[Federal Register Volume 83, Number 233 (Tuesday, December 4, 2018)]
[Notices]
[Pages 62646-62648]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-26269]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84670; File No. SR-BatsBZX-2017-34]


Self-Regulatory Organizations; Bats BZX Exchange, Inc.; Notice of 
Filing of Amendment No. 2 To Proposed Rule Change To Introduce Cboe 
Market Close, a Closing Match Process for Non-BZX Listed Securities 
Under New Exchange Rule 11.28

November 28, 2018.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Exchange Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby 
given that on October 4, 2018, the Bats BZX Exchange, Inc. (now known 
as Cboe BZX Exchange, Inc.) (``BZX'' or ``Exchange'') filed with the 
Securities and Exchange Commission (``SEC'' or ``Commission'') 
Amendment No. 2 to the proposed rule change as described in Item I 
below, which Item has been prepared by the Exchange and is reproduced 
below verbatim in Section I.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

    The proposed rule change seeks to adopt Cboe Market Close, a 
closing match process for non-BZX Listed Securities. On January 17, 
2018, after consideration of the record for the proposed rule change, 
the Division of Trading and Markets, pursuant to delegated 
authority,\3\ approved the proposed rule change, as modified by 
Amendment No. 1 (``Approval Order'').\4\ On January 31, 2018, pursuant 
to Commission Rule of Practice 430,\5\ NYSE Group, Inc. (``NYSE'') and 
The Nasdaq Stock Market LLC (``Nasdaq'') each filed petitions for 
review of the Approval Order. Pursuant to Commission Rule of Practice 
431(e), the Approval Order is stayed by the filing with the Commission 
of a notice of intention to petition for review.\6\ On March 1, 2018, 
the Commission issued a scheduling order, pursuant to Commission Rule 
of Practice 431, granting the petitions for review of the Approval 
Order and providing until March 22, 2018 for any party or other person 
to file a written statement in support of or in opposition to the 
Approval Order.\7\ In statements filed with the Commission, two parties 
stated, among other arguments, that Cboe Market Close would cause BZX 
to violate Rule 201 of Regulation SHO.\8\ BZX subsequently filed 
Amendment No. 2 to the proposed rule change to address this comment. 
Because of this change, the Commission is publishing this notice to 
solicit comments on the proposed rule change, as amended, from 
interested persons.
---------------------------------------------------------------------------

    \3\ 17 CFR 200.30 3(a)(12).
    \4\ See Exchange Act Release No. 82522, 83 FR 3205 (January 23, 
2018).
    \5\ 17 CFR 201.430.
    \6\ 17 CFR 201.431(e). See Letter from Secretary of the 
Commission to Christopher Solgan, Assistant General Counsel, Cboe 
Global Markets, Inc., dated January 24, 2018 (providing notice of 
receipt of notices of intention to petition for review of delegated 
action and stay of order), available at https://www.sec.gov/rules/sro/batsbzx/2018/sr-batsbzx-2017-34-letter-from-secretary-to-cboe.pdf.
    \7\ See Exchange Act Release No. 82794, 83 FR 9561 (March 6, 
2018). On March 16, 2018, the Office of Secretary, acting by 
delegated authority, issued an order on behalf of the Commission 
granting a motion for an extension of time to file statements on or 
before April 12, 2018. See Exchange Act Release No. 82896, 83 FR 
12633 (Mar. 22, 2018).
    \8\ See NYSE Statement in Opposition to the Division's Order 
Approving a Rule to Introduce Cboe Market Close, at 31-34 (April 12, 
2018); Statement of the Nasdaq Stock Market LLC in Opposition to 
Order Granting Approval of a Proposed Rule Change, as Modified by 
Amendment No. 1, to Introduce Cboe Market Close, at 26 (April 12, 
2018).
---------------------------------------------------------------------------

I. Amendment No. 2 to SR-BatsBZX-2017-34

    Cboe BZX Exchange, Inc. (``BZX'' or the ``Exchange'') is filing 
this Partial Amendment No. 2 to SR-BatsBZX-2017-34, which was 
originally filed with the Securities and Exchange Commission (the 
``Commission'') on May 5, 2017 (the ``Proposal''). The Proposal was 
published for comment in the Federal Register on May 22, 2017, and 
approved by the Division of Trading and Markets pursuant to delegated 
authority on January 17, 2018.\9\ On January 24, 2018, the Commission 
stayed the Proposal,\10\ and the Proposal is currently pending 
Commission review.
---------------------------------------------------------------------------

    \9\ See Securities Exchange Act Release Nos. 80683 (May 16, 
2017), 82 FR 23320 (May 22, 2017) (Notice); 82522 (January 7, 2018), 
83 FR 3205 (January 23, 2017) (Approval Order) (SR-BatsBZX-2017-34).
    \10\ See Letter from Secretary of the Commission to Christopher 
Solgan, Assistant General Counsel, Cboe Global Markets, Inc., dated 
January 24, 2018.
---------------------------------------------------------------------------

    The Proposal seeks to introduce the Cboe Market Close, an 
innovative closing match process for non-BZX Listed Securities that is 
designed to match buy and sell Market-On-Close (``MOC'') orders at the 
official closing price for such security published by the primary 
listing market. The Exchange proposed the Cboe Market Close in response 
to interest from market participants, particularly buy-side firms, who 
seek an alternative to participation on the primary listing market's 
closing auction while still receiving an execution at the official 
closing price. The Exchange continues to believe that the proposed 
functionality promotes the maintenance of a free and open market 
because it would increase competition for order flow at the close, 
which is highly concentrated at the primary listing markets today, 
without impacting price discovery.
    The purpose of this amendment is to amend the Proposal at 
Interpretations and Policies .04 to BZX Rule 11.28, which would be a 
new rule that provides for the handling of short sale MOC orders that 
are designated for participation in the Cboe Market Close. 
Specifically, the Exchange proposes to reject short sale MOC orders 
entered pursuant to BZX Rule 11.28 in order to comply with its 
obligations under Rule 201 of Regulation SHO.\11\ MOC orders marked 
short exempt are not subject to the short sale circuit breaker 
restrictions under Regulation SHO, and would

[[Page 62647]]

therefore be accepted for participation in the Cboe Market Close.
---------------------------------------------------------------------------

    \11\ 17 CFR 242.201.
---------------------------------------------------------------------------

19b-4 and Exhibit 1 Changes
    1. The Exchange proposes to add the following sentences to the 
purpose section of the Proposal at the end of the first paragraph on 
page 8 of the 19b-4 and page 21 of the Exhibit 1:
    All short sale MOC orders designated for participation in the Cboe 
Market Close must be identified as ``short'' or ``short exempt'' 
pursuant to Exchange Rule 11.19(a).\12\ MOC orders marked short will be 
rejected so as to maintain compliance with the Exchange's obligations 
under Rule 201 of Regulation SHO in the event a short sale circuit 
breaker is triggered and the official closing price determined by the 
primary listing market is not above the national best bid. MOC orders 
marked short exempt, which are not subject to short sale circuit 
breaker restrictions under Regulation SHO, will be accepted and 
processed in accordance with the proposed rules.
---------------------------------------------------------------------------

    \12\ Exchange Rule 11.19(a) provides that all short sale orders 
shall be identified as ``short'' or ``short exempt'' when entered 
into the System.
---------------------------------------------------------------------------

    2. The Exchange proposes to add the following paragraphs to the 
basis section of the Proposal immediately prior to the Exchange's 
statement on burden on competition on page 14 of the 19b-4 and page 28 
of the Exhibit 1:
    The Exchange also believes that the proposed language relating to 
short sale handling is consistent with the Act and the rules and 
regulations thereunder. Rules 201(b)(1)(i) and (ii) of Regulation SHO 
generally require that trading centers such as the Exchange establish, 
maintain, and enforce written policies and procedures reasonably 
designed to: (i) Prevent the execution or display of a short sale order 
of a covered security at a price that is less than or equal to the 
current national best bid (``price restriction'') if the price of that 
covered security decreases by 10% or more from the covered security's 
closing price; \13\ and (ii) impose this price restriction for the 
remainder of the day and the following day.\14\
---------------------------------------------------------------------------

    \13\ The closing price is as determined by the listing market 
for the covered security as of the end of regular trading hours on 
the prior day.
    \14\ This price restriction applies when a national best bid for 
the covered security is calculated and disseminated on a current and 
continuing basis by a plan processor pursuant to an effective 
national market system plan.
---------------------------------------------------------------------------

    The Cboe Market Close contemplates the pairing of MOC orders at the 
MOC Cut-Off Time of 3:35 p.m. ET, and the ultimate execution of those 
orders at the official closing price determined by the closing auction 
of the primary listing market at 4:00 p.m. ET. As a result, it is 
possible that a short sale MOC order paired at the MOC Cut-off Time 
would not be eligible for execution at the ultimate execution price 
determined by the primary listing market when the closing auction is 
conducted. Should a short sale circuit breaker be triggered due to a 
10% decline in the price of the security from the previous day's 
closing price, a short sale MOC order executed at 4 p.m. ET would be 
required to be executed above the national best bid. MOC orders paired 
in the Cboe Market Close, however, are entitled to an execution at the 
official closing price, which may be lower than, equal to, or above the 
national best bid. Thus, it is possible that the eventual execution of 
a short sale MOC order at 4 p.m. ET may violate the requirements of 
Rule 201(b)(1). Specifically, it would be a violation of Regulation SHO 
to execute a short sale MOC order at the official closing price if a 
short sale circuit breaker is triggered, either before or after the MOC 
Cut-off Time, and the official closing price is less than or equal to 
the national best bid.
    To prevent this result and maintain compliance with Rule 201 of 
Regulation SHO, the Exchange is proposing to reject all short sale MOC 
orders that are designated for participation in the Cboe Market Close. 
Rejecting short sale MOC orders will ensure that the Exchange is able 
to execute the MOC orders that are accepted and paired at the MOC Cut-
off Time as contemplated by the Cboe Market Close. Furthermore, 
rejecting these orders would ensure that market participants are 
provided an opportunity to enter any short interest on the primary 
listing market, which may be able to re-price such interest to a 
permitted price if a short sale circuit breaker has been triggered.\15\ 
The Exchange therefore believes that the proposed handling of short 
sale MOC orders is consistent with the protection of investors and the 
public interest.
---------------------------------------------------------------------------

    \15\ See e.g., New York Stock Exchange LLC Rule 7.16(f)(5)(A), 
which permits the re-pricing of short sale orders during the 
duration of the short sale circuit breaker.
---------------------------------------------------------------------------

    In addition, Rule 201(b)(1)(iii)(B) of Regulation SHO provides that 
the Rule 201 policies and procedures described above must be reasonably 
designed to permit the execution or display of a short sale order of a 
covered security marked ``short exempt'' without regard to whether the 
order is at a price that is less than or equal to the current national 
best bid. As a result, MOC orders marked short exempt are not subject 
to the short sale price restrictions of Regulation SHO, and may be 
executed without regard to whether such execution is at a price that is 
less than or equal to the current national best bid. The Exchange 
therefore proposes to provide that orders marked short exempt will be 
accepted by the System. The Exchange will pair and execute these orders 
in the same manner as other MOC orders designated for participation in 
the Cboe Market Close.

II. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change, as amended, is consistent with the Exchange 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-BatsBZX-2017-34 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-BatsBZX-2017-34. 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 such filing also will be available for inspection 
and copying at the principal offices 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

[[Page 62648]]

to make available publicly. All submissions should refer to File Number 
SR-BatsBZX-2017-34, and should be submitted on or before December 26, 
2018.

    By the Commission.
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-26269 Filed 12-3-18; 8:45 am]
 BILLING CODE 8011-01-P


