[Federal Register Volume 88, Number 34 (Tuesday, February 21, 2023)]
[Notices]
[Pages 10602-10605]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-03478]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-96916; File No. SR-CboeBYX-2023-001]


Self-Regulatory Organizations; Cboe BYX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Modify 
Rule 11.25 To Permit Mid-Point Peg Orders Entered as Periodic Auction 
Eligible Orders To Contain an Instruction To Not Execute in a Locked 
Market

February 14, 2023.
    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 February 2, 2023, Cboe BYX Exchange, Inc. (``Exchange'' or ``BYX'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I and II below, which Items 
have been prepared by the Exchange. The Exchange filed the proposal as 
a ``non-controversial'' proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-4(f)(6) thereunder.\4\ 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.
    \3\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \4\ 17 CFR 240.19b-4(f)(6).

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[[Page 10603]]

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

    Cboe BYX Exchange, Inc. (the ``Exchange'' or ``BYX'') is filing 
with the Securities and Exchange Commission (``Commission'') a proposal 
to modify Rule 11.25 to permit Mid-Point Peg Orders entered as Periodic 
Auction Eligible Orders to contain an instruction to not execute in a 
locked market. 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/byx/), 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 proposed rule change is to amend Rule 
11.25(b)(2)(B) \5\ in order to permit Mid-Point Peg Orders \6\ entered 
as Periodic Auction Eligible Orders (``Mid-Point PAE Order'') \7\ to be 
designated as ineligible to trade on the Continuous Book \8\ when the 
national best bid or offer (``NBBO'') is locked and to provide that 
such instruction will not apply during a Periodic Auction.\9\ Rule 
11.25(b)(2)(B) currently prohibits the entry of such orders. The 
proposed change would not apply to Mid-Point Peg Orders designated as 
Periodic Auction Only Orders, as Periodic Auction Only Orders are not 
eligible for execution on the Continuous Book.\10\ The System \11\ 
currently rejects Mid-Point PAE Orders containing an instruction to not 
execute during a locked market because the System would not be able to 
prevent such orders from participating in a Periodic Auction where 
there is a locked market at the time that the Periodic Auction 
occurs.\12\
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    \5\ Rule 11.25 governs Periodic Auctions on the Exchange. The 
Commission approved the Exchange's proposal to introduce Periodic 
Auctions for the trading of U.S. equity securities on March 26, 
2021. Periodic Auctions are price forming auctions that are executed 
at the price level which maximizes the total number of shares in 
both the auction book and the continuous market that are executed in 
the auction and do not interrupt trading on the continuous market. 
See Securities Exchange Act Release No. 91423 (March 26, 2021), 86 
FR 17230 (April 1, 2021) (SR-CboeBYX-2020-021) (Notice of Filing of 
Amendments No. 3 and No. 4, and Order Granting Accelerated Approval 
of a Proposed Rule Change, as Modified by Amendments No. 3 and No. 
4, to Introduce Periodic Auctions for the Trading of U.S. Equity 
Securities). See also Securities Exchange Act Release No. 94012 
(January 20, 2022), 87 FR 4060 (January 26, 2022) (SR-CboeBYX-2021-
024) (Notice of Filing of Amendment No. 2 and Order Approving on an 
Accelerated Basis a Proposed Rule Change, as Modified by Amendment 
No. 2, To Make Clarifying Changes Regarding Its Periodic Auctions) 
(together, the ``Original Proposal'').
    \6\ See Rule 11.9(c)(9). A ``Mid-Point Peg Order'' is a limit 
order whose price is automatically adjusted by the System in 
response to changes in the NBBO to be pegged to the mid-point of the 
NBBO, or, alternatively, pegged to the less aggressive of the 
midpoint of the NBBO or one minimum price variation inside the same 
side of the NBBO as the order.
    \7\ See Rule 11.25(b). A ``Periodic Auction Eligible Order'' is 
a non-displayed limit order eligible to trade on the Continuous Book 
that is entered with an instruction to also initiate a Periodic 
Auction, if possible, pursuant to Rule 11.25. Periodic Auction 
Eligible Orders will not trade on the Continuous Book during a 
Periodic Auction Period in the security.
    \8\ See Rule 11.25(a)(2). The term ``Continuous Book'' shall 
mean the System's electronic file of Continuous Book Orders. A 
Continuous Book Order shall mean an order on the BYX Book that is 
not a Periodic Auction Only Order or a Periodic Auction Eligible 
Order.
    \9\ Supra note 5.
    \10\ See Rule 11.25(b)(1). A ``Periodic Auction Only Order'' is 
a non-displayed limit order entered with an instruction to 
participate solely in Periodic Auctions pursuant to Rule 11.25.
    \11\ See Rule 1.5(aa). 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.
    \12\ See Rule 11.25(a)(8). The term ``Periodic Auction Period'' 
shall mean the fixed time period of 100 milliseconds for conducting 
a Periodic Auction.
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    However, User \13\ feedback has indicated a desire to enter Mid-
Point PAE Orders that are eligible to participate in Periodic Auctions, 
while simultaneously prohibiting these orders from trading on the 
Continuous Book during a locked market.\14\ Accordingly, the Exchange 
now seeks to permit the System to accept Mid-Point PAE Orders 
containing an instruction prohibiting trading on the Continuous Book 
during a locked market.\15\
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    \13\ See Rule 1.5(cc). The term ``User'' shall mean any Member 
or Sponsored Participant who is authorized to obtain access to the 
System pursuant to Rule 11.3.
    \14\ Mid-Point Peg Orders are often used by Members seeking 
price improvement over displayed liquidity. When Mid-Point Peg 
Orders execute during a locked market, the Member does not receive 
any price improvement.
    \15\ The proposed rule change will not prevent Mid-Point PAE 
Orders from initiating and completing a Periodic Auction, as the 
instruction to not execute in a locked market will be ignored when a 
Periodic Auction Period begins and will only apply when a Mid-Point 
PAE Order is trading on the Continuous Book.
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    As noted above, the System currently rejects Mid-Point PAE Orders 
that are designated as ineligible to execute during a locked 
market.\16\ However, the System does permit Non-PAE Mid-Point Orders 
(i.e. Mid-Point Peg Orders that do not also contain a Periodic Auction 
Eligible Order instruction) to be designated as ineligible to execute 
during a locked market.\17\ Based on the feedback from Users described 
above, the Exchange is proposing that Mid-Point PAE Orders be handled 
by the System in the same manner as Non-PAE Mid-Point Orders. As noted 
above, Periodic Auction Eligible Orders are eligible to trade on either 
the Continuous Book or initiate a Periodic Auction, if possible. Mid-
Point PAE Orders trade on the Continuous Book until such orders match 
with contra-side Periodic Auction Orders \18\ and initiate a Periodic 
Auction Period. Once a Periodic Auction Period has been initiated, 
Periodic Auction Eligible Orders, including Mid-Point PAE Orders, are 
ineligible for trading on the Continuous Book until the Periodic 
Auction Period is completed. Outside of the ability to initiate a 
Periodic Auction Period, Mid-Point PAE Orders behave just as a Non-PAE 
Mid-Point Orders. Accordingly, Users should be able to designate their 
Mid-Point PAE Orders as ineligible to execute during a locked market 
while trading on the Continuous Book.\19\
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    \16\ See Rule 11.25(b)(2)(B).
    \17\ See Securities Exchange Act Release No. 91423 (March 26, 
2021), 86 FR 17230 (April 1, 2021) (SR-CboeBYX-2020-021) (Notice of 
Filing of Amendments No. 3 and No. 4, and Order Granting Accelerated 
Approval of a Proposed Rule Change, as Modified by Amendments No. 3 
and No. 4, to Introduce Periodic Auctions for the Trading of U.S. 
Equity Securities) at footnote 27.
    \18\ See Rule 11.25(a)(6). The term ``Periodic Auction Order'' 
shall mean a ``Periodic Auction Only Order'' or ``Periodic Auction 
Eligible Order'' as those terms are defined in Rules 11.25(b)(1)-
(2).
    \19\ The Exchange is not proposing to broadly change Mid-Point 
Peg Order functionality. Rather, the proposal seeks only to modify 
Mid-Point Peg Orders entered as PAE.
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    The Exchange plans to implement the proposed rule change during the 
first quarter of 2023 and will announce the implementation date via 
Trade Desk Notice.

[[Page 10604]]

2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Securities Exchange Act of 1934 (the ``Act'') and the rules and 
regulations thereunder applicable to the Exchange and, in particular, 
the requirements of Section 6(b) of the Act.\20\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \21\ 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) \22\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \20\ 15 U.S.C. 78f(b).
    \21\ 15 U.S.C. 78f(b)(5).
    \22\ Id.
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    In particular, the proposed rule change is consistent with just and 
equitable principles of trade as the Exchange will allow the System to 
accept Mid-Point PAE Orders containing an instruction to prohibit 
trading on the Continuous Book during a locked market, which is 
consistent with how the System accepts Non-PAE Mid-Point Orders 
containing the same instruction pursuant to Rule 11.9(c)(9). Further, 
the proposed change will provide Users with enhanced control over their 
Mid-Point PAE Orders as the System will be permitted to accept Mid-
Point Peg PAE Orders containing an instruction to prohibit trading on 
the Continuous Book during a locked market, and these orders will 
continue to have the benefit of initiating a Periodic Auction should 
the order match with a contra-side Periodic Auction Order. The Exchange 
believes that by accepting Mid-Point PAE Orders containing an 
instruction to prohibit trading on the Continuous Book during a locked 
market, additional Users would begin using the Periodic Auction 
Eligible Order type, which would in turn may create additional 
liquidity in Periodic Auctions.
    The Exchange believes the proposed Rule change removes impediments 
to and perfects the mechanism of a free and open market and a national 
market system by permitting the System to accept Mid-Point PAE Orders 
containing an instruction to prohibit trading on the Continuous Book 
during a locked market without concern that the order could initiate a 
Periodic Auction and would be unable to execute at the conclusion of 
the Periodic Auction Period due to the presence of a locked market. The 
Exchange introduced Periodic Auctions with the intent of providing a 
competitive mechanism for the execution of orders in thinly-traded 
securities. The System's current practice of rejecting Mid-Point PAE 
Orders containing an instruction to prohibit trading during a locked 
market limits Users' desire to utilize the Mid-Point PAE Order 
instruction, which in turn may limit the liquidity in Periodic 
Auctions. Some Users have indicated to the Exchange that they prefer 
the use of Non-PAE Mid-Point Orders that are ineligible to execute 
during a locked market over use of Mid-Point PAE Orders because Non-PAE 
Mid-Point Orders that are ineligible to execute during a locked market 
provide Users an opportunity to receive midpoint price improvement. 
Mid-Point PAE Orders, however, may execute during a locked market while 
trading on the Continuous Book and therefore may not receive midpoint 
price improvement. The proposed rule change will encourage the use of 
Mid-Point PAE Orders while removing the possibility of an execution 
during a locked market while these orders are trading on the Continuous 
Book.

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 
would not impose any intramarket burden on competition for Users 
currently using Periodic Auction Orders as there will be no change as 
to how Mid-Point PAE Orders interact with Periodic Auction Orders. Mid-
Point PAE Orders will continue to remain eligible to initiate a 
Periodic Auction if matched with contra-side Periodic Auction Orders. 
The proposed rule change will only affect how Mid-Point PAE Orders 
behave during a locked market when these orders are trading on the 
Continuous Book. The Exchange also believes that the proposed rule 
change will encourage Users to submit this particular order type, 
thereby increasing Users' participation in Periodic Auctions. The 
Exchange notes that the ability to restrict Mid-Point PAE Orders from 
executing during a locked market will be available to all Users of the 
Mid-Point PAE Order type and will be available on an optional basis. 
While the proposal directly benefits Users of Mid-Point PAE Orders, all 
Exchange market participants may benefit from the potential increased 
utilization of Periodic Auctions that may occur if Mid-Point PAE Orders 
are able to initiate additional Periodic Auctions.
    While Periodic Auctions are a unique feature to the Exchange, the 
proposed rule change will not burden intermarket competition as the 
ability to restrict Mid-Point Peg Orders from executing during a locked 
market on the Continuous Book already exists on other markets.\23\ 
Users are free to determine whether to utilize the Mid-Point PAE Order 
functionality offered by the Exchange when making order routing 
determinations. The Exchange notes that it operates in a highly 
competitive market in which market participants can readily choose 
between competing venues if they deem participation in the Exchange's 
market is no longer desirable. The Exchange believes its proposed 
change will promote competition among trading venues by making the 
Exchange a more attractive trading venue for participants and 
investors.
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    \23\ See NYSE Rule 7.31(d)(3)(B); MIAX Pearl Equities Rule 
2614(a)(3)(B).
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C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange neither solicited nor received comments on the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not: (i) 
significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \24\ and Rule 19b-
4(f)(6) thereunder.\25\
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    \24\ 15 U.S.C. 78s(b)(3)(A).
    \25\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization 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.

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[[Page 10605]]

    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative prior to 30 days after the date of the filing. 
However, pursuant to Rule 19b-4(f)(6)(iii),\26\ 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. The Exchange states 
that it is seeking to offer the same functionality to Mid-Point PAE 
Orders that it already provides for Non-PAE Mid-Point Orders under Rule 
11.9(c)(9).
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    \26\ 17 CFR 240.19b-4(f)(6)(iii).
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    The System accepts Non-PAE Mid-Point Orders with an instruction to 
not execute in a locked market when trading on the Continuous Book, and 
the only proposed change is to allow Mid-Point PAE Orders to similarly 
be ineligible from trading during a locked market while trading on the 
Continuous Book. The proposed order instruction is also voluntary, and 
Users may continue to designate Mid-Point PAE Orders to execute in a 
locked market. For these reasons, the Commission finds that waiving the 
30-day operative delay is consistent with the protection of investors 
and the public interest. Accordingly, the Commission hereby waives the 
operative delay and designates the proposed rule change operative upon 
filing.\27\
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    \27\ For purposes only of accelerating the operative date of 
this proposal, the Commission has considered the proposed rule's 
impact on efficiency, competition, and capital formation. 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is 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 will institute proceedings to 
determine whether the proposed rule change 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-CboeBYX-2023-001.

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-CboeBYX-2023-001. 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-CboeBYX-2023-001, and should be 
submitted on or before March 14, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\28\
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    \28\ 17 CFR 200.30-3(a)(12), (59).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-03478 Filed 2-17-23; 8:45 am]
BILLING CODE 8011-01-P


