
execution pursuant to paragraphs (c) and (d) below. When entering a 
Complex Reserve Order, a User must instruct the Exchange as to the 
quantity of the Complex Reserve Order to be initially displayed by the 
System (``Max Floor''). If the Display Quantity of a Complex 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 
a Complex Reserve Order is less than the replenishment amount, the 
System will display the entire remainder of the Complex Reserve Order. 
The System creates a new timestamp for both the Display Quantity and 
Reserve Quantity of the Complex Reserve Order each time it is 
replenished from reserve.
    (A) Random Replenishment. An instruction that a User may attach to 
a Complex Reserve Order where the System randomly replenishes the 
Display Quantity for the Complex Reserve 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 Complex Reserve Order with a Random Replenishment 
instruction.
    (B) Fixed Replenishment. For any Complex Reserve Order for which a 
User does not select Random Replenishment, the System will replenish 
the Display Quantity of the Complex Reserve Order with the number of 
contracts equal to the Max Floor (or the entire remainder of the 
Complex Reserve Order if it is less than the replenishment amount).
    (c) Trading of Complex Orders. The Exchange will determine and 
communicate to Members via specifications and/or Regulatory Circular 
which complex order origin codes (i.e., non-broker-dealer customers, 
broker-dealers that are not Market Makers on an options exchange, and/
or Market Makers on an options exchange) are eligible for entry onto 
the COB. Complex orders will be subject to all other Exchange Rules 
that pertain to orders submitted to the Exchange generally, unless 
otherwise provided in this Rule.
    (1) No change.
    (2) Execution of Complex Orders.
    (A)-(E) No change.
    (F) Legging. Complex orders up to a maximum number of legs 
(determined by the Exchange on a class-by-class basis as either two, 
three, or four legs

[[Page 60912]]

and communicated to Members via specifications and/or Regulatory 
Circular) may be automatically executed against bids and offers on the 
Simple Book (both displayed and nondisplayed orders) for the individual 
legs of the complex order (``Legging''), provided the complex order can 
be executed in full or in a permissible ratio by such bids and offers. 
Complex orders with two option legs where both legs are buying or both 
legs are selling and both legs are calls or both legs are puts may only 
trade against other complex orders on the COB and will not be permitted 
to leg into the Simple Book. Notwithstanding the foregoing, all two leg 
COA-eligible Customer complex orders will be allowed to leg into the 
Simple Book without restriction. Complex orders with three or four 
option legs where all legs are buying or all legs are selling may only 
trade against other complex orders on the COB and will not leg into the 
Simple Book, regardless of whether the option leg is a call or a put. 
The entire quantity of a Complex Reserve Order (both the Display 
Quantity and Reserve Quantity) Legs into the Simple Book at the same 
time, and any quantity that does not execute pursuant to paragraph (c) 
or (d) after Legging will rest in the COB in accordance with the 
Complex Reserve Order instruction.
    (G) No change.
    (3) Complex Order Priority.
    (A) No change.
    (B) Complex orders will be automatically executed against bids and 
offers on the COB in price priority. Bids and offers at the same price 
on the COB will be executed in time priority. Displayed complex orders 
resting on the COB have priority over nondisplayed portions of Complex 
Reserve Orders resting on the COB. If there are Priority Customer 
Orders in the Simple Book at the same price as orders resting on the 
COB against which an incoming complex order will execute, the order 
will first Leg into the Simple Book to execute against the Priority 
Customer Orders (both displayed and nondisplayed orders) before 
executing against complex orders in the COB. Complex orders that leg 
into the Simple Book (as described in subparagraph (c)(2)(F) above) 
will be executed in accordance with Rule 21.8.
    (4)-(6) No change.
    (d) COA Process. All option classes will be eligible to participate 
in a COA. Upon evaluation as set forth in subparagraph (c)(5) above, 
the Exchange may determine to automatically submit a COA-eligible order 
into a COA.
    (1) No change.
    (2) Commencement of COA. Upon receipt of a COA-eligible order, the 
Exchange will begin the COA process by sending a COA auction message. 
The COA auction message will be sent to all subscribers to the 
Exchange's data feeds that deliver COA auction messages. The COA 
auction message will identify the COA auction ID, instrument ID (i.e., 
complex strategy), origin code, quantity, and side of the market of the 
COA-eligible order. If the COA-eligible order is a Complex Reserve 
Order, the COA auction message only identifies the Display Quantity; 
however, the entire quantity (both the Display Quantity and Reserve 
Quantity) may execute following the COA pursuant to subparagraph (7) 
below. The Exchange may also determine to include the price in COA 
auction messages and if it does so it will announce such determination 
in published specifications and/or a Regulatory Circular to Members. 
The price included in the COA auction message will be the limit order 
price, unless the COA is initiated by a complex market order, in which 
case such price will be the SBBO, subject to any applicable price 
protections.
    (3) No change.
    (4) COA Response. Members may submit a response to the COA auction 
message (a ``COA Response'') during the Response Time Interval. COA 
Responses can be submitted by a Member with any origin code, including 
Priority Customer. COA Responses may be submitted in $0.01 increments 
and must specify the price, size, side of the market (i.e., a response 
to a buy COA as a sell or a response to a sell COA as a buy) and COA 
auction ID for the COA to which the response is targeted. COA Responses 
may be larger than the COA-eligible order. Multiple COA Responses from 
the same Member may be submitted during the Response Time Interval. COA 
Responses represent non-firm interest that can be modified or withdrawn 
at any time prior to the end of the Response Time Interval, though any 
modification to a COA Response other than a decrease of size will 
result in a new timestamp and a loss of priority. COA Responses will 
not be displayed by the Exchange. At the end of the Response Time 
Interval, COA Responses are firm (i.e., guaranteed at their price and 
size). Any COA Responses not executed in full will expire at the end of 
the COA. Any COA Responses not executable based on the price of the COA 
will be cancelled immediately.
    (5)-(6) No change.
    (7) Allocation at the Conclusion of a COA. Orders executed in a COA 
will be allocated first in price priority based on their original limit 
price as follows:
    (A) Priority Customer Orders (both displayed and nondisplayed 
Priority Customer Orders) resting on the Simple Book;
    (B) COA Responses and unrelated orders on the COB (displayed 
complex orders have priority over nondisplayed portions of Complex 
Reserve Orders) in time priority;
    (C) No change.
    (8)-(9) No change.
    Interpretations and Policies:
    .01-.06 No change.
* * * * *
    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 the 
parent company of Cboe Exchange, Inc. (``Cboe Options'') and Cboe C2 
Exchange, Inc., acquired the Exchange, 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''). The Cboe Affiliated 
Exchanges are working to align certain system functionality, retaining 
only intended differences between the Cboe Affiliated Exchanges, in the 
context of the technology migration of Cboe Options to the same trading 
platform as the Exchange. Thus, the proposed rule change is intended to

[[Page 60913]]

add certain functionality to the Exchange's System that is currently 
offered by Cboe Options \3\ in order to ultimately provide a consistent 
technology offering for market participants who interact with the Cboe 
Affiliated Exchanges. Although the Exchange intentionally offers 
certain features that differ from those offered by its affiliates and 
will continue to do so, the Exchange believes that offering similar 
functionality to the extent practicable will reduce potential confusion 
for Users.
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    \3\ Cboe Options currently offers reserve functionality for 
complex orders. See Cboe Options Regulatory Circular RG11-016 
(January 27, 2011); see also Cboe Options Rule 6.53 (which permits 
Cboe Options to determine which orders types are available for which 
Exchange systems).
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    Currently, one of the Order Types in the Rules for simple orders is 
a Reserve Order.\4\ When implemented, simple Reserve Orders will permit 
Users to enter orders with both displayed and nondisplayed amounts. 
Reserve Orders will provide Users with additional flexibility to manage 
and display their orders and additional control over their executions 
on the Exchange.
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    \4\ See Rule 21.1(d)(1). This rule is currently effective but 
not yet operative. See SR-CboeEDGX-2018-051 (November 5, 2018). The 
Exchange intends to implement simple Reserve Order functionality on 
November 29, 2018.
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    The Exchange proposes to adopt Complex Reserve Order 
functionality.\5\ Complex Reserve Orders would generally function in 
the same manner as simple Reserve Orders, as currently described in the 
definition of Reserve Orders in Rule 21.1(d)(1).\6\ Specifically, a 
``Complex Reserve Order'' is a complex limit order with 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 a Complex Reserve Order are available 
for execution pursuant to Rule 21.20(c) and (d).\7\ When entering a 
Complex Reserve Order, a User must instruct the Exchange as to the 
quantity of the Complex Reserve Order to be initially displayed by the 
System (``Max Floor''). If the Display Quantity of a Complex 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 
a Complex Reserve Order is less than the replenishment amount, the 
System will display the entire remainder of the Complex Reserve Order. 
The System creates a new timestamp for both the Display Quantity and 
Reserve Quantity of the Complex Reserve Order each time it is 
replenished from reserve.
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    \5\ See proposed Rule 21.20(b)(6). The Exchange recently 
proposed to amend its Rules to adopt Post Only complex order 
functionality. See Securities Exchange Act Release No. 34-84393 
(October 10, 2018), 83 FR 52264 (October 16, 2018) (SR-CboeEDGX-
2018-043). The proposed rule text is based on the currently 
effective rule text (the proposed reserved subparagraphs (b)(4) and 
5) accommodate proposed rule text the Exchange intends to include in 
an amendment to that rule filing). If SR-CboeEDGX-2018-043 is 
approved by the Securities and Exchange Commission (the 
``Commission'') prior to the date the Commission acts on this rule 
filing, the Exchange will amend this rule filing to update the 
proposed rule text to reflect the rule text as amended by that 
filing.
    \6\ See supra note 4.
    \7\ Pursuant to Rule 21.20(c) and (d), complex orders (including 
the Display and Reserve Quantities of Complex Reserve Orders) may 
execute during the COB opening process, against incoming complex 
orders, simple orders in the Simple Book (via Legging), or following 
a COA (if the complex order is COA-eligible pursuant to Rule 
21.20(b)(2)). Complex Reserve Orders will be COA-eligible, subject 
to a User's instructions.
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    A User may determine that a Complex Reserve Order it submits should 
be subject to ``Random Replenishment'' or ``Fixed Replenishment.'' If a 
Complex Reserve Order has a Random Replenishment instruction, the 
System randomly replenishes the Display Quantity for the Complex 
Reserve 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 Complex Reserve Order with a 
Random Replenishment instruction. For any Complex Reserve Order for 
which a User does not select Random Replenishment, the System will 
replenish the Display Quantity of the Complex Reserve Order with the 
number of contracts equal to the Max Floor (or the entire remainder of 
the Complex Reserve Order if it is less than the replenishment amount).
    Current Rule 21.20(d)(2) provides that upon receipt of a COA-
eligible order,\8\ the Exchange will begin the complex order auction 
(``COA'') process by sending a COA auction message to all subscribers 
to the Exchange's data feeds that deliver COA auction messages. A COA 
auction message identifies the COA auction ID, instrument ID (i.e. 
complex strategy), origin code, quantity, and side of the market of the 
COA-eligible order. The proposed rule change provides that if the COA-
eligible order is a Complex Reserve Order, the COA auction message only 
identifies the Display Quantity; however, the entire quantity (both the 
Display Quantity and Reserve Quantity) may execute following the COA 
pursuant to Rule 21.20(d)(7).\9\ The Exchange believes this is 
consistent with the purpose of a Reserve Order. If a User submits a 
Reserve Order (simple or complex), the User does so to only have a 
certain specified size publicly displayed. If the entire quantity of a 
Complex Reserve Order was auctioned in a COA, the entire size of the 
Complex Reserve Order would be publicly displayed,\10\ rather than the 
Display Quantity the User indicated it wanted publicly visible. 
Therefore, the Exchange believes it is appropriate to include only the 
Display Quantity of a Complex Reserve Order in a COA message.\11\
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    \8\ See Rule 21.20(b)(2) for the definition of a COA-eligible 
order.
    \9\ See proposed Rule 21.20(d)(2).
    \10\ See current Rule 21.20(d)(2) (COA auction messages 
identify, among other things, the quantity of the COA-eligible 
order).
    \11\ Making both the Display Quantity and Reserve Quantity 
available for execution at the end of a COA is consistent with the 
definition of the Reserve Order instruction for simple orders, which 
provides that both portions are available for potential execution 
against incoming orders. See Rule 21.1(d)(1). The proposed rule 
change provides the entire quantity of a Complex Reserve Order that 
initiates a COA with an opportunity to execute following a COA.
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    Proposed Rule 21.20(c)(2)(F) states the entire quantity of a 
Complex Reserve Order (both the Display Quantity and Reserve Quantity) 
will Leg into the Simple Book at the same time, and any quantity that 
does not execute pursuant to Rule 21.20(c) or (d) after Legging will 
rest in the COB in accordance with the proposed Complex Reserve Order 
instruction. As stated in the definition of a Reserve Order and the 
proposed definition of a Complex Reserve Order, both the Displayed 
Quantity and Reserve Quantity are eligible for execution against 
incoming orders. The Exchange believes it is appropriate to similarly 
make both the Displayed Quantity and Reserve Quantity eligible for 
execution against orders and quotes in the Simple Book as well. This 
will maximize the size of resting orders and quotes on the Simple Book 
that may execute when these orders Leg into the Simple Book, as well as 
provide the entire quantity of a Complex Reserve Order with an 
opportunity to execute against orders in the Simple Book. A Complex 
Reserve Order may Leg into the Simple Book after a COA, following 
submission to the System (if not COA-eligible), or following evaluation 
when resting in the COB.\12\ If any portion of a Complex Reserve Order 
does not execute in those circumstances, the remaining quantity will 
enter the COB with a Display Quantity and Reserve Quantity with amounts 
determined in

[[Page 60914]]

accordance with proposed Rule 21.20(b)(6).
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    \12\ See Rule 21.20(c)(2)(G) (describing the initial evaluation 
process), (c)(5) (describing the evaluation process after a complex 
order is resting in the COB), and (d)(5) (describing the processing 
of COA-eligible orders).
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    The proposed rule change also amends Rule 21.20(d)(4) to clarify 
that COA Responses may be larger than the COA-eligible order (in 
response to which the COA Response is submitted). Neither the System 
nor the Rules limit the size of COA Responses to the size of the COA-
eligible order, and the Exchange believes this proposed change will 
provide Users with additional clarity. Because COA Responses are not 
limited to the size of COA-eligible orders, if a Complex Reserve Order 
initiates a COA, COA Responses with size larger than the Display 
Quantity of the Complex Reserve Order will have the opportunity to 
execute against the entire size of the Complex Reserve Order.
    Processing and execution of Complex Reserve Orders will generally 
occur in the same manner as other complex orders in accordance with 
current Rule 21.20(c) and (d). Proposed Rule 21.20(c)(3)(B) and 
(d)(7)(B) states that displayed complex orders resting on the COB have 
priority over nondisplayed portions of Complex Reserve Orders resting 
on the COB. This is consistent with the current handling of simple 
Reserve Orders.\13\ The proposed rule change also clarifies in 
21.20(c)(2)(F), (c)(3)(B), and (d)(7)(A) that both displayed and 
nondisplayed Priority Customer bids and offers on the Simple Book \14\ 
for the individual leg components of the complex order trade before 
complex orders (both displayed and nondisplayed orders) resting on the 
COB and COA Responses, if applicable, at the same price when a complex 
order Legs into the Simple Book. This is consistent with current 
functionality and current Rules. Specifically, Rule 21.20(c)(3)(B) 
states that complex orders that leg into the Simple Book will be 
executed in accordance with Rule 21.8, which provides that resting 
orders and quotes are prioritized according to price and there [sic] 
are allocated in a pro-rata fashion (subject to priority overlays, such 
as Priority Customer Overlays and Entitlements), and that displayed 
orders have priority over nondisplayed orders. Therefore, if a complex 
order Legs in to the Simple Book, it would execute against displayed 
and then nondisplayed resting interest in the Simple Book at the 
applicable price before executing against other complex orders. The 
proposed rule change adds clarity to the priority of resting orders 
when a complex order Legs into the Simple Book, as well as describes 
how complex reserve orders will be prioritized.
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    \13\ See Rule 21.1(d)(1) and supra note 4.
    \14\ Priority Customer orders on the Simple Book have first 
priority pursuant to the Customer Overlay. See Rule 21.8(d). 
Because, pursuant to current Rule 21.20(c)(3)(A), a complex order 
must improve the price of the BBO of a component of a complex 
strategy by at least $0.01 if it consists of a Priority Customer 
Order, if the execution price of a complex order is the same as the 
SBBO that consists of Priority Customer Orders, the order will first 
Leg into the Simple Book pursuant to Rule 21.20(c)(2)(F). The 
proposed rule change to Rule 21.20(c)(3)(A) clarifies this order of 
priority. Specifically, the proposed rule change states if there are 
Priority Customer Orders in the Simple Book at the same price as 
orders resting on the COB against which an incoming complex order 
will execute, the order will first Leg into the Simple Book to 
execute against the Priority Customer Orders (both displayed and 
nondisplayed orders) before executing against complex orders in the 
COB.
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    If a complex order Legs into the Simple Book, the execution 
priority of contra-side interest will be as follows:

 Displayed Priority Customer simple orders
 Nondisplayed portions of Priority Customer simple orders
 Displayed complex orders and COA Responses, if applicable
 Nondisplayed portions of Complex Reserve Orders
 Displayed non-Priority Customer simple orders
 Nondisplayed portions of non-Priority Customer simple orders

The Exchange believes this is reasonable, as it ensures protection of 
the leg markets while ensuring system stability. This priority order 
results in nondisplayed orders on the Simple Book ahead of displayed 
complex orders on the COB. While the Exchange generally prioritizes 
displayed orders over nondisplayed orders to encourage Users to submit 
displayed liquidity, executing complex orders first against displayed 
Priority Customer simple orders, second against displayed complex 
orders and COA responses, third against displayed non-Priority Customer 
simple orders, fourth against nondisplayed portions Priority Customer 
simple orders, fifth against nondisplayed portions of Complex Reserve 
Orders, and sixth against nondisplayed portions of non-Priority 
Customer simple orders would significantly increase the complexity of 
the proposed functionality. The Simple Book and COB are entirely 
separate functioning books, and moving a complex order back and forth 
between the two books increases systematic risk related to Legging. 
Additionally, this would increase the execution time for complex orders 
that are able to Leg, which may harm Users. The Exchange believes the 
need to ensure system stability and efficient executions in connection 
with offering the proposed functionality to Users outweighs any 
potential benefits of prioritizing all displayed interest ahead of 
nondisplayed interest in this context.
    The proposed rule change also makes a nonsubstantive change to the 
introductory sentence to the list of complex order types in Rule 
21.20(b) to eliminate the use of passive voice in that sentence.
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.\15\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \16\ 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) \17\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \15\ 15 U.S.C. 78f(b).
    \16\ 15 U.S.C. 78f(b)(5).
    \17\ Id.
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    In particular, the proposed rule change will remove impediments to 
and perfect the mechanism of a free and open national market system, as 
well as benefit investors by providing Users with additional 
flexibility to manage and display their complex orders and additional 
control over their executions on the Exchange. This may encourage 
market participants to bring additional liquidity to the market, which 
benefits all investors.
    The Exchange notes that Reserve Order functionality is not new or 
unique and is already available in a similar capacity for simple 
orders. While the Reserve Order functionality is not currently 
available for complex orders, the Exchange has Reserve Order 
functionality in its Rules for simple orders, which functions 
substantially in the same manner as the proposed Complex Reserve Order 
functionality.\18\

[[Page 60915]]

The purpose of a Complex Reserve Order is the same as the purpose of a 
simple Reserve Order.
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    \18\ As noted above, Reserve Order functionality for simple 
orders is described in Rules that are currently effective but not 
yet operative.
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    The proposed rule change to only include the Displayed Quantity of 
a Complex Reserve Order in a COA message protects investors, as it is 
consistent with the purpose of a Complex Reserve Order and the 
intention of a User that submits a Complex Reserve Order, which is to 
only have a certain specified size publicly displayed. This provides 
Complex Reserve Orders with the potential for price improvement in a 
manner consistent with the objective of a Reserve Order. Therefore, the 
Exchange believes it is appropriate to only include the Display 
Quantity of a Complex Reserve Order in a COA message.
    The Exchange believes the proposed rule change regarding how 
Complex Reserve Orders Leg into the Simple Book will benefit investors. 
The proposed rule change is consistent with the definition of a Reserve 
Order, which states that the entire quantity is eligible for potential 
execution against incoming orders, and thus provides the entire 
quantity of a Reserve Order with an opportunity to execute against 
orders and quotes in the Simple Book. Additionally, this will maximize 
the size of resting orders and quotes on the Simple Book that may 
execute when Complex Reserve Orders Leg into the Simple Book. 
Therefore, the Exchange believes the proposed rule change may increase 
execution opportunities for both Complex Reserve Orders and simple 
orders and quotes resting on the Simple Book.
    The Exchange believes the proposed rule change related to the 
priority of Complex Reserve Orders promotes just and equitable 
principles of trade, as it is consistent with current priority in the 
Simple Book that provides displayed orders have priority over 
nondisplayed orders. The proposed rule change that displayed portions 
of complex orders resting on the COB have priority over nondisplayed 
portions of Complex Reserve Orders resting on the COB is reasonable, 
because it is consistent with the current handling of simple Reserve 
Orders, as discussed above. Additionally, the proposed rule change to 
clarify that displayed and nondisplayed Priority Customer orders and 
quotes resting on the Simple Book have priority over all displayed and 
nondisplayed orders resting on the COB when a complex order Legs into 
the Simple Book is consistent with current functionality and current 
Rules describing how complex orders Leg into the Simple Book. This 
additional clarity regarding the order in which resting orders and 
quotes on the Simple Book will trade when a complex order Legs into the 
Simple Book benefits investors, as it provides more detail regarding 
the priority of executions on the Exchange. The Exchange also believes 
the proposed priority ensures system stability and efficient executions 
outweighs [sic]. The Exchange notes it is not novel for nondisplayed 
interest to trade ahead of displayed interest.\19\
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    \19\ See supra note 15 [sic].
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    The proposed rule change is generally intended to add certain 
system functionality to the Exchange's System in order to provide a 
consistent technology offering for the Cboe Affiliated Exchanges, as 
Cboe Options currently offers (and intends to offer following its 
migration to the same technology platform as the Exchange) complex 
reserve order functionality. 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 and control their 
executions 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.

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 believes the 
proposed rule change will not burden intramarket competition because 
the Reserve Order instruction on complex orders will be available to 
all market participants. Additionally, use of the Reserve Order 
instruction on complex orders is voluntary. The Exchange also believes 
the proposed rule change will not impose any burden on intermarket 
competition because this relates to an instruction on orders that are 
submitted to the Exchange and how the Exchange's System will handle and 
execute them. Additionally, nothing prevents other options exchanges 
that offer complex orders from adopting a Reserve Order functionality 
for complex orders. The Exchange also believes the proposed rule change 
will promote competition, as Complex Reserve Orders will provide Users 
with additional flexibility to manage and display their complex orders 
and additional control over their executions on the Exchange. This may 
encourage market participants to bring additional liquidity to the 
market, which benefits all investors.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission will:
    A. By order approve or disapprove such proposed rule change, or
    B. institute proceedings to determine whether the proposed rule 
change should be 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-2018-049 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-2018-049. 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

[[Page 60916]]

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-2018-049, and should be submitted on or before December 18, 
2018.
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    \20\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
Brent J. Fields,
Secretary.
[FR Doc. 2018-25883 Filed 11-26-18; 8:45 am]
 BILLING CODE 8011-01-P


