[Federal Register Volume 85, Number 34 (Thursday, February 20, 2020)]
[Notices]
[Pages 9824-9827]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-03327]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88200; File No. SR-CboeBZX-2020-015]


Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change Relating 
To Amend the Logic That Would Be Used To Cancel MOC Orders Entered for 
Participation in the Cboe Market Close in the Event the Exchange 
Becomes Impaired

February 13, 2020.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on February 4, 2020, Cboe BZX Exchange, Inc. (``BZX'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``SEC'' or 
``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 BZX Exchange, Inc. (``BZX'' or the ``Exchange'') is filing 
with the Securities and Exchange Commission (the ``Commission'') a 
proposed rule change to amend the logic that would be used to cancel 
MOC orders entered for participation in the Cboe Market Close in the 
event the Exchange becomes impaired. The text of the proposed rule 
change is provided in 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/bzx/), 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 the logic that 
would be used by the Exchange to cancel Market-On-Close (``MOC'') 
orders entered for participation in the Cboe Market Close in the event 
the Exchange becomes impaired. The Exchange believes that the proposed 
rule would provide greater transparency to members and investors with 
regard to how their orders would be handled if the Exchange experiences 
a systems or other issue that impacts the ability of the Exchange to 
complete the Cboe Market Close in one or more securities.
    The Cboe Market Close is an innovative closing match process for 
non-BZX Listed Securities that is designed to match buy and sell MOC 
orders at the official closing price for such security published by the 
primary listing market.\3\ Currently, Interpretations and Policies .02 
to Rule 11.28 provides that the Exchange will cancel all MOC orders 
designated to participate in Cboe Market Close in the event the 
Exchange becomes impaired prior to the MOC Cut-Off Time and is unable 
to recover within 5 minutes from the MOC Cut-Off Time.\4\ When 
originally proposed, the Exchange stated that the purpose of this rule 
was to provide an opportunity for members to

[[Page 9825]]

re-enter their MOC orders on the primary listing market in the event 
that the Exchange became impaired and was unable to conduct the Cboe 
Market Close.
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    \3\ The Commission approved the Cboe Market Close on January 21, 
2020. See Securities Exchange Act Release No. 88008 (January 21, 
2020), 85 FR 4726 (January 27, 2020) (SR-BatsBZX-2017-34).
    \4\ The MOC Cut-Off Time is 3:35 p.m. ET, and represents the 
time up until which members may enter, cancel, or replace MOC orders 
designated for participation in the Cboe Market Close. See BZX Rule 
11.28(a).
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    The Exchange believes, however, that the current wording of the 
rule is ambiguous. Specifically, the present language does not specify 
whether MOC orders should be cancelled five minutes after the MOC Cut-
Off Time (i.e., at 3:40 p.m. ET), or five minutes before the MOC Cut-
Off Time (i.e., at 3:30 p.m. ET). In addition, the Exchange believes 
that the length of the impairment is a relevant factor that should be 
considered in determining if MOC orders entered into the Cboe Market 
Close should be cancelled, as impairments of a longer duration may 
indicate more significant issues with the closing match process. The 
Exchange therefore proposes to amend Interpretations and Policies .02 
to Rule 11.28 to increase the clarity of the rule and generally improve 
the process for handling such impairments.
    As proposed, the Exchange would cancel all MOC orders designated to 
participate in the Cboe Market Close if the Exchange becomes impaired 
prior to the MOC Cut-Off Time, and is unable to recover before the MOC 
Cut-Off Time, or becomes impaired after the MOC Cut-Off Time but before 
completing the closing match process in a security. Thus, the MOC Cut-
Off Time would, as intended, establish an upper bound for conducting 
the Cboe Market Close. The Exchange believes that this would continue 
to ensure that members would have an opportunity to re-enter their MOC 
orders on the primary listing market in the event that the Exchange 
became impaired and is unable to conduct the Cboe Market Close due to 
an impairment that cannot be resolved prior to the time that the 
closing match process would ordinarily be conducted.
    If the Exchange is able to recover prior to the MOC Cut-Off Time, 
however, the Exchange's handling would be dependent on the length of 
the impairment. Specifically, if the impairment lasts less than five 
minutes, the Exchange would cancel only those MOC orders designated to 
be cancelled by the member. For impairments lasting five minutes or 
more, the Exchange would cancel all MOC orders, thereby giving members 
the opportunity to enter such orders for trading in the closing auction 
to be conducted by the primary listing market. For example, the 
Exchange would cancel all MOC orders if an impairment starts at 3:05 
p.m. ET and continues past 3:10 p.m. ET. If instead the impairment was 
resolved at 3:08 p.m. ET then members' order persistence settings would 
govern which MOC orders are subject to cancellation. A member's 
election for cancelling orders in the event of a matching engine 
disconnect would be applied for purposes of determining whether to 
cancel such MOC orders.\5\ As a result, members would have the 
flexibility to determine how they would like their MOC orders handled 
in the event of a short impairment but would have all MOC orders 
cancelled in the event of a longer impairment that could indicate a 
more significant issue.
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    \5\ The cancel on matching engine disconnect setting is 
similarly used to handle impairments today, including situations 
where there the primary matching engine fails over to a secondary 
matching engine due, for example, to a software error, network 
problem, etc.
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    In addition, the current rule provides that if the Exchange were to 
become impaired after the MOC Cut-Off Time, it would retain all matched 
MOC orders and execute those orders at the official closing price once 
it is operational. The Exchange continues to believe that it is 
important to ensure that paired MOC orders ultimately receive an 
execution at the official closing price. As such, the amended 
Interpretations and Policies .02 to Rule 11.28 would continue to 
include similar language that states that if the Exchange becomes 
impaired after completing the closing match process in a security, it 
would retain all matched MOC orders and execute those orders at the 
official closing price once the impairment is resolved. The proposed 
language differs from the current language in two respects, which are 
merely designed to increase clarity around these rules. First, the 
proposed rules would reference the Exchange becoming impaired after 
``completing the closing match process in a security'' rather than 
after the MOC Cut-Off Time. While the Exchange would perform the 
closing match process at the MOC Cut-Off Time, this language would 
ensure that it is clear that matched MOC orders would be retained only 
if the closing match process (i.e., the process for matching MOC 
orders) is completed in the security. As discussed earlier in this 
proposed rule change, all MOC orders designated to participate in the 
Cboe Market Close would be cancelled if the Exchange becomes impaired 
after the MOC Cut-Off Time but before completing the closing match 
process in a security. Second, the proposed language would reference 
executing those matched MOC orders ``once the impairment is resolved'' 
rather than ``once it is operational.'' Since the language in the 
proposed rule discusses the process for handling a systems impairment, 
the Exchange believes that the language in this portion of the rule 
should similarly reference the resolution of this impairment.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \6\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \7\ 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. Specifically, the Exchange 
believes that the proposed rule change would protect investors and the 
public interest because the amended rule would continue to ensure that 
members have an opportunity to re-enter their orders on the primary 
listing market if the Exchange experiences an impairment that would 
impact the ability of the Exchange to successfully conduct the Cboe 
Market Close in one or more securities, and would provide greater 
transparency to members and investors with regard to how their orders 
would be handled if the Exchange experiences such an issue. While the 
Exchange believes that such events are likely to be rare, providing 
greater certainty about how orders are handled in such rare situations 
is consistent with the maintenance of a fair and orderly market.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that it would be beneficial to allow members 
to choose how their orders are handled by using the member's order 
persistence settings, where appropriate, to determine whether their 
orders should be cancelled in the event that a systems impairment may 
impact the ability of the Exchange to execute the Cboe Market Close. As 
such, the Exchange has proposed to allow members to specify whether 
their MOC orders should be cancelled in the event of a short impairment 
that is resolved within five minutes, and would apply member's chosen 
order persistence settings to do so. Using this setting would ensure 
that members' continue to have the flexibility to determine how their 
orders are handled in the event of a systems impairment, and would 
ensure that MOC orders are handled similarly to other orders in such 
circumstances. At the same time, for longer impairments with a duration 
exceeding five minutes, the Exchange

[[Page 9826]]

believes that all members should have their orders cancelled so that 
they have an opportunity to send those orders to the primary listing 
market to participate in the closing auction and receive an execution 
at the official closing price.
    Further, since all MOC orders would be cancelled if the Exchange is 
unable to recover prior to the MOC Cut-Off Time of 3:35 p.m. ET, 
members would be provided with more than sufficient time to enter their 
orders for participation in the closing auction on the primary listing 
market. For example, if the Exchange experienced an impairment that is 
not resolved at of 3:35 p.m. ET, all MOC orders would be cancelled, and 
members would have fifteen minutes until the 3:55 p.m. ET cutoff time 
for entering MOC orders on The Nasdaq Stock Market LLC (``Nasdaq''),\8\ 
ten minutes until the 3:50 p.m. ET cutoff time for entering MOC orders 
on New York Stock Exchange LLC (``NYSE''),\9\ and nineteen minutes 
until the start of the 3:59 p.m. ET closing auction imbalance freeze on 
NYSE Arca, Inc. (``Arca'').\10\ Of course, an impairment that begins 
earlier in the trading day would result in orders being subject to 
cancellation earlier, thus providing additional time for members to 
redirect their MOC orders to the primary listing market. The Exchange 
therefore believes that the amended rule would continue to provide an 
adequate opportunity for members to re-enter their MOC orders on the 
primary listing market in the event that the Exchange became impaired 
and is unable to conduct the Cboe Market Close.
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    \8\ See Nasdaq Rule 4702(b)(11)(A).
    \9\ See NYSE Rule 123C(2)(a)(i).
    \10\ See Arca Rule 7.35-E(d)(2).
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    Finally, similar to language in the current rule, the amended rule 
would explain that matched MOC orders would be retained and executed at 
the official closing price once an impairment is resolved. The amended 
rule contains minor language changes that are designed to increase 
clarity around this process, including referencing that matched MOC 
orders would be retained on completion of the closing match process in 
a security rather than simply referencing the MOC Cut-Off Time, and 
referencing that orders would be executed when the impairment is 
resolved rather than more general language about the Exchange becoming 
operational. While these changes do not significantly alter the 
operation of the rule, the Exchange believes that the amendments 
enhance the clarity of the proposed rules for handling these 
situations. For example, while the closing match process would be 
performed at the MOC Cut-Off Time it is possible that an impairment 
could occur after the Exchange has begun performing the closing match 
process but before that process has completed in one or more 
securities. The proposed amendments make clear that in such an event 
MOC orders would be retained only in those securities where the closing 
match process has been completed. The Exchange would not retain matched 
MOC orders if the closing match process in a security had started but 
is interrupted by a systems impairment.

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. The Cboe Market Close is 
designed to increase competition in the U.S. equities market by 
offering an alternative to the primary listing markets' closing auction 
processes. The proposed amendments do not address any competitive 
issue, but would instead implement operational changes to the 
Exchange's process for dealing with situations involving a systems 
impairment that would impact the Exchange's ability to conduct a timely 
closing match process. These changes are designed to both provide 
transparency to members and investors about how the Exchange intends to 
handle such situations, and to ensure that market participants have an 
opportunity to have their orders executed as desired in the event of an 
impairment. As such, the Exchange believes that the proposed rule 
change would not burden competition, and indeed would further the 
competitive benefits sought by the introduction of the Cboe Market 
Close.

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:
    A. Significantly affect the protection of investors or the public 
interest;
    B. impose any significant burden on competition; and
    C. 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 \11\ and 
Rule 19b-4(f)(6) \12\ thereunder. 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 will institute proceedings to determine whether the proposed 
rule change should be approved or disapproved.
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f)(6).
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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 rule-comments@sec.gov. Please include 
File Number SR-CboeBZX-2020-015 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-2020-015. 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

[[Page 9827]]

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-
CboeBZX-2020-015, and should be submitted on or before March 12, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2020-03327 Filed 2-19-20; 8:45 am]
 BILLING CODE 8011-01-P


