[Federal Register Volume 87, Number 163 (Wednesday, August 24, 2022)]
[Notices]
[Pages 52092-52099]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-18097]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-95529; File No. SR-CboeBZX-2022-038]


Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing of a Proposed Rule Change To Amend Rule 11.28(a) To Extend the 
MOC Cut-Off Time

August 17, 2022.
    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 August 5, 2022, 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, 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. (the ``Exchange'' or ``BZX'') proposes to 
amend Rule 11.28(a) to extend the MOC Cut-Off Time from 3:35 p.m. 
Eastern Time to 3:49 p.m. Eastern Time. 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
    Exchange Rule 11.28 (Cboe Market Close, a Closing Match Process for 
Non-BZX-Listed Securities) provides Members an optional closing match 
process for non-BZX-Listed securities, known as Cboe Market Close 
(``CMC''). Currently, per Rule 11.28(a) (Order Entry) Members \3\ may 
enter, cancel, or replace Market-on-Close (``MOC'') orders designated 
for participation in CMC beginning at 6:00 a.m. Eastern Time \4\ up to 
3:35 p.m. (``MOC Cut-Off Time''). The Exchange now proposes to move the 
MOC Cut-Off Time from 3:35 p.m. to 3:49 p.m. The Exchange is not 
proposing to make any other changes to the CMC process.
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    \3\ The term ``Member'' shall mean any registered broker or 
dealer that has been admitted to membership in the Exchange. A 
Member will have the status of a ``member'' of the Exchange as that 
term is defined in Section 3(a)(3) of the Act. Membership may be 
granted to a sole proprietor, partnership, corporation, limited 
liability company or other organization which is a registered broker 
or dealer pursuant to Section 15 of the Act, and which has been 
approved by the Exchange. See Rule 1.5(n), definition of ``Member''.
    \4\ All times noted throughout are in Eastern Time.
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    By way of background, on May 5, 2017, the Exchange filed a proposed 
rule change to adopt CMC, a match process for MOC orders in non-BZX 
listed securities and on December 1, 2017, filed Amendment No. 1 \5\ to 
that proposal (the ``Original Proposal'').\6\ On January 17, 2018, the 
Commission, acting through authority delegated to the Division of 
Trading and Markets,\7\ approved the Original Proposal (``Approval 
Order'').\8\ On January 31, 2018, NYSE Group, Inc. (``NYSE'') and the 
Nasdaq Stock Market LLC (``Nasdaq'') filed petitions for review of the 
Approval Order (``Petitions for Review''). Pursuant to Commission Rule 
of Practice 431(e),\9\ the Approval Order was stayed by the filing with 
the Commission of a notice of intention to petition for review.\10\ On 
March 1, 2018, pursuant to Commission Rule of Practice 431, the 
Commission issued a scheduling order granting the Petitions of Review 
of the Approval Order, and provided until March 22, 2018, for any party 
or other person to file a written statement in support of, or in 
opposition to, the Approval Order.\11\ On April 12, 2018, NYSE and 
Nasdaq submitted written statements opposing the Approval Order and BZX 
submitted a statement in support of the Approval Order.\12\ On October 
4, 2018, BZX filed Amendment No. 2 \13\ to the Original Proposal.
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    \5\ The only change in Amendment No. 1 was to rename the 
proposed closing match process as Cboe Market Close. Per the 
Commission, because Amendment No. 1 was a technical amendment and 
did not materially alter the substance of the proposed rule change 
or raise unique or novel regulatory issues, Amendment No. 1 was not 
subject to notice and comment.
    \6\ See Securities Exchange Act Release No. 34-80683 (May 16, 
2017), 82 FR 23320 (May 22, 2017) (SR-Bats-BZX-2017-34) (Notice of 
Filing of a Proposed Rule Change to Introduce Bats Market Close, a 
Closing Match Process for Non-BZX Listed Securities Under New 
Exchange Rule 11.28).
    \7\ 17 CFR 200.30-3(a)(12).
    \8\ See Securities Exchange Act Release No. 34-82522 (January 
17, 2018), 83 FR 3205 (January 23, 2018) (SR-Bats-BZX-2017-34) 
(Notice of Filing of Amendment No. 1 and Order Granting Approval of 
a Proposed Rule Change, as Modified by Amendment No. 1, To Introduce 
Cboe Market Close, a Closing Match Process for Non-BZX Listed 
Securities Under New Exchange Rule 11.28).
    \9\ 17 CFR 201.431(e).
    \10\ See Letter to Christopher Solgan, Assistant General 
Counsel, Cboe Global Markets, Inc. (Jan. 24, 2018) (providing notice 
of receipt of notices of intention to petition for review of 
delegated action and stay of order), available at: https://www.sec.gov/rules/sro/batsbzx/2018/sr-batsbzx-2017-34-letter-from-secretary-to-cboe.pdf.
    \11\ See Securities Exchange Act Release No. 82794, 83 FR 9561 
(Mar. 6, 2018). On March 16, 2018, the Office of the Secretary, 
acting by delegated authority, issued an order on behalf of the 
Commission granting a motion for an extension of time to file 
statements on or before April 12, 2018. See Securities Exchange Act 
Release No. 82896, 83 FR 12633 (Mar. 22, 2018)
    \12\ See Statement of NYSE Group, Inc., in Opposition to the 
Division's Order Approving a Rule to Introduce Cboe Market Close 
(``NYSE Statement''); Statement of the Nasdaq Stock Market LLC in 
Opposition to Order Granting Approval of a Proposed Rule Change, as 
Modified by Amendment No. 1, to Introduce Cboe Market Close 
(``Nasdaq Statement''); and Statement of Cboe BZX Exchange, Inc., in 
support of Commission Staff's Approval Order (``BZX Statement''), 
available at: https://www.sec.gov/comments/sr-batsbzx-2017-34/batsbzx201734.htm.
    \13\ See Securities Exchange Act Release No. 34-84670 (November 
28, 2018), 83 FR 62646 (December 4, 2018) (SR-BatsBZX-2017-34) 
(``Notice of Filing of Amendment No. 2 to Proposed Rule Change to 
Introduce Cboe Market Close, a Closing Match Process for Non-BZX 
Listed Securities Under New Exchange Rule 11.28'').
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    The Commission conducted a de novo review of the CMC proposal and 
associated public record, including

[[Page 52093]]

Amendment No. 2, the Petitions for Review, and all comments and 
statements submitted by certain exchanges, issuers, and other market 
participants,\14\ to determine whether the proposal was consistent with 
the requirements of the Act and the rules and regulations issued 
thereunder that are applicable to a national securities exchange.\15\ 
The Commission noted that under Rule 700(b)(3) of the Commission's Rule 
of Practice, the ``burden to demonstrate that a proposed rule change is 
consistent with the Exchange Act and the rules and regulations issued 
thereunder . . . is on the self-regulatory organization that proposed 
the rule change.'' \16\
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    \14\ See ``Statements on File No. SR-BatsBZX-2017-34'', 
available at: https://www.sec.gov/comments/sr-batsbzx-2017-34/batsbzx201734.htm.
    \15\ See Securities Exchange Act Release No. 34-88008 (January 
21, 2020), 85 FR 4726 (January 27, 2020) (SR-BatsBZX-2017-34) 
(``Order Setting Aside Action by Delegated Authority and Approving a 
Proposed Rule Change, as Modified by Amendments No. 1 and 2, To 
Introduce Cboe Market Close, a Closing Match Process for Non-BZX 
Listed Securities Under New Exchange Rule 11.28'').
    \16\ Id.
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    Importantly, after reviewing the entire record, the Commission 
concluded that BZX met its burden to show that the proposed rule change 
was consistent with the Act, and pursuant to its January 21, 2020, 
order, set aside the Approval Order and approved BZX's CMC proposal, as 
amended (``Final Approval Order'').\17\ Notably, the Commission stated 
that the record ``demonstrate[d] that Cboe Market Close should 
introduce and promote competitive forces among national securities 
exchanges for the execution of MOC orders'' \18\ and that ``the record 
demonstrate[d] that Cboe Market Close should not disrupt the closing 
auction price discovery process nor should it materially increase the 
risk of manipulation of official closing prices''.\19\ For the reasons 
discussed more fully below, the Exchange believes that when applying 
the Commission's analysis in the Final Approval Order to the current 
proposal, such review would similarly conclude that this proposal is 
consistent with the Act and should be approved.
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    \17\ Id.
    \18\ Id.
    \19\ Id.
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    Since the Original Proposal various exchanges have extended the MOC 
cut-off times for their closing auctions, moving them closer to 4:00 
p.m.\20\ Additionally, closing price match services offered by off-
exchange venues have grown in popularity,\21\ including alternative 
trading systems (``ATS'') that offer a MOC cut-off time as close as 30-
seconds before the primary exchanges' cut-off times, as well as MOC 
cut-off times aligned with those of NYSE, NYSE Arca, and Nasdaq.\22\ As 
the market structure for closing auctions and closing price match 
offerings has continued to evolve, and in response to customer feedback 
and to better compete with off-exchange venues, the Exchange is 
proposing this rule change to align CMC's MOC Cut-Off time more closely 
with the other exchanges and off-exchange venues.
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    \20\ See Securities Exchange Act Release No. 34-84454 (October 
19, 2018), 83 FR 53923 (October 25, 2018) (SR-Nasdaq-2018-068) 
(Order approving a rule change by NYSE) (The Commission approved a 
rule change by Nasdaq to move the cut-off times for the entry of MOC 
and LOC orders from 3:50 p.m. to 3:55 p.m.); see also Securities 
Exchange Act Release No. 34-85021 (January 31, 2019) (SR-NYSE-2018-
58) (Order approving a rule change by Nasdaq) (The Commission 
approved a rule change by the NYSE to amend Rule 123C to extend the 
cut-off times for order entry and cancellation for participation in 
the closing auction, from 3:45 p.m. to 3:50 p.m.).
    \21\ See infra, ``Price Discovery and Fragmentation'', which 
describes the growth of off-exchange closing volume.
    \22\ For example, JP Morgan Securities' ATS, JPB-X, offers Close 
Price Match. This functionality utilizes a conditional order process 
to match orders and crosses them at the security's official closing 
prices, as determined by the closing auction at the primary exchange 
for a security. The Close Price Match time for an NMS stock is 
currently 30-seconds before the MOC cut-off time for that stock's 
primary exchange. Additionally, Instinet, LLC's ATS, CBX provides 
for three MOC Crossing Sessions, which consist of: a cross for 
securities where the primary listing exchange is the Nasdaq 
(``Nasdaq Cross''), a cross for securities where the primary listing 
exchange is the NYSE Arca (``Arca Cross''), and a cross for 
securities where the primary listing exchange is the NYSE (``NYSE 
Cross''). Subscribers may submit orders for the MOC Crosses at any 
time between 7:30 a.m. and the relevant crossing session's crossing 
time. See Form ATS-N, JPB-X, available at: https://www.sec.gov/Archives/edgar//data/782124/000/xslATS-N_X01/primary_doc.xml; see 
also Form ATS-N, Instinet, LLC's ATS, CBX, available at: https://www.sec.gov/Archives/edgar/data/310607/000031060722000009/xslATS-N_X01/primary_doc.xml.
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    The Exchange notes that Members have requested a MOC Cut-Off Time 
that is closer to the end of Regular Trading Hours \23\ so that they 
may retain control of their trading for a longer period and be better 
able to manage their trading at the close.\24\ Generally speaking, 
notional trading and trading volatility are typically at their highest 
towards the end of Regular Trading Hours. Accordingly, market 
participants often prefer to trade as close to 4:00 p.m. as possible, 
because doing so can provide them with more time to seek better priced 
liquidity for their orders in a variety of ways, including but not 
limited to, finding contra-side liquidity in the marketplace and 
trading directly against such interest, or guaranteeing a customer 
order at a price better than the national best bid or offer by 
committing capital to an order and filling it in a principal capacity, 
as well as continuing to trade orders algorithmically into the close, 
thus reducing the size of their outstanding orders that they may decide 
to commit to CMC or the primary auctions.
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    \23\ The term ``Regular Trading Hours'' means the time between 
9:30 a.m. and 4:00 p.m. Eastern Time. See Rule 1.2(w), definition 
of, ``Regular Trading Hours.''
    \24\ The Exchange notes that part of its rationale for extending 
CMC's MOC Cut-Off Time is substantively identical to that of other 
exchanges moving their cut-off times later, namely, NYSE and Nasdaq. 
See Securities Exchange Act Release No. 34-83988 (August 29, 2018), 
86 FR 18580 (September 5, 2018) (SR-Nasdaq-2018-068) 
(``Specifically, the Exchange believes that extending the cutoff 
times for submitting on close orders will allow market participants 
to retain control over their orders for a longer period of time, and 
thereby assist those market participants in managing their trading 
at the close.''); see also Securities Exchange Act Release No. 34-
84804 (December 12, 2018), 83 FR 64910 (December 18, 2018) (SR-NYSE-
2018-58) (``The Exchange believes that extending the cut-off times 
for entry and cancellation of MOC and LOC Orders, cancellation of CO 
orders, as well as when the Exchange would begin disseminating Order 
Imbalance Information for the close would . . . allow market 
participants to retain control over their orders for a longer period 
of time, and thereby assist those market participants in managing 
their trading at the close.'').
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    Additionally, Members have indicated that extending the MOC Cut-Off 
Time to 3:49 p.m. will help to make CMC a more comparable alternative 
to NYSE and Nasdaq, which have MOC cut-off times of 3:50 p.m.\25\ and 
3:55 p.m.,\26\ respectively. For reasons discussed directly above, cut-
off times closer to 4:00 p.m. are beneficial to market participants, 
and by extending CMC's MOC Cut-Off Time to 3:49 p.m., CMC will be 
better positioned to serve as a viable option for market participants 
to consider when deciding which venues to route their MOC orders, thus 
enhancing intermarket competition.
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    \25\ See NYSE Rule 73.5(a)(8), Closing Auction Imbalance Freeze 
Time.
    \26\ See Nasdaq Rule 4702(b)(11)(A), Market On Close Order.
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    The Exchange also notes that today's market participants, including 
users of CMC,\27\ are technologically equipped \28\

[[Page 52094]]

to handle a 3:49 p.m. MOC Cut-Off time. As a general mater, today's 
market participants, including CMC users, rely on electronic smart 
order routers, order management systems, and trading algorithms, which 
make routing and trading decisions on an automated basis, in times 
typically measured in microseconds. In this regard, the Exchange 
believes that if a CMC user receives a message that their MOC order was 
not matched in CMC,\29\ such CMC user will have more than enough time 
to reroute their MOC order to the primary exchange. Importantly, the 
Exchange discussed the proposed change with both current CMC users and 
potential new CMC users to gauge whether a MOC Cut-Off Time one-minute 
closer to the NYSE cut-off time, and six-minutes closer to the Nasdaq 
cut-off time, would present operational or technological challenges, 
and confirmed that CMC users can in fact manage the proposed change.
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    \27\ Users of CMC are mainly broker-dealers that trade 
electronically, utilizing a variety of automated trading tools such 
as algorithmic strategies and routing protocols.
    \28\ The Exchange notes that today's equities markets involve 
the widespread use of automated trading algorithms and routing 
solutions, as well market connectivity options with speeds often 
measured in microseconds. In this regard, a MOC Cut-Off Time of 3:49 
p.m. should not present any operational or technological issues, in 
terms of timing, for Members desiring to reroute any unmatched CMC 
MOC orders to the primary exchanges. Should Members need additional 
time to decide whether to send their CMC MOC orders to other 
exchanges, Members may still cancel their CMC MOC orders any time 
prior to 3:49 p.m. or may voluntarily choose to not participate in 
CMC. See generally ``Staff Report on Algorithmic Trading in U.S. 
Capital Markets'' (August 5, 2020), available at https://www.sec.gov/tm/reports-and-publications/special-studies/algo_trading_report_2020. (``Over the past decade, the `manual 
handling of institutional orders is increasingly rare and has been 
replaced by sophisticated institutional order execution algorithms 
and smart order routing systems' '') (``The secondary market for 
U.S.-listed equity securities that has developed within this 
structure is now primarily automated. The process of trading has 
changed dramatically primarily as a result of developments in 
technologies for generating, routing, and executing orders, as well 
as by the requirement imposed by law and regulation.'') (``Modern 
equity markets are connected in part by the data flowing between 
market centers. An enormous volume of data is available to market 
participants. In recent years, there has been an exponential growth 
in the amount of market data that is available, the speed with which 
it is disseminated, and the computer power used to analyze and react 
to price movements.'')
    \29\ The CMC Closing Match Process--i.e., the matching of all 
buy and sell MOC orders entered into the System by time priority at 
the MOC Cut-Off Time, the electronic notification to Members of any 
unmatched MOC orders, and the dissemination by the Exchange of the 
total size of all buy and sell orders matched via CMC via the Cboe 
Auction Feed--generally occurs within microseconds. As such, a MOC 
Cut-Off Time one-minute prior to the primary exchanges' cut-off 
times is a sufficient period of time for Members to reroute their 
unmatched MOC orders to the primary exchanges, should they choose to 
do so.
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2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Act and the rules and regulations thereunder applicable to the 
Exchange and, in particular, the requirements of Section 6(b) of the 
Act.\30\ Specifically, the Exchange believes the proposed rule change 
is consistent with the Section 6(b)(5) \31\ 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) \32\ requirement that the rules of 
an exchange not be designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
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    \30\ 15 U.S.C. 78f(b).
    \31\ 15 U.S.C. 78f(b)(5).
    \32\ Id.
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    In particular, the Exchange believes that moving the MOC Cut-Off 
Time to 3:49 p.m. would remove impediments to and perfect the mechanism 
of a free and open market and a national market system because it would 
allow Members to retain control over their orders for a longer period, 
thereby assisting market participants in managing their trading at the 
close. As discussed more fully above, market participants may prefer to 
trade as close to 4:00 p.m. as possible, because doing so can provide 
them with more time to seek better priced liquidity for their orders in 
a variety of ways, as well as give them more time to determine the size 
of their outstanding orders that they may decide to commit to CMC or 
the primary auctions.
    Additionally, the Exchange believes that a MOC Cut-Off Time 
fifteen-minutes (15) prior to NYSE's cut-off time, and twenty-five-
minutes (25) prior to Nasdaq's cut-off time, is no longer necessary. 
Rather, the Exchange notes that today's market participants are 
technologically equipped \33\ to handle a 3:49 p.m. MOC Cut-Off time. 
As discussed above, today's market participants rely on electronic 
smart order routers, order management systems, and trading algorithms, 
which make routing and trading decision on an automated basis, in times 
often measured in microseconds. As such, Members are technologically 
equipped to efficiently respond to CMC's publication of matched shares 
and should they so choose, reroute any unmatched MOC orders to the 
respective primary closing auction. As noted above, the Exchange 
discussed the extension of the MOC Cut-Off Time with CMC users and 
confirmed that the proposed MOC Cut-Off Time will not present them with 
any operational or technological issues.
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    \33\ Supra note 28.
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    Furthermore, the Exchange believes that the extension of cut-off 
times by the primary exchanges since CMC's proposal, as well as the 
growth of off-exchange venues \34\ with cut-off times in such close 
proximity to the end of Regular Trading Hours is indicative of Members' 
desires for such offerings. Logically, such a change in market 
structure would not have occurred if Members did not already possess 
the operational and technological wherewithal to effectively manage the 
multitude of cut-off times offered by the exchanges and off-exchange 
venues.
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    \34\ Supra note 22.
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    Moreover, the Exchange believes that the proposed rule change will 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system because extending the MOC Cut-Off 
Time to 3:49 p.m. would more closely align the CMC MOC Cut-Off Time to 
the cut-off times in place for the other exchanges.\35\ For the reasons 
discussed more fully above, the primary exchanges' cut-off times are 
beneficial to market participants because of their proximity to 4:00 
p.m. By moving the MOC Cut-Off Time closer to the other exchanges' cut-
off times, CMC can become a comparable alternative for Members to route 
their unpriced MOC orders. Importantly, even with a MOC Cut-Off Time 
closer to the primary exchanges' cut-off times, CMC removes any 
perceived impact on the primary listing markets' close by publishing 
the number of matched order shares, by security, in advance of the 
primary markets' cut-off time. The total matched shares would still be 
disseminated by the Exchange free of charge via the Cboe Auction Feed, 
albeit at the new proposed MOC Cut-Off Time of 3:49 p.m. Because of the 
speeds and widespread use of market technology, this information can 
still be used by the primary markets' closing processes, and as 
discussed above, CMC users will still have ample time \36\ to reroute 
any MOC orders not matched via CMC to reach the primary market to be 
included in their closing auction process.
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    \35\ As noted above, NYSE's cut-off time is 3:50 p.m., and 
Nasdaq's cut-off time is 3:55 p.m. NYSE Arca's cut-off time for MOC 
orders id 3:59 p.m. See ``Trading Information--Closing Auctions'', 
available at: https://www.nyse.com/market/nyse-arca/trading-info.
    \36\ Supra note 28.
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    Additionally, the proposed rule change would more closely align 
CMC's MOC Cut-Off Time with that of off-exchange venues that offer cut-
off times aligned with those currently offered by the primary 
exchanges, and as little as

[[Page 52095]]

30-seconds prior to market close.\37\ As such, the Exchange believes 
that the proposed rule change is supported by both ample precedent as 
well as current market structure, and should not present any new or 
novel issues that market participants must consider when managing their 
trading and determining which exchange or off-exchange venue to route 
their MOC orders.
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    \37\ Supra note 22.
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Price Discovery \38\
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    \38\ As part of this proposed rule change the Exchange is 
addressing several questions considered by the Commission in 
connection with the Exchange's Original Proposal, including price 
discovery and fragmentation, market complexity and operational risk, 
and manipulation. Importantly, in considering these questions, the 
Commission found that based on CMC's design and the record before 
the Commission, that the proposal was consistent with Section 
6(b)(5) of the Act. Supra note 15.
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    The Exchange believes that the proposed rule change is consistent 
with the Section 6(b)(5) requirements.\39\ As previously noted by the 
Exchange,\40\ CMC accepts and matches only unpriced MOC orders. By 
matching only unpriced MOC orders, and not Limit-On-Close (``LOC'') 
orders and executing those matched MOC orders that naturally pair off 
with each other and effectively cancel each other out, CMC is designed 
to avoid impacting price discovery. While the proposed rule change 
would have CMC accept MOC orders up to 3:49 p.m., such extension will 
not change this underlying functionality. As previously noted by the 
Exchange,\41\ matched MOC orders are merely recipients of price 
formation and do not directly contribute to the price formation 
process. Indeed, in its Final Approval Order for CMC, even the 
Commission noted that unpriced, paired-off MOC orders do not directly 
contribute to setting the official closing price of securities on the 
primary listing exchanges but, rather, are inherently the recipients of 
price formation information.\42\
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    \39\ The Exchange notes that the Commission, in its Final 
Approval Order, carefully analyzed and considered CMC and its 
potential effects, if any, on the primary listing exchanges' closing 
auctions, including their price discovery functions. Importantly, 
the Commission found that, based on CMC's design, CMC should not 
disrupt the price discovery process in the closing auctions of the 
primary listing exchanges. Supra note 15.
    \40\ See Letter from Joanne Moffic-Silver, Executive Vice 
President, General Counsel, and Corporate Secretary, Bats Global 
Markets, Inc. (August 2, 2017), available at: https://www.sec.gov//batsbzx-2017-34/batsbzx201734-2162452-157801.pdf; see also Letter 
from Joanne Moffic-Silver (October 11, 2017), available at: https://www.sec.gov/comments/sr-batsbzx-2017-34/batsbzx201734-2634580-161229.pdf.
    \41\ Id.
    \42\ Supra note 15.
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    Moreover, the Exchange believes that even if extending the MOC Cut-
Off Time to 3:49 p.m. reduces the number of MOC orders routed to a 
security's primary listing market, CMC is designed to remove any 
perceived adverse impact on the primary listing markets' close because 
the total matched shares would still be disseminated by the Exchange 
free of charge via the Cboe Auction Feed prior to the primary 
exchanges' cut-off times. Additionally, because of the technological 
capabilities of today's market participants discussed more fully above, 
this information can still be incorporated by the primary markets' 
closing processes, and CMC users will still have ample time \43\ to 
reroute any MOC orders not matched via CMC to the primary markets to be 
included in their closing auction processes.
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    \43\ Supra note 28.
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Fragmentation \44\
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    \44\ Supra note 38.
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    Another matter addressed by the Commission in their review of the 
Initial Proposal was fragmentation, and whether CMC would fragment the 
markets beyond what currently occurs through off-exchange close price 
matching venues.\45\ Importantly, as illustrated in the chart below, an 
analysis by the Exchange shows that the closing auction volume on both 
NYSE and Nasdaq has increased since the launch of CMC on March 6, 2022. 
As such, the Exchange believes that the initial fragmentation concerns 
raised by commenters during the Initial Proposal have not materialized, 
and that merely extending the MOC Cut-Off Time, while leaving all other 
CMC functionality intact, will not result in increased market 
fragmentation.
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    \45\ Supra note 15.
    [GRAPHIC] [TIFF OMITTED] TN24AU22.000
    

[[Page 52096]]


    The Exchange also notes that even if the proposed rule change 
results in fewer MOC orders participating in the primary exchanges' 
closing auctions, that the fragmentation of MOC orders already occurs 
in today's markets on off-exchange venues. As illustrated in the first 
two charts below, a growing proportion of trading volume at the close 
occurs on off-exchange venues, where the TRF close volume, as a percent 
of Exchange close volume, has risen steadily since January 2019.\46\ In 
the third chart the Exchange also studied the top ten most actively 
traded securities during the same time period and found that a 
significant portion of the total closing volume is executed off-
exchange, following the dissemination of the official closing price.
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    \46\ The Exchange conducted an analysis of off-exchange/Trade 
Reporting Facility (``TRF'') closing volume that occurs after market 
close, 4:00 p.m. Eastern Time, where the price is equal to the 
closing price and for which such trades are reported with a Prior 
Reference Price (``PRP'') trade reporting modifier. The TRF is a 
trade reporting facility where FINRA members may report trades in 
Nasdaq-listed and other exchange-listed securities, that were 
executed otherwise than on an exchange. The first two charts 
represent TRF executed volume at the close with the ``PRP'' flag 
that equals the closing auction price, divided by total on exchange 
auction volume.
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[GRAPHIC] [TIFF OMITTED] TN24AU22.002


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                                                                                                   TRF close %
                  Rank                             Symbol                 Primary exchange        inc. PRP \47\
----------------------------------------------------------------------------------------------------------------
1......................................  AAPL......................  Nasdaq....................                9
2......................................  T.........................  NYSE......................                6
3......................................  BAC.......................  NYSE......................               10
4......................................  INTC......................  Nasdaq....................                5
5......................................  MSFT......................  Nasdaq....................                7
6......................................  F.........................  NYSE......................                9
7......................................  PFE.......................  NYSE......................                5
8......................................  CSCO......................  Nasdaq....................                5
9......................................  CMCSA.....................  Nasdaq....................                7

[[Page 52097]]

 
10.....................................  WFC.......................  NYSE......................                9
----------------------------------------------------------------------------------------------------------------
Source: Internal Exchange Data.

BILLING CODE 8011-01-C
    Accordingly, the Exchange believes that approving this proposal 
will allow the Exchange to compete on a more equal playing field with 
off-exchange venues for closing volume already being executed away from 
the primary listing venues. In better competing with off-exchange 
venues, CMC can help increase transparency, reliability, and price 
discovery by encouraging market participants that would otherwise seek 
to match MOC orders off-exchange to re-direct their MOC orders to BZX, 
a public exchange. Moreover, by attracting such order flow, CMC can 
help to increase the amount of volume at the close executed on systems 
subject to the resiliency requirements of Regulation SCI.\48\
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    \47\ As defined above, ``PRP''.
    \48\ See Letter from Joanne Moffic-Silver, Executive Vice 
President, General Counsel, and Corporate Secretary, Bats Global 
Markets, Inc., a Cboe Company (Oct. 11, 2017) (``The Proposal is 
further consistent with the Commission's assertion that closing 
auctions are critical SCI systems . . . [CMC] would provide a much 
needed, seamless, and easy way for the industry to address the 
single point of failure risk that exists for closing auctions today, 
especially when a primary listing market is experiencing system 
issues and lacks full operational capability. As Bats previously 
asserted, in the event of a system's disruption at the primary 
listing market, [CMC] could provide an alternative pool of liquidity 
to which market participants could send MOC orders for execution at 
the official closing price. Therefore, it promotes just and 
equitable principles of trade and competition among national 
securities exchanges. [CMC] would also remove impediments to and 
perfect the mechanism of a free and open market and a national 
market system by providing a mechanism for market participants to 
execute their orders at the official closing price should a system 
disruption on the primary listing market prevent them from entering 
orders.''); (``Furthermore, [CMC] would operate on the Exchange's 
reliable SCI systems . . . significant MOC liquidity is conducted 
today by off-exchange venues. These venues are not SCI systems and, 
therefore, not subject to Regulation SCI's enhanced resiliency 
requirements. [CMC] could attract MOC orders from these off-exchange 
venues and its reliable SCI system, furthering the Commission's 
presumed desire for liquidity at the close to be conducted on SCI 
systems.'')
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Market Complexity and Operational Risk \49\
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    \49\ Supra note 38.
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    The Exchange believes that the proposed rule change is simple and 
straightforward, and as such will not significantly increase market 
complexity or operational risk. The Exchange seeks only to extend the 
MOC Cut-Off Time to 3:49 p.m., leaving all other aspects of the CMC 
process intact. Members will not have to consider new operational 
requirements of monitoring and consuming a new data feed or consider 
the utilization of a new order type or implementation of new Exchange 
code. Rather, Members may continue to monitor the same data feed as 
they do today, the Cboe Auction Feed, and simply look for the 
publication of the CMC information at the new proposed MOC Cut-Off 
Time.
    Additionally, as discussed more fully above, the Exchange discussed 
this proposal with current CMC users prior to submitting this proposal 
and learned that CMC users are technologically equipped to manage a MOC 
Cut-Off Time closer to the primary exchanges' cut-off times, and that 
they can respond to CMC's publication of matched shares and quickly 
reroute any unmatched MOC orders to the respective primary closing 
auction. Moreover, CMC is a voluntary offering, and Members may freely 
decide whether to participate.
    Furthermore, as noted throughout, both off-exchange venues and 
other exchanges already offer MOC cut-off times that are closer in time 
to the end of Regular Trading Hours. Specifically, as mentioned above, 
in 2018 Nasdaq received approval to move the cut-off times for the 
entry of MOC and Limit-On-Close (``LOC'') orders from 3:50 to 3:55 
p.m.\50\ Similarly, in 2018 the NYSE received approval from the SEC to 
extend their cut-off times for order entry and cancellation for 
participation their closing auction, from 3:45 p.m. to 3:50 p.m.\51\ 
NYSE also offers discretionary-orders, which unlike MOC/LOC orders that 
are subject to NYSE's 3:50 p.m. cut-off, may be entered for 
participation in the closing auction until 3:59:50.\52\ Additionally, 
market participants may enter MOC orders for participation in NYSE 
Arca's closing auction up to 3:59 p.m..\53\ Finally, various off-
exchange venues offer closing match processes with cut-off times 
aligned with those of the primary exchanges, and even as close to 30-
seconds before market close, 4:00 p.m.\54\
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    \50\ Supra note 20.
    \51\ Id.
    \52\ See NYSE Rule 7.31 (c)(2)(C); see also ``The Floor Broker's 
Modern Trading Tool'', available at: https://www.nyse.com/article/trading/d-order (``While D Orders are available for use throughout 
the trading day, most executions occur in the closing auction, where 
they're known as Closing D Orders. At 3:55 p.m., Closing D Order 
interest eligible to participate in the closing auction is added to 
the order imbalance feed at their discretionary price range. Closing 
D Orders can also be submitted, modified or cancelled up to 3:59:50 
p.m. These distinct features of Closing D Orders are designed to 
facilitate the Floor Broker's traditional agency role on behalf of 
larger institutional interest, allowing Floor Brokers to work in 
conjunction with their customer to find larger liquidity 
opportunities.'').
    \53\ See ``Closing Auction Timeline'', available at: https://www.nyse.com/markets/nyse-arca/trading-info.
    \54\ Supra note 22.
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    Accordingly, the Exchange believes that market participants are 
well accustomed to managing the various cut-off times in today's 
marketplace, and in incorporating these timelines into their trading 
decisions. The number of exchanges and off-exchange venues with 
extended cut-off times indicates that market participants find value in 
their ability to retain control of their trading heading into the end 
of Regular Trading Hours, and the exchanges and off-exchange venues 
have responded to such demand. Certainly, market participants would not 
desire cut-off times closer to the end of Regular Trading Hours if they 
could not technologically and operationally manage their trading 
accordingly. Therefore, the extension of CMC's MOC Cut-Off Time should 
not present market participants with any novel operational or 
technological complexities.
Manipulation \55\
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    \55\ Supra note 38.
---------------------------------------------------------------------------

    The Exchange does not expect that the proposed extension of the MOC 
Cut-Off Time to 3:49 p.m. will result in an increase of manipulative 
activity due to information asymmetries, or raise any unique 
manipulation concerns relative to how CMC exists today with a current 
MOC Cut-Time of 3:35 p.m. Specifically, any information CMC 
participants may be able to glean from their paired-off MOC orders, or 
from their unmatched MOC orders, is still limited in nature. For 
instance, any information that CMC participants may learn from 
receiving unmatched MOC order messages is still limited in nature 
because the CMC participant would still only know the unexecuted size 
of its own order.\56\ Moreover, even if a

[[Page 52098]]

Member chose to participate in CMC only to gather information about the 
direction of an imbalance and use such information to manipulate the 
closing price, the Member's orders were still eligible for execution. 
Thus, in addition to any such information being of limited use, the 
Member's actions still do not provide them with free information 
unavailable to other market participants because the Member's orders 
were eligible to for execution, subjecting the Member to economic risk.
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    \56\ The Exchange notes that in its Final Approval Order, even 
the Commission noted that, ``In particular, a market participant 
would only be able to determine the direction of the imbalance and 
would have difficulty determining the magnitude of any imbalance, as 
it would only know the unexecuted size of its own order. In 
addition, the information would only be with regard to the pool of 
liquidity on BZX and would provide no insight into imbalances on the 
primary listing exchange, competing auctions, ATSs, or other off-
exchange matching services which, as described above, can represent 
a significant portion of trading volume at the close.'' Supra note 
15.
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    Furthermore, as with the current MOC Cut-Off Time, the proposed 
extension does not present any information asymmetries that do not 
already exist in today's markets, as the very nature of trading creates 
short term asymmetries of information to those who are parties to a 
trade.\57\ Indeed, as noted by the Commission, any party to a trade 
gains valuable insight regarding the depth of the market when an order 
is executed or partially executed.\58\ Additionally, NYSE imbalance 
information is already disseminated to NYSE floor brokers, who are 
permitted to share with their customers specific data from the 
imbalance feed.\59\ Even in this case, though, the Commission stated 
that the value of such information is limited because the imbalance 
information does not represent overall supply and demand for a 
security, is subject to change, and is only one relevant piece of 
information.\60\ Similarly, because any information gleaned by a CMC 
participant is limited only to the unexecuted size of their order, and 
relative to the depth of only the BZX pool of liquidity, the Exchange 
believes that the proposed extension of the MOC Cut-Off Time does not 
create an increased risk of manipulative trading activity.
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    \57\ The Exchange further notes that in its approval order, even 
the Commission noted that, ``Further, the Commission believes 
information asymmetries as those described by commenters exist today 
and are inherent in trading, including with respect to closing 
auctions. For example, any party to a trade gains valuable insight 
regarding the depth of the market when an order is executed or 
partially executed.'' Id.
    \58\ Id.
    \59\ Id.
    \60\ Id.
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    While this proposal would result in the total shares for buy and 
sell orders in CMC being disseminated closer in time to the primary 
exchanges' cut-off times, this change does not suddenly make the value 
of such information more valuable or useful in terms of enhancing 
opportunities for gaming and manipulating the official closing price. 
The proposed MOC Cut-off Time is one-minute prior to NYSE's cut-off 
time of 3:50 p.m., and six-minutes prior to Nasdaq's cut-off time of 
3:55 p.m. As noted above, today's markets are marked by technological 
solutions which typically operate in durations of microseconds. In this 
context, the separation between the CMC MOC Cut-Off Time and that of 
NYSE's and Nasdaq's is a substantial duration of time, during which 
much can change in the marketplace, thus limiting the value of 
information, if any, that can be gleaned from CMC's dissemination of 
matched shares at 3:49 p.m. Moreover, there are currently controls and 
processes in place to monitor for manipulative trading activity, such 
as the supervisory responsibilities and capabilities of exchanges and 
the expansive cross market surveillance conducted by FINRA. Following 
approval of this proposal, the Exchange, FINRA and others will continue 
to surveil for potential manipulative activity and when appropriate, 
bring enforcement actions against market participants engaged in 
manipulative trading activity.

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. Rather, the proposed rule 
change seeks merely to extend the MOC Cut-Off Time from 3:35 p.m. to 
3:49 p.m., enabling all Members to manage their trading for a longer 
period. The Exchange is not proposing to make any other changes to the 
CMC process. Moreover, CMC is a voluntary closing match process, and 
Members are not required to participate in the CMC. Additionally, the 
proposed rule change applies to equally to all Members. Importantly, 
based on feedback from CMC users, the proposed MOC Cut-Off Time will 
not prevent CMC's current user's from participating in CMC, as CMC's 
current users are technologically equipped to manage a 3:49 p.m. MOC 
Cut-Off Time, and should they choose to do so, reroute MOC orders not 
matched in CMC to the primary exchanges' closing auctions.
    Furthermore, the Exchange does not believe that the proposed rule 
change will impose any burden on intramarket competition that is not 
necessary or appropriate in furtherance of the purposes of the Act. As 
noted above, the proposed rule change more closely aligns the CMC MOC 
Cut-Off Time to the cut-off times of other exchanges, while still 
providing CMC participants with an opportunity to reroute any of their 
unpaired MOC orders to the primary exchanges. In this regard, the 
proposed rule change may make CMC a more viable alternative to the 
primary auctions and should therefore promote competition amongst the 
exchanges. Additionally, the proposed MOC Cut-Off Time may also enable 
the Exchange to more effectively compete with off-exchange venues that 
have cut-off times much closer in time to the market close and comprise 
a growing percentage of closing volume.

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

    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
     Send an email to [email protected]. Please include 
File Number SR-CboeBZX-2022-038 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.


[[Page 52099]]


All submissions should refer to File Number SR-CboeBZX-2022-038. 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-2022-038 and should be submitted 
on or before September 14, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\61\
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    \61\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2022-18097 Filed 8-23-22; 8:45 am]
BILLING CODE 8011-01-P


