[Federal Register Volume 87, Number 27 (Wednesday, February 9, 2022)]
[Notices]
[Pages 7519-7521]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-02667]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-94144; File No. SR-CboeEDGX-2022-004]


Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice 
of Filing of a Proposed Rule Change To Codify Certain Practices and 
Requirements Related to the Exchange's Port Message Rate Thresholds

February 3, 2022.
    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 January 21, 2022, Cboe EDGX Exchange, Inc. (``Exchange'') filed with 
the Securities and Exchange Commission (``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 EDGX Exchange, Inc. (``EDGX'' or the ``Exchange'') is filing 
with the Securities and Exchange Commission (the ``Commission'') a 
proposal to codify certain practices and requirements related to the 
Exchange's port message rate thresholds, and to promote transparency 
and maintain clarity in the rules. 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/options/regulation/rule_filings/edgx/), 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 this rule filing is to codify certain of the 
Exchange's current practices and requirements related to its port 
message rate thresholds, which it believes will promote transparency 
and maintain clarity in its rules. Specifically, the Exchange is 
proposing to add new Rule 11.23, titled Port Message Rate Threshold, in 
order to memorialize the Exchange's ability to establish per port 
message rate limits applicable to its Members. The Exchange has 
historically provided Members with information regarding the port order 
rate threshold, as defined below, in its publicly available technical 
specifications,\3\ but to promote transparency, the Exchange is 
proposing to codify the Exchange's discretion to impose such limits in 
its rulebook. The System \4\ does not have unlimited port capacity to 
consistently support an unlimited number of messages throughout the 
trading day. For this reason, the Exchange limits each Member to a 
maximum number of messages over a set amount of time, per port 
(hereinafter the ``Port Order Rate Thresholds''). While Members may 
elect to establish a lower Port Order Rate Threshold, each Member is 
subject to the same maximum Port Order Rate Threshold. Like other 
exchanges,\5\ EDGX currently imposes a maximum Port Order Rate 
Threshold, at its discretion, and notifies its Members of such maximum 
number through the Exchange's publicly available technical 
specifications.\6\ Consistent with this current functionality, proposed 
Rule 11.23 would memorialize that all Members shall be subject to a 
Port Order Rate Threshold, as determined by the Exchange in its 
discretion.
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    \3\ Port Order Rate Threshold is defined as the maximum allowed 
message rate on a port. See Cboe FIX Specifications, available at: 
https://cdn.cboe./resources/membership/
Cboe_US_Equities_FIX_Specification.pdf. See also Cboe BOE 
Specifications, available at: https://cdn..com/resources/membership/
Cboe_US_Equities_BOE_Specification.pdf.
    \4\ The term ``System'' shall mean the electronic communications 
and trading facility designated by the Board through which 
securities orders of Users are consolidated for ranking, execution 
and, when applicable, routing away. See Rule 1.5(cc).
    \5\ E.g., Section 5.7 of the New York Stock Exchange's technical 
specifications states, ``In order to protect the Trading Engine from 
an overload of incoming messages, the CGC Gateway employs a session-
level throttle mechanism. This is a configurable value currently set 
to 1000 messages per second on a rolling 1 second basis. In the 
event this throttle mechanism is activated, the gateway will slow 
the sending of incoming messages down to the Trading Engine during 
the throttle period (i.e., messages will be queued) so as to not 
exceed the defined message threshold. See https://www.nyse.com///markets//NYSE_CCG_FIX_Specification.pdf.
    \6\ E.g., page 73, ``Port Order Rate Threshold'', of the Cboe 
U.S. Equities FIX Technical Specifications, which denotes the 
current maximum allowed message rate on the port. When the first 
non-administrative message is received, a one second window begins. 
During the second no more than 4,999 additional non-administrative 
messages will be allowed within that window. If the rate is exceeded 
all new orders in the time window are rejected, modifies are treated 
as cancels, and cancels are processed. If maximum rate limit of 
10,000 is requested, no more than 9,999 additional non-
administrative messages will be allowed within that one second 
window.
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    The Exchange notes that proposed Rule 11.23 is based on 
substantially similar rules that historically \7\ existed in the Cboe 
Options Exchange (``C1'')

[[Page 7520]]

and the Cboe C2 Options Exchange (``C2'') rulebooks, as well as MIAX 
Rule 502 (``Message Packets'') which currently exists in the MIAX 
Options and MIAX Emerald (collectively, ``MIAX'') rulebooks.\8\ Like 
new Rule 11.23, C1 Rule 6.23B \9\ (Bandwidth Packets), C2 Rule 6.35 
\10\ (Message Packets), and MIAX Rule 502 provide(d) that Trading 
Permit Holders are entitled to a maximum number of orders and quotes 
per second as determined by C1/C2 or MIAX.
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    \7\ In 2016, Cboe Global Markets, Inc. the parent company of C1 
and C2, acquired Cboe EDGA Exchange Inc., Cboe EDGX Exchange, Inc., 
Cboe BZX Exchange, Inc., and Cboe BYX Exchange, Inc. (collectively, 
the ``Cboe Affiliated Exchanges''). Subsequent to the acquisitions, 
the Cboe Affiliated Exchanges sought to align their rulebooks, 
retaining only intended differences between the Cboe Affiliated 
Exchanges. As part of this process C1 Rule 6.23B and C2 Rule 6.35 
were removed from the C1 and C2 rulebooks. See SR-CBOE-2019-033 
(https://cdn.cboe.com/resources/regulations/rule_filings/approved/
2019/SR-CBOE-2019-033.pdf.)
    \8\ See MIAX Options and MIAX Emerald Rule 502 (``Message 
Packets'').
    \9\ Rule 6.23B and 6.35 provided: Each Trading Permit shall 
entitle the holder to a maximum number of orders and quotes per 
second(s) as determined by the Exchange. Only Market-Makers may 
submit quotes. Trading Permit Holders seeking to exceed that number 
of messages per second(s) may purchase additional bandwidth packets 
at prices set forth in the Exchange's Fees Schedule. The Exchange 
shall, upon request and where good cause is shown, temporarily 
increase a Trading Permit Holder's order entry bandwidth allowance 
at no additional cost. All determinations to temporarily expand 
bandwidth allowance shall be made in a non-discriminatory manner and 
on a fair and equal basis. No bandwidth limits shall be in effect 
during pre-opening prior to 8:25 a.m. CT, which shall apply to all 
Trading Permit Holders. The Exchange may also determine time periods 
for which there shall temporarily be no bandwidth limits in effect 
for all Trading Permit Holders. Any such determination shall be made 
in the interest of maintaining a fair and orderly market. The 
Exchange shall notify all Trading Permit Holders of any such 
determination.''
    \10\ Id.
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    The Exchange further notes that C1 Rule 6.23B, C2 Rule 6.35, and 
MIAX Rule 502 provide(d) for certain other messaging restrictions and 
actions not included in proposed Rule 11.23; namely, the restriction 
that only a Market-Maker \11\ may enter quotes, and language noting the 
ability of Trading Permit Holders to purchase additional bandwidth 
packets at the prices set forth in the exchanges' fee schedule. 
However, these changes are not necessary for the purposes of proposed 
Rule 11.23 because all Exchange Members, not just Market Makers, may 
submit messages to the Exchange. Additionally, it is already clear from 
the Exchange's fee filings \12\ that additional ports are available for 
purchase. Additionally, C1 Rule 6.23B and C2 Rule 6.35, provided those 
exchanges with the discretion to temporarily increase, upon request, a 
Member's limits, as well as the discretion to designate time periods 
when Members shall not be subject to a message limit. This language is 
not included in this rule filing because the Exchange is not currently 
proposing to allow Members to request temporary message rate increases 
or to designate time periods when Members shall not be subject to a 
message limit.
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    \11\ The C1 and C2 Rulebooks defined ``Market-Maker'' as a 
Trading Permit Holder registered with the Exchange for the purpose 
of making markets in options contracts traded on the Exchange and 
that is vested with the rights and responsibilities specified in 
Chapter 5 of the Rules.
    \12\ See EDGX Exchange fees, effective December 1, 2021, 
available at: https://www.cboe.com/us/equities/membership/fee_schedule/edgx/.
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2. Statutory Basis
    The Exchange believes the proposed rule changes are consistent with 
the requirements of Section 6(b) of the Act,\13\ in general, and 
Section 6(b)(5) of the Act,\14\ 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, 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.
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    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(5).
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    Specifically, the Exchange believes that proposed Rule 11.23 does 
not unfairly discriminate amongst market participants. Under proposed 
Rule 11.23, Members may elect a lower Port Order Rate Threshold, but 
all Members are limited to the same maximum Port Order Rate Threshold.
    Moreover, by providing the Exchange with the explicit discretion to 
impose Port Order Rate Thresholds, proposed Rule 11.23 helps to foster 
a free and open national market system, as well as the Commission's 
goal of ensuring that critical market infrastructure has ``levels of 
capacity, integrity, availability, and security adequate to maintain 
their operational capability and promote the maintenance of fair and 
order market''.\15\
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    \15\ See Securities and Exchange Act Release No. 73639 (November 
19, 2014) 79 FR 72251 (December 5, 2014) (File No. S7-01-13) 
(Regulation SCI Adopting Release).
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    As noted above the Exchange's Systems do not have unlimited port 
capacity to consistently support an unlimited number of messages 
throughout the trading day. As such, it is critical that the Exchange 
maintain discretion to impose Port Order Rate Thresholds to ensure that 
Members are not able to submit orders in quantities that degrade the 
capacity and performance of Members' ports, as well as the Exchange 
systems through which securities orders of Members are consolidated for 
ranking, execution and, where applicable, routing away.\16\
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    \16\ See Section 6(b) of the Securities and Exchange Act of 1934 
(the ``Act''), 15 U.S.C. 78f (National Securities Exchanges), which 
requires that exchanges have the capacity to carry out the purposes 
of an exchange under the Act.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change imposes 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act. Rather, the proposed rule 
change seeks merely to provide Members with additional clarity and 
transparency regarding Exchange port message rate limits.
    Importantly, the Exchange notes that similar to other exchanges, 
proposed rule 11.23 does not include an explicit number of messages or 
range of messages, that may be imposed by the Exchange, in its 
discretion. Accordingly, proposed Rule 11.23 places the Exchange on par 
with its peer exchanges by preserving the Exchange's ability to adjust 
the port order rate threshold as needed, to ensure the Exchange's 
operational resiliency.

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

    The Exchange has not solicited, and does not intend to solicit, 
comments on this proposal. 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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission will:
    A. By order approve or disapprove such proposed rule change, or
    B. institute proceedings to determine whether the proposed rule 
change should be 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

[[Page 7521]]

     Send an email to [email protected]. Please include 
File Number SR-CboeEDGX-2022-004 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-CboeEDGX-2022-004. 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-CboeEDGX-2022-004 and should be 
submitted on or before March 2, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-02667 Filed 2-8-22; 8:45 am]
BILLING CODE 8011-01-P


