[Federal Register Volume 88, Number 145 (Monday, July 31, 2023)]
[Notices]
[Pages 49526-49528]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-16108]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-97983; File No. SR-CboeBZX-2023-050]


Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
Exchange Rules To Provide Users With a Risk Setting They May Elect To 
Apply to Their Orders That Will Allow Them To Reject Market Orders 
During Continuous Trading and/or Auctions

July 25, 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 July 14, 2023, Cboe BZX Exchange, Inc. (the ``Exchange'' or ``BZX'') 
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 Commission is publishing this 
notice to solicit comments on the proposed rule change from interested 
persons.
---------------------------------------------------------------------------

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

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

    Cboe BZX Exchange, Inc. (``BZX'' or the ``Exchange'') is filing 
with the Securities and Exchange Commission (the ``Commission'') a 
proposal to amend Interpretation and Policy .01 to Rule 11.13 in 
connection with a risk setting that Users \3\ may elect to apply to 
their orders that will allow them to reject market orders during 
continuous trading and/or auctions.\4\ The text of the proposed rule 
change is provided in Exhibit 5.
---------------------------------------------------------------------------

    \3\ A User is any Member or Sponsored Participant who is 
authorized to obtain access to the System pursuant to Rule 11.13. 
See Rule 1.5(cc).
    \4\ The Exchange plans to implement the proposed rule change on 
a date that will be circulated in a notice from the Cboe Trade Desk 
to all Members.
---------------------------------------------------------------------------

    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
    The purpose of this proposal is to amend Interpretation and Policy 
.01 to Rule 11.13 to allow the Exchange to offer its Users the ability 
to apply a risk setting to their orders that will allow them to reject 
market orders during continuous trading or auctions (``Market Order 
Check''). Pursuant to Interpretation and Policy .01 to Rule 11.13, the 
Exchange currently offers certain optional risk settings applicable to 
a User's activities on the Exchange. Specifically, pursuant to 
Interpretation and Policy .01(c), the Exchange currently provides Users 
with the controls to restrict order types or modifiers that can be 
utilized (including pre-market, post-market, short sales, ISOs, and 
Directed ISOs). When utilized, this optional risk tool acts as a risk 
filter by evaluating a User's orders to determine whether the orders 
comply with certain criteria established by the User.
    Based on feedback from its Members, the Exchange now seeks to 
expand this risk setting to allow a User to restrict additional order 
types from being entered--market orders during continuous trading and/
or market orders during auctions (``Market Order Check'').\5\ The 
Market Order Check will

[[Page 49527]]

reside at a User's port level, a User-specific logical session used to 
access the Exchange. A User may utilize the Market Order Check to 
control the acceptance of, or rejection of, its inbound market orders. 
Similarly, a Sponsoring Member \6\ may utilize the check to control the 
acceptance of, or rejection of, its Sponsored Participants \7\ inbound 
market orders. Specifically, when utilized the Market Order Check will 
allow a User to (1) permit market orders; (2) reject market orders 
during continuous trading and allow market orders during auctions, or 
(3) reject market orders during continuous trading and also during 
auctions. In the case of Sponsored Participants, the Sponsoring Member 
will be responsible for their Sponsored Participant's Market Order 
Check settings. The Market Order Check will apply only to equities 
orders and will not apply to market on open or market on close orders. 
The proposed Market Order Check is similar in nature to the Order Type/
Attribution check offered by Nasdaq Stock Exchange, LLC (``Nasdaq''), 
which prevents the entry of certain order types or modifiers that can 
be utilized, including but not limited to, non-auction market 
orders.\8\ While the proposed Market Order Check differs slightly from 
that offered by Nasdaq in that it includes functionality that prohibits 
the entry of both auction and non-auction market orders, the intended 
purpose of the control--a risk management tool designed to prevent the 
entry of orders that may cause undue market impact--remains the same.
---------------------------------------------------------------------------

    \5\ The Exchange notes that the proposed Market Order Check will 
treat Stop Orders as regular market orders. A ``Stop Order'' Stop 
Order is an order that becomes a BZX market order when the stop 
price is elected. A Stop Order to buy is elected when the 
consolidated last sale in the security occurs at, or above, the 
specified stop price. A Stop Order to sell is elected when the 
consolidated last sale in the security occurs at, or below, the 
specified stop price. See Rule 11.9(c)(16), definition of ``Stop 
Order''. Separately, the proposed Market Order Check will treat 
market orders with a ROOC routing option as auction orders. As such, 
if a User opts to block market orders in continuous trading but 
allow market orders in auctions, then all market orders with a ROOC 
routing option will be accepted. If a User chooses to block market 
orders during both continuous trading and during auctions, then the 
Market Order Check will prohibit the entry of market orders with a 
ROOC routing option. The Exchange is describing how it is handling 
market orders with a ROOC routing option to ensure that Users have a 
clear understanding of how the Market Order Check will operate in 
these scenarios. Orders with ROOC routing options are hybrid in 
nature and can execute in auctions or during continuous trading. As 
such, an order may fully execute in the auction, as well as receive 
no execution or receive a partial fill with the remaining shares 
being posted to the Exchange Book, executed on the Exchange, or 
routed to other destinations. Given the various iterations that a 
market order with a ROOC routing option may encounter, the Exchange 
believes much operational complexity can be avoided by treating 
market orders with ROOC routing options in this simplified manner. 
See Rule 11.13(b)(3)(N), where the term ``ROOC'' is defined as ``a 
routing option for orders that the entering firm wishes to designate 
for the participation in the opening, re-opening (following a halt, 
suspension, or pause), or closing process of a primary listing 
market (Cboe BZX, NYSE, Nasdaq, NYSE America, or NYSE Arca) if 
received before the opening/re-opening/closing time of such market. 
If shares remain unexecuted after attempting to execute in the 
opening, reopening, or closing process, they are either posted to 
the EDGX Book, executed, or routed to destinations on the System 
routing table.''
    \6\ The term ``Sponsoring Member'' shall mean a broker-dealer 
that has been issued a membership by the Exchange who has been 
designated by a Sponsored Participant to execute, clear and settle 
transactions resulting from the System. The Sponsoring Member shall 
be either (i) a clearing firm with membership in a clearing agency 
registered with the Commission that maintains facilities through 
which transactions may be cleared or (ii) a correspondent firm with 
a clearing arrangement with any such clearing firm. See Rule 1.5(y), 
definition of, ``Sponsoring Member''.
    \7\ The term ``Sponsored Participant'' shall mean a person which 
has entered into a sponsorship arrangement with a Sponsoring Member 
pursuant to Rule 11.3. See Rule 1.5(x), definition of, ``Sponsored 
Participant''.
    \8\ See Nasdaq Equity 6, Section 5. Risk Settings (b), ``Order 
Type/Attribution Check--This control relates to the order types or 
modifiers that can be utilized (including pre-market, post-market, 
short sales, non-auction market orders and Intermarket Sweep 
Orders)'', available at: https://listingcenter.nasdaq.com/rulebook/Nasdaq/rules/Nasdaq%20Equity%206/market%20impact%20check/EQUALS/#position; see also Securities Exchange Act Release No. 34-95495 
(August 12, 2022), 87 FR 50902 (August 18, 2022) (SR-NASDAQ-2022-
047) (Notice of Filing and Immediate Effectiveness of Proposed Rule 
Change to Amend Nasdaq Equity 6, Section 5).
---------------------------------------------------------------------------

    Importantly, as is the case with the existing risk settings, the 
User, and not the Exchange, will have the full responsibility for 
ensuring that their orders comply with applicable securities rules, 
laws, and regulations. Furthermore, the Exchange does not believe that 
the use of the Market Order Check can replace User-managed risk 
management solutions, and use of the Market Order Check does not 
automatically constitute compliance with Exchange rules.
    The Exchange proposes to make the risk setting available to its 
Users upon request and will not require Users to utilize the Market 
Order Check. The Exchange will not provide preferential treatment to 
Users utilizing the Market Order Check. However, the Exchange believes 
the Market Order Check will offer Exchange Users another option in 
efficient risk management of its access to the Exchange. For instance, 
the Market Order Check may assist some Users in mitigating the risk of 
receiving executions at unfavorable prices due to market fluctuations 
and/or available liquidity in the subject security. Similarly, the 
Market Order Risk Check may serve as a supplemental tool for Sponsoring 
Members to ensure that market orders entered by their Sponsored 
Participants do not unexpectedly cause undue impact to the market for a 
security, which may occur when the market fluctuates, and an order 
executes at prices significantly different from the price of the 
security at the time of order entry.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the requirements of Section 6(b) of the Act,\9\ in general, and Section 
6(b)(5) of the Act,\10\ 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.
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    Specifically, the proposed Market Order Check is designed to 
protect investors and the public interest because it will provide Users 
with a tool to help prevent the entry of market orders that may cause 
unintentional market impact, and reduce the potential for disruptive, 
market-wide events. The proposed Market Order Check may also assist 
Users in managing their financial exposure by preventing executions at 
unfavorable prices, thereby fostering the integrity of trading on the 
securities markets and helping to assure the stability of the financial 
system. Finally, the Exchange believes that the proposed rule change 
does not unfairly discriminate among the Exchange's Users because like 
each of the other Exchange's risk settings, use of the Market Order 
Check is optional and available to all Users, and its use is not a 
perquisite for participation on the Exchange.

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 Market 
Order Check will foster competition because it would allow the Exchange 
to offer a risk check that is similar to functionality being offered by 
Nasdaq,\11\ which offers an order type/attribution check that prevents 
the entry of certain order types or modifiers that can be utilized, 
including but not limited to, non-

[[Page 49528]]

auction market orders. Additionally, by providing Users with additional 
means to monitor and control their risk, the proposed Market Order 
Check may enhance proper functioning of the markets and contribute to 
additional competition among trading venues and broker-dealer dealers. 
Finally, the proposed Market Order Check will enable Users to 
strengthen their risk management capabilities, which, in turn, may 
enhance the integrity of trading on the securities markets and help to 
assure the stability of the financial system.
---------------------------------------------------------------------------

    \11\ Supra note 10.
---------------------------------------------------------------------------

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

    Because the foregoing proposed rule change does not (A) 
significantly affect the protection of investors or the public 
interest; (B) impose any significant burden on competition; and (C) 
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 \12\ and Rule 19b-
4(f)(6) \13\ thereunder.
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
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.
---------------------------------------------------------------------------

    A proposed rule change filed under Rule 19b-4(f)(6) \14\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\15\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investor and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay so that the proposed 
rule change may become operative upon filing. The Exchange states that 
waiver of the 30-day operative delay will allow the Exchange to 
immediately offer its Users an additional means to mitigate unintended 
market impact, thus fostering the protection of investors and the 
public interest. Because the proposed rule change does not raise any 
novel regulatory issues, the Commission believes that waiving the 30-
day operative delay is consistent with the protection of investors and 
the public interest. Therefore, the Commission hereby waives the 
operative delay and designates the proposal operative upon filing.\16\
---------------------------------------------------------------------------

    \14\ 17 CFR 240.19b-4(f)(6).
    \15\ 17 CFR 240.19b-4(f)(6)(iii).
    \16\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
---------------------------------------------------------------------------

    At any time within 60 days of the filing of 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 (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-CboeBZX-2023-050 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-CboeBZX-2023-050. 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 (https://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 
a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of the Exchange. Do not 
include personal identifiable information in submissions; you should 
submit only information that you wish to make available publicly. We 
may redact in part or withhold entirely from publication submitted 
material that is obscene or subject to copyright protection. All 
submissions should refer to file number SR-CboeBZX-2023-050 and should 
be submitted on or before August 21, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
---------------------------------------------------------------------------

    \17\ 17 CFR 200.30-3(a)(12), (59).
---------------------------------------------------------------------------

J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2023-16108 Filed 7-28-23; 8:45 am]
BILLING CODE 8011-01-P


