[Federal Register Volume 86, Number 225 (Friday, November 26, 2021)]
[Notices]
[Pages 67524-67527]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-25746]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-93616; File No. SR-CboeBZX-2021-073]


Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
How the BZX Official Closing Price Is Determined for a BZX-Listed 
Security That Is Not a Corporate Security, Pursuant to Rule 
11.23(c)(2)(B)(ii)(b)

November 19, 2021.
    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 9, 2021, Cboe BZX Exchange, Inc. (the ``Exchange'' or 
``BZX'') 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 self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------

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

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Cboe BZX Exchange, Inc. (the ``Exchange'' or ``BZX'') is filing 
with the Securities and Exchange Commission (``Commission'') a proposed 
rule change to amend how the BZX Official Closing Price is determined 
for a BZX-listed security that is not a corporate security, pursuant to 
Rule 11.23(c)(2)(B)(ii)(b). 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

[[Page 67525]]

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 Exchange proposes to amend BZX Rule 11.23, Auctions, to modify 
how the BZX Official Closing Price,\3\ which is the price disseminated 
to the consolidated tape as the market center closing trade, would be 
determined for any BZX-listed security that is not a corporate security 
(i.e., an Exchange-Traded Product (``ETP'') as provided in Exchange 
Rule 14.11, also referred to as a ``Derivative Securities Product''), 
as set forth in Rule 11.23(c)(2)(B)(ii)(b). The proposal is 
substantively identical to the process described in Nasdaq Stock Market 
LLC (``Nasdaq'') Rule 4754(b)(4)(A)(ii) \4\ and substantially similar 
to the process described in NYSE Arca, Inc. (``Arca'') Rule 1.11(ll) 
[sic].\5\ Further, this provision of Rule 11.23(c)(2)(B)(ii)(b) is only 
used to determine the BZX Official Closing Price and does not impact 
any executions in the Closing Auction. Such provision also only applies 
where there is less than one round lot executed in the Closing Auction 
and where there has not been a trade that would qualify as a Final Last 
Sale Eligible Trade within the final five minutes before the end of 
Regular Trading Hours.
---------------------------------------------------------------------------

    \3\ See Exchange Rule 11.23(a)(3).
    \4\ Infra note 12 and accompanying text.
    \5\ Infra note 13 and accompanying text.
---------------------------------------------------------------------------

    Rule 11.23(c)(2)(B)(i) through (iii) sets forth how the BZX 
Official Closing Price for Derivative Securities Products is 
determined. Paragraph (B)(i) provides that where at least one round lot 
is executed in the Closing Auction, the Closing Auction price will be 
the BZX Official Closing Price. Paragraph (B)(ii) provides that in the 
event that the BZX Official Closing Price cannot be determined under 
paragraph (B)(i), the BZX Official Closing Price for such security will 
depend on when the last consolidated last-sale trade occurs. 
Specifically, if a trade that would qualify as a Final Last Sale 
Eligible Trade \6\ occurred (a) within the final five minutes before 
the end of Regular Trading Hours,\7\ the Final Last Sale Eligible Trade 
will be the BZX Official Closing Price; or (b) prior to five minutes 
before the end of Regular Trading Hours, the time-weighted average 
price (``TWAP'') of the National Best Bid or Offer \8\ (``NBBO'') 
midpoint measured over the last five minutes before the end of Regular 
Trading Hours will be the BZX Official Closing Price. Paragraph 
(B)(iii) provides that if the BZX Official Closing Price cannot be 
determined under paragraphs (B)(i) or (B)(ii), the Final Last Sale 
Eligible Trade will be the BZX Official Closing Price.
---------------------------------------------------------------------------

    \6\ The term ``Final Last Sale Eligible Trade'' shall mean the 
last round lot trade occurring during Regular Trading Hours on the 
Exchange if the trade was executed within the last one second prior 
to either the Closing Auction or, for Halt Auctions, trading in the 
security being halted. Where the trade was not executed within the 
last one second, the last round lot trade reported to the 
consolidated tape received by the Exchange during Regular Trading 
Hours and, where applicable, prior to trading in the security being 
halted will be used. If there is no qualifying trade for the current 
day, the BZX Official Closing Price from the previous trading day 
will be used. See BZX Rule 11.23(a)(9).
    \7\ The term ``Regular Trading Hours'' means the time between 
9:30 a.m. and 4:00 p.m. Eastern Time. See BZX Rule 1.5(w).
    \8\ See BZX Rule 1.5(o).
---------------------------------------------------------------------------

    The Exchange proposes to amend Rule 11.23(c)(2)(B)(ii)(b) in order 
to change how the BZX Official Closing Price is calculated using the 
TWAP of the NBBO midpoint measured over the last five minutes before 
the end of Regular Trading Hours. Under current functionality, the 
Exchange uses all NBBO quotes during the last five minutes of Regular 
Trading Hours to determine the BZX Official Closing Price, which could 
result in setting a BZX Official Closing Price that is not necessarily 
reflective of a Derivative Securities Product's reasonable market 
value. Given this, the Exchange proposes to amend Rule 
11.23(c)(2)(B)(ii)(b) to exclude from the TWAP calculation a midpoint 
that is based on an NBBO that is not reflective of the security's true 
and current value. As proposed, the Exchange would exclude a quote from 
the NBBO midpoint calculation if the spread of the quote is greater 
than 10% of the midpoint price. The Exchange would also exclude a 
crossed NBBO from the calculation.\9\
---------------------------------------------------------------------------

    \9\ As provided in Rule 11.20(a)(2), the term crossing quotation 
shall mean the display of a bid for an NMS stock during regular 
trading hours at a price that is higher than the price of an offer 
for such NMS stock previously disseminated pursuant to an effective 
national market system plan, or the display of an offer for an NMS 
stock during regular trading hours at a price that is lower than the 
price of a bid for such NMS stock previously disseminated pursuant 
to an effective national market system plan.
---------------------------------------------------------------------------

    The proposed amendment to adopt an NBBO midpoint check is designed 
to validate whether an NBBO used in the calculation of the BZX Official 
Closing Price bears a relation to the value of the value of the 
Derivative Securities Product. Under the proposal, the Exchange would 
calculate the midpoint of the NBBO and then multiply the midpoint by 
ten percent (10%) and compare this value to the spread of the NBBO. If 
the value of the midpoint when multiplied by ten percent (10%) is less 
than the spread of that NBBO, the Exchange would exclude the quote from 
the NBBO midpoint calculation. The Exchange believes that if the NBBO 
spread is greater than the value of the midpoint when multiplied by ten 
percent (10%), it would indicate that the spread is too wide, and 
therefore not representative of the value of the security. For example: 
If the NBBO is $19.99 x $20.01, and thus the NBBO midpoint is $20, 
validation logic would allow a maximum quote width up to $2 to be used 
as part of the calculation ($20.00*10% = $2). If the NBBO was $17.00 x 
$23.00, and thus the NBBO midpoint is $20.00, the quote would not be 
used in the midpoint calculation because it violates the maximum quote 
width ($20.00*10% = $2). If there are no eligible quotes to determine a 
TWAP within the time period or if the ETP is halted, then Exchange will 
determine the BZX Official Closing Price as provided under existing 
Rule 11.23(c)(2)(B)(iii).
    The Exchange plans to implement the proposed rule change during the 
fourth quarter of 2021, and will announce the implementation date via 
Trade Desk Notice.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\10\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act,\11\ in particular, in that it 
is 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 facilitating 
transactions in securities, and 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.
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that the proposed rule change would remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system because it is designed to provide for a BZX 
Official Closing Price that is more reflective of the current market 
value of an ETP on that trading day. Further, it will serve to remove 
impediments to and perfect the

[[Page 67526]]

mechanism of a free and open market and a national market system 
because it will provide for a more robust mechanism to determine the 
value of an ETP for purposes of determining the BZX Official Closing 
Price.
    The proposed functionality is substantively identical to 
functionality that has already been approved by the Commission and is 
operational on another Exchange. Specifically, Nasdaq Rule 
4754(b)(4)(A)(ii) provides that where a time-weighted average midpoint 
(``T-WAM'') calculation is reflected as the Nasdaq official closing 
price, the T-WAM calculation will only use an ``eligible quote'', which 
is defined as a quote whose spread is no greater than a value of 10% of 
the midpoint price, and will exclude crossed NBBO markets.\12\ The 
proposal is also substantially similar to Arca Rule 1.1(ll)(1)(B) 
except the Exchange proposes to exclude a quote when the spread is 
greater than a value of 10% of the midpoint price and Arca Rule 
1.1(ll)(1)(B) excludes a midpoint. Specifically, Arca Rule 
1.1(ll)(1)(B) provides that for the purpose of deriving the official 
closing price using a TWAP calculation, Arca will exclude (1) an NBBO 
midpoint from the calculation if that midpoint, when multiplied by 10%, 
is less than the spread of that NBBO, and (2) a crossed NBBO.\13\ 
Therefore, the Exchange's proposal to exclude from the TWAP calculation 
provided under Rule 11.23(c)(2)(B)(ii)(b) a quote from the NBBO 
midpoint calculation if the spread of the quote is greater than 10% of 
the midpoint price, is substantively identical to existing 
functionality on Nasdaq and substantially similar to existing 
functionality on Arca and thus does not present any new or novel 
issues.
---------------------------------------------------------------------------

    \12\ See Nasdaq Rule Nasdaq Rule 4754(b)(4)(A)(ii). See also 
Securities and Exchange Act No. 87486 (November 7, 2019) 84 FR 61952 
(November 14, 2019) (SR-NASDAQ-2019-061) (Order Granting Accelerated 
Approval of Proposed Rule Change, as Modified by Amendment No. 1, 
Relating to the Nasdaq Official Closing Price for Nasdaq-Listed 
Exchange-Traded Products).
    \13\ See Arca Rule 1.1(ll)(1)(B). See also Securities Exchange 
Act No. 84471 (October 23, 2018) 83 FR 54384 (October 29, 2018) (SR-
NYSEArca-2018-63) (Order Approving a Proposed Rule Change To Amend 
NYSE Arca Rule 1.1(ll) To Modify the Formula for Establishing the 
Official Closing Price for a Derivative Securities Product When 
There Is No Closing Auction or if the Closing Auction Is Less Than 
One Round Lot, by Excluding the NBBO Midpoint if the Midpoint 
Multiplied by 10% Is Less Than the NBBO Spread or if the NBBO Is 
Crossed).
---------------------------------------------------------------------------

    For the above reasons, the Exchange believes that the proposal is 
consistent with the requirements of Section 6(b)(5) of the Act.

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 proposed rule change is 
designed to ensure that the BZX Official Closing Price of BZX-listed 
Derivative Securities Products is calculated, pursuant to Rule 
11.23(c)(2)(B)(ii)(b), at a price that is reasonably reflective of the 
market value of the security. The Exchange believes the proposed 
changes would improve the experience of market participants trading on 
the Exchange without imposing any significant burden on competition as 
the proposal would simply create a process to validate the NBBO 
midpoint used to determine the Official Closing Price by comparing the 
midpoint value to the spread of the NBBO, and if the NBBO midpoint is 
not within the proposed parameters, to exclude the quote from the 
calculation. The proposal would ensure that the NBBO is sufficiently 
tight to guarantee that the midpoint of the NBBO would be a meaningful 
and accurate basis for determining the Official Closing Price. Further, 
as the proposal is designed to ensure the BZX Official Closing Price 
calculated pursuant to Exchange Rule 11.23(c)(2)(B)(ii)(b) accurately 
reflects the supply and demand in the Derivative Securities Product, 
the Exchange believes the proposal will help it better compete as a 
listing venue.

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 \14\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\15\
---------------------------------------------------------------------------

    \14\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \15\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires the Exchange 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.
---------------------------------------------------------------------------

    A proposed rule change filed under Rule 19b-4(f)(6) \16\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\17\ the Commission 
may 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 to allow the 
Exchange to implement the proposal as soon as possible. The Exchange 
states that the proposal is substantively identical to Nasdaq Rule 
4754(b)(4)(A)(ii) and substantially similar to Arca Rule 1.1(ll). The 
Commission believes that waiver of the 30-day operative delay is 
consistent with the protection of investors and the public interest 
because the proposal does not raise any new or novel issues. 
Accordingly, the Commission hereby waives the 30-day operative delay 
and designates the proposal operative upon filing.\18\
---------------------------------------------------------------------------

    \16\ 17 CFR 240.19b-4(f)(6).
    \17\ 17 CFR 240.19b-4(f)(6)(iii).
    \18\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
---------------------------------------------------------------------------

    At any time within 60 days of the filing of such 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 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-CboeBZX-2021-073 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange

[[Page 67527]]

Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-CboeBZX-2021-073. 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-2021-073 and 
should be submitted on or before December 17, 2021.
---------------------------------------------------------------------------

    \19\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-25746 Filed 11-24-21; 8:45 am]
BILLING CODE 8011-01-P


