[Federal Register Volume 85, Number 92 (Tuesday, May 12, 2020)]
[Notices]
[Pages 28112-28115]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-10055]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88817; File No. SR-CboeBZX-2020-037]


Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change Relating 
To Amend Its Definition of Bulk Messages in Rule 16.1 and Amend Rule 
21.1(l)(3)

May 6, 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 April 24, 2020, Cboe BZX Exchange, Inc. (the ``Exchange'' or 
``BZX'') 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 
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. (the ``Exchange'' or ``BZX Options'') 
proposes to amend its definition of bulk messages in Rule 16.1 and 
amend Rule 21.1(l)(3). 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.

[[Page 28113]]

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    Currently, BZX Options Market-Makers submit their quotes 
electronically as bulk messages. A bulk message is a single electronic 
message a User may submit to the Exchange in which the User may enter, 
modify, or cancel up to an Exchange-specified number of bids and 
offers. Bulk message functionality was adopted by the Exchange in 
connection with a recent technology migration and designed to be 
consistent with the technology offering of the Exchange's affiliated 
options exchanges, Cboe Exchange, Inc. (``Cboe Options'') and Cboe C2 
Exchange, Inc. (``C2'').\3\ Currently, the definition of a bulk message 
in Rule 16.1 provides that a User may submit a bulk message through a 
bulk port, which is a dedicated logical port. Current Rule 21.1(l)(3) 
provides that a bulk message submitted through a logical port is 
subject to certain conditions, including that a Market-Maker with an 
appointment in a class may designate a bulk message for that class as 
Post Only or Book Only, and other Users must designate a bulk message 
for that class as Post Only. Additionally, Users may submit single 
orders through a bulk port in the same manner as Users may submit 
orders to the Exchange through any other type of port, including 
designated with any order instruction and any time-in-force. The 
primary purpose of bulk ports and bulk messages is to encourage 
liquidity provision, particularly by Market-Makers, on the Exchange.\4\
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    \3\ See Securities Exchange Release No. 84928 (December 21, 
2018) 83 FR 67794 (December 31, 2018) (SR-CboeBZX-2018-092).
    \4\ See supra note 3.
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    The Exchange proposes to amend the definition of bulk messages in 
Rule 16.1 so that Market-Makers may exclusively submit bulk messages 
and proposes to update Rule 21.1(l)(3) regarding bulk ports 
accordingly. Specifically, the proposed rule change amends the 
definition of bulk messages to provide that the term ``bulk message'' 
means a single electronic message a User submits with an M Capacity 
(i.e., for the account of a Market-Maker) to the Exchange in which the 
User may enter, modify, or cancel up to an Exchange-specified number of 
bids and offers. In this way, the bulk messages submitted through bulk 
ports would be attributed only to Market-Maker quotes. In line with the 
proposed amendment to the User Capacity permitted to submit bulk 
messages, the proposed rule change also updates Rule 21.1(l)(3)(A)(ii) 
to provide that, while a Market-Maker with an appointment in a class 
may designate a bulk message for that class as a Post Only or Book 
Only, a non-appointed Market-Maker, as opposed to any other User, must 
designate a bulk message for that class as Post Only. This is currently 
the case for Market-Makers submitting bulk messages in non-appointed 
classes and the proposed rule change merely reflects the specific type 
of other User (i.e., Market-Makers not appointed in a class) that will 
be able to submit bulk messages. The Exchange also notes that the 
proposed rule change updates the term User to Market-Maker in Rules 
21.1(l)(3)(A)(iii) and (iv) to reflect the proposed amendment to the 
User Capacity permitted to submit bulk messages and provide uniformity 
for the terms used throughout Rule 21.1(l)(3)(A).
    The Exchange notes that the vast majority of bulk messages 
submitted through bulk ports are for the account of a Market-Maker. 
Indeed, over the second half of March 2020 the Exchange observed that 
only 0.05% of bulk messages submitted through bulk ports were submitted 
by non-Market-Makers. Because so few non-Market-Maker Users opt to use 
this functionality, the Exchange believes that the current demand does 
not warrant the Exchange resources necessary for ongoing System support 
for non-Market-Maker bulk messaging. The Exchange notes that the use of 
bulk messages is voluntary and non-Market-Maker Users will continue to 
be able to submit their single orders and auction responses through 
bulk ports and other logical ports in the same manner as they currently 
do.
    The Exchange notes that limiting the offering of quoting 
functionality to Market-Makers is not new or unique as other options 
exchanges currently offer quoting functionality only to their market 
makers.\5\ Indeed, bulk message functionality (including submission 
through bulk ports) is geared toward encouraging Market-Maker quoting 
on the Exchange. For example, the requirement that bulk messages have a 
time-in-force of Day is intended to be consistent with a Market-Maker's 
obligation to update its quotes in response to changed market 
conditions in its appointed classes, and the provision that allows 
Market-Makers to designate their bulk messages as Post Only or Book 
Only (as opposed to the limitation to Post Only for other Users' bulk 
messages) is intended to provide Market-Makers with flexibility to use 
these instructions with respect to their bulk messages as additional 
tools to meet their quoting obligations in a manner they deem 
appropriate.\6\ Additionally, the Exchange notes that its affiliated 
options exchanges, C2 and Cboe Options, as well as Cboe EDGX Exchange, 
Inc. (``EDGX Options'') are simultaneously submitting filings to update 
their corresponding rules in connection with bulk messages. Thus, the 
proposed rule change is intended to continue to harmonize technology 
offerings across the affiliated options exchanges. Additionally, C2 and 
Cboe Options just recently adopted bulk message functionality to 
replace substantially similar quotation functionality that was 
previously offered only to their market makers.\7\
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    \5\ See Nasdaq Phlx Options 1, Section 7(a)(B), which provides 
for its ``Specialized Quote Feed'', a quoting interface offered 
specifically to market makers on Phlx; and see generally MIAX 
Options Rule 517, which provide for the different types of quotes 
and quoting mechanisms offered specifically to market makers on MIAX 
Options.
    \6\ See supra note 3.
    \7\ See Securities Exchange Release No. 86374 (July 15, 2019) 84 
FR 34963 (July 19, 2019) (SR-CBOE-2019-033); and Securities Exchange 
Release No. 85038 (February 1, 2019) 84 FR 2598 (February 7, 2019) 
(SR-C2-2018-025).
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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.\8\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \9\ 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) \10\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
    \10\ Id.
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    In particular, the Exchange believes that the proposed rule change 
will remove impediments to and perfect the

[[Page 28114]]

mechanism of a free and open market and national market system and 
benefit investors, because it will delete from the Rules a 
functionality that is currently rarely used and as a result, the 
Exchange will no longer offer, thereby promoting transparency in its 
Rules. The Exchange notes that other options exchanges currently offer 
their quoting functionality and/or interfaces exclusively to market 
makers on their exchanges.\11\ Moreover, the Exchange believes the 
proposed rule change will benefit investors by continuing to provide a 
harmonized technology offering across the Exchange and its affiliated 
options exchanges.\12\ Also, up until recently, C2 and Cboe Options 
offered exclusively to their market makers quoting functionality 
substantially similar to current bulk message functionality.\13\ 
Moreover, the Exchange does not believe that the proposed rule change 
raises any new or novel issues for Users and will not affect the 
protection of investors and the public interest because this 
functionality is so infrequently used by non-Market-Makers. In addition 
to this, the Exchange notes that the submission of bulk messages to the 
Exchange is voluntary, and, as stated, non-Market-Makers will continue 
to be able to submit single order and auction responses through bulk 
ports and other logical ports to connect to the Exchange and enter 
orders, receive date, and access information. Also, the Exchange 
believes that the low non-Market-Maker usage rate of bulk message 
functionality does not warrant the continued resources necessary for 
System support of bulk messaging for non-Market-Maker Users. As a 
result, the Exchange believes the proposed rule change will also remove 
impediments to and perfect the mechanism of a free and open market and 
national market system by allowing the Exchange to reallocate System 
capacity and resources to other System functionality, which benefits 
all market participants.
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    \11\ See supra note 3.
    \12\ As stated, C2, Cboe Options, and EDGX Options intend to 
simultaneously submit filing to update their rules in connection 
with bulk messages in the same manner as proposed herein.
    \13\ See supra note 7.
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    Additionally, the Exchange does not believe that the proposed rule 
change would permit unfair discrimination as, according to March 2020 
data, a negligible portion of bulk messages are submitted by non-
Market-Makers, and, as stated above, bulk message functionality is 
principally designed to assist Market-Makers in providing liquidity to 
the Exchange. The options market is driven by Market-Maker quotes, and 
thus Market-Maker quotes are critical to provide liquidity to the 
market and contribute to price discovery for investors. Additionally, 
Market-Makers are subject to continuous quoting obligations (which 
other Users are not), and bulk message functionality provides Market-
Makers with a means to help them satisfy these obligations. Indeed, 
when bulk messages were adopted, the Exchange expected Market-Makers 
regularly to use bulk messages to input and update prices on multiple 
series of options at the same time, and noted that the functionality 
was intended primarily for the use of Market-Makers.\14\
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    \14\ See supra note 3.
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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 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The Exchange does not 
believe that the proposed rule change will change will impose any 
burden on intramarket competition that is not necessary or appropriate 
in furtherance of the purposes of the Act because bulk messages 
functionality will be available for all Exchange Market-Makers in the 
same manner as it is today. Non-Market-Makers will continue to be able 
to submit their single orders and auction responses through bulk ports, 
as well as all orders and other data through logical ports, in the same 
manner as they currently do. As noted above, this is consistent with 
the primary purpose of bulk messages, which is to encourage Market-
Maker quoting and liquidity on the Exchange. The Exchange further notes 
that if any non-Market-Makers wish to submit liquidity to the Exchange 
using bulk messages they are free to register as an Exchange Market-
Maker and choose the appointed classes in which they wish to quote. 
Non-Market-Makers so infrequently use bulk message functionality, thus 
the proposed rule change is not expected to have any impact on their 
business need.
    The Exchange does not believe that the proposed rule change will 
impose any burden on intermarket competition that is not necessary or 
appropriate in furtherance of the purposes of the Act because other 
options exchanges currently limit their quoting functionality and/or 
interface to market makers on their exchanges.\15\ Additionally, as 
noted above, until recently the Exchange's affiliated options 
exchanges, C2 and Cboe Options, both which intend to update their 
corresponding bulk message rules in the same manner as proposed herein, 
offered exclusively to their market makers quoting functionality 
substantially similar to the current bulk message functionality.\16\
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    \15\ See supra note 5.
    \16\ See supra note 7.
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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

    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)(iii) of the Act \17\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\18\
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    \17\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \18\ 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 Commission has waived the five-day prefiling requirement in this 
case.
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    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act \19\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \20\ 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 asked the Commission to waive the 30-day operative delay so that 
the proposal may become operative immediately upon filing. The 
Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest. 
The Exchange represents that it disseminated advance notice of the 
proposed change to market participants on March 27, 2020 and plans to 
announce a specific implementation date in the near future. In 
addition, the Exchange states that the proposal is consistent with 
quoting functionality on other options exchanges which currently offer 
such functionality only

[[Page 28115]]

to their market makers. The Commission notes that the proposed rule 
change does not present any unique or novel regulatory issues. 
Accordingly, the Commission hereby waives the operative delay and 
designates the proposal operative upon filing.\21\
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    \19\ 17 CFR 240.19b-4(f)(6).
    \20\ 17 CFR 240.19b-4(f)(6)(iii).
    \21\ 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: (i) 
Necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) 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 rule-comments@sec.gov. Please include 
File Number SR-CboeBZX-2020-037 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-2020-037. 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-CboeBZX-2020-037 and should be submitted 
on or before June 2, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-10055 Filed 5-11-20; 8:45 am]
BILLING CODE 8011-01-P


