[Federal Register Volume 84, Number 70 (Thursday, April 11, 2019)]
[Notices]
[Pages 14699-14701]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-07154]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-85521; File No. SR-CboeEDGA-2019-004]


Self-Regulatory Organizations; Cboe EDGA Exchange, Inc.; Notice 
of Filing and Immediate Effectiveness of a Proposed Rule Change To 
Clarify the Handling of Orders That Contain Both a Post Only 
Instruction and Certain Other Order Handling Instructions Maintained To 
Facilitate Compliance with Rule 610(d) of Regulation NMS

April 5, 2019.
    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 March 25, 2019, Cboe EDGA Exchange, Inc. (the ``Exchange'' or 
``EDGA'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I and II 
below, which Items have been prepared by the Exchange. The Exchange 
filed the proposal as a ``non-controversial'' proposed rule change 
pursuant to Section 19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-
4(f)(6) thereunder.\4\ 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)(iii).
    \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

    Cboe EDGA Exchange, Inc. (``EDGA'' or the ``Exchange'') is filing 
with the Securities and Exchange Commission (the ``Commission'') a 
proposed rule change to amend EDGA rules to clarify the handling of 
orders that contain both a Post Only instruction and certain other 
order handling instructions maintained to facilitate compliance with 
Rule 610(d) of Regulation NMS. The text of the proposed rule change is 
attached as Exhibit 5.
    The text of the proposed rule change is also available on the 
Exchange's website (http://markets.cboe.com/us/equities/regulation/rule_filings/edga/), 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
    The purpose of the proposed rule change is to amend EDGA rules to 
clarify the handling of orders that contain both a Post Only 
instruction and certain other order handling instructions maintained to 
facilitate compliance with Rule 610(d) of Regulation NMS (the ``Locked 
and Crossed Markets Rule''). An order entered with a Post Only 
instruction does not remove liquidity, except when the order is an 
order to buy or sell a security priced below $1.00, or when executing 
as the taker of liquidity would be economically beneficial to the firm 
entering the order--i.e., if the value of such execution when removing 
liquidity equals or exceeds the value of such execution if the order 
instead posted to the EDGA Book and subsequently provided liquidity, 
including the applicable fees charged or rebates provided.\5\ Today, 
the Exchange's rules state that this handling applies to Post Only 
orders entered with Price Adjust \6\ or Display-Price Sliding \7\ 
instruction, which are re-pricing instructions used for compliance with 
the Locked and Crossed Markets Rule. Thus, an executable order entered 
with a Post Only instruction is eligible to remove

[[Page 14700]]

liquidity in the circumstances described in EDGA Rule 11.6(n)(4) 
instead of having its ranked price or display price adjusted pursuant 
to those order handling instructions.
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    \5\ See EDGA Rule 11.6(n)(4). To determine at the time of a 
potential execution whether the value of such execution when 
removing liquidity equals or exceeds the value of such execution if 
the order instead posted to the EDGA Book and subsequently provided 
liquidity, the Exchange will use the highest possible rebate paid 
and highest possible fee charged for such executions on the 
Exchange.
    \6\ ``Price Adjust'' is an order instruction requiring that 
where an order would be a Locking Quotation of an external market or 
Crossing Quotation if displayed by the System on the EDGA Book at 
the time of entry, the order will be displayed and ranked at a price 
that is one Minimum Price Variation lower (higher) than the Locking 
Price for orders to buy (sell). See EDGA Rule 11.6(l)(1)(A).
    \7\ ``Display-Price Sliding'' is an order instruction requiring 
that where an order would be a Locking Quotation or Crossing 
Quotation of an external market if displayed by the System on the 
EDGA Book at the time of entry, will be ranked at the Locking Price 
in the EDGA Book and displayed by the System at one Minimum Price 
Variation lower (higher) than the Locking Price for orders to buy 
(sell). See EDGA Rule 11.6(l)(1)(B).
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    However, the Exchange also offers a ``Cancel Back'' instruction 
that is not covered by EDGA Rule 11.6(n)(4). An order entered with a 
Cancel Back instruction is immediately cancelled instead of re-priced 
when displaying the order at its limit price would create a violation 
of the Locked and Crossed Markets Rule.\8\ All orders must include a 
Price Adjust, Display-Price Sliding, or Cancel Back instruction,\9\ and 
orders entered with a Post Only instruction are handled in the same 
manner regardless of which of these three additional instructions is 
applied. The Exchange therefore proposes to amend EDGA Rule 11.6(n)(4) 
to eliminate references to Display-Price Sliding and Price Adjust, 
similar to the current rules in place on its affiliated equities 
exchanges, Cboe BZX Exchange, Inc. (``BZX'') and Cboe BYX Exchange, 
Inc. (``BYX'').\10\ The Exchange believes that removing the references 
to these two instructions in the rule would reduce potential confusion 
as the order handling described in the rule today applies to all orders 
entered with a Post Only instruction, and not a specific subset of 
those orders. No changes to the Exchange's trading or other systems are 
contemplated by this proposed change, which is instead designed to 
increase transparency around the Exchange's current operation.
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    \8\ ``Cancel Back'' is an instruction the User may attach to an 
order instructing the System to immediately cancel the order when, 
if displayed by the System on the EDGA Book at the time of entry, or 
upon return to the System after being routed away, would create a 
violation of Rule 610(d) of Regulation NMS or Rule 201 of Regulation 
SHO, or the order cannot otherwise be executed or posted by the 
System to the EDGA Book at its limit price. See EDGA Rule 11.6(b).
    \9\ Display-Price Sliding is applied as the default handling 
unless Price Adjust or Cancel Back is elected [sic] See EDGA Rule 
11.8(b)(10).
    \10\ See BZX Rule 11.9(c)(6) and BYX Rule 11.9(c)(6).
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2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the requirements of Section 6(b) of the Act,\11\ in general, and 
Section 6(b)(5) of the Act,\12\ in particular, in that it is designed 
to remove impediments to and perfect the mechanism of a free and open 
market and a national market system, to promote just and equitable 
principles of trade, and, in general, to protect investors and the 
public interest and not to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
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    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(5).
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    Specifically, the Exchange believes that the proposed rule change 
is consistent with the public interest and the protection of investors 
as it would avoid potential confusion about how an order is handled if 
entered with both a Post Only and Cancel Back instruction. Today, the 
Exchange's rules provide that an order entered into the EDGA Book with 
a Post Only instruction would remove liquidity in certain 
circumstances, such as when economically beneficial for the order. In 
addition, the rules specify that this handling applies to orders 
entered with a Price Adjust or Display-Price Sliding instruction. The 
rules, however, are silent as to the handling applied if an order with 
a Post Only instruction contains a Cancel Back instruction. The 
Exchange's order handling is, in fact, the same regardless of which of 
these instructions are chosen by the member. As such, the Exchange 
believes that it is appropriate to amend EDGA Rule 11.6(n)(4) to 
eliminate references to the Price Adjust or Display-Price Sliding 
instruction, thereby making clear that this handling applies to all 
orders entered with a Post Only instruction and not only those that 
also contain Price Adjust or Display-Price Sliding instructions.
    The Exchange believes that this order handling, which mirrors that 
in place on the Exchange's affiliated equities markets (i.e., BZX and 
BYX) is appropriate regardless of whether an order entered with a Post 
Only instruction also contains a Display-Price Sliding, Price Adjust, 
or Cancel Back instruction. Specifically, the Exchange believes that it 
is consistent with just and equitable principles of trade to permit an 
order entered with a Post Only instruction to remove liquidity when the 
order is an order to buy or sell a security priced below $1.00, or when 
executing as the taker of liquidity would be economically beneficial to 
the firm entering the order. This handling is designed to ensure that 
orders entered with a Post Only instruction are eligible to trade in 
certain circumstances where the entering firm may have an interest in 
securing an execution on entry--i.e., as the taker of liquidity--
notwithstanding the member's use of the Post Only instruction. Although 
the Exchange's rules currently mention order handling for the Display-
Price Sliding and Price Adjust instructions specifically, this 
functionality should be applied equally to any order entered with a 
Post Only instruction. Thus, amending the rule as proposed would 
provide additional transparency into a feature offered by the Exchange 
that is potentially beneficial to members that utilize the Post Only 
instruction.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change would 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. Rather, the proposed rule 
change would remove ambiguity in the EDGA rules describing the Post 
Only instruction by amending those rules consistent with rules 
currently in place for the Exchange's affiliates, BZX and BYX. No 
change to the Exchange's order handling is contemplated by this 
proposed rule change, which would merely clarify the current handling 
for certain orders entered with a Post Only instruction. The Exchange 
therefore believes that the proposed rule change would increase 
transparency around the operation of the Exchange to the benefit of 
members and investors, without imposing any significant burden on 
competition.

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

    No written 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 \13\ and Rule 19b-
4(f)(6) thereunder.\14\
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    \13\ 15 U.S.C. 78s(b)(3)(A).
    \14\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change, along 
with a brief description and text of the proposed rule change, at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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    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

[[Page 14701]]

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-2019-004 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-2019-004. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-CboeEDGA-2019-004, and should be 
submitted on or before May 2, 2019.
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    \15\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-07154 Filed 4-10-19; 8:45 am]
 BILLING CODE 8011-01-P


