[Federal Register Volume 88, Number 31 (Wednesday, February 15, 2023)]
[Notices]
[Pages 9940-9941]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-03162]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-96861; File No. SR-CboeBZX-2022-038]


Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Order 
Granting Approval of Proposed Rule Change, as Modified by Amendment No. 
1, To Amend Rule 11.28(a) To Extend the MOC Cut-Off Time for Cboe 
Market Close

February 9, 2023.

I. Introduction

    On August 5, 2022, Cboe BZX Exchange, Inc. (``BZX'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to amend BZX Rule 11.28(a) to extend the cut-off 
time for accepting Market-on-Close orders entered for participation in 
the Cboe Market Close. The proposed rule change was published for 
comment in the Federal Register on August 24, 2022.\3\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 95529 (August 17, 
2022), 87 FR 52092.
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    On October 4, 2022, pursuant to Section 19(b)(2) of the Act,\4\ the 
Commission designated a longer period within which to approve the 
proposed rule change, disapprove the proposed rule change, or institute 
proceedings to determine whether to disapprove the proposed rule 
change.\5\ On November 11, 2022, the Exchange submitted Amendment No. 1 
to the proposed rule change.\6\ Amendment No. 1 was published for 
comment in the Federal Register and, under Section 19(b)(2)(B) of the 
Act,\7\ the Commission instituted proceedings to determine whether to 
approve or disapprove the proposed rule change, as modified by 
Amendment No. 1.\8\
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    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 95967, 87 FR 61425 
(October 11, 2022).
    \6\ Amendment No. 1 amended and superseded the proposed rule 
change as originally filed. Amendment No. 1 is available on the 
Commission's website at: https://www.sec.gov/comments/sr-cboebzx-2022-038/srcboebzx2022038.htm.
    \7\ 15 U.S.C. 78s(b)(2)(B).
    \8\ See Securities Exchange Act Release No. 96359 (November 18, 
2022), 87 FR 72527 (November 25, 2022) (``Order Instituting 
Proceedings'').
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    The Commission has received no comments on the proposed rule 
change. This order approves the proposed rule change, as modified by 
Amendment No. 1.

II. Description of the Proposal, as Modified by Amendment No. 1

    Cboe Market Close (``CMC'') provides the Exchange's Members \9\ an 
optional closing match process for non-BZX-listed securities. 
Currently, pursuant to BZX Rule 11.28(a), Members may enter, cancel, or 
replace Market-on-Close (``MOC'') orders designated for participation 
in CMC beginning at 6:00 a.m.\10\ up to 3:35 p.m. (``MOC Cut-Off 
Time'').\11\ The Exchange states that the CMC closing match process--
the matching of all buy and sell MOC orders entered into the BZX 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 in the Cboe Auction Feed of the total size of all buy and sell 
orders matched via CMC--generally occurs within microseconds.\12\
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    \9\ The term ``Member'' means any registered broker or dealer 
that has been admitted to membership in the Exchange. See BZX Rule 
1.5(n), definition of ``Member.''
    \10\ All times referenced in this order are Eastern Time.
    \11\ See Order Instituting Proceedings, 87 FR at 72528.
    \12\ See id. at 72530 n.34. The Exchange states that, while the 
duration may vary, the total matching process typically takes a 
fraction of a second--about 948 microseconds--with the maximum being 
around one second. See id. at 72531 n.41.
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    The Exchange now proposes to move the MOC Cut-Off Time from 3:35 
p.m. to 3:49 p.m. The Exchange states that its Members have requested 
an MOC Cut-Off Time that is closer to the end of its regular trading 
hours (4:00 p.m.) so that they may retain control of their trading for 
a longer period and better manage their trading at the close.\13\ The 
Exchange also states that its Members have indicated that extending the 
MOC Cut-Off Time to 3:49 p.m. will help make CMC a more comparable 
alternative to the New York Stock Exchange (``NYSE'') and Nasdaq,\14\ 
which have extended the MOC cut-off times for their closing auctions 
closer to 4:00 p.m. (to 3:50 p.m. and 3:55 p.m., respectively).\15\ The 
Exchange further states that closing price match services offered by 
off-exchange venues, including alternative trading systems, have grown 
in popularity, and that such venues offer an MOC cut-off time as close 
as 30 seconds before the primary exchanges' cut-off times.\16\
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    \13\ See id. at 72529. The Exchange posits that 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, as well as give them more time to 
determine the size of their outstanding orders that they may decide 
to commit to CMC, the primary exchanges' closing auctions, or 
services offered by off-exchange venues. See id. at 72529-31.
    \14\ See id. at 72529.
    \15\ See id. at 72528 and n.25.
    \16\ See id. at 72528-59 and n.27.
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III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change, as modified by Amendment No. 1, is consistent with the 
requirements of the Act and the rules and regulations thereunder.\17\ 
In particular, the Commission finds that the proposed rule change, as 
modified by Amendment No. 1, is consistent with Section 6(b)(5) of the 
Act,\18\ which requires, among other things, that the rules of a 
national securities exchange be designed to prevent fraudulent and 
manipulative

[[Page 9941]]

acts and practices, to promote just and equitable principles of trade, 
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, and not be designed to permit unfair 
discrimination between customers, issuers, brokers, or dealers; and 
Section 6(b)(8) of the Act,\19\ which requires that the rules of a 
national securities exchange not impose any burden on competition not 
necessary or appropriate in furtherance of the purposes of the Act.
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    \17\ In approving this proposed rule change, as modified by 
Amendment No. 1, the Commission has considered the proposed rule's 
impact on efficiency, competition, and capital formation. See 15 
U.S.C. 78c(f).
    \18\ 15 U.S.C. 78f(b)(5).
    \19\ 15 U.S.C. 78f(b)(8).
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    The Exchange proposes an MOC Cut-Off Time of 3:49 p.m., which would 
be one minute prior to NYSE's current MOC cut-off time of 3:50 p.m. and 
six minutes prior to Nasdaq's current MOC cut-off time of 3:55 p.m.\20\ 
The Exchange states that it discussed the proposed 3:49 p.m. MOC Cut-
Off Time with both current CMC users and potential new CMC users and 
confirmed that both groups could technologically manage the proposed 
change.\21\ The Exchange states that 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.\22\ The Exchange states that CMC's current users utilize 
third-party providers or broker-dealers that provide them with 
electronic trading technology, enabling them to quickly react to market 
conditions and messages; and further states that market participants 
that may not currently possess internal high-speed routing and trading 
technology may, and likely already do, utilize such service 
providers.\23\ The Exchange thus believes that if a CMC user receives a 
message that their MOC order was not matched in CMC, such user would 
have more than enough time to re-route their MOC order to the primary 
exchange.\24\ The Commission believes that the data and survey 
information provided by the Exchange support the Exchange's contention 
that a 3:49 p.m. MOC Cut-Off Time would provide CMC users with adequate 
time to receive electronic notification of any unmatched MOC orders and 
participate in the primary exchanges' closing auctions, should they 
choose to do so.\25\ Further, enabling CMC users to retain control of 
their trading for a longer period could encourage participation in CMC 
by market participants who are unwilling to give up flexibility and 
control over their MOC orders starting at 3:35 p.m. and may therefore 
promote competition among MOC order execution venues.
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    \20\ It would be 10 minutes prior to NYSE Arca, Inc.'s MOC cut-
off time of 3:59 p.m. See Order Instituting Proceedings, 87 FR 
72534.
    \21\ See id. at 72530. Specifically, the Exchange discussed the 
proposed change with the two third-party providers whose end users 
are responsible for 100 percent of CMC's current volume. These 
providers indicated that the automated routing and trading solutions 
that they offer to CMC users can appropriately manage a 3:49 p.m. 
MOC Cut-Off Time. Additionally, the Exchange discussed the proposed 
change with approximately 60 potential new CMC users. These market 
participants indicated that extending the MOC Cut-Off Time would 
likely encourage them to use CMC as part of their trading strategies 
because it would enable them to hold onto and trade their orders 
closer to 4:00 p.m. and make CMC a more viable alternative to the 
primary exchanges' closing auctions. See id. at 72530 n.35.
    \22\ See id. at 72530.
    \23\ See id. at 72531.
    \24\ See id. at 72530. According to the Exchange, because the 
total matching process typically takes a fraction of a second, with 
the maximum around one second, with a 3:49 p.m. MOC Cut-Off Time, a 
user should, in most instances, know the paired CMC quantity no 
later than 3:49:01 p.m., leaving the user at least 59 seconds to re-
route any unpaired MOC orders to the primary exchanges' closing 
auctions. See id. at 72531 n.41.
    \25\ The Commission solicited comment in the Order Instituting 
Proceedings on the Exchange's evidence and assertions with respect 
to these timing considerations and received no contradictory 
information.
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    The Exchange also states that CMC's total matched shares 
information 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. According to the Exchange, because of the speeds and 
widespread use of market technology, market makers on the primary 
exchanges could, should they choose to do so, incorporate the Cboe 
Auction Feed information into their closing processes.\26\ Further, the 
Exchange states that it discussed the proposed 3:49 p.m. MOC Cut-Off 
Time with four designated market makers for the primary exchanges who 
confirmed that, while they do not currently monitor the Cboe Auction 
Feed, they are technically equipped to do so.\27\ Therefore, with a 
3:49 p.m. MOC Cut-Off Time, market participants should continue to have 
opportunities to utilize CMC's total matched shares information, should 
they choose to do so.\28\
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    \26\ See Order Instituting Proceedings, 87 FR 72531.
    \27\ See id. at 72531 n.46.
    \28\ The Commission also solicited comment in the Order 
Instituting Proceedings on the Exchange's evidence and assertions 
with respect to the dissemination of total matched shares 
information and received no contradictory information.
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    The Commission notes that, other than the extension of the MOC Cut-
Off Time, the Exchange proposes no changes to the CMC process.\29\ As 
noted above, the Exchange's survey information and data indicate that 
CMC users and other market participants could accommodate an MOC Cut-
Off Time of 3:49 p.m. and the total matched shares information would be 
disseminated by the Exchange free of charge at the new MOC Cut-Off 
Time. Therefore, the Commission believes that the proposed extension of 
the MOC Cut-Off Time to 3:49 p.m. should not significantly contribute 
to increased market complexity or operational risk.\30\ Finally, the 
proposed extension of the MOC Cut-Off Time should not adversely impact 
the ability of existing self-regulatory organization surveillance and 
enforcement activity to deter market participants who might seek to 
abuse CMC or use CMC information to abuse a closing auction on a 
primary exchange.
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    \29\ See Order Instituting Proceedings, 87 FR 72528.
    \30\ Moreover, the Commission previously found that CMC ``should 
not significantly increase market complexity and operational risk 
because it will simply constitute an additional optional MOC order 
execution venue for market participants, and an optional data feed 
that market participants may choose to monitor for information 
regarding the total size of matched MOC orders via Cboe Market 
Close.'' Securities Exchange Act Release No. 88008 (January 21, 
2020), 85 FR 4726, 4729 (January 27, 2020) (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).
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    Based on the foregoing, the Commission finds that the proposed rule 
change, as modified by Amendment No. 1, is consistent with the Act and 
the rules and regulations thereunder.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\31\ that the proposed rule change (SR-CboeBZX-2022-038), as 
modified by Amendment No. 1, be and hereby is approved.
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    \31\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\32\
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    \32\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-03162 Filed 2-14-23; 8:45 am]
BILLING CODE 8011-01-P


